UK taxes may force Shell into North Sea assets sale

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Apr. 29 -- Royal Dutch Shell PLC said it might have to sell some of its assets in the North Sea and reduce investment in the region due to the recent tax increases imposed by the British government.

The warning came from Shell Chief Financial Officer Simon Henry who told investors that the firm already had taken a $60 million hit in this year’s first quarter on the extra tax levy on North Sea production.

Henry added that Shell would face a further $150 million impact over the rest of 2011, with an additional $400 million charge looming in 2012. Not least, reduced tax breaks for decommissioning rigs was likely to lead to another charge of up to $500 million.

"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 said Shell interests in the North Sea, such as the Clair and Schiehallion fields, are unlikely to be affected by the new tax regime but that there could be "a significant impact" on other smaller oil projects.

Henry said the value of Shell’s North Sea assets is declining due to the tax increases, creating a situation where sales might take place. "If it's worth more to us we keep it, but if there are buyers out there we might consider selling."

Henry conceded that government tax hikes “are a factor in the business we are in.” He added, “We do try and hold constructive discussions with government on new investment decisions.”

Others affected
Shell is the latest oil company to warn about the effects of the tax increase on its operations and plans for the North Sea. Executives of ExxonMobil Corp. and Chevron Corp. recently said they had held talks with government representatives about the move.

Earlier this month, Ian Wood, chairman of Aberdeen-based Wood Group, warned that the government tax plan represented a "real setback" for North Sea oil that would reduce investment in the industry and harm efforts to maximize the extraction of oil from the UK continental shelf.

"We are operating in a very competitive international environment, and there seems little doubt that this change will reduce investment in the North Sea over the next 2 or 3 critical years," Wood said (OGJ Online, Apr. 4, 2011).

Britain’s Chancellor of the Exchequer George Osborne imposed a supplementary levy on oil and gas producers in an effort to recoup some of the profit that energy companies are making from higher global oil prices.

Britain’s Treasury is increasing tax on fields to 62% from 50% and is reducing relief on decommissioning old fields to 20% from 32%.

Contact Eric Watkins at

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