Shell plans to save $10bn in face of oil price crash and coronavirus pandemic

Oscar Williams-GrutSenior City Correspondent, Yahoo Finance UK
Yahoo Finance UK
Royal Dutch Shell Oil industry company at the Port of Rotterdam pictured on July 2, 2019 in Rotterdam, Netherlands. (Robin Utrecht/Sipa USA)
Royal Dutch Shell Oil industry company at the Port of Rotterdam pictured on July 2, 2019 in Rotterdam, Netherlands. (Robin Utrecht/Sipa USA)

Oil giant Royal Dutch Shell (RDSB.L) has announced plans to cut costs, slash planned spending, and abandon a share buyback, as businesses look to hold on to cash in response to the ongoing Covid-19 pandemic.

Shell said on Monday it would cut operating costs by up to $4bn over the next 12 months and reduce planned spending by $5bn in 2020. The company is also abandoning a planned $1bn share buyback.

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Ben van Beurden, chief executive of Royal Dutch Shell, said the cash conservation measures were driven by the Covid-19 pandemic, which has led to a slump in demand for oil as the global economy grinds to a halt, and the oil price war between Saudi Arabia and Russia.

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Saudi Arabia earlier this month announced plans to reduce the price of its oil exports and increase production, after failing to reach an agreement on cutting production with Russia. The move is intended to put pressure on Saudi Arabia’s oil production rivals and could potentially force some smaller companies out of business.

The combination of slumping demand and the price war means the price of crude (CL=F) has fallen by over 60% since the start of the year to trade at just $22.20 per barrel.

Share price, Royal Dutch Shell.
Share price, Royal Dutch Shell.

“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,” van Beurden said in a statement.

“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.”

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Shell said it has around $20bn of cash on hand and $10bn of undrawn credit should it need it. The company is also still planning to sell off $10bn-worth of assets this year, although the timing could be affected by the ongoing crises.

“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,” van Beurden said.

Shares in Shell fell 3.2% in London.

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