Royal Dutch Shell Plc faced a torrent of criticism from analysts on Nov. 1 for warning of possible delays to its $25 billion share buyback program, with some saying the move had undermined the credibility of the oil giant's management.
Shell, the world's second-largest listed oil and gas company, saw its shares close more than 4% lower on Oct. 31, wiping out $10 billion of its market value. It had earlier reported stronger-than-expected third-quarter profits which were, however, overshadowed by CEO Ben van Beurden's warning about shareholder returns.
"The prevailing weak macroeconomic conditions and challenging outlook inevitably create uncertainty about the pace of reducing gearing to 25% and completing the share buyback program within the 2020 timeframe," van Beurden said.
In a call with analysts on Oct. 31, van Beurden sought to play down the warning, saying Shell still intended to complete the buyback on schedule by the end of 2020.
That did little to ease investor concerns.
"The planned $25 billion share buyback before end-2020 was acknowledged by the CEO as a 'statement of the obvious.' We agree but it had a predictable and in our view unnecessary impact," UBS analyst Jon Rigby said in a note.
The comments, Rigby said, "are likely to exasperate long-suffering investors further." Rigby retains a 'buy' recommendation for Shell.
Shell, the most profitable oil major in 2018 ahead of larger rival Exxon Mobil Corp., has in recent years been many investors' top pick among the group after the Anglo-Dutch firm cut costs and ramped up commitments for shareholder returns.
Shell plans to boost payouts to investors through dividends and share buybacks to $125 billion between 2021 and 2025.
Bernstein analyst Oswald Clint said van Beurden was being over-cautious.
"We've no doubt reiterating our buy on Shell is like talking to the wall today and it's a blow for one of our 2019 top picks," Clint said in a note.
Alasdair McKinnon of the Scottish Investment Fund, which holds shares in Shell, said Shell were right to flag the warning.
"Were they a bit harshly treated yesterday? Possibly but it should mean that everyone's expectations are in the right place," McKinnon told Reuters.
BP Plc on Oct. 29 also indicated that its expected dividend boost was now likely to happen next year and not by the end of 2019.
After a decade of weakness, concerns over the ability of the world's top oil companies to boost shareholder returns compound worries about the sector as investors shun independent oil and gas producers, particularly U.S. shale firms.
Morgan Stanley analyst Martijn Rats said he now assumed the buyback program would be completed a year later than planned.
Given the economic environment and expected decline in cash generation, Shell will be able to cover its $15 billion dividend commitment from its operations, leaving little room for buybacks and debt reduction, Rats said.
Jefferies analyst Jason Gammel said Shell's "management credibility has now been strained". Gammel retained his "buy" recommendation on Shell, "with somewhat less enthusiasm."
Shell shares were up 0.6% at 8:25 a.m. CT (13:25 GMT).
U.S. rivals Exxon Mobil and Chevron Corp. both reported sharp drops in third-quarter profits on Nov. 1.
Companies with the lowest flaring intensity in Texas included Pioneer Natural Resources, EOG Resources, ConocoPhillips and Chesapeake Energy.
Pioneer Natural Resources CEO Scott Sheffield called on oil and gas investors to sell shares or pull funding from companies that have rates of natural gas flaring.
At DUG Bakken and Rockies, shale executives acknowledged the headwinds, but remained optimistic about the opportunities in the Powder River Basin, the Bakken and, yes, even Colorado.