Shell aims for sharper cost cuts after BG takeover

Royal Dutch Shell has announced it will exit oil and gas operations in up to 10 countries in a drive to deepen cost cuts as the energy giant weathers weak oil prices and has to pay down debt following its €48 billion acquisition of BG Group.

The international oil company gave investors an update on its long-term strategy on Tuesday, in which it tried to reassure the market about the amount of debt it has taken on as a result of the purchase, which was completed in February.

Shell said that it would cut €4 billion of spending before tax in 2018 — 30% more than the previous target of €3 billion. It aims to cut €3.5 billion in 2017.

Shell CEO Ben van Beurden said that the BG deal “is an opportunity to accelerate the reshaping of Shell. Integration is gathering pace, and today we expect to deliver more synergies, and at a faster rate.”

Shell’s debt has grown to 26% of its total capital as a result of the purchase, and van Beurden said his first priority was to cut that figure. 

“By capping our capital spending in the period to 2020, investing in compelling projects, driving down costs and selling non-core positions, we can reshape Shell into a more focused and more resilient company, with better returns and growing free cash flow per share,” van Beurden said. 

He also confirmed that Shell was cutting another 2,200 jobs after the BG deal, on top of the 2,800 already announced. Shell has announced more than 10,000 job cuts globally over the last two years.The company is looking to cut operating costs to €35 billion a year by the end of this year — 20% below what it and BG together spent last year. It wants investment to come down to €25 billion this year — 35% less than the two companies spent last year.

As well as cutting spending and focusing on the cash-generating parts of its business, Shell is also planning to make €26 billion of asset sales before the end of 2018. 

Shell is hoping to make between €5.3 billion and €7 billion of those sales this year, and has said it is considering selling North Sea assets as part of that process.

The company said on Tuesday it wanted to focus on its liquefied natural gas business, its deepwater assets in Brazil and the US and its chemicals business. It said it is not currently investing in its US shale gas business, but sees it more as a “future opportunity” should the oil price rebound. Shares in Shell opened up almost 2% on Tuesday morning, but are 9% down over the past 12 months.