Shell's $10.6bn profits fuel windfall tax calls

Royal Dutch Shell's third-quarter profits ballooned by 71 per cent to $10.9bn (£6.7bn), the company said yesterday, reigniting outrage that energy companies are cashing in while inflated oil prices punish consumers.

On the other side of the Atlantic, Exxon Mobil broke its own record for the biggest quarterly profits in US corporate history. The world's largest public company reported earnings of $14.8bn, up 58 per cent from 2007 despite an 8 per cent production decline.

After BP announced profit growth of 148 per cent, earlier this week, it was the Prime Minister calling for recent reductions in the oil price to be passed on to petrol pumps. Yesterday was the Chancellor's turn. "People are entitled to see the benefit of that falling price reflected in what they actually pay when they fill up the car," Alistair Darling said in a television interview.

Shell's figures, buoyed by oil prices ballooning to $147 per barrel in July, were certainly strong. Even without including one-off gains from disposals and mark-to-market valuation of some contracts, underlying earnings were still up 44 per cent at $8.84bn. Cash flow was $10.4bn, net capital investment $11.2bn and total distribution to shareholders $3.1bn. The third-quarter dividend will go up 11 per cent to 40 cents per share.

But Jeroen van der Veer, Shell's chief executive, stressed that profits were going back into the business. "Our strategy is about good operating performance and competitive rates today, and making significant investment in the company for the future," he said. "Yes, we are generating large profits; and yes, we have the largest investment programme in Shell's history to create value for our shareholders and play our part in providing secure, convenient and cost-convenient energy for our customers.

"We are watching the economic situation closely. We are steering the Shell ship through rough waters."

Despite the eye-watering profits, production is declining. Shell's output in the third quarter was some 6.6 per cent lower than the same period in 2007 – taking it below 3 million barrels per day (bpd) for the first time in 17 years. The combination of hurricanes in the Gulf of Mexico and maintenance outages in the North Sea cost the company more than $800m in the three months.

Shell says it expects an additional 250,000 bpd to come on stream in 2009, and it aims to increase production by between 2 and 3 per cent over the coming decade. But a lower oil price – now less than half its July high – is a serious issue. Capital-intensive, technically complex programmes like Canada's oil sands, which are the main opportunities for growth, rely on high-ish prices for financial viability. Although Shell denied a link between its long-term investment strategy and day-by-day volatility in the spot price for oil, it is nonetheless reining back on expansion of its Athabasca oil sand venture.

Shell's profits stirred up the windfall tax debate. Tony Woodley, joint general secretary of the Unite union, said: "It is time to put an end to this obscene profiteering. It is no longer acceptable for the Government to stand on the sidelines while such astronomical windfall profits are raked in by these major fuel companies." Mike Childs, of Friends of the Earth, said: "The Government must introduce a windfall tax on vast oil company profits and invest the money in green initiatives to cut fuel bills for households and drivers."