Oil major Shell has decided to reduce its operating costs by up to $4 billion in 2020 and cut its capital expenditure from $25 billion to $20 billion.
As the COVID-19 virus spreads across the world – seriously impacting people’s health, the way of life and global markets, Shell said on Monday it is taking decisive action to reinforce the financial strength and resilience of its business so that it is well-positioned for the eventual economic recovery.
“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,” said Ben van Beurden, Chief Executive Officer of Royal Dutch Shell.
“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.”
“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.”
In order to deliver sustainable cash flow generation, Shell is actively managing all its operational and financial levers – from focusing on maintaining safe and reliable operations each day to reducing capital spend and operating expenses.
According to the company, it is embarking on a series of operational and financial initiatives that are expected to result in reduction of underlying operating costs by $3-4 billion per annum over the next 12 months compared to 2019 levels; reduction of cash capital expenditure to $20 billion or below for 2020 from a planned level of around $25 billion; and material reductions in working capital.
Together, these initiatives are expected to contribute $8 – 9 billion of free cash flow on a pre-tax basis. Shell is still committed to its divestment program of more than $10 billion of assets in 2019-20 but timing depends on market conditions.
The board of Royal Dutch Shell has decided not to continue with the next tranche of the share buyback program following the completion of the current share buyback tranche.
“We will continue to review the dynamically evolving business environment and are prepared to take further strategic decisions and consider changes to the overall financial framework as necessary,” Shell said.
Shell said that its liquidity remains strong, with around $20 billion in cash and cash equivalents, $10 billion of undrawn credit lines under the revolving credit facility and access to extensive commercial paper programs.