In an attempt to improve its financial performance and boost shareholder returns, Royal Dutch Shell (RDS.A) plans to radically overhaul its underperforming businesses, while divesting $15 billion of assets through 2015.

As new CEO Ben van Beurden highlighted during the company's 2014 management day presentation on Thursday, Shell's new strategy will focus on three key priorities -- better financial performance, enhanced capital efficiency, and continued strong project delivery -- to deliver stronger cash flow growth and improve returns.

To accomplish its goal of boosting cash flow and returns, Shell has identified two key business units as prime targets for restructuring over the next few years. Let's take a closer look at each.

Photo Credit: Wikimedia Commons.

Upstream Americas business
The first business unit to be reorganized is Shell's upstream Americas segment, where more than $24 billion in spending on North American shale oil and gas assets over the past few years has failed to generate sufficient returns. The unit swung to a $900 million loss last year, as Shell was forced to write down the value of its shale gas and liquids-rich assets by about $2.5 billion.

Due to disappointing drilling results across much of its shale acreage, the company in 2013 put up for sale properties in South Texas' Eagle Ford shale, the Rocky Mountain region, and Kansas' Mississippi Lime play. It has also decided to suspend operations in the Alaskan Arctic due to regulatory concerns, equipment failures, and other challenges.

To remedy the situation, Shell plans to reduce upstream Americas spending by 20% this year and also plans to cut the unit's staff by 30% from around 1,800 to 1,400. Peer BP (BP -0.11%) has also recognized the unique challenges of U.S. shale and recently announced plans to separate its U.S. onshore oil and gas unit into a separate business in order to compete more effectively with smaller, nimbler competitors.

Going forward, Shell's upstream Americas business will focus mainly on higher-value, liquids-rich opportunities, while reducing dry gas drilling. These opportunities lie mainly in the Gulf of Mexico, where Shell is preparing to soon bring online the Mars B project that is expected to produce as much as 100,000 barrels of oil per day, as well as in Canada's oil sands and West Texas' Permian Basin.

Downstream business
The other key business unit Shell plans to heavily restructure is its downstream business. Though the company's chemicals, lubricants, and biofuels segments have delivered relatively strong results, its refining and fuels marketing businesses have suffered from global refining overcapacity and weaker refined product demand in developing economies that has compressed margins.

Downstream weakness has also taken a toll on Shell's peers, all of which blamed weaker refining earnings for recent underperformances. ExxonMobil (XOM -2.13%) saw its downstream earnings plunge by nearly 50% in the fourth quarter to $916 million, while Chevron (CVX 0.25%) said its international downstream earnings fell by nearly 80% to $125 million.

To surmount global refining challenges, Shell intends to break down its downstream segment into distinctive performance units, divesting noncore downstream assets and being more selective with its future investments to boost cash flow and returns. It recently reached an agreement to sell its Australian downstream assets, including the 120,000 barrel-per-day Geelong oil refinery and its network of some 870 Australian retail outlets, to commodity trading giant Vitol for approximately A$2.9 billion (US$2.6 billion).

Much more work left
Shell's admission of weakness in its upstream Americas and downstream segments is an important first step toward improvement. Still, I suspect that investors will likely demand more details regarding the company's plans to restructure these units and how, specifically, that will improve returns on capital, which have significantly lagged its peers over the past few years.