Ben van Beurden
Ladies and gentlemen, I am very pleased to be here today at our 2016 AGM.
As Chad said, there are significant changes underway in our industry, and at Shell.
This is an exciting time to be the CEO of your company and I’m looking forward to discussing Shell with you today.
Your company’s underlying earnings last year were $10.7 billion and we declared dividends and bought back shares worth some $12 billion combined.
In 2015, Shell’s production was almost 3 million barrels of oil equivalent per day, almost half of that was gas.
We produced some 2% of the world’s oil and our share of LNG sold across the world was 9%.
On your behalf, we invested $29 billion on capital projects and we also spent some $1.1 billion on research and development and some $120 million on the communities in which we operate.
All of this while paying some $10 billion of taxes and collecting another $50 billion in taxes for governments.
We also employ many skilled people in high quality jobs.
Shell plays a positive and, I think, sometimes understated role in many countries around the world.
Shell’s approach to sustainable development runs across all our activities. The foundation of our approach is running a safe, efficient, responsible and – of course profitable business – Whatever the oil price happens to be.
This means managing safety, environment and community involvement.
Secondly, we share wider benefits with the locations where we operate – the long term nature of our businesses means we can be a part of a community for decades.
Thirdly, as Chad explained before, we want to be part of shaping a more sustainable energy future.
This means providing more energy and cleaner energy, which is required for economic development in the face of growing environmental pressures.
Your company has a strong track record of transparency, and this is something we are strongly committed to.
For example on revenue transparency. Shell was a founding member of the EITI, the Extractive Industries Transparency Initiative, in 2002. We believe that the EITI approach to engaging countries, civil society and companies remains an effective way of providing greater transparency in government revenues.
We voluntarily published information on our payments to governments since 2012.
And this year we reported our upstream payments to governments, by country and project, in line with the new UK reporting requirements.
We have other, regular voluntary reporting, for example sustainability report, Nigeria and oil sands reporting.
Now, let me update you on safety.
Our goal is to have zero fatalities and no leaks or other incidents that harm our employees, contractors or neighbours.
In 2015, we achieved the lowest recorded injury rates, and our spill volumes remained amongst the lowest we have experienced.
However, I am very sad to report that we lost seven lives in Nigeria last year.
These were the only fatalities we had in the company, all seven of them in Nigeria, contractors and staff. That underscores the difficulty of our operations in this area in a very sad way.
At the same time we do not accept that outcome and we re-double our efforts to improve from a very deep and low point that we had last year.
This tragedy underscores the difficulties we face there.
But we simply must do better to protect our people
Turning now to BG. We were pleased that so many of you supported our acquisition of BG at the general meeting earlier this year.
The $ 54 billion, shares and cash, combination with BG represents a tremendous opportunity to create value for both sets of shareholders, particularly in deep water and LNG.
I’m pleased to say to our new shareholders, previously BG shareholders, that your Shell shares have increased more than 8% since 15 February, when the deal was completed.
The combination with BG is a strong platform to refocus the company, to create a simpler and more competitive Shell, both now and in the future.
We are now 3 months into the integration and our first quarter results already showed that BG’s assets are contributing to our bottom line.
Now, let me make some comments on some of the other themes where you may have questions.
Firstly, the Netherlands. The Groningen gas field, which is operated by the NAM joint venture with Exxon, and partnered with the Dutch government, has been producing gas for decades.
However, this has resulted in a large number of earth tremors in the area, as a result of the depletion and subsidence around the field.
There is now an independent entity in Groningen called the Centrum Veilig Wonen, the Centre for Safe Living, in English, and it has been set up specifically to manage the claims that arise from these earthquakes.
You can imagine of course that many of the historical houses in this area had not been built with protection in mind because this is not a natural earthquake zone.
The Centre for Safe Living has independent oversight from the Government.
