Shell remodels operations in cost-cutting strategy
Anglo-Dutch oil giant, Shell has announced plans to focus its oil and gas production on a few key hubs, namely Nigeria, the Gulf of Mexico, and the Northern Sea regions, going forward amid the Covid-19 global pandemic. This, according to Shell, would help increase savings and overhaul its business operations, while focusing more on renewable energy and power markets.
The oil giant says it is exploring ways to reduce spending on oil and gas production, its largest division known as upstream, by 30 percent to 40 percent through cuts in operating costs and capital spending on new projects.
“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,” the company said in a statement.
Ben van Beurden, chief executive officer, Royal Dutch Shell plc, had earlier in July said the company was on track to deliver $3 billion to $4 billion in cost savings by the end of March 2021, including through job cuts and suspending bonuses.
Besides cutting costs at its downstream retail business, Shell is pressing ahead with plans to reduce the number of its oil refineries to 10 from 17 . It has already agreed to sell three.
Also, the sharp global economic slowdown in the wake of the COVID-19 epidemic, coupled with Shell’s plans to slash its carbon emissions to net-zero by 2050, has led to the new push.
In 2019, Shell’s overall operating costs hit $38 billion and capital spending totalled $24 billion.
Shell’s restructuring drive mirrors moves in recent months by European rivals BP and Eni, which both plan to reduce their focus on oil and gas in the coming decade and build new low-carbon businesses.
Shell’s operating costs, which include production, manufacturing, sales, distribution, administration, and research and development expenses, fell by 15 percent at $7 billion, between 2014 and 2017.
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