Shell Takes Exxon's Cash-Flow Crown as Profit Beats Estimate

(Bloomberg) -- Royal Dutch Shell Plc has taken Exxon Mobil Corp.’s cash-flow crown, a year after completing the biggest deal in its history.

Europe’s largest energy company vaulted ahead on this closely watched indicator of financial health in the first nine months of 2017, as assets acquired from BG Group Plc from Brazil to Australia churned out cash. For the year as a whole, Shell is on course to surpass its larger U.S. rival on the measure for the first time in about two decades.

Shell generated $28.38 billion of cash flow from operations in the first nine months of the year, compared with $23.52 billion from Exxon. Chief Executive Officer Ben Van Beurden already spelled out that his main long-term goal was overtaking Exxon to become the best-performing oil major.

“We’re doing a very good job in terms of positioning ourselves as the No. 1 company in the sector,” Chief Financial Officer Jessica Uhl said Thursday on a conference call. “We’re consistently delivering the highest cash flow in the sector. Frankly, we’re reshaping the company in terms of our cost structure and our capital efficiency.”

Still, Shell’s market value and total output remain below that of Irving, Texas-based Exxon. The Anglo-Dutch company piled on borrowings to buy BG, and though Van Beurden has made reducing that burden his top financial priority, third-quarter net debt of $67.7 billion was higher than the preceding period. Shell also failed to cover its dividend with free cash flow, although it has done so in aggregate over the past 12 months.

“It will take time for Shell to surpass Exxon, but it is on the right track,” said Ahmed Ben Salem, an analyst at Oddo Securities in Paris, who has a buy rating on the shares. “The company needs to keep generating $10 billion of cash every quarter to cover spending and the full dividend, and it has the assets to achieve that.”

Shell Takes Exxon's Cash-Flow Crown as Profit Beats Estimate

Third-quarter profit adjusted for one-time items was $4.1 billion, an increase of 47 percent from a year earlier and higher than the average analyst estimate of $3.62 billion. Oil and gas output was 3.657 million barrels of oil equivalent a day, up from 3.595 million a year earlier. Exxon produced 3.88 million barrels a day in the quarter.

Shell’s refining, chemicals and marketing business posted a 28 percent increase in adjusted profit to $2.67 billion. That growth lagged behind the preceding quarter, in part because of an unplanned shutdown at its Dutch Pernis refinery and disruption from Gulf of Mexico hurricanes at its Deer Park plant in Texas.

Capex Outlook

Shell forecast capital expenditure of as much as $25 billion this year, after $17.2 billion went out in the first nine months including $5.74 billion in the third quarter. The ramp-up of some projects will take spending closer to the guidance, Uhl said.

The company’s B shares rose as much as 1 percent to 2,440 pence on Thursday before trading at 2,424 pence as of 10:35 a.m. in London. They have increased 3 percent this year compared with a 7.1 percent decline for Exxon.

Shell’s purchase of BG made it the world’s second-biggest oil company, after years of vying with Chevron Corp. for the position. Though its $263 billion market valuation is 26 percent lower than Exxon’s, that gap has narrowed in the past year.

The company’s earnings are the latest sign that major energy producers are getting back to normality after three tough years of low, volatile prices. BP Plc gave the boldest signal yet this week that the worst of the downturn was over, announcing that it would buy back shares for the first time since 2014.

©2017 Bloomberg L.P.