Shell earnings jump on higher oil and gas prices
Royal Dutch Shell posted a jump in full-year earnings on Thursday as it benefited from higher realised oil, gas and liquefied natural gas prices and cost cutting.
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The company's current cost of supply earnings excluding identified items rose 36% for the year to $21.4bn. For the fourth quarter, earnings were up 32% to $5.7bn.
Cash flow from operations rose to $22bn in the fourth quarter, which included positive working capital movements of $9.1bn, mostly due to a fall in the crude oil price and lower inventory levels. Meanwhile, free cash flow rose to $39.4bn from $27.6bn the year before.
The dividend was unchanged at $0.47 a share and the group said it was launching another $2.5bn share buyback.
Chief executive Ben van Beurden said: "Shell delivered a very strong financial performance in 2018, with cash flow from operations of $49.6bn, excluding working capital movements. We delivered on our promises for the year, including the completion of the $30bn divestment programme and starting up key growth projects while maintaining discipline on capital investment. We paid our entire dividend in cash, further reduced our debt and launched our share buyback programme, with $4.5bn in shares repurchased so far.
"We will continue with a strong delivery focus in 2019, with a disciplined approach to capital investment and growing both our cash flow and returns. Our strategy to deliver a world-class investment case is working."
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "With the oil price looking healthier than in 2017, Shell has transformed into a giant cash machine and that’s funding investment, debt repayments and some whopping great returns to shareholders.
"Production might not be growing rapidly as yet, but when the price of what you sell is up 30%, it doesn’t matter all that much. Shell’s not standing still though. It’s taking advantage of the benign conditions to undo the damage done by the scrip dividend in years past and repair the balance sheet too. Investment in some major projects continues to power ahead - notably the gigantic Prelude floating LNG facility, a 500m long monster that’s eventually expected to produce 5.3 million tonnes of liquid hydrocarbons a year.
"As you would expect, Shell’s fortunes remain tightly linked to the oil price, but following some housekeeping, the group’s better placed than it has been for some time."
RBC Capital Markets said net income of $5.7bn for the fourth quarter was ahead of both consensus at $5.3bn and its own forecast of $5.4bn.
"Overall, we expect the shares to react positively to the earnings beat and de-gearing," said analyst Biraj Borkhataria.
"Quarterly underlying cash flow remains volatile, although we think this quarter’s underlying rate was slightly weak relative to our expectations. We look to the management event later today for clarity on two things: 1) Is Shell on track for its $25-30bn free cash flow targets – excluding any benefits from working capital/LNG margining, etc. and; 2) What is the capex guidance for 2019?"