Shell helps make windfall tax case after Aberdeen job cuts

The increase provided further evidence of the massive boost that the surge in oil and gas prices last year has provided to businesses such as Shell, while causing pain for consumers.

Mr van Beurden said a windfall tax would not address the supply and demand issues driving the crisis. However, he underlined that with demand set to remain strong Shell expects to generate bumper returns on gas field investments in the North Sea, where its development costs are low.

His intervention came weeks after North Sea heavyweights that won backing from US private equity investors amid the last downturn, Neptune Energy and Harbour Energy, announced plans to pay out $1bn dividends between them. They have been generating huge amounts of cash from their North Sea operations.

Shell is confident enough about the outlook to have promised to increase payouts to shareholders dramatically. It plans to complete $8.5bn (£6.3bn) share buybacks in the first half and to increase the first quarter dividend by around four per cent, to $0.25 per share.

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Mr van Beurden noted some pensions funds will benefit. But that will provide little comfort to the millions of householders who are facing increases of more than 50% in their energy bills from April after the regulator last week decided to lift the cap on prices by around £700 annually, to £1,971. The cap is applied to the bills paid by around 22 million households on standard variable tariffs. Anyone who needs to renew a fixed price deal is also likely to face a big increase.

Against that backdrop it is no surprise that calls for a windfall tax on North Sea firms have intensified. It is fair to say that oil and gas firms have enjoyed an extraordinary boost to their profitability as a result of developments that have cost consumers dear.

North Sea operators were hit hard by the sharp fall in prices that followed the outbreak of the pandemic in 2020 but received massive amounts of Government support, through the furlough programme and other schemes. This helped them through what proved to be a relatively short downturn in the market.

The offer made by Rishi Sunak last week to provide a £200 energy bill rebate for all households in October and £150 council tax reductions for some did not go anywhere near far enough to tackle the energy crisis that consumers are now facing. The £200 will be repayable over five years.

Shell chief executive Ben van Beurden Picture: Shell (Image: PA)

Asked by journalists why a windfall tax should not be imposed, Mr van Beurden said the situation was very concerning, particularly for end consumers, but urged politicians to resist the temptation to propose easy fixes that would not address the supply and demand issues at work.

He agued that firms such as Shell have played an important part in limiting the impact on the UK of developments in international markets that have helped drive the rise in oil and gas prices. Moves by Russia to limit supplies on spot markets are reckoned to have added to the pressure on supplies caused by the surge in demand that followed the easing of lockdown measures.

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Mr van Beurden highlighted the contribution Shell had been able to make thanks to having extensive operations in the UK and a trading business that spans the globe .

“I think we have been able to consistently operate very well with our assts in the North Sea but also our onshore gas assets, which are critical for bringing gas supplies to consumers,” he said, adding that Shell had helped by diverting supplies from other parts of the world to alleviate the situation in Europe and particularly in the UK.

Mr van Beurden said Shell had also done its bit by continuing to operate its energy supply business in the UK during tough market conditions. Many rivals have foundered, leaving survivors to take on their customers. Shell’s retail business has not been immune from the pressures facing the sector but the company has been able to keep it going.

Mr van Beurden also echoed the industry line about the importance of having a stable fiscal regime in the North Sea amid intense competition for investment.

“The capital we have for upstream is limited, we have to make choices,” he observed.

Ironically, Mr van Beurden also noted that the current supply crunch may have been caused partly because firms had slashed investment in new developments during lean periods.

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Shell is unlikely to be in a hurry to invest in big new oil field projects after dropping plans for the Cambo development off Shetland last month,. These provoked fierce opposition from environmentalists.

However, Mr van Beurden underlined the potential appeal of gas developments in the UK.

IOG won backing from US billionaire Warren Buffett to develop North Sea gas finds Picture: IOG

Shell has swathes of gas-rich acreage in the Southern North Sea and extensive production and pipeline infrastructure. The group could utilise this in order to complete developments relatively quickly and cheaply, without the execution and political risk associated with greenfield oil projects.

Demand for gas is expected to remain strong for years amid the net zero drive, given the potential to use it to reduce reliance on coal while the required renewables generating capacity is developed.

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“Cambo was for me a very clear case of a project that was not necessarily the best in our funnel and then factoring in that this could be a project that could be delayed and have all sorts of issues during its development it did not make sense to allocate money there,” said Mr van Beurden.

However, he added: “I think we still want to continue to invest in the UK Continental Shelf, particularly also in gas projects that will help alleviate pressures in the near and mid-term.

“There’s actually quite a funnel of good gas projects that we want to develop with relatively short time lines, tie-backs to existing infrastructure.”

With Shell so confident about the money-making potential of North Sea gas developments it seems reasonable to ask if current arrangements for the division of the resulting spoils between different stakeholder groups are reasonable.

In January last year Shell announced plans to cut 330 jobs in the North Sea business run from Aberdeen. When the group announced its 2020 results the following Shell highlighted how much cash it expected to generate from oil and gas operations in core areas such as the North Sea.