Energy giants Shell and Centrica to axe more than 12,000 jobs

Shell announced that it would be cutting 6,500 jobs in response to the slump in oil prices, saying it was “planning for a prolonged downturn” by slashing costs this year by 10% or 4billion US dollars (£2.6bn).

And British Gas owner Centrica said that around 6,000 jobs would be cut across the group, around 10% of its workforce, although it added that the net loss would be nearer 4,000 taking into account the creation of new jobs.

Shell said that, in addition to job cuts, it was trimming its investment plans for this year by 20% or 7bn US dollars (£4.5bn) and that further cost-cutting was expected in in 2016.

Chief executive Ben van Beurden said: “We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery.”

It is the first time that Shell has put a number on total job cuts for 2015, though it said that the majority of jobs within that had already been announced, including the loss of 500 in the UK plus others in Norway, the US and Nigeria. Its global workforce currently stands at 94,000.

Mr van Beurden said Shell was making good progress on its planned £47bn takeover of BG.

He said Shell was aiming to become a “simpler and more profitable company” and after the transaction would cut spending on exploration while reviewing the way it invests capital in long-term projects and disposing of assets.

“These are challenging times for the industry, and we are responding with urgency and determination, but also with a great sense of excitement for the future.”

Shell disclosed the figures as it published second quarter results showing a 35% fall in earnings to 3.36bn US dollars (£2.16bn).

It said profits in its “upstream” production and exploration division were weighed down by “the significant decline in oil and gas prices and decreased production volumes” partly offset by lower costs. Earnings from the division fell by 80% to 774million US dollars (£496m).

The price of a barrel of Brent crude has slumped by more than half from nearly 116 US dollars in June last year.

It has recovered a little from a low of 45 US dollars in January but the continuing prospect of a glut of supply in world markets, especially after a thawing in relations between the US and sanctions-hit Iran - has kept this in check. Brent crude reached nearly 70 US dollars in May but has since fallen again to around 53 US dollars.

However, Shell said downstream results were strong as it took steps to improve financial performance and higher profit margins from its refining business.

The downstream business also includes the selling of fuels and other products for home, transport and industrial use. Profits from the division rose 116% to 2.75bn US dollars (£1.76bn) in the quarter.

Shell’s swoop for BG, announced earlier this year, is the biggest takeover in the sector since US firm Exxon’s purchase of Mobil in 1998.

It said it remained on track to complete the deal in early 2016 and said it had received approvals from regulators in Brazil, South Korea and the US.

Shell said it expects to see 30bn US dollars (£19bn) of asset sales between 2016 and 2018 “as the combined portfolios are restructured”. The company said it had agreed to sell a 33% stake in Japan’s Showa Shell Sekiyu for around 1.4bn US dollars (£900m).

The job cuts at Centrica follow a strategic review which is aimed at delivering savings of £750million over five years. Not all the job cuts will be in the UK, and around half are expected to be through redundancies.

Today’s announcement came alongside half-year results which reignited controversy over high energy prices.

Although Centrica’s adjusted group operating profits fell 3% to £1bn, reflecting the impact of falling prices on its exploration division, profits at British Gas nearly doubled to £528m, more than it made in the whole of 2014, despite a 5% cut in retail prices earlier this year.

Centrica said the larger than expected increase was due to colder weather last winter compared with the previous year which drove an 11% increase in gas consumption.

However, consumer groups said the scale of the increase in profits showed that British Gas was failing to pass on lower prices in energy markets to end users.

Which? executive director, Richard Lloyd said: “While it’s good to see the new commitment from Centrica to focus on serving customers, with British Gas profits high and wholesale prices low, customers will no doubt wonder why cuts to their bills haven’t gone further, and haven’t included electricity.

“The Competition and Markets Authority (CMA) has confirmed that household bills should be lower if the energy market was truly competitive. Following the CMA’s blistering assessment of this sector, we expect big suppliers to pass on falling costs to their customers quickly and fairly.”

Ann Robinson, director of consumer policy at uSwitch.com, said: “The news that British Gas is predicting a surge in profits will be a hard pill to swallow for its customers, especially as so many went cold last winter to cope with sky-high bills.

“Wholesale prices, which make up around half of energy bills, have plunged to their lowest level in five years.

“Although British Gas is the only big six supplier to reduce gas prices twice this year, the fact remains that the combined cuts will lower its average dual fuel bill by just 6%.”