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Global Economic Bellwether Firm Shell Warns Of Slow Share Buyback


10/31/2019


Global Economic Bellwether Firm Shell Warns Of Slow Share Buyback
A warning that a major share buyback plan that had been announced by Oil giant Royal Dutch Shell earlier could be slowed down because of grave economic conditions was issued by the oil major on Thursday. This announcement of the company spooked investors of the company.
 
The worsening global economic conditions would likely delay and push back the $25 billion buyback scheduled to be finished by 2020 into 2021, the company hinted. This is because the current economic conditions could force the company to hold back cash at hand as a precautionary measure.
 
Shell had announced the buyback in July 2018 and the timeline that the company had proposed for the buyback reflected that the company had strong confidence on the price of oil in the international market as well as on its own outlook and forecast.
 
Following the warning by Shell, its shares dropped by 2.5 per cent.
 
“The prevailing weak macroeconomic conditions and challenging outlook inevitably create uncertainty about the pace of reducing gearing to 25% and completing the share buyback programme within the 2020 timeframe,” said company chief executive Ben van Beurden.
 
In the third quarter, there was a 28 per cent rise in Shell’s gearing of the ratio of debt to equity, compared to 23 per cent in the preceding quarter which has put the company under more pressure to conserve as much cash as possible.
 
Investors and market experts view Shell to be the bellwether of the global economic trends and therefore this warning of a slowing down of the share buyback assumes significance. It also props up an army of pension funds who rely on capital returns.
 
A “more sober” view on the outlook for oil and gas prices was being taken by oil companies as is suggested by the warning about the buyback of shares by Shell, said Morgan Stanley analysts.
 
“This quarter we continued to deliver strong cash flow and earnings, despite sustained lower oil and gas prices, and chemicals margins. Our earnings reflect the resilience of our market-facing businesses and their ability to capitalise on market conditions, including very strong trading and optimisation results this quarter,” van Beurden said.
 
He however said that company wants to pursue with the plans of buying back £19.4 billion in shares from investors but the efforts of bringing the gearing to manageable proportions might not be possible under the current situation.
 
Investors of British Petroleum (BP) were also disappointed on Tuesday after the company said that a dividend hike, as was being hoped by investors, would be a “premature” move. The company however later said that it had taken no decision in that regard as yet.
 
A strong performance in its oil trading division boosted the third quarter profits of Shell. However, there was 15 per cent year on year fall in the company’s net income which came in at $4.8 billion but that also beat analyst expectations.
 
Weakness in exploration and production was offset by better oil and LNG trading performance, the company said. 
 
(Source:www.standard.co.uk & www.royalfutchshellplc.com)