Royal Dutch Shell to cut oil and gas production costs by up to 40%

Royal Dutch Shell to cut oil and gas production costs by up to 40%
Written by:
Wajeeh Khan
21st September, 16:13
  • Royal Dutch Shell to cut oil and gas production costs by up to 40%.
  • Project Reshape will affect the oil major's three main divisions.
  • Shell to cut downstream costs from its network of service stations.

Sources confirmed on Monday that Royal Dutch Shell (LON: RDSA) will slash oil and gas production costs by up to 40% to shore up finances. The saved money, as per the sources, will be directed at business overhaul as Shell commits to expanding its footprint in renewable energy and power markets.

Shell closed the regular session about 2% down on Monday. On a year to date basis, the £77.50 billion company that has a price to earnings ratio of 5.03 is more than 50% down in the stock market. In comparison, it posted an annual decline of about 2% in 2019.

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Project Reshape will affect Shell’s three main divisions

Internally, Shell is calling its new cost-cutting drive as Project Reshape. According to the sources, the company’s three main divisions will be affected by the cost cut that is likely to be completed before the start of the new year. Shell published its earnings report for the fiscal second quarter in July that highlighted the company to have swung to a net loss.

Shell expressed interest in focusing more on power markets and renewable energy in recent months where margins are known to be comparatively lower. Minimising costs, as per experts, is crucial for Shell to implement this strategy and expand its market share against other prominent names like British Petroleum and Total.

A senior Shell source said on Monday:

“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.”

Shell to cut downstream costs from its network of service stations

In 2019, Shell valued its capital spending at £18.76 billion and its operating costs at £29.71 billion. The British-Dutch multinational oil and gas company will now explore ways to minimise capital spending and operating costs attributed to new projects in a bid to slash its upstream costs by 30% to 40% this year.

Sources also said on Monday that Shell’s oil and gas production business will now focus primarily on Nigeria, Gulf of Mexico, and the North Sea. Shell said last week that its mobile chemical plant in Alabama will take necessary precautions but will continue normal operations amidst Hurricane Sally.

For downstream, Shell will commit to cutting costs from its network of service stations. Shell has the largest network in the world that comprises of 45 thousand service stations in total.

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