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Shell Targets More Job Cuts, Savings on ‘Challenging’ Outlook

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Bloomberg February 04, 2010, 03:40 AM EST

By Fred Pals

Feb. 4 (Bloomberg) — Royal Dutch Shell Plc, which vies with BP Plc as Europe’s biggest oil company, laid out plans for 1,000 extra job cuts and savings of $1 billion this year because of a “challenging” outlook for refining.

Earnings excluding one-time items and gains or losses from inventories fell 28 percent in the fourth quarter to $2.8 billion from the year-earlier period. They matched the $2.88 billion median estimate of 14 analysts surveyed by Bloomberg.

Chief Executive Officer Peter Voser, who has placed 15 percent of Shell’s refining capacity up for review, said he isn’t betting on a “quick” recovery and the outlook for 2010 is “uncertain.” Oil prices had their biggest annual gain since 1999 last year, keeping refining margins under pressure as the recession weighed on fuel demand.

“Refining is struggling a lot and it is worse than we had expected,” Gudmund Halle Isfeldt, an Oslo-based analyst at DnB Nor Markets, said in a telephone interview.

Net income of $1.96 billion in the fourth quarter compared with a loss of $2.81 billion a year ago, The Hague-based Shell said in a statement today.

BP, which warned earlier this week that the recovery will be “slow and gradual,” posted net income of $4.3 billion in the final quarter of 2009. Exxon Mobil Corp., the largest U.S. company, posted a fifth straight drop in quarterly profit earlier this week to $6.05 billion.

‘Significant Overhang’

Shell cut 5,000 jobs last year and reduced costs by $2 billion, of which $1 billion came from in the last quarter. There is a “significant overhang” of industry refining capacity and about 560,000 barrels a day of capacity is under review, the company said.

“Downstream is facing some tough times,” Voser said in the statement. “Cost-focus is now embedded in our-day-to-day operations.”

Voser is seeking to revive production growth with new projects in Qatar, Malaysia and Brazil after output fell for a seventh year in 2009.

Shell’s class-A shares fell 1.9 percent in London trading to 1,741 pence as of 8:20 a.m. local time. The stock is up 0.6 percent in the past year, compared with a 15 percent advance for London-based BP.

Swiss-born Voser, who inherited the industry’s biggest spending program last year after taking over from Jeroen van der Veer as CEO, is no longer pinning his hopes on Nigeria, where Shell’s operations were plagued by militant attacks in recent years. Shell halted some flow stations in Nigeria earlier this week after sabotage caused a pipeline leak.

Lower Production

Production fell 3 percent to 3.152 million barrels of oil equivalent a day in 2009, from 3.248 million barrels a day in 2008. Fourth-quarter production fell 2.5 percent to 3.331 million barrels of oil equivalent a day.

Voser expects natural gas to make up more than half of Shell’s production by 2012. Gas must get “much more on the agenda as its potential role is underestimated,” Voser said in Davos last week.

Shell in December produced its first million barrels of oil from the Parque das Conchas project off the coast in Brazil. It also exceeded targets for the shipments of liquefied natural gas and crude oil from its Sakhalin-2 venture in Russia’s Far East.

Shell on Feb. 1 announced an ethanol venture with Cosan SA Industria & Comercio in Brazil. Shell will contribute assets including 2,740 service stations and as much as $1.93 billion to the 50-50 venture.

–With assistance by Eduard Gismatullin and Brian Swint in London. Editors: Stephen Cunningham, Will Kennedy.

To contact the reporter on this story: Fred Pals in Amsterdam at +31-20-589-8563 or [email protected]

To contact the editor responsible for this story: Will Kennedy at +44-20-7073-3603 or [email protected]

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