Anglo-Dutch energy giant Royal Dutch Shell announced plans to slash spending by $5 billion in 2020 in a bid to weather the collapse in oil markets amid a global health crisis as coronavirus claimed 16,500 people around the world.
In Monday's statement, Shell said the decision aims to reinforce the financial strength and resilience of its business “so that we are well-positioned for the eventual economic recovery.”
In a series of operational and financial initiatives, the company said it would slash operational expenses by $3-4 billion a year in the next 12 months compared to 2019 rates.
Shell will also reduce its capital expenditure to $20 billion, down from its planned $25 billion.
The company expects the steps will contribute $8-9 billion of free cash flow on a pre-tax basis.
Shell will also suspend its plan to buy back $25 billion worth of shares.
“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,” said Ben van Beurden, chief executive officer of Royal Dutch Shell.
After the emergence of the deadly coronavirus outbreak, which caused a global crises with a death toll of more than 16,500, the worldwide decline in oil demand resulted in a standoff between major oil producers Russia and Saudi Arabia.
Tensions have risen in oil markets following a breakdown in talks between the Organization of Petroleum Exporting Countries (OPEC) and Russia on March 6 to secure a further oil output cut in their production levels.
The futures of Brent and WTI crude plummeted to under $30 per barrel, as fears of an imminent price war between producers became a reality.
On March 13, crude oil prices recorded an almost 20% weekly loss, posting the largest weekly decline in 29 years due to coronavirus-related low demand coupled with the risk of growing oversupply.
Saudi Arabia's state-run oil company, Saudi Aramco, announced last week that it would raise its crude oil supply to 12.3 million barrels per day in April. The Kingdom later announced that it aims to further increase oil production in April and May with the aim of peaking at more than 10 million barrels a day as the kingdom explores a new field.
By Sibel Morrow