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Under pressure Shell wields the axe

Heath Aston, Daily Mail
5 February 2010, 9:51am

Oil giant Royal Dutch Shell will cut jobs and refine capacity as it enters an ‘uncertain’ 2010 faced with weak gas prices and depressed refining margins for oil products.

Under pressure from better performing rivals such as BP, Shell chief executive Peter Voser conceded that the Anglo-Dutch company had become bloated during the good times of sky-high oil prices before the financial crisis.

He said: ‘We’ve had four years of record profits. You know yourself when you have a good time you eat a little too much and you get a bit fat.’

In a bid to trim the company down, Voser will axe 1,000 staff, mainly executives, and sell about 15% of Shell’s oil refineries dotted across the globe, raising up to £1.9bn.

The deeper cuts come after Shell got rid of 5,000 staff last year and reduced its refining capacity, especially in established western markets where fuel consumption has dwindled since the recession. Last week the company closed a refinery in Montreal, Canada.

The need to strip back and kickstart Shell’s operating performance was illustrated by earnings figures showing annual profits in 2009 at $9.8bn were just a third of the $31bn bagged in 2008.

By comparison, BP’s annual profits halved.

n what one analyst described as a ‘truly awful set of figures’, Shell’s fourth quarter earnings on a current cost of supplies basis wilted to $1.2bn from $4.8bn in the same quarter of 2008.

Excluding one-off items – mainly the $900m cost of redundancies – earnings fell to $2.8bn from $3.9bn, below what the City had anticipated.

Oriel Securities analyst Andrew Whittock described the result as ‘disappointing’.

Voser warned there could be no quick fix, with refining capacity in the market outweighing demand and refining margins at their lowest point in 15 years.

Shell’s move to increase its exposure to the lower carbon natural gas market has backfired in the short term, with prices falling much harder than oil since their peaks.

Echoing statements from BP, Voser said the rebound in the global economy would take longer than many people expected.

He said: ‘On the outlook, I wouldn’t call it a rosy one. I would be quite cautious.’

Voser said Shell’s $28bn capital expenditure programme would be directed more at expanding Asian markets although building new refineries was not on the agenda after India and China opened refineries that have added two million barrels a day of oil supply in that region.

Royal Dutch Shell’s A shares ended the day in the doldrums and down 43p at 1732p.


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