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Shell to cut further jobs after 58% fall in profits

Financial Times

By Ed Crooks

Published: April 30 2009 03:00 | Last updated: April 30 2009 03:00

Royal Dutch Shell expects to cut jobs this year as it continues its squeeze on costs in response to the lower oil price, its chief executive has told the Financial Times.

Jeroen van der Veer, who is to step down at the end of June, said he expected headcount to fall again this year following a reduction of 2,000 in the workforce last year to 102,000.

He was speaking before the company’s first-quarter results were released yesterday. They showed a 58 per cent drop in post-tax profits caused by the fall in the oil price.

Net profit, adjusted to remove the effect of changes in the value of inventories, fell from $7.78bn in the equivalent period of 2008 to $3.3bn. That was a decline in line with the 62 per cent drop reported by BP on Tuesday.

The results were well ahead of analysts’ expectations although, as with BP, profits were boosted by a strong gain from oil trading.

In the first quarter, oil for immediate delivery was much cheaper than oil for future delivery, creating attractive opportunities for traders such as the big companies with strong finances and facilities for storing oil.

Most of the decline in profits came in the exploration and production business, where profits fell from $5.1bn to $1.7bn.

Shell’s operation in Canada’s high-cost oil sands made a loss of $42m, compared with a $249m profit in the first quarter of 2008.

The figures also showed that Shell’s cash flow failed to cover the cost of its capital spending programme and its dividend payments.

Cash flow from operations was $7.9bn, while capital spending was $7.1bn and dividend payments were $2.4bn. The first-quarter dividend rose 5 per cent to $0.42, as Shell promised earlier in the year. Shell has said it expects its debts to rise as it funds its capital spending programme, planned at $31bn-$32bn for this year.

Mr van der Veer said he was “not directly very nervous” about the level of the oil price and the group’s rising debts, but suggested that cost cuts were needed to help Shell deliver its investment plans while keeping its borrowing under control.

He said he saw no point in collating figures for total savings across the group – because “by all those apparently very big cost saving or labour saving targets we only create unrest” – but he expected the workforce to shrink this year.

Shell’s units are being pushed for “top quartile” performance, in which they are benchmarked against their competitors and called on to deliver performance that puts them in the top 25 per cent in the industry.

Among the jobs losses are about 2,000 cut from 12,000 in the finance function, which is being concentrated in global centres including Krakow in Poland, Mumbai in India and Manila in the Philippines.

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