How Will Shell’s Profit Plummet Affect the Oil Industry?

Due to the dramatic drop in oil prices over the last 12 months, Royal Dutch Shell – which are the UK’s biggest oil company – announced a fall in first-quarter earnings of $4.08 billion. The huge discrepancy came as profits fell to $3.25 billion from $7.33 billion in the last year, a difference of 56%.

Shell suffered a massive reduction in profit margins, particularly in the exploration and production branch of the corporation. This fell from the giddy heights of $5.7 billion per annum to a mere $675 million this quarter. However, its refining and other downstream operations rose more than expected, from $1.58 billion to $2.65 billion. This helped to curb the company’s losses somewhat.

What Does this Mean for the Oil Industry?

With Shell suffering unprecedented losses in profits, they will be slashing their expenditure from $35 billion to $33 billion this year. The $2 billion cutbacks will most likely come in the form of job losses in the North Sea area. Indeed, the offshore base at Aberdeen already fell prey to job cuts last summer, as 250 positions were made redundant. The forecasted cuts will surely signal more in the coming months.

They aren’t the only oil magnates looking to reel in their spending, either. Their biggest rivals, Exxon Mobil, also recorded their lowest profits since 2009 at just under $5 billion. Though it sounds far more positive than Shell’s figures, they actually suffered a comparable slump of 46% from last year.

Meanwhile, other leading American oil group ConocoPhilips actually reported overall losses of $222 million. Such falls in revenue spell big trouble for those working in the industry, as job cuts are seemingly inevitable.

Arctic Full Steam Ahead

In addition to cutting back in the North Sea, Shell also announced they would be curtailing activity in Canadian oil sands and US shale. However, they reiterated their plans to pursue oil reserves in the Arctic – they plan to send at least 25 vessels to plunder the energy potential of the controversial area near Alaska.

Environmentalists have been up in arms over Shell’s dogged pursuit of the Arctic area due to the evidence of vast amounts of greenhouse gases (GHG) latent in the Arctic ice. Disruption of Arctic terrain could lead to the release of such harmful gases, as well as the hastening of polar ice cap disintegration. Such an event would be catastrophic for a world which is already preoccupied with climate change, but Shell has defended its actions. Chief financial officer Simon Henry claimed it would be ultimately up to shareholders to decide whether to invest in Arctic drilling or not.

Clearly, the oil price dip is having an effect on all parts of the industry, Shell included. However, they continue to turn a profit and are intent on reshaping their projects in order to minimise losses and maximise potential gains over the coming years.