Royal Dutch Shell is cutting 6,500 jobs in Nigeria and at the rest of its global operations and will reduce capital spending by 20 per cent this year, as the oil company takes dramatic action in response to the plunge in oil prices.
The job cuts, which represent seven percent of Shell’s 94,000 workforce, are part of a plan to cut $4bn (£2.5bn) from the company’s operating costs.
Van Beurden said Shell is taking a prudent approach through the downturn, making sure it can pay dividends to shareholders.
Oil prices have rebounded somewhat, analysts say, but the impact on oil companies’ bottom lines has already been felt.
Whilst “Supermajor” peers have cut 10%-15% of spending since 2014 to date, Shell is reaching the lower end of that range with a seven-month lag.
Pro-forma capital investment in 2016 for Shell and BG is expected to be around $35bn. A year ago, that profit was $5.1 billion, the Wall Street Journal and other business media reported early Thursday.
The cuts come as Shell says it is “planning for a prolonged downturn” in oil prices.
While announcing the second quarter results on Thursday, Shell stated that its capital investment for this year will be trimmed by $7 billion and operating costs will be reduced by $4 billion.
The drop in earnings is against a backdrop of lower oil prices, which averaged US$60 a barrel in the second quarter of 2015, up around US$5 a barrel from the previous quarter but down from US$110 a barrel a year earlier.
CEO Ben van Beurden stated that the oil industry is facing challenging times and that “urgent and convincing” intervention is therefore necessary in the group. This is evident in the fact that it is progressing with its £47bn acquisition of sector peer BG, and has also announced a £25bn share buyback programme.
“The company has to be resilient in today’s oil price environment, even though we see the potential for a return to a $US70-$US90 oil price band in the medium term”, Shell said.
Shell’s company logo is pictured at a gas station in Zurich April 8, 2015.
The world’s biggest oil companies are leaning on refinery businesses they were scaling down over the past five years to help offset lower earnings from selling crude.
It’s been a decade since Shell began buying new leases in the Arctic, and it has spent about $7bn on the project, which as yet remains officially one of exploration, not production.