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Shell to cut 6,500 jobs as profit falls sharply

Royal Dutch Shell PLC on Thursday reported a sharp fall in second-quarter profit and said it would cut 6,500 jobs, illustrating the strain sustained low oil prices are putting on large producers.

The Anglo-Dutch oil giant's quarterly profit on a current cost-of-supplies basis--a number similar to the net income that U.S. oil companies report--shrank 33% to $3.4 billion compared with $5.1 billion in the same period a year earlier. Though oil prices rebounded off lows hit at the start of the year in the second quarter, they remained well below year-ago levels.

Amid the slump in prices, Shell has acted boldly. In April it signed a $70 billion deal to acquire BG Group--the company's largest purchase ever and the biggest deal in the oil sector for more than a decade--and it is pressing ahead with expensive plans to drill in the Arctic this summer. Earlier this month, it approved development of its deep-water Appomattox oil field in the Gulf of Mexico.

But in its second quarter report, the company indicated that it is also preparing for a prolonged downturn in oil prices. Shell is planning to cut its operating costs by $4 billion this year, slash 6,500 jobs and reduce capital investment by 20%. The company said it remained committed to its dividend program, confirming payouts at $1.88 a share in 2015 and at least as much again in 2016.

The move echoes similar cutbacks by its peers. Earlier this week BP PLC said it would spend less than $20 billion in organic capital expenditure this year after swinging to a $6.3 billion loss on low oil prices and a multibillion-dollar charge relating to its 2010 blowout in the Gulf of Mexico.

"We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery," CEO Ben van Beurden said. "We're taking a prudent approach, pulling on powerful financial levers to manage through this downturn, always making sure we have the capacity to pay attractive dividends for shareholders."

The company said it remains on track with its plan to combine with BG Group. It has already received regulatory approval from the U.S., Brazil and South Korea, but still needs to get a nod from Australia, China and the European Union.

Though most analysts have praised the logic of the deal--which will give Shell a major footprint in Brazil's attractive deep-water oil plays and enhance its leading position in the liquefied natural gas market--the price has come under criticism and some have expressed concerns that it depends too much on an oil price recovery. Shell said the synergies from the deal should amount to at least $2.5 billion a year from 2018. Over the medium term, the company still sees the potential for the oil price to return to $70 to $90 a barrel.