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Shell bounces back as oil price enjoys a slick resurgence

Shell bounces back as oil price enjoys a slick resurgence

Jillian Ambrose28 JANUARY 2017 • 7:00PM

Royal Dutch Shell is poised to lead a comeback this week as it reveals annual profits have more than doubled on the back of the recovering oil price.

The Anglo-Dutch oil giant is expected to post bumper profits of $8.17bn (£6.91bn), a huge jump on the $3.8bn it reported at the depths of the market downturn.

Alongside the profit boom, Shell is expected to announce the $3bn sale of its North Sea oil and gas assets to a private-equity-backed explorer.

The deal will almost halve Shell’s $7bn North Sea portfolio but will put the group slightly ahead of schedule in its high-pressure drive to sell off $30bn worth of assets to pay for the $54bn takeover of BG Group.

The company insists the takeover will prove transformative as oil and gas prices continue to climb.

Other oil majors – BP, Exxon Mobil and Total – are expected to follow suit in the coming weeks, unveiling annual profits marking an inflection point for the industry after a brutal two-year downturn.

Jason Gammel, an oil company analyst at Jefferies, said: “We are more than two years through the oil price correction, and there are clear signs emerging to suggest the integrated oil companies have reached an inflection point.”

The market gloom forced companies to axe thousands of jobs and scrap investments totalling billions of dollars, to survive the earnings drought, but Mr Gammel said the hard road through the price rout had helped create the best environment for major oil companies since 2012.

The speed and scale of operating cost cuts since the start of the oil price correction has dramatically lowered the “break-even” market price for oil companies to $50 a barrel in 2017.

Mr Gammel said he expected that by next year, the sector would generate the same cash flow at a $72-a-barrel market as it did in 2013, when the price of oil was almost $110.

“Improving oil prices are a critical driver of this momentum, but the improvements in operating and capital efficiencies and new production from high-margin projects should not be underestimated,” he said.

Oil prices have climbed from a nadir of $27.50 a barrel this time last year but currently hover around $55 and are expected to climb to $60 by the end of the year.


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