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Shell director says downstream business fundamental to paying off debt, maintaining dividends

Oil and gas giant Royal Dutch Shell has delivered far more cash from its downstream business than its upstream recently, Downstream Director John Abbott told CNBC on Wednesday, with the firm positioned to use the extra funds to pay off debt and maintain its dividends.

“I have seen times in my 36 years in Shell where upstream has delivered far more cash than the downstream (but) we are seeing a reverse at the moment,” Abbott said.

“What I’ve also talked about is resetting the business, high grading the portfolio… and nowhere else have we done that more than the downstream business. Downstream is actually fundamental to paying off the debt (and) to maintaining the dividend payments,” he added.

What is the difference between upstream and downstream?

In the oil industry, ‘upstream’ refers to the discovery and pumping of oil and ‘downstream’ involves the processing of oil and gas, selling and distribution.

European broker Kepler Cheuvreux downgraded Royal Dutch Shell to “hold” from “buy” last week, citing bearish forecasts for the oil sector. However, analyst Bertrand Hodée suggested in a research note that Shell’s downstream business had provided a “good buffer” for the oil company.

When asked whether Shell would be able to prove to its shareholders that it could cover the cost of its dividend, aggressively reduce debt levels and continue to invest with oil prices languishing at around $50 a barrel, Abbot said, “It’s a process of continuous improvement.”

Oil prices slipped more than 1 percent on Wednesday amid an increase in OPEC exports and a stronger U.S. dollar. Brent crude traded at around $49.06 a barrel on Wednesday morning, down 1.11 percent while U.S. crude was around $46.46 a barrel, down 1.3 percent.

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