What’s behind Shell’s Dramatic Cash Flow Swing?



Shell’s cash flow

In 1H17, Royal Dutch Shell’s (RDS.A) cash flow from operations stood at $20.8 billion, rising from $2.9 billion in 1H16. Shell’s cash outflow from investing stood at $3.4 billion in 1H17 compared to $22.4 billion in 1H16. Also, cash outflows from financing stood at $12.5 billion due to net debt outflows and dividend outflows.

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Examining Shell’s cash flow strategy

In 1H17, Shell generated $20.8 billion in cash from operations, but had a cash outflow of $9.9 billion in the form of capital expenditure and $5.6 billion in the form of dividends, amounting to a total $15.5 billion of cash outflow. So, this resulted in a cash flow surplus of $5.3 billion. Plus, Shell made divestment proceeds of $6.8 billion in 1H17.

So, from this additional cash, Shell repaid $5 billion of debt (net long term and short term). Another $5 billion was added to Shell’s cash reserves. Shell’s cash balance rose from $19 billion at the beginning of 1H17 to $24 billion at the end of 1H17. Shell utilized $1.9 billion for payment of interest. Thus, Shell could repay debt, pay interest, and boost its cash reserves in the first half of the year, a positive sign.

Peers’ cash flows

If we calculate Shell’s surplus as a percentage of its earnings capacity in terms of cash flow from operations, it stands at 25%, the highest among peers. In comparison, ExxonMobil (XOM) had a surplus of 18% in 1H17. In contrast, Chevron (CVX) and BP (BP) had shortfalls of 19% and 63%, respectively. For more on this, read XOM, CVX, RDS.A, BP: Who Had Better Cash Flows in 1H17?

What do Shell’s cash flows imply?

Shell’s swing from a cash flow deficit in 1H16 to a huge surplus in 1H17 is a favorable sign. Thus, Shell’s strategy has started materializing.


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