LONDON—BP PLC Thursday announced it would make its highest-ever annual investment in the U.K., despite a steep tax increase on crude production enacted earlier this year.
The British oil and gas producer said it would invest £4 billion ($6.30 billion) in the Clair Ridge field in the North Sea. The new investment brings its spending this year to £7.7 billion this year alone, and comes as it tries to get back on track after a number of high-profile setbacks that have constrained its ambitions in some overseas countries.
BP said the U.K. government has approved plans by it and partners Chevron Corp., ConocoPhillips and Royal Dutch Shell PLC to proceed with the second stage of its Clair Ridge project. BP and its partners plan to invest almost £10 billion in the North Sea over the next five years, the company said.
The decision to go ahead with the investment comes only months after the U.K. Treasury raised its top rate of tax on profits from North Sea production by 12 percentage points to 81%, a move that aroused intense opposition from the oil industry.
Critics have said the increase risked crimping further spending in the region. However, an independent tax and government spending watchdog, the Office for Budget Responsibility, has said the increase is unlikely to curb spending given the high oil prices.
BP on Thursday declined to comment on how the higher taxes had affected its decision to continue investing in Clair Ridge, saying only that “each company had different views on the tax.”
The company said the new U.K output would enable it to sustain a daily output of 200,000-250,000 barrels of oil equivalent a day until 2030.
The four BP-operated North Sea projects are part of a wave of new oil and gas developments around the world that the U.K. firm expects to come on stream over the next five years in countries such as Brazil and Angola, the company said.
At the same time, BP’s share price continues to lag other peers among integrated oil majors. BP and oil-field contractors are expected to face fines as early as this week from the U.S. related to the Deepwater Horizon disaster last year. Analysts say that unlike some of its peers, BP hasn’t received new deepwater drilling permits in the Gulf of Mexico. The company is also confronting a stream of litigation related to a proposed venture with OAO Rosneft that fell through.
Earlier this year, BP announced plans for the $4.7 billion redevelopment of the Schiehallion and Loyal fields, west of Shetland, and the $1.1 billion development of the Kinnoull field in the central North Sea.
Royal Bank of Canada analyst Peter Hutton said that the economics of the Clair Ridge project from data provided a few month ago looked “surprisingly attractive.”
“I think BP should be spending where they can get attractive returns, and that still includes the U.K.,” he said.
BP shares were recently down 8 pence, or 2%, at 404 pence, while the FTSE 100 was down about 0.8%.
By Alexis Flynn, Dow Jones & Company, Inc