Shell Outstrips Exxon on profit, cash flow seen signalling revival
In the second half of 2016, Shell (RDSal) did well in terms of profits than its rival Exxon (XOM.N), in spite of the Anglo-Dutch oil major’s annual profit reached the minimum level in over ten years as it struggled with a deep downturn. Shell (Europe’s largest oil and gas corporation) showed its strengths after overcoming difficult times following significant spending cuts, divestments and thousands of job losses last year, increasing its cash-flow by 69% in the fourth quarter.
With BG Group’s operations combined following its $54 billion acquisition last year, shell said on Thursday that there was an increase of its full year production by nearly a quarter from a year before to 3.668 millions of oil equivalent. “Our strategy is starting to pay off” CEO Ben Van Beurden said in a statement. Shares in Shell opened 1.6 percent higher, while with the broader index opened 0.5 percent lower. The company’s cost of supplies apart from identified items, it is the preferred way to measure the profits, it was $1.8 billion in the fourth quarter, against analyst’s forecast of $2.8 billion. The group’s full year of profits were down 37 percent year-on-year to $7.185 billion, however, its fourth quarter incomes remained ahead of Exxon, which reported on Tuesday fourth quarter profits of $1.68 billion, down from $2.78 billion. The group’s 2016 capital spending total of $26.9 billion was lesser than anticipated and it will keep continue to reduce it further in 2017 to around $25 billion. This is at the lower end of the $25-$30 billion range set to run until 2020. “Shell was free cash flow positive by $1 billion in the quarter. This, combined with divestments of $2.7 billion cashed—in has driven net debt down faster than our own expectations”, said RBC analyst Biraj Borkhataria. Shell’s debt to equity ratio fell to 28 percent, down from 29.2 percent in the third quarter due to the cost of its BG acquisition. Its net debt remained at $73.35 billion after Shell completed sales of stakes in refineries in Japan and Malaysia , fields in the Gulf of Mexico and Canadian shale over the quarter. The company has a in place a $30 billion debt reduction plan to achieve and it has announced a two major divestments worth $4.7 billion earlier in the week, including the sales of large part of its North sea portfolio to private-equity backed Chrysaor. At the beginning of the year Shell sold a stake in a Saudi petrochemical plant for $820 million. The group’s reserve replacement ratio was 208 percent in 2016, which is twice its reserve subsequent the BG acquisition. That compares with a ratio of minus 20 percent in 2015. Shell booked a $763 million impairment charge in its integrated gas business, following the result of a weak Australian dollar on a deferred tax position. The impairment was to some extent counterbalanced by earnings in the refining business, which brought the charge down to $500 million.
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