Shell to take $2 billion fourth-quarter tax hit after new EU, UK levies

PUBLISHED FRI, JAN 6 2023 2:43 AM EST UPDATED FRI, JAN 6 20238:01 AM EST

Ruxandra Iordache

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Oil and gas major Shell said Friday it expects to take a $2 billion hit for the fourth quarter as a result of new taxes in the European Union and U.K.

“The Q4′22 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 $2 billion,” the company said in a trading update.

The EU agreed in September that oil and gas companies will pay a levy on surplus profits made in 2022 or 2023. The “solidarity contribution” will see firms pay 33% of profits above their average taxable profits.

Meanwhile, U.K. Finance Minister Jeremy Hunt said in his November Autumn Statement that the energy industry will be subject to an expanded windfall tax of 35%. The levy, which ends on 31 March 2028, is expected to raise in excess of $40 billion over the next six years, the government said at the time.

Energy companies’ revenues have soared following Western sanctions blocking access to Russian supplies. In June, U.S. President Joe Biden remarked that Shell’s fellow oil major ExxonMobil had made “more money than God.”

In November, Shell’s U.K. Country Chair David Bunch signaled that the company would evaluate each of its projects in the country on a case-by-case basis, following the windfall tax announcement.

“To deliver the very significant investment needed, which for Shell UK will be up to £25 billion in the next 10 years providing projects remain economically viable under the revised tax regime, the energy sector needs to have confidence that there will now be a stable investment climate following a period of considerable uncertainty,” the company said in a statement emailed to CNBC Friday.

Shell, which will release its full fourth-quarter results on Feb. 2, said it expects between $550 million and $750 million of losses in adjusted earnings over the period. The EU and U.K. levies will not affect the adjusted earnings figures, the company said.

Shell’s adjusted earnings more than doubled on the year to $9.45 billion in the third quarter, after logging a record profit of $11.5 billion in the three-month April-June period. In October, it revealed plans to raise its dividend per share by roughly 15% for the fourth quarter.

In its Friday trading statement, Shell said it expects its liquefied natural gas (LNG) volumes to have dropped to between 6.6 million-7 million metric tons in the fourth quarter, owing to longer-than-expected outages at two Australian facilities. Despite this, the energy major said it anticipates its LNG trading results to be “significantly higher” than in the third quarter.

In contrast, Shell expects its fourth-quarter oil products trading results to be “significantly lower” than in the previous quarter.

Correction: The headline and text of this story have been updated to reflect that Shell expects to take a fourth-quarter tax hit of $2 billion.

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