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Shell Keeps Spending Constrained Amid Concern About Buybacks


By James Herron and Olivia Konotey-Ahulu

(Bloomberg)Royal Dutch Shell Plc expects capital expenditure to be near the lower end of the $24 billion to $29 billion range in 2019, as the company keeps a lid on spending amid concern about its ability to sustain hefty shareholder returns.

The statement on fourth-quarter earnings published on Friday comes after Shell’s previous set of bumper profits was overshadowed by a warning about the pace of share buybacks. It’s only the second time the company has issued such guidance, which was a response to criticism about the unpredictability of its financial results.

“Keeping capex low is another indication of being cautious,” said Thijs Berkelder, an analyst at ABN Amro Bank NV. “This is confirmation that indeed the climate is still weak.”

Shell warned in October that the worsening economy could slow the pace of returns to shareholders, prompting a negative reaction from investors despite the company comfortably beating even the highest analyst profit estimate for the third quarter. Friday’s statement also gave a relatively downbeat assessment of the market.

“Trading and optimization performance is expected to be average” in the company’s integrated gas unit, according to the statement. In the marketing and chemicals business “margins are expected to be lower due to seasonal trends, and weaker compared to the fourth quarter of 2018 due to crude price movements.”

The company’s B shares slipped 0.9% to 2,252 pence as of 9:59 a.m. in London.

Impairment Charges

“Shell’s trading update highlights what are set to be recurring themes for the fourth quarter across the sector — asset impairments, weaker refining margins and lower petrochemical margins,” analysts at Barclays Plc said in a note.

The company said that post-tax impairment charges in the final three months of the year would be between $1.7 billion and $2.3 billion, based on the macroeconomic outlook. These so-called “identified items” totaled $1.3 billion in the third quarter.

Last week, Chevron Corp. said it expects to write down as much as $11 billion for assets including shale-gas holdings in the U.S. Natural gas prices in the country are on course for the lowest annual average in two decades, forcing producers to consider revaluing what many of the fields are worth.

Upstream production will range from 2.775 million to 2.825 million barrels of oil equivalent a day in the fourth quarter, Shell said. The midpoint of that range is about 3% higher than previous guidance, according to Barclays. Integrated gas output will be between 920,000 and 970,000 barrels of oil equivalent a day, with gas-liquefaction volumes of 8.8 million to 9.4 million tons.

Shell is scheduled to publish fourth-quarter results on Jan. 30.



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