Shell reorganizes upstream in advance of BG acquisition completion

Offshore staff

LONDON Royal Dutch Shell plc presented a strategic update to shareholders and investors at the company’s Management Day.

At the presentation it announced a new reorganization plan for its upstream division that it said reflected recent portfolio changes and facilitated its planning for the integration of BG Group. The changes will come into effect on Jan. 1, 2016.

The new global upstream organization will be led by the current Upstream International Director, Andrew Brown, who will be responsible for the on-going reviews of portfolio and investment opportunities and the winding down of Shell’s activities in offshore Alaska.

Marvin Odum, currently Upstream Americas director, will lead and become director of a new Unconventional Resources organization.

Additional changes include the establishment of Integrated Gas as a stand-alone organization to be led by Maarten Wetselaar, who will become Integrated Gas Director and a member of the executive committee. Shell said that the group has grown into a business that generated on average $11 billion cash flow-per-year over the last three years from around $2 billion in 2009.

Shell said it executed a 10% reduction in operating costs and 20% reduction in capital spending in 2015, together totaling $11 billion. It also posted $20 billion of asset sales for 2014-15 and a further $30 billion planned for 2016-18 (post-completion of the recommended combination with BG).

It also said that it oversaw the reduction of about 7,500 staff and direct contractor headcount reductions in in 2015 and is being “highly selective on new investment decisions.” Shell said it was leveraging its Projects & Technology business and taking the opportunities presented by the downturn to reduce both its own costs, and costs in the supply chain. Capital efficiency gains in the Shell portfolio are expected to be some $4 billion in 2015-16.

“We’ll grow to simplify,” said Shell CEO Ben van Beurden.

BG Group acquisition

The firm said it was “making good progress” with the BG transaction, which should lead to enhanced free cash flow and the acceleration and de-risking its current strategy.

“Integration planning for Shell and BG is progressing according to plan and today we’re announcing a 40% increase in synergies expected from the recommended combination,” van Beurden said.

Shell also said it would be a springboard for change within the company, noting that asset sales and refocused spending would result in a more focused company concentrated on three pillars:  upstream and downstream cash engines, deepwater, and LNG.

Pro-forma combined capital investment for Shell and BG in 2016 is expected to be around $35 billion in the current environment, with options to further reduce this spending level, should conditions warrant that.

A joint integration planning team has been established with BG.

“BG rejuvenates Shell’s upstream by adding deepwater and integrated gas positions that offer attractive returns and cash flow, with growth potential,” van Beurden said. “These are industries where Shell has significant capabilities and technologies. With enhanced positions in both of these themes, Shell can focus on the best positions, and deliver a more structured and predictable investment program.

“We are re-shaping the company and this will accelerate once this transaction is complete. Upstream will be reorganized to increase accountability for performance, and to better align the organization with the company strategy. Asset sales and hard choices on capital spending, such as the recent announcements to cease exploration in Alaska and the development of Carmon Creek heavy oil in Canada, all underline the changes that are under way.”

11/04/2015

Click here to register for Offshore’s Nov. 17 webcast, Exploring Shell’s FLNG technological advances and opportunities, which will feature Marjan van Loon, Shell Vice President, LNG & Integrated Gas in Shell Projects & Technology. 

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