Oil tax changes 'will cost ?2bn

North Sea oil groups have warned the government's tax shake-up will cost the industry £2bn in lost earnings this year alone, a total far greater than previous estimates.

Growing concern about a 33% rise in corporation tax announced by Gordon Brown in last month's Budget was underlined by new moves from BP to sell assets.

At the same time BG, which is largely a gas producer, surprised the City yesterday by announcing that other fiscal changes would cost it £90m over the next 12 months.

The UK Offshore Operators Association - which represents all the major companies active in the North Sea - has told energy minister Brian Wilson that its latest research shows overall industry earnings would be reduced by £6bn by the year 2010.

The Treasury has argued that the package of measures - which also involves major tax reductions for some new developments - would cost the industry only £1.1bn over three years.

But there are signs of growing tension between the department of trade and industry - which oversees energy policy - and the Treasury, with suggestions that Mr Wilson was kept in the dark over the extent of budgetary plans.

Industry figures talk of a "fundamental breach of trust" between the oil sector and government after a long period when the two have worked closely together.

Even BP, dubbed Blair Petroleum for its close links with new Labour, was given no notice of the Treasury moves, compared with months of consultations the last time such a plan was considered.

"The removal of this amount of cashflow will reduce investment, jobs, oil and gas production, recovery of remaining reserves and accelerate the point at which the UK commences imports of oil and gas, thus damaging the [country's] balance of payments," it said.

BP, the UK's biggest offshore player, admitted last night that it was in talks to dispose of its Thistle field to DNO of Norway, and was considering whether to decommission its North West Hutton field early in order to save costs.

BP has already announced plans to cut 500 jobs but insiders say the company is now looking harder at whether to proceed with new planned developments such as Atlantic-Cromarty in the aftermath of the Budget.

Frank Chapman, the BG chief executive, said his company's tax rate would rise from 34.5% to 40%, costing it £40m with a one-off additional payment this year of £50m.

The company is also reducing its 2003 target for post-tax return on average capital employed, which would be cut by 1% as a result of the chancellor's actions.

"We were not happy at all with the chancellor's decision," said Mr Chapman, adding that BG was putting its weight behind the UKooa campaign to have it reversed.

Last week BP reported a 57% slump in profits while rival Shell published a 48% fall. BG yesterday reported a 5% reduction in operating profits to £220m.

BG was shielded from the worst effects of plunging crude oil prices because it is predominantly a gas producer.

The company has recently made interesting gas finds off the coast of Palestine, but political turmoil in the region has brought further drilling efforts to a halt. BG shares ended the day down 1.5p at 304.5p.