By Ron Bousso

LONDON (Reuters) – Royal Dutch Shell <RDSa.L> warned on Thursday that uncertain economic conditions could slow its $25 billion share buyback programme, the world’s largest, after its third-quarter profits easily beat expectations on strong oil and gas trading.

The better-than-expected results in the face of oil prices that fell 17% year on year underscores Shell’s transformation in recent years, with deep cost cuts and a focus on returns after the 2014 industry downturn.

Yet slowing demand for oil and gas around the world amid trade tensions between the United States and China, the world’s two largest energy consumers, could take a toll, Shell said.

Shell shares were down nearly 2% after trading opened in London, compared with a 0.5% decline in the FTSE index <.FTSE>.

CEO Ben van Beurden said in a statement that Shell’s intention to buy back $25 billion of shares by the end of next year remains unchanged.

He nevertheless said that “the prevailing weak macroeconomic conditions and challenging outlook inevitably create uncertainty about the pace of reducing gearing to 25% and completing the share buyback programme within the 2020 timeframe.”

Gearing – the ratio between debt and market capitalisation – rose in the quarter to 27.9% from 23.1% a year earlier.

The Anglo-Dutch company, the world’s biggest dividend payer at $16 billion a year, plans to boost payouts to investors through dividends and share buybacks to $125 billion between 2021 and 2025.

Shell has acquired $12 billion worth of shares since July 2018 and announced on Thursday it had started the next tranche of buybacks of up to $2.75 billion by Jan. 27, 2020.

On Tuesday, rival BP <BP.L> indicated that its plans to boost its dividend by the end of this year could be delayed, partly due to the changing of CEOs as well as the weak economic background.

“The lack of a dividend hike at BP and Shell management hinting at a possibly slower pace of share buybacks are suggesting companies are taking a more sober view on the outlook for oil and gas prices,” Morgan Stanley analyst Martijn Rats said.

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STRONGTRADING

Net income attributable to shareholders, based on a current cost of supplies (CCS) and excluding identified items, fell 15% to $4.8 billion from a year earlier.

That topped the $3.91 billion expected by analysts in a company-provided survey.

The fall was offset by strong performance of Shell’s oil and liquefied natural gas (LNG) trading operations, it said.

“This quarter we continued to deliver strong cash flow and earnings, despite sustained lower oil and gas prices, and chemicals margins,” van Beurden said.

Oil and gas production in the quarter fell by 1% from a year earlier to 3.6 million barrels of oil equivalent per day.

Cash flow from operations, seen by many as the main metric for the company’s performance, rose to $12.25 billion from $8.63 billion in the second quarter and from $12.1 billion a year earlier.

Free cash flow, or cash available to pay for dividends and share buybacks, rose to $10.1 billion from $8 billion a year earlier.

Rivals BP <BP.L> and Total <BP.L> both reported sharp drops in profits in the quarter as a result of lower oil and gas prices.

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(Reporting by Ron Bousso; editing by David Goodman and Jason Neely)