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Shell Expects To Book A $2.5 Billion Charge Due To U.S. Tax Reform

Shell said it will book a US$2-2.5-billion charge in its fourth-quarter 2017 results following the tax reform bill passed by Congress last week. The charge is a result of a re-measurement of the company’s deferred tax position. Overall, however, the effect of the reform would be favorable. The supermajor added the analysis of the reform’s impact on its business was still ongoing.

The charge, Shell went on to say, would take the shape of a non-cash adjustment and will be entered as an identified item in the fourth-quarter report. Its size is only an estimate based on the company’s third-quarter financial figures, so the actual charge may be larger or smaller.

The Republican tax reform, which President Trump signed into law last Friday, envisages a reduction to the corporate tax rate from 35 percent to 21 percent and sets limits on the corporate interest payment deductibility, among other provisions widely seen as benefitting the oil and gas industry at the expense of renewable energy.

Yet, these benefits might turn out to be more theoretical than practical. Before the tax bill was passed, oil tycoon Harold Hamm said that even with the corporate taxes cut, U.S. drillers would not return to the lavish spending days from before the downturn, because companies are now much more disciplined in their finances and looking to boost profits.

“That’s not the deal anymore, and finally the analysts and everybody else caught on. Shareholders caught on and said, ‘We’re not going to put money in there just for growth’s sake. We want a return, a good return on capital employed,” Continental Resources’ chairman and chief executive Hamm told CNBC in early December.

However, the lower corporate tax rate would certainly help oil and gas drillers return cash to shareholders, which is emerging as the new top priority after the austerity period. Shell was among the first that signaled the end of that period when last month it said it would return to an all-cash dividend and begin buying back shares, sold during the downturn to keep the company going.

By Irina Slav for Oilprice.com

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