Lagos — Following collapse in oil prices across the globe, Royal Dutch Shell says it will cut spending by $5 billion and suspended its $25 billion share buyback plan.
In a statement on Monday, the super oil major said it would reduce capital expenditure to $20 billion or below from an earlier budget of about $25 billion and material reductions in working capital.
It will also reduce operating costs by an additional $3 billion to $4 billion over the next 12 months.
“At the same time, we are taking decisive action to reinforce the financial strength and resilience of our business so that we are well-positioned for the eventual economic recovery”.
“As well as protecting our staff and customers in this difficult time, we are also taking immediate steps to ensure the financial strength and resilience of our business,” said Ben van Beurden, Chief Executive Officer of Royal Dutch Shell.
“The combination of steeply falling oil demand and rapidly increasing supply may be unique, but Shell has weathered market volatility many times in the past.”
Shell has so far purchased $15.5 billion of shares since the buyback program started in July 2018.
“In these very tough conditions, I am very proud of our staff and contractors across the world for maintaining their focus on safe and reliable operations while also ensuring their own health and welfare and that of their families, communities and our customers.”
“In order to deliver sustainable cash flow generation, Shell is actively managing all our operational and financial levers – from focusing on maintaining safe and reliable operations each day to reducing capital spend and operating expenses”.
Together, these initiatives are expected to contribute $8 – 9 billion of free cash flow on a pre-tax basis, adding that it is still committed to its divestment programme of more than $10 billion of assets in 2019-20 but timing depends on market conditions.
Despite the precautionary measures now in place, it said the firm’s liquidity remains strong, with around $20 billion in cash and cash equivalents, $10 billion of undrawn credit lines under its revolving credit facility and access to extensive commercial paper programmes.
As a result of outbreak of the Coronavirus and failed talks between OPEC and Russia, oil prices have crashed by more than 60% since January.
Other oil majors such as Exxon Mobil, Chevron, BP, and Total have all announced plans for reductions in spending.
All of Shell’s business segments are reviewing spending to achieve the targeted cuts, a company spokeswoman said.
“The combination of steeply falling oil demand and rapidly increasing supply may be unique, but Shell has weathered market volatility many times in the past,” van Beurden said in a statement.