Shell to slash $5 bln from spending plans

Shell will cut its spending by $5 billion this year and halt a $25-billion share repurchase program.

Ron Bousso had the news for Reuters:

Royal Dutch Shell (RDSa.L) will lower spending by $5 billion and suspended its vast $25 billion share buyback plan in an effort to weather the recent collapse in oil prices, it said on Monday.

The Anlgo-Dutch oil major said it would reduce capital expenditure to $20 billion or below from a planned level of about $25 billion while seeking to reduce operating costs by an additional $3 billion to $4 billion over the next 12 months.

The cuts are expected to boost Shell’s cash generation by between $8 billion and $9 billion on a pre-tax basis.

Shell’s shares were down 3.5% in early London trading, against a 3% for the broader European energy sector .SXEP

Oil prices have crashed by more than 60% since January, hit by global demand destruction because of the coronavirus pandemic and a price war between top producers Saudi Arabia and Russia after this month’s collapse of a supply pact between the Organization of the Petroleum Exporting Countries (OPEC) and its allies.

Bloomberg’s Laura Hurst reported:

Royal Dutch Shell Plc said it won’t continue with the next phase of its share buyback program, joining a growing list of energy companies enacting cost savings to weather the market crisis.

Oil and gas producers across Europe have taken the ax to investor returns as the coronavirus pandemic and the Saudi-Russia price war threaten balance sheets. Crude prices have plunged to the lowest levels in almost two decades, just as companies emerge from a previous slump that left them with burgeoning debts and reduced spending programs.

Shell said Monday it was taking “immediate steps to ensure the financial strength and resilience” of its business. While the company is not abandoning its buyback entirely, completion of the program is “not likely to be feasible before the end of 2020.”

The move follows similar steps by Italy’s Eni SpA and Norway’s Equinor ASA. It was announced in tandem with several other measures, including a reduction in capital spending and operating costs.

Jamie Ashcroft from Proactive Investors wrote:

It is expected these changes will contribute around US$8bn to US$9bn of free cash flow per year over the next twelve months. The company noted that it also remains committed to its planned US$10bn asset divestment programme.

“As well as protecting our staff and customers in this difficult time, we are also taking immediate steps to ensure the financial strength and resilience of our business,” said Ben van Beurden, Shell chief executive.

“The combination of steeply falling oil demand and rapidly increasing supply may be unique, but Shell has weathered market volatility many times in the past.”

Shell said it will seek to maintain strong financial credit metrics and ensure its balance sheet remains robust. The company added that it has around US$20bn of cash and equivalents plus US$10bn of undrawn credit lines.