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More North Sea job cuts on the cards at Shell

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Screen Shot 2016-05-05 at 10.07.35BY MARK WILLIAMSON: Thursday 5 May 2016

ROYAL Dutch Shell’s finance chief, Simon Henry, has said there could be more job losses in its North Sea business amid the crude price plunge but the company has no plans to move activity from the Glasgow shared service centre where 450 people work.

As the oil and gas giant posted a 58 per cent fall in first quarter profits, to $1.6 billion (£1.1bn), Mr Henry said Shell wanted to take more cost out of its UK business despite shedding 500 North Sea jobs since the oil price started tumbling in 2014.

“The world has actually changed and the cost levels in the North Sea, and the UK sector in particular, do need to come down substantively,” said Mr Henry. He said Shell plans to run its operations on the basis oil prices will remain low indefinitely.

He added: “That may or may not mean fewer people are required but our aim is to sustain … activity and not to sustain a number of jobs.”

Shell has axed 7,500 jobs globally since 2014 under plans developed before it announced the blockbuster takeover of BG last year.

The company has said it expects to cut a further 2,800 posts from the enlarged business formed from the BG acquisition, without saying how the programme will impact on the North Sea.

The cash and shares deal valued BG at £47bn initially. The valuation  fell to £37bn at completion, reflecting the impact of the prolonged crude price slump on oil and gas company shares.

But the company last month said it will close BG’s office Aberdeen and relocate the 300 employees to its own North Sea base in the city. This is expected to result in further jobs losses under a voluntary redundancy programme.

Asked if there could be more job losses following the BG takeover, Mr Henry said:

“From the office review and the coming together … what we’ve stated is it for BG but as we look at the portfolio going forward and the ongoing need to get the cost base into the right place I just can not make promises of that nature.”

Mr Henry said the centre in Glasgow, which provides services such as accounting, has been very successful.

He noted: “We don’t have plans to change that at the moment. We do, however, have five service centres around the world … and we do, from time to time, review how the work is done and where the work is done. We have moved work between the centres but I have no further statements to make on that. I can’t actually make promises, but no current plans.”

Mr Henry said the first quarter results reflected the impact of a period of weak oil and gas prices which may last some time.

While the crude price has rallied from a low of $27 per barrel in January to around $45/bbl, Mr Henry said: “It’s far too soon to be calling a break in the weak environment.”

He said with firms cutting spending on new developments and demand increasing prices should increase in the medium to long term.

However, major uncertainties include how much additional capacity Opec members such as Saudi Arabia could bring onstream and how US shale producers would react to price increases. “Lower for longer is certainly the mantra on investment; lower for ever is the mantra on operating expenditure,” said Mr Henry.

Shell plans to invest $30bn in new projects in 2016. The company and BG invested around $47bn in total in 2015.

Work on the giant fields Shell is developing off Shetland with BP is going well.

Chief executive Ben van Beurden said the combination with BG had started well following effective preparations. “This will likely result in accelerated delivery of the synergies from the acquisition, and at a lower cost,” he said.

Shell maintained its first quarter dividend at 47 cents per ordinary share.

Laith Khalaf, analyst at Hargreaves Lansdown, said: “The dividend now accounts for two dollars for each dollar that Shell earns, which is clearly unsustainable in the long term. The company will be hoping it gets bailed out by a recovery in oil and gas prices before it looks down and realises the ground it was running on has disappeared.”

Royal Dutch Shell A shares closed down 2.5 per cent, 44.5p, at 1710.5p.

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