Shell suspends share buyback programme

Cuts 2020 capital spending by $5bn

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

Oil and gas producers across Europe have taken the axe 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 programmes.

Shell said 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 programme 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.

Shell’s change of plan comes as little surprise. Chief executive officer Ben van Beurden warned earlier this year that the company would probably miss its buyback target if the macroeconomic environment didn’t improve.

The oil major, which was $10 billion short of its buyback goal at the time, said it would not repurchase more than $1 billion in its next tranche.

The company sees a reduction in 2020 cash capital spending to no more than $20 billion from the planned $25 billion. It also expects to cut underlying operating costs by between $3 billion and $4 billion over the next 12 months from 2019 levels.

The measures are expected to contribute as much as $9 billion of free cash flow on a pretax basis, according to a statement.

Across the oil and gas industry, companies are reining in spending amid the market crash.

Exxon Mobil Corp is planning a slowdown in its expenditure program, while European counterpart BP Plc said it would reduce capital and operational spending.

Equinor halted a $5 billion buyback programme on Sunday and said it was cutting capital investments, exploration expenses and other costs after signaling last week all were under review.

France’s Total SA stopped its sharerepurchasing programme, saying the move would save $1.5 billion this year.

Swimming against the tide is Russia’s biggest oil producer, Rosneft PJSC. The company said the crude price slump makes buybacks attractive, as it simplified the procedure for its repurchasing programme.

Shell’s announcement made no mention of the dividend.

The Anglo-Dutch major is the FTSE 100’s most generous dividend payer. Its yield has jumped to almost 15%, a signal that shareholders see the stock as risky.