Shell escapes paying UK windfall tax on $9.45bn profits

For now, Shell’s profits provided ammunition for critics of both the oil and gas sector and the British government.

Shell didn’t pay the UK windfall tax in the third quarter, a period in which its profit doubled to $9.45bn (€9.4bn), because it was making big investments in North Sea fields.

The fact that Shell wasn’t liable for the levy, which was designed to allow companies to reduce their payments if they invest in new production, nevertheless threatens to amplify the controversy about record oil-company earnings at a time when most people are struggling with soaring energy bills.

There are growing calls for British Prime Minister Rishi Sunak, who imposed the windfall tax in May when he was chancellor of the exchequer, to hit the sector with additional levies as he tries to fill a £35bn (€40.5bn) in the country’s finances. Even Shell’s boss acknowledged the possibility of further UK government intervention.

“They will be looking at companies like us, who benefit of course from the volatility and the prices that we see, to fund the programs that they are rolling out,” chief executive Ben van Beurden said on a call with reporters. “We have to accept it and we have to embrace that,” he said.

Investments

When Mr Sunak implemented the windfall tax, he allowed investments in new fields to be offset against the levy to encourage companies to boost domestic energy supplies. Shell has avoided the requirement to pay more tax last quarter because of investments to increase North Sea gas output, including the Pierce and Jackdaw projects, said chief financial officer Sinead Gorman.

“Heavy capex has meant we haven’t had extra tax coming through,” Ms Gorman said. Shell could start paying the levy early next year, she said.

France’s TotalEnergies, another major operator of North Sea oil and gas fields that reported earnings on Thursday, said it paid $600m under the UK’s windfall tax in the third quarter. 

Fiscal plans

The government of Mr Sunak, who replaced Liz Truss as prime minister on Monday, will lay out its new fiscal plans next month. Nadhim Zahawi, the former chancellor of the exchequer and a current government minister without portfolio, said that all options are being considered and wouldn’t rule out a further levy on the country’s fossil fuel industry. He defended the investment allowance in the current windfall tax.

For now, Shell’s profits provided ammunition for critics of both the oil and gas sector and the government.

“As millions of families struggle with their energy bills, the fact that Shell recorded the second highest quarterly profits in the company’s history is further proof that we need a proper windfall tax to make the energy companies pay their fair share,” Ed Miliband, the opposition Labour Party’s shadow climate and net zero secretary, said. 

Shell’s Mr van Beurden said the company is in dialogue with the UK Treasury about the levy. While he doesn’t predict that there will be a new tax, he said governments need to act to protect the most vulnerable, echoing a statement he made last month. 

Bloomberg