Shell Steps Up Buybacks as Cash Flow Surges With Oil Price

(Bloomberg) -- Royal Dutch Shell Plc stepped up its share buyback program as cash flow surged on higher crude prices, even as profit fell slightly short of expectations.

• Cash flow from operations including working capital movements was $12.09 billion in the third quarter, the highest since 2014. The company said it will repurchase $2.5 billion of shares up to Jan. 28, compared with $2 billion in the previous tranche.

Key Insights

• The pace of buybacks has been a key point for investors this year, who are keen for Shell to share the proceeds of recovering oil prices. The company is now generating more than enough cash to cover dividends and its $25 billion repurchase program. Excluding working capital movements, cash flow of $14.7 billion was the highest in a decade.
• Another number that could please Shell's shareholders is the return on average capital employed, which rose to 7.1 percent from 4.6 percent a year earlier. Chief Executive Officer Ben van Beurden has made lifting returns above 10 percent one of his principal goals.
• Shell's profit again missed expectations due to one-time charges, including currency movements and taxes. This could be problematic for analysts, who have questioned whether the company can still be a “world-class investment case” if its earnings don't become more predictable.
• The Anglo-Dutch energy company dominates the gas business, but liquefied natural gas sales were short of expectations as production fell from the second quarter. Its next big project startup is a floating LNG facility in Australia called Prelude, which is expected at the end of the year.

Market Reaction

• Shell's B shares fell 2.9 percent to 2,490 pence at 12:05 a.m. in London. Most oil and gas equities were down in Europe after a drop in crude prices, with the Stoxx Europe 600 Oil & Gas Index 1.8 percent lower.

Know More

• Adjusted net income climbed to $5.62 billion in the third quarter from $4.10 billion a year ago. That missed the $5.73 billion average estimate of 13 analysts.
• Oil and gas production of 3.596 million barrels equivalent a day was lower than the 3.657 million barrels equivalent a day a year earlier.
• Shell's gearing, the ratio of net debt to total capital, fell to 23.1 percent from 25.7 percent a year earlier.
• Click here for more details on the earnings.

--With assistance from Helen Robertson.

To contact the reporter on this story: Kelly Gilblom in London at kgilblom@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Helen Robertson, Bruce Stanley

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