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Shell may freeze its dividend

Daily Telegraph

New chief executive Voser looks to create leaner oil group.

Out of gas: there is a chance Shell’s usually reliable dividend flow will dry up as the oil major undergoes change Photo: Heathcliff O’Malley

By Rowena Mason
Published: 8:14PM BST 30 Jul 2009

The traditionally reliable dividend of Royal Dutch Shell may be frozen this year after the oil giant revealed an aggressive cost-cutting drive amid slumping profits.

Shell will undertake a major restructuring and programme of job cuts under Peter Voser, the new chief executive, after pre-tax profits collapsed, dropping 71pc to $5.8bn (£3.5bn).

Mr Voser was blunt about the need for the company to reduce unnecessary layers of middle management to create a leaner organisation.

He would not disclose how many jobs overall would go, but said about 150 senior managers out of 600 have left the company in the last three weeks.

“We are stripping away layers and overlaps that are of no value and putting more focus on frontline activities,” he said. “We simply have too many people doing business with each other and not the outside world.”

Shell will also cut its budget for exploration and production in the next half by 10pc from $28bn per year, though it will still be higher than most other oil majors at the reduced level. BP last week said it would keep its capital spending at about $20bn.

Mr Voser said he could see no sign that demand for oil was improving, causing the biggest glut of supply for the last 20 years.

He also expressed concern about Shell’s “very uncertain” future in Nigeria after attacks by rebel fighters that have more than halved its output in the African country since 2005.

Despite the downbeat news, Shell’s shares slipped just 3p to close at £15.94, as its profits on a current cost of supplies basis, a key measure for Shell, were better than expected at $2.3bn.

Revenue fell 51pc to £63.9bn for the quarter to the end of June, tracking the depressed price of oil at around $60 per barrel.

Simon Henry, finance director of Shell, said that in the likely event of deflation the company would consider freezing its dividend, which was increased by 5pc to 42 cents for the second quarter.

Analysts said that the safety of the dividend is likely to depend on how successfully Shell’s savings can bring down costs, while demand for oil is still low.

“We expect the company to ultimately cut several thousand of its 102,000 employees, and believe additional cost gains from the restructuring could be in excess of $2bn,” said Gordon Gray, an analyst at Collins Stewart.

Shell’s profits have now dipped below those of its closest rival, BP, although all the majors have revealed substantial drops since the price of oil fell from its $147 peak in July last year.

Its results come as the Financial Services Authority plans to haul in representatives of the oil giants to discuss whether speculation plays a part in creating a price volatility.

The private meeting will discuss whether to increase regulation of the oil market. The US Commodities and Futures Commission has recently been holding hearings on the subject.

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