Rising oil prices pushed earnings at oil giant Royal Dutch Shell up from $4.1 billion to $5.6bn in the third quarter in addition to helping the business make a $115 million net gain on the sale of a basket of North Sea assets.
Having sold interests worth up to $3.8bn to European exploration company Chrysaor a year ago, Shell received a $3bn payment upfront with the remainder due to be repaid between 2018 and 2020.
The payments in 2018 and 2019 are dependent on Brent oil prices being above $60 a barrel while the payment scheduled for the 2020-21 financial year is contingent on the oil price being above $70 a barrel.
At the time the deal was agreed a barrel of oil was trading at less than $60 but is now worth more than $70. Shell said the average price during the quarter was $75.
A spokeswoman for the business confirmed that the $115m gain relates to “contingent payments from the Chrysaor deal” as well as the September 2018 divestment of assets in the North Sea Triton cluster.
Those sales were part of a $30bn global divestment programme, instigated by the business in the wake of the oil price crash, that is now nearing completion. Of the $30bn, the business has so far received $28bn.
The result of that and a wider cost-cutting drive helped put Shell in a positive cash position in the third quarter, with cashflows from operating activities rising to $12.1bn from $7.6bn in the same period last year.
The company’s chief executive Ben van Beurden said the three-month period had been one of Shell’s “strongest-ever quarters”, with increased cashflows allowing the business to “cover the cash dividend, interest payments, share buybacks and to further pay down debt”.
In addition to paying total dividends in the quarter of $3.9bn, the business completed $2bn of share buybacks and reduced its net gearing ratio from 25.7% to 23.1%.
The company, which is targeting a gearing ratio of 20%, has begun a second round of buybacks, with the intention of paying out a further $2.5bn to shareholders by the end of January next year.
“Our strategy remains on track,” Mr van Beurden said. “We have completed the first tranche of share buybacks, in line with our intention to purchase $25bn of our shares by the end of 2020, and today I’m pleased to announce the second tranche.
“Meanwhile, the transformation of our portfolio continued, with further divestments of non-strategic assets and the final investment decision on LNG Canada.”
Despite the strength of the results, Shell’s shares opened 5.5p down yesterday before falling by as much as 3% in morning trading. They ultimately closed 3.5% down at 2475p.
According to analyst Neil Wilson the dip in the company’s shares was a result of profits coming in “a little short of expectations”.
Analysts had been predicting a third-quarter earnings figure of $5.7bn.
As Shell, which has a market capitalisation of £209.5bn, is one of the largest constituents of the FTSE 100, the drop had an impact on the market overall, with the index closing 13 points down at 7,114.
That said, David Barclay of investment manager Brewin Dolphin, noted that Shell’s share price is now almost 50% higher than it was three years ago, with its share buyback programme “rewarding shareholders who stayed with the company through the oil price downturn”.
While Shell’s main divestment programme is nearing an end, chief financial officer Jessica Uhl said the business expects to sell a further $5bn of assets between 2019 and 2020.
“We continue to manage the portfolio,” Ms Uhl said. “I wouldn’t want to say that we are done. [Sales] continue to be an active part of our management.”
Source : The Herald
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