Royal Dutch Shell announced on Wednesday plans to cut up to 9,000 jobs, or over 10% of its workforce, as part of a major overhaul to shift the oil and gas giant to low-carbon energy.
Shell, which had 83,000 employees at the end of 2019, said that the reorganization will lead to additional annual savings of around $2 billion to $2.5 billion by 2022, going partly beyond cuts of $3 to $4 billion announced earlier this year.
Shell's London-traded shares were up 0.15% by 0920 GMT, compared with 0.9% gains for the broader energy sector.
Last month it launched a broad review of its business aimed at cutting costs as it prepares to restructure its operations as part of the shift to low-carbon energy.
The Anglo-Dutch company said it expected to cut 7,000 to 9,000 jobs by the end of 2022, including some 1,500 people who have agreed to take voluntary redundancy this year.
Rival BP this year announced plans to cut around 10,000 jobs as part of CEO Bernard Looney's plans to rapidly expand its renewables business and reduce oil and gas production.
Reducing costs is vital for Shell's plans to move into the power sector and renewables where margins are relatively low.
Competition is also likely to intensify with utilities and rival oil firms including BP and Total all battling for market share as economies around the world go green.
"We have looked closely at how we are organized and we feel that, in many places, we have too many layers in the company," CEO Ben van Beurden said in an internal interview published on Shell's website.
FUEL SALES RECOVERY
In an operations update, Shell also said its oil and gas production was set to drop sharply in the third quarter to around 3.04 million barrels of oil equivalent per day due to lower output as a result of the coronavirus pandemic and hurricanes that forced offshore platforms to shut down.
Shell, the world's largest fuel retailer, saw a recovery in fuel sales in the third quarter from lows hit in the previous quarter as some countries gradually emerged from lockdown measures.
In the second quarter, Shell narrowly avoided its first quarterly loss in recent history, helped by a booming trading business. It however announced nearly $16.8 billion in impairment charges after sharply lowering its outlook for oil and gas prices in the wake of the pandemic.
Shell said it will take another impairment charge of $1 to $1.5 billion in the third quarter.
Shell is exploring ways to reduce spending on oil and gas production, its largest division known as upstream, by 30% to 40% through cuts in operating costs and capital spending on new projects, two sources involved with the review told Reuters earlier this month.
"The transformation to a leaner and lower-carbon organization is the right one for Shell longer term in our view, but with the macro environment still challenging this may take some time to reflect in the share price," Barclays analysts said in a note.
Shell said on Wednesday it also plans to reduce the number of its refineries to less than 10 from 17 currently and over 55 15 years ago.
"If we want to get there, if we want to succeed as an integral part of a society heading towards net-zero (carbon) emissions, now is the time to accelerate," van Beurden said.
(Reporting by Ron Bousso; editing by Louise Heavens and Jason Neely)