More upstream and profitable downstream

Our business strategy is "more upstream and profitable downstream". Upstream, we search for and recover more oil and gas. Downstream, we refine and deliver products to our customers in a profitable and sustainable way. This strategy helps Shell play a part in meeting the energy challenge.

Over time and across the commodity cycle Shell has achieved higher earnings and returns on investment in the upstream compared with its other businesses and sees significant growth potential for oil and natural gas.

Our upstream business will therefore be the focus for future growth. In the downstream the emphasis will be on sustained cash generation and on continuing to reshape our portfolio with a focus on the growing markets of Asia Pacific.

Our strategy of more upstream and profitable downstream will reinforce our position as a leader in the industry and provide investors with a competitive and sustained total shareholder return. We plan net capital[B] spending of $22 to $23 billion in 2007, of which around 80% will be invested in upstream projects. This investment will help create an upstream portfolio of assets that will have long, productive lives. These investments will be in both conventional and unconventional hydrocarbon projects. Our capital programme will also maintain and enhance our competitive position in the downstream by improving the quality, integrity and competitiveness of our refinery portfolio and by developing our presence in growth markets.

Providing more energy while minimising the environmental impact is a major challenge for the global energy industry and society as a whole. We are pursuing a range of potential opportunities to develop businesses based on alternative energies. We also recognise the importance of CO2 management to our business and the opportunities it represents. We are developing responsible ways to manage carbon dioxide, including CO2 sequestration projects and energy efficiency.

A commitment to technology and innovation continues to be at the heart of our business strategy. We believe our technological expertise will be a key factor in the growth of our business as energy projects become more complex and technically demanding. The Group’s core strengths include the development and application of technology and the financial and project management skills that allow us to undertake large oil and gas projects. We also benefit from having a diverse international business portfolio and customer-focused businesses built around the strength of the Shell brand. Our ability to manage large and challenging projects in conventional and unconventional oil and gas, to find ways of managing CO2 emissions, and to provide alternative energy solutions means we are well placed to be preferred partners for governments and other resource holders, now and in the future.

[B] Net capital spending represents the expected capital expenditure after including cash received from divestments as well as cash utilised in relation to acquisitions.