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Shell expects prolonged oil market downturn

Dutch supermajor finds silver lining in synergy with BG Group.

By Daniel J. Graeber
Shell Chief Executive Officer Ben van Beurden said the company forecasts oil prices will eventually recover to around $90 per barrel, but current contraction may last several years. Photo courtesy of Royal Dutch Shell.
Shell Chief Executive Officer Ben van Beurden said the company forecasts oil prices will eventually recover to around $90 per barrel, but current contraction may last several years. Photo courtesy of Royal Dutch Shell.

THE HAGUE, Netherlands, July 30 (UPI) -- Though crude oil prices may recover to $90 per barrel, Royal Dutch Shell said Thursday it was planning for a downturn that could last "several years."

"We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery," Shell Chief Executive Officer Ben van Beurden said in a statement. "We're taking a prudent approach, pulling on powerful financial levers to manage through this downturn."

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Rig services companies Halliburton and Weatherford International issued dismal second-quarter earnings reports as oil majors trim capital expenses in an era where crude oil prices are far below June 2014 levels, when north of $100 per barrel was typical.

Brent crude oil traded at around $54 per barrel in early Thursday trading, down about 14 percent since the start of July.

Following its industry peers, Shell said it has shed around 6,500 jobs as part of an effort to cut operating costs by $4 billion. A spokesman said the cuts are not new, but an aggregate of those made over the last year.

Shell employs about 95,000 people worldwide.

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The company added that capital investments for 2015 of $7 billion are down 20 percent and more reductions in operating costs are expected next year.

"Today's oil price downturn could last for several years, and Shell's planning assumptions reflect today's market realities," it said in its quarterly report. "The company has to be resilient in today's oil price environment, even though we see the potential for a return to a $70-$90 oil price band in the medium term."

In April, the board of directors at Shell and BG Group reached an agreement for the Dutch company's acquisition of its rival.

The deal, valued at around $70 billion, is among the largest acquisitions since the Exxon Mobil merger was completed in 1999.

In its quarterly statement, Shell said both sides were planning for what it said was a "world class integration" of two industry leaders.

"By combining Shell's current complementary positions with BG's LNG and deep water assets, Shell can add significant value -- beyond the announced synergies -- by applying its technology and know-how at greater scale, at a lower cost, concentrating on areas of existing competitive advantage, and through better optimization of the combined portfolio," Shell said.

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Investors reacted positively to Shell's report. Pre-market shares in the company were up more than 4.5 percent to $57.90.

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