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Shell may have to sell North Sea assets after tax raid

Published Date: 29 April 2011
By Martin Flanagan
City editor

ROYAL Dutch Shell warned yesterday that it may have to sell some assets in the North Sea and reduce investment in the region because of the Chancellor’s tax raid and higher industry decommissioning costs in the Budget.
Simon Henry, chief financial officer, revealed that the changes could cost the group $1 billion (£600m) in extra charges, a similar sum to that facing rival BP.

He said that Shell had taken a $60 million hit in the first quarter of this year on the extra tax levy on North Sea production and would face a further $150m impact over the rest of 2011. There will be another $400m charge in 2012.

In addition, reduced tax breaks for decommissioning rigs was likely to lead to another charge of up to $500m.

“It’s a fact of the business we are in. Not just governments but suppliers look for a share of higher revenues,” Henry said.

He added that big Shell interests in the North Sea, such as the Clair and Schiehallion fields to the west of Shetland that are operated by BP, were unlikely to be affected by the tax raid.

But Henry admitted there could be “a significant impact” on other smaller oil projects, some only at the early drawing-board stage, from the changes to the tax regime over decommissioning North Sea infrastructure.

It is estimated that Shell spends about $1.5bn of its $30bn investment budget on its North Sea assets. “By definition, the value of them (the assets] is going down (as a result of the tax hike]”, Henry said. “If it’s worth more to us we keep it, but if there are buyers out there we might consider selling.”

His warning on the affects of the Chancellor’s tax raid came as the company put embattled BP in the shade, with a 30 per cent jump in first-quarter profits to $6.2 billion (£3.8bn] against $4.8bn in the same quarter last year.

Shell said exploration and production profits up 8 per cent at $4.6bn were mainly driven by oil and gas prices up 38 per cent in Q1 compared to the first quarter of 2010.

Brent crude averaged $87 a barrel in the period.

The strong profit performance was despite a 3 per cent fall in output, partly due to the company’s $3.2bn of asset sales in the period.

BP, which has largely completed $30bn of asset sales to help pay for the Gulf of Mexico disaster, saw Q1 output fall 11 per cent.

Shell saw a sharp rebound in the performance of its “downstream” refining and marketing business, where profits more than doubled to $1.65bn.

The group said the division benefited from higher profit margins and higher refinery intake volumes as a result of lower planned and unplanned maintenance work.

Shell, the biggest shipper of liquefied natural gas (LNG), said it had also benefited from higher LNG prices following the Japanese earthquake, with Japan expected to scale back nuclear power in future.

The group’s borrowings-to-shareholders’ funds ratio fell to 14 per cent from 17 per cent, underlining its financial strength.

Shareholders get a maintained divi of 0.42 cents per share.

Shares in Shell closed up 14p at 2322.5p.

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