* 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, April 8 (Reuters) - Royal Dutch Shell isunder pressure from shareholders to cut annual spending below$30 billion after buying BG Group to ensure it can maintain itsdividend given the slow oil price recovery.
Shell and other large oil companies slashed budgets,scrapped huge projects and cut tens of thousands of jobs lastyear in the face of a slump in oil prices from a June 2014 peakof nearly $116 a barrel to below $40.
Shell reduced spending by $8.4 billion to $28.9 billion lastyear and for the first time in more than three decades globalcapital spending in the oil and gas industry, known as capex, isset to fall for a second year in a row.
After the completion of the $50 billion BG acquisition, theAnglo-Dutch company set 2016 spending for the combined group at$33 billion and Chief Executive Officer Ben van Beurden said inFebruary it had "options on the table to further reduce ourspending should conditions warrant that step".
At $33 billion, Shell's capex is the highest among itsrivals, exceeding that of U.S. giant Exxon Mobil byabout $10 billion. After increasing its debt to nearly 25percent 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 thatthe dividend can be sustained, and grown in future," saidCharles Whall, portfolio manager at Investec Asset Management,which owns Shell shares.
Whall expects Shell's 2016 capex to be cut below $30billion, and to trend lower.
Steady dividend payouts have been the main attraction forinvestors in large oil companies over the years and some havetapped the debt market to maintain payouts in the face of lastyear's oil price rout.
Shell, for example, has not cut its dividend since theSecond World War and has vowed to keep it unchanged followingthe BG deal.
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Ben Ritchie, senior investment manager at Aberdeen AssetManagement, which is a top 10 investor in Shell, said while thecompany was expected to do more to reduce costs, it should notendanger growth.
"We wouldn't be surprised to see capex guidance loweredagain. However, we want the company to continue to focus ondriving long-term growth," Ritchie said.
"Simply cancelling or deferring economically viable projectsto hit a lower capex number doesn't make sense, especially whenthe company's balance sheet remains reasonably robust," he said.
Following the BG acquisition, Shell's production and cashflow is set to grow rapidly thanks to new assets in Brazil'soffshore deepwater oil fields and Australian gas, and hence itsneed to invest in new projects is lower, according to analystsat Bernstein, who rate the company's shares as "outperform".
"Shell has yet to give investors enough comfort that all thenumbers stack up in 2016 if oil prices don't move up fromcurrent levels," Bernstein said, anticipating that Shell willrevise its 2016 capex to $28 billion at its June 7 investor day.
Spending cuts could include a $1 billion reduction inexploration, about $2 billion from cost savings and some $1.8billion from project delays or cancellations, they said.
Shell has "the capacity to reduce capex significantly, andshould have had sufficient time by June to review the portfoliofollowing the BG acquisition," Investec's Whall said.
According to a top 20 investor in Shell who declined to beidentified, Shell should aim to reduce spending to $25 billionby 2017: "Anything above $28-$30 billion in 2016 would be adisappointment."
Shell's shares have traded at a discount to most rivals overthe past year though 25 out of 32 analysts have "buy" or "strongbuy" recommendations for Shell, according to Reuters data.
Shell's 12-month forward share price-to-earnings ratio isbelow 20 compared with an average of about 27 for its peers,which indicates investors are anticipating higher growth fromrivals, according to Reuters data.
Signalling further capex and costs reductions would boostinvestor confidence in the stock, according to Whall.
"If Shell can deliver clear, decisive capex guidance andinstil confidence in the dividend sustainability, there isconsiderable performance potential given its valuationdiscount," he said. "Ben van Beurden can pull this together."
(Editing by David Clarke)
