Royal Dutch Covering PLC’s yearly earnings toppled in 2016 to its lowest level in over a years, however the oil titan claimed it had actually transformed an essential edge, reporting a rise in cash money in spite of reduced crude rates.
The British-Dutch company claimed Thursday its earnings for 2016 on present cost-of-supplies basis– a step much like the take-home pay that UNITED STATE oil firms report– was $3.5 billion, below $3.8 billion a year previously. Revenue for the 4th quarter was up to $1 billion from $1.8 billion a year previously.
The results reflected a tough year for the industry during which oil prices sank as low as $27 a barrel and remained mired in the mid-$40s for months. American energy-industry rivals Exxon Mobil Corp. and Chevron Corp. posted disappointing earnings this week and last.
But there were also signs that Shell, the world’s second largest oil company, was starting to find its footing as the benefits from its roughly $50 billion acquisition of BG Group PLC last year kicked into gear.
“We are really making good progress in reshaping Shell to a world class investment case,” CEO Ben van Beurden said in a media briefing. “2016 has been a transition year for us; 2017 will be the year that we follow through on the strategy.”
Cash flow from operations jumped nearly 70% in the fourth quarter compared with a year earlier, rising to $9.2 billion — enough to cover Shell’s cash dividend payments for the period. Its debt levels also came down record amounts earlier in the year, when the company turned to financing to pay for the BG deal and maintain hefty investor payouts.
The company said that bet on BG is already paying off. Oil and gas production rose 28% in the fourth quarter compared with a year earlier, with BG assets adding 824,000 barrels of oil equivalent a day.
By 2018, new projects from BG and Shell’s existing portfolio are expected to add 1 million barrels a day of new production compared with 2014, or $10 billion of cash generation with oil prices at around $60 a barrel, Shell’s Chief Financial Officer Simon Henry said.
Cash-flow generation in the fourth quarter already came in well above analysts expectations, buoying Shell’s share price despite the dismal profit numbers. Shell’s share price went up 1.7% in London trading on Thursday morning.
“We emerged clearly stronger by the end of 2016,” Mr. Henry said, hitting back at critics who early on in the oil price downturn complained that the company wasn’t vocal enough in setting out a strategy.
“The next couple of days will indicate who really got it and who acted most efficiently,” Mr. Henry said. “You should just go compare.”
Shell rival BP PLC is set to report its quarterly and annual financial results on Tuesday.
Like many of its peers, Shell has responded to the challenging operating environment with tough measures, and is continuing to trim costs and spending as it pursues more progress in efforts to rebalance its finances.
It has already laid off thousands of workers, slashed costs and spending, and embarked on a $30 billion divestment plan to pay down debt and enable it to finance its spending and dividend payments from free cash flow.
Last month, it announced asset sales in the North Sea, Thailand and Saudi Arabia amounting to close to $6 billion. Mr. van Beurden said in Shell’s results announcement that the company had completed, announced or was progressing divestments worth $15 billion.
Shell said it is planning its business around oil prices at $50 a barrel this year and expects capital spending to $25 billion or lower, at the bottom range of its guidance for spending of $25-$30 billion a year out to 2020.
The company’s net debt fell to $73 billion at the end of the fourth quarter, down from $78 billion in September, and operating costs declined $10 billion from Shell and BG’s combined level two years ago.