Given the extended period of low oil prices, oil companies are experiencing a decrease in net income from a year ago. Decreases in oil production revenue must be countered with other strategies. Some companies are finding it necessary to change former plans in order to adapt to today’s market.
According to a report by Reuters, Royal Dutch Shell (Shell) has plans to make some substantial cuts this year. On top of additional spending cuts, Shell plans to cut 6,500 jobs this year. With company shares at their year-low of 47 cents, the cuts are being made to assure investors that the company can withstand extended periods of low oil prices. The company also plans to raise $50 billion from asset sales by 2018.
Although cuts are being made, Shell plans to continue with its planned $70 billion acquisition of BG Group. This will be one of only two major investment decisions that Shell will make this year. A number of previously planned projects have been scaled back, postponed or cancelled.
The BG deal is expected to go through in 2016, and this will bring Shell’s capital investments to $35 billion, which is less than the originally anticipated $42 billion. This has reassured investors that this deal will not be too costly with the market conditions. The deal is currently awaiting approval from the European Union, China and Australia, having already been cleared by Brazil, the United States and South Korea.
To offset expenses, Shell is planning $30 billion in asset sales, of which 20%-30% will come from downstream and midstream business, leaving fewer, but larger, competitive assets. If economic conditions worsen, or if oil prices experience a steeper decline, Shell is prepared to make even further budget cuts.