Royal Dutch Shell and Total have dismissed their share buyback programmes and announced billions of dollars in capital and operational spending cuts.
The coronavirus pandemic that has hit the global economy has cut back the demand for oil. Meanwhile a price war led by Saudi Arabia has made prices decline further, taking Brent crude last week to a 17-year low.
Shell said it was taking steps to ensure its “financial strength and resilience”. The Anglo-Dutch group will not continue with the next tranche of its share buyback programme.
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It said it still intended to repurchase $25bn (€22bn, £21bn) of shares but would miss its year-end completion target. It added that it would cut capital expenditure to $20bn or less this year, from initial plans for $25bn in 2020, while reducing operating costs by $3-4 bn versus levels from last year.
Shell said this would contribute between $8bn and $9bn of free cash flow, before tax. However, this will not be enough to make up for the drop in oil prices since January.
The company said its dividend policy would remain in place for now, as would its plans to sell at least $10bn of assets.
Patrick Pouyanné, Total’s chief executive, also said it would cut capital spending by about 20 per cent to less than $15bn. The French group will aim for another $500 million in cost savings versus 2019 and suspend its share buyback programme, which had $1.45bn left to run this year.
With oil prices below $30 per barrel, Total faces a cash gap of $9bn. The group’s current pre-dividend break-even, the point at which it can finance its current investments, is less than $25 per barrel.
Norway’s Equinor and Italy’s Eni also said last week that they would suspend their share buyback programmes for this year while re-evaluating spending plans.
UK rival BP has said it plans to reduce capital and operational spending. In the US, Chevron said it aimed to cut expenditure and lower oil output in the short term.