Royal Dutch Shell on Thursday rounded off the strongest set of quarterly results from “big oil” for over two years, even as a fresh slide in crude prices raised doubts over the sustainability of recovery from one of the deepest downturns in industry history.
Earnings from the Anglo-Dutch group in the first three months of this year more than doubled from the same period of 2016. This followed similar numbers from ExxonMobil, Chevron, Total and BP in the past week. All of them beat analysts’ expectations.
Statoil of Norway and Repsol of Spain also announced better than expected quarterly results on Thursday, reflecting the 60 per cent increase in crude prices over the past year to an average of $54.61 a barrel during the reporting period.
But there was still little sign of exuberance from industry leaders as they reported their strong numbers against the backdrop of renewed deterioration in oil prices.
“We still expect volatility and see uncertainty in the commodity markets,” Eldar Saetre, Statoil chief executive, told the Financial Times. “If we start relaxing and saying everything’s fine we would be making a big mistake.”
Brent crude fell below $50 per barrel on Thursday to its lowest level since November as confidence in Opec’s ability to overpower a resurgent US shale industry and ease a global oil surplus faded.
The international oil benchmark dropped by almost 5 per cent on Thursday to $48.32 a barrel. West Texas Intermediate, the US marker, fell by a similar amount to $45.39 a barrel by 6.30pm in London.
Both benchmarks have almost erased all of the gains made since some of the world’s biggest producers agreed last December to curb supplies in an effort to end the worst oil crash in a generation.
Oil companies and investors are waiting nervously to see if Opec nations and several non-Opec producers such as Russia agree to extend their output cuts when they meet in Vienna later this month.
Even if the agreement is extended, as expected, and supply and demand reach a balance later this year, many in the industry say they are increasingly resigned to prices remaining stalled in the $50-to-55-a-barrel range because of soaring supplies from US shale oil.
This led analysts to caution against seeing the strong first-quarter results as a sign of good times returning to the world’s largest oil and gas groups. “How much of the performance is recurring is a key point of debate,” said Alastair Syme, analyst at Citigroup, in relation to Shell’s results.
Shell’s earnings on a current cost of supply basis — the measure tracked most closely by analysts — rose to $3.8bn in the three months to the end of March, from $1.6bn in the same period last year, well above analysts’ consensus forecast for $3.05bn. Shell shares gave up early gains but still closed up 0.3 per cent to £20.25 on Thursday.
Jessica Uhl, Shell chief financial officer, said the group’s top priority remained debt reduction and improving operational performance to make the group more “resilient” whatever the market conditions. Like its peers, Shell is keeping a tight rein on spending, with planned capital expenditure this year of $25bn — $4bn lower than in 2016.
As well as low oil prices, Shell has faced the additional challenge of financing its £35bn acquisition of BG Group, completed last year during the depths of the downturn. However, the first-quarter results increased confidence that the deal was paying off. Assets acquired from BG in Brazil and Australia helped Shell record a third consecutive quarter during which debts fell and cash flow covered its dividend and capital investment, helping to keep the shareholder payout steady at $0.47 per share.
Simon Gergel, chief investment officer of UK Equities at Allianz Global Investors, said: “This provides further reassurance about the benefits of the BG deal to the group’s cash flow and the sustainability of the company’s dividends.”