Shell Faces Job Cuts Amid Cost-Cutting Drive as Turkish LNG Deal Unfolds
Tuesday, Sep 3, 2024 6:36 pm ET
1min read Shell (SHEL) dipped 3.18%, marking a decline for the second consecutive day, bringing a two-day drop to 4.33%.
Shell plans to cut about one-fifth of its workforce in two of its oil and gas exploration divisions as CEO Wael Sawan's cost-cutting measures reach the company's core upstream business.
According to a source familiar with the plans, some job cuts will occur as technical departments across various divisions merge. These plans are currently being discussed with employees and are not final.
Sawan, who took over the oil giant last year, pledged to cut Shell's operating expenses by as much as $3 billion by the end of 2025. Shell's operating expenses for 2023 are $40 billion.
Since then, Sawan has begun scaling back initiatives, including its renewable energy business. In early August, Sawan announced that he had saved $1.7 billion in costs so far and would continue to "simplify how the organization works."
He pledged to continue consolidating management roles and replacing back-office staff with technology, but he did not specifically mention the core oil and gas business.
Shell considers exploration crucial for replenishing depleted resources and discovering profitable new oil fields.
"What we don't know is whether these cuts are because they are 20% overstaffed, or if it means the portfolio itself might be shrinking," said Bernstein analyst Irene Himona.
She added that Shell's upstream production costs are higher than the average of its peers. "I think it's a possibility—they need to improve efficiency," she said.
Year-to-date, Shell's stock has risen over 8%, outpacing its competitors as investors have gained confidence in Sawan's focus on operational efficiency and shareholder returns.
Shell plans to cut about one-fifth of its workforce in two of its oil and gas exploration divisions as CEO Wael Sawan's cost-cutting measures reach the company's core upstream business.
According to a source familiar with the plans, some job cuts will occur as technical departments across various divisions merge. These plans are currently being discussed with employees and are not final.
Sawan, who took over the oil giant last year, pledged to cut Shell's operating expenses by as much as $3 billion by the end of 2025. Shell's operating expenses for 2023 are $40 billion.
Since then, Sawan has begun scaling back initiatives, including its renewable energy business. In early August, Sawan announced that he had saved $1.7 billion in costs so far and would continue to "simplify how the organization works."
He pledged to continue consolidating management roles and replacing back-office staff with technology, but he did not specifically mention the core oil and gas business.
Shell considers exploration crucial for replenishing depleted resources and discovering profitable new oil fields.
"What we don't know is whether these cuts are because they are 20% overstaffed, or if it means the portfolio itself might be shrinking," said Bernstein analyst Irene Himona.
She added that Shell's upstream production costs are higher than the average of its peers. "I think it's a possibility—they need to improve efficiency," she said.
Year-to-date, Shell's stock has risen over 8%, outpacing its competitors as investors have gained confidence in Sawan's focus on operational efficiency and shareholder returns.
On September 2, Turkey's Energy and Natural Resources Minister Alparslan Bayraktar announced at a signing ceremony that Turkey signed a 10-year liquefied natural gas supply agreement with Shell. From 2027, Shell will supply approximately 4 billion cubic meters of LNG annually to Turkey's state-owned oil and gas company Botas. The contract also includes an option to transport the gas to European terminals outside Turkey.
Turkey's Energy Ministry stated that Botas and Shell will sign a long-term liquefied natural gas (LNG) agreement on Monday. Energy Minister Alparslan Bayraktar will meet with Wael Sawan in Ankara before making a statement. Further details of the transaction remain unclear.
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