Total, Shell slash spending plans, suspend share buy-backs

Author: Tom Brown

2020/03/23

LONDON (ICIS)--Total and Shell on Monday announced plans to cut spending and reduce costs in the face of dramatic falls in the price of oil and an expected global recession this year due to the spread of coronavirus.

Shell is to cut underlying annual costs by $3bn-4bn over the next 12 months compared to 2019 levels and cut capital expenditure to $20bn or below for this year compared with plans of $25bn, increasing pre-tax free cashflow by $8bn-9bn.

Total is to reducing operating capital expenditure levels by $3bn this year, a cut of over 20% on planned levels, and reducing 2020 outflows to under $15bn, and increasing its planned cost savings for 2020 from $300m to $800m.

In a presentation, CEO Patrick Pouyanne also noted that the company would be carrying out a hiring freeze except for strategic areas such as new energies and digital, and that not every retiring employee would be replaced at present.

Both firms also announced the cancellation of share buy-back programmes. Total announced a $2bn programme and has completed $550m in the first two months of the year, and Shell will not continue with its programme following the conclusion of the current tranche.

Shell intends to press on with plan to divest $10bn of assets in 2019-20, but noted that the timing of sales is dependent on market conditions. The company has already announced plans to suspend work on its Pennsylvania petrochemicals complex.

The oil and gas industry has moved to cut costs following a collapse in oil prices to the mid $20s/bbl level over the last few weeks and expectations from some observation groups of a contraction in demand this year.

Saudi Aramco has already announced plans to cut 2020 capex from an expected range of $35bn-40bn to $25bn-30bn, and US-based ExxonMobil is currently finalising plans for cuts to its own expenditure levels.