In light of the current market environment, oil major Shell decided to decline its operating costs by up to $4 billion in 2020 and to cut its capital expenditure from $25 billion to $20 billion.
Specifically, in a statement, the oil major stated that they have embarked 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;
- material reductions in working capital.
In addition, the company commented that
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 … 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 order to achieve a sustainable cash flow generation, the oil major 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. These initiatives combined, are expected to contribute $8 – 9 billion of free cash flow on a pre-tax basis.
Consequently, the company announced its decision to continue with the next tranche of the share buyback programme 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 concluded 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.