By Kelly Gilblom
Royal Dutch Shell rode the surge in oil prices to even greater heights in the first quarter, posting a profit not seen since the days of $100 (€82.50) a barrel oil, but investors were displeased that the company didn’t take them along for the ride.
While French rival Total has started disbursing the rewards of rising energy prices with higher dividends and share buybacks, Shell has other priorities, at least for now.
Chief financial officer Jessica Uhl declined to say when her planned $25bn-$30bn stock-repurchase programme would start, saying she wanted to focus on debt reduction first. There are two big reasons for the company’s caution. First, it still has to pay off the acquisition of BG Group in 2016, a deal that has turbo charged natural gas earnings but left Shell heavily indebted.
Second, its cashflow which is little changed from a year earlier despite higher oil prices, “may not necessarily support” the planned buybacks, according to RBC Capital Markets.
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.
Adjusted net income was $5.32bn last quarter, compared with $3.75bn a year earlier. That surpassed analysts expectations of $5.2bn, rising to a level only consistently seen when oil traded for more than $100.
Total and Statoil 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 dropped up to 2.8% as analysts raised concerns about flat cashflow from operations, which was $9.43bn in the first three months of 2018.
Shell’s free cashflow was sufficient to fund the company’s cash dividends and interest payments in the first quarter, which wasn’t always the case during the oil-price slump.
Like its peers, Shell was forced to make some payments to investors in shares during the downturn, via a scrip dividend, while also borrowing to fund the cash portion of the payout.
Barclays analysts expect Shell to begin its share buyback programme in the second half. “We would expect cashflow growth through the year supported by the current macro environment,” said Biraj Borkhataria, an analyst at RBC Capital Markets.