Royal Dutch Shell (RDSB) has frozen its buyback programme and will cut spending by around $5bn (£4.3bn) this year in response to the Covid-19 crisis.The supermajor also said it would cut its operating costs by $3-$4bn over the next 12 months, compared to 2019, when its total operating cost was $37.9bn.
BP (BP.) has not responded with any major strategy changes beyond measures on the ground to limit possible transmission of the virus. The now-former chief executive Bob Dudley increased the dividend with his last results announcement, in February, on the back of higher cash flow forecasts for the coming two years.
Shell is almost two-thirds of the way through its $25bn buyback programme, which it said would be finished once conditions improve. Chief executive Ben van Beurden said the spending cuts would ‘protect’ staff and customers, while the company said it would be “actively managing all...operational and financial levers”.
Oil industry analysts have flagged storage limitations forcing prices down further and necessitate supply cuts, despite Saudi Arabia pushing to increase production after its initial Covid-19 response was not backed by Russia. Analysts at consultancy Wood Mackenzie said oil and gas companies would have to cut spending and defer investments this year to keep afloat. “Large new projects will be put on hold and short-cycle discretionary investment will be dialled back to the bare minimum,” the firm said. WoodMac also said at $25 per barrel (bbl), almost 10 per cent of global oil supply (10m barrels per day) is uneconomic.
Fellow consultancy Rystad Energy said travel restrictions would start to bite soon, further hurting the oil price.
“The true impact [of the restrictions] will be felt in the coming weeks, resulting in our view of oil prices continuing to cascade lower to force shut-in of production and incentivise more crude storage, especially at sea,” said Rystad oil markets boss Bjornar Tonhaugen.
