16 December 2017

Shell to Cut 6,500 Jobs as Profit Drops

#
Share This Story

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.

Click here to access the full article on The Wall Street Journal. 

Join Our Online Community
Join the Better Way To Retire community and get access to applications, relevant research, groups and blogs. Let us help you Retire Better™
FamilyWealth Social News
Follow Us