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The Independent: Private Investor: Why can't Shell reward its loyal followers, not the taxpayer?

By Sean O'Grady
Published: 04 February 2006
I wish I had more energy. Yes, I'm feeling tired, but I'm really thinking about my underweight position in oil. Sounds odd, doesn't it? I mean, I wish my holding in Shell was larger.
In case it passed you by, the company reported the largest profits in British corporate history last week: £13bn. Of course, there are many firms with bigger margins and better returns on capital – and most other measures, too. Indeed, the shares were down on the news because expectations had been higher. Exxon did better, apparently.
However, for those who have held the shares through some lean, mean times recently, it was a relief that at last we could actually see a more substantial return on our money. For Shell says that it is going to return £2.8bn to investors through share buybacks this year.
After all the scandals about missing reserves and the disruption caused by Hurricane Katrina and the general slowdown in the world economy, it's nice to see Shell doing better. Yet immediately the calls went up for Shell to be taxed on its “windfall” profits and for it to use the money to slash the price of petrol.
I can't listen to these arguments as a shareholder and not answer them. In the case of the windfall tax, there is a precedent – the tax on banks profits that was levied by the Conservative Chancellor Sir Geoffrey Howe in 1981, and the tax on the privatised utilities profits implemented by Gordon Brown in 1997.
You could argue very well, on the simple grounds of fiscal neutrality, that neither were justified. After all, if governments get into the habit of targeting very successful businesses than all hell will break loose.
If there was a justification for those measures, it was that those profits arose in whole or substantial part as side-effects of government policy.
In the case of the banks a quarter of a century ago it was because of the high interest rates the Thatcher government was using to choke off inflation; with the privatised utilities it was the poor system of regulation that had been created for the new companies.
At Shell, however, things are different. The value of its principal product is determined by many factors, quite a few out of its control. When the price is high, it does well. But when the price of oil is low Shell delivers commensurately lower returns.
It is not so long ago that the world was luxuriating in an oil price of around $10 a barrel. At those levels it was hardly worth Shell's while pumping the stuff out of the ground, let alone investing billions in new fields. Yet I don't recall listening to trade unionists or the road lobby shrieking for a special reverse-windfall subsidy for Shell so that it could continue to invest in difficult times and secure energy supplies into the future. No fuel lobbyist blocaded motorways asking to have the price of petrol raised (and most of the price is down to tax anyhow).
At least George Bush is doing the right thing and telling America to kick its addiction to Arab oil. If they manage to do that I won't really mind what happens to my Shell shares, as we might have a chance of saving the planet.
Which just leaves me to mention Google, whose unethical Chinese activities I bemoaned last week. If I had sold the shares then, in a wave of disgust, I would have saved myself a nasty 10 per cent drop this week when, like Shell, some stunningly big sounding numbers also “disappointed” the markets because of the expectations game.
All in all, I'd like a little financial distraction just now, and am thinking about buying into QinetiQ via the scheme offered by Hargreaves Lansdown. Not much time, though, and I've done no research. So I have no expectations. Oh dear.

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