Let’s look at the financial performance.
Our underlying CCS earnings of some $25 billion have increased by some 37% from 2010 and 115% versus 2009.
We have been investing for new growth, and selling down non-core positions in upstream and downstream.
Recently we announced a measured increase in dividend for the first quarter of 2012.
Our TSR - total shareholder return – was around 70% over the last 3 years, a sharp increase over the prior period, and a competitive performance from Shell.
Updating our priorities
Let me update you on the strategic priorities, and you’ll see we are keeping the momentum on the strategic drive we have had in the company over the last few years.
Continuous improvement through a relentless focus on performance is a major priority for the company.
Then it’s about delivering on the growth projects that we have launched in the last years, and working on new options for the next wave of investment.
Shareholders are investing in Shell for profitable growth, and so are we.
Our organic investment in 2011 was $26 billion, similar to 2010 levels.
We’ve taken 12 final investment decisions in 2011, and 17 over the last two years.
Spending on these new projects is now building up, and this will drive our organic capex to $32 billion in 2012.
We’ve also taken on new portfolio options in 2011, in plays like exploration, Iraq gas, and liquids-rich shales, and increase our feasex costs...for example new LNG and chemicals options.
You can see the main investments on this chart, and we are putting the priority on a series of large themes, where we can have economies of scale on technology and contracting and procurement, the right diversity of political and technology risk, and the size of portfolio we need to impact our bottom line growth.
You can see some of the projects we are currently commissioning or which are under construction.
About 80% of our current investment is Upstream, and some 60% of Upstream spending is in Australia and North America.
The portfolio of projects we have underway has an oil price break-even on an NPV basis of less than $60 per barrel.
These are attractive projects for our company and shareholders.
I want to highlight an area of frequent discussion at our AGM, Nigeria, and in particular our onshore joint venture, SPDC.
The overall security situation in Nigeria has been improving following the government amnesty in the Niger delta in 2009. This has allowed the SPDC joint venture to ramp up production to some 800,000 boe/d in 2011 from around 460,000 boe/d in 2009.
In the Nigerian onshore, the volume of operational spills decreased last year due to an increased focus on maintenance and better access to facilities, although I have to say that the number of these small operational spills trended up in 2011.
SPDC made further improvement in the remediation of spill sites caused by sabotage or oil theft.
In 2011 there were some 200 new spills, around 2/3rds of which were caused by sabotage or oil theft.
SPDC was able to remediate and certify 351 sites in 2011, leading to a reduction in the backlog of sites needing remediation from 400 to 274 sites.
There are some worrying trends however. During 2011 we started to see an increase in large scale oil theft and illegal refining. This has resulted in production stoppages and environmental damage.
Sadly, this year has also seen a return to violence in some areas, with two SPDC contractors shot and killed while on an environmental survey during a remediation project.
On the left you are looking at the Imo river area, specifically at some of the illegal refining operations. I visited the area myself a few weeks ago.
The oil theft and illegal refining is at large scale, with tank farms, barge building operations and barges shuttling crude to waiting tankers offshore.
In fact the oil theft was so prevalent we could not ensure the safety of our operation and shut in 25,000 barrels a day of production during part of 2011.
SPDC was only able to re-start production after government security forces increased their presence in the area, dismantling the infrastructure put there by the oil thieves.
SPDC does not take decisions like this lightly.
Nigeria has some 160 million people and receives more than 95% of the revenue from every barrel of oil onshore. The Nigerian government depends on oil for some 80% of its income. For the Nigerian people, many of whom live in poverty, the cessation of any oil income has immediate consequence.
Further, when production is shut in, either by choice or due to sabotage, and the pipelines depressurized, it is easier for thieves to install valves to steal from both the oil in the pipeline and when production is re-started. This perpetuates the cycle.
There are estimates that in total some 150,000 barrels a day of oil and condensate is stolen in Nigeria, worth some $7 billion at current market prices, there are no easy answers here, and Shell will play its part but we need the government to play a more active role.
On the UNEP report.... progress has been made on those recommendations pertaining to SPDC.
SPDC has supported the Rivers state government in the provision of emergency supplies of fresh water as well as planning for a long term solution.
In March, Bureau Veritas– an independent international standards verification agency – began work reviewing SPDC’s emergency spill response and initial clean up practices.
