Oil giants suspend buybacks & slash costs as Covid bites

Oil giants Total and Royal Dutch Shell have suspended share buyback schemes and announced billions of dollars in spending cuts as they look to provide a buffer for themselves against ongoing oil market turmoil.

Global demand for oil has dropped drastically since the spread of the coronavirus and a Saudi-led price war has pushed down prices even further. This perfect storm has pushed down the price of Brent crude oil to a 17-year low.

Shell said that it was taking steps to ensure "financial strength and resilience". The energy group said that it will discontinue with the next round of share buybacks. The company said it still intended to continue the repurchase of $25-billion of shares but would not hit its end-of-year target.

The company has also cut capital expenditure to around $20-billion or less for the year and reduce operational costs by $3-4-billion.

Ben van Beurden, Shell chief executive 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.”

Total's chief executive, Patrick Pouyanné, said that it would cut capital spending by around 20% to under $15-billion and aim for a further $500-million in cost savings against last year's figures. The company has also suspended its share buyback scheme.

As oil prices drop below $30 per barrel, Total now faces a cash shortfall of around $9-billion. The group has said that its break-even point stands currently at just under $25 per barrel.

Pouyanné told staff that the $5-billion in cost savings would not cover the $9-billion needed.

“We’ll be using our solid balance sheet of low levels of debt,” he said. “Hence our decision to deleverage so we could react to such volatility in oil prices. We will be able to borrow $4-billion, for debt gearing of 2%, so no worries on that score.”

Last week, Italy's Eni and Norway's Equinor said they were cancelling share buyback programmes for 2020 and reassessing spending plans.

UK rival BP has said it plans to reduce capital and operational spending. In the US, Chevron said it aimed to cut expenditure and lower oil output in the short term, while ExxonMobil said it would make “significant” spending cuts

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