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Shell Hints at Further North Sea Job Cuts as Profits Plunge

May 9, 2016

Shell has admitted it could make even deeper cuts to its North Sea workforce as part of a drive to slash spending and sell off assets after its £37bn takeover of BG Group earlier this year.

The group has already axed 750 jobs from its North Sea business, of which two thirds were UK jobs, and has called for voluntary redundancies from the former BG Group head office at Thames Valley Park in Reading.

But Shell’s chief financial officer, Simon Henry, has not ruled out further North Sea job cuts as the group reorganises its global portfolio against a backdrop of low oil prices.

“Costs must come down – this may or may not mean a reduction in jobs. I can’t promise no further reductions,” he said.

It came as Shell posted a sharp fall in profits in its first set of results since merging with global gas giant BG Group, but nevertheless beat expectations.

The oil major reported first quarter profits of $455m, less than half the $942m it posted in the previous quarter and a fraction of the $4.5bn of profit it made in the same period last year.

The company is slashing costs and aims to sell off assets totalling $30bn over the next three years in a bid to protect its dividend.

Chief executive Ben van Beurden revealed plans to cut investment by a further 10pc to $30bn this year. That would be 36pc lower than Shell and BG’s combined investment in 2014. In addition, the group’s operating costs for the year will fall to $40bn compared with a combined spend of around $53bn in 2014.

Mr Henry said the group had made “a good start from the downstream” asset sales. These would play a “larger role” in Shell’s assets sales than its upstream exploration interests, he said. In the first quarter Shell sold $500m from its downstream operations, he added.

Shell’s oil and gas production climbed 16pc compared to the same quarter last year, but that was largely due growth from BG’s gas projects in Brazil and Australia.

“The combination with BG is off to a strong start,” Mr Van Beurden said, adding that the benefits from the merger would come through at a lower cost than originally expected.

“The completion of the BG deal has reinforced our strategy and strength against the backdrop of hugely challenging times for our industry. For Shell and our shareholders, this is a unique opportunity to reshape and simplify the company,” he said.

Biraj Borkhataria, an analyst at RBC Capital, said the group’s maiden set of results as a combined entity might raise questions among investors, but that Shell would be given time to show it could make the merger work.

“It would be a faux pas to read too much into one quarter’s headline numbers, so to that end, we think investors will look through any uncertainty and focus on the longer term story,” he said.

The mega-merger was backed by a strong majority of shareholders who shrugged off concerns that Shell was paying over the odds for BG Group and approved the deal in January this year.

Shell has consistently countered fears that it overpaid for BG Group, a market leader in liquified natural gas, saying that the deal was based on a long-term view of the sector and would provide a “springboard” back to profitability.

 

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