Oil giant Royal Dutch Shell has announced plans to cut costs, curb expected investment and give up a share buyback, as companies look to hold on to cash in reaction to the ongoing Covid-19 pandemic.
Shell announced Monday that it is taking steps to improve its financial position, which it said will add to a big volume of free cash flow on a pre-tax basis. The company expects to give up a share condition in response to the current global market jitters.
Shell said it would slash operating costs by up to $5 billion over the next 12 months and trim down expected spending by $5 billion this year.
Shell chief executive, Ben van Beurden, said the cash saving initiatives come as a decline in oil demand took a heavy toll on the company and with the oil price war between Saudi Arabia and Russia escalating. So the company would produce cash before tax between $8 billion and $9 billion, it said.
Earlier this month, the Kingdom announced plans to lower the price of its oil exports and increase production, following a failure to reach an agreement with Russia to curb supply.
The move is intended to place pressure on Saudi Arabia's oil production rivals and could potentially push out some smaller firms. The combination of slumping demand and price war means crude oil has plummeted at only $22.20 per barrel since the beginning of the year by more than 60 percent.
Markets around the globe displayed no hope. Japan's Nikkei has not made any advances on expectations to postpone the Olympics.
When the crisis entered its fifth week, the FTSE 100 dropped 4 percent, 216.32 points, to 4983.46. Stocks in Asia dropped overnight and confusion persists on US markets after the Senate refused to pass a funding plan that Democrats argue will not offer adequate help to the workforce.
The financial stability of Shell in the current climate is "central to the sustained investment in our strategic goals," said Royal Dutch Shell.
With respect to its 2019-20 divestment plan of more than $1 billion, the company said it is still committed to it but that the timing will depend on market conditions.
Shell disclosed that it has around $20 billion of cash available on hand and $10 billion of unused credit should the group need it. The company is also still planning to sell off $10 billion worth of properties this year, though the timing could be affected by the ongoing global distress.
