Shell to ax thousands of jobs amid $7 billion in spending cuts
Royal Dutch Shell is cutting more than 6,500 jobs globally as it prepares for an ongoing “oil price downturn that could last for several years,” said CEO Ben van Beurden on Thursday.
Shell is slashing its 2015 capital spending by an additional $3 billion down to $30 billion — a $7 billion total, or 20 percent cut, from last year — as it prepares for a wave of $30 billion in asset sales once its completes its $70 billion acquisition of London-based BG Group early next year.
Although Shell will not break down its job cuts by region, the reductions include 1,630 full-time staffers, 2,435 direct contractors, and another 2,460 in lost jobs through divesting parts of the Netherlands-based energy giant. Some of the cuts came earlier this year. Shell has about 94,000 global workers, including nearly 12,000 in the Houston region.
While Shell is becoming leaner and more focused, even with the BG deal, in its emphases on deep-water production and liquefied natural gas, van Beurden still said he expects oil prices to increase a lot from the current $50 or so per barrel.
Van Beurden said he sees an eventual floor for oil prices at $70 barrel that could go as high as $90 because demand will eventually catch up with ongoing production cutbacks, but he is not predicting when that will occur.
“At some point in time, the market is going to balance,” he said. “But what I do know is I have to survive at today’s oil prices as well.”
Shell has largely scaled back from U.S. shale, although there have been some successes in Texas’ Permian Basin. Van Beurden noted that shale has high decline rates in production and that constant investments are needed. He questioned how long the capital market will keep funding the “scheme.”
Shell’s net income for the second quarter of the year was $4.1 billion, or 63 cents a share, down 23 percent from $5.3 billion, or 84 cents a share, from the same quarter last year. But the numbers exceeded analysts’ estimates. Revenues dipped more than 35 percent from $115 billion in last year’s second quarter to $74 billion this year.
Houston-based Tudor, Pickering, Holt & Co. praised Shell for moving more aggressively to cut costs and capital for the low oil price environment, especially because Shell has suffered from a perception that its capital discipline was poor relative to peers and that the BG deal was struck assuming higher oil prices.
In a note, Simmons & Company International analyst Guy Baber said Shell’s exploration and production revenues proved more resilient than expected and that its refining, lubricants and retail businesses performed admirably.
As a result, Shell shares were trading more than 3 percent higher on the day after the earnings were released.
“We’re delivering on the growth plans, but we’re doing it for less money,” said Shell Chief Financial Officer Simon Henry.
As such, Shell also announced it is selling most of its stake in Japan-based Showa Shell Sekiyu, which is largely a refining business, for $1.4 billion to Tokyo-based Idemitsu Kosan.
With the BG deal, Shell will lean harder on LNG. The deal will Shell stronger positions in Australia LNG and in deep-water Brazil.
With such a gas reliance, van Beurden said he hopes countries implement more manageable carbon tax plans so the world is less reliant on coal, which creates more carbon emissions.
“I do think you need a carbon price to sort of level the playing field against coal,” van Beurden said, noting that more also has to be done regarding areas like Africa, India and southern Asia that rely a lot on coal power. “You have to reduce the cost of delivery in gas in general.”
Simon and van Beurden also emphasized that Shell is doing much more than just scaling back. Shell also is moving forward with prioritized major projects. Simon highlighted 10 of them, including the deep-water Appomattox project in the Gulf of Mexico.
“If we stop doing this (growth), we might as well pack up and go home,” Simon said.
