Shell claims Brown breached trust

Anglo-Dutch oil giant Shell has lashed out at the Government, accusing it of creating a climate of mistrust over the future of the North Sea.

In a rare interview, the group's UK chief executive, Clive Mather, told The Independent on Sunday that the Chancellor's new tax on operations in the North Sea – announced in the April Budget – was a short-sighted blow to confidence. Even more damaging, he said, was the way that Gordon Brown's move had directly undermined a critical joint venture between government and industry.

Described by Mr Mather as "unexpected and unwelcome", the tax was imposed with immediate effect from the Budget and rerpresents an extra 10 per cent increase in corporation tax on oil and gas operations in the North Sea.

The UK Offshore Operators' Association (UKOOA) said that as well as costing the industry an additional £8bn and forcing a massive reduction in investment in the North Sea, it means the loss of 50,000 jobs.

That outcome, says Shell, flies directly in the face of "Pilot", a taskforce set up as a joint venture between the Department of Trade and Industry and the major oil companies to promote activities in the North Sea.

Pilot's core aims were to "encourage investment, safeguard jobs and improve conditions". Given that the tax directly hits these, Shell believes the Government has provoked a collapse in confidence.

Shell says it entered the Pilot scheme on the clear understanding that the fiscal regime in the North Sea would not change, and is accordingly angered by the move.

"This tax bombshell has caused us to say 'what is the point if the rules are going to change?' " said Mr Mather. "The climate created is one where we wonder whether there will be more to come."

Shell's attack on the Government's apparent breach of confidence includes a personal letter from Mr Mather to Chancellor Gordon Brown. In it he expresses his group's disappointment and highlights the massive inconsistencies between the Govern- ment's actions and the ambitions of Pilot.

"We have invested substantial senior management time in Pilot and understood that the shared Government/ industry agenda was to maintain fiscal stability in order to attract the maximum investment and innovation to the UKCS [North Sea]. Indeed we had assured our investors this was the case. While the impact of this loss of confidence is difficult to quantify today, future years may see an erosion in interest and activity as a result."

Although others in the industry have expressed their unhappiness with the surprise tax, this is the first time that the usually cautious Shell has spoken out on the matter.

Although all UK operators were harmed by the tax, it puts Shell in a particularly tough position. Its recent £4.2bn purchase of Enterprise Oil adds significantly to the group's exposure to the North Sea, as around 70 per cent of Enterprise's revenues came from its operations there.

Analysts have estimated that the effect of the tax is equivalent to a cut of 25p per Enterprise share, which now stand at 720p.

But both Shell and UKOOA are expected to continue to fight for either a reversal of the tax or swift concessions.