LONDON, Jan 30 — Royal Dutch Shell is cutting the pace of its vast US$25 billion (RM102.2 billion) share buyback programme after lower oil and natural gas prices halved its profit in the last three months of 2019, sending its shares to their lowest since July 2017.
While the Anglo-Dutch energy company warned again that a slowing global economy could affect its buyback programme, which is the world’s largest, Chief Executive Ben van Beurden said Shell still intended to complete it.
Shell is set to buy about US$1 billion of shares in the first quarter of 2020, which is down from US$2.75 billion per quarter since July 2018 and means it will probably miss its target of completing the programme by the end of 2020, analysts said.
Shell had already warned in October that the buyback programme could be delayed beyond the target because slowing global growth due to the Sino-US trade war had hit demand for oil, natural gas and chemicals.
“With US$15 billion done to date it now looks extremely challenging to complete the programme by year end,” Redburn analysts said.
A rise in Shell’s debt ratio, or gearing, to 29.3 per cent in its fourth quarter from 27.9 per cent in the previous quarter, and well above its 25 per cent target, added to the pressure on the oil company.
Shell, which pays about US$15 billion in dividends every year, plans to boost payouts to investors through dividends and share buybacks to US$125 billion between 2021 and 2025.
Although rising tensions in the Middle East and a Phase 1 trade deal between the world’s top two economies boosted oil prices to above US$70 a barrel in early January, prices dropped to below US$60 this week as the outbreak of the coronavirus in China exacerbated fears global economic growth could slow.
Slow down
Shell’s fourth-quarter headline profit halved to US$2.9 billion from US$5.7 billion in the same period of 2018, its lowest in more than three years, as weaker oil and gas prices pushed the company to take a US$1.65 billion charge on its US gas fields.
Shell’s cash generation, a key metric for its operations that underwent deep cost cuts in recent years, also fell sharply to US$10.3 billion from US$22 billion a year earlier.
“Our intention to complete the US$25 billion share buyback programme is unchanged, but the pace remains subject to macro conditions and further debt reduction,” Ben van Beurden said.
Shell’s fourth-quarter charge was mainly related to its onshore natural gas fields in North America. Rivals including Chevron and BP have also booked a number of significant provisions in recent months.
The 48 per cent drop in net income attributable to shareholders, based on a current cost of supplies (CCS) and excluding identified items to US$2.9 billion was below a forecast of US$3.2 billion in a survey of analysts provided by the company.
For 2019, Shell’s profit was US$16.5 billion, down 23 per cent from the previous year.
Free cash flow, or money available to pay for dividends and share buybacks, plummeted to US$5.4 billion in the quarter from US$16.7 billion a year earlier. — Reuters
