BP. Bp Plc

By David Ricketts

Of Financial News

Bumper profits at Shell PLC and BP PLC have reignited calls for a windfall tax on oil giants to combat soaring energy bills, but shareholders say the move would be "short-term meddling" by the government.

"I'm not that wild on governments intervening in markets on an ad hoc basis, particularly in businesses like this when lead times on investments are very long," one top 20 shareholder in BP and Shell told Financial News. "Anything that discourages long-term planning--and short-term intervention would discourage long-term investment--would be very problematic."

Shell and BP posted record profits for the first three months of 2022 this week. BP's more than doubled to $6.2 billion, up from $2.6 billion last year--despite losing more than 20 billion pounds ($24.7 billion) after pulling its shareholding in Russian oil giant Rosneft Oil Co.

Shell recorded a $9.1 billion profit during the first quarter, almost three times the $3.2 billion it made last year.

The sharp increase in profit for both oil giants comes as energy bills soar and the war in Ukraine pushes oil prices higher.

The record profits have led to calls from some politicians for oil and gas giants to be slapped with a one-off levy to offset spiralling costs for households.

Following Shell's results, shadow energy secretary Ed Miliband, tweeted: "Another day, another oil and gas company making billions in profits, and yet another day when the Conservatives shamefully refuse to act with a windfall tax to bring down bills."

However, fund managers are unconvinced it is the right approach.

"I don't think it is fair to dip into company profits when they are good," said the top 20 shareholder. "Both of the big oil companies are at pains to set out what their longer-term strategies are, to be more diversified energy companies. It will be a long process and it isn't in the interests of shareholders or society if there is short-term meddling."

BP said it plans to invest up to GBP18 billion in the U.K.'s energy system by 2030, including offshore wind and electric vehicle charging points. The planned investment from BP comes as asset managers with active fossil fuel stakes tout their ESG credentials, highlighting how their investment in heavy carbon emitters could actually help them cut greenhouse gases.

Steve Clayton, a fund manager at Hargreaves Lansdown who holds both BP and Shell across the HL Select UK Income fund, said: "We cannot support windfall taxes on companies going about their ordinary course of business."

"BP and Shell lost money, hand over fist, when energy prices were weak. A bumper year isn't a windfall if it comes after or precedes a drought year."

He added: "President Putin has engineered an extraordinary price environment and currently producers are reaping the benefit. But if Europe and the West are serious about displacing Russian energy permanently from their supply base, then investment levels will have to rise sharply."

Another top 20 shareholder in BP added: "North Sea oil activity is so limited these days that a windfall UK tax wouldn't have that much of an impact on the kind of results that BP have announced. It would just put them off any future investment."

U.K. Prime Minister Boris Johnson has so far rejected calls for a windfall levy on oil and gas companies, telling ITV on May 3 that it would "discourage them from making investments we want to see, that in the end will keep prices lower for everybody."

Mr. Clayton said: "It is always tempting for governments to consider taking money from an industry that is making high profits at any given moment. But it is rarely wise for them to do so."

"After all, for a productive economy, money must seek out the best possible returns. Take those opportunities away and less productive investments will be made and our growth potential reduced."

Website: www.fnlondon.com

(END) Dow Jones Newswires

May 06, 2022 05:20 ET (09:20 GMT)

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