Shell takes Exxon’s cash-flow crown

Acquisition of BG Group helps Europe’s largest energy company vault ahead of its larger U.S. rival.

Royal Dutch Shell has taken Exxon Mobil’s cash-flow crown, a year after completing the biggest deal in its history.

Europe’s largest energy company vaulted ahead on this closely watched indicator of financial health in the first nine months of 2017, as assets acquired from BG Group from Brazil to Australia churned out cash. For the year as a whole, Shell is ontrack to surpass its larger U.S. rival on the measure for the first time in about two decades.

Shell generated $28.38 billion of cash flow from operations in the first nine months of this year, compared with $23.52 billion from Exxon. Chief Executive Officer Ben Van Beurden already spelled out that his main long-term goal was overtaking Exxon to become the best-performing oil major.

“This competitive performance is further evidence of Shell’s growing momentum, and strengthens my firm belief that our strategy is working,” Van Beurden said in a statement.

He’s not quite there yet, as his company’s market value and total output remain below that of the Irving, Texas-based producer. Shell piled on borrowings to buy BG Group, and though Van Beurden has made reducing that burden his top financial priority, third-quarter net debt of $67.66 billion was higher than the preceding period. Thecompany also failed to cover its entire dividend with free cashflow.

“It will take time for Shell to surpass Exxon, but it is on the right track,” said Ahmed Ben Salem, an analyst at Oddo Securities in Paris, who has a buy rating on Shell. “The company needs to keep generating $10 billion of cash every quarter to cover spending and the full dividend, and it has the assets to achieve that.”

Shell’s net profit adjusted for one-time items was $4.1 billion, an increase of 47 percent froma year earlier and far ahead of the average analyst estimate of $3.62 billion. Oil and gas output was 3.657 million barrels of oil equivalent a day, compared with 3.595 million a year earlier. Exxon produced 3.88 million barrels in the third quarter.

Shell’s refining, chemicals and marketing business posted a smaller 28 percent increase in adjusted profit to $2.67 billion as its Pernis refinery in the Netherlands experienced an unplanned shutdown and hurricanes affected operations at its Deer Park plant in Texas.

Shell’ s purchase of B Gm a de it the world’ s second-biggest oil company, after years of vying with Chevron Corp. for the position. Though its $256 billion market valuation is 26 percent lower than Exxon’s, that gap has narrowed in the past year.

The earnings are the latest sign that major energy producers are getting back to normality after three tough years. BP gave the boldest signal yet this week that the worst of the down turn was over, announcing it would buy back shares for the first time since 2014.