royal dutch shell (rds.a) earnings report: q1 2016 conference … · 2016-05-05 · 2016 conference...

CompanyName:RoyalDutchShellPLCCompanyTicker:RDS.ASector:BasicMaterialsIndustry:Energy

EventDescription:Q12016EarningsCallMarketCapasofEventDate:206.50BPriceasofEventDate:50.22

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

RoyalDutchShell(RDS.A)EarningsReport:Q12016ConferenceCallTranscriptThefollowingRoyalDutchShellconferencecalltookplaceonMay4,2016,08:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

SimonHenry;RoyalDutchShellPLC;CFO

OtherPart icipants

OswaldClint;Bernstein;AnalystLydiaRainforth;BarclaysCapital;AnalystChristopherKuplent;BoAMerrillLynch;AnalystJonRigby;UBS;AnalystBirajBorkhataria;RoyalBankofCanada;AnalystIreneHimona;SocieteGenerale;AnalystMartijnRats;MorganStanley;AnalystThomasAdolff;CreditSuisse;AnalystAlastairSyme;Citigroup;AnalystLucasHerrmann;DeutscheBank;AnalystAnishKapadia;TPH;AnalystGuyBaber;Simmons;AnalystRobWest;Redburn;AnalystJasonGammel;Jefferies&Co.;AnalystAneekHaq;ExaneBNPParibas;AnalystClydeSparkholder;ABNAmaro;AnalystAsitSen;CLSA;AnalystJasonKenney;BancoSantander;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheRoyalDutchShell2016Q1resultsannouncements.

(OperatorInstructions)

Iwouldnowliketointroduceyourhost,Mr.SimonHenry.Pleasegoahead,sir.

SimonHenry(CFO):

Manythanks.Ladiesandgentlemen,welcometotoday'spresentation.Weannouncedourfirst-quarterresultsthismorning.TheseresultsincludedtwomonthsofcontributionfromBGfollowingthecompletionoftheacquisitiononFebruary15.

We'vetakentheopportunitytoenhanceourfinancialdisclosureacrosstheCompanytoday.AndIhopeyouwillfindthenewfiguresuseful,althoughIdoappreciatesomeofthemodelingchallengesitmaynowmake.Letmegiveyouasummary,andthenofcoursetherewillbeplentyoftimeforyourquestions.




Beforewestart,justletmehighlightthedisclaimer.Shell'sintegratedactivitiesfromthewellheadthroughtothecustomerdodifferentiatorswithourdownstreamandintegratedgasbusinessesdeliveringgoodresults.Underpinningourfinancialperformance,despitethecontinuedlowoilandgaspricesof$34averageblendforthequarter.Wedelivered$1.6billionofunderlyingcurrentcostofsupply,orCCSearnings,(inaudible)$9.3billion(temporarily0overthelast12months.

We'realreadyseeingpositiveeffectsfromouracquisitionofBG.BGdeliveredstrongproductiongrowthinthisquarter,andsome$200millionstraighttothebottomline.We'reofftoagoodstartwiththeintegration,buildingonsixmonthsofdetailedplanningbeforethedealwasclosed.Atthesametime,continuingtoreducecostsandspendingoverallacrossbothportfolioswithmaterialopportunitytodoexactlythisinthedowncycle.It'searlydays,butweareextremelypleasedwithwhatwe'reseeingsofarfromtheacquisition.

Turningtotheresults.AndIwillstartwiththemacro.Wehaveseenasharpdeclineinoilandgaspricescomparedtotheyearago,reflectingprimarilytheOPEC'spolicychange.

Brent'soilpricesweresome37%lowerthanyear-agolevels;similardeclinesinWTIandtheothercrudemarkets.Therealizedgaspriceswassome36%lowerthanoneyearagowithastrongdeclineingaspricesseeninallthemarkets.WeappreciatetherehasbeenarecentrecoveryofpricesduringApril,butthisdoesrelatetothefundamentalsofsupplyanddemand.Butitisfartosoontobecallingabreakintheweakerenvironment.

Onthedownstreamsidetherefiningmarginsweresignificantlylowerinallregionsdrivenbyoversupply,higherinventory,andarelativelymildwinterintheUSandinNorthernEurope.Chemicals,theindustrycrackermarginstrengthenedinEuropeandinAsiaatthesamequarterlastyear,andwas(inaudible)bythefurtherreductionin[natural]feedstockcostduetothedeclineincrude.USgascrackermarginalsodeclinedasethylenepricescontinuedtofalloverandabovethedeclineinthegasprices.

Youwill,Ihope,haveseentheenhancedfinancialdisclosuresfromtheCompanythisquarter.Wenowreportintegratedgasearningsseparatelyfromtheupstreamratherthanthesubset,andinmoredetailthaninthepast.Indownstreamwehavegivenanearningssplitformallyforthecombinationofrefiningandtrading,obviouslyseparatefrommarketing.

Alsotakenonboardsomecommentsaroundtheexchangerateimpacts,whichhavebeenabitnoisieroverthepastcoupleofyearsintermsofquarterlyimpact.We'renowtreatingnon-cashforeigncurrencyimpactsinAustraliaandBrazil,specificallyonthedeferredtaxassets,we'renowtreatingthemasidentifieditems.Youwillseearestatementofthatintheresulttablestoday,bothexpertlyandalsoimplicitlyinthebusinesses.Asthiseffectwaslargeandpositivethisquarter,hadