The oil and gas giant, which employed 83,000 workers at the end of last year, expects to save up to $2.5bn annually from the cost-cutting plan that includes shedding between 7,000 and 9,000 employees before the end of 2022. This represents as much as 11% of the workforce that includes about 1,500 people taking voluntary redundancy this year.
The global staff-cut comes as Europe’s largest oil company prepares to invest more in a low-carbon energy future while battling the market fallout of the coronavirus pandemic, which has slashed demand for oil.
The Chief Executive Officer of Shell, Ben van Beurden, in a statement said, “We have to be a simpler, more streamlined, more competitive organization. In many places, we have too many layers in the company: too many levels between me, as the CEO, and the operators and technicians at our locations.”
The Shell boss admitted that although this is an extremely tough process as it is painful knowing some staff have to go, however, they are doing this because they have to and it is the right thing to do for the future of the company.
According to its statement, Shell plans to refocus its refining business, eventually cutting its number of plants to fewer than 10, from the present 15. Refining margins have been much lower this quarter than last quarter, and oil-product sales have shrunk to around 4 million to 5 million barrels a day from 6.7 million a year earlier.
The Shell boss disclosed that layers of management would be cut as they have looked closely at how they are organized and feel that, in many places, there are too many layers in the company. He said that there are many levels between himself, as the CEO, and the operators and technicians at our locations.
He also pointed out that other savings are likely to come from trends that have emerged during the coronavirus pandemic; including virtual working, less travel and a lower reliance on contractors.
The company said that the third quarter oil-product trading results is expected to fall short of the historical average and will be significantly lower than in the second quarter. That shows the trading bonanza that saved Shell’s last set of results won’t be repeated. Its full third-quarter financials, scheduled for Oct. 29, will include impairment charges of $1 billion to $1.5 billion.
Shell’s B shares traded down 1.7% at 940.2 pence as of 4:36 p.m. local time.
Barclays Plc analyst, Lydia Rainforth wrote on a research note, “The transformation to a leaner and lower-carbon organization is the right one for Shell longer-term. But with the macro environment still challenging, this may take some time to reflect in the share price.”
The crash in oil prices which was triggered by the coronavirus pandemic has seen Shell’s peers also take drastic steps to shore up the balance sheet. BP Plc said in June it planned to cut 10,000 jobs, Chevron Corp. intends to trim 10% to 15% of its global workforce, while Exxon Mobil Corp. is reviewing staffing country by country.
Shell began the process in May when Van Beurden told staff in a memo that it was reshaping the company to make it slimmer and more resilient and that there could be redundancies in the second half of the year, according to people with knowledge of the matter.
The reorganization and cost-cutting measure are also designed to further Shell’s expanded green ambitions. The company said in April it planned to eliminate all net emissions from its own operations and the bulk of greenhouse gases from the fuel it sells to its customers by 2050. Shell also said that ultimately, it would only do business with emission-free companies.