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Shell still plans to generate up to $7B in annual free cash flow by 2020

With revenues from new projects coming on stream and through operational cost efficiencies, Royal Dutch Shell PLC still plans to generate $6 billion to $7 billion in annual organic free cash flow by 2020 from its downstream unit with oil at $60 per barrel.

The company said in a March 21 news release that it expects free cash flow will rise to $9 billion to $12 billion from its downstream business, which includes refining, trading, marketing and chemicals, by 2025.

Shell CFO Jessica Uhl said during a fourth-quarter 2017 earnings call Feb. 1 that the company's total free cash generation is likely to range from $25 billion to $30 billion by 2020. For the full year 2017, Shell's cash flow totaled about $36 billion, with its free cash flow pegged at about $15 billion, as Brent crude oil prices averaged $54/bbl for the year.

While capturing the recovery in oil prices and maintaining a disciplined approach to capital investment helped the company, as well as many of its peers, strengthen its financial positions in the last year, a key part of Shell's strategy to generate cash flow lies in its planned divestitures. With $24 billion of divestments completed so far, the company remains on track to sell off assets worth a total of $30 billion from 2016 to 2018.

The company also said March 21 that it will invest $7 billion to $9 billion per year across its downstream business and expects to deliver a return on average capital employed of more than 15%.

While Shell is focusing on building out its downstream assets, U.S. oil and gas majors such as Exxon Mobil Corp. and Chevron Corp. are hoping to grow their upstream businesses by ramping production in the U.S. Permian Basin in an effort to boost earnings.

Exxon plans to more than double its adjusted earnings to $31 billion by 2025 at 2017 crude oil prices, officials said at a meeting with analysts in early March.

A key part of the company's strategy for growth includes expanding its upstream operations. Exxon anticipates production will increase 1 million barrels of oil equivalent per day to about 5 MMboe/d in 2025 from 25 new and existing projects around the world.

Exxon also intends to hike output from the prolific Permian Basin, where it is hoping to triple its oil and natural gas production to more than 600,000 boe/d by 2025. The expansion is part of a wider company plan to invest $50 billion in its U.S. assets over five years.

In early 2017, Exxon spent over $6 billion to more than double its Permian Basin potential by acquiring several assets under the companies owned by the Bass family, with an estimated resource base of 5.4 billion boe. In the last year, Exxon has increased its Permian resources to 9.5 billion boe from about 3 billion boe.

Officials from Chevron also indicated to analysts in early March its plans to expand the company's upstream assets, ramp production in the Permian Basin and improve overall cash flow.

After capital spending and including asset sales, the company expects to see cash generation of $14 billion in 2018, with crude oil prices at $60/bbl. Chevron plans to maintain its disciplined capital spending approach, earmarking more than $18 billion for 2018 and an estimated $18 billion to $20 billion through 2020.

Like Exxon, Chevron intends to ramp its production, particularly in the Permian, where it is banking on increasing output and lucrative returns from its investments. The company said that while its development and production costs in the Permian decreased 40% in 2017 compared to 2015, it has accelerated its regional production guidance to about 500,000 bbl/d by the end of 2020 and 650,000 bbl/d by the end of 2022.

During the fourth quarter of 2017, Chevron's production in the Permian was approximately 205,000 bbl/d, up by 60,000 bbl/d from the same period in 2016. The company said full-year 2017 production from the region averaged 181,000 bbl/d, up 35% over the prior year.