Shell earnings improve surge thanks to higher oil prices

Royal Dutch Shell reported a strong rise in first-quarter earnings thanks to higher crude oil prices and growth from its gas and upstream businesses.

However, while it declared another interim cash dividend of $0.47, chief executive officer Ben van Beurden said "less favourable" refining market conditions and lower contributions from trading hit earnings in the downstream business.

First-quarter earnings of $5.3bn were up 42% on the first quarter of 2017 and 24% on the fourth quarter, in line with the $5.28bn consensus forecast. Earnings were reported on a current-cost-of-supply basis excluding certain items.

Operating cash flow of $9.4bn was down 1% year-on-year but up 30% on the preceding quarter, helped by higher oil gas prices, while the balance sheet was boosted by $1.3bn of asset divestments, down from the bumper $6.5bn in the quarter before. In addition, Shell noted $1.3bn of tax settlements in the quarter versus a year ago.

Total production of 3,839k barrels of oil equivalent per day was up 2% on the previous year and preceding quarter.

Average oil prices of $60.66 in the quarter were up 25% on the year and 10% on the quarter, as Brent crude prices have picked up on geopolitical concerns.

Capital investment of $5.2bn was up from $4.7bn a year ago but down from $6.8bn in the fourth quarter.

Said van Beurden: "We continue to upgrade our portfolio through performance improvement, new projects, divestments and the development of new businesses. Competitiveness and resilience – now and through the energy transition – are key features of our world-class investment case.

Pointing to the "strong financial framework" of the group, the CEO reaffirmed the board's commitment to capital discipline and the $25bn share buyback out to 2020, amid "good progress" made in the $30bn divestment programme and the outlook for free cash flow.

Shell shares fell 2% to 2,536p in early trading on Thursday.

Analysts at RBC Capital Markets said Integrated Gas was the standout performer, with earnings of $2.4bn versus consensus of $1.9bn. Refining & Marketing earnings were weaker, with a "particularly weak" result from refining & trading, offset by another strong result from marketing.

They noted operating cash flow suppressed by a $500m integrated gas derivative impact, with underlying operating cash flow of $9.6bn below their $10.5bn estimate.

On the buyback, they added that the cash flow in Q1 "may not necessarily support the latter intention, we would expect cash flow growth through the year supported by the current macro environment".