One of Europe's biggest oil companies lays out plans for 1,000 extra job cuts and savings of $1bn this year because of a "challenging" outlook for refining.
Refinery woe spells gloom for Shell
Royal Dutch Shell, which vies with BP to be Europe's biggest oil company, laid out plans for 1,000 extra job cuts and savings of US$1 billion (Dh3.67bn) this year because of a "challenging" outlook for refining. Shell, based in The Hague, will also cut staff bonuses from last year, despite having agreed on them, because they do not reflect the "overall competitive position".
The moves come as the Anglo-Dutch energy company reported that earnings excluding one-time items and gains or losses from inventories fell 28 per cent in the fourth quarter to $2.8bn from the same quarter in 2008. Peter Voser, the chief executive who has placed 15 per cent of the company's refining capacity up for review, said he was not banking on a quick recovery and the outlook for this year was uncertain.
"We are taking steps to improve our performance," Mr Voser said, explaining that Shell had reduced costs by an extra $1bn in the fourth quarter, bringing total cost cuts for last year to $2bn. "For 2010, we are targeting a further underlying cost reduction of at least $1bn and a reduction of some 1,000 employees," he said. Shell cut 5,000 jobs last year. Shell will also reduce bonuses by 12 per cent, after the executive committee cut the company's bonus scorecard to 1.1 from 1.25, according to an internal Shell memo shown to Bloomberg.
The old figure "rightly recognises strong operational performance in many areas [but] it does not reflect our overall competitive position and the need for improvement", Mr Voser said in the memo. "My executive committee colleagues and I have decided to adjust the result downwards." Oil prices had their biggest annual gain since 1999 last year, keeping refining margins under pressure as the recession weighed on fuel demand.
"Refining is struggling a lot and it is worse than we had expected," said Gudmund Halle Isfeldt, an analyst at DnB Nor Markets. Shell's fourth-quarter net profit stood at $1.96bn after a heavy loss of $2.81bn in the same period in 2008, when the global downturn cut worldwide energy demand. BP, which said this week that the recovery would be "slow and gradual", posted net income of $4.3bn in the final quarter of last year. ExxonMobil, the largest US company, posted a fifth straight drop in quarterly profit this week to $6.05bn.
There is a "significant overhang" of industry refining capacity and about 560,000 barrels per day is under review, Shell said. "Downstream is facing some tough times," Mr Voser said. "Cost focus is now embedded in our day to day operations." The Shell chief is seeking to revive growth with new projects in Qatar, Malaysia and Brazil after output fell for a seventh year in 2009. He said he was no longer pinning his hopes on Nigeria, where Shell's operations were plagued by militant attacks in recent years. Shell halted some flow stations in Nigeria this week after sabotage caused a pipeline leak. On Monday, the company announced an ethanol venture with Cosan SA Industria and Comercio in Brazil. Shell will contribute assets including 2,740 service stations and as much as $1.93bn to the 50-50 venture.
* with Bloomberg and Agence France-Presse