London — Shell on Sept. 30 said both its LNG and crude production were down in the third quarter in an update to the market, which also detailed plans to cut up to 9,000 jobs by the end of 2022 as it adjusts to the COVID-19 price collapse.
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The company's upstream oil and gas production was down by 12-15% compared with a year earlier, in a range of 2.2 million-2.3 million boe/d, in part impacted by hurricanes in the US Gulf of Mexico. LNG output plunged by 8-12% to 7.9 million-8.3 million mt.
In the update ahead of a full results statement on Oct. 29, Shell said its oil sales in July and August had reflected a 15-20% discount to Brent pricing, similar to the second quarter, and its LNG business in the quarter had suffered a "significant impact" from a lag effect in the oil-linked pricing of LNG in its term sales contracts.
It also warned that oil trading and optimization results had been "significantly lower" in the third quarter than in the second quarter.
It also highlighted refining weakness, with a utilization level of just 64-68% and margins "significantly lower" than in the second quarter 2020, and said it intended to reduce its refining footprint globally to less than 10 sites, having previously targeted a reduction from 15 to 10 sites. By comparison, the company had 55 refining sites 15 years ago.
On its restructuring plans, Shell said: "Reduced organizational complexity, along with other measures, are expected to deliver sustainable annual cost savings of between $2.0 billion to $2.5 billion by 2022. This will partially contribute to the announced underlying operating cost reduction of $3.0 billion to $4.0 billion by the first quarter 2021."
Worldwide job reductions of 7,000 to 9,000 are expected by the end of 2022, including 1,500 people who have agreed to take voluntary redundancy this year, Shell said. The total layoff would amount to around 10% of Shell's workforce as the major employs about 83,000 people worldwide,
Shell's move comes almost four months after rival BP announced one of the most aggressive waves of job cuts in its history, outlining plans to slash a seventh of its global workforce, as the oil major looks stem losses from the pandemic-triggered oil price collapse.
On the financial side, the company said it expected to book post-tax impairments of $1 billion-1.5 billion, although it gave no indication of likely debt levels for the quarter.