The Anglo-Dutch company’s performance helps validate Chief Executive Officer Ben Van Beurden’s $54 billion purchase of BG Group Plc — for which some shareholders complained he overpaid — and the deep spending cuts and asset sales he undertook to protect the balance sheet.
“With new projects starting and higher-cost assets being sold, you’d expect cash generation to only increase,” said Iain Armstrong, an analyst at Brewin Dolphin Ltd., which owns Shell shares. “It’s becoming a cash-generating machine.”
Cash flow from operations surged more than tenfold to $9.51 billion in the first quarter, Shell said in a statement. After taking out the cost of investments, free cash flow of $5.18 billion covered the cash portion of the company’s dividend for a third consecutive quarter.
That’s a big change from the depths of the oil-price slump a year earlier, when Shell was borrowing money to cover shareholder payouts. Net debt fell for a second consecutive quarter to $72.03 billion.
Shell is the latest in a string of major oil companies to report better-than-expected results with strong cash flow, suggesting the industry is learning to live with $50-a-barrel oil.
Profit adjusted for one-time items and inventory changes more than doubled to $3.75 billion from $1.55 billion a year earlier, the company said, surpassing the $3.01 billion average analysts’ estimate.
Profit in Shell’s upstream, or exploration and production business, totaled $540 million in the first quarter, compared with a loss a year earlier. The downstream division, which includes refining and marketing, posted income of $2.49 billion, an increase of 24 percent.
The rest of the world’s biggest non-state oil producers, known as the supermajors, have also reported first-quarter earnings that surpassed analyst estimates, finally starting to benefit from the deep cost cuts, project cancellations and job losses that followed oil’s collapse.
Shell’s B shares, the most widely traded, rose as much as 3 percent to 2,121.5 pence as of 8:01 a.m. in London trading. Brent crude, the benchmark used to price more than half the world’s oil, averaged $54.61 a barrel in the first quarter, 55 percent more than a year earlier and the highest in more than two years.
Shell piled up borrowings following the BG Group deal and has set a $30 billion asset-sale target for the three years to 2018. It’s about two-thirds of the way there following divestments in Canada, Gabon and the U.K. North Sea. It’s also planning to sell fuel stations and a refinery in Argentina.