Shell shares rose on Thursday morning after the oil giant’s profits declined quarter-on-quarter as a result of lower oil prices. Shell’s profit wa well ahead of last year’s loss and the significant $7bn Q3 profit has drawn calls for a windfall tax.
However, the variability in Shell’s profit highlights the precarious nature of oil and gas businesses and fairness of a windfall tax, especially at a time they are investing in clean energy solutions.
“With oil prices down from their triple-digit highs this summer, it was inevitable to see big oil’s profits start to thin. However nearly $7bn in profits for the quarter is nothing to sneeze at, and is a far cry from the losses Shell suffered last year,” said Laura Hoy, Equity Analyst at Hargreaves Lansdown.
“Although the group isn’t printing money at record pace anymore, oil prices are still elevated by historical standards and that means Shell has more than enough to continue boosting shareholder rewards.”
Shell is one of the most widely held shares in UK pension funds and increased distributions will benefit almost all UK pensioners.
Shell profit
Shell income attributable to shareholders was $6.7bn in the third quarter, down from $18bn in the previous quarter. This compared to a $447m loss in the third quarter last year.
Shell recently said they expected refining margins to suffer in the quarter due to lower oil prices. Refining margins were indeed a key driver of falling profit in Q3 but margins remained elevated compared to last year.
Lower liquefied natural gas trading activity also hit profits during the period.
Clean Energy
There is an argument a windfall tax on oil majors such as Shell would be counterproductive in the push towards renewable energy. Shell is investing heavily in their Renewables and Energy Solution units and incurring significant losses as a result.
A windfall tax would like see spending in this unit reduce as its not yet a core revenue generator for Shell.
Shell shares were 3% higher at 2,367 at the time of writing.