first quarter 2018 results - royal dutch shell · capital employed consists of total equity,...

Royal Dutch Shell April 26, 2018

Royal Dutch Shell plcApril 26, 2018

First quarter 2018 resultsDelivering a world-class investment case

#makethefuture


Jessica UhlChief Financial OfficerRoyal Dutch Shell

Royal Dutch Shell April 26, 2018 3

Definitions & cautionary note

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 (SPE) 2P + 2C definitions.

The Mountains and Oceans scenarios are based on plausible assumptions and quantification, and they are designed to stretch management thinking and even to consider events that may only be remotely possible. Scenarios therefore, are not intended to be prediction of likely future events or outcomes. Accordingly, investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities.

Operating costs are defined as underlying operating expenses, which are operating expenses less identified items. Organic free cash flow is defined as free cash flow excluding inorganic capital investment and divestment proceeds. Unit costs for Refining and Trading are defined as operating expenses divided by refinery intake volumes. Yield on costs for Marketing are defined as CCS earnings excluding identified items divided by operating expenses. Integrated indicative margin is defined as a theoretical margin available to be captured by our integrated portfolio of Refining and Trading assets excluding portfolio impact. Breakeven margin is defined as minimum integrated margin required for zero earnings in Refining and Trading. Gross margin is defined as net proceeds less cost of goods sold, on a CCS basis, and primary transport expenses. Income per site is defined as ratio of CCS earnings excluding identified items to the total number of Retail branded sites. Sales by region is defined as sales volumes across each of the regions Americas, East and Europe & Africa. Earnings per FTE is defined as ratio of CCS earnings excluding identified items to the number of employees in Lubricants, Aviation and Specialties. Clean CCS ROACE (Return on Average Capital Employed) is defined as defined as the sum of CCS earnings attributable to shareholders excluding identified items for the current and previous three quarters, as a percentage of the average capital employed for the same period. Capital employed consists of total equity, current debt and non-current debt. Capital investment comprises capital expenditure, exploration expense excluding well write-offs, new investments in joint ventures and associates, new finance leases and investments in Integrated Gas, Upstream and Downstream equity securities, all of which on an accruals basis. Divestments comprises proceeds from sale of property, plant and equipment and businesses, joint ventures and associates, and other Integrated Gas, Upstream and Downstream investments, reported in “Cash flow from investing activities (CFFI)”, adjusted onto an accruals basis and for any share consideration received or contingent consideration recognised upon divestment, as well as proceeds from the sale of interests in entities while retaining control (for example, proceeds from sale of interest in Shell Midstream Partners, L.P.), This presentation contains the following forward-looking Non-GAAP measures: Organic Free Cash Flow, Free Cash Flow, Capital Investment, CCS Earnings less identified items, Operating Expenses, ROACE, Capital Employed and Divestments. We are unable to provide a reconciliation of the above forward-looking Non-GAAP measures to the most comparable GAAP financial measures because certain information needed to reconcile the above Non-GAAP measure to the most comparable GAAP financial measure is dependent on future events some which are outside the control of the company, such as oil and gas prices, interest rates and exchange rates. Moreover, estimating such GAAP measures consistent with the company accounting policies and the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort. Non-GAAP measures in respect of future periods which cannot be reconciled to the most comparable GAAP financial measure are calculated in a manner which is consistent with the accounting policies applied in Royal Dutch Shell plc’s financial statements. The forward-looking breakeven price (BEP) presented for Vito is calculated based on all forward-looking costs associated from FID. Accordingly, this typically excludes exploration and appraisal costs, lease bonuses, exploration seismic and exploration team overhead costs. The forward-looking breakeven price is calculated based on our estimate of resources volumes that are currently classified as 2p and 2c under the Society of Petroleum Engineers’ Resource Classification System. As this project is expected to be multi-decade producing, the less than $35 per barrel projection will not be reflected either in earnings or cash flow in the next five years. The financial measures provided by strategic themes represent a notional allocation of ROACE, capital employed, capital investment, free cash flow, organic free cash flow and underlying operating expenses of Shell’s strategic themes. Shell’s segment reporting under IFRS 8 remains Integrated Gas, Upstream, Downstream and Corporate.

