Shell reduces capital expenditures and suspends share buyback program to combat oil price crash

The
recent crash in the global oil price is weighing heavily on oil major Royal
Dutch Shell (AMS:RDSA). As part of its strategy to cope with it, Shell said on
Monday that it plans on reducing its capital expenditures by around £4.3
billion in 2020. The company also declared the next phase of its share buyback
program suspended earlier this morning.

According
to Shell, it will drop its cash capital expenditure from the previously
announced £21.5 billion to around £17.20 billion this year. The initiative,
Shell added, is likely to add £6.9 billion to £7.8 billion (pre-tax) to the
company’s free cash flow.

Shell To Reduce Annual Operating Costs By £2.6 Billion To £3.45 Billion

Shell’s
announcement on Monday also accentuated that the company plans on reducing its
annual operating costs by £2.6 billion to £3.45 billion as compared to 2019 in
the next twelve months.

According
to Shell:

“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.”

With
Saudi Arabia and Russia using their statures of the world’s largest oil
producers to fuel a price war, the global oil price dropped around a 3^rd
in value within one day. Other U.S oil companies like Chevron
also announced recently that it is meticulously assessing the options at
its disposal to minimize expenditures in 2020 to survive the aforementioned
crash.

Shell
Postpones Construction On A Ethane Cracker At Its Pennsylvania Site

Amidst
the Coronavirus pandemic that has disrupted businesses across the globe, Shell
had recently announced that construction on an ethane cracker (multi-billion-dollar)
at its Pennsylvania site is to be paused from March 18^th. The Vice
President of the Shell Pennsylvania Chemicals, Hillary Mercer, commented in her
written statement:

“The
health and well-being of our workers and nearby communities remains Shell’s top
priority. That’s an ethos we live by every day, but it’s especially relevant at
time when the world is taking drastic measures to contain the spread of the COVID-19
virus.”

At
the time of writing, Shell is trading at £11.40 per share in the stock market
that marks an over 50% decline in 2020 so far. Shell’s performance in 2019 wasn’t
reported any better either with the stock price remaining flat on average. Royal
Dutch Shell currently has a market cap of just over £86 billion with a price to
earnings ratio of 6.71.