Royal Dutch Shell is cutting the pace of its vast $25 billion share buyback program 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 program, which is the world's largest, Chief Executive Ben van Beurden said Shell still intended to complete it.
Shell is set to buy about $1 billion of shares in the first quarter of 2020, which is down from $2.75 billion per quarter since July 2018 and means it will probably miss its target of completing the program by the end of 2020, analysts said.
Shell had already warned in October that the buyback program could be delayed beyond the target because slowing global growth due to the Sino-U.S. trade war had hit demand for oil, natural gas and chemicals.
"With $15 billion done to date it now looks extremely challenging to complete the program by year-end," Redburn analysts said.
A rise in Shell's debt ratio, or gearing, to 29.3% in its fourth-quarter from 27.9% in the previous quarter, and well above its 25% target, added to the pressure on the oil company. Shell, which pays about $15 billion in dividends every year, plans to boost payouts to investors through dividends and share buybacks to $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 $70 a barrel in early January, prices dropped to below $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 $2.9 billion from $5.7 bln 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 $1.65 billion charge on its U.S. gas fields.
Shell's cash generation, a key metric for its operations that underwent deep cost cuts in recent years, also fell sharply to $10.3 billion from $22 billion a year earlier.
"Our intention to complete the $25 billion share buyback program 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% drop in net income attributable to shareholders, based on a current cost of supplies (CCS) and excluding identified items to $2.9 billion was below a forecast of $3.2 billion in a survey of analysts provided by the company.
For 2019, Shell's profit was $16.5 billion, down 23% from the previous year. Free cash flow, or money available to pay for dividends and share buybacks, plummeted to $5.4 billion in the quarter from $16.7 billion a year earlier.
(Reporting by Ron Bousso and Shadia Nasralla; Editing by Jason Neely and David Clarke)
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