Posts from ‘January, 2008’

Thursday, 31 January 2008, 12:04 GMT 

The Unite union has called for the government to impose a windfall tax on the profits of oil companies after Royal Dutch Shell reported record profits for a UK-listed company.
“Shell shareholders are doing very nicely whilst the rest of us, the stakeholders, are paying the price and struggling,” said its joint general secretary Tony Woodley.

Would a windfall tax be a good idea?

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What is a windfall tax?

The Labour government imposed a windfall tax on privatised utility companies in its first budget after winning the 1997 election.

It was designed to tax the growth in the value of companies such as regional electricity companies, water and sewerage companies and electricity generators in the four years after they were privatised.

It was meant to raise £5.2bn to fund the welfare-to-work scheme that was the centrepiece of the budget.

The Labour Party said that the companies had received windfall gains from the under-pricing of the share issues and the under-regulation of the companies since then.

In the same way, some people think that the oil companies have received windfall gains from record oil prices.

So when do we get a windfall tax then?

Ah, it’s not quite that simple.

Most of the privatised utilities were UK-based companies, the majority of whose profits were made there.

The problem with a company such as Shell is that while one of its listings is indeed at the London Stock Exchange, it also has listings in the Netherlands and the US, while its headquarters are in The Hague.

It operates in 130 countries and territories so it is difficult to claim that enough of its profits have been made in the UK for it to be liable to a UK windfall tax.

Indeed, Shell says that well over 90% of its profits are made outside the UK.

It already pays tax to the exchequer for the profits it makes in the UK, indeed in 2002 the government introduced a North Sea tax on energy companies at 10%, which was then increased to 20% in 2005.

But they’re still making record profits from record oil prices aren’t they?

Yes, it would be a pretty poor oil company that could not make a decent profit with oil prices at their current levels.

On the other hand, Shell does not control market prices, which are set in a relatively free market.

Many commentators believe that even the oil cartel Opec has little control over oil prices any more.

Even if Shell decided altruistically to sell oil at below market prices it would have very little effect on global prices.

Couldn’t they just reduce prices at the petrol pump then?

First of all, the amount charged at the pumps is mostly made up of tax, but some of it still goes to the oil companies.
 
Average petrol prices are over £1 a litre

It would seem to make sense that – if Shell is getting its own oil out of the ground, refining it and selling it on its own forecourts – it should not therefore be affected by the “external” global price of oil.

However, it is not that simple, as Shell is involved in what are known as both “upstream” and “downstream” operations.

The upstream activities include exploration, getting the oil out of the ground and refining it.

The downstream activities include selling petrol to members of the public on Shell forecourts.

Shell forecourts have to buy their petrol from the Shell refineries at market prices.

Why couldn’t the upstream operations subsidise the downstream ones?

The trouble is that not all petrol retailers also have their own upstream operations.

Some, such as small operators and supermarkets, only sell petrol.

They would be unable to compete with the oil giants if the likes of Shell were allowed to use their profitable upstream operations to subsidise their less profitable downstream ones.

Competition authorities would probably see such subsidisation as an anti-competitive attempt to put smaller operators out of business.
 
http://news.bbc.co.uk/1/hi/business/7219685.stm

By Russell Hotten
31/01/2008
Front page of Daily Telegraph Business Section

The accounting scandal that forced resignations and fines at Royal Dutch Shell in 2004 looks like returning to haunt the company, with lawyers pursuing legal action on behalf of US shareholders about to step up their campaign for compensation.

Following years of wrangling, key Shell executives involved in the 2004 “oil reserves” affair appear ready to give sworn statements to the lawyers about their role in what was the biggest crisis in the company’s history.

Frank Coopman, then finance director in Shell’s exploration and production unit, is understood to have given a deposition yesterday. Former chairman Sir Philip Watts, and possibly ex-finance director Judy Boynton, may give evidence over the next couple of weeks.

Lawyers at the US firm Bernstein Liebhard & Lifshitz see the depositions as a breakthrough in their claims for compensation that could run into hundreds of millions of pounds.

Shell has already paid fines and compensation of £360m after admitting that it inflated the amount of oil reserves recorded in its accounts.

However, investigations by financial regulators in Britain and America have already concluded that the individuals have no case to answer.

Mr Coopman, whose emails exposed the practice of inflating reserves, is thought to have been interviewed by the lawyers in The Hague, where Shell is based.

Sir Philip’s lawyer declined to comment, and representatives for the other two former executives could not be reached. Shell said it would not comment on ongoing legal action.

Meanwhile, a decision by Shell not to release key data on its reserves replacement when it posts full-year profits figures today, continues to upset the City. Shell will disclose the information – which measures how fast it replaces the oil that is pumped – in May.

