Rachel Reeves' 78% North Sea tax faces fresh scrutiny as BP explores £2bn asset sale

Rachel Reeves' 78% tax regime for North Sea oil and gas producers is facing fresh scrutiny after BP reportedly explored a near-£2 billion sale of its UK offshore assets. The energy giant held advanced talks with Ithaca Energy over the disposal of its North Sea business in recent weeks, according to the Financial Times.

While negotiations ultimately collapsed, the newspaper reported that BP remains interested in divesting the assets and could pursue discussions with other buyers as it seeks to raise $20 billion through asset sales by 2027. The reported talks have reignited debate over the future of Britain's offshore energy industry, where operators have repeatedly warned that high taxes and policy uncertainty are undermining investment.

The newspaper reported that BP remains open to a sale and could pursue talks with other buyers as part of a wider programme of asset disposals aimed at raising $20 billion by 2027.

BP is the only oil supermajor yet to take part in the wave of consolidation that has swept through the UK Continental Shelf in recent years. Ithaca Energy, one of the basin's largest independent operators, was viewed as a natural buyer because the companies already share interests in the Vorlich oilfield.

The developments come just weeks after industry executives approached Reeves with proposals for £17.5 billion of investment in projects capable of delivering more than one billion barrels of oil and gas by the end of the decade.

They offered to proceed with the developments if the Government agreed to bring forward plans to replace the Energy Profits Levy with the Oil and Gas Price Mechanism, a new tax regime intended to provide greater certainty for investors.

However, The Times reported that Ms Reeves backed away from the proposal after conflict involving Iran and disruption to shipping through the Strait of Hormuz sent oil prices sharply higher.

Explaining the rationale, a Government source told the newspaper: "Oil and gas companies were likely to make 'significant' profits because of the conflict, adding: 'Iran totally changed the dynamics.'"

The decision sparked a furious response from parts of the industry.

Criticising the levy, one source said: "Oil and gas companies have had their North Sea profits all but wiped out by a punitive energy profits levy that has made the UK virtually uninvestable. That remains the case under the current price of oil and gas and the government is wrong to conflate much larger global profits with meagre returns in the North Sea."

Warning of the financial consequences, the source added: "It would be economic illiteracy on steroids if the government were to choose not to seize a £17 billion investment opportunity by 2030, which is predicated on an early move from EPL to OGPM. Every £1 invested by the oil and gas sector generates around twice that amount in GVA, so the government would effectively be turning down over £30 billion in additional value to the UK economy."

Striking a slightly different tone, another industry source said they had been left "very encouraged" following discussions with Reeves because of the Government's apparent desire to move towards a "more workable, permanent windfall tax".

A BP spokesperson declined to comment.