Royal Dutch Shell PLC announced plans to slash 6,500
jobs Thursday amid a slump in oil prices that has sent a wave of job cuts
rippling through the industry. Shell’s job reductions came as Chevron Corp. said
Wednesday it would cut 1,500 jobs, while U.K. utility Centrica PLC
said Thursday it would slash 6,000 positions and work to shrink its
oil-and-gas production division.
The moves demonstrate how energy companies are moving to
slash further to cope with a sustained oil price collapse that they now see
lasting for a longer time. Shell, BPPLC, France’s Total SA and Eni SpA
of Italy have all outlined plans in their second quarter results to deepen
spending cuts that began earlier this year when oil prices reached lows
below $50 a barrel, down from highs of $114 a barrel last year.
Shell’s job cuts were announced along with second-quarter
earnings that saw its profit fall by 33% from the same period last year, to
$3.4 billion compared with $5.1 billion on a current cost of supplies basis—a
measure similar to the net income reported in the U.S. As with its peers,
Shell’s exploration and production, or upstream business, suffered worst,
tumbling to $774 million, down nearly 80% from a year earlier. Shell’s oil
production fell 11% to 2.7 million barrels of oil equivalent as the company undertook
maintenance at several fields and continued a $20 billion divestment program
due to complete at the end of the year.
Shell has seemed more bullish, at least in its rhetoric, on
the future of the oil price than peers such as BP. The company sounded a
somewhat more cautious note on Thursday, saying in a news release that it was
planning for an “oil price downturn [that] could last for several years.”
The planned job cuts for the year are equivalent to around
7% of Shell’s total workforce and will include cuts already announced in the
North Sea and Canada. Elsewhere, the company has reduced capital spending and
operating costs, sanctioning only two new projects this year and reducing
spending on back office activities.
Investors seemed to react well to the cost-reduction plans.
Shell’s share price rose more than 4% in London following the announcement. The
cuts comes after a series of bold moves that led some investors to believe the
company was ignoring the peril of sustained low oil prices.
In April it signed a $70 billion deal to acquire
BG Group—the company’s largest purchase ever and the biggest deal in the oil
sector for more than a decade—and it is pressing ahead with expensive plans to
drill in the Arctic this summer. While others have delayed approval of big
ticket projects, earlier this month Shell decided to move forward with the
development of its deep-water Appomattox oil field in the Gulf of Mexico.
For Shell, Thursday’s announcements amounted to a new sales
pitch for its BG deal, viewed by some as a symbol of the company’s
comparatively bullish stance on the oil market. Though most analysts have
praised the logic of the deal—which will give Shell a major footprint in
Brazil’s attractive deep-water oil plays and enhance its leading position in
the liquefied natural gas market—the price has come under criticism and some
have expressed concerns that it depends too much on an oil price recovery.
Shell said the synergies from the deal should amount to at least $2.5 billion a
year from 2018. Over the medium term, the company still sees the potential for
the oil price to return to $70 to $90 a barrel.
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