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Fall by 67 per cent in Royal Dutch Shell's net profit

A decline in oil prices and low profit margins in the refining business, has taken its toll on most big oil companies and Royal Dutch Shell PLC was no exception as its net profit fell 67 percent in the second quarter to $3.82 billion as declared by the company on Thursday. Shell had net profit of $11.6 billion in the second quarter last year. Sales at Europe’s largest oil company were $63.9 billion, well down from $131.4 billion.

The company’s new CEO Peter Voser has promised to increase production by by 2-3 percent per year through 2012, reversing 7 years of declines though there will be job cuts and reduced capital spendings. Voser said that 150 “top managers” at Shell had been fired and also said that there would be further job cuts at lower ranks too.

“We have too many people doing business with each other rather than the outside world,” he said. In the future “we will have fewer people thinking about strategy and more people actually implementing it.”

Oil prices fell at the start of this year to below $40 per barrel from their 2008 peak of $147 amid the world recession. They have since recovered to around $63 but Voser said demand remains in its deepest slump since 1980, even as the oil industry is set to boost global production by 10 percent this year.

“There is ample supply and not enough demand. Quite a turnaround from a year ago,” he said on a conference call after the results were released. “We simply don’t know when the global economy will recover and we have to plan on the basis that this downturn could last quite some time.”

Shell’s exploration and production arm has also suffered as its earnings fell 77 percent to $1.33 billion. Production was down 6 percent to 2.9 million barrels of oil and equivalents per day, while prices realized by the company were $52.62 per barrel, down from $111.92 a year ago. At its refining arm, earnings were down 74 percent to $1.16 billion, due to lower refinery intake, worse margins and a $611 million charge to write down asset values.