The Shell share price has fallen by 55% YTD. Should I invest?..

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Shell plans to cut 40% of oil and gas production costs to restructure its ailing business
The last time the Shell share price closed in green for a month was in December last year
Sellers see a new multi-decade low under GBX890

The shares of Royal Dutch Shell PLC (LON: RDSB) have been trading over 55% lower since the beginning of the year. Although the stock is trading relatively cheaply, it is difficult to structure a bull market case.

Fundamental analysis: Major campaign launched

Royal Dutch Shell plans to cut 40% of its oil and gas production costs to restructure its ailing business. The aim is to save money and reinvest the funds in renewable and sustainable energies.

The Project Reshape project aims to restructure Shell’s three leading divisions to identify new savings opportunities. This is in addition to the $4 billion target set earlier this year.

“We are undergoing a strategic review of the organization to ensure that we are positioned to thrive throughout the energy transformation and to be a simpler organization that is also cost competitive. We are currently reviewing a number of options and scenarios that are being carefully considered,” the Shell spokesman said in a statement.

After the oil giant’s operating costs rose to $38 billion last year and capital expenditures to $24 billion, it was forced to cut oil and gas production costs by 30 to 40 percent.

The idea behind this plan is to focus on its main production sites such as the Gulf of Mexico, Nigeria and the North Sea.

“We had a great model, but is it right for the future? There will be differences, it’s not just about structure, it’s also about culture and the kind of company we want to be,” Reuters quoted a high-level Shell source as saying.

As for Shell’s downstream business, the company plans to reduce the cost of its network of 45,000 service stations, the largest in the world. Downstream cost reductions will play an important role in the company’s restructuring, two other sources familiar with the matter told Reuters.

Technical analysis: oppressive view

The Shell share price has continued its downward trend this month as it fell by over 6% in September. The last time the Shell share price closed in green for a month was in December last year, which says a lot about the performance of the share this year.

Monthly chart of the Shell share (TradingView)

Overall, the shares have fallen by 55% year on year and are now trading around the 1,000 GBX mark. A breakthrough below GBX890 would mark a new multi-decade low. Given the uncertainty surrounding the COVID 19 pandemic and weak oil demand, I believe better investment opportunities could be found elsewhere.

Summary

Shell is in the process of a comprehensive restructuring of the company, which could affect its performance in the coming years. The pandemic, as well as the collapse in demand for oil, are further reasons why it is wise to stay away from Shell shares in the near future.

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