In addition to that, the Government set up a National Coordinator for Groningen who has presented a multi-year plan and has not just focussed on how to deal with the damage from earthquakes, but also how to deal with the quality of life in Groningen, the general economic situation
It has been an area that perhaps has not seen as much investment as the western part of the Netherlands
And let me be clear here, there is no discussion whatsoever that NAM would not compensate tremor-related damage, the preventive strengthening program, and regional improvement programme.
Shell supports NAM in the implementation of the measures as announced by the National Coordinator Groningen, in addition, Shell supports the position of NAM that people in Groningen are entitled to a fair distribution of costs and benefits related to natural gas production in Groningen.
Turning to Nigeria. This is the SPDC joint venture for onshore oil and gas.
It’s an area with large reserves, and very challenging socio-economic conditions.
This means criminal acts including shootings and kidnappings, widespread oil theft and pollution from that and the security situation appears to be deteriorating in 2016.
We have been reducing Shell’s exposure there, with $4.8 billion of asset sales since 2010.
But the situation in Nigeria remains challenging with widespread criminal acts and sabotage against SPDC’s interests, and tragic loss of life in 2015
The picture on this slide is rather shocking. It shows an illegal refinery in the Niger Delta, that uses stolen crude oil to make fuel.
You can see the pollution from that yourselve
SPDC cleans up spills in its fairways whatever the cause.
In 2015 we cleaned up and certified 184 sites, leaving a backlog of 270, including new spills in 2015..
In 2015 we saw a reduction in the number and volume of spills, both from our own operations and from sabotage. This was in part due to divestments as we have reduced our onshore portfolio there.
Getting access to the spill sites remains a difficulty due to the security situation and we continue to work with our stakeholders in Nigeria on improving security, on remediation and on local community engagement.
Turning to Oil Sands. Our thoughts are with the people of Fort McMurray, Alberta, 75 kilometres south of our Canadian oil sands operations and home to over 1,700 of our employees and many of our contractors.
Shell has a 60% stake in the Athabasca Oil Sands Project, or AOSP, which has production capacity of 255,000 barrels of oil per day.
On May 3 wildfires forced the evacuation of 90,000 residents from the city. Our employees went above and beyond the call of duty in helping to safely shelter and evacuate their colleagues and neighbours and their families.
In total, we sheltered and flew to safety over 9,800 people, and more than a few pets. Under stressful conditions, Shell people safely brought down mine operations to focus on their own safety and that of their neighbours.
While the wildfires continue to burn in the Fort McMurray region, we were able to safely and securely restart mine operations in order to support emergency response efforts and ensure customers in Western Canada had access to fuel.
On the operations side, we are continuing to find ways to improve performance in our mining operations and to reduce the CO2 footprint.
In 2015 we celebrated the start-up of our Quest CCS project at our operated oil sands joint venture in Canada.
Quest stored 370,000 tonnes of CO2 in 2015, and is on track for its expected sequestration of 1.1million tonnes per annum.
Turning to our Emissions. Shell’s direct GHG emissions, which we report on in our sustainability report, fell in 2015 to 72 million tonnes of CO2 equivalent. This is a reduction of 4 million tonnes from 2014 and 35% from the peak of our emissions in 2003.
We want to do more.
In April 2015 we signed up to the world bank zero routine flaring initiative last year with a target of zero routine flaring by 2030.
As an example, in Iraq, at the end of 2015 we achieved first commercial production of natural gas at our Majnoon field.
Gas from Majnoon, which was previously flared, now provides power to the domestic market through the North Rumalia power station.
And we expect further flaring reductions to come in 2016 as these and other gas gathering systems reach full capacity
Let me turn to climate change and related shareholder resolutions.
The Board supports resolutions that strengthen Shell’s ability to deliver safe and reliable energy today, and position the company to respond effectively to the challenges and opportunities of tomorrow.
Last year, the Board recommended to shareholders that they support a resolution calling for enhanced transparency on climate change.
In response to this resolution, we published the report Shell: Energy Transitions and Portfolio Resilience. This report sets out Shell’s efforts to strengthen the resilience of our portfolio, and our plans to invest in low-carbon energies.
