Royal Dutch Shell Plc is reining in its vast $25 billion share buyback program after lower oil and natural gas prices halved its profit in the last three months of 2019 and sent its shares to their lowest in nearly three years.
The Anglo-Dutch energy company warned again that a slowing global economy could affect its buyback program, which is the world's largest, and CEO Ben van Beurden said the coronavirus epidemic was dominating the negative backdrop.
Shell is set to buy back about $1 billion of its shares in the first quarter of 2020, down from $2.75 billion a quarter since July 2018, which means it will probably miss its target of completing the program by the end of 2020, analysts said.
Van Beurden said Shell still planned to complete the program but did not provide a new time frame. "All economic indicators are working against us," he told reporters.
Shell's shares traded in London slumped more than 4% and were 2.8% lower at 4:45 a.m. CT (10:45 GMT), underperforming the overall FTSE 100 index, which was down 0.7% mainly on fears about the fallout from the coronavirus.
Shell shares hit a low of 2,037 pence, matching their lowest on April 21, 2017.
Shares of the world's biggest oil and gas companies have struggled in recent years, caught between an unsteady recovery in oil prices and growing investor concerns about the future of the sector as the world tries to shift away from fossil fuels.
Shell had already warned in October that the buyback program could miss its 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 programme by year-end," Redburn analysts said.
Cash Flow Plummets
A rise in Shell's debt ratio, or gearing, to 29.3% in its fourth quarter from 27.9% in the previous quarter, added to the pressure on the oil company and van Beurden said it was likely to remain above its of 25% target this year.
Shell, which pays about $15 billion in dividends every year, is aiming to increase payouts to investors through dividends and share buybacks to $125 billion between 2021 and 2025.
While rising tensions in the Middle East and a phase one trade deal between Washington and Beijing sent oil prices above $70 a barrel in early January, they dropped below $60 this week as the coronavirus exacerbated concerns about global growth.
Shell's fourth-quarter headline profit fell 48% to $2.9 billion from $5.7 billion 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 have undergone deep cost cuts in recent years, also fell sharply to $10.3 billion from $22 billion a year earlier.
Van Beurden said if the current global economic conditions continued to weigh, Shell's cash flow could fall by $7 billion between mid-2019 and the end of 2020.
Shell's fourth-quarter charge was mainly related to its shale natural gas fields in North America. Rivals including Chevron Corp. and BP Plc have also booked a number of significant provisions in recent months.
The drop in net income attributable to shareholders, based on a current cost of supplies and excluding identified items to $2.9 billion was below a forecast of $3.2 billion in a survey of analysts provided by Shell.
For 2019 as a whole, Shell's profit came in at $16.5 billion, down 23% from 2018.
Free cash flow, a measure of the amount of money Shell has to pay for dividends and share buybacks, plummeted to $5.4 billion in the quarter from $16.7 billion a year earlier.
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