Royal Dutch Shell will announced 2,000 job cuts from its global workforce, taking the total tally of losses to 12,500 from 2015 to 2016 as it pulls out all stops to "upstream business" amid the collapse in oil prices. The oil giant hints that there’s going to be 5,000 more Shell layoffs at North Sea as profits plummet.
Shell job cuts are in response to the price of oil staying “lower for longer,” and as a result of the recent BG Group tie-up, said Paul Goodfellow, Shell’s vice president for the UK and Ireland.
“These are tough times for our industry,” Goodfellow wrote in the emailed statement. “We have to take further difficult decisions to ensure Shell remains competitive through the current, prolonged downturn.”
Like other oil and gas companies, Shell has been hammered by the damage being inflicted on the industry by plummeting crude prices. It has been axing jobs and spending over the last two years to catch up with global oil prices since Ben van Beurden took over as Shell chief executive. It has already slashed 750 jobs from its North Sea business, of which two thirds were based in UK. It has also asked for voluntary redundancies from the former BG Group HQ at Thames Valley Park.
Prior to the latest Shell layoffs, it was making 2,800 job cuts following its takeover of BG Group. In addition, it had announced a reduction of 10,300 staff and direct contractor roles, and that number has now risen to 12,500. Anyone who takes voluntary redundancy will be included in the 10,000 plus Shell layoffs. It will also be available to employees across its upstream – technology, exploration and production businesses, but not downstream – fuel sales and operations.
The company bought BG for $54 billion to get access to oil and natural gas reserves from Australia as well as significant new markets such as deep water-field in Brazil. The tie-up has increased its debt to $70 billion and catapulted its ratio of net debt to capital to more than 26 percent. The tie-up was formally completed in February this year, despite 17% of Shell shareholders voting against it after global oil prices fell. BG was once a part of state-owned British Gas, and has since become a multinational exploration and production company.
Goodfellow maintained that the gas giant would remain a key employer in the Northeast of Scotland with around 1,700 employees. “Our integration with BG provides an opportunity to accelerate our performance in this ‘lower for longer’ environment,” he added. “We need to reduce our cost base, improve production efficiency and have an organization that best fits our combined portfolio and business plans.”
At the end of last year, Shell employed 90,000 people globally with BG employed 4,600. Earlier this month, Shell reported an 89% dive in first quarter profits to £334m. Annual profits for 2015 were down 80% to £2.6bn. Van Beurden, insisted he was pleased with the company’s dismal financial performance in 2015 and the bold, strategic moves to improve shareholder returns, i.e., reducing costs and improving competitiveness.
The International Energy Agency warned in January that oil market could collapse in oversupply and predicted that the global glut in oil supply would continue for at last another year.
Meanwhile, Greenpeace said the collapse of profits was a result of oil companies making wrong decisions. “Oil giants like Shell and BP are already paying a huge price for failing to bring their businesses into the 21st century,” said Greenpeace’s senior climate adviser Charlie Kronick. “The more electric cars, solar panels, and better-insulated homes we have, the less fossil fuels we’re going to need and the less they’re going to be worth. Shell and BP have bet heavily on the wrong energy sources, and now they’re losing big.”
More from Oil & Gas: