Royal Dutch Shell announced it will lay off up to 9,000 people—more than 10% of its current workforce—between now and the end of 2022 as it begins restructuring to achieve its goal of net-zero emissions by 2050 and to adjust to economic headwinds from the COVID-19 pandemic. The layoffs, which will include some 1,500 people who have agreed to take voluntary redundancy this year, are expected to contribute to cost savings of $2.5 billion for the company.
Shell shares were up 0.4% on Tuesday morning but are down about 56% since the start of the year. The $2.5 billion in cost savings will go partly beyond the $3 to $4 billion cut in capital spending announced in March.
"We are doing this because we have to, because it is the right thing to do for the future of the company," CEO Ben van Beurden said in an interview posted on the company's website. "We have looked closely at how we are organized, and we feel that, in many places, we have too many layers in the company."
The announcement followed that of BP, who said this summer it would lay off 10,000 employees as part of its net-zero goals. The goal of net zero by 2050 is broadly accepted as the target the world must hit to limit rising temperatures under the Paris Agreement. Reducing costs is vital for these companies’ plans to move into the power sector and renewables, where margins are relatively low. European supermajors Equinor, Total, and Repsol have all made similar commitments this year to hit net zero by 2050.The shift has been largely European, with the largest US oil and gas companies, particularly Chevron and ExxonMobil, doubling down on oil and gas, although both companies have also had layoffs.
In an operations update, Shell said its oil and gas production was set to drop sharply in the third quarter to around 3.04 million BOE/D because of lower output as a result of the coronavirus pandemic and hurricanes that forced offshore platforms to shut down.
The company warned of further losses in an update on the third quarter, saying that trading and refining results were both expected to be "significantly lower" than in the second quarter of this year, when Shell's results were cushioned by higher trading profits. The company also said it expected impairment charges between $1 to $1.5 billion in the third quarter, after announcing a $22-billion writedown in June.
Shell is exploring ways to reduce upstream spending by 30% to 40% through cuts in operating costs and capital spending on new projects, according to Reuters. The company said on Wednesday it also plans to reduce the number of its refineries to less than 10 from 17 currently and more than 55 15 years ago.
"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.
"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.