Shell Plans More Spending Cuts on BG Deal

Royal Dutch Shell (NYSE: RDS.A) plans to increase cost savings to $4.5 billion by 2018 with concerns of its $54 billion acquisition from their rival BG Group, during which the new spending is to keep up its dividend payments, according to the Chief Officer Ben van Beurden said on Tuesday. The aquisition with BG made Shell become the world’s second biggest international oil company just behind Exxon by market acquisition and production. Shell became the top liquefied natural gas trader and a major deepwater oil producer by increasing its position in Australia and Brazil.

Increased debt is the biggest concern as a reason for Shell in planning for this cost savings, according to the acquisition of BG driving Shell’s debt risen above 26 percent from 14 percent at the end of last year. Reducing debt is Shell’s “first priority” for cash, Van Beurden said in the interview. Therefore, Shell plans to raise free cash flow to $20 billion to $25 billion and boost the return on capital employed to 10 percent by 2020 at an oil price of $60 a barrel.

The first-quarter profits has fallen to $800 million from $4.8 billion a year earlier due to the slump on lower oil prices, announce by Shell in May.

Ever since the merge with BG, Shell has already cut 2,800 jobs and another 2,200 job-cutting is still on going. Shell has announced more than 10,000 job cuts globally over the last two years.

Shell also reduced spending on its planned capital investment for this year by $1 billion to $29 billion. Shell will keep the capital spending in a range of $25 billion to $30 billion a year further, and the company plans to continue investing in deep water oil projects.

In a statement, Mr van Beurden said: “By capping our capital spending in the period to 2020, investing in compelling projects, driving down costs and selling non-core positions, we can reshape Shell into a more focussed and more resilient company, with better returns and growing free cash flow per share.”

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