Shell's profit surges as oil sector rebounds

LONDON (Reuters) - Royal Dutch Shell said net profit more than doubled in the first quarter, joining its peers in beating analyst forecasts as rebounding oil prices and refining margins lifted revenue after a near three-year downturn.

A Shell logo is seen reflected in a car's side mirror at a petrol station in west London, Britain, January 29, 2015. Picture taken January 29, 2015. REUTERS/Toby Melville/File Photo

A 55 percent rise in oil prices from a year ago and deep cost cuts boosted cash generation, enabling the Anglo-Dutch company to cover spending and dividend payouts, while reducing debt following its $54 billion acquisition of BG Group last year.

Shell remains on track to hit its $30 billion asset disposal program by 2018 to finance the BG acquisition, selling around $20 billion since 2016, including a large portfolio in the North Sea and exiting Canada’s oil sands.

“This is now the third consecutive quarter of dividend coverage, which coupled with the divestments to be cashed in later in the year, suggests Shell is shaping up to have a much better performance this year,” RBC Capital Markets analyst Biraj Borkhataria said in a note after the results on Thursday.

Europe’s largest oil and gas company joined rivals BP, Exxon Mobil, Chevron and Total in beating analysts’ quarterly profit forecasts.

With oil prices hovering around $50 a barrel, cost cuts are set to remain a high priority.

Shell has reduced costs and spending by nearly $30 billion and slashed some 12,500 jobs since 2014, but there was room for further job reductions, Chief Financial Officer Jessica Uhl said in a call with analysts.

It generated a cash flow of $9.5 billion in the quarter, up 13 fold from a year earlier, and the strongest among its peers. Free cash flow rose to $5.2 billion from a negative $16.26 billion a year earlier.

Shell’s shares were steady at 1418 GMT, broadly in line with London’s FTSE 100 index.

Net income attributable to shareholders in the quarter, based on a current cost of supplies (CCS) and excluding exceptional items rose 142 percent to $3.75 billion, compared with a company-provided analysts’ consensus of $3.05 billion.

A year ago, net income attributable to shareholders was $1.55 billion.

“We saw notable improvements in Upstream and Chemicals, which benefited from improved operational performance and better market conditions,” said Chief Executive Ben van Beurden.

Oil and gas production, known as upstream, rose 2 percent in the quarter to 3.752 million barrels of oil equivalent from 3.905 million boed in the fourth quarter of 2016 as a number of new fields continued to ramp up in Brazil and Kazakhstan in particular.

Shell’s downstream division, which includes refining, marketing and chemicals saw earnings rise by 24 percent to $2.49 billion.

Refined oil products sales are expected to decrease by 200,000 barrels per day (bpd) in the second quarter of 2017 following the sale of refineries in Malaysia and Denmark and the splitting of the Motiva Enterprises joint venture with Saudi Aramco in the United States, the company said.

Shell’s debt ratio versus company capitalization, known as gearing, declined in the first quarter to 27.2 percent from 28 percent in the fourth quarter.

The company stuck to plans to invest $25 billion this year, at the lower end of the long-term target.

Reporting by Ron Bousso; Editing by Susan Fenton