Update: Shell to cut 6,500 jobs, reduce investment by US$7b

[NEW YORK] Royal Dutch Shell Plc, the oil producer buying BG Group Plc for more than US$70 billion, said it plans to cut 6,500 jobs this year and reduce capital investment by US$7 billion.

Shell is planning for a "prolonged downturn," the company said Thursday in a statement. Its dividend commitment will remain unchanged at US$1.88 per share this year, with at least that amount paid in 2016, the company said.

Second-quarter profit adjusted for one-time items and inventory changes dropped to US$3.8 billion from US$6.1 billion a year earlier, The Hague-based Shell said. That beat the US$3.4 billion average estimate of 16 analysts surveyed by Bloomberg.

The world's biggest oil companies are leaning on refinery businesses they were scaling down over the past five years to help offset lower earnings from selling crude. The slump in oil prices has forced Shell, BP Plc and other producers to reduce spending and defer projects to strengthen their balance sheets.

Brent crude, a benchmark for more than half the world's oil, has dropped about 50 per cent in the past year. While that has eroded earnings, it has made it cheaper for refineries to buy the raw material. Lower prices have also spurred demand for fuels including gasoline and diesel.

Shell expects oil prices to rise to US$90 a barrel by 2018, justifying the 50 per cent premium the company bid to buy BG, according to an April 8 statement.

Volatile oil prices can boost earnings from oil trading for Shell, BP and Total SA, the world's biggest traders, which handle enough fuel every day to meet the needs of Japan, India, Germany, France, Italy, Spain and the Netherlands. The bear market has allowed them to generate higher returns by storing cheap oil to sell at a profit later and using lower prices to make bigger bets with the same capital.

BLOOMBERG