Shell cuts 2020 spending by $5 billion, suspends share
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[March 23, 2020] By
LONDON (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.
The Shell cuts mirror moves by rivals such as Exxon Mobil <XOM.N>,
Chevron <CVX.N>, BP <BP.L> and France's Total <TOTF.PA>, who have all
announced plans for sharp reductions in spending.
Shell Chief Executive Ben van Beurden in January said that the company
requires $20 billion of its capital spending to sustain operations at
current output levels, with additional spending dedicated to growing its
business, including $2 billion to $3 billion for building up its power
and low-carbon energy business.
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A sign is seen at a Shell facility near the Houston Ship Channel in
Galena Park, Texas, U.S., May 5, 2019. REUTERS/Loren Elliott
All of Shell's business segments are reviewing spending to achieve the targeted
cuts, a company spokeswoman said.
"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,"
van Beurden said in a statement.
Even before the coronavirus outbreak, Shell faced weaker revenue because of
slowing demand for petrochemicals, which led it to slow its $25 billion
three-year share buyback program late last year.
Shell has so far purchased $15.5 billion of shares since the buyback program
started in July 2018, it said.
"We will continue to review the dynamically evolving business environment and
are prepared to take further strategic decisions and consider changes to the
overall financial framework as necessary," the company said.
(Additional reporting by Muvija M in Bengaluru; Editing by David Goodman)
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