Royal Dutch Shell CEO Ben van Beurden. Picture: REUTERS/SERGEI KARPUKHIN
Royal Dutch Shell CEO Ben van Beurden. Picture: REUTERS/SERGEI KARPUKHIN

London  — Royal Dutch Shell is reining in its vast $25bn share buyback programme 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 oil giant warned again that a slowing global economy could affect its buyback programme, which is the world’s largest, and CEO Ben van Beurden said the coronavirus epidemic is dominating the negative backdrop.

Shell is set to buy back about $1bn of its shares in the first quarter of 2020, down from $2.75bn a quarter since July 2018, which means it will probably miss its target of completing the programme by the end of 2020, analysts said.

Van Beurden said Shell still plans to complete the programme but did not provide a new timeframe. “All economic indicators are working against us,” he said.

Shell’s shares traded in London slumped more than 4% and were 2.8% lower before midday, 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 2,037p, 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 programme could miss its target because slowing global growth due to the China-US trade war had hit demand for oil, natural gas and chemicals.

“With $15bn 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 is likely to remain above its of 25% target in 2020.

Shell, which pays about $15bn in dividends every year, is aiming to increase payouts to investors through dividends and share buybacks to $125bn 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 $2.9bn from $5.7bn 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 $1.65bn charge on its US 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 $10.3bn from $22bn a year earlier.

Van Beurden said if the global economic conditions continues to weigh on the energy company, Shell’s cash flow could fall by more than $7bn in 2020 compared with 2019.

Shell’s fourth-quarter charge was mainly related to its shale natural gas fields in North America. Rivals, including Chevron and BP, 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 $2.9bn was below a forecast of $3.2bn in a survey of analysts provided by Shell.

For 2019 as a whole, Shell’s profit came in at $16.5bn, 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 $5.4bn in the quarter from $16.7bn a year earlier.