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Shell Misses Estimates, But Significantly Boosts Cash Flow

As widely expected, higher oil prices boosted earnings and cash flows at Royal Dutch Shell (NYSE:RDS.A) in the third quarter, but the supermajor slightly missed profit estimates in a somewhat mixed results release, which highlighted strong cash flow generation and continued share buybacks.

Shell reported on Thursday earnings on a current cost of supplies (CCS) basis, excluding identified items—its closest metric to a net profit closely watched by analysts—of US$5.624 billion in the third quarter, up by 37 percent compared to Q3 2017, but slightly below the analyst consensus estimate of US$5.766 billion.

Yet, the earnings in Q3 were the highest in four years on the back of rising oil prices, which have helped all oil majors who have reported third-quarter earnings so far to significantly boost profits.

Earlier this week, BP reported that its third-quarter earnings more than doubled from a year earlier to the highest quarterly result in more than five years, expressing confidence in cash generation that will allow it to fund the acquisition of BHP’s U.S. shale assets entirely from available cash. Last week, France’s Total reported a 48-percent jump in its third-quarter net profit as increased production and higher oil prices helped it to book its highest income in a quarter since 2012, beating analyst estimates.  

Yet, Shell’s profit was a bit underwhelming, as was its total production in Q3—down 2 percent annually to 3.596 million barrels of oil equivalent per day (boe/d), sending shares in London down 2 percent at 1:38 p.m GMT, while shares in New York were up 0.65 percent at 9:38 a.m. EDT.

“The figures were impressive, but given the rally in the oil market, and the solid figures from BP during the week, traders were left a little unimpressed with today’s update,” David Madden, market analyst at CMC Markets UK, told the BBC.

Shell, however, boosted its cash flow significantly, with cash flow from operating activities surging 59 percent annually to US$12.1 billion, and free cash flow more than doubling to US$8.01 billion from US$3.67 billion in Q3 2017. Excluding working capital movements, cash flow from operations was US$14.7 billion.

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Shell completed in October the first tranche of its share buyback program, spending US$2 billion on nearly 61 million A ordinary shares bought back for cancellation. Today, Shell launched the second tranche of the share buyback program, with a maximum aggregate consideration of US$2.5 billion up to and including January 28, 2019.

“Good operational delivery across all Shell businesses produced one of our strongest-ever quarters, with cash flow from operations of $14.7 billion, excluding working capital movements. Our strong financial performance allowed us to cover the cash dividend, interest payments, share buybacks and to further pay down debt. Our strategy remains on track. We have completed the first tranche of share buybacks, in line with our intention to purchase $25 billion of our shares by the end of 2020, and today I’m pleased to announce the second tranche,” said CEO Ben van Beurden.

By Tsvetana Paraskova for Oilprice.com

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