Shell plans for 'prolonged downturn' in oil prices

Shell's profits plunge

Royal Dutch Shell warned on Thursday that lower oil prices could continue for several years, and said it was planning for a prolonged downturn.

It comes as the Anglo–Dutch multinational reported that earnings in the second quarter, on a current cost of supplies (CCS) basis, came in at $3.4 billion - down from $5.1 billion for the same quarter a year ago. CCS is a way of reporting income that takes into account changes in expenses over the period.

An employee holds a control panel as barrels are filled with lubricant oil for shipping at Royal Dutch Shell Plc's plant in Torzhok, Russia, March 21, 2014.
Andrey Rudakov | Bloomberg | Getty Images

Shell also revealed plans to further reduce 2015 capital expenditure (capex) to $30 billion, down by 20 percent from a year ago on the back of a downturn in oil prices, and said it planned to cut 6,500 jobs over the year.

CEO Ben van Beurden said that the company was successfully "reducing our capital spending and operating costs, and delivering a competitive performance in today's oil market downturn."

"We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery. 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," he said in a statement.

Shell said it remained committed to a dividend of $1.88 per share in 2015, and "at least" the same amount in 2016.

Shell's BG deal

Earlier this year, Shell launched a £47 billion ($69 billion) cash-and-share bid for BG Group. On Thursday, van Beurden said the company was making "good progress" with the recommended combination of the companies.

We've been looking at BG for years: Shell CEO

The merger would enhance Shell's "free cash flow, create an international oil company leader in LNG (liquefied natural gas) and deep water innovation, and be a springboard to change Shell into a simpler and more profitable company," he added.

This backdrop of lower oil prices - which have halved since last June - is weighing on the entire oil industry.

Read MoreShell's BG deal: The biggest oil price bet yet?

On Tuesday, BP reported a second-quarter replacement cost loss of $6.3 billion and warned that low oil prices were here to stay. The replacement costmeasure takes into account changes in the price of oil and is used to report earnings.

Meanwhile, on Wednesday, French oil giant Total reported that net profit fell 2 percent in the second quarter, and the company stepped up its cost-cutting drive.

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