Investment questions

Shell’s North Sea plans awaited amid windfall tax

Wael Sarwan’s investment plans are awaited

Shell expects a $2billion (£1.7billion) hit from EU and UK windfall taxes for the last quarter as investors await the new CEO’s commitment to the North Sea.

The oil and gas giant told investors that the tax liability will fall outside its fourth quarter numbers and will have no affect on annual figures which will be presented on 2 February.

Shell has not disclosed how much UK tax it will finally pay.

Oil and gas companies can reduce their UK tax after factoring in losses, investment in areas such as renewable energy or decommissioning North Sea oil platforms.

Shell last year posted a huge jump in profit, which reached $9.5bn across its global business between July and September.

At the time, Shell said that because it had made large investments in the UK it had not made a profit in the country and was therefore not required to pay taxes.

But on Friday, the company confirmed that it does expect to pay some tax in the UK for the first time since 2017.

In an update today, the company said: “The Q4’22 earnings impact of recently announced additional taxes in the EU (the solidarity contribution) and the deferred tax impact from the increased UK Energy Profits Levy is expected to be around $2 billion.

“These impacts will be reported as identified items and therefore will not impact Q4’22 Adjusted Earnings and will have limited cash impact in Q4’22 given the expected timing of payments.”

In a statement last year it said that the windfall tax would force it to review its investment in the North Sea, despite former CEO Ben van Beurden saying the tax was ‘inevitable’. He has since been succeeded by Wael Sarwan who has yet to declare his position.

The Chancellor introduced the energy profit levy or windfall tax in May at 25% of additional earnings, with his successor Jeremy Hunt hiking it to 35%.

The Treasury today said that its extended energy windfall tax is not expected to discourage offshore oil and gas firms from investing in projects in the North Sea.

However, senior Treasury officials told the House of Commons Treasury Committee they will “keep talking and looking” to see if there is any impact.

Shell remains on track for record annual profit in 2022, having posted profit of $30 billion in the first three quarters.

Europe’s largest oil and gas company also said today that its liquefied natural gas production in the quarter will be hit by prolonged outages at two major plants in Australia.

Russ Mould, investment director at AJ Bell, said: “In its usual teaser of quarterly results Shell has a classic good news/bad news combination to offer shareholders.

“First the good news: the company’s large liquefied natural gas business is expected to have delivered a very strong performance despite lower output on plant outages. This demonstrates just how robust LNG pricing is right now as countries scramble to replace Russian gas.

“Now for the bad news: lower oil prices will hit the oil products part of the business and Shell has quantified the material impact of freshly introduced windfall taxes in the UK and Europe – which are now expected to run into the billions.

“It would be disingenuous for Shell to gripe too much about these new levies given recently departed Ben van Beurden argued they were ‘inevitable’ back in October, though Shell subsequently said it would review £25 billion worth of investment in the UK and it will be interesting to see the stance new CEO Wael Sawan takes on the issue.

“Sawan faces a tough task as he looks to lead Shell through the next phase of the energy transition amid the sometimes competing aims of energy security and lower emissions. 

“His predecessors’ big bet on natural gas could prove to be a positive legacy as gas may provide a staging post as the world moves from more polluting fuels like oil and coal to renewables and other forms of clean energy.”

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