Revealed! COVID-19 Crisis: Shell Set To Cut Upstream Oil Operations By 40%

By Tsvetana Paraskova    

Oil and gas supermajor Shell is looking to slash as much as 40 percent of its upstream oil and gas operations as it is redesigning its business toward a greener portfolio, sources in Shell involved in the costs review told Reuters.

As early as in June, which capped one of the worst quarters for oil in recent decades, Shell was said to be planning to announce by the end of the year a significant restructuring to reflect its net-zero emissions goal for 2050 and to align itself with a green recovery from the pandemic.

On the Q2 earnings call at the end of July, chief executive Ben van Beurden said that the company had started a program “to redesign and restructure toward a fundamentally simpler, more effective organization that can deliver the very best from our traditional businesses, from our customer-centric businesses as well and rapidly and purposefully innovate for our future business models. You will hear more about all of this in time, but I can tell you now that besides reshaping and redesigning, we will also resize as appropriate.”

Shell is looking at ways to cut costs in its biggest division currently, the upstream, by 30 percent to 40 percent via cutting operating costs and slashing capital expenditure (capex) on new oil and gas exploration and production projects, two sources involved in the cost-cutting review told Reuters. The Anglo-Dutch supermajor will aim to streamline its upstream division by focusing on just a few hubs such as the U.S. Gulf of Mexico, the North Sea, and Nigeria, according to Reuters’ sources.

The gas division and the downstream are also looking at cuts, as Shell aims to save capital for boosting its renewables and power markets portfolios, the sources noted. “We are looking at a range of options and scenarios at this time, which are being carefully evaluated,” a spokeswoman for Shell told Reuters, confirming that the group is undergoing a strategic review of the organization and its operations.

With the push toward a greener portfolio, Shell joins peers such as BP, which said in its new strategy last month that it would reduce its oil and gas production by 40 percent by 2030 through active portfolio management and would not enter exploration in new countries.

*This report written by Tsvetana Paraskova, an Oil and Gas expert and analyst, was originally published in Oilprice.com