Presentation: Jeroen van der Veer
Shell 'set to double debt load'
Anglo-Dutch supermajor Shell is to scrap its share buyback programme and more than double its debt this year as it attempts to maintain its spending commitments in the face of a collapse in the price of crude, analysts have warned.
With oil trading at $44 this week down from a $147 peak last July, company boss Jeroen van der Veer will unveil the supermajor's strategy today at his final annual investor briefing before he steps down this summer.
Van der Veer is expected to reiterate Shell's commitment to a 5% increase in its dividend, a report in the Times said.
But the supermajor is also believed to be considering measures that will allow it to do so while continuing to invest $31 billion on a string of oil and gas projects around the world.
Gordon Gray, an oil analyst for Collins Stewart, told the newspaper that a big increase in Shell's debt was inevitable while share buybacks were “completely off the agenda”.
He predicted that Shell's net debt would rise from $8 billion in 2008 to as much as $23.9 billion this year - from a gearing level of about 6% of its equity to nearly 17%.
He projected that Shell's net debt could peak next year at more than $30 billion, depending on how long oil prices remained depressed.
In the fourth quarter, Shell's cashflow from operations was $10.3 billion, while capital spending plus distributions to shareholders, including dividends and buybacks, was $9.5 billion.
Shell's crude output has been under pressure this year because about 20% of its oil production is from Opec member countries, where quotas have been slashed by about 14%.
Richard Griffith, of Evolution Securities, predicted that Shell would be forced to increase its net debt from $8 billion to $16 billion this year.
However, he added: “Shell has much greater headroom. It can survive for longer at a lower oil price.”
Griffith said that Shell was also likely to reveal details of cost-cutting plans at today's briefing, including staff cuts and savings on materials.
Meanwhile, in a statement released ahead of today's announcement, Shell said it expected production to increase in the medium term, adding it would pay out $10 billion this year in dividends.
Shell also said it could generate between 2% and 3% annual production growth early in the next decade.
Previously the company said it had a long-term growth potential of 2% to 3%. A spokesman declined to say if the earlier target had been dropped.
Shell matched almost all its production with new finds in 2008, with a reserves replacement rate of 98% when measured according to Securities & Exchange Commission rules, the spokesman said.