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The Guardian: Shell woos investors with $2bn buyback

The Guardian: Shell woos investors with $2bn buyback

Terry Macalister

Friday April 30, 2004

Scandal-hit Shell yesterday won back some of its lost favour with investors by announcing plans to launch a $2bn (£1.1bn) share buyback programme – something it had recently shunned.

Shares in the Anglo-Dutch oil company rebounded more than 3% to 399p, powered by a better than expected financial performance in the first quarter of the year.

Profits rose 9% to $4.25bn on the back of stronger crude prices, higher refining margins and improved chemicals performance.

“Its good to see that we have delivered satisfactory results and cash generation despite all the issues relating to reserves,” said chairman of the managing directors Jeroen van der Veer.

The result looked better when compared with US rival ExxonMobil, which reported a 23% slump in its first quarter profits.

Shell insisted the buybacks, to be completed this year, were a response to strong oil and gas prices and powerful cash generation, rather than being a sop to the market.

It gave no commitments beyond this year, saying much would depend on the market situation and the needs of other sectors of the business.

The group is increasing its capital expenditure from about $13bn per annum to up to $15bn, partly to accommodate rising costs at projects such as one at Sakhalin in the far east of Russia.

It is also concentrating new exploration spending in Nigeria, Angola and Libya, where it recently signed a groundbreaking deal.

The company needs to increase investment because production volumes in the first quarter fell by 3% while arch-rival BP saw an 11% gain.

Shell halted a share buyback scheme at the end of 2002 but has watched BP delight investors with a commitment to return $33bn over the next three years.

Bruce Evers, an oil analyst with Investec Securities, said the Shell move to reward investors “maybe had an element” of currying favour after a difficult period. But he said the nearly $8bn of cash flowing through the business in the first three months of the year gave a strong case for payouts.

“The quarterly results are very, very good numbers, there are no two ways about that – especially as they come after a very strong period [the same time] last year,” added Mr Evers.

Shell has seen its shares badly underperform the market, especially since January, when it announced a 20% downward revision in its proven oil reserves.

This triggered an internal investigation which has led to legal claims from shareholders and three top directors, including chairman Sir Philip Watts, being forced to stand down.

Shell said yesterday it was continuing to talk to the securities & exchange commission regarding an investigation into that reserve downgrade.

·French oil group Total said yesterday the market had “over-reacted” to Shell’s decision to change its reserves figures. Thierry Desmarest, the chief executive of the group, said every company had its own booking methods.

“Very often with us there are certain upward revisions, and this is natural as we proceed with projects,” he said.

Mr Desmarest warned regulator the SEC not to introduce restrictive rules on reserves that could limit the ability of people to estimate the true value of a company.

http://www.guardian.co.uk/oil/story/0,11319,1206656,00.html

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