In what is seen as a major drive to save cash so it can overhaul its business and focus more on renewable energy and power markets, Royal Dutch Shell is looking to slash up to 40% off the cost of producing oil and gas.
Reuters reports that Shell’s new cost-cutting review, known internally as Project Reshape and expected to be completed this year, will affect its three main divisions and any savings will come on top of a $4 billion target set in the wake of the COVID-19 crisis.
Reducing costs is vital for Shell’s plans to move into the power sector and renewables where margins are relatively low. Competition is also likely to intensify with utilities and rival oil firms including BP and Total all battling for market share as economies around the world go green.
A senior Shell source, who declined to be named said “We had a great model but is it right for the future? There will be differences, this is not just about structure but culture and about the type of company we want to be,” said Last year, Shell’s overall operating costs came to $38 billion and capital spending totalled $24 billion.
Two sources involved with the review told Reuters Shell is exploring ways to reduce spending on oil and gas production, its largest division known as upstream, by 30% to 40% through cuts in operating costs and capital spending on new projects.
Shell now wants to focus its oil and gas production on a few key hubs, including the Gulf of Mexico, Nigeria and the North Sea, the sources said.
The sources said the company’s integrated gas division, which runs Shell’s liquefied natural gas (LNG) operations as well as some gas production, is also looking at deep cuts.
For downstream, the review is focusing on cutting costs from Shell’s network of 45,000 service stations – the world’s biggest – which is seen as one its “most high-value activities” and is expected to play a pivotal role in the transition, two more sources involved with the review told Reuters.
A spokeswoman for Shell said in a statement “We are undergoing a strategic review of the organisation, which intends to ensure we are set up to thrive throughout the energy transition and be a simpler organisation, which is also cost-competitive. We are looking at a range of options and scenarios at this time, which are being carefully evaluated.