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Shell earnings expected to hit £11bn after oil prices recover

Jillian Ambrose: 

Royal Dutch Shell is set to unveil its highest earnings since the oil market collapse this week, just one year after the oil major’s lowest profits in more than a decade.

The Anglo-Dutch oil group’s efforts to overhaul its portfolio during the depths of the oil market rout are expected to be turbo-charged by the recovery in oil prices to over $65 a barrel last year, from under $30 a barrel at their lowest point in early 2016.

Analysts predict the group’s earnings on a “current cost of supply” basis will be more than $15.7bn (£11bn) for 2017 from just $3.5bn (£2.5bn) the year before. The final quarter of last year is expected to generate higher earnings than the whole of 2016 at $4.2bn (£3bn), according to analyst consensus forecasts.

The startling turnaround from Shell’s disappointing 2016 results, which were even lower than in 2015, comes in the wake of a diligent focus on financial discipline following the mega-deal to take over BG Group, the gas giant, at the depths of the market rout.

Shell has also completed the majority of its $30bn (£21bn) programme to sell-off oil assets which are peripheral to the business. Shell’s oil major peers are also expected to reveal a cash flow boom in the coming weeks.

Jason Gammel of Jefferies told investors to “put on their rally caps” as the higher earnings flow through the shareholders, many of whom have patiently accepted company shares in lieu of dividend payouts.

Shell said in November that it would begin to buy back at least $25bn (£18bn) worth of shares, but analysts at JP Morgan have predicted this could rise to $27.5bn (£20bn), buoyed by higher flows of cash back into the business.

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