Oil firms warn investors on returns : The Standard

• Reuters 01st Nov 2019 00:00:00 GMT +0300

Darkening clouds over the global economy have led two of the world’s top oil firms to warn investors that promised growth in returns could be at risk for the first time since the 2014 oil downturn. Both BP and Royal Dutch Shell, which account for nearly 15 per cent of the FTSE’s total dividends, signaled this week that billions of dollars in shareholder returns could be delayed as oil prices failed to make their expected recovery. The stark warnings led to sharp drops in the shares of both companies, weakening investors’ appetite for the oil and gas sector which has underperformed most other industries in recent years. They echo, however, a growing trend across the Atlantic where investors are starving US shale companies of new capital after they largely failed to deliver returns after flooding the market with oil and gas in recent years. To be sure, the bearish outlook overshadowed a steady and significant improvement in Shell and BP’s performance since 2014 as deep cost cuts and thrifty spending sharply boosted revenues despite a modest and volatile recovery in oil prices. Most of the world’s top oil companies can make profits at oil prices of $50 (Sh5,150) to $60 (Sh6,180) a barrel. Oil is currently trading at around $60 a barrel. But the companies still heavily rely on stronger oil and gas prices to deliver higher returns.

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"Our outlook is tied to an improved price and margin environment," Shell Chief Financial Officer Jessica Uhl told reporters on a call, adding that she saw “clear signals” of slower economic activity in 2019 and 2020 than expected. Shell, the second-largest but the most profitable listed oil and gas company last year after U.S. ExxonMobil, is in the midst of a three-year $25 billion (Sh2.5 trillion) share buyback programme, the world’s biggest. But "the current conditions aren’t meeting where we said they needed to be, and if that continues into 2020 then we will need to extend the time period” for the buybacks, Uhl said.

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FTSERoyal Dutch ShellOil firms