2014 is a year where we are changing emphasis. Our financial performance can improve, with a more competitive picture on returns as well as cash flow and balancing returns and growth more effectively.
Improving the profitability in Oil Products and Americas Upstream is a particular priority for us.
We want to enhance our capital efficiency, which will involve moderating the pace of growth investment, more asset sales, and hard decisions on new options.
And of course we are integrating the 2013 acquisitions and continuing to deliver our projects successfully.
Let me focus on two particular businesses in the portfolio.
We have some $80 billion of capital employed combined in oil products and North Americas resources plays, and the financial performance there is frankly not acceptable. These two businesses have been the largest drag on Shell’s profitability in 2013.
We are restructuring both of these portfolios...and we are going to be much more selective on growth opportunities here. This will be a multi-year programme to address these issues.
Shell has a rich opportunity set, which we have built up over the last few years. This is a good position to be in. But we are capital constrained.
At the same time, there are certainly some areas in the company where our assets are simply not competitive or large enough, where there is only limited growth potential or where we would simply invest our growth dollars elsewhere with greater benefit.
We will go ahead with the most attractive investments on behalf of our shareholders.
And there will be divestments from non-core portfolio. So far this year, we’ve announced over $4.5 billion of asset sales and there are more divestments to come, reaching an expected $15 billion for 2014 and 2015 combined.
Let me now share the 2014 investment programme – a programme that will deliver growth for the future. Here you can see our 2014 organic capital spend.
About 45% of the 2014 budget is on care and maintain activities such as asset integrity programmes, maintenance, drilling near-field exploration, development of infill wells and a series of small growth projects in Downstream.
This ‘care and maintain’ spending is the major element of Shell’s capex programme.
About $11 billion of the spending, or some 30%, is targeted at growth projects already under construction and the remainder, about 25% goes into longer term options, and exploration, which we need for the future growth of your company.
We have a strong delivery track record with the start-up of seven large projects in 2013 that should have some 180,000 boe per day potential when fully on stream and we have four major project start-ups in 2014.
Three of these are deep water fields, operated by Shell, for example, Mars B, which is a 100,000 boe per day tension leg platform in the Gulf of Mexico, which we started up 6 months ahead of schedule earlier this year, and where we are steadily ramping up production.
I also wanted to highlight the Repsol LNG acquisition which we completed this year. We are busy integrating that into our LNG portfolio and we saw a healthy contribution from this business in the first quarter results.
Now I want to focus on some particular assets and projects that you may have detailed questions about.
The situation in Nigeria was challenging in 2013. Oil theft, together with the government NIMASA agency’s blockade of NLNG reduced our production, and the bottom line impact on earnings was over $800m in 2013 plus the environmental damage resulting from oil theft.
Security remained difficult and 16 staff, dependents and contractors were kidnapped during 2013.
The loss of production to theft averaged some 32,000 boe per day in 2013 for SPDC, and we lost additional production due to related pipeline shut-ins.
On this slide you can see a tapping point attached to one of our smaller flowlines, this is theft of oil both from your company and from the Nigerian government.
On oil spills. We recorded fewer operational oil spills in 2013, but we still need to improve our performance. Our Goal Zero applies equally to Nigeria as anywhere else in the company.
We are trying to reduce the impact of spills as a result of sabotage - intensifying monitoring and inspection of our facilities and including daily over-flights.
We‘ve also worked hard to remediate these spill sites. Of known spill sites at the start of 2013, only 22 have yet to be remediated.
During 2013, with greater access to Ogoniland – which we left in 1993 – we made progress against the recommendations of the UNEP report beginning our physical asset verification process. As part of that process we identified a further 125 sites requiring remediation, and for transparency’s sake, we have added those on to each year’s comparison in the bottom right chart.
Let me update on the good progress in gas flaring reduction programmes.
Gas flaring was down again in SPDC in 2013, and is down over 80% since 2004. The 2013 reduction was largely as a result of reduced production last year.
However, some of our associated gas projects such as Southern swamp and Forkados Yokri to reduce flaring are facing delays due to a shortfall in funding for the joint venture.
We have a large footprint in Nigeria, spanning the SPDC joint venture, Nigeria LNG, and deep-water. The strategic review we announced in 2013 will reduce the SPDC footprint with more asset sales.
We plan to divest more onshore blocks in Nigeria, so we can concentrate on the gas value chain, LNG and deep water.
We’ve sold assets for $1.8 billion in the last few years, and we have further licences for sale at the moment, in the east of the Delta.
