London, UK (BBN)-Royal Dutch Shell shares rose after it confirmed it would cut 10,000 jobs and a sharp fall in annual profits.
Shell rose 4 per cent as it said it made $1.8bn (£1.23bn) for the fourth quarter of the year, compared with a $4.2bn profit for the same period the year before, reports BBC.
Full-year earnings saw their steepest fall in 13 years from $19bn to $3.8bn.
Oil prices have fallen steadily over the past years, from more than $100 a barrel 18 months ago to around $30 a barrel now.
Oil companies and their suppliers have been cutting back hard on investment and jobs as the low price eats into profits and makes investment less worthwhile.
‘NEW CHAPTER’
Shell had already made clear when investors were preparing to vote on its planned takeover of BG that its profit figures for 2015 would be hit.
It also said thousands of job would go, due to its takeover of BG.
Royal Dutch Shell’s chief executive, Ben van Beurden, said the company was entering a new phase: “The completion of the BG transaction, which we are expecting in a matter of weeks, marks the start of a new chapter in Shell, rejuvenating the company and improving shareholder returns.
“We are making substantial changes in the company… as we refocus Shell, and respond to lower oil prices.
As we have previously indicated, this will include a reduction of some 10,000 staff and direct contractor positions in 2015-16 across both companies.”
He added he would take further action if necessary: “Shell will take further impactful decisions to manage through the oil price downturn, should conditions warrant that.”
CUTS AND PLANS
At the time of the proposed BG tie-up, oil was trading at about $55 a barrel, but it is currently trading at about $35 a barrel, leading some shareholders to oppose the plan.
Standard Life, a key investor in Royal Dutch Shell, said last month that the price of oil needed to be $60 a barrel for the takeover to make financial sense, but last month, the majority of shareholders in Shell, which is Europe’s largest oil company, voted in favour of that deal.
Shell said it had cut operating costs over the year by $4bn, or around 10 per cent, and expected to cut costs by a further $3bn this year.
The company also cut back hard on investment over the year, with capital spending slashed by $8.4bn from a year ago to $28.9bn.
Shell sold $5.5bn worth of assets in the course of 2015 and is planning to sell another $30bn of assets.
Shell’s results are calculated on the basis of replacement cost, which reflects the current cost of supplies and is widely seen as the best measure of an oil firm’s underlying performance.
OIL PRICE FALLS
The drop in the price of oil has been driven by oversupply, mainly due to US shale oil flooding the market.
At the same time, demand has fallen because of a slowdown in economic growth in China and Europe.
The world’s energy watchdog warned recently that the market could “drown in oversupply”.
The International Energy Agency, which advises countries on energy policy, said it expected the global glut to last until at least late 2016.
The most recent worry for investors is the lifting of Western sanctions on Iran which could worsen the existing oversupply problem, with the country’s deputy oil minister, Roknoddin Javadi, predicting it can produce an extra 500,000 barrels per day.
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