What Cost Cutting Actions Is Shell Making?

With earnings down 87% in 2015, Shell is on-track to slash expenditure in a bid to stay afloat. Despite the fact that it’s Europe’s largest oil company, Royal Dutch Shell reported its lowest annual income in over a decade earlier this year. Last year, the group revealed that its income dropped to just US$1.94 billion, with its oil and gas production unit accounting for the majority of the hit. To counteract its losses, the company has confirmed that it will be rolling out significant cuts to its expenditure budget.

"Shell will take further impactful decisions to manage through the oil price downturn, should conditions warrant that," said Chief Executive Ben van Beurden in a statement to the media.

What’s on the chopping block?

Investment is being reeled in, with Shell actively refraining from funding new ventures. It’s also pulled out of several multi-billion pound projects over the past year, including the highly controversial Alaskan Arctic Sea project. Abu Dhabi’s Bab sour gas field and Canada’s Carmon Creek oil sands project have also been severed. In total, Shell approved just four new projects in 2015, with investments expected to remain humble as the remainder of 2016 unfolds.

Jobs and assets under fire

Jobs are another target, as the company plans to axe 10,000 jobs in 2016. The company is also selling assets in a bid to manage what it describes as a “prolonged downturn,” with analysts estimating that Shell sold US$5.5 billion worth of assets in 2015 alone.

While the cost cuts are justified, the hard-line approach has started to bring down the company’s reserve replacement ratio. In 2015 the metric dropped to a negative value for the first time in 12 years, yet Chief Financial Officer Simon Henry maintains that the BG takeover will help to replenish its stores.

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