The main developer behind the controversial Cambo oil field north west of Shetland is ultimately owned in an offshore tax haven, which an expert claims could deprive the UK of tens of millions of pounds.
The Ferret can reveal that Siccar Point Energy, which has a controlling 70 per cent stake in the proposed Cambo development, is owned by an “ultimate parent” company registered in Luxembourg.
Luxembourg is ranked sixth worst in the world for both tax avoidance and financial secrecy by the campaign group, Tax Justice Network. There is no suggestion that Siccar’s use of the tax haven is illegal.
But environmentalists argued that Siccar’s Luxembourg ownership “destroys any claims that Cambo is important for the economy”, and branded the company as “greedy”. Opposition politicians attacked “tax-avoiding profiteers” and demanded that Cambo be cancelled.
Siccar Point Energy stressed that it was a UK company with assets entirely based in the UK, and was hence “subject to full UK taxation”. The company has abided by “relevant tax law”, engaged in “efficient tax planning” but not in “artificial or aggressive tax arrangements”, it stated.
In recent weeks arguments over Cambo have risen to the top of the political agenda in Scotland and the UK. Campaigners believe that agreeing to extract more oil at the site will undermine the UK’s credibility on climate change in the run-up to the COP26 international summit in Glasgow in November.
The Cambo oilfield is located 125 kilometres north west of Shetland and is estimated to contain around 800 million barrels of crude oil. According to environmentalists, if extracted and burnt, this would cause ten times more climate emissions than Scotland as a whole does annually.
The UK’s Government’s Oil and Gas Authority is due to make a decision by the end of 2021 on whether to give the go-ahead for production. If approved, the first oil could be extracted in 2025, with the initial phase of production expected to continue for 25 years.
According to Siccar’s 2020 annual report, the “immediate parent undertaking” is Siccar Point Finance Limited, which is incorporated in the UK. But the report’s last line added: “The company’s ultimate parent undertaking is Siccar Point Luxembourg S.C.A, a company registered in Luxembourg.”
The Tax Justice Network has calculated that by acting as a tax haven Luxembourg deprives other countries of £20 billion a year in tax revenues. That’s the equivalent of the annual salaries of over two million nurses.
Private finance think tank, the European Services Strategy Unit, estimated that Siccar could save “tens of millions of pounds” in tax by being based in Luxembourg. The “financial flows” will be through Luxembourg instead of the UK, said the unit’s Dexter Whitfield.
He added: “The presence of the parent company in a tax haven means that the flow of profits, interest payments, supply chain contracts and even some labour contracts will be channelled via Luxembourg resulting in a loss of UK taxation revenue. This will make local contracts and jobs more difficult to obtain.”
“This is significantly different from having a parent company in Scotland and subsidiary in Luxembourg. This situation will mean increased secrecy and commercial confidentiality resulting in further erosion of democratic accountability.”
Friends of the Earth Scotland (FoES) warned that Siccar’s tax haven ownership “further destroys any claims that Cambo is important for the economy”. The climate couldn’t afford the “devastating” pollution it would produce, said the environmental group’s campaigner, Caroline Rance.
“The UK Government already has one of the weakest tax regimes for oil and gas but these greedy companies just can’t help themselves by going after more profits at the public expense,” she told The Ferret.
“The scandalous reality is that these tax dodging companies already receive millions of pounds of public money in subsidies that encourage their climate-wrecking activities while failing to pay their fair share of tax.”
Siccar reported profits of £117m ($161m) in 2018, £29m ($40m) in 2019 and a loss of £76m ($106m) in 2020 because of a collapse in oil prices. In 2019 it said that Cambo “will help drive the long term growth of the company and is to the benefit of all the company’s stakeholders.”
The company bought Cambo in 2017, and in 2018 sold a 30 per cent stake to the Anglo-Dutch oil giant, Shell. Siccar expects a total of about £1.9bn to be invested into Cambo, with £140m already sunk into the project.
Shell has also come under fire for its tax arrangements in the past. In December 2020 Reuters reported that in 2018 and 2019 the company earned more than £1.96bn ($2.7bn) tax-free by reporting profits in companies located in Bermuda and the Bahamas.
Reuters estimated that if Shell had put these profits through its headquarters in the Netherlands, the company could have faced a £507m ($700m) tax bill based on the country’s 25 per cent corporate tax rate.
