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Shell’s Strategy Seems to Be Working

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Shell’s strategy

Last year, Royal Dutch Shell (RDS.A) strengthened its financials by focusing on its divestments, capex, operating costs, and new projects. Shell exited non-strategic assets, optimized capital spending, lowered operating costs, and increased cash flow by delivering new projects on schedule.

Shell achieved its target of selling $30 billion in assets between 2016 and 2018, improving its liquidity position. To repay debt, the company plans to divest more than $5 billion in assets this year and next.

Shell’s capex was ~$25 billion last year, in line with its target. The company focused on striking a balance between growth and savings. It expects to spend $25 billion–$30 billion per year in the next couple of years.

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Shell also reduced its underlying operating costs by $39 billion between 2016 and 2018 and halved its drilling costs, making its projects profitable even at lower oil prices. The company delivered new projects on time and within budget, and realized $10 billion in additional cash inflow from new projects last year.

Overall

Shell’s strategy to boost its cash flow by focusing on the four pillars mentioned above has yielded results. The company’s cash flow from operations, which rose significantly to ~$53 billion last year, was used to reduce debt, pay dividends, incur capex, and buy back stock. Next, we’ll discuss Shell’s debt position.

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