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Evening Standard: Shell warns tougher environment may slow $25bn cashback plan

MICHAEL BOW: 31 Oct 2019

Oil giant Royal Dutch Shell spooked investors on Thursday by warning that bleaker economic conditions could slow a major share buyback plan.

The company hinted a $25 billion buyback scheduled to be finished by 2020 may extend into 2021 because of worsening economic conditions, which could force the firm to keep more money back as a precaution. 

The buyback plan was launched in July 2018 and the timeline signalled Shell’s confidence in the oil price and outlook for the company. The shares today fell 2.5%, or 59p, to 2270p.

“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 chief executive Ben van Beurden.

Gearing, Shell’s ratio of debt to equity, rose to 28% in the third quarter from 23%, putting further pressure on the oil major to be more cautious with cash.

Slowing the buyback is significant because Shell is seen as a bellwether for global economic trends. It also props up an army of pension funds who rely on capital returns.

The FTSE 100 firm, which made the pledge to return cash following the takeover of BG Group, has returned

$12 billion and announced a further $2.75 billion by the end of January.

Today’s announcement suggests the remaining $10.25 billion will still be returned at a slower pace. Oil prices have gently fallen from highs of around $70 a barrel last year to around $62.

Morgan Stanley analysts said it suggested oil companies were taking a “more sober” view on the outlook for oil and gas prices.

On Tuesday BP also scotched hopes of a divi hike by suggesting such a move would be “premature”. Later it said no decision had been made.

Shell’s third-quarter profits were boosted by a strong performance in its oil trading division. Net income was $4.8 billion, down 15% on last time but well ahead of analyst expectations.

Better oil and LNG trading performance offset weakness in exploration and production, which saw earnings down 23% due to falling oil and gas prices

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