In April the International Union for the Conservation of Nature (IUCN) convened the inaugural meeting of an independent advisory panel that will provide scientific recommendations to SPDC to help restore the biodiversity and habitats at SPDC spill sites, as well as make recommendations for improvements to company and national standards for remediation and rehabilitation of such sites.
It is important to put Shell’s flaring into context in Nigeria. Both our onshore and offshore ventures perform well compared to the rest of industry, however we need to do more here.
SPDC flared some 20% less gas in 2011 than in 2010, while increasing its oil & gas production by 7% in 2011.
The program to install or repair associated gas gathering equipment is beginning to have an effect.
And Shell is assessing new projects for onshore Nigeria, which will add new production and reduce flaring. These projects could cost some $4 billion on a 100% basis.
We expect these to be completed in the 2014 to 2015 timeframe, subject to approval by partners and the security situation, and we are nearly there with that.
These are the final two projects which should allow us to reduce the flaring intensity in Nigeria to below the current global average.
Now, turning to other areas of the company.
In 2011, with the finalization of our Brazil biofuels JV, Raizen, Shell moved for the first time into the mass production of biofuels.
This joint venture manufactures some 2 billion liters of ethanol from sugarcane annually, producing significantly less CO2 on a life cycle basis than conventional fuel.
The majority of Raizen’s sugarcane crop is rain fed and not irrigated, making the ethanol it produces less water intensive than many competing crops in different regions.
We are also looking at several “next generation” biofuels technologies, in R&D partnerships, some of these go ahead and others don’t work out and we move on.
Sustainable biofuels should play a large role in helping to meet customers fuel demand and to limit CO2 emissions.
Turning to the Oil Sands, in 2011 we completed our 100,000 barrel per day oil sands expansion project which took total capacity to some 250,000 barrels per day.
On the tailings side, last year the industry agreed to set aside intellectual property rights and cooperate on tailings research, this year a much broader collaboration has been agreed with the aim to accelerate the improvement of environmental performance across the industry.
On CO2, with financial support from the Alberta and Canadian governments, we plan to capture and store about 1 million tonnes of CO2 per annum from the Scotford Upgrader using a CCS project called Quest. We expect to take FID on this project this year.
There is a lot of focus on the emissions from the oil sands facilities, but let’s put this in perspective. If Shell’s oil sands operation were in the United States, it would be approximately the 150th largest direct emitter of Greenhouse gasses, according to EPA data. Number one is a coal fired power station with some 23 million tonnes of CO2 equivalent per year. By comparison our oil sands operations and our in situ business together emit some 5 million tonnes a year.
Turning to our future outlook, where we set new targets earlier this year.
Updating growth outlook
Cash flow from operations was $136 billion for 2008 to 2011 at an $87 average oil price.
We are expecting cash flow from operations to be some 30-50% higher for 2012-15 in aggregate, or around $175 to $200 billion, assuming $80-$100 Brent.
This outlook is underpinned by the ramp-up of the projects we have brought on stream in the last few years, and new project start-ups.
Capital efficiency is an important part of our strategy, and we are expecting around a quarter of a million barrels per day of licence expiries and asset sales over the next few years. If those impacts play out, then we would expect our production to average 4 million boe per day in 2017-18, some 25% higher than 2011 levels.
Dividend track record
Shell has a strong track record on dividends, and dividends are the company’s main route to return cash to shareholders.
Over the last 10 years, we have paid more dividends than any of our sector peer group.
Including the time before unification, we have not cut our dividend for decades, and I would like to highlight that we maintained our dividend across the credit crisis years.
In fact, in 2011, 1 out of 8 pounds paid in dividends on the FTSE was paid by Shell.
The resumption of the measured, affordable dividend growth we have confirmed with the first quarter 2012 reflects the improving financial position in the company and delivery of our strategy.
And with that let me hand you back to the Chairman.
The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this publication the
expressions “Shell”, “Group” and “Shell Group” are sometimes used for convenience where references are made to Group companies
in general. Likewise, the words “we”, “us” and “our” are also used to refer to Group companies in general or those who work for them.
These expressions are also used where there is no purpose in identifying specific companies.
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 23% 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, 2011 (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, 22 May 2012. 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 use certain terms in this presentation, such as discovery potential, 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.