Shell cash flow highest since 2014 oil price dip

Company pays down debt

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.

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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. – Bloomberg