Royal Dutch Shell is looking to slash up to 40 percent off the cost of producing oil and gas in a major drive to save cash so it can overhaul its business and focus more on renewable energy and power markets, sources told Reuters.
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.
Royal Dutch Shell chief executive Ben van Beurden. (AFP)
Speaking to analysts on July 30, Shell Chief Executive Ben van Beurden said Shell had launched a program to “redesign” the Anglo-Dutch company.
Teams in Shell’s three main divisions are also studying how to reshape the business by cutting thousands of jobs and removing management layers both to save money and create a nimbler company as it prepares to restructure, the sources said.
Shell, which had 83,000 employees at the end of 2019, carried out a major cost-cutting drive after its $54 billion acquisition of BG Group 2016, which has helped boost its cash generation significantly in recent years.
Shell’s operating costs, which include production, manufacturing, sales, distribution, administration and research and development expenses, fell by 15 percent, or roughly $7 billion, between 2014 and 2017.
B ut 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 have led to the new push.
Shell cut its 2020 capital expenditure plans by $5 billion to $20 billion in the wake of the collapse in oil and gas prices due to the pandemic amid warnings it could have lasting effects on global energy demand.
Van Beurden said in July that Shell 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.
He said travel restrictions during the pandemic had accelerated the digitalization of Shell while machine learning was being rolled out to minimize outages and shorten maintenance time at refineries, oil and gas platforms and LNG plants.
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 last year. It has already agreed to sell three.
The review of refining operations also includes finding ways to sharply increase the production of low-carbon fuels such biofuels, chemicals and lubricants. That could be done by using low-carbon raw materials such as cooking oil, one source said.