Oil giant Shell recorded the biggest annual profits in British corporate history recently at $27,6-billion, causing a storm of protest from trade union leaders and green groups who said the ‘obscene” profits came at the expense of motorists, pensioners and the environment and suggested it should be met with a windfall tax.
The world’s second-largest quoted oil company said it had no intention of cutting back on its operations, saying it needed to increase production to meet rising demand and unveiling controversial plans to start oil operations in Iraq.
Jeroen van der Veer, Shell’s chief executive, rejected criticisms from the Unite union, saying most of its £1,5-million-an-hour earnings came from upstream global crude production ‘and not at the gasoline pump in the United Kingdom”. A large part of the petrol price could be attributed to taxation over which the company had no control and any cross-subsidy from one part of the business to another would be effectively ‘killing yourself”.
A windfall tax against the oil industry called for by the unions and the environment group Friends of the Earth, would be counter-productive: ‘Any additional tax — if significant — [means] we can invest less and, over time, it will impact on our production,” he said.
But Tony Woodley, joint general secretary of Unite, said that a special tax was needed for ‘greedy” companies such as Shell. ‘Shell shareholders are doing very nicely while the rest of us, the stakeholders, are paying the price and struggling,” he said. ‘Record profits of over £13,5-billion at Shell and cumulative oil industry profits in excess of £50-billion in the past three years are, quite frankly, obscene. It is time the government acted.”
Tony Juniper, director of Friends of the Earth, said: ‘The [UK finance] minister must introduce a windfall tax in his March budget, and use the money to improve energy efficiency in people’s homes.”
The UK Road Haulage Association described Shell’s level of earnings as ‘absolutely scandalous”.
But Van der Veer argued that Shell was investing $26-billion this year and needed this capital expenditure to halt a slide in output after reporting a decline in oil and gas output for the fifth year in a row.
The company refused to predict output rates for 2008, blaming a variety of uncertainties such as the weather, disruption in Nigeria and the price of oil, which affects volumes under some government joint ventures.
Shell, whose reputation was dented when it overstated its reserves to the US financial regulator, is making serious preparations to enter Iraq.
Van der Veer said Shell had benefited from launching new oil and gas projects but had suffered in the last quarter from weak refining margins. He shrugged off any reduction in energy demand as a result of any US or global economic slowdown.
The full year profits at Shell were 9% up on last time while last quarter’s figures were up 11%. Despite these gains, financial analysts remained unimpressed. ‘[The results] will do little to assuage concerns that large integrateds are unable to capture record prices,” said Peter Hutton at NCB brokers. —