CNN reported that Shell would usually expect a 20-25 per cent return on investments such as Cambo. This suggested that the development could yield between £380m and £475m in profit by 2050.
Scottish Greens co-leader, Patrick Harvie MSP, was not surprised that the UK’s “reckless expansion of fossil fuel production is being conducted by tax avoiding profiteers”.
He said: “This is exactly why building a greener Scotland isn’t just about getting control of energy policy, it is about creating a different kind of economy, one that doesn’t allow the super-rich to hoard vast amounts of wealth offshore at the expense of everyone else.”
Scottish Labour’s finance spokesperson, Paul Sweeney MSP, said the The Ferret’s revelation served as “a reminder that leaving the fight on climate change to market forces is a strategy that is doomed to fail.”
If it goes ahead, Cambo would be the first major new fossil fuel project in the UK since the International Energy Agency warned in May that no new oil, coal or natural gas projects should proceed if the world is to meet its target of net-zero climate emissions by 2050.
A decision on the project will also come in the wake of the sixth report on climate science published by the UN’s Intergovernmental Panel on Climate Change on 6 August. It warned of a “code red for humanity”.
As hosts of the UN’s flagship COP26 climate conference in November, both the UK and Scottish governments have come under intense pressure to block the Cambo development. COP26 is widely cited as the world’s last chance to reach an agreement which could minimise the worst impacts of the climate emergency.
Greenpeace has threatened legal action if the UK Government approves a permit for Cambo. Friends of the Earth has submitted an 80,000-signature petition to Downing Street demanding that the Prime Minister, Boris Johnson, rejects the proposal.
Johnson has told reporters that Westminster “can’t just tear up contracts”, presumably referring to the initial exploration license granted for Cambo in 2001. But critics pointed out that a licence to actually start extracting oil has not yet been agreed.
The First Minister Nicola Sturgeon wrote to Johnson on 12 August asking for the UK Government to “reassess” licenses for new oil and gas projects “where field development has not yet commenced”, including Cambo.
She also called on the UK Government to significantly enhance the “climate conditionality” associated with future oil and gas production. Despite this, Sturgeon has come under renewed attack from environmental groups and opposition politicians for failing to take a clear public stance against Cambo.
Siccar Point Energy stressed that it paid tax in the UK. “Siccar Point Energy is a UK company with assets entirely based in the UK. As such it is subject to full UK taxation,” a company spokesperson told The Ferret.
“The Cambo development will positively contribute to the UK economy by creating 1,000 new direct jobs within the UK and thousands more in the supply chain also in the UK, as well as reducing the UK’s reliance on energy imports.”
According to its website, Siccar was “supporting the UK’s energy transition through sustainable UK production”. An online statement described the company’s tax policy as “principled, transparent and sustainable”.
It added: “We adhere to relevant tax law and our priority is timely and full compliance. We engage in efficient tax planning that supports our business and reflects commercial and economic activity. We do not engage in artificial or aggressive tax arrangements.”
Siccar is based in Aberdeen, and has a registered office in Leeds. In 2020 it employed 38 people and had interests in eight major North Sea oil fields, in addition to Cambo.
The firm is named after the Siccar Point geological formation near Cockburnspath on the south east coast of Scotland. This is where Scottish geologist, James Hutton, found definitive evidence for his seminal Theory of the Earth.
“Hutton’s work was an inspired piece of evidence based and contrarian thinking,” says the company’s website. “We can think of no better inspiration for an exploration and production company seeking to find value beneath the waves of the North Sea.”
Shell said it was “committed to tax compliance” in all “countries and locations where we have a taxable presence”.
A company spokesperson said: “Where Shell entities operate in low-tax jurisdictions, they are there for commercial and substantive reasons, and these entities benefit from the local tax regime.
“We are committed to complying with the applicable tax legislation of all the countries in which we operate. The Organisation for Economic Co-operation and Development principle is that profit should be taxed in the countries where the economic activities take place.”
The Cambo development has been backed by Oil and Gas UK, the trade association for the offshore industry. It was “part of a low-carbon journey that will support energy security, jobs, the economy and the net-zero future that everyone wants to see,” said chief executive, Deirdre Michie.
This story is the second of a series The Ferret is planning in the run-up to COP26 in November. Investigations have been supported by the European Climate Foundation, which cannot be held responsible for any use which may be made of the information contained or expressed therein.