Shell Doubles Q1 Profit, Progresses Sales

Anglo-Dutch major Shell reported May 4 Q1 2017 profit, before exceptional items, of $3.8bn, more than double the $1.6bn it earned in Q1 2016. Cash flow from operating activities for Q1 2017 was $9.5bn compared with $0.7bn in the first quarter of 2016.  Free cash flow for Q1 2017 was $5.2bn.

It will invest $25bn this year with the expectation of earning $10bn in 2018, and despite higher output its operating expenses are coming down with improved efficiencies that are expected to "stick" even if there is cost inflation.

Its debt-to-equity ratio at the end of Q1 2017 was 27.2%, down from 28% at the end of Q4 2016, compared with its target of 20% and debt repayment is the company's primary call for cash flow. Q1 2017 oil and gas production was 3.7mn barrels of oil equivalent/day, a 21% year on year increase.  

Shell has now completed or announced $20.7bn of its $30bn divestment target, although none completed in the quarter. Both the multi-billion-dollar sales of UK North Sea assets to Chrysaor and its Canadian oil sands sales to CNRL are due to complete this year. The aim is not just to repay debt but also to simplify and streamline the company, and to generate an average return on capital employed greater than 10%, it says.

Cash flow from operating activities of $9.5bn and free cash flow of $5.2bn helped repay debt and cover cash dividend for the third consecutive quarter. There were "notable improvements" in Upstream and Chemicals, which benefited from improved operational performance and better market conditions." On her maiden conference call – she replaced Simon Henry in March – the new CFO Jessica Uhl told reporters the percentage of plant availability in these areas had gone up from 89%-90% in Q1 2016 to 93%-94% this year.

(Credit: Shell)

On upstream gas, she spoke of the importance to Shell of its NAM joint venture in the Netherlands, where production has been constrained by fears of tremors damaging buildings in the Groningen region. She said it was very important to balance the interests of the different stakeholders and to manage the resource in a responsible way.

On the plans by the Australian government to limit exports of gas in order to supply the domestic market where prices are rising, she said that her understanding was that Shell would not be affected, despite its growing production from its QCLNG complex at Curtis Island, Queensland, Shell remains a net contributor to the Australian market. She did say though that regulatory stability is very important for investments of the scale of Queensland LNG – a point she also made regarding the UK, perhaps referring to the division between taxpayers and the oil companies, of the huge upcoming costs of decommissioning.

Shell's wholly-owned Pearl world-scale gas-to-liquids (GTL) plant in Qatar restarted in March and expected to be ramping up to full capacity around the middle of this year, the company said.

William Powell