Oil Majors Thrive Despite Slump in Crude Prices -- Update
Three years into a dramatic slump in oil prices, big oil companies seem to have adapted their businesses to a point where they can still generate cash and reduce debt levels even at current oil prices.
European oil giants Royal Dutch Shell PLC, Total SA and Statoil ASA kicked off the sector's second quarter earnings Thursday season with a flurry of reports that highlighted growing cash flow and sustained profits.
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.
Still, the European oil companies struck a confident if cautious note in their second quarter filings, trumpeting falling debt levels and strong cash flow--a metric that has become increasingly important to investors and analysts worried about ballooning debt and dividend security in the wake of the oil price crash.
Shell's profit rose to $1.9 billion in the second quarter 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.
Total's profit for the quarter was stable but the company also reported a significant increase in cash flow and reduced gearing. Statoil swung to a profit of $1.4 billion in the period after reporting a loss of $302 million in the same period in 2016. 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.
The results 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 set to update on their second quarter Friday.
Write to Sarah Kent at sarah.kent@wsj.com
(END) Dow Jones Newswires
July 27, 2017 03:37 ET (07:37 GMT)