Big oil has had an incredibly profitable quarter. In the last week, Exxon Mobil (US: XOM) and Chevron (US: CVX) - the two big players in the US have reported combined net profits of almost $31bn. Their peers in the UK, Shell (LON: SHEL) and BP (LON: BP.) have posted similarly lucrative income: $9.5bn and $8bn respectively.
Investors are benefiting from these profits. Alongside its results, Shell announced a 15% hike to its dividend and a $4bn share buyback programme, which will reduce the number of shares in issue and thus boost the profit per share. BP plans to buy back another $2.5bn shares in the final quarter of 2022, taking its full buyback programme for the year to $10bn. Exxon Mobil’s share price is up 73% in the year-to-date (in a US market which has fallen hard) and Chevron’s is up 50%.
But these numbers also raise some thorny questions. Should the oil and gas majors be raking in such high profits at a time of exorbitant inflation which may leave many Brits with cold homes this winter? Should their profits be reinvested for the good of their investors or the green energy revolution? And is the sector profiteering from troubles in Eastern Europe?
The latter point was raised by President Joe Biden on Monday. “Their profits are a windfall of war — a windfall from the brutal conflict that is ravaging Ukraine and hurting tens of millions of people around the globe,” he said at a conference in Washington. And if these companies don’t start lowering prices his solution is higher taxes: “if they don’t [lower prices for consumers], they’re going to pay a higher tax on their excess profits and face other restrictions.”
But a windfall tax is not always the solution - as the differing tax profiles of BP and Shell have shown in their recent results. In the UK, the Energy Profits Levy is a 25% tax on profits made extracting (but not refining or selling) oil and gas. It should, theoretically, tax both BP and Shell for the oil they drill out of the North Sea. But a rebate on investment in fossil fuel extraction means the companies can apply for tax savings. Thus, Shell will not pay any tax on the oil it has extracted this year because it has also invested significantly in new oil…
