Shell to cut 6,500 jobs this year

Shell says its operating costs are expected to fall by US$4 billion (S$5.5 billion), or about 10 per cent, this year as part of a broad efficiency drive to boost its balance sheet.
Shell says its operating costs are expected to fall by US$4 billion (S$5.5 billion), or about 10 per cent, this year as part of a broad efficiency drive to boost its balance sheet.PHOTO: AGENCE FRANCE-PRESSE

It is also planning asset sales as it expects downturn in oil prices to last for several years

LONDON • Royal Dutch Shell is to axe 6,500 jobs this year and step up spending cuts to deal with an extended period of lower oil prices which contributed to a 37 per cent drop in the oil and gas group's second-quarter profits.

The Anglo-Dutch company also said it was planning more asset disposals as it pushes ahead with its proposed US$70 billion (S$96 billion) acquisition of the BG Group, bringing total asset sales between 2014 and 2018 to US$50 billion.

"We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery," chief executive Ben van Beurden said yesterday.

Shell said it expected to cut 6,500 staff and direct contractors this year from a total of nearly 100,000 employees. And the group said it would reduce 2015 capital investment for the second time this year to US$30 billion, down by 20 per cent from a year ago, as it expects the downturn in oil prices to last for several years.

Big oil companies have cut 2015 spending by 10 to 15 per cent from 2014 to cope with a halving of oil prices over the past year to below US$55 a barrel.

Rivals BP and Total also announced further cuts this week.

Shell said its operating costs were expected to fall by US$4 billion, or about 10 per cent, this year as part of a broad efficiency drive to boost its balance sheet.

It also expects US$30 billion of asset sales between 2016 and 2018, on top of a total of US$20 billion in disposals for 2014 and 2015 combined. The company announced yesterday the sale of a 33 per cent stake in the Showa Shell refinery in Japan to Idemitsu for about US$1.4 billion.

Shell hopes to complete its BG deal by early next year and is still awaiting key regulatory approvals from the European Union, China and Australia after Brazil, the US and South Korea cleared it.

The deal is expected to generate pre-tax benefits of about US$2.5 billion per year starting from 2018.

The tie-up will turn Shell into the world's leading liquefied natural gas company and one of the largest deepwater oil producers with a focus on Brazil.

"We see significant value in the combined entity which, over time, will reduce the break-even price," said analysts at Bernstein, who rate the stock as "outperform".

Shell shares rose more than 2 per cent yesterday, while the European oil and gas sector was up just over 1 per cent.

Shell's second-quarter cost of supplies earnings excluding identified items - the company's definition of net income - came in at US$3.835 billion, compared to US$6.13 billion a year earlier and US$3.25 billion in the previous quarter. The results beat expectations of US$3.18 billion, according to an analyst consensus provided by the company.

The drop in earnings is against a backdrop of lower oil prices, which averaged US$60 a barrel in the second quarter of 2015, up around $5 a barrel from the previous quarter but down from US$110 a barrel a year earlier.

A sharp decline of around 75 per cent in revenue from oil production was once again offset by refining and trading, where earnings more than doubled in the second quarter from a year earlier.

Shell maintained its quarterly dividend at 47 cents per share and committed to at least the same payout in 2016.

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 31, 2015, with the headline 'Shell to cut 6,500 jobs this year'. Print Edition | Subscribe