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Speeches and articles
The 2011 Annual General Meeting of Royal Dutch Shell plc
Speeches by Chairman and CEO
Jorma Ollila – Chairman
Ladies and gentlemen, good morning to you here in The Hague, and good morning to you watching me on the video screens in London.
Firstly, please take a moment to read the disclaimer.
Chief Executive Officer Peter Voser will talk to you in more detail on performance and strategy in a moment.
Your company has made good progress in 2010 on its strategy for profitable growth. And I would like to thank the Shell staff for their hard work.
The Board looks very closely at the systems and processes in your company that drive our technical standards and safety performance.
The Board is satisfied with your company’s performance in these very important areas.
Let me give you an overview of the economic developments and the global outlook of the oil & gas industry.
Rapid economic development in non-OECD countries is driving sustained, and long term demand growth for all forms of energy....
...in an energy mix that we all know is going to be dominated by hydrocarbons for some time to come.
Energy demand could increase by two thirds to 2050...and meeting that demand does require development of more complex oil & gas reserves as well as renewables, with implications for higher costs, higher prices and increased energy intensity.
These trends play alongside today’s regulatory and political uncertainties, creating what we call “an era of volatile transitions”, which is adding to both price and cost volatility in this long term energy growth trend.
We use consistent and conservative planning assumptions, despite this volatility, as you would expect in a long term business like ours.
We plan inside a $50-$90 range for oil, and $4-8 for US gas,... all underpinned by a $40 per ton cost of carbon.
Gas is a critical long-term component of the world’s energy system.
Replacing coal with gas is the fastest, most affordable way to reach government emission reduction targets.
In electricity generation, gas emits 50% less CO2 than new coal-fired power and 70% less compared to “old” coal.
With the addition of carbon capture and storage technology in the future, emissions can drop even further.
Indeed, CCS could cut emissions from gas-fired power by 90% compared to a traditional coal fired plant.
Shell is investing heavily in natural gas, and in 2011 our key start-ups are dominated by large integrated gas projects, which by 2012 will mean that we expect Shell will produce more gas than oil.
Let me update you on your Board membership.
I’m pleased about the positive ratings that the overall corporate governance arrangement of our company receives, however we recognize that more is required on the issue of gender balance and both the Nomination and Succession Committee and the Board are determined to address this issue in the future.
You will have noticed three new faces on the stage with us compared to last year, Chad Holliday, Guy Elliott and Gerard Kleisterlee.
Chad and Guy joined the Board in September and Gerard joined us in November, and all are standing for re-appointment by shareholders at this general meeting.
Chad will take over from Wim Kok as chairman of the Corporate and Social Responsibility Committee.
Wim retires as a Non-executive Director at the end of this meeting having served a total of 8 years on the Boards of Royal Dutch Petroleum Company and, following unification, Royal Dutch Shell. I will come back to Wim’s retirement later.
Hans Wijers will succeed Wim as a member of the Nomination and Succession Committee.
Guy Elliott will take over from Christine Morin- Postel, who has served the maximum term of three years as chair of the Audit Committee but will stay on as a valuable member of that committee.
I am delighted that Linda Stuntz has agreed to stand for appointment as a new Non-executive Director of the Company with effect from June 1st, 2011.
She has an excellent record of achievement as a lawyer in the energy and environmental regulation sector.
Let me now give the floor to your company’s Chief Executive Officer: Peter Voser.
Peter Voser – Chief Executive Officer
Ladies and gentlemen, I am very pleased to be here today at the 2011 AGM.
Operating and safety performance
Let me talk to you about the strategy we are implementing in the company.
We improved on safety measures in 2010.
However, we still had fatalities last year, and we have to make further improvements here.
Safe and reliable operations are at the heart of everything we do.
As an example.
Shell is an active participant in cross-industry initiatives to improve on the response to and the capping of sub-sea well blowouts.
I’m pleased to see the recent announcement of a Shell-operated joint industry initiative, involving nine oil companies, called the Subsea Well Response Project, which should enhance our industry’s capability to respond to subsea well control incidents.
I am determined to improve our profitability and growth profile - and there is more to come there.
Our technology and innovation is leading-edge... integrated gas, deep water, exploration and differentiated fuels. Technology is in Shell’s DNA.
Our sustainable development programmes help to set new standards for the industry – safe and reliable operations, sustainability and growth...
...and we want to be the energy company brand of choice around the world – with customers and partners – driving the integrated energy company of the future.
We set out three priorities for everyone in Shell a year ago, and these have not changed.
