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Why Many Energy Companies Saw a Free Cash Flow Decline in 1Q15

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A comparative analysis of free cash flow growth

Among ExxonMobil (XOM), BP (BP), Royal Dutch Shell (RDS.A), and YPF (YPF), all except one recorded a free cash flow decline in 1Q15 over the corresponding quarter last year. Free cash flow (or FCF) is defined as cash flow from operations less capital expenditures. FCF represents the cash that a company generates after fulfilling expenditures on maintenance or expansion of its assets.

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YPF sees negative FCF despite solid growth

YPF’s (YPF) negative FCF declined by 39% in 1Q15 compared to the year-ago quarter. Despite the improvement in 1Q15, the company recorded a negative $3.69 billion FCF. Although its capital expenditures increased 32% in 1Q15, as we have discussed in the previous section of this series, its operating cash flow increased more by 48% from 1Q14 to 1Q15. This resulted in the company’s improved free cash flow position in the latest quarter.

ExxonMobil sees positive FCF but dwindling growth

ExxonMobil (XOM), the American integrated major, recorded a 85% 1Q15 free cash flow decline compared to the year-ago quarter. In 1Q15, the company recorded a $1.1 billion FCF. Although its capital expenditures decreased 21% in 1Q15, its operating cash flow decreased more by 47% from 1Q14 to 1Q15.

ExxonMobil is 1.9% of the SPDR S&P 500 ETF (SPY). It is also 21.3% of the iShares US Energy ETF (IYE).

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Royal Dutch Shell is the underperformer

Royal Dutch Shell (RDS.A), the Dutch integrated major, recorded a 91% 1Q15 free cash flow decline compared to the year-ago quarter. In 1Q15, the company recorded a $538 million FCF. Although its capital expenditures decreased 16% in 1Q15, its operating cash flow decreased more, by 51% from 1Q14 to 1Q15.

BP: The cash burner

BP (BP) recorded a 218% 1Q15 free cash flow decline compared to the year-ago quarter. In 1Q15, the company recorded a $2.77 billion negative FCF. Although its capital expenditures decreased 21% in 1Q15, as previously discussed, its operating cash flow slumped by 77% from 1Q14 to 1Q15.

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