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 Royal Dutch Shell plc and subsidiaries in general or to those who work for them. These terms are also used where no useful purpose is served by identifying the particular entity or entities. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this presentation refer to entities 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 an entity or unincorporated joint arrangement, after exclusion of all third-party interest.

This presentation contains forward-looking statements (within the meaning of the U.S. Private Securities Litigation Reform Act of 1995) 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 “aim”, “ambition’, ‘‘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. No assurance is provided that future dividend payments will match or exceed previous dividend payments. 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, 2017 (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, April 26, 2018. 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

http://www.shell.com/investor

http://www.sec.gov/


Summary

Divestments: headline, cash proceeds in 2016 + 2017 + Q1 2018: $18.1 billion (in CFFI), $2.1 billion related to Shell Midstream Partners, L.P. (in CFFF)

Q1 2018

Strong results

Underlying growth continues

Portfolio reshaping

Divestments: $26 billion completed (headline)

Resilience and growth

Financial framework

Cash priorities unchanged

Capital discipline unchanged

Thrive in the energy transition

World-class investment case

Strong license

to operate


Q1 2018

Financial highlights

Earnings and ROACE on CCS basis, excluding identified items. Dividend distributed to RDS shareholders

$ billion

Earnings Q1 2017 to Q1 2018$ billion Q1 2017 Q1 2018

Upstream 0.5 1.6

Integrated Gas 1.2 2.4

Downstream (CCS) 2.5 1.7

Corporate & non-controlling interest ~(0.5) ~(0.4)

CCS earnings 3.8 5.3

CCS earnings, $ per share 0.46 0.64

Cash flow from operations 9.5 9.4

Free cash flow 5.2 5.2

Dividend 3.9 4.0

ROACE (%) 3.3 6.0


Q1 2018

Earnings and cash flow from operations

Earnings on CCS basis, excluding identified items

Cash flow from operations excluding working capitalCash flow from operations excluding working capital – 4 quarters rolling (RHS)

Average Brent oil price - 4 quarters rolling ($/bbl)

Earnings

$ billion $ billion

86 48 49 57

#


Q1 2018

Integrated Gasperformance

Earnings and ROACE on CCS basis, excluding identified items. 2016 Free cash flow excludes cash element of BG acquisition

$ billion

Earnings and ROACE

Million tonnes

LNG liquefaction volumes

$ billion

Free cash flow and cash flow from operations

Million tonnes

LNG sales volumes

ROACE (RHS)Earnings Free cash flowCash flow from operations

%

+50%+75%


$ billion

MLP cash proceeds ~0.7

Iraq West Qurna 1 ~0.6

Oman - Mukhaizna ~0.3

Others ~0.3

8

Q1 2018

Divestmentheadlines

Divestments: headline, cash proceeds in Q1 2018: $0.8 billion (in CFFI), $0.7 billion related to Shell Midstream Partners, L.P. (in CFFF)

Completions – Q1 2018 + April 2018

$ billion

DS Argentina ~1.0

Bongkot - Thailand ~0.8

New Zealand ~0.6

Announcements – Q1 2018 + April 2018


Leading in transparency

RDS reporting2018 progress

Disclosures aligned to Task Force on Climate-related Financial Disclosures (TCFD)

“Shell Energy Transition report” published

Annual report: additional disclosures on climate change risk and strategy

“Sky – meeting the goals of the Paris agreement” scenario published

Strategic ambition –Thrive in the energy transition

9


Portfolio reshaping

Downstream


Earnings per region

Geographical exposure

$ billion

Marketing – earnings growth to 2025

% of feedstock

Chemicals – feedstock exposure

$ per barrel

Refining & Trading – breakeven margin

2025

East Europe & Africa Americas

2017 2021 2025

Oil Gas

By 2025: Organic FCF:

$9-12 billion (+50%) Capital employed:

+30% ROACE >15%

Global commercialRetail


2015-20: 50% supply capacity growth

50% of new supply capacity already in operation

2017: supply growth matched by solid demand

Supply/demand gap emerging early 2020’s

Industry FIDs challenged

11

Portfolio reshaping

Integrated Gas

Source: Shell interpretation of IHS Markit, Wood Mackenzie, FGE, BNEF and Poten & Partners Q4 2017 data

