Shell plans to cut up to 9,000 jobs

Oil major Shell has confirmed plans to cut between 7,000 and 9,000 jobs in a push to save up to $2.5 billion by 2022.

Reduced organisational complexity, along with other measures, is expected to deliver sustainable annual cost savings of between $2 to $2.5 billion by 2022, Shell said on Wednesday.

This will partially contribute to the announced underlying operating cost reduction of $3 to $4 billion by the first quarter of 2021.

According to Shell, job reductions of 7,000 to 9,000 are expected, including around 1,500 people who have agreed to take voluntary redundancy this year, by the end of 2022.

Back in April 2020, Shell revealed its plans to become a net-zero emissions energy business by 2050 or sooner in a move consistent with oil majors like BP and Equinor.

Shell then launched a major cost-cutting drive to save cash and overhaul its business in preparation for the energy transition.

These steps will include an ambition to be net-zero on all the emissions from the manufacture of all its products (scope one and two) by 2050 at the latest.

It will also include accelerating Shell’s Net Carbon Footprint ambition to be in step with society’s aim to limit the average temperature rise to 1.5 degrees Celsius in line with the goals of the Paris Agreement on Climate Change.

In the update on Wednesday, Shell explained that the simpler, streamlined and lower-cost organisation will focus on Upstream providing strong and resilient cash generation, focused on accelerating value.

It will also focus on reducing the Refining footprint to less than 10 sites, keeping those sites that are strategically essential in key locations, with flexibility to adapt and further integrate with the growing Chemicals and Trading businesses.

Furthermore, Shell will focus on Integrated Gas having a larger focus on unlocking new and expanding existing LNG markets and furthering customer-led energy solutions; and

Finally, Shell will focus on customer-focused organisation, providing lower and zero-carbon solutions through the Integrated Power, Biofuels and Hydrogen businesses that are significant, competitive, and complement existing businesses like Marketing.

According to its third-quarter 2020 outlook, Shell’s production is expected to be between 2,150 and 2,250 thousand barrels of oil equivalent per day, which includes a production impact of 60 to 70 thousand barrels of oil equivalent per day from hurricanes in the US Gulf of Mexico.

Realised liquids prices in the first two months of this quarter reflected a 15 to 20 per cent discount to Brent, similar to the discount in the second quarter of 2020.

Realised gas prices are trending in line with Henry Hub.

Depreciation is expected to be at a similar level as in the second quarter of 2020.

Similar to the second quarter 2020, while Adjusted Earnings are expected to show a loss, CFFO is not expected to reflect equivalent cash tax effects due to the build-up of deferred tax positions in a number of countries.

Shell’s third-quarter 2020 outlook shows that production is expected to be between 820 and 860 thousand barrels of oil equivalent per day and LNG liquefaction volumes are expected to be between 7.9 and 8.3 million tonnes.

Trading and optimisation results are expected to be below average.

A one-off tax charge is expected to have a negative impact on Adjusted Earnings in the range of $100 to $200 million, no cash impact is expected in the third quarter.

Approximately 80 per cent of Shell’s term sales of LNG in 2020 have been oil price linked with a price-lag of up to 6 months. Consequently, lower realised prices due to this price-lag are expected to have a significant impact on LNG margins in the third quarter.

Shell said that CFFO can be impacted by margining resulting from movements in the forward commodity curves up until the last day of the quarter.

Margining inflows are expected to be in line with the second quarter of 2020.