Royal Dutch Shell Faces $18 Billion Cash Flow Deficit in 2015-2016, Says Oppenheimer

In a report published Sunday, Oppenheimer analyst Fadel Gheit estimated Royal Dutch Shell plc (NYSE: RDS-A) will face a free cash flow deficit in both the current year and next year.

Gheit noted that Shell is taking actions to preserve its financial flexibility, including capital expenditure reductions, cost cuts and dividend freezes as the company believes oil prices need to average $90 to $110 per barrel longer term to meet growing demand while other producers believe "$70 oil is the new $90 oil."

Gheit calculated Shell is expected to generate earnings of $13.1 billion in 2015 and $16.3 billion in 2016 and operating cash flow of $33.0 billion and $36.6 billion, respectively. However, based on capital expenditure of $32.3 billion and dividends of $11.6 billion, the analyst speculated Shell will face free cash flow deficits of $11.0 billion this year and $7.2 billion next year, excluding divestitures, acquisitions and share repurchases.

Shares are Perform rated with no assigned price target.