MTPA (DES)

LNG supply/demand gap

LNG Canada

Lake Charles

Abadi

Browse

Tanzania

Sakhalin expansion

Nigeria LNGexpansion

Baltic LNG

Mozambique GTL

In-/Post-FEED

Pre-FEED

LNG supply in operation

LNG supply under construction

Demand forecasts

Competitive pre-FID opportunities in all supply basins


Portfolio reshaping

Upstream Pre-FID options& recent FIDs

Individual project volumes are Shell’s current estimates of total gross peak production; sum is estimate of Shell share production at peak excluding shales

Pre-FID options for 2018-2022. Brazil FPSOs: production shown is FPSO oil capacity as per operator

Penguins redevelopment▪ 45 kboe/d▪ Shell 50%

WDDM 9B▪ 60 kboe/d▪ Shell 50%

Gumusut-Kakap Ph2▪ 50 kboe/d▪ Shell 30.4%

Tyra future▪ 75 kboe/d▪ Shell 37%

Pegaga▪ 95 kboe/d▪ Shell 20%

Vito▪ 100 kboe/d▪ Shell 63.11%

Mero (Libra) 1▪ 180 kboe/d▪ Shell 20%Mero (Libra) 2▪ ~180 kboe/d▪ Shell 20%

Argentinashales options

North America shales options

Bonga South West▪ 175 kboe/d▪ Shell 42.95%

Val D’Agri Ph2▪ 65 kboe/d▪ Shell 39%

Pierce Depressurisation▪ 25 kboe/d▪ Shell 92.52%

HI development▪ 75 kboe/d▪ Shell 40%

Gbaran Ph3▪ 50 kboe/d▪ Shell 30%

Marjoram/Rosmari▪ 60 kboe/d▪ Shell 75%

Bonga main life extension▪ 90 kboe/d▪ Shell 55%

Clair South▪ 60 kboe/d▪ Shell 28%

Ormen Lange Late Life recovery▪ 60 kboe/d▪ Shell 18%

Assa North▪ 60 kboe/d▪ Shell 30%

Uzu development▪ 45 kboe/d▪ Shell 30%

Kashagan CC01▪ 100 kboe/d▪ Shell 17%

KGK expansion Ph1▪ 40 kboe/d▪ Shell 29%

Pearls Khazar▪ 40 kboe/d▪ Shell 55%

Kalamkas▪ 55 kboe/d▪ Shell 17%

Jackdaw▪ 40 kboe/d▪ Shell 74%

Troll Ph3▪ 255 kboe/d▪ Shell 8.1%

SK408▪ 75 kboe/d▪ Shell 30%

✓FID taken since Nov 2017 Management Day

✓

✓

✓

✓

Mexico bid round

Brazil bid round

Potential: Recent FIDs:

>200 kboe/d pre-FID options:

>550 kboe/d 2 successful bid

rounds

Whale discovery

✓

✓

✓

✓

Jerun▪ 95 kboe/d▪ Shell 30%

Mero (Libra) 3+4▪ ~TBD kboe/d▪ Shell 20%


Deep water

Vito – final investment decision

Vito

~100 kboe/day peak production1

~300 mln boe current estimated

recoverable resources1

Shell-operated (63.11%)

Sustained capital efficiency

Economically resilient: <$35 per barrel

forward-looking break-even price

Simpler, smaller, and safer to operate

Supply chain collaboration

A leading IOC position

Strong capabilities and advantaged portfolio

Delivering competitive growth

Targeting Vito first oil in 2021

PerdidoStones

Auger

Ram Powell

Appomattox

Coulomb

NaKika

Olympus

MarsUrsaKaikias

Whale

VITO

Enchilada

Salsa

OperatingUnder Construction Exploration

1: 100% total gross



Cash flow priorities

*subject to further progress with debt reduction and oil price conditions

Priorities for cash Debt reduction Dividends

Buybacks & capital

investment

1 2 3

Continue to reduce gearing to 20%

Cancel scrip dividend Buy back shares

Progress towards a world-class investment case Increase shareholder distributions

