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Shell (NYSE:RDS.A) on Thursday reported that first-quarter earnings had soared 42 percent annually, reaping the benefits of higher oil prices and strong integrated gas performance, but disappointing with a weaker-than-expected cash flow generation.
Shell’s current cost of supply (CCS) earnings attributable to shareholders excluding identified items—its in-house metric for net profit—jumped to US$5.322 billion in Q1 2018, up from US$3.754 billion for the same period last year, and ahead of analyst expectations of US$5.2 billion.
This past quarter’s profit was the highest Shell has booked since the end of 2014. Higher oil and gas prices, strong performance in the integrated gas division, and improved profitability in the upstream helped Shell to post its best profit since the downturn began.
Lower refining margins and lower contributions from trading affected the downstream business whose profits dropped to US$1.687 billion in Q1 2018 from US$2.489 billion in Q1 2017, as higher oil prices make refining market conditions less favorable.
While Shell beat on profits—as widely expected due to the higher oil prices—its cash flow came in below forecasts and sent its shares down in London, Amsterdam, and New York today. Cash flow from operating activities in Q1 2018 dropped to $9.4 billion from $9.5 billion in the first quarter of 2017, although it recovered from the US$7.275 billion in Q4 2017 that had also missed forecasts.
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“I think the problem with the numbers this morning is that the cash flow generation was disappointing. The earnings were very strong but it didn’t get pulled through into cash generation,” Jason Gammel, equity analyst at Jefferies, told CNBC today.
CEO Ben van Beurden commented in Shell’s press release that “Our commitment to capital discipline is unchanged, we are making good progress with our $30 billion divestment programme and our outlook for free cash flow – which covered our cash dividend and interest this quarter and over the last year – is consistent with our intent to buy back at least $25 billion of our shares over the period 2018-2020.”
However, Shell’s CFO Jessica Uhl did not specify when the group would begin those buybacks, saying that the oil major would focus on cutting debt and paying dividends first.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.