Shell prepares for major production cuts to refocus on green strategy

A man fills his car at a Shell garage in Glasgow, February 3, 2005. Royal Dutch/Shell Group issued another cut in reserves on Thursday, bigger than investors had expected, as the oil giant reported bumper fourth-quarter profits. Surging oil prices and strong refining margins enabled Shell to report fourth-quarter current-cost net earnings of $5.127 billion, including gains on one-off items of $318 million. NTRES REUTERS/Jeff J Mitchell  JJM/MD
A man fills his car at a Shell garage in Glasgow. Photo: Jeff J Mitchell/Reuters

Royal Dutch Shell (RDSB.L) is looking to cut up to 40% off its costs related to producing oil and gas as it focuses on the renewable energy and power markets.

That’s according to a source who spoke exclusively to Reuters.

The project is known internally as Project Reshape and is expected to be completed by the end of this year, said Monday’s report. There will be three main divisions of the business that are impacted by the cuts and they will reportedly be in addition to a $4bn (£3.1bn) target set in the wake of the COVID-19 crisis.

Royal Dutch Shell shares were trading lower on Monday at around 2:30pm London time. They are down 1.9%, falling to annual lows amid the wider market slump.

The business is looking to revamp its strategy with more of a green energy focus
The business is looking to revamp its strategy with more of a green energy focus. Chart: Yahoo Finance

Shell’s strategic move comes in the wake of similar ones by its peers, including BP (BP) and Total (TOT), which have also been battling for a greater share of the renewable energy market. Shell’s cost cuts key are key for it to transition into the renewables market as margins in it are relatively low.

“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,” a senior Shell source, who declined to be named, told Reuters.

The business is exploring ways to reduce spending on oil and gas production in its largest division, known as upstream, according to two sources who spoke to Reuters. Roughly 30% to 40% of those cuts will be in operating costs and capital spending on new projects.

Shell also will refocus its oil and gas production on a few key hubs, including the Gulf of Mexico, Nigeria and the North Sea, the sources said.

Last year, Shell’s overall operating costs came to $38bn and capital spending totalled $24bn.

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