By Sarah Kent
LONDON-- 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. Even deeper cuts have emerged this week at oil
services firms, which big energy companies are squeezing for
savings; Saipem SpA of Italy, for instance, said it would slash
8,800 jobs over the next two years.
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, BP PLC, 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.
"These are sustainable cost reduction programs. These are not
just slash and burn," Chief Financial Officer Simon Henry told
reporters, adding that there is more to come.
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.
Shell executives were anxious to dispel the notion that they
needed a recovery on Thursday, emphasizing that the deal made sense
at "nearly any oil price we can envisage."
"Perhaps we left the impression that we're waiting for the
cavalry in the form of high oil prices," Chief Executive Ben van
Beurden said, admitting that the company had failed to adequately
emphasize how it planned to manage the lower price environment.
He unveiled a new motto that the BG deal embodies: "Grow to
simplify."
"Our results today show we are successfully reducing spending
and costs. We have to make sure the company is resilient in a world
where oil prices remain low for some time while keeping an eye on a
recovery we believe will come," he said.
Write to Sarah Kent at sarah.kent@wsj.com
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