It hasn’t been a great week for oil company shareholders: after BP’s underwhelming results on Tuesday, Shell has followed up with some even less impressive numbers: full-year profits are down 69% to $9.8bn (£6.1bn). The Anglo-Dutch oil giant suggested that this drop – which was much steeper than expected – was largely due to a squeeze on refining margins (particularly last quarter, when earnings were down 75% to $1.18bn). But with production also falling, it’s clear that CEO Peter Voser still has a lot to do – and the bad news for Shell staff is that he’s going to start by cutting another 1,000 jobs this year, in a bid to save the company another $1bn…
Like BP, Shell has seen the fall in oil prices take a big chunk out of its earnings. But unlike BP, which managed to ramp up production, Shell actually pumped less of the black stuff out of the ground: production fell 3% to 3.152m barrels per day, down from 3.248m in 2008. It also said that the weakness of the economy had led to a fall in demand for its downstream products, which has put the squeeze on margins. On Tuesday, BP reported a quarterly profit of $3.4bn and an annual figure of $14bn; since Shell only made as third as much profit last quarter, and $4bn less over the year, it’s no surprise that its share price has also taken a dive today.
As a result, Voser says Shell will continue in its cost-cutting endeavours: he’s planning to scrap a further 1,000 jobs, on top of the 5,000 that were slashed last year. Ouch. But although this will be a painful process for all concerned, it sure is an effective way to save cash: Voser managed to trim $2bn off his cost base this way last year. But there'll also be other cuts elsewhere: he's disposing of some production sites in Nigeria (as well as scaling back in Canada's tar sands) and plans to sell off various refining plants, effectively cutting capacity by 15% (or 560,000 barrels a day). This is a bold move by Voser, less than 18 months into the job. But after the division's latest losses, he clearly thinks it’s the best way to get Shell back on level terms with the likes of BP.
It’s hard to be too negative about a company that’s making $10bn profit a year (particularly since oil prices are only likely to go in one direction). And it’s clear that Voser is having some success in streamlining the business. But today’s results show that he has some way to go yet.
In today's bulletin:
Bank stops printing money - for now
1,000 job cuts in the pipeline at Shell as profits slide
Toyota counting the cost of 8m safety recalls
Sun CEO resigns in (Japanese) style - on Twitter
Good customer service not enough to rescue banks