Oil & Gas

Reports: Oil giant Shell to review £25bn of spend after windfall tax hike

Supermajor Shell (LON: SHEL) is to review as much as £25 billion of UK investments following the government’s decision to ramp up the windfall tax.

UK chairman David Bunch reportedly told Sky News that the London-listed group will now look at its proposed energy projects on a “case-by-case basis”.

It follows the Chancellor, Jeremy Hunt’s decision to increase the energy profits levy on North Sea company’s profits by a further 10%.

It means oil and gas producers now face losing up to three quarters of their takings, with the windfall tax at 35%, and the regular levy at 40%.

Investment relief, allowing firms to claim back a large proportion of their spend on new projects, is in place in an effort to boost energy supplies.

As a result, Shell paid no windfall last quarter, despite returning quarterly pre-tax profits of $11.4 billion.

But in an interview with Sky News, Mr Bunch flagged the harming impact of fiscal uncertainty on the oil and gas industry following the latest hike.

© Supplied by All-Energy
David Bunch, UK country chair at Shell.

He said: “We outlined an investment package five months ago of £25bn, and the one thing I said was we really need a stable fiscal environment to make sure we can get that investment out of the door.

“Since then we have had three budgets, a couple of prime ministers, so it’s welcome to see some stability.

“But we are going to have to look at each of those projects on a case-by-case basis and re-evaluate them, based on the current fiscal outlook, and that will determine whether or not we invest to the amount we previously discussed.”

Apparently he also called on Westminster to give further details on when the windfall tax might expire.

In the original levy, a sunset clause of 2025 was included, while the policy would also fall away if oil traded at below $70 a barrel.

But Mr Hunt pushed back the finishing line until 2028, and did away with the oil price mechanism altogether.

windfall tax © George Cracknell Wright/LNP/Shut
Chancellor Jeremy Hunt

Mr Bunch told Sky News: “As the UK’s biggest company we need to do our part. We understand the need that is out there, and I think we understand the nature of the windfall tax.

“However, the current design of the windfall tax does not have an off switch. It doesn’t have a price point at which that windfall tax turns off. That is something we would like to talk to the government about.

“We are still incredibly committed to the UK, it’s a great market, we’re the biggest company, we put out a great investment programme, I’d really like together with what we heard today from Rishi to help create that environment so we can help build a sustainable energy future, but doing that is going to need a few different levers.”

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