BP Cuts Carbon Capture Stakes as Windfall Tax Debate Intensifies

BP scales back stakes in UK carbon capture projects as rising oil profits, energy volatility, and windfall tax debates reshape its strategy.

British energy company BP has announced plans to sell portions of its equity in two major carbon capture and storage initiatives in northern England, marking the latest step in a broader strategic realignment toward its traditional oil and gas operations. The decision, disclosed on May 7, involves the Net Zero Teesside Power project and the Northern Endurance Partnership, both of which have recently achieved financial close and begun construction.
The Net Zero Teesside project aims to create the world's first gas-fired power plant equipped with carbon capture technology, intended to supply electricity to around one million homes starting in 2028. The Northern Endurance Partnership would construct offshore pipelines to transport captured carbon dioxide from industrial sources, including the Teesside facility, for permanent storage beneath the North Sea, with an initial capacity of up to 4 million tonnes per year. Partners in these ventures include Norway's Equinor, which holds stakes in both, and TotalEnergies, involved in the pipeline network. Shell previously participated in the Northern Endurance Partnership but withdrew in 2023.
BP described the timing as appropriate for introducing new partners to support the projects' long-term development, without specifying the size of the stakes to be sold or identifying potential buyers. The move aligns with the company's ongoing retreat from earlier ambitions in low-carbon energy that had been championed by former chief executive Bernard Looney. Looney had described the initiatives as "the right thing for the world" and a significant business opportunity that could establish the UK's first major carbon capture project. His departure nearly three years ago triggered leadership changes and a progressive dismantling of that green strategy, which did not secure sufficient backing from shareholders.
The announcement comes as BP, under new chief executive Meg O’Neill who assumed the role in early April, restructures its operations. O’Neill has moved to dissolve the gas and low-carbon division established during Looney's tenure, reverting to a simpler model with an upstream segment dedicated to oil and gas exploration and production, and a downstream unit focused on refining, distribution, and retail. This reset, outlined in O’Neill's initial communication to staff, emphasizes navigating geopolitical tensions, conflict, and evolving energy demand with greater consistency.
Recent financial results underscore the context for this pivot. In the first quarter of 2026, BP reported profits of $3.2 billion, more than double the $1.38 billion from the same period a year earlier. The surge was driven primarily by exceptional performance in its trading division, which benefited from oil price volatility triggered by conflict in the Middle East involving Iran. Brent crude prices fluctuated sharply, rising from around $73 per barrel before the disruptions to peaks near $120, before settling around $110. Such swings widen spreads between purchase and sale prices, boosting trading margins. BP's customers and products segment, encompassing trading, saw profits jump to $2.5 billion from $103 million previously.
Production in the upstream business remained flat, however, and the company anticipates lower output in the April-to-June period due to regional disruptions, including effects from the closure of the Strait of Hormuz, a critical chokepoint for about 20 percent of global seaborne oil and liquefied natural gas. Despite these challenges, shares in BP rose about 3 percent following the results announcement and have gained roughly 20 percent since the onset of the conflict.
O’Neill has prioritized balance sheet repair, directing cash toward debt reduction rather than share buybacks. The company retired $4.3 billion in corporate bonds without reissuing them, aiming to lower financing costs that had exceeded $1.3 billion annually in recent periods. Additional portfolio simplification includes the $10.1 billion sale of its Castrol lubricants business and the divestment of a German refinery. These transactions contribute to a target of $20 billion in asset disposals by the end of next year. Earlier decisions under interim leadership also redirected $10 billion from renewable investments back into core hydrocarbon activities.
Shareholder sentiment toward these changes has been mixed. At a recent annual general meeting, the board faced votes against proposals for a virtual gathering and adjustments to climate reporting, while nearly one-fifth of shareholders opposed the re-election of chair Albert Manifold. Analysts viewed the results as largely symbolic rather than indicative of deep divisions, describing them as a signal for the board to remain attentive to investor priorities amid the strategic shift. BP's stock has risen approximately 63 percent over the past year as the company has leaned more heavily into fossil fuels, narrowing the performance gap with peers such as Shell.
The developments have drawn reactions from UK political figures. Energy Secretary Ed Miliband commented on BP's profits as "morally and economically wrong" in a now-deleted social media post, while Chancellor Rachel Reeves defended the extension of the Energy Profits Levy—the UK's windfall tax on oil and gas extraction profits—to March 2030. The levy, originally introduced in 2022 following Russia's invasion of Ukraine, applies only to UK North Sea operations and does not capture the majority of BP's international earnings. Reeves noted that energy companies form an important part of the UK's energy mix but emphasized the need for appropriate taxation of exceptional gains.
Industry representatives have argued that the tax discourages investment and jobs in the North Sea, where the government has also banned new exploration licenses. BP is reportedly reviewing its exposure to the UK basin after more than six decades of operations there, with O’Neill examining the global portfolio in light of policy conditions.
Broader debates on windfall profits have extended internationally. With oil and gas companies projected to generate substantial earnings amid ongoing price pressures, some analysts and commentators have called for targeted taxation to support vulnerable households facing potential energy bill increases and to accelerate the shift toward alternatives. The UK energy price cap currently limits typical dual-fuel household bills to £1,641 annually until June, but revisions could add around £200 due to wholesale price movements. Environmental organizations, including Friends of the Earth, have highlighted how global instability amplifies costs for consumers while benefiting producers, advocating greater investment in renewables and efficiency to build resilience against such shocks.
BP's trajectory reflects wider pressures on major energy firms. After more than a decade of uneven financial performance, with shares essentially flat from early 2022 to mid-2025, the company has faced activist investor scrutiny, including from Elliott Management, which pushed for accelerated simplification. The current strategy seeks to capitalize on hydrocarbons that underpinned its historical strength while addressing underperforming assets. O’Neill has indicated that every business line will be evaluated for its contribution to the streamlined organization.
The carbon capture projects, once central to BP's low-carbon narrative, now face uncertainty as the company invites new equity partners. Their success depends on securing additional support at a time when construction is underway but broader corporate priorities have shifted. Equinor and TotalEnergies remain committed, yet the absence of further details on BP's divestment leaves questions about the projects' future ownership structure and pace.
Observers note that while trading gains from market volatility have provided a short-term boost, underlying production faces constraints from geopolitical risks. Analysts such as those at Quilter Cheviot and Peel Hunt described the first-quarter results as ahead of expectations but cautioned about sustained uncertainty, including potential lingering effects from Middle East disruptions even if key shipping routes reopen.
Amid BP’s evolving energy strategy, its decisions carry implications for the UK's energy security, industrial decarbonization efforts, and the global transition debate. The company's reduced emphasis on carbon capture in its home market coincides with record profits tied to fossil fuel market dynamics, highlighting tensions between immediate financial imperatives and longer-term climate goals. Stakeholders across government, industry, and civil society continue to weigh how best to balance these competing demands amid volatile energy prices and evolving policy landscapes. Ongoing portfolio reviews and potential further divestments suggest the current phase represents an early stage in BP's efforts to restore consistency and competitiveness in a challenging environment.

With reporting by Al Jazeera, BBC, The Guardian, Oil Price, and Reuters.

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