Shell restructures upstream ahead of BG merger

HOUSTON, November 3, 2015 – Shell is restructuring its upstream operations into three distinct business units as part of an effort to drive efficiency and maximise integration with BG Group ahead of the planned merger between the super-major and the UK gas giant. The creation of the new units – integrated gas, conventional upstream and unconventionals – was announced by Shell’s CEO Ben van Beurden on Tuesday.

Shell also stated that pre-tax cost savings from the merger would reach $3.5 billion by 2018, an increase of $1 billion from the $2.5 billion originally estimated when the deal was first announced in April 2015. The revised figure does not include an additional $1.5 billion of projected savings from the merging of upstream assets. Cost savings are due to come from three main areas: reducing duplicated functions, scaling down infrastructure costs and third-party procurement savings. Shell expects the deal with BG Group to be finalised by early 2016.

Shell’s cost reduction efforts have seen the loss of 7,500 staff and direct contractors so far in 2015. The company has also recently pulled back on two major upstream projects. In late September, Shell announced the cessation of its Arctic drilling programme, and around one month later, decided to shelve the Carmen Creek heavy oil sands project in Canada. The 2016 capital expenditure for the new Shell-BG Group entity is expected to be around $35 billion. “Only the most competitive projects are going to go ahead,” Van Beurden said in a statement.

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