Shell to pay £1.7bn in UK and EU windfall taxes
Shell is the largest oil producer in the worldSHEL.L) expects to pay around $2bn (£1.7bn/€1.9bn) over the fourth quarter of last year, due to windfall taxes in the European Union and the UK, meaning it will pay UK tax for the first time since 2017.
The company announced the figure in a quarterly update about its performance. In it, it stated that gas trading results will be significantly better than the previous quarter.
This comes after the London-listed oil company bosses stated in October that they hadn’t paid any UK windfall taxes as a result of heavy North Sea investment.
“The Q4 2022 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 $2bn,” the company said in a trading update.
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Shell disclosed $360 million in windfall tax charges to investors. This would bring the total to $2bn.
In more than five decades, the UK will see the first payment of tax by an oil company. The company has received tax refunds in recent years for investments made in the UK North Sea, and decommissioning activities. These amounts were higher than the tax due.
In October, Shell reported it had not yet paid any windfall tax in the UK despite making record global profits of nearly $30bn (£26bn) in the first nine months of 2022, because the scheme allowed tax relief on extra drilling activity.
Shell was able to take advantage of an 80% investment allowance tied to the UK windfall taxes in the third quarter. The autumn budget also saw a significant reduction in this allowance.
The UK government had announced in May that it would tax windfall profits from oil and gas companies. However, the new chancellor has made clear that the tax will rise from the original 25% to 35%.
In September, the EU agreed that oil and gas companies would pay a levy for any surplus profits in 2022 or 2023. The “solidarity contribution” will see firms pay 33% of profits above their average taxable profits.
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Energy companies’ revenues have soared following Western sanctions blocking access to Russian supplies.
Shell estimates that it will have paid between $4.3bn to $4.7bn worldwide taxes in the fourth quarter.
On Friday, the oil giant also revealed that trading in its chemicals business is expected to have been “significantly lower” in the final quarter of 2022 compared with the previous quarter.
It stated that its liquefied gas (LNG), production for the quarter was affected by outages at two Australian plants.
“In its usual teaser of quarterly results Shell has a classic good news/bad news combination to offer shareholders,” Russ Mould, investment director at AJ Bel, said.
“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 is a testament to how strong LNG pricing can be right now, as countries try to replace Russian natural 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 £25bn worth of investment in the UK and it will be interesting to see the stance new CEO Wael Sawan takes on the issue.
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“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.”
The group is scheduled to publish its entire results for the fiscal year 2022 on February 2.