Shell weighs multi-billion share buyback to win over investors

Independent On Sunday: Shell weighs multi-billion share buyback to win over investors

“Shell, the tarnished oil giant…”

By Tim Webb

19 September 2004

Shell, the tarnished oil giant, is considering buying back billions of pounds’ worth of its shares in a bid to restore investor confidence.

The news comes as new chairman Jeroen van der Veer prepares to convince the City this week that he can turn the company around as he unveils his delayed annual strategy presentation.

The Dutchman will announce a wide-ranging review of Shell’s oil exploration and production business in a bid to reverse lagging output and reserves figures.

It follows the reserves misreporting scandal earlier this year which led to the departure of the group’s three most senior directors – including former chairman Sir Philip Watts – and investigations by regulators in the US and UK.

Peter Hitchens, an analyst from stockbroker Cheuvreux, said that Shell, which announced a share buyback of $2bn (£1.1bn) in April, could afford to buy back a further $8bn over the next couple of years. Shell’s rival BP unveiled a $33bn share buyback programme earlier this year. A source close to Shell revealed that the company was “committed” to buying back more shares.

However, Shell is not expected to announce a major new buyback programme this week. Peter Voser, the new finance director, does not join the group until 4 October, but he will come under increasing pressure to devise ways to return more cash to shareholders.

Record oil prices helped Shell to generate $4bn of income for the second quarter this year, some 54 per cent more than for the same period last year. Total cash flow for the year is an estimated $28bn, gearing is set to fall well below its 20 per cent target and sales of non-core assets are expected to bring in $10bn over the coming year.

Some shareholders urged the company not to make any major acquisitions to plug any shortfall in production or reserves. Tim Rees, a fund manager at Shell shareholder Insight Investment Management, pointed to the £6m sale two years ago of an oil field to Cairn Energy as an example of Shell’s recent poor track record in deal making. The field is now worth an estimated £200m.

Mr Rees said: “Any acquisition in the upstream area could be questioned because of the timing. You only have to look at Cairn. At the current oil price, it would not necessarily be the right thing.”

Andrew Archer from Commerzbank said a buyback was not the top priority. “The strategy presentation is about establishing credibility. They have to bottom out expectations, having messed up on some major areas.”

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