RDSA Shell Plc

By Sarah Kent 

LONDON-- Royal Dutch Shell PLC more than tripled its profit in 2017 on a rebound in oil prices, but its closely watched cash-flow figures fell short of expectations, alarming investors.

The British-Dutch oil giant said Thursday its 2017 profit on a current cost-of-supplies basis--a number similar to the net income that U.S. oil companies report--was $12.1 billion, up from $3.5 billion in 2016. Its earnings for the fourth quarter jumped to $3.1 billion from $1 billion a year earlier.

But its cash flow from operations fell 21% to $7.3 billion in the fourth quarter from a year earlier. Shares in the company fell 2% just after opening in London, before recovering slightly to trade down roughly 1% Thursday morning.

Investors have watched oil-company cash-flow numbers closely since oil prices crashed in 2014, using them as a sign of a company's financial toughness.

Bank analysts had expected higher cash-flow figures from Shell. The amount of cash a company throws off from its operations is an important indicator of its ability to finance spending plans and dividends without having to take on debt.

Shell's mixed results mark the beginning of this earnings season for big oil companies, which are expected to show healthier profit margins during a year when oil prices recovered to their highest levels since 2014. Exxon Mobil Corp. and Chevron Corp. are set to announce their earnings on Friday, with BP PLC reporting on Tuesday.

The oil industry has signaled growing financial confidence in recent months as Brent crude, the international benchmark for oil prices, has hovered close to $70 a barrel. The industry moved ahead with 30 major new projects in 2017, more than double the number from 2014-16 combined when oil prices were in the doldrums. Oil companies are expected to launch the same number this year, according to Wood Mackenzie, a Scottish energy consultancy.

The oil-market rally has come about as energy companies are beginning to benefit from deep spending cuts and cost reductions that have pushed down the price at which they make money from their projects.

Until now, Shell had given investors some measure of confidence in its ability to pay dividends. It had announced plans to scrap its scrip dividend in November, a 2 1/2 -year-old program that had allowed Shell to offer shareholders the option to take a portion of their dividend in stock. The program was a popular choice among bullish investors, but also raised concerns over dilution. The company had also announced plans for $25 billion share-buyback program.

The move to reward shareholders demonstrated the success of yearslong efforts to restructure the business to cope with lower oil prices. During the decline, energy firms that once struggled to generate a profit at $100 a barrel have to cut costs to a level where they could cover their spending and dividend commitments at a price of $60 a barrel or lower.

The company said it generated nearly $28 billion in free cash flow last year and reduced its net debt by $8 billion.

Write to Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

February 01, 2018 04:45 ET (09:45 GMT)

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