ExxonMobil says the EU measure could cost it $2bn by the end of 2023. Report by Rachel Millard.
ExxonMobil is suing the EU to try and overturn its new windfall tax on oil and gas companies, accusing Brussels of overstepping its legal powers with the “counter-productive” policy.
The US oil giant has filed a lawsuit at the European General Court seeking to block the new levy, which is expected to raise €25bn (£22bn).
ExxonMobil has said the EU measure and other windfall taxes imposed by European governments could cost it $2bn by the end of 2023.The New York-listed company warned the policy could deter it from making “multi-billion Euro” investments in Europe’s energy supply, just as the continent tries to diversify from Russian supplies.
The move marks the most significant challenge yet to windfall taxes imposed in Europe and the UK, which have been levied to help pay for state support to keep soaring bills down. Politicians have argued that oil and gas producers have made outsized and unwarranted profits from soaring oil and gas prices worsened by Russia’s invasion of Ukraine.
A spokesman for ExxonMobil, the world’s largest private oil company, said: “We recognize that the energy crisis in Europe is weighing heavily on families and businesses, and we’ve been working to increase energy supplies to Europe.
“Our challenge is targeted only at the counter-productive windfall profits tax, and not any other elements of the package to reduce energy prices.
“This tax will undermine investor confidence, discourage investment, and increase reliance on imported energy and fuel products.”
Known in the EU as a “solidarity contribution,” the EU’s windfall tax imposes a levy on fossil fuel companies amounting to about a third of “excess” profits for 2022-23, defined as profits 20pc or more above the average made in the three years to the start of 2022.
Member states are expected to use the proceeds to support households and businesses struggling with high energy prices. The tax comes into force on December 31.
ExxonMobil, which has a market capitalisation of around $446bn, generated revenue of $276bn in 2021 from oil and gas projects in 39 countries. Its European operations include oil and gas production in Germany, Greece and Italy, as well as refineries in France, Germany, Italy and the Netherlands.
In October, it announced record quarterly profits of almost $20bn amid soaring gas prices. Earlier this month it announced plans to return $50bn to investors over the next two years through share buybacks.
Exxon says it has invested more than $3bn in major European refining projects over the past ten years, making it one of the largest investors in the sector.
However, it cautioned: “Looking forward, as we consider future multi-billion Euro investments in Europe’s energy supply and transition, we look for strong business cases underpinned by a stable and predictable investment climate.
“Whether we invest here primarily depends on how attractive and globally competitive Europe will be.”
A Commission spokesman said the tax “will ensure that the whole energy sector pays its fair share in these difficult times for many to address the extraordinary energy crisis resulting from the weaponisation of the energy supply by Russia.”
They added: “The Commission maintains that the measures in question are fully compliant with EU law.”
The legal case threatens to derail a key plank of Brussels’ efforts to tackle the cost of living crisis and will be watched closely in the UK.
North Sea oil and gas producers have also been angered by British windfall taxes this year, which take their overall tax rate from 40pc to 75pc.
Harbour Energy, the North Sea’s largest producer, has said it will not take part in the latest North Sea licensing round because of the tax, while rival Total has said it will cut investment by one quarter next year.
After surging in the wake of Russia’s invasion of Ukraine at the start of the year, oil prices have fallen back from highs reached over the summer and are currently below pre-invasion levels. Prices slumped on Wednesday as traders fretted over China’s new wave of coronavirus cases, which threaten to curb demand even as restrictions ease.
Brent crude fell 1.8pc or $1.53, to $83.80 per barrel on Wednesday, while the US benchmark was down 1.6pc to $78.22 per barrel last night.
The declines came despite Russia’s threat to ban sales of crude from February 1 to buyers observing a price cap on Urals crude imposed by Western countries.
“The pushback is not a surprise - some sort of retaliation has been on the cards ever since the price cap was announced,” said Alan Gelder, oil market expert at Wood Mackenzie.
Mr Gelder said the market reaction to Moscow’s oil ban was muted in part because “the wording is vague.”
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