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=DZUXZK1BXOIRTQFIQMFSFFOAVCBQ0IV0?xml=/money/2008/01/31/cnshell131.xml

Terry Macalister
8.15am update: Thursday January 31 2008

Shell was accused of making “obscene” profits at a time when pensioners, motorists and industry are struggling with higher energy prices when it unveiled annual earnings of $27.6bn (£13.9bn).

The oil major has made British corporate history with the record figures, which are equivalent to more than £1.5m an hour and come at the end of a three month period when crude prices have averaged over $90 a barrel.

Jeroen van der Veer, chief executive of Royal Dutch Shell, described the performance as “satisfactory” and admitted that overall production for the year had actually dropped 2%.

He said the company had benefited from launching new oil and gas projects but had suffered in the last quarter from weak refining margins.

“We are proceeding with the rejuvenation of our portfolio with investment in new legacy assets and through disposals. The execution of our strategy is on track.”

But Tony Woodley, joint general secretary of Unite the union, Britain’s largest trade union said a windfall tax should be imposed on “greedy” companies such as Shell whose profits are more than four times higher than retailer, Tesco.

“Shell shareholders are doing very nicely whilst the rest of us, the stakeholders, are paying the price and struggling,” said Mr. Woodley. “Record profits of over thirteen and a half billion pounds at Shell and cumulative oil industry profits in excess of fifty billion in the last three years are, quite frankly, obscene. It is time the government acted.”

A windfall tax would be the “right and proper” thing to do over and above the normal taxes the oil companies would pay.

“The oil companies can maintain their investment programmes, maintain their explorations, pay their normal taxes, maintain good returns to shareholders but still put their hands in their treasure chests and pay a windfall tax,” he added.

Motorist organisations have already complained about pump prices soaring to over £1 a litre and although the government tax take makes up much of that price, the Road Haulage Association described Shell’s profits as “absolutely scandalous”.

The full year profits at Shell were 9% up on last time whilst the last quarter figures were up 11%, but no details were provided of the profits made from petrol sales.

The Anglo-Dutch company has declared an 11% rise in the last quarter dividend and expects a similar increase in the first quarter dividend. It spent $4.4bn last year buying back its own shares and has spent $26bn on new oil and gas schemes.

http://www.guardian.co.uk/business/2008/jan/31/royaldutchshell.oil1

Fiona Walsh, business editor guardian.co.uk, Thursday January 31 2008

Oil giant Royal Dutch Shell is facing renewed accusations of profiteering after reporting record profits of $27.6bn (£13.9bn) – the highest-ever figure reported by a British company.

The huge profits – equivalent to more than £1.5m an hour and a 9% increase on last year – will cause anger amongst Britain’s motorists who are paying over £1 a litre for petrol after the huge increase in oil prices in recent months.

The Shell figures were immediately branded “obscene” by Unite, Britain’s biggest union, which called on the government to levy a windfall tax on the oil industry.

Joint general secretary Tony Woodley said the union had no problem with profits but that consumers should question the “excessive, mega-profits” of the oil companies.

“Shell shareholders are doing very nicely whilst the rest of us, the stakeholders, are paying the price and struggling,” he said.

“Record profits of over thirteen and a half billion pounds at Shell and cumulative oil industry profits in excess of fifty billion in the last three years are, quite frankly, obscene. It is time the government acted.”

Shell chief executive Jeroen van der Veer described the results as “satisfactory” and said the group had made good progress in 2007.

http://www.guardian.co.uk/business/2008/jan/31/royaldutchshell.oil

Last updated at 07:14am on 31st January 2008

Record profit: Shell earnings soar as motorists struggle with high petrol prices

Shell has announced earnings of £13.9billion today – the biggest-ever profit by a British company.

The oil giant has reported that profits have risen 9 per cent since last year, pushed up amid fears of instability in the Middle East.

But critics have branded the earnings “obscene”, pointing out that pensioners, motorists and industry are all struggling to afford soaring energy prices.

With oil topping $100 a barrel, many motorists have seen petrol prices rise to more than £1 a litre and towards the once unthinkable £5 a gallon.

American rival Exxon Mobil, the world’s biggest non-government controlled oil company, is also tipped to break the previous U.S. earnings record when it reveals its results this week.

It is expected to announce profits of £20billion in the past year.

Unions and motoring groups are calling on the Government to impose a “windfall tax” and to scrap the planned 2p a litre tax hike on fuel.

Tony Woodley, joint general secretary of union Unite, said: “Shell shareholders are doing very nicely whilst the rest of us are paying the price.

“Record profits at Shell and the oil industry are, quite frankly, obscene. It is time the Government acted.”

He added: “This government took the brave step of putting a windfall tax on the greedy privatised utilities to fund the New Deal. With pensions injustices still to be addressed, fortune should favour the brave again and the greedy oil companies should be asked to contribute for the common good.

