* Shell warns of delays to buybacks
* BP indicates delays to dividend increase to 2020
* Total sticks with dividend increase promise
* Oil sector under pressure for returns amid climate change
debate
By Ron Bousso
LONDON, Oct 31 (Reuters) - Darkening clouds over the global
economy have led two of the world's top oil firms to warn
investors that promised growth in returns could be at risk for
the first time since the 2014 oil downturn.
Both BP and Royal Dutch Shell, which account for nearly 15%
of the FTSE's total dividends, signalled this week that billions
of dollars in shareholder returns could be delayed as oil prices
failed to make their expected recovery.
The stark warnings led to sharp drops in the shares of both
companies, weakening investors' appetite for the oil and gas
sector which has underperformed most other industries in recent
years.
They echo, however, a growing trend across the Atlantic
where investors are starving U.S. shale companies of new capital
after they largely failed to deliver returns after flooding the
market with oil and gas in recent years.
To be sure, the bearish outlook overshadowed a steady and
significant improvement in Shell and BP's performance since 2014
as deep cost cuts and thrifty spending sharply boosted revenues
despite a modest and volatile recovery in oil prices.
Most of the world's top oil companies can make profits at
oil prices of $50 to $60 a barrel. Oil is currently trading at
around $60 a barrel.
But the companies still heavily rely on stronger oil and gas
prices to deliver higher returns.
"Our outlook is tied to an improved price and margin
environment," Shell Chief Financial Officer Jessica Uhl told
reporters on a call, adding that she saw "clear signals" of
slower economic activity in 2019 and 2020 than expected.
Shell, the second largest but the most profitable listed oil
and gas company last year after U.S. ExxonMobil, is in the midst
of a three-year $25 billion share buyback programme, the world's
biggest.
But "the current conditions aren't meeting where we said
they needed to be, and if that continues into 2020 then we will
need to extend the time period" for the buybacks, Uhl said.
Shell's shares were down over 3.5% by 1042 GMT.
Earlier this year the Anglo-Dutch company also promised to
return $125 billion to shareholders between 2021 and 2025.
"The question for management is what is more important –
does the company continue on the current run rate and sacrifice
the balance sheet? Or does the company slow the buyback in order
to maintain a robust balance sheet. Common sense suggests the
balance sheet is much more important," RBC Capital Markets
analyst Biraj Borkhataria, said in a note.
Borkhataria, who has a "sector perform" recommendation on
the stock, said that Shell requires an additional $30 billion in
buybacks after 2020 in order to reduce the dividend burden.
BP Chief Financial Officer Brian Gilvary on Tuesday told
Reuters that trade tensions between the United States and China,
the world's largest energy consumers, are weighing on global oil
and gas demand.
Gilvary indicated in an analyst call that the London-listed
company could delay a promise to boost its dividend by the end
of this year to next year, linking it to the changing of CEOs in
March.
"We'll certainly discuss it at 4Q, but it's more likely it
will be beyond that," Gilvary said. BP's shares dropped by 3.8%
on Tuesday.
The promise of bigger returns comes as the oil and gas
sector faces increasing pressure from investors to tackle its
carbon emissions and fall in line with the 2015 Paris climate
agreement targets to limit global warming.
Some investment funds have dropped oil stocks from their
portfolio all together, prompting oil firms to respond by
pledging higher returns.
France's Total, which has emerged as one of the fastest
growing oil majors in recent quarters in terms of output, has
confirmed its commitment to boost the payout.
Total increased its 2019 dividend by 6% and the board has
committed to increase it by a further 5% to 6% per year until
2025.
(Reporting by Ron Bousso
Editing by Alexandra Hudson)
BP (BP.)
