Shell cash flow high­est since 2014 oil price dip

Com­pany pays down debt

The Star Early Edition - - INTERNATIONAL - Rak­teem Katakey Lon­don

ROYAL Dutch Shell’s cash flow from op­er­a­tions rose to the high­est since the oil price slump started in 2014 as as­set sales and cost cuts helped Europe’s largest en­ergy com­pany pay down debt and boost profit.

The con­sen­sus-beat­ing sec­ond-quar­ter per­for­mance showed how Shell’s re­sponse to the worst in­dus­try down­turn in a gen­er­a­tion – the $54 bil­lion (R702.76bn) takeover of BG Group last year, deep cost re­duc­tions, and the dis­posal of less prof­itable as­sets – is pay­ing off.

“They bought BG, they’re ship­ping costs out of the busi­ness, cash flow is very ro­bust and the in­dus­try it­self is learn­ing to live with oil at these prices,” said Bren­dan Warn, a Lon­don-based an­a­lyst at BMO Cap­i­tal Mar­kets.

“Shell is show­ing it’s not just about dis­pos­als, but the en­tire busi­ness it­self that is driv­ing earn­ings,” said Warn.

Shell’s peers Sta­toil and To­tal also reaped the ben­e­fits of cost cuts made in re­sponse to the plunge in oil prices three years ago.

Af­ter the best first-quar­ter per­for­mance in years, profit growth for com­pa­nies that have yet to pub­lish sec­ond-quar­ter re­sults in­clud­ing Exxon Mo­bil and Chevron is ex­pected to far out­strip the 8 per­cent gain in bench­mark Brent crude in the sec­ond quar­ter.

For Shell, ris­ing earn­ings and fall­ing debt also ease con­cern about the com­pany’s abil­ity to main­tain its div­i­dend as oil prices re­main around $50 a bar­rel, half the level of 2014.

The boss of Europe’s big­gest listed oil com­pany says his next car will be elec­tric.

Chief ex­ec­u­tive Ben Van Beur­den has made re­duc­ing bor­row­ings his top fi­nan­cial pri­or­ity and the com­pany’s gear­ing, or ra­tio of net debt to cap­i­tal, fell to the low­est since the end of 2015.

“Shell’s strong re­sults this quar­ter show that we are re­shap­ing the com­pany fol­low­ing the in­te­gra­tion of BG,” Van Beur­den said.

“I am con­fi­dent that we are on track to de­liver a world­class in­vest­ment to our share­hold­ers,” he said, adding that there’s still a need to re­main dis­ci­plined on costs with oil prices at cur­rent lev­els.

Cash flow from op­er­a­tions rose to $11.3bn from $9.5bn in the pre­ced­ing quar­ter.

Gear­ing dropped to 25.3 per­cent. Net debt fell a third straight quar­ter to $66.4bn from $72bn in March as the com­pany sold as­sets from Canada to Aus­tralia as part of its $30bn di­vest­ment pro­gramme.

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