This is not an exit from Nigeria. We are still making selected growth investment onshore and the pace of these projects will be largely determined by continued government funding.
The JV will ensure that its commitments to communities are honoured. So to summarise, the situation in Nigeria remains challenging.
We are making progress on flares reduction and spills clean up, and we have a plan in place to reduce our footprint there, whilst at the same time fulfilling our commitments as a responsible operator.
Turning to gas production here in the Netherlands
The Groningen gas field, operated by the NAM joint venture with Exxon, and partnered with the Dutch government has been producing gas for decades and it is a key field for Shell and the Netherlands.
Following increased seismic activity in the area, the Dutch government has proposed a series of measures including reduced production, to address the issue and local residents’ concerns.
Shell supports NAM and respects the proposals outlined by the minister in this important area.
Turning to the Arctic.
Shell and the oil industry as a whole have a number of activities in and around the arctic. Shell has ongoing activities in Greenland, Norway, Russia, Kazakhstan, Canada and of course, Alaska.
The Arctic will be an important source of oil and gas for future energy demand, and it is a long term investment opportunity for your company.
Let me make a comment on Alaska, where we have been in a multi-year exploration program in the Beaufort and Chukchi Sea. We took a pause in 2013 to prepare for the next drilling season.
We’ve added additional people and resources to the venture, we’ve updated our plans with what we’ve learned from 2012 and we’ve worked closely with the U.S. Department of Interior and other government agencies.
However, we are frustrated by the decision in January this year by the Ninth Circuit Court of Appeals in a six-year-old lawsuit against the government.
The obstacles introduced by that decision make it impossible to justify the commitment of cost, equipment and people needed to drill safely in Alaska this year. We will have to wait for the courts and the US administration to resolve this legal issue.
Given all of this, we will not drill in Alaska in 2014, and we are reviewing our options here.
Finally on the dividend, Shell has a strong track record on dividends, and dividends are the company’s main means of returning cash to shareholders. Over the last 5 years, we have paid more dividends than any of our sector peer group.
In fact, in 2013, in the UK,1 of every 10 pounds of dividends declared on the FTSE was from Shell.
In 2013 we continued dividend growth with a rise of some 4.7% for the year. And in the first quarter of 2014, we confirmed a further 4.4% rise, to an annualised figure of around $12 billion reflecting our confidence in Shell’s long term strategy.
Last year we returned $5 billion of cash to shareholders with share buy backs, and so far this year, we have returned a further $1.2 billion cash to shareholders under the buy back programme.
Let me end this portion of the AGM by recapping on my priorities for your company.
Our strategy overall remains robust, but 2014 will be a year where we are changing emphasis.
Our financial performance can improve here. We need to further improve on our capital efficiency and we need to continue to work hard on project delivery.
Our strategy is designed to deliver through-cycle growth in cash flow and competitive returns and Shell’s dividend track record underscores our commitment to shareholders.
With that. I hand you back to Jorma.
Reserves: Our use of the term “reserves” in this presentation means SEC proved oil and gas reserves.
Resources: Our use of the term “resources” in this presentation includes quantities of oil and gas not yet classified as SEC proved oil and gas reserves. Resources are consistent with the Society of Petroleum Engineers 2P and 2C definitions.
Organic: Our use of the term Organic includes SEC proved oil and gas reserves excluding changes resulting from acquisitions, divestments and year-average pricing impact.
Resources plays: our use of the term ‘resources plays’ refers to tight, shale and coal bed methane oil and gas acreage.
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 over which Royal Dutch Shell plc either directly or indirectly has control. Companies over which Shell has joint control are generally referred to “joint ventures” and companies over which Shell has significant influence but neither control nor joint control are referred to as “associates”.
In this presentation, joint ventures and associates may also be 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’’, ‘‘goals’’, ‘‘intend’’, ‘‘may’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘plan’’, ‘‘probably’’, ‘‘project’’, ‘‘risks’’, “schedule”, ‘‘seek’’, ‘‘should’’, ‘‘target’’, ‘‘will’’ 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 regulatory measures addressing climate change;
(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 risk factors that may affect future results are contained in Royal Dutch Shell’s 20-F for the year ended December 31, 2013 (available at www.shell.com/investor and www.sec.gov ).
These risk factors also expressly qualify all forward looking statements contained in this presentation and should be considered by the reader. Each forward-looking statement speaks only as of the date of this presentation, 20 May 2014. Neither Royal Dutch Shell plc 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.
We may have used certain terms, such as resources, in this presentation that United States Securities and Exchange Commission (SEC) strictly prohibits us from including in our 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.