Plunging oil prices and merger cause large Shell layoff
Oil prices have been dropping since early 2015 following a trend in supply and demand, there is a decrease in exploration investment by oil producing companies in the east and an increase in domestic production (nytimes). Aside from oil, natural gas has dropped $.63 per gallon from 2014. This benefits homeowners and motorists, yet as good as it sounds there are some severe downsides when you increase the scope of observation.
Shell recently completed a merger with the large gas distribution company BG Group, but in the wake of this Shell had to cut 2,800 in order to convince investors to go through with the 40 billion pound deal. This cut in staff was seen as an opportunity cost in order to make the deal go through. This compromise came about because of those record low oil prices, “below $35 a barrel in New York the accepted price for a deal this size would have been more like $60 - 70 a barrel.” Says David Cumming head of equities at the investment firm for BG Group.
The loss of jobs in Shell isn’t as bad as the external shocks that could be experienced by political groups in places such as Ecuador, Brazil, and Russia. It’s also possible that Persian Gulf states stop investing money to Egypt in exchange for oil exploration.
Brackett, Ed. "Shell Plans 2,800 Job Cuts as U.S. Oil around $35." USA Today. Gannett, 14 Dec. 2015. Web. 14 Dec. 2015.
"Shell to Cut 2,800 Jobs Once BG Group Merger Completes." The Telegraph. Telegraph Media Group. Web. 14 Dec. 2015.