Royal Dutch Shell's share price climbed this morning after confirming it is cutting 6,500 jobs while revealing a 35 per cent drop in profits for the three months to 30 June.
The oil giant is struggling amid falling prices and heightened competition.
Profits were down more than a third to $3.4bn for the quarter, while capital investment has been cut by 20 per cent to $7bn.
Shell also said that it was "planning for a prolonged downturn" in oil prices, though it has said there is potential for it to return to $70-$90 a barrel.
Still, in preparing for longer term low prices Shell has committed to reducing costs by $4bn throughout the year, a 10 per cent drop, which it has said will come largely from the 6,500 job cuts. More cost-cutting will take place next financial year, the oil giant added.
Why it's interesting
Shell is part-way through a £47bn takeover of BG Group, which it is hoped will “enhance our free cash flow” and turn “Shell into a simpler and more profitable company”; today's update confirmed “the regulatory filings process and integration planning are both progressing well”.
When that happens the company will be streamlined, with a reduction in exploration spend and “a fresh look at capital allocation in longer-term plays”, chief executive Ben van Beurden said.
“This should concentrate our portfolio into fewer, higher value positions, where we can apply our know-how with better economy of scale. In essence, we ‘grow to simplify’. The result should be a simpler, more profitable, resilient and competitive Shell, able to deliver better returns to shareholders.”
Clearly it is a challenging time for the sector in general and Shell in particular – the merger cannot be completed soon enough. But investors took heart from the measures being deployed: Royal Dutch Shell's share price leapt 2.3 per cent in early trading.
What they said
He added: “As our results today show, we’re successfully reducing our capital spending and operating costs, and delivering a competitive performance in today’s oil market downturn.
“We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery. We’re taking a prudent approach, pulling on powerful financial levers to manage through this downturn, always making sure we have the capacity to pay attractive dividends for shareholders.”
Shell is preparing for the worst when it comes to the oil price, but its takeover of BG, which it expects to help it save "billions", should help it ride the storm.