At least $25 billion*

buyback over2018 - 2020


Capital investment

Dividend

Interest

Net debt reduction

to 20% gearing

Buybacks*

Divestment

proceeds

CFFO

Surplus

CFFO

15

Financial framework

Cash allocation

*subject to further progress with debt reduction and oil price conditions. 20% as a proxy for AA equivalent credit metrics

Delivering on the BG post-offer intention statements

Buyback intention unchanged: at least $25 billion

over 2018-2020

$25-30 billion p.a., organic + inorganic

Lower part of the range in 2018

$3.5-4 billion expected in 2018

24.7% as of Q1’18

$4 billion cash payment in Q1’18 (Q4’17 dividend, no scrip)


Financial framework

Free cash flow performance and payout

* 2016 RT $60 per barrel, mid-cycle Downstream **subject to further progress with debt reduction and oil price conditions

2014 cash dividend includes $3.3bln share buy backs, more than offsetting scrip issuance of $2.4bln.

$ billion

Distributions from free cash flow

Organic FCF

Divestment proceeds less acquisitions

Cash dividend

Scrip dividend Interest paid

$99/bbl $57/bbl $60/bbl*

2014 18Q14Q rolling

2019-2021average

Financial transformation 2014-2017

2019-2021 average: FCF $30-35 billion

At least $25 billion**

buyback over2018 - 2020


Financial framework

Capital discipline supporting growth

Excludes BG acquisition in 2016; historical BG capital investment is based on BG’s published Annual Report

Capital investment

$ billion

Capital investment

$ billion

Capital investment

$ billion (p.a.) 2018 – 2020

Oil products 4-5

Conventional oil + gas 4-5

Integrated gas 4-5

Deep water 5-6

Chemicals 3-4

Shales 2-3

New energies 1-2

Total 25-30

17

-$12 billion

Shell

BG

30

25

$25 – 30 billion organic + inorganic

2018: lower part of the range

Non- and little discretionary spend

Small scale and large value growth options

Capital investment p.a. 2018-’20

Cash engines

Growth priorities

Emerging opportunities


$ billion

18

Financial framework

Divestments + net debt


$ billion

Divestment headlines – since Q1 2016

Net debt + gearing

$ billion

Divestment + MLP cash proceeds – since Q1 2016

Net debt Gearing (RHS)

Cumulative cash proceeds Range

%

Rule of thumb: +/-$10/bbl Brent =

+/-$6 billion CFFO

-$13.4 billion


Summary


Q1 2018

Strong results

Underlying growth continues

Portfolio reshaping

Divestments: $26 billion completed (headline)

Resilience and growth

Financial framework

Cash priorities unchanged

Capital discipline unchanged

Thrive in the energy transition


Strong license

to operate


Questions & Answers

Jessica UhlChief Financial Officer



Q2 2018Outlook

Q2 – Q2 Outlook: year-ago baseline reflects Shell’s earnings seasonality

Integrated gas Production volumes: positive impact of ~140-160 thousand boe/d, mainly due to lower maintenance.

Liquefaction volumes are expected to be at similar level

Upstream Production volumes: reduction of ~230-260 thousand boe/d, mainly due to portfolio impacts, higher maintenance, lower

production at NAM in the Netherlands and field decline more than offsetting project start-ups

Downstream Oil products sales volumes increase of ~70 thousand boe/d as result of separation of Motiva, partly offset by completed

divestments

Refinery availability to decrease

Chemicals availability to increase

2018 OUTLOOK:

Corporate segment: net charge of $300 – 350 million in Q2; $1.4 – 1.6 billion for the full year, excluding the impact of currency exchange rate effects and interest rate movements

21


Q1 2018

Prices & margins $/barrel

Shell oil & gas realisations

$/barrel

Industry refining margins

$/tonne

Industry chemicals margins

US ethaneWestern Europe naphthaNE/SE Asia naphtha

US West CoastUS Gulf Coast cokingRotterdam complexSingapore

OilGas (RHS)

22

$/mscf


Q1 2018

Integrated Gas results

$ billion

Earnings Q1 2017 to Q1 2018

Environment Choice



Q1 2018

Upstream results$ billion


Environment Choice



Q1 2018

Downstream results


$ billion


$ billion

Earnings mix

MarketingRefining & TradingChemicals

first quarter 2018 results - royal dutch shell · capital employed consists of total equity,...

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