Shell to cut jobs to cope with period of cheap oil

A string of other energy companies have announced plans this year to cut investments and jobs due to the slump in oil prices.

Sinking oil prices have prompted another round of heavy job cuts.

Shell executives indicated that they were hunkering down for what could be a long period of low oil prices.

Underlying earnings, or profit excluding exceptional items such as disposals and impairments, declined 65% in the second quarter to $429 million from $1.21 billion a year earlier.

It is slashing costs for 2015 by 10 per cent, or $4 billion (£2.6bn), while investment is being pared by a fifth, or $7bn, with further cost-cutting ahead.

“Today’s oil price downturn could last for several years, and Shell’s planning assumptions reflect today’s market realities”, Royal Dutch Shell CEO Ben van Beurde said.

Analysts were upbeat, pointing to the strong contribution from Shell’s downstream operation – a common theme for the majors for whom the manufacture of refined oil product act as a hedge against lower crude prices – tougher cost control and the cuts to capital spending.

The group disclosed the figures as it published second-quarter results showing a 35 per cent fall in earnings to $3.36bn.

In the 2016-2018 span, presuming the BG combination takes place, Shell expects to sell $30 billion in assets as the combined portfolios are restructured.

Capital investment is expected to be around $30 billion, reflecting a reduction in costs, project cancellation and growth options re-phasing, the company said in the press release.

Its average revenues from a barrel of oil were 48 per cent lower than a year earlier, while those from natural gas, an important earner for Shell, were down 31 per cent.

The company announced on Thursday the sale of a 33 per cent stake in the Showa Shell refinery in Japan to Idemitsu for about $1.4 billion.

Shell hopes to complete its BG deal by early next year and is still awaiting key regulatory approvals from the European Union, China and Australia after Brazil, the US and South Korea cleared it.

Shell’s dividend commitment will remain unchanged at $1.88 per share this year, with at least that amount to be paid in 2016. The dividend stayed at 47 cents a share. ConocoPhillips has said it’s continuing layoffs while it, too, strives to slash $US1 billion in spending over two years.

Oil prices have plummeted by half to around $50 a barrel since June last year mainly because of a global supply glut. Yet oil’s slump means LNG rates are also declining because most contracts are linked to the price of oil.