LONDON -- Energy company Royal Dutch Shell plans further cost cuts as a result of its merger with BG Group PLC this year.
The company made the announcement Tuesday as it tried to assure investors that it could handle the debt that came with the $54 billion takeover.
"Integration is gathering pace, and today we expect to deliver more synergies, and at a faster rate," Shell Chief Executive Officer Ben van Beurden said.
Shell argues that the deal, which increased the company's proven reserves of oil and natural gas by 25 percent, provided opportunities to cut costs by eliminating duplication. Thousands of jobs have been cut and investments have been postponed.
Van Beurden said Tuesday that absorbing BG would result in $4.5 billion in savings by 2018, up from an earlier estimate of $3.5 billion.
The deal has caused concerns because it came as the price of oil was dropping. Brent crude, the benchmark for international oil, hit a 12-year low of $27.10 a barrel in January after trading above $100 as recently as September 2014.
Van Beurden set out priorities intended to improve returns and cash flow, which has been affected by low oil prices. Excluding the purchase price for BG Group, investment for 2016 is expected to be $29 billion -- 35 percent lower than the combined spending of Shell and BG Group in 2014.
Planned asset sales are expected to be $30 billion for 2016-18. Shell said it is also moving to exit from five to 10 countries, as it earmarks 10 percent of its oil and gas production for disposal.
Christian Stadler, a professor of strategy at Warwick Business School in the United Kingdom, said Shell needs to focus on where its expertise lies -- such as offshore and liquefied natural gas.
"A less active profile in some countries, therefore, can only be a good thing," he said. "Shell focusing on where it is more established and more confident ... therefore makes sense from a cost-cutting perspective."
Shell's shares rose $1.85, or 3.7 percent, to close Tuesday at $51.61.
Business on 06/08/2016