The Scotsman: Calls for windfall tax on oil companies miss the point: “A YEAR of scandal, sackings and investor unrest ended with the biggest profits ever made by a UK or European company. There is something peculiar about one following the other, but that is the story of Shell, a company that last year could not shake off negative headlines and last week confirmed it was gushing cash as well as oil.”: “The record profit and windfall debate overshadowed two other important announcements: the first was another cut in proven reserves, the fifth downgrade in a year; the second was the poor rate at which Shell is finding new oil to replace that which is currently being pumped out - far less than its rivals - resulting in the firm gradually getting smaller.” (ShellNews.net) 6 Feb 05
BUSINESS COMMENT
TERRY MURDEN
A YEAR of scandal, sackings and investor unrest ended with the biggest profits ever made by a UK or European company. There is something peculiar about one following the other, but that is the story of Shell, a company that last year could not shake off negative headlines and last week confirmed it was gushing cash as well as oil.
Shell, as we predicted last week, came in only second to Exxon Mobil as the industry’s biggest money-maker, and just as predictably there were renewed calls for a windfall tax on oil companies.
It is understandable that eyebrows were raised over a company making profits of $18.5bn (£9.3bn), which is more easily digested as £1m an hour or £300 a second, while household fuel bills continue to rise and petrol prices remain stubbornly high. But the calls for a tax on such profits are misguided and miss the point.
Shell and BP, which will report its own record profits this week, have only a small proportion of their activities in the UK, which would make it difficult to impose a tax.
Introducing selective taxes, perhaps by increasing the petroleum revenue tax, may work, but would further penalise large companies that already show a reluctance to invest in the North Sea. They would simply go elsewhere. There are also the shareholders to consider, including pension funds, whose assets would take another hammering.
The record profit and windfall debate overshadowed two other important announcements: the first was another cut in proven reserves, the fifth downgrade in a year; the second was the poor rate at which Shell is finding new oil to replace that which is currently being pumped out - far less than its rivals - resulting in the firm gradually getting smaller.
Investors, therefore, have reason to feel nervous, and the pressures on Jeroen van der Veer, the chief executive, and his exploration boss, Malcolm Brinded, will be maintained while the company resolves these matters and its complex corporate restructuring.
Completing the Anglo-Dutch combine’s shift to a single company structure will be on the agenda for shareholders in the early summer.
Whether its notorious bureaucracy will be streamlined as a result is yet to be proved, and some remain unconvinced that there will be any real benefit anyway. In the meantime, the company is easing shareholder anxiety with a $15bn (£8bn) dividend and share buyback. And there is always next year’s profits to look forward to.
http://business.scotsman.com/management.cfm?id=139942005