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Shell’s chief executive has said he would rather buy back more of his company’s own shares than launch a takeover bid for rival oil major BP.
“We will always look at these things, but you are also looking to see what is the alternative,” Wael Sawan told the Financial Times. “Right now, buying back Shell [shares] for us continues to be absolutely the right alternative to go for.”
Shell has been persistently linked to a bid for BP after a 32 per cent drop in the latter’s share price over the past year. Elliott Management, the activist hedge fund which has built a 5 per cent stake in BP, has warned that the company faces a takeover unless its management makes deeper cuts to its costs and spending.
Sawan’s comments on Friday came as Shell announced in its first-quarter results that it would hand $3.5bn to investors by buying back its own shares, the 14th consecutive quarter in which it has spent more than $3bn to reduce its share count.
Shell reported adjusted earnings of $5.6bn for the first quarter, down 28 per cent year on year but roughly 10 per cent ahead of analysts’ expectations. Its shares closed up 2.15 per cent on Friday.
Sawan said Shell was well prepared for lower oil prices in the months ahead, after crude dropped to a four-year low in April over concerns about the global economy and increased supply from the oil cartel Opec. Brent crude was trading at $63 a barrel on Friday, down from $76 at the start of the year.
Sawan said the company’s balance sheet was in the best shape for a decade, with gearing at less than 19 per cent, or 7 per cent excluding the leases Shell has on its equipment. “That’s not bad going into some of the choppy weather we see,” he said.
“The last two years was all about getting leaner and fitter. We have been taking steps in anticipation of what could be a softer environment. So our plan is unchanged,” he said.
Sawan said Shell would be able to continue to pay its dividend, which it held at 36 cents a share in the first quarter, at a $40 oil price and that the company could still buy back $6bn to $7bn of shares annually even if oil fell to $50 a barrel.
