Energy giant Royal Dutch Shell on Thursday unveiled plans to slash spending by more than $15 billion after posting lower annual profits on tumbling oil prices. The group said it would cut spending by the equivalent of 13 billion euros over the next three years, mirroring similar cost-cutting moves by rivals in the energy sector which are also reacting to slumping oil prices.
Shell revealed the fresh cutbacks alongside news of an eight-percent drop in net profits to $15.05 billion in 2014, compared with 2013. The Anglo-Dutch company was hit hard by plunging earnings in the fourth quarter as the cost of crude collapsed. "Compared with the fourth quarter 2013, earnings... were impacted by the significant decline in (the price of) oil," Shell said in a statement.
Fourth-quarter net profit dived 57 percent to $773 million compared with the final three months of 2013. Annual profit excluding exceptional items and changes to the value of its oil inventories rose 16 percent to $22.5 billion. "The agenda we set out in early 2014 to balance growth and returns has positioned us well for the current oil market downturn," Shell chief executive Ben van Beurden said Thursday.
"We are taking a prudent approach here and we must be careful not to over-react to the recent fall in oil prices. Shell is taking structured decisions to balance growth and returns," he added in the results statement. Shell noted that lower prices created opportunities for the group to cut costs. It added that deferring spending in many areas and driving costs down in the supply chain "should result in reduction of potential capital investment for 2015-17 of over $15 billion".
Tumbling crude oil prices are sending shock waves through the global energy industry, sparking the cancellation of many projects and job losses. Earlier this month, Royal Dutch Shell and Qatar Petroleum scrapped plans for a petrochemicals project, worth an estimated $6.5 billion. But it is still investing in expensive projects and on Wednesday signed an agreement with the Iraqi government potentially worth $11 billion to build a large petrochemicals plant in the country's south.
Earlier this month, rival BP shed 200 staff jobs and 100 contractors in its North Sea activities, one month after taking a $1.0-billion restructuring charge to combat sliding revenues. Oil futures have lost more than half their value since June when crude was trading at more than $100 a barrel, amid a supply glut that has been fuelled largely by robust US shale oil production and weak global demand.
That has sparked calls for the government to ease the tax burden on the North Sea oil industry to help it cope with sliding crude prices. "You have seen a number of major oil and gas firms considering the impact of recent changes in the oil and energy prices," British Prime Minister David Cameron's official spokesman said Thursday.