[ad_1]
LONDON: Royal Dutch Shell is looking to cut the cost of oil and gas production by as much as 40 percent in a major drive to save cash so it can reform its business and focus more on renewable energy and energy markets, sources told Reuters .
Shell’s new cost reduction review, known internally as Project Reshape and expected to be completed this year, will affect its three main divisions and any savings will add to the $ 4 billion target set in the wake of the crisis. of COVID-19.
Cost reduction is vital to Shell’s plans to enter the energy and renewables sector, where margins are relatively low. Competition is also likely to intensify with rival utilities and oil companies, including BP and Total, battling for market share as economies around the world go green.
“We had a great model, but is it fit for the future? There will be differences, it’s not just about structure, but about culture and the type of company we want to be,” said a senior Shell source, who declined to be named. .
Last year, Shell’s overall operating costs were $ 38 billion and capex amounted to $ 24 billion.
Shell is exploring ways to cut spending on oil and gas production, its largest division known as upstream, by 30-40% through cuts in operating costs and capital spending on new projects, they told Reuters. two sources involved in the review.
Shell now wants to focus its oil and gas production on some key hubs, including the Gulf of Mexico, Nigeria and the North Sea, the sources said.
The company’s integrated gas division, which manages Shell’s liquefied natural gas (LNG) operations, as well as part of the gas production, is also considering deep cuts, the sources said.
For downstream, the review focuses on reducing costs for Shell’s network of 45,000 service stations, the world’s largest, which is considered one of its “highest value activities” and is expected to play a key role in the transition, two more. Sources involved in the review told Reuters.
“We are undergoing a strategic review of the organization, which is intended to ensure that we are prepared to thrive during the energy transition and be a simpler organization, which is also cost competitive. We are looking at a variety of options and scenarios in right now, they are being carefully evaluated, “a Shell spokeswoman said in a statement.
Shell’s restructuring momentum mirrors moves by European rivals BP and Eni in recent months, which plan to reduce their focus on oil and gas in the next decade and build new low-carbon businesses.
READ: BP’s green energy targets will be difficult to meet
READ: Comment: Big Oil Talk About Good Low Carbon Game, But Do Little to Back It Up
The review, which according to company sources is the largest in Shell’s modern history, is expected to be completed by the end of 2020 when Shell wants to announce a major restructuring. It will celebrate an investor day in February 2021.
Speaking to analysts on July 30, Shell Chief Executive Ben van Beurden said Shell had launched a program to “redesign” the Anglo-Dutch company.
LOW CARBON FUELS
Teams from Shell’s three main divisions are also studying how to reshape the business by cutting thousands of jobs and removing layers of management to save money and create a more agile company as it prepares for restructuring, the sources said.
Shell, which had 83,000 employees at the end of 2019, carried out a major cost-cutting campaign after the acquisition of BG Group for $ 54 billion in 2016, which has helped significantly boost its cash generation in the last years.
Shell’s operating costs, which include production, manufacturing, sales, distribution, administration and research and development expenses, fell 15%, or approximately US $ 7 billion, between 2014 and 2017.
But the sharp global economic slowdown in the wake of the COVID-19 epidemic, coupled with Shell’s plans to cut its carbon emissions to net zero by 2050, have led to new momentum.
Shell slashed its 2020 capex plans by $ 5 billion to $ 20 billion in the wake of the collapse in oil and gas prices due to the pandemic amid warnings that it could have lasting effects on the economy. world energy demand.
Van Beurden said in July that Shell was on track to deliver $ 3-4 billion in cost savings by the end of March 2021, including through job cuts and bonus suspension.
He said travel restrictions during the pandemic had accelerated Shell’s digitization while implementing machine learning to minimize disruption and shorten maintenance time at refineries, oil and gas platforms and LNG plants.
In addition to cutting costs in its downstream retail business, Shell is pushing ahead with its plans to reduce the number of oil refineries to 10 from 17 last year. Already agreed to sell three.
The review of refining operations also includes finding ways to dramatically increase the production of low-carbon fuels such as biofuels, chemicals, and lubricants. That could be done using low-carbon raw materials such as cooking oil, a source said.
