With little expectation for a near-term economic recovery, Royal Dutch Shell plc plans to cut its capital spending program by 10% in 2010, the CEO said Thursday. "Substantial" job reductions also are likely, which would be on top of the recent 20% cut in senior management jobs.
The Netherlands-based major reported a 67% drop in 2Q2009 net profit from a year ago to $3.82 billion, compared with $11.56 billion. Revenue fell by half to $64 billion from $131 billion in 2Q2008.
Based on its forecast for the global economy into next year, Shell plans to cut its exploration and production spending to about $28 billion from this year's planned $32 billion, CEO Peter Voser told financial analysts during a conference call.
"Energy demand is weak," Voser said. "There is excess capacity in the market and industry costs remain high." Shell, he said, is "not banking on a quick recovery" for the global economy. "Shell is adapting to this new situation, and we must do more...We are sharpening our focus on delivery and affordability."
Shell launched a restructuring program last year that eliminated about a fifth of its senior management. However, more staff reductions are under way, Voser told analysts. "We are stripping away layers and overlaps to add more value, and that means fewer people," Voser said. "The company is in a very competitive position and needs to sharpen focus" because the recession has put "earnings under pressure."
Shell's workforce was estimated at around 102,000 in 2008, which was well below the 119,000 level in 2003. Former CEO Jeroen van der Veer said in May the company might be forced to further reduce jobs in the wake of the economic slowdown.
Voser, who took over from van der Veer in July, said the company has become "too complex." He pledged to streamline the business by consolidating the three business units into two, one focused on the Americas and the other on international operations.
Shell's total oil and natural gas production dropped more than 5% quarter/quarter to 2.96 million boe/d. The company blamed lower gas demand in many industrialized economies and disruptions to operations in Nigeria.
The producer's "clean" current cost of supplies, which strips out gains or losses from the value of oil and gas inventories and other one-time items, fell 63% quarter/quarter to $3.15 billion from $8.58 billion.
Shell paid almost $3 billion in dividends in 2Q2009, but the company hasn't ruled out freezing its quarterly dividend payout at 42 cents/share, CFO Simon Henry said.
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