We also included detailed information in our 2015 Sustainability Report on our emissions.
This year, we have a resolution from Netherlands-based retail shareholders, Follow This. It calls for Shell to embark immediately on a new renewables-only strategy.
The Board of Directors thank Follow This for this resolution.
But we recommend to shareholders that they should not support it.
Firstly, we want the Company to be able to respond to the opportunities and risks that lie ahead, tying the Company’s hands to a renewables only mandate would be strategically and commercially unwise.
Also, we believe that the scale of investment that is required, the multi-decades timescales required for energy transitions, and the risk of reduced returns to shareholders from an accelerated shift into renewables…means it would be unwise for Shell to simply swap investment in oil and gas for renewables…
Let me explain why.
Each of us in this room relies on a vast, inter-connected and reliable energy system that has been developed over the past 150 years.
The energy system, with its $55 trillion of infrastructure investments, must continue to evolve to meet growing demand.
Today, oil and gas supply around 50% of primary energy worldwide. Nearly half of industry is powered by oil and gas. Over 90% of transportation is powered by oil.
In its new report “A Better life with a Healty Planet, Pathways to Net Zero Emissions…that Chad mentioned…Shell’s scenario team shows there are plausible pathways for society to meet future energy demand while also reducing net zero CO2 emissions during this century.
It will require unprecedented collaboration combined with long term vision to lay the foundations for success.
It will also require different sectors of the economy to move at different paces.
Renewable energy sources will play an increasingly critical role in the future energy mix.
Electrification must expand its share of energy provision from around 20% globally up to around half.
Given the scale, it can’t happen overnight.
It will be necessary to combine the qualities of increasingly lower-carbon oil and gas with renewables to provide the full range of energy products.
Oil and gas will remain integral; especially where high energy density or very high temperatures are required in some forms of transport or industrial processes, such as the production of iron and steel.
Shell intends to be an active participant in this energy transition to a low-carbon future.
This means continuing to invest significantly in both oil and natural gas, which emits half the CO2 of coal when used to generate electricity; as well as looking for opportunities in low carbon energy.
It means adapting our diverse, global portfolio and taking strides to reduce the carbon intensity of our business.
It means continuing to progress technologies such as carbon capture and storage.
We are improving efficiency in our operations.
We’re reducing flaring.
And we are continuing to advocate for government-led carbon pricing, the most effective policy instrument for permanent reductions in emissions.
As for new energies, Shell has identified three areas where we can put more focus.
First, new transport fuels, such as biofuels and hydrogen-electric. Second, integrated energy solutions, for example wind and solar energy, which can be partnered with gas to handle intermittency. And third, connecting customers with new business models for energy.
Each theme builds on existing businesses and expertise. It will take time to develop them, and we will do this purposefully and carefully as we establish commercial potential at scale.
The next decades are a time of energy transitions.
Shell intends to adapt and change, to innovate and create, to trial and test; to win in a world that demands much more energy and much less CO2.
Let me finish with highlighting our strong track record on dividends, and dividends are the company’s main route to return cash to shareholders.
Over the last 5 years, in total, we have declared more dividends than any of our sector peer group.
The dividend is expected to be maintained at $1.88 per share in 2016, despite today’s lower oil prices.
This is an annualised figure of around $12 billion of dividends declared.
All of this underlines your company’s dividend track record and our commitment to returns to shareholders.
With that, I hand you back to Chad.
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The New Lens Scenarios are part of an ongoing process used in shell for 40 years to challenge executives’ perspectives on the future business environment. We base them on plausible assumptions and quantification, and they are designed to stretch management to consider even events that may be only remotely possible. Scenarios, therefore, are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities.
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 legal 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. Entities and unincorporated arrangements over which Shell has joint control are generally referred to as “joint ventures” and “joint operations” respectively. Entities over which Shell has significant influence but neither control nor joint control are referred to as “associates”. The term “Shell interest” is used for convenience to indicate the direct and/or indirect ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest.
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