JP Morgan names Shell 'top pick' in EU oil, expects 'stellar' cash flows

Analysts at JP Morgan named Royal Dutch Shell their 'top pick' in the European Union Oil space, in anticipation of "standout" free cash flow generation on the back of stronger macro conditions and catch-up in lagged pricing for liquid natural gas.

In turn, that would allow the oil major to continue deleveraging, boosting its ability to return cash, they argued.

Furthermore, the case for a $10bn price tag for its Permian assets was "well underpinned" and JP Morgan anticipated that a sale would be completed by the end of 2022.

And at a Brent oil price of $60 a barrel, JP Morgan estimated that Shell's net debt would fall below $40bn by the end of 2022.

Between $600-700m per year of its medium-term capital expenditure plans, an amount equivalent to 10% of its upstream budget, might also be freed up for re-allocation.

JP Morgan estimated that Shell's cash flow from operations, excluding working capital, would hit $13bn in the second quarter, not far from the record $13.8bn obtained in the third quarter of 2018.

Net debt meanwhile was seen reducing by $4bn to about $67bn, for $0.5bn of share buybacks in the back half of 2021 and $4.4bn in 2022 "with upside risk of a forward guide in the second quarter."

Shell's next trading update was scheduled for July.