The oil-price rally worked both ways for Royal Dutch Shell Plc as improved exploration and production lifted profit to a three-year high while refining and trading fell short of expectations as margins shrank.

Crude’s surge raised adjusted profit at Europe’s largest energy company to $4.3 billion last quarter, the highest since 2014. While the bottom line was better than expected and Shell is making as much money with oil at $60 a barrel as when it was $100 cash flow was the weakest since 2016.

“Unfortunately, resilient earnings do not appear to have translated into cash generation,” RBC Capital Markets analyst Biraj Borkhataria said in a note. “This result leaves gearing falling by less than we expected” and could temper hopes of a share buyback program in the very near term, he said.

Shell’s B shares fell as much as 4 percent, the most since May, and were 1.2 percent lower at 2,466.5 pence in London.

Oil majors including Shell have cleaned up their balance sheets to survive the worst industry downturn in a generation, eliminating expensive projects and laying off staff to cut capital expenditure. After those efforts and a recovery in oil prices, some analysts predict a bright 2017. Goldman Sachs Group Inc.’s Michele Della Vigna said it could be Big Oil’s best year in decades, so long as companies maintain discipline.

Higher earnings and cash flow in 2017 are helping Chief Executive Officer Ben Van Beurden cut debt, which rose to a record of almost $78 billion following the acquisition of BG Group Plc. He can claim the company is headed in the right direction, but is still sitting on top of a massive $65 billion debt mountain, compared with just $24 billion at the end of 2014.

Source: Bloomberg

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