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Shell halts share buyback scheme as Big Oil races to tackle market crash

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Acting fast: Shell CEO Ben van Beurden will oversee a reduction in 2020 spending

Acting fast: Shell CEO Ben van Beurden will oversee a reduction in 2020 spending

Acting fast: Shell CEO Ben van Beurden will oversee a reduction in 2020 spending

Europe's Big Oil is curbing investor returns and taking the axe to spending as the market crash hammers earnings.

Energy companies were just emerging from a previous slump that left them with burgeoning debts and reduced investment programmes, only to walk into another downturn that has pushed crude prices to the lowest in almost two decades. CEOs are potentially facing their biggest challenge yet, with the market outlook remaining bleak.

Royal Dutch Shell became the latest to join the list yesterday. Europe's biggest oil company will not continue with the next phase of its share buyback scheme, following similar steps by Italy's Eni, Norway's Equinor and French major Total.

The companies, long the bastion of predictable shareholder paybacks, also pledged major spending reductions.

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 comes as little surprise. CEO Ben van Beurden warned earlier this year that the company would probably miss its repurchase target if the macroeconomic environment did not improve.

The oil major, which was $10bn (€9.3bn) short of its buyback goal at the time, said it would not buy more than $1bn in its next tranche.

The Anglo-Dutch major sees a reduction in 2020 cash capital spending to no more than $20bn from the planned $25bn.

It also expects to cut underlying operating costs by between $3bn and $4bn over the next 12 months from 2019 levels.

The measures are expected to contribute as much as $9bn of free cash flow on a pre-tax basis, according to a statement.

Shell said it was still committed to its divestment programme of more than $10bn of assets in 2019-20 but timing depends on the market.

The oil market is being hit by the combination of a supply surge as Saudi Arabia and Russia tussle for market share, and virus-induced demand destruction.

While policymakers around the world are putting measures in place to protect the economy, oil demand is facing a huge risk, with governments enforcing lockdowns in response to the deadly health contagion.

Companies everywhere are crimping their plans. Exxon Mobil is planning a slowdown in its expenditure programme, while BP has said it could reduce capital and operational spending by 20pc this year.

Equinor has halted a $5bn buyback programme and said it was cutting investments, exploration expenses and other costs.

Total, meanwhile, has stopped its repurchasing programme, saying the move would save $1.5bn this year.

Swimming against the tide is Russia's biggest oil producer, Rosneft.

The company said the crude price slump makes buybacks attractive, as it simplified the procedure for its repurchasing programme.

Bloomberg

Irish Independent