Shell under pressure to reduce spending

Investors seek at least 10 pct capex cut to below $30 bln

* Shell capex highest among its peers after BG deal

* Shell to outline strategy in June

By Ron Bousso

LONDON: Royal Dutch Shell is under pressure from shareholders to cut annual spending below $30 billion after buying BG Group to ensure it can maintain its dividend given the slow oil price recovery.

Shell and other large oil companies slashed budgets, scrapped huge projects and cut tens of thousands of jobs last year in the face of a slump in oil prices from a June 2014 peak of nearly $116 a barrel to below $40.

Shell reduced spending by $8.4 billion to $28.9 billion last year and for the first time in more than three decades global capital spending in the oil and gas industry, known as capex, is set to fall for a second year in a row.

After the completion of the $50 billion BG acquisition, the Anglo-Dutch company set 2016 spending for the combined group at $33 billion and Chief Executive Officer Ben van Beurden said in February it had “options on the table to further reduce our spending should conditions warrant that step”.

At $33 billion, Shell’s capex is the highest among its rivals, exceeding that of U.S. giant Exxon Mobil by about $10 billion. After increasing its debt to nearly 25 percent of its market capitalisation after the BG acquisition, investors and analysts say Shell must tighten its belt further.

“Shell needs to cut capex to give the market confidence that the dividend can be sustained, and grown in future,” said Charles Whall, portfolio manager at Investec Asset Management, which owns Shell shares.

Whall expects Shell’s 2016 capex to be cut below $30 billion, and to trend lower.

Steady dividend payouts have been the main attraction for investors in large oil companies over the years and some have tapped the debt market to maintain payouts in the face of last year’s oil price rout.

Shell, for example, has not cut its dividend since the Second World War and has vowed to keep it unchanged following the BG deal.

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