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Bloomberg: Shell, Eschewing Buybacks, Loses Ground as BP Rises (Update1)

By Stephen Voss

April 17 (Bloomberg) — Royal Dutch Shell Plc hasn’t bought back any of its stock for more than two months, after its finance chief said he doesn’t believe in buybacks, and the oil company’s shares are losing ground to its rival BP Plc.

Shell stock has dropped 0.1 percent since Feb. 1, the last day on which it made repurchases. BP, which buys its own shares every day, has risen 7.3 percent over the same period.

Shell, based in The Hague, is Europe’s largest oil company measured by its market capitalization of 113 billion pounds ($226 billion). The difference in value between Shell and London-based BP has now narrowed to about 1.5 billion pounds from a peak of about 7.7 billion pounds at the start of February.

“We don’t think buybacks are the most efficient use of cash, so we prefer to invest in assets and dividends as our primary use of cashflow,” Adam Newton, a spokesman for Shell in London, said today. “Our policy is to do buybacks subject to market conditions and the capital requirements of the group.”

Shell already outspends its European rivals on exploration and production. Last year, it replaced about 150 percent of proven reserves through exploration, up from 78 percent in 2005, including oil sands.

The company hasn’t bought back its own shares since Chief Financial Officer Peter Voser told reporters at an earnings press conference on Feb. 1 that he was “not a philosophical believer in buybacks” because they haven’t delivered the share appreciation some investors expected.

The company will keep open the possibility of buying back shares as one way of returning cash to shareholders. It’s set to renew that option at its annual general meeting on May 15.

Bypassing BP

Shell surpassed BP in size last year, when BP faced criticism from regulators over a 2005 Texas refinery explosion and pipeline leaks in Alaska. BP shares were the third-worst performers in the FTSE-100 Index in 2006, falling 8.3 percent, compared with a 0.8 percent gain at Shell.

BP shares have recovered in recent weeks. Chief Executive Officer John Browne said he would retire more than a year ahead of schedule. A new chief executive, Tony Hayward, will take over on Aug. 1.

In contrast to the shift in attitudes over stock repurchases at Shell, BP Chairman Peter Sutherland defended his company’s buybacks at its annual general meeting last week against protests from small shareholders who said they’d prefer higher dividends. Sutherland argued it wasn’t possible to estimate how much further BP stock would have fallen last year without support from buybacks.

BP will post first-quarter earnings in a week, followed by Shell on May 3. Both companies reported declining oil and gas production in 2006 and lowered forecasts for output growth, as did Spain’s Repsol YPF SA.

To contact the reporter on this story: Stephen Voss in London at [email protected]
Last Updated: April 17, 2007 13:19 EDT


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