Shell Leads Big Oil Revival Despite Crude Price Slump -- 2nd Update

By Sarah Kent Features Dow Jones Newswires

Royal Dutch Shell PLC reported strong second-quarter net profits on Thursday, kicking off a critical round of earnings for big oil companies trying to show they have adapted to low crude prices.

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The British-Dutch company's equivalent of net profit rose to $1.9 billion in the second quarter, compared with $239 million at the same point last year and its cash flow from operations soared to $11.3 billion. The company said it has generated $38 billion of cash from its business over the last 12 months, enough to cover dividend payments and bring down debt levels.

Shell's earnings were reported the same day as French oil giant Total SA and Norway's Statoil ASA, all of them striking a confident if cautious note. They trumpeted falling debt levels and strong cash flow -- a metric that has become increasingly important to investors who have been worried about oil companies' ability to cover their spending and dividends without taking on debt.

Total's profit for the quarter was $2 billion, roughly the same as last year, but the company also reported a significant increase in cash flow from operations to $4.6 billion and a reduced debt ratio.

Statoil said it earned $1.4 billion in the second quarter, compared with a loss of $302 million last year. The company said it generated $4 billion in free cash flow and reduced net debt by 8 percentage points since the start of the year, despite oil prices remaining around $50 a barrel.

Though notably better than at the start of 2016 when the price of crude plummeted to $27 a barrel, oil is still more than 50% weaker than in 2014 when prices started to fall. The supply glut that sparked the crash has proved stubbornly persistent despite efforts by the Organization of the Petroleum Exporting Countries and other major producers to limit output, prompting several large banks to cut their oil price forecasts in recent months.

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The oil-company earnings on Thursday reflect a yearslong campaign across the industry to bring down costs and spending to a point where the companies can operate profitably in a lower-oil-price environment.

It's an effort that remains ongoing.

Shell said it intends to maintain tight capital discipline going forward and will continue to focus on bringing down costs and capital efficiency. Statoil said it expects costs to continue to improve this year and to squeeze out an additional $1 billion in efficiencies.

U.S. oil majors Exxon Mobil Corp. and Chevron Corp. are scheduled report their second-quarter earnings on Friday.

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

(END) Dow Jones Newswires

July 27, 2017 04:08 ET (08:08 GMT)