In the near term it is all about raising our game on the performance side… sharper delivery… profitability… competitive focus… reducing cost...
…then it’s about delivering on the growth projects that we have launched in the last five years…this is growth to 2012…
…and working on new options for the next wave of investment, that can grow the cash flow for 2014 and beyond.
Shareholders are investing in Shell for profitable growth…
…and so are we….
Turning to our delivery so far.
In the financial crisis and recession, we took the decision to maintain our investment programmes for medium term growth...and to maintain our dividend payments – not to cut.
In 2010, Shell paid the highest dividend in FTSE. In 2010, 1 in 7 pounds paid as dividends in the FTSE came from Shell.
Our performance in 2010 underlines that we are delivering on our strategy.
Our earnings increased by 56% year on year.
We took out costs...and sold $7 billion of non-core assets.
We increased our upstream production by 5%...
..organic reserves replacement was 133%...
....we made new discoveries...and made strategic acquisitions in tight gas and biofuels.
And we had a good start of the year 2011 with earnings per share up 29% in the first quarter.
In the Downstream we are working to improve our refinery position, with exits from lower margin and lower growth positions.
We are well on the way to reducing our refining capacity by 30% over a ten year period.
On the marketing side, we are focusing on fewer markets and leveraging their strong brands.
These changes are going well, and this is all about enhancing our profitability in Downstream.
New wave of production growth
Now, let me turn to our new wave of production growth, and particularly in Upstream.
We expect to see attractive growth in upstream in the next few years.
We started up 6 projects in 2010 and 2 so far in 2011...the Schoonebeek Enhanced Oil Recovery project in the Netherlands...and Qatargas 4 LNG.
The Pearl gas to liquids project – also in Qatar – is making good progress. Just yesterday, we started to make GTL wax for the first time at Pearl. This is an important step in the start-up sequence, and comes ahead of making refined GTL products for sale, which we expect to see in mid-2011.
Overall, our production volumes should average 3.5 million barrels per day in 2012, which is a 6% increase from 2010 levels.
This, I think, is the amongst the most ambitious growth programmes in our sector today...
...and it underpins our ambitious target to grow our cashflow from operations by 50 to 80% for the period 2009 to 2012.
Next generation of project options
Turning to longer term growth options...
We are adding new oil & gas resources through exploration and focused acquisitions.
We had important new exploration finds last year…including Appomatox in the Gulf of Mexico, new gas in Australia, and deep water oil in Brazil and Brunei
We made a series of resources-based deals, in tight gas and coal bed methane, and built up new acreage positions.
Turning to Downstream growth.
Shell aims to be a leading player in biofuels.
Sustainable biofuels should play a large role in helping to meet customer fuel demand and to limit CO2 emissions.
Shell is one of the largest suppliers of biofuels currently with annual sales of around 9 billion litres of ethanol.
We purchase these biofuels from third parties…and over 80% come from suppliers signed up to our sustainability clauses.
Once our Brazil biofuels joint venture, which is called Raízen, is finalized, Shell will move for the first time into mass production of biofuels.
This new joint venture should produce 2 billion litres of ethanol from sugarcane, which produces 70% less CO2 than conventional fuel.
The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this presentation “Shell”, “Shell group” and “Royal Dutch Shell” are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this presentation refer to companies in which Royal Dutch Shell either directly or indirectly has control, by having either a majority of the voting rights or the right to exercise a controlling influence. The companies in which Shell has significant influence but not control are referred to as “associated companies” or “associates” and companies in which Shell has joint control are referred to as “jointly controlled entities”. In this presentation, associates and jointly controlled entities are also referred to as “equity-accounted investments”. The term “Shell interest” is used for convenience to indicate the direct and/or indirect (for example, through our 24% shareholding in Woodside Petroleum Ltd.) ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest.
This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this presentation, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including potential litigation and regulatory measures as a result of climate changes; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional factors that may affect future results are contained in Royal Dutch Shell’s 20-F for the year ended 31 December, 2010 (available at www.shell.com/investor and www.sec.gov ). These factors also should be considered by the reader. Each forward-looking statement speaks only as of the date of this presentation, 17 May 2011. Neither Royal Dutch Shell nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this presentation. There can be no assurance that dividend payments will match or exceed those set out in this presentation in the future, or that they will be made at all.
We may use certain terms in this presentation, such as resources and oil in place, that the United States Securities and Exchange Commission (SEC) guidelines strictly prohibit us from including in filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website www.sec.gov . You can also obtain these forms from the SEC by calling 1-800-SEC-0330.