Shell plans big cost cuts on BG merger
More than 10,000 staff will be chopped as the combined energy group seeks to save money – but the deal also needs a big rise in oil prices to work out for investors
Shell is planning to slash $7bn (£4.7bn) of costs, $8bn of investment and 10,300 jobs in the next two years if shareholders approve its plan to buy BG, the energy giant has vowed.
Regulators around the world have given the green light to the £35bn deal, but bosses still have to win over some sceptical investors which includes promising larger than previously expected savings from the deal.
Publishing the prospectus for the mega-merger, the oil giant described the deal as a “a springboard to reshape Shell,” including asset sales amounting to $30bn from 2016 to 2018.
Shell’s shareholders will vote on the plan on 27 January 2016, with BG’s investors voting a day later.
If investors approve it — requiring support of 50pc of Shell shareholders and 75pc of BG shareholders — the deal is expected to complete by February 15.
BG chief executive Helge Lund and chief financial offier Simon Lowth will leave the enlarged firm once the deal is concluded. The scheme is however predicated on oil prices rising sharply from their current low levels.
Shell’s calculations are based on prices rising from $36.50 per barrel currently to more than $50 in 2016 – a rise of more than 35pc. Prices then rise even further in the oil firm’s assumptions, hitting $65 per barrel in 2017. The group acknowledged that this is far from a certainty, however it does expect a long-term rise in prices.
“Shell’s view is that the fundamentals of supply and demand, and in particular the requirement for significant and sustained global investment to deliver in excess of 5m barrels per day of new oil supplies per year, means that oil prices today are unsustainably low,” said the prospectus.
“The timing and magnitude of any oil price recovery are uncertain. In addition, the volatility of oil prices appears to have increased, meaning that Shell will need to manage its finances through significant swings in oil prices.”
However, the combined firm will hope that if it achieves its planned cuts to costs, it will be able to turn a profit at a lower oil price than would be the case if they remain separate companies.