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Shell’s Profit Jump Isn’t Enough to Dispel Cash-Flow Worries

Photographer: Andrey Rudakov/Bloomberg

Royal Dutch Shell Plc rode the surge in oil prices to even greater heights, posting a profit not seen since the days of $100 a barrel, but investors continued to worry about the company’s cash flow.

Earnings at Europe’s largest energy company vaulted ahead of the upswing in crude to an average of $67 in the first quarter, reaping the benefits of years of cost cuts. Yet shares fell as analysts raised concerns about whether the company will be able to afford share buybacks.

While French rival Total SA started to repurchase shares in the first quarter, Shell didn’t give any guidance about when its program would begin. The level of cash flow Shell presented on Thursday “may not necessarily support” the planned $25 billion to $30 billion buyback, intended to reward investors who stuck with Shell through a three-year price slump, according to RBC Capital Markets.

Growing Profit

Shell’s first-quarter profit rose to a level not seen since the days of $100-a-barrel oil


Shell’s adjusted net income was $5.32 billion last quarter, compared with $3.75 billion a year earlier. That surpassed analysts expectations of $5.2 billion, rising to the highest level since 2014.

Cash flow from operations was $9.43 billion in the first three months of 2018, little changed from a year ago, but an increase of almost 30 percent from the fourth quarter. Several analysts had been expecting a higher number.

“The only negative here is the conversion of those earnings into cash flow,” Oswald Clint, an analyst at Bernstein Research, said by telephone. “It’s a little bit lighter than what I was expecting.”

Investors have maintained a sharp focus on the timing of buybacks, which are required to eliminate dilution they suffered under the scrip program.

The company said first-quarter results were consistent with its intended buybacks, without providing further details on when they would start. Biraj Borkhataria, an analyst at RBC Capital Markets, said cash flow could rise high enough to support the program in the future.

“We would expect cash flow growth through the year supported by the current macro environment,” he said. “Royal Dutch Shell remains one of our preferred super-majors.”

Total and Statoil ASA also posted the best earnings in years this week, with Total pumping a record amount of oil and gas in the first quarter. Shares of the French company rose in response to its results, the opposite of the reaction to Shell.

Shell’s B shares were trading 2.2 percent lower at 2,530 pence at 9:21 a.m. in London. They’ve risen just 0.9 percent this year, compared with an 11 percent gain for Brent crude.


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