You are here: Home » Reuters » News
Business Standard

Shell leads cash race but Exxon catching up

Reuters  |  LONDON 

By Ron Bousso

LONDON (Reuters) - widened its lead over as of cash among the world's top last year but its U.S. rival could up with its investment drive in new production.

The five leading firms, known as oil majors, more than tripled profits and doubled cash generation since 2016 as deep cost cutting bore fruit after an industry slump.

https://tmsnrt.rs/2UGHzB2

Unlike previous cycles, most executives have promised in the past week to stay thrifty, with memories of the 2016 below $30 a barrel still fresh and the outlook remaining foggy.

For investors, it's been a bumpy ride.

In the past five years, broadly underperformed global stock markets. A sharp drop in crude prices in the last quarter of 2018 to below $50 a barrel from a four-year high of $86 a barrel in October was a bleak reminder of the uncertainty.

Flowing cash https://tmsnrt.rs/2t9i9Ap

But stronger than expected results in the fourth quarter of 2018 reported over the past week gave the sector a boost as surprised investors with their resilience to generate profit, or breakeven, at around $50 a barrel.

A barrel of benchmark Brent is now trading around $60.

"The is and strong refining margins but underlying this is a structural move to lower breakevens which is driving higher cash flows," said Rohan Murphy, equity at

png https://tmsnrt.rs/2UO61Rj

"I think the will remain disciplined," he said. "When I meet the managements of these companies they are enthused about the future rather than feeling constrained."

After and Shell, the other three majors are U.S. firm Chevron, Britain's and France's Total.

Flowing Cash png https://tmsnrt.rs/2UNIwYG

UP

is the outlier of the group for now, as it boosts its spending to develop large-scale projects in and and its sprawling U.S. onshore shale portfolio.

The company, still the biggest firm in terms of production and market size, was slow to respond to the drop in crude prices, lagging rivals when they slashed costs, sacked employees and sold assets in the past three years.

2018 reserves https://tmsnrt.rs/2SkUWta

But under Darren Woods, who succeeded when he became U.S. from 2017 until last year, Exxon is undergoing profound changes in its operations and structure in an effort to up.

Exxon will increase capital spending to $30 billion this year from $26 billion in 2018.

It is also trying to sell large assets in and

Woods told analysts in a fourth quarter earnings call that the Irving, Texas-based company would accelerate divestments.

Kings of cash https://tmsnrt.rs/2URfCH5

"Exxon has pulled the divestiture value creation lever much less than peers over five and 10 years," said Doug Terreson, at "It is timely for them to divest and use proceeds to reinvest in higher quality areas."

Exxon has pledged to double earnings and cash flow from operations by 2025.

Anglo-Dutch is still set to retain the crown for cash generation until the end of the decade thanks to rising production and its dominance in liquefied (LNG).

Kings of cash png https://tmsnrt.rs/2TF9NMu

But Exxon's new production should sharply narrow the gap, according to estimates by HSBC, which has a 'hold' rating on Shell and 'buy' on Exxon.

While Exxon invests heavily into future production, Shell's output growth is set to slow after years of gains following the acquisition of rival in 2016.

Exxon vs. Shell: A tight race for production png https://tmsnrt.rs/2UPYsJU

For Shell and other rivals which have held back on new investments, the race to find new reserves to replace depleting fields will be a key challenge, said Darren Sissons, at Canadian investment management firm Campbell,

"The trade off of balance sheet and reduced exploration and production (E&P) and capital expenditure has worked to strengthen balance sheets with the cost being reserve life deterioration," Sissons said.

"The next wave of E&P was largely started tepidly last year by Exxon and but all the others have now joined in."

Exxon vs. Shell: A tight race for production https://tmsnrt.rs/2tclzmb

(Additional reporting by Gary McWilliams in Houston; Editing by Edmund Blair)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, February 08 2019. 18:02 IST
RECOMMENDED FOR YOU