Royal Dutch Shell plc plans to reorganize the company’s upstream operations in order to remain resilient in current market conditions.
Shell’s acquisition of BG Group is expected to be finalized in early 2016. In a Nov. 3 presentation to shareholders and investors in London, Shell’s CEO Ben van Beurden said, “Low oil prices are driving significant changes in our industry. I am determined that Shell will be at the forefront of that, and will emerge as a more focused and more competitive company as a result. BG rejuvenates Shell’s upstream by adding deepwater and integrated gas positions that offer attractive returns and cash flow, with growth potential. 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 reshaping the company, and this will accelerate once this transaction is complete. Upstreamn 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. 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.”
The reorganizational changes will come into effect on Jan. 1, 2016. Integrated Gas, which has grown into a business that generated over the last 3 years on average $11 billion cash flow-per-year from around $2 billion in 2009, will be established as a stand-alone organization in a move that reflects both its enlarged scale and investment potential. It will be led by Maarten Wetselaar, who will become Integrated Gas Director and a member of the executive committee.
A new upstream organization will span Shell’s worldwide conventional oil and gas businesses. It will be led by current Upstream International Director Andrew Brown. Marvin Odum, currently Upstream Americas Director, will lead and become director of a new Unconventional Resources organization, spanning heavy oil and shales activities in the Americas. This will include ongoing reviews of portfolio and investment opportunities in these longer-term themes, and the winding down of Shell’s activities in offshore Alaska.
As the recommended combination with BG moves toward completion, Shell intends to retain the best talent in the combined group. Asset sales and refocused spending will result in a simpler, more focused company, concentrated around 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, which will go into action once the recommended combination with BG has completed. Shell says it remains on track to complete the recommended combination with BG in early 2016.