Anglo/Dutch oil giant Shell has, a week ahead of the shareholders’ meeting in The Hague, where the faith of the proposed Shell’s BG acquisition will be decided, issued a trading and operations update for the fourth quarter of 2015.
Shell’s boss Ben van Beurden said he was pleased with 2015 cost cutting performance, added there would be more cost reductions in 2016, and expressed hope the Shell BG merger would be completed soon. Shell and BG shareholder meetings to vote for, or against, the proposed combination are expected to be convened on 27 and 28 January 2016, respectively.
The CEO said the merger would create “synergies”, a word which, when it comes to mergers, usually means “layoffs”. And, in this case, it certainly means job cuts, as Van Beurden said that 10.000 will be deemed surplus to requirements.
Van Beurden said: “I’m pleased with Shell’s operating performance in 2015, and the momentum in the company to reduce costs and to improve competitiveness.
Bold, strategic moves shape our industry. The completion of the BG transaction, which we are expecting in a matter of weeks, will mark the start of a new chapter in Shell, to rejuvenate the company, and improve shareholder returns.
Cutting costs and jobs
Shell has reduced operating costs by $4 billion, or around 10% in 2015, and the company expects Shell’s costs to fall again in 2016, by a further $3 billion. Van Beurden said synergies from the BG combination will be in addition to that.
“Together, these actions will include a reduction of some 10.000 staff and direct contractor positions in 2015-16 across both companies, as streamlining and integration of the two companies continue,” he added.
Van Beurden said Shell was taking “impactful” steps to refocus and reduce capital spending: “Shell’s capital investment in 2015 is expected to be $29 billion, an $8 billion or over 20% reduction from 2014 levels. This has been delivered by efficiency improvements and more selectivity on new investments. Capital investment for Shell and BG combined in 2016 is currently expected to be $33 billion, around a 45% reduction from combined spending, which peaked in 2013. Flexibility for further reductions is available and will be utilized should conditions warrant that. As a result of the above actions we have retained a strong balance sheet position at around 14% gearing.”
He said that Shell’s asset sales for 2014 and 2015 exceeded $20 billion, above the original plan of $15 billion set out in early 2014. However, Shell will not stop there.
“Preparations are well advanced for $30 billion of asset sales in 2016-18, assuming the successful completion of the combination,” Van Beurden said.
He added: “In addition to divestments, Shell has taken impactful decisions in 2015 to reduce longer term, low return upstream positions, such as the exit from Alaska exploration for the foreseeable future, cancellation of Carmon Creek heavy oil project, and exit from shales positions in multiple countries.”
Expected drop in profit
When it announces its fourth-quarter 2015 results in February, Shell expects its fourth quarter 2015 earnings on a current cost of supplies (“CCS”) basis excluding identified items to be in the region of $1.6 – 1.9 billion. The company’s fourth quarter 2014 earnings excluding identified items were $3.3 billion.
The figure includes Upstream of $0.4 – 0.5 billion, of which Integrated Gas some $1.6 – 1.9 billion, and Downstream of $1.4 – 1.6 billion, of which Oil Products some $1.3 – 1.4 billion and Chemicals some $0.1 – 0.2 billion.
Full-year 2015 earnings on a CCS basis excluding identified items are expected to be in the region of $10.4 – 10.7 billion. For comparison, full year 2014 CCS earnings excluding identified items were $22.6 billion.
Shell said that identified items for the fourth quarter 2015 are expected to be in the range of a net charge of $0.2 billion to an immaterial gain, mainly reflecting gains on sale of assets and impairments; and for the full year 2015 are expected to be a net charge of some $6.8 – 7.0 billion.
Income attributable to Royal Dutch Shell plc shareholders is expected to be in the region of $0.6 – 1.0 billion for the fourth quarter 2015 and for the full year 2015 expected to be in the region of $1.6 – 2.0 billion.
Production for the fourth quarter 2015 was 3.0 million boe/d, and for the full year 2015 2.9 million boe/d.