Shell steps up buybacks as cash flow surges with oil price

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Royal Dutch Shell stepped up its share buyback program as cash flow surged on higher crude prices, even as profit fell slightly short of expectations.

Cash flow from operations including working capital movements was $12.09bn in the third quarter, the highest since 2014. The company said it would repurchase $2.5bn of shares up to January 28, compared with $2bn in the previous tranche.

Key insights

The pace of buybacks has been a key point for investors this year, who are keen for Shell to share the proceeds of recovering oil prices.

The company is now generating more than enough cash to cover dividends and its $25bn repurchase programme. Excluding working capital movements, cash flow of $14.7bn was the highest in a decade. Another number that could please Shell’s shareholders is the return on average capital employed, which rose to 7.1% from 4.6% a year earlier.

Chief executive officer Ben van Beurden has made lifting returns above 10% one of his principal goals. Shell’s profit again missed expectations due to one-time charges, including currency movements and taxes. This could be problematic for analysts, who have questioned whether the company can still be a "world-class investment case" if its earnings don’t become more predictable.

The Anglo-Dutch energy company dominates the gas business, but liquefied natural gas sales were short of expectations as production fell from the second quarter. Its next big project startup is a floating LNG facility in Australia called Prelude, but there was no mention of that in the statement.

Market reaction

Shell’s B shares fell 1.5% to 2 525.5 pence at 09:13. Most oil and gas equities were down in Europe after a drop in crude prices, with the Stoxx Europe 600 Oil & Gas Index 1% lower.

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