“The oil companies can maintain their investment programmes, maintain their explorations, pay their normal taxes, maintain good returns to shareholders but still put their hands in their treasure chests and pay a windfall tax. These companies can afford it. Many pensioners cannot afford to live. It’s as simple as that.”

http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=511387&in_page_id=1770

January 31, 2008

Shell’s numbers beat City expectations by a shade as lower output levels were offset by $100 barrel oil Angela Jameson

Concerns over the excessive profits made by oil companies were reignited today when Shell, the Anglo-Dutch giant, revealed a 9 per cent leap in full year profits to a new record of $27.6 billion (£13.9 bn).

The world’s second biggest quoted oil company said fourth quarter income climbed 60 per cent, during a period when the oil price soared to $100 a barrel and prices at the petrol pump climbed to more than a £1 a litre.

Union leaders called the results “obscene” at a time when pensioners, motorists and industry were struggling to pay higher energy prices.

Tony Woodley, the General Secretary of Unite, demanded that the Government levy a windfall tax on the oil majors.

However, Jeroen van der Veer, chief executive of Royal Dutch Shell, called the profits, which beat City expectations, “satisfactory”.

He said: “We made good progress in 2007, launched new projects upstream and downstream, and achieved exploration successes.”

Record oil prices offset the impact of lower oil production and higher downstream costs and taxes. The company also gave warning that it continued to see weak refining margins in the fourth quarter, particularly in the US Gulf Coast and US West Coast.

Shell has achieved lower refining margins than the industry average due to unpanned downtime in some of its refineries.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article3281285.ece

Thu Jan 31, 2008 2:53am EST

(Adds detail, background)

LONDON, Jan 31 (Reuters) – Oil giant Royal Dutch Shell Plc (RDSa.L: Quote, Profile, Research) posted record European company earnings of $27.6 billion in 2007, but fourth-quarter profit missed forecasts as a fall in production dampened the benefit of high oil prices.

The world’s second-biggest non-government controlled oil company by market value said on Thursday its current cost of supply (CCS) net income, which strips out changes in the value of fuel inventories, rose 11 percent to $6.7 billion in the final quarter of 2007.

Excluding a net gain to non-operating items of $963 million, fourth-quarter CCS net income was $5.74 billion, compared with an average forecast of $6.1 billion in a Reuters poll of nine analysts.

A spokesman said its refining division had performed worse than analysts had expected.

Shell also reported higher-than-expected capital spending for 2007 and upped its budget for future years significantly, reflecting the increasing cost of getting oil and gas out of the ground.

Shell said 2007 capital expenditure was $26.6 billion, and $23.8 billion net of disposals. The Anglo-Dutch firm said in October that gross capital expenditure would be $24-25 billion, or $22-23 billion net of disposals.

Shell said in slides published on its Web site that capital expenditure for 2008 would rise to $28-29 billion, excluding acquisitions and that after disposals the figure would be $24-25 billion. In October it predicted medium term capex of around $22-23 billion, net of disposals.

Analysts had expected an increase in Shell’s capex.

(Reporting by Tom Bergin; Editing by Louise Ireland)

© Reuters 2008 All rights reserved

By Kristian Rix

Jan. 31 (Bloomberg) — Royal Dutch Shell Plc may spend $2.5 billion on a natural gas plant in southern Iraq to meet energy demand in the Middle East, where economies are growing 5.9 percent a year, according to a person involved in the plan.

Shell met with Iraqi officials in The Hague last week to propose building a pipeline that would link the Basrah region to a new facility on the country’s coast, the person said. Shell would also build a facility that could freeze 16 million cubic meters of gas a day and ship it to Kuwait and the United Arab Emirates, the person said.

Gas demand in the Persian Gulf grew 28 percent from 2003 to 2006 as the United Arab Emirates and Saudi Arabia developed steel, aluminum and chemical industries to curb their reliance on crude oil exports. Shell, based in The Hague, needs new energy sources after oil and gas production fell 14 percent in four years.

“The Gulf Arab states need extra sources of gas one way or another,” said David Butter, a London-based senior Middle East analyst at the Economist Intelligence unit. “And you’d expect Shell to be looking very closely at Iraq as it has unique potential.”

Iraq had 3.17 trillion cubic meters of gas in reserves at the end of 2006, according to estimates by BP Plc. The proposed project’s daily output would be enough to supply about 14 percent of the U.A.E.’s demand, the BP figures show. Abu Dhabi National Energy Co., a state-run utility in one of the country’s seven sheikdoms, plans to expand its power capacity by 78 percent, to 16,000 megawatts, over five years.

Iraqi Contracts

Shell may complete its proposal in about a week, the person said. Representatives in Shell’s press offices in The Hague and in London couldn’t be reached for comment. Calls to the Iraqi Oil Ministry spokesman weren’t answered.

