Shell to cut 6,500 jobs as profits fall

PHOTO: Bloomberg

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 BG Group, bringing total asset sales between last year 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," said chief executive Ben van Beurden.

Shell said it anticipated 6,500 staff and direct contractor reductions this year, from a total of nearly 100,000 employees. The group said it would reduce this year's 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 current-year spending by 10 to 15 per cent from last year, to cope with a halving of oil prices over the past year to below US$55 a barrel. Rivals BP and Total announced further cuts this week.

Shell said its operating costs were expected to fall by US$4 billion, or around 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 next year and 2018, on top of a total of US$20 billion in disposals for last year and this year 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 approval from the European Union, China and Australia, after Brazil, the United States and South Korea formally cleared it.

The deal is expected to generate pre-tax benefits of around US$2.5 billion per year, starting in 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 while the European oil and gas sector was up just over 1 per cent.