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Royal Dutch Shell plc Good Times Underway

Having brought about production at exceptionally low costs with cash operating costs around $15 per barrel throughout the year, Royal Dutch Shell plc (ADR) (NYSE:RDS.A) is expected to post a commendable  cash flow growth in the long cycle. With West Texas Intermediate and Brent crude currently above $50 per barrel, the Anglo Dutch company is likely to benefit. As per the estimates of market watchdogs, the oil and gas major is expected to grow its cash flow position to $25 billion in four years given that oil prices reach $60 per barrel.

Reductions made in its capital spend has largely helped Shell. Given that the company continues to lower its capital expenditure with more projects coming online, the operating cash flows are likely to reach near $50 billion in over the next four years. At an operating cash flow of $50 billion and a price to cash flow ratio of 15, Shell’s market capitalization is set to triple in the coming four years. The recent price rally in energy prices has paved ways for the company in lucrative ways. This is because WTI and Brent are currently trading in the $53-56 range, which happens to be quite close to the company’s target price of $60 per barrel where it can execute strong cash flow performance.

Stock price of the company would also enjoy strong gains, given that the price per barrel reaches $60-that is quite likely given it is already close to the range. In addition, coming ahead of the positive sentiment raised from the OPEC meeting with other oil producers over the stabilization of the energy market rout, investors are hopeful that the oil price would soar to $70 per barrel. With production cuts in outputs likely to be implemented from next month, demand for crude would surpass the oversupply by nearly 600,000 barrels daily.

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