Shell Profits Soar as Oil Sector Bounces Back -- 3rd Update

By Sarah Kent Features Dow Jones Newswires

Royal Dutch Shell PLC Thursday capped a bumper set of results for the world's biggest oil companies, reporting its highest quarterly profit since mid-2015 and illustrating how a fragile oil-price recovery and years of cost-cutting are buoying big crude producers.

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Results from Shell and Norway's state-controlled Statoil ASA--which also reported a big rise in profits Thursday--came after U.S. giant Exxon Mobil Corp. last week reported its best quarter since 2015, and Chevron Corp., France's Total SA and BP PLC said profits increased sharply for the first quarter.

Beyond the rising profits, analysts lauded oil companies' better-than-expected cash generation--a metric that has become increasingly important as the businesses scrambled to bring their costs into balance with lower oil prices over the last two years. Since prices slumped in 2014, large producers in many quarters have had cash flow that is lower than their spending, forcing them to borrow money to pay dividends to investors.

The recent results show how billions of dollars of cost cuts across the industry have begun to pay off, adding to optimism that even if prices don't recover beyond their current levels in the near term, the companies have weathered the worst of the market rout.

"Are we out of the woods? Yeah, absolutely," said Oswald Clint, an analyst at Bernstein, highlighting the benefits of the companies' efforts to streamline since oil prices began to fall.

Shell said its first-quarter profit more than quadrupled from a year earlier to $3.4 billion. Quarter-on-quarter, the company saw higher earnings in all business segments.

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Shell's cash flow from operating activities grew to $9.5 billion, up from $700 million in the first quarter of 2016, covering the company's cash dividends for the three months.

Statoil reported net first-quarter earnings of $1.06 billion, up from $611 million a year earlier.

But analysts warn the recovery could prove fragile. Much of the rebound is due to higher oil prices, and that may not be sustainable. International benchmark Brent crude dipped below $50 a barrel Thursday for the first time since March.

Shell Chief Financial Officer Jessica Uhl said the company has been restructuring so it can better maintain profits in the face of oil-price declines. Shell has sold some businesses that don't match its focus on deep-water drilling and liquefied natural gas, and cut costs across the business following its roughly $50 billion acquisition of BG Group last year.

Shell also made progress in lowering debt, which rose sharply last year when the company turned to financing to pay for the BG deal. It is now more than two-thirds of the way through a $30 billion divestment program crucial to its plan to streamline its portfolio by next year as part of efforts to reduce debt.

"This is about transforming the company for the future," Ms. Uhl said. "We're not waiting for prices to increase."

There are signs that the oil price may remain depressed. While the Organization of the Petroleum Exporting Countries has imposed production limits to boost prices, U.S. shale producers have kept pumping at high volumes, holding back the rebound. Over the past week, executives repeatedly stressed they expect continued uncertainty and they remain conservative on spending.

"We are facing a volatile environment." Total's Chief Financial Officer Patrick de la Chevardière told investors last week. "It is not, today, the appropriate time to reduce our effort."

Write to Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

May 04, 2017 11:36 ET (15:36 GMT)