Shell Will Evaluate British Energy Investments after Windfall Tax Brings Total Taxes to 75%

Shell, Europe’s largest oil company on Monday said it will “evaluate” its plan to spend as much as £25B on its U.K. operations over the next decade in response to British government’s decision to increase a windfall tax on oil and gas producers, David Bunch, chairman of the company’s U.K. business said. The tax, known as the Energy Profits Levy (EPL), will raise the total taxes on the energy sector to 75%, among the highest in the world. It nevertheless allows the deduction of most investments in new oil and gas projects from the tax.

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In a statement on Monday, Shell said that the EPL should be designed to provide incentives to address oil and gas supply shortages as well as longer-term investments in renewables.

“We’re going to have to evaluate each project on a case-by-case basis,” said Shell’s UK country chair David Bunch told the Confederation of British Industry’s annual conference in Birmingham. “When you tax more you’re going to have less disposable income in your pocket, less to invest.”

“The energy sector needs to have confidence that there will now be a stable investment climate following a period of considerable uncertainty,” Shell said. Just a few years ago oil prices went negative, and oil companies lost billions for over four to six quarters. To reach that objective, the EPL should include a “price backstop” in case oil and prices drop sharply and should also be expanded to include investments in wind generation, hydrogen and carbon capture technology, Shell said.

British finance minister Jeremy Hunt last week announced plans to increase a windfall tax on North Sea producers to 35% from 25%. The government forecasts that the tax, which was also extended from the end of 2025 to 2028, will raise 40 billion pounds.

Bunch told the CBI conference in Birmingham that there was no mechanism to adjust the levy if oil and gas prices fall sharply, which also should include investments in wind generation, hydrogen and carbon capture technology.

Shell last month reported stronger than expected third quarter results Thursday that fell 18% to $9.45 billion for the period, beating market expectations of $9.0 billion but down from $11.47 billion the prior quarter. $SHEL cited lower trading and margins and higher expenses. The oil major announced a $4 billion share-buyback program and kept its quarterly dividend upping shareholder returns.

Shell (SHEL) said last month it did not pay the U.K. windfall tax in Q3 despite reporting a $9.45B in global profit, the company’s second highest quarterly profit on record, as it had made large investments that could be offset against the tax; the company expects to start paying the tax next year.

CEO Ben van Beurden said at the time that Shell (SHEL) must “embrace” the “societal reality” that companies benefiting from higher energy prices would be asked to help offset soaring costs for consumers.

The company’s decision to keep its quarterly dividend unchanged at 25 cents a share disappointing some investors. Shell said it would buy back another $6 billion in shares by its third-quarter results while also reducing its net debt.

About Shell

Shell is an international energy company with expertise in the exploration, production, refining and marketing of oil and natural gas, and the manufacturing and marketing of chemicals. They invest in power, including from low-carbon sources such as wind and solar; and new fuels for transport, such as advanced biofuels and hydrogen. Shell was formed in 1907, their history can be traced back to the first half of the 19th century.

Source: Reuters

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