Shell to Cut 1,000 Jobs After Fourth Quarter Decline

Royal Dutch Shell Plc is planning new, deeper cuts to its oil refining and retail operations after downstream weakness caused a 75% decline in fourth-quarter profits to $1.18 billion, Reuters reported.

According to CEO Peter Voser, in 2010 the company plans $1 billion in cost cuts and 1,000 job cuts, mainly to come from the downstream unit, and upped its target for refinery divestments. It plans to focus its downstream business to Asia, where rising fuel demand could ensure better profits.

Shell also affirmed its targets to grow oil and gas production by 2-3% over 2009-2012, but analysts said investors’ near term focus would remain on the downstream.

Excess refining capacity because of lower fuel demand brought on by the recession, and new refinery startups in the Middle East and Asia, has hit crude processing margins and profits at all major oil companies. The largest western oil company by market value, Exxon Mobil, for example, had a 23% drop in fourth-quarter net income while the second-largest U.S. oil company, Chevron saw a 37% drop. But Shell’s especially large refinery portfolio and the poor quality of some of its assets has seen it hit worse than its rivals, Reuters reported.

Voser noted that a turnaround he launched last year was yielding dividends with $2 billion cost savings in 2009, exploration success and the startup of new projects. After seven years of falling output, Voser predicts stable production of oil and gas in 2010 and a rise thereafter.

Some analysts believe Voser’s actions will lead to stronger profit growth than its rivals in coming years.

“The stage should be set for Shell to begin a period of stronger relative performance based on delivery of restructuring benefits,” said Mark Bloomfield, oil analyst at Citigroup said.

Gordon Gray at Collins Stewart, meanwhile, told Reuters he had reduced his 2010 earnings per share forecast by 6% to reflect “persistent downstream weakness.”

 

 

 

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