Shell Slashes Operational Cost in Major Review as it Transitions to Renewable Energy Market
British-Dutch multinational, Shell, is reportedly planning to slash up to 40% off the cost of producing oil and gas, as it pivots to focus on the renewable energy and power markets.
According to Reuters, the company is overhauling its entire oil and gas business in light of the global economic crisis occasioned by the COVID-19 pandemic.
The report said Shell would cut its operational cost by reducing oil and gas production to a few hubs including Nigeria, the Gulf of Mexico and the North Sea.
It was gathered that the new cost-cutting review, which is said to be known internally as ‘Project Reshape’, would help Shell’s move into the power sector profitable, as margins are said to be relatively low in that market.
In 2019, Shell’s operating cost was reported to be $38 billion and a total of $24 billion was recorded as its capital spending. But as the global economies dip, restructuring became a vital step for many companies.
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Rival oil companies including BP, a British multinational oil and gas firm, and Total, plus other utility service providers are also battling for market share as they are all in a race to maneuver the COVID-19 tide.
“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 quoted an anonymous source at Shell to have said.
Shell is also looking at cutting operational costs at its integrated gas division, which runs its Liquefied natural gas (LNG), the report said. The downward review would affect Shell’s network of 45,000 service stations – this is said to be the company’s “most high-value activities”, which is expected to play a vital role in Shell’s transition to the energy markets.
It is believed that the operational overhauling at Shell would affect many jobs but that remains uncertain at this time.
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