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Shell reports lower profit, plans job cuts worldwide

By BRETT CLANTON Copyright 2009 Houston Chronicle

Oct. 29, 2009, 8:44PM

Oil prices may be edging up again and the recession lifting, but the remnants of the global economic meltdown continued to surface Thursday, in sharply lower earnings reports from Exxon Mobil Corp. and Royal Dutch Shell and word of 5,000 layoffs at Shell by year-end.

While the weaker profits had been expected, Shell’s layoff announcement provided new insight into a previously announced restructuring program and raised questions about its impact in Houston, where Europe’s biggest oil company employs nearly 13,000 people.

The reports from Exxon Mobil and Shell came a day after ConocoPhillips CEO James Mulva openly questioned whether the large integrated business model that major international oil companies have employed for decades is still the best one going forward.

Exxon Mobil and Shell, however, seemed to dispute that idea Thursday, saying despite earnings declines in the third quarter, they are continuing to invest with growth in mind.

“While we’re obviously concerned about the economic effects today, we’re not in a panic mode,” Ken Cohen, Exxon Mobil’s vice president of public and government affairs, said in a conference call with reporters. “We are taking a long-term view.”

Irving-based Exxon Mobil, the largest U.S. oil company, said its third-quarter net income fell 68 percent to $4.73 billion, while Shell said its quarterly profit slid 62??percent to $3.25 billion.

Exxon Mobil’s revenue for the quarter was $82.3 billion, down from $137 billion last year, and Shell’s dropped to $75 billion from $131.6 billion.

The companies blamed the declines on a steep drop in oil and natural gas prices from peaks during last year’s third quarter, and a downturn in oil refining because of a recessionary pullback in demand for gasoline, diesel and other petroleum fuels.

BP and ConocoPhillips cited similar factors in reporting lower earnings this week. Chevron Corp. reports its earnings today.

Crude oil, which touched a record $147.27 a barrel in July 2008, averaged $68.24 in the third quarter of this year. Natural gas, which topped $13 per million British thermal units last year, traded below $5 in the third quarter of this year.

Royal Dutch Shell CEO Peter Voser said while he sees signs that energy demand and pricing are improving, “the outlook remains very uncertain, and we are not expecting a quick recovery.”

Voser, who took over the top job in July, implemented a sweeping reorganization shortly after his arrival, to make the company leaner and more competitive.

The reorganization merged the company’s three upstream businesses — known as exploration and production, gas and power, and oil sands — into two new units called Upstream Americas, run from Houston, and Upstream International, run from Europe.

It expanded the company’s downstream division — refining, marketing and chemicals — to include energy trading and alternative energy, excluding wind, which was added to the upstream division. And a new division called projects and technology was set up to oversee all major projects for the upstream and the downstream divisions.

Voser’s Transition 2009 program cut Shell’s senior management ranks by 20 percent to 600 positions, and significant cuts had been expected elsewhere. But on Thursday, the company revealed the depth of the effect farther down the chain.

As part of the plan, 15,000 Shell employees have to re-apply for a smaller pool of jobs, leaving many in limbo until selections are made.

The Hague-based company, with U.S. headquarters in Houston, would not say how many job losses it expects in Houston. But the Upstream Americas unit and the project and technology group are expected to take the brunt of the U.S. cuts, according to a person familiar with the plan.

Also in its third-quarter update, Shell said oil and gas production was tracking flat at 2.9 million barrels of oil equivalent through the first nine months of the year, after posting declines in the first half of the year. Shell expects to increase output by an average of 2 percent to 3 percent a year for the next three years.

Exxon Mobil, meanwhile, saw a 3 percent increase in production to 2.3 million barrels of oil equivalent in the quarter and expects a slight increase for all of 2009.

Also Thursday, Houston-based independent oil and natural gas producer Apache Corp. reported a 63 percent drop in quarterly earnings to $441 million.

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