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Royal Dutch Shell has reportedly initiated a major cost-cutting programme with an objective to bring down its oil and gas production costs by up to 40%.
The cost-cutting will help the energy company to generate cash savings and enable it in revamping its business, reported Reuters citing undisclosed sources. This will allow the company to concentrate more on renewable energy and also electricity markets.
Internally known as “Project Reshape”, the new cost-cutting review of Shell is likely to be wrapped up this year. The cost-cutting programme will impact three of its core business units and any savings from it will add to a $4bn target set by the company in light of the Covid-19 crisis, as per the publication.
Cost-cutting is seen to be a crucial factor in helping Shell take the plunge into the power and renewables sectors where margins are comparatively low.
Reuters, further reported that competition is also expected to become tougher with utilities and rival oil and gas companies such as BP and Total, vying for market share with more countries inclining towards green economies.
A senior source from Shell, has been quoted by the publication, as saying: “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.”
For this year, the energy company has allocated around $8bn on its upstream activities, half of which is for deepwater operations. The company has set aside about $1bn of its 2020 capital expenditure towards power.
Shell has a reduced capital expenditure of $20bn in 2020
Overall, Shell’s 2020 capital expenditure of around $20bn marks a reduction of around $5bn compared to the previous year. The reduced capital expenditure this year is due to the decline in oil and gas prices following the Covid-19 pandemic.
As per the sources, the company is looking to focus its oil and gas production on a few core hubs, which include the Gulf of Mexico, the North Sea, and Nigeria.
Cost-cutting measures by the company are also expected to be taken in its integrated gas business and downstream network.
