Europe's biggest oil company has announced plans for job cuts and spending reductions after its second-quarter profits dropped by two thirds. "We are stripping away layers and overlaps to add more value, and that means fewer people," said Peter Voser, the chief executive of Royal Dutch Shell. Mr Voser, who took over from Jeroen van der Veer this month, said Shell had become "too complex" and he promised to streamline the company by consolidating units. The reorganised company will be run by 600 managers, representing a 15 per cent reduction in senior employees. "Substantial" overall staff cuts were likely to follow, Mr Voser said. Shell's capital budget of US$28 billion (Dh102.84bn) next year would be 10 per cent lower than this year's expected spending, and further cuts could be made if needed, he said. The company posted second-quarter net income of $3.8bn, down 67 per cent from $11.6bn a year earlier, due to lower oil and gas prices, tighter refining margins and lost output from Nigeria after militant attacks on oil and gas installations and large-scale oil theft in the troubled west African country. The attacks have forced Shell to close plants, resulting in a 50 per cent drop in the company's Nigerian oil and gas output since 2005, Mr Voser said. The company faces many other challenges related to financing for Nigerian joint ventures and the effects of a proposed new petroleum law with sweeping oil and gas-sector reforms. "It is too early to say what the final outcome will be but we are moving into a very uncertain period here," Mr Voser said. As a result, Shell had been cutting back investment in Nigeria, which was once a mainstay of its output. But it was not yet ready to give up on the country, Mr Voser said. "We are in Nigeria to make it work." Another problem for Shell this year has been its large exposure to European and North American gas markets, in which prices have continued to fall in recent months, even as crude has rallied. European gas demand would fall by 5 per cent this year and US demand would also decline, at a time when global energy supplies were increasing, Mr Voser predicted. "There is ample energy supply and not enough demand. That is quite a turnaround from last year," he said. "Conditions are likely to remain challenging for some time and we are not banking on a quick recovery. "Shell is adapting to this new situation and we must do more. We are sharpening our focus on delivery and affordability." ExxonMobil, the biggest US oil company, yesterday announced a similar drop in second-quarter earnings to $3.95bn, 66 per cent down from $11.68bn a year earlier. But its chairman, Rex Tillerson, said the company was continuing to invest "at near-record levels". Capital spending of $12.3bn in the first half of this year was "in line with our longer-term plan", Mr Tillerson said. ExxonMobil's latest quarterly results reflected "lower crude oil and natural gas realisation", he said. The company said its second-quarter oil and gas output was 3 per cent lower than a year earlier. In New York yesterday, crude was priced at about $64 a barrel. It has recovered this year from below $35 in December after tumbling from a record $147 a barrel last July. After six years of declining output, Shell had planned to revive production growth by tapping into technically challenging "unconventional" hydrocarbon deposits in Russia and Canada, while developing a cutting-edge gas-to-liquids facility in Qatar. But sharply lower oil and gas prices have jeopardised the profitability of such ventures. Second-quarter earnings from Shell's Canadian oil sands operations fell by 86 per cent to $50 million, from $350m a year earlier, underscoring the challenges the company faces in achieving acceptable returns for investment on costly developments. But Shell is making progress with its continuing programme to build 1 million barrels of oil equivalent a day of new oil and gas production capacity. The start this year of a large liquefied natural gas project at Sakhalin Island in Russia's far east, and an oil project at Parque das Conchas in Brazil, were "important milestones", it said. Shell also announced it had made six "notable" oil and gas discoveries this year in the US Gulf of Mexico, Australia, Malaysia and Norway. Mr Voser said he expected more before the year ended. tcarlisle@thenational.ae