Shell outstrips Exxon on profit and cashflow

For the second half of 2016, Shell warned its upstream earnings could be impacted by production losses in Nigeria

LONDON: Shell made more money than Exxon Mobil in the second half of 2016, despite the Anglo-Dutch oil major’s annual profit hitting its lowest level in more than a decade as it grappled with a deep downturn.

Europe’s largest oil and gas company showed stronger signs that it was turning a corner following deep spending cuts, divestments and thousands of job losses last year, with cashflow increasing by 69% in the fourth quarter.

With BG Group’s operations fully integrated following its US$54bil acquisition a year ago, Shell said yesterday its full year production rose by nearly a quarter from a year earlier to 3.668 million barrels of oil equivalent.

“Our strategy is starting to pay off,” chief executive officer Ben van Beurden said in a statement.

Shares in Shell opened 1.6% higher yesterday, while with the broader index opened 0.5% lower.

The group’s cost of supplies excluding identified items, its preferred way of measuring profit, was US$1.8bil in the fourth quarter, against analyst expectations of US$2.8bil.

Shell’s full year profits were down 37% year-on-year to US$7.185bil, but its fourth-quarter earnings remained ahead of Exxon, which on Tuesday reported fourth-quarter earnings of US$1.68bil, down from US$2.78bil.

The company’s 2016 capital spending total of US$26.9bil was lower than expected and it stuck to plans to reduce it further in 2017 to around US$25bil. This is at the lower end of the US$25bil-US$30bil range set to run until 2020.

“Shell was free cashflow positive by US$1bil in the quarter. This, combined with divestments of US$2.7bil cashed-in has driven net debt down faster than our expectations,” said RBC analyst Biraj Borkhataria.

Shell’s debt to equity ratio fell to 28%, down from a high of 29.2% in the third quarter due to the cost of its BG acquisition.

Its net debt stood at US$73.35bil after Shell completed sales of stakes in refineries in Malaysia and Japan, fields in the Gulf of Mexico and Canadian shale over the quarter.

Shell, which has set itself a US$30bil debt reduction target, announced two major divestments worth US$4.7bil earlier this week, including the sale of a large part of its North Sea portfolio to private-equity backed Chrysaor.

Earlier this year, Shell sold a stake in a Saudi petrochemical plant for US$820mil.

Its reserve replacement ratio was 208% in 2016, meaning it more than doubled its reserves following the BG buy. That compares with a ratio of minus 20% in 2015.

Shell booked a US$763mil impairment charge in its integrated gas business, primarily due to the effect of a weakening Australian dollar on a deferred tax position. The impairment was partly offset by gains in the refining business, which brought the charge down to US$500mil. — Reuters

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