Global energy giant Royal Dutch Shell is sacking 6,500 of its workers as the lower price for crude oil bites into its profits.
Shell’s quarterly profit dived by almost 40 per cent because of the oil slump and, with the oil price set to remain low, it has slashing capital spending by another $US3 billion.
The action by Shell comes as it seeks to convince investors it can withstand a long period of lower oil prices, with its planned purchase of BG Group yet to be approved.
Matthew Beesley, head of global equities of Henderson Global Investors, told AM that the Shell job cuts represent 7 per cent of its entire workforce.
“They are very keen to signal to investors that should oil prices stay at these low levels, currently below $US50, then there’s more they can do in terms of job cuts, more they can do in terms of cost cuts and more they can do in terms of capital expenditure reduction,” Mr Beesely said from London.
“Shell, in trying to buy BG, are making a bet that oil prices are going to go higher, so for them it’s important in advance of a completing the acquisition that they get their own house in order so they can weather lower prices if indeed we are in an environment where prices are lower for longer.”
Mr Beesley believes the jobs losses are likely to extend beyond staff directly employed by Shell.
“I think that’s inevitable. There will be cuts from the contracting work phase too and, on top of that, Shell is looking to acquire BG and you have to think that most of the white-collar workforce at BG will be vulnerable too,” Mr Beesley added.
Shell’s proposed acquisition of BG Group is now more important than ever given bets that the boom in demand for LNG might offset a lower crude oil price.
“The Curtis Island project in Queensland is a project that is ramping up now, and is a key part of the attraction for Shell in acquiring BG,” Mr Beesley said.
“It will give Shell in total the best part of a third of the global LNG market by the time we get out to 2018.
“Of course for them to make the amount of money that they hope to make out of this business, they will need oil prices and gas prices to be higher.”
The job cuts at Shell follow a record $US1.05 billion quarterly loss posted by fellow energy giant Peabody Energy.
Total coal volumes were down 8.5 per cent in the June quarter prompting Peabody to write down its coal portfolio by $US901 million.
news source & image credits: abc.net.au