Written by Phil Allan – 04/05/2016 12:34 pm
Shell’s finance chief has refused to rule out further job losses in the North Sea as the oil giant announced its earnings had dropped by $4billion dollars in the first quarter of 2016.
Chief financial officer Simon Henry said the voluntary redundancy packaged announced recently announced as a result of Shell’s acquisition of BG Group, may not be the last to affect the North Sea as the company continues to look at cut costs from its global operation.
All Aberdeen-based onshore operations are set to move to the Shell’s Aberdeen Tullos office, with BG’s offices at Albyn Place closing by the end of this year, and the closure of Shell’s Brabazon House office in Manchester by the end of 2017. BG’s HQ in Reading would also be shut down and staff moved to Shell’s central London location and others offered voluntary redundancy with 1,600 staff affected.
Speaking at the company first quarter results presentation in London, Henry said: “Cost levels in the North Sea need to come down substantially. In terms of the UK impact, the action taken already [in relation to BG merger), is probably about it for now, but as we look at the portfolio going forward I cannot make promises.”
Shell is aiming to reduce its global headcount by 10,000. Henry said 3,000 IT roles would be moved to a data centre in Bangalore, India as part of a restructuring programme.
Henry said the company would cut its capital expenditure to $30 billion from a planned $33 billion. The company has come under pressure from shareholders to cut costs and safeguard its dividend.
Shell has already scrapped multi-billion pound projects over the past year, including a controversial exploration project in the Alaskan Arctic Sea, the Bab sour gas field in Abu Dhabi and Carmon Creek oil sands project in Canada.
Shell’s first-quarter profits plummeted 58% to 1.6 billion US dollars (£1.1 billion) as the falling oil price continues to hammer the sector.
Henry also said that Shell’s North Sea assets were part of $10billion of assets being considered for sale this year as the company focuses on cash generative assets within its portfolio.
However he added that Shell was not about to jump into a series of “fire sales” in what remains a very weak market.
Henry said that assets acquired from BG would be reviewed as part of a long term strategic fit as the company looked for assets that had sufficient “running room” and growth potential.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Royal Dutch Shell has taken a dramatic hit to revenues, but continues to maintain its dividend despite the storm that has hit global commodity prices.
“The dividend now accounts for 2 dollars for each 1 dollar that Shell earns, which is clearly unsustainable in the long term. The company will be hoping it gets bailed out by a recovery in oil and gas prices before it looks down and realises the ground it was running on has disappeared.”
Joshua Raymond, Market Analyst at XTB.com said: “The cost cutting measures is necessary given the drop in earnings thanks mostly to low oil prices, which will likely remain under pressure until there is a move by OPEC to cut oil supply.
“Until then, the only thing Shell can do is optimise its margins and that means cost cutting, which was already underway following the acquisition of BG Group.
“The key for shareholders is that how much longer can Shell continue to cut spending before they start to look at cutting the dividend. That’s going to be shareholders chief concern, as long as oil prices remain low.”
Henry said he believed the long term outlook for the oil markets was “healthy”.
“We firmly believe the fundamentals of physics and economics will apply in the longer term.
“As we go forward demand is growing however a huge inventory needs to be worked off,” he added.
He said the two main unknown factors affecting future oil prices were the true capacity availability within OPEC and what the response will be from US shale.