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Shell, Total cut spending, share buybacks in response to oil price slump

March 26/2020

MOSCOW (MRC) -- European oil majors Shell and Total announced Monday plans to cut capital expenditure by around 20% and suspend their share buybacks as part of a raft of measures to strengthen balance sheets in response to collapsing oil prices and the economic impact of the global coronavirus pandemic, reported S&P Global.

Shell said it would cut its cash spending by USD5 billion from planned levels to USD20 billion "or below" in 2020 and reduce its operating costs over the next 12 months from 2019 levels. Separately, Total announced a "USD30/b action plan,” under which it will cut more than USD3 billion, or over 20%, mostly from its organic capex this year, taking its net investments to less than USD15 billion.

"The combination of steeply falling oil demand and rapidly increasing supply may be unique," Shell CEO Ben van Beurden said in a statement to the London Stock Exchange. "But Shell has weathered market volatility many times in the past."

The oil major said the measures, which include reducing underlying operating costs by up to USD4 billion, would together contribute up to USD9 billion to its free cash flow over the year.

Total said it also planned to trim a further USD500 million from operating costs this year compared with 2019, instead of the USD300 million previously announced. It said its capex cuts would come mainly in the form of short-cycle, flexible spending, "which can be arbitrated contractually over a very short time period."

Shell and Total's spending announcements follow similar moves by BP and Eni. The Italian major became the first European major to bow to the oil-price rout by flagging heavy spending cuts last week. BP has said it has the flexibility to cut spending by 20% this year from its USD15.3-billion capex last year but it has yet to revise its guidance.

Oil prices have more than halved since the start of the year to below USD30/b caused by the economic impact of coronavirus around the world and the breakdown of the OPEC+ deal. Cash flow break-evens for European majors average around USD50/b, however, and analysts have predicted a wave of heavy spending and dividend cuts to balance books as revenues collapse. Brent crude was trading around USD26/b in midday European trade Monday.

Equinor on Monday joined its oil major peers by suspending share buybacks but gave no new capex guidance.

Global oil demand could fall by over 12 million b/d on the year in April and May and result in an annualized fall of as much as 3.2 million b/d in 2020, the head ofS&P Global Platts Analytics Chris Midgley has warned.

In January, van Beurden had said the average breakeven oil price for projects approved by Shell for development last year was under USD30/b.

International oil companies are being forced to review upstream investment commitments in response to the crisis, but Shell made no reference Monday to its previous pledge to maintain upstream investment at around USD11 billion-USD13 billion a year.

Shell said it remained committed to its divestment program of more than USD10 billion of assets in 2019-20 but said the timing would depend on market conditions. It said it also continued to ensure it has a robust balance sheet to manage volatility, with around USD$20 billion in cash and cash equivalents, and USD10 billion of undrawn credit lines.

As MRC informed before, a contractor working at Shell's Pulau Bukom manufacturing site in Singapore has contracted the new coronavirus. The Bukom manufacturing site in Singapore houses Shell's biggest wholly-owned refinery. The company said earlier it had sent some staff home from its main office at Metropolis in western Singapore after discovering another employee had been in contact with a carrier.

We also remind that Shell Singapore restarted its naphtha cracker in Bukom Island in early December, 2019, following a two months maintenance shutdown since the beginning of October 2019. Thus, this cracker was taken off-stream for the turnaround on 1 October 2019. The cracker is able to produce 960,000 tons/year of ethylene and 550,000 tons/year of propylene.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 215,390 tonnes in the first month of 2020, up by 23% year on year. Shipments of all grades of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 127,240 tonnes in January 2020, up by 33% year on year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in shipments.

Royal Dutch Shell plc is an Anglo-Dutch multinational oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the biggest company in the world in terms of revenue and one of the six oil and gas "supermajors". Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading.

Total S.A. is a French multinational oil and gas company and one of the six "Supermajor" oil companies in the world with business in Europe, the United States, the Middle East and Asia. The company's petrochemical products cover two main groups: base chemicals and the consumer polymers (polyethylene, polypropylene and polystyrene) that are derived from them.
Author:Margaret Volkova
Tags:Europe, PP, PE, LLDPE, crude and gaz condensate, homopolymer PP, propylene, HDPE, ethylene, petrochemistry, BP Plc, Eni, Shell, Total Petrochemicals, Russia.
Category:General News
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