Royal Dutch Shell
unveiled plans on Wednesday to cut up to 9,000 jobs by the end of 2022, as part of a major restructuring plan as it shifts to low-carbon energy.
The oil giant said it expected to make annual savings of $2 billion to $2.5 billion through a “simpler, streamlined and lower-cost organization.”
In a trading update, the company said it expected to take another impairment charge of $1 billion to $1.5 billion in the third quarter, and that production was set to drop due to the hurricanes in the U.S. Gulf of Mexico. The stock edged lower into afternoon London trading.
The back story. The oil-and-gas industry has been one of the worst affected throughout the coronavirus crisis, as the pandemic caused demand to collapse. In April, Shell cut its dividend for the first time since World War II. The company reported a record $18.1 billion second-quarter loss, following a $16.8 billion write-down as it lowered long-term oil price forecasts. Its peers have faced similar problems, with
plunging to a $16.8 billion net loss in the second quarter, having also cut its dividend for the first time in a decade.
However, the Covid-19 crisis has also accelerated the industry’s shift toward green energy. BP has ramped up its strategy—to become net zero on carbon by 2050—by pledging a tenfold increase in low-carbon investment to $5 billion a year by 2030. Shell also launched a review of its business, with a view to transitioning toward low-carbon energy.
What’s new. Chief Executive Ben van Beurden said cutting jobs was “the right thing to do for the future of the company,” as he laid out ambitions for Shell to become a net-zero emissions energy business. In an internal interview, he said Shell had to change the type of products it sells.
He said: “We will have some oil and gas in the mix of energy we sell by 2050, but it will be predominantly low-carbon electricity, low-carbon biofuels, it will be hydrogen and it will be all sorts of other solutions too.”
Shell will end up with fewer than 10 refineries, van Beurden said, compared with 55 around 15 years ago. The company expects to cut 7,000 to 9,000 jobs by 2022, which would be over 10% of its workforce, including 1,500 who have agreed to take voluntary redundancy this year.
Looking ahead. The industry’s drive toward green energy is gathering pace and it will only get more competitive in the coming decades. BP has already bought stakes in two U.S. wind farm developments, although it was forced to pay a fairly high price. Shell is currently preparing its strategy, with reports it could cut spending on oil-and-gas production by 30% to 40%. CMC Markets analyst Michael Hewson said the changes had been a long time coming.
He said: “Now they [BP and Shell] need to go the extra mile and invest a greater percentage of their annual capex in the renewables side of their business, and steal a march on their U.S. counterparts who appear to be asleep at the wheel.”
Shell is proposing major changes, but if it can position itself at the forefront of a green energy revolution it will be worthwhile for the company and investors.