ROYAL Dutch Shell has beaten analyst expectations for the second quarter of 2017, with reported profits three times larger than at the same time last year.
It follows the $54 billion takeover of British gas giant BG Group plc last year, plus a series of deep cost reductions, and the disposal of less profitable assets.
The moves were a response to an oil industry downturn which was the worst experienced in a generation and they appear to have succeeded in stabilising the firm and providing a platform for a secure future.
The company said higher contributions from downstream – the oil refining side of the business – driven by improved operational performance and stronger chemicals and refining industry conditions were one of the main reasons for its good performance.
Upstream – oil exploration – also supported the results with higher prices and production in new fields, the company said.
On a current cost of supplies (CCS) basis, Shell’s Q2 2017 earnings, excluding identified items, were $3.6bn, up 245 per cent from $1bn for the second quarter of 2016, when there was a deep dip, and higher than Q2 for 2014 and 2015. Cash flow from operating activities for Q2 2017 was $11.3bn compared with $2.3bn in the second quarter of 2016.
Free cash flow for Q2 2017 was $12.2bn, incorporating divestment proceeds of $6.7bn.
Royal Dutch Shell Chief Executive Officer, Ben van Beurden, said: “Shell’s strong results this quarter show that we are re-shaping the company following the integration of BG.
“Cash generation has been resilient over four consecutive quarters, at an average oil price of just under $50 per barrel.
"This quarter, we generated robust, earnings excluding identified items of $3.6bn, while over the past 12 months cash flow of $38bn has covered our cash dividend and reduced gearing to 25 per cent.
“The external price environment and energy sector developments mean we will remain very disciplined, with an absolute focus on the four levers within our control, namely, capital efficiency, costs, new project delivery and divestments.
“I am confident that we are on track to deliver a world-class investment to our shareholders.”
Gearing at the end of Q2 2017 was 25.3 per cent, down from 28.1 per cent at the end of Q2 2016, and oil and gas production for the period was 3.5 million barrels of oil equivalent per day.
A second quarter 2017 dividend has been announced of $0.47 per ordinary share.
Brendan Warn, an analyst at BMO Capital Markets based in London, said: “They bought BG, they’re shipping costs out of the business, cash flow is very robust and the industry itself is learning to live with oil at these prices.
"Shell is showing it’s not just disposals, but the entire business itself that is driving earnings.”
Shell’s peers Statoil ASA and Total SA have also seen the benefit of cutting costs, in response to the big fall in the price of oil in 2014.
Growth in profit for firms yet to publish their results for the second quarter – including Chevron Corp and Exxon Mobil Corp – is expected to easily beat the gain of eight per cent in benchmark Brent crude in the period.
They have already shown strong first quarter results.
Jon Rigby, analyst at UBS, said in a note on Thursday morning: “This is another good quarter emphasising greater consistency of delivery,”
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