Shell is set to cut hundreds of jobs within its oil and gas exploration operations.
The move is part of a broader effort by Chief Executive Wael Sawan to slash up to $3 billion (£2.3 billion) in costs by the end of next year.
The decision marks the latest step in Sawan’s strategy to streamline the energy giant’s operations.
The job cuts will affect around 20 percent of the workforce in two key subdivisions of Shell’s upstream operations. The departments are responsible for the company’s exploration strategy and the development of its oil and gas discoveries.
The reductions are expected to hit offices worldwide. The greatest impact is anticipated in Houston, Texas, and The Hague, Netherlands. The company’s UK operations are less likely to be hit by the changes.
Strategic Restructuring in Focus
Reducing Costs and Enhancing Efficiency
The planned layoffs are part of Shell’s broader strategy to "create more value with less emissions" by focusing on performance, discipline, and simplification across its business divisions.
The company has outlined a target of reducing structural operating costs by $2 billion to $3 billion by the end of 2025, This goal was announced during its Capital Markets Day event in June 2023.
A Shell spokesperson said:
"Achieving those reductions will require portfolio high grading, new efficiencies, and a leaner overall organisation."
The spokesperson also emphasized these changes are necessary to align the company’s operations with its strategic priorities. The company is looking to balance profitability with its environmental commitments.
The upstream division is responsible for oil and gas production. It played a significant role in Shell’s financial performance last year, contributing more than a third of the company’s $28 billion in adjusted profits.
However, the current cost-cutting measures indicate a shift in focus. Shell is now prioritizing efficiency and financial discipline to navigate the evolving energy market.
Impact on Global Operations
The specific number of jobs to be cut has not been disclosed. However, the reduction represents a significant downsizing of the workforce within these critical subdivisions.
The cuts are understood to be subject to consultation with employees, as Shell works to manage the transition while minimizing disruption to its operations.
The company has previously implemented similar cuts in other areas, including its chemicals and wind energy businesses, as well as centralizing functions such as legal and communications teams.
Since taking over as CEO in September 2022, Wael Sawan has made significant changes to Shell’s strategic direction.
One of his first moves was to abandon previous plans to reduce oil production. Instead, he has opted to focus on maximizing the profitability of the company’s core oil and gas operations.
This decision has been accompanied by a rigorous cost-cutting program aimed at increasing the company’s overall profitability.
Sawan’s efforts have already yielded substantial results, with $1.7 billion in cost savings reported across the business so far.
He has also emphasized the importance of simplifying the organization to improve efficiency and responsiveness in a rapidly changing industry.
Market Impact and Future Outlook
Shell’s aggressive cost-cutting measures have been well-received by the market. The company's market value has increased by 13 percent over the past year.
However, the focus on streamlining operations and reducing costs has also raised questions about the company’s long-term strategy, particularly in the context of the global energy transition.
As Shell continues to navigate the challenges of a shifting energy landscape, the company’s ability to balance cost reductions with investments in new technologies and sustainability initiatives will be critical to its future success.
The planned job cuts in the exploration division are a clear signal of Shell’s commitment to financial discipline, but they also highlight the ongoing tension between short-term profitability and long-term sustainability.
Moving Forward: Navigating a Changing Energy Market
As the company continues to implement its cost-cutting strategy, the focus will be on ensuring that these changes do not undermine its ability to innovate and lead in the energy transition.
With Sawan at the helm, Shell is likely to continue its strategic shift towards a leaner, more efficient organization.
However, the company will need to carefully manage the balance between cutting costs and investing in the future to maintain its position as a leader in the global energy industry.