Middle East gas consumption has grown faster in the past decade than in the U.S., Europe and Asia, according to BP. Use of the fuel in the region almost doubled to 289 billion cubic meters annually in the 10 years through 2006, BP said.

Prices for Algerian LNG tripled in the five years through Sept. 30, according to Gas Strategies Group Ltd. Producers have charged more amid rising construction costs and a shortage of equipment and contractors.

LNG is natural gas that’s chilled to a liquid, shipped by tanker and then turned back into gaseous form at its destination.

To contact the reporter on this story: Kristian Rix via the London newsroom at krix@bloomberg.net

Last Updated: January 30, 2008 18:24 EST

Thursday, 31 January 2008, 08:09 GMT  

The Anglo-Dutch oil firm Royal Dutch Shell has reported record annual profits for a UK company.
 
Its profit measured by current cost of supply was $27.56bn (£13.9bn) for 2007, beating its own 2006 record of £12.9bn.

Much of the rise in profits has been attributed to rising oil prices, which currently stand at about $91 a barrel compared with $57 this time last year.

But there is concern among analysts that Shell has delayed publishing figures showing its oil reserves.

The oil reserves figure, which shows whether Shell found enough oil in the ground to replace the amount it was taking out, will not be published until the spring.

“The market really has taken this to imply that the figures aren’t going to be great,” said Nick MacGregor, an oil analyst from Redmayne Bentley.

“If they were that good Shell would be telling the world about it now.”

‘Satisfactory results’

Shell reports its profits figures in dollars because oil is priced in the US currency.

In dollar terms its earnings are up 9% on the previous year.  
Royal Dutch Shell shares

It has set its dividend at $0.36 per share for the last three months of 2007, which is up 11% on the same period of 2006.

“Overall these are satisfactory results,” said Shell’s chief executive Jeroen van der Veer.

“We made good progress in 2007, launched new projects upstream and downstream, and achieved exploration successes.”

Windfall tax

Some unions have objected to the level of Shell’s profits at a time when consumers and businesses are having to cope with the effects of high oil prices.

Unite’s joint general secretary Tony Woodley described the level of profits in the oil industry as, “quite frankly obscene”.

“Shell shareholders are doing very nicely whilst the rest of us, the stakeholders, are paying the price and struggling.”

Mr Woodley is calling for a windfall tax on oil companies similar to the one imposed on privatised utilities when the Labour government came to power.

The oil companies have stressed that little of their profits come from petrol forecourts, with the majority of the price paid at the pump already going straight to the government.

The North Sea tax on energy companies was set at 10% in 2002 and then increased to 20% in 2005.
 
http://news.bbc.co.uk/1/hi/business/7219148.stm

By BENOIT FAUCON
January 31, 2008 3:35 a.m.

LONDON — Royal Dutch Shell PLC Thursday reported a 60% rise in fourth-quarter net profit as higher oil prices and divestments outweighed tighter refining margins and a lower output.

Shell’s results underscore how oil companies are defying the global economic gloom. U.S. crude peaked at about $100 a barrel early January. (See related article.)

The Anglo-Dutch firm, the world’s fourth-largest publicly-listed oil company by market capitalization, said net income for the three months ended Dec. 31 was $8.47 billion, or $1.36 a share, compared with $5.28 billion, or 83 cents a share, a year earlier. Results included a net gain of $963 million, compared with a year-earlier gain of $515 million. The latest figures also reflect tax-rate changes in Canada and Italy, and divestments in the company’s exploration and production unit.

Annual profit rose 23% to $31.3 billion from $25.4 billion, breaking a new record. Fourth-quarter revenue rose 41% to $106.7 billion from $75.5 billion.

Shell’s quarterly “clean” current cost of supplies, which strips out exceptional items and the impact of inventory gains and losses from the bottom line, stood at $5.72 billion from $5.5 billion. Analysts had expected costs of $5.83 billion.

Profit was driven by a 47% year-to-year rise of the average United Kingdom North Sea crude benchmark Brent in the fourth quarter. The rise in crude prices more than offset a 14% drop in global industry refining margins.

Earnings were hurt by maintenance downtime at the 458,000 barrel-a-day Pulau Bukom refinery in Singapore and a fire at its 155,000 barrel-a-day Scotford Upgrader at Canada’s Athabasca Oil Sands Project in November. Partly as a result, production of oil and natural gas averaged 3.44 million barrels of oil equivalent a day in the fourth quarter, up from 3.65 million barrels of oil equivalent a day a year earlier.

Shell’s numbers conform to international financial reporting standards, or IFRS, which differ from U.S. generally accepted accounting principles.

Write to Benoit Faucon at benoit.faucon@dowjones.com