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Has Shell’s Debt Position Strengthened?

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Shell’s debt compared with peers’

Royal Dutch Shell’s (RDS.A) net debt-to-adjusted EBITDA ratio was 1.0x in the fourth quarter, below the worldwide industry average of 1.3x. Its total debt-to-total capital ratio was 28%, again below the industry average of 36%. To compare, BP’s (BP), Total’s (TOT), and Suncor Energy’s (SU) ratios were 39%, 31%, and 28%, respectively.

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Shell’s debt trend

Excluding debt-related derivative financial instruments, Shell’s net debt fell YoY (year-over-year) in the fourth quarter, from $65 billion to $50 billion. This decline was led by about a ~$9 billion YoY fall in total debt and a ~$6 billion YoY rise in cash and equivalents. Shell’s total debt and cash were $77 billion and $27 billion, respectively, in the fourth quarter.

In the fourth quarter, Shell’s trailing-12-month EBITDA ratio also rose steeply YoY, resulting in its net debt-to-EBITDA ratio falling YoY from 1.6x to 1.0x.

Analyzing Shell’s debt

Shell’s net debt-to-EBITDA and total debt-to-capital ratios are both below peer averages, a comfortable position. The company’s net debt-to-EBITDA ratio has fallen in the past four quarters, and its total debt has fallen by $9 billion YoY.

Going forward, Shelf could use surplus cash to repay debt and strengthen its financial position. Next, we’ll look at Shell’s liquidity position last year.

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