Shell to pay $500mn in UK windfall taxes in 2023

Shell expects to pay $500mn in UK cash taxes related to the country's Energy Profits Levy in 2023, five times the amount it paid last year, according to its chief financial officer. And it said it will continue to take a case-by-case approach, rather than commit to an overall budget, for future upstream investments in the UK offshore because of what it characterised as a less-than-stable investment environment.

Speaking today after the company's earnings release, Sinead Gorman confirmed that of the $13bn in cash taxes it paid in 2022, around $100mn in the UK were related to the windfall levy that the government brought in during the spring of 2022.

"We expect to pay [taxes] greater than $500mn for 2023 related to the UK Energy Profits Levy," she said, pointing out that the effective tax rate of the levy increased to 75pc from the start of this year.

Responding to questions about plans for upstream oil and gas investments in the UK North Sea, Gorman said Shell looks for a "stable environment" when making investment decisions.

"We're investing for decades into the future," she said. "That means we're having to look at the economics over that time. Changes that occur to that [stable environment] make it much more difficult for us to have the confidence to make those investments, especially when returns are either small or uncertain.

"So, what we see in the North Sea is a 75pc effective tax rate coming in," she said. "That is a substantial tax rate and is larger than most [other] countries. That means that for every investment we're doing… we have to look at the fact that the tax rate will play out over the period."

Gorman said upstream project decisions in the UK will be made individually, "investment by investment". Shell is redeveloping the 45,000 b/d of oil equivalent (boe/d) Penguins project in the UK North Sea — against which activist group Greenpeace protested earlier this week. But it took the decision not to invest in the controversial Cambo oil field, located west of Shetland, where it retains a 30pc stake.

On Shell's plans for oil and gas investment around the world, new chief executive Wael Sawan said there would be more detail about strategy for upstream production at its capital markets day in June. But he noted that Shell's "value over volume" approach in recent years had served it well.

"If you compare, for example, the 2022 results to where we were in 2014, our production is down by around 7pc [over] that period, but if you look at 2022 our earnings are up close to 70pc compared to 2014," he said. "And so that real focus on the margin that we can create from our barrels, and high grading to the core countries that matter in terms of how much value they create for us, has been a key part of our strategy."

Earlier today, Shell said that it made a record $41.11bn profit for 2022, excluding inventory effects, which was more than double the $17.07bn in 2021. In the final quarter of the year its profit jumped by 40pc from the third quarter, to $11.31bn. Analysts at UK-based bank Barclays said this demonstrated Shell was "delivering on gas trading". Indeed, Shell's Integrated Gas segment produced a record quarter, with adjusted earnings at $5.99bn, more than double those of a year earlier.

Analysts at RBC Capital Markets said the record earnings confirmed that Shell's disappointing third-quarter gas trading result "was not structural", as Shell said at the time.

By Jon Mainwaring