LONDON (Oct 31): Royal Dutch Shell warned on Thursday that uncertain economic conditions could slow its US$25 billion share buyback programme, the world's largest, after its third-quarter profits easily beat expectations on strong oil and gas trading.
The better-than-expected results in the face of oil prices that fell 17% year on year underscores Shell's transformation in recent years, with deep cost cuts and a focus on returns after the 2014 industry downturn.
Yet slowing demand for oil and gas around the world amid trade tensions between the United States and China, the world's two largest energy consumers, could take a toll, Shell said.
The Anglo-Dutch company, the world's biggest dividend payer at US$16 billion a year, plans to boost payouts to investors through dividends and share buybacks to US$125 billion between 2021 and 2025.
CEO Ben van Beurden said in a statement that Shell's intention to buy back US$25 billion of shares by the end of next year remains unchanged.
He nevertheless said that "the prevailing weak macroeconomic conditions and challenging outlook inevitably create uncertainty about the pace of reducing gearing to 25% and completing the share buyback programme within the 2020 timeframe."
Shell has acquired US$12 billion worth of shares since July 2018 and announced on Thursday it had started the next tranche of buybacks.
"We have argued that Shell's financial framework comes under significant pressure in lower commodity price environments and today’s release illustrates this," analysts at Redburn said in a note.
Net income attributable to shareholders, based on a current cost of supplies (CCS) and excluding identified items, fell 15% to US$4.8 billion from a year earlier.
That topped the US$3.91 billion expected by analysts in a company-provided survey.
The fall was offset by strong performance of Shell's oil and liquefied natural gas (LNG) trading operations, it said.
"This quarter we continued to deliver strong cash flow and earnings, despite sustained lower oil and gas prices, and chemicals margins," van Beurden said.
Oil and gas production in the quarter fell by 1% from a year earlier to 3.6 million barrels of oil equivalent per day.
Cash flow from operations, seen by many as the main metric for the company's performance, rose to US$12.25 billion from US$8.63 billion in the second quarter and from US$12.1 billion a year earlier.
Free cash flow, or cash available to pay for dividends and share buybacks, rose to US$10.1 billion from US$8 billion a year earlier.