Shell (RDS.A) Q4 Earnings and Sales Beat, Cash Flow Soars

Europe’s largest oil company Royal Dutch Shell plc RDS.A reported strong fourth-quarter results on robust commodity prices and higher downstream earnings.

The Hague-based Shell reported earnings per ADS (on a current cost of supplies basis, excluding items – the market’s preferred measure) of $1.38, above the Zacks Consensus Estimate of $1.30 and the year-ago profit of $1.04.

Revenues of $104.6 billion were 18.7% above the fourth-quarter 2017 sales of $88.1 billion and beat the Zacks Consensus Estimate of $86.9 billion.

Meanwhile, Shell will repurchase $2.5 billion worth of shares up to Apr 29 in the third instalment of its three-year $25 billion buyback program.

Operational Performance

Upstream: Upstream segment recorded a profit of $1.9 billion (excluding items) during the quarter, up 14% from the $1.7 billion (adjusted) achieved in the year-ago period.

This primarily reflects the impact of higher oil and gas realizations. At $59.89 per barrel, the group’s worldwide realized liquids prices were 8% above the year-earlier levels while natural gas prices were up 30%. Apart from pricing, results were also buoyed by lower well write-offs.

Shell’s upstream volumes averaged 2,809 thousand oil-equivalent barrels per day (MBOE/d), 1% higher than the year-ago period. Liquids contributed approximately 60% to Shell’s total volumes, while natural gas accounted for the remaining portion. While asset sales reduced the company’s oil and gas production to some extent, it was more than offset by new field start-ups and ramp-ups of existing operations.

Downstream: In the downstream segment – that focuses on refining, marketing and retailing – the Anglo-Dutch super-major reported adjusted income of $2.1 billion, 53% more than the $1.4 billion earned in the year-ago period. The positive comparison reflects the impact of stronger refining margins and higher oil trading contributions.

Integrated Gas: The Integrated Gas unit reported adjusted income of $2.4 billion, up 44% from the $1.6 billion in October-December quarter of 2017. Results were favorably impacted by increase in realized commodity prices and increased trading profitability.

Financial Performance

As of Dec 31, 2018, the Zacks Rank #5 (Strong Sell) company had $26.7 billion in cash and $76.8 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 20.3%, down from 25% a year ago. The improvement in the group’s debt ratio was helped by disciplined capital investment and asset sales.

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During the quarter under review, Shell generated cash flow from operations of $22 billion, returned $3.9 billion to shareholders through dividends and spent $8 billion on capital projects.

Apart from rising handsomely from the year-ago period, the company’s cash flow from operations soared 202% from the year-earlier level to $22 billion. Importantly, the group raked in $16.7 billion in free cash flow during the fourth quarter – sufficient enough to take care of both its $2.5 billion in share buybacks and its $3.9 billion dividend.

First-Quarter Outlook

Shell, which delivered on its $30 billion divestment target for 2016-2018, expects first quarter 2019 upstream volumes to be 10,000-50,000 BOE/D lower year over year, mainly due to divestments and field declines. The company further add that production at its ‘Integrated Gas’ segment will likely fall by some 140,000-170,000 BOE/D, mainly attributable to asset sales and the transfer of certain operations into the ‘Upstream ‘ unit.

Earnings Schedules of Other Oil Supermajors

Among the major integrated players, ExxonMobil XOM and Chevron CVX are scheduled to release tomorrow, while continental rival BP plc BP will report fourth-quarter earnings early next week.

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