Shell is laying off 6,500 of its employees in a move that blames excessive spending.
During a recent statement released to discuss the company’s second quarter results, Chief Executive Officer of Royal Dutch Shell PLC Ben van Beurden has admitted that the company has been very prudent with spending lately.
Shell has to be resilient
He said, “We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery. We’re taking a prudent approach, pulling on powerful financial levers to manage through this downturn, always making sure we have the capacity to pay attractive dividends for shareholders.”
And in line with this direction, he also announced that Shell will be laying off as much as 6,500 jobs, including staff and contractors, this year.
According to Shell’s second quarter 2015 earnings presentation, the said layoffs will affect jobs in the North Sea that will see the reduction of staff and contractors by around 750.
Moreover, the company’s heavy oil business will also see a reduction of more than 700 staff and contractors. In addition, job cuts will also be done as part of Shell’s Nigeria divestment.
The goal is to be able to “take out cost,” in the hopes of lowering Shell’s capital spending by 20% to make it $7 billion lower and reducing its operating cost by 10% to $4 billion lower in 2015.
Everything is meant to help “re-shape the company,” reflecting “reduced exploration spend, a fresh look at capital allocation in longer term plays, and asset sales spanning upstream and downstream.”
Moreover, Shell is also looking to reduce its portfolio into “fewer, higher value positions.” In other words, Shell says the company wants “grow to simplify.”
Keeping Up With the Declining Price Of Oil
Shell is embracing the reality that the oil price downturn may last for several years. However, they remain hopeful that the price of oil will go up to about $70 to $90 around the medium term.
According to van Beurden, “Shell’s integrated business and our performance drive are helping to mitigate the impact of low oil prices on our bottom line.”
Royal Dutch Shell has announced that its second quarter earnings for 2015 (based on current cost of supplies) is down by 25% to $3.4 billion. This is a significant decrease from its second quarter earnings for 2014 of $5.1 billion.
Meanwhile, the company’s cash flow from operating activities for the second quarter of 2015 also fell to $6.1 billion. The cash flow from operating activities for the same quarter back in 2014 was $8.6 billion.
Shell plans to continue its cost reduction measures in 2016.