Shell may take longer to return cash to investors as low oil prices bite

The chief executive of Shell has admitted that a major plan to return money to investors could be facing delays as challenging conditions dented the business.

The oil major shocked investors on Thursday morning as bosses said a weak oil price had torn through the business.

Chief executive Ben van Beurden said Shell will push ahead with a plan to return 25 billion dollars (£19.3 billion) to investors by buying back shares, and will reduce gearing, the relationship between the company’s equity and how much it has borrowed.

However, he warned that “prevailing weak macroeconomic conditions and challenging outlook inevitably create uncertainty about the pace of reducing gearing to 25% and completing the share buyback programme within the 2020 timeframe”.

Current cost of supply earnings, a proxy for net profit, dropped 15% in the third quarter, compared to last year, Shell revealed.

It hit 4.76 billion dollars (£3.68 billion), well below forecasts that had put the figure at 6.47 billion (£5 billion), according to Neil Wilson, the chief market analyst at Markets.com.

The weak results come just days after London-listed rival BP warned that the oil price had reduced its profits by 40% over the quarter.

“Royal Dutch Shell’s results are a reflection of its peer’s, BP, earlier in the week,” said David Barclay, senior investment manager at Brewin Dolphin.

He added: “The City was expecting income to have fallen on the back of lower oil prices in Q2 and, following Shell’s decision to enhance its disclosure to investors, there aren’t many surprises in these results.”

However shares still fell 3.3% to 2,251.5p.

Oil majors were buoyed in September when drones attacked oil refineries in Saudi Arabia, knocking out 5% of global production.

The price of Brent crude, the international standard, jumped as much as 20% on the news of the attacks.

However Saudi Arabia quickly got production back up and running in the weeks after the attack, sending prices down to pre-attack levels.

“Tensions in the Persian Gulf briefly counteracted the effect of slowing global demand but overall Brent crude spent the better part of the quarter at below 60 dollars,” said City Index analyst Fiona Cincotta.

Shell was able to charge an average of 55.99 dollars (£43.25) per barrel of oil it produced in the quarter, down from 68.21 dollars (£52.69) in the same three months last year.

It was even more than a dollar lower than the second quarter price.

This combined with slightly lower production, at 3.56 million barrels of oil equivalent a day, to give the oil firm a bloody nose.

“This quarter we continued to deliver strong cash flow and earnings, despite sustained lower oil and gas prices, and chemicals margins.

“Our earnings reflect the resilience of our market-facing businesses and their ability to capitalise on market conditions, including very strong trading and optimisation results this quarter,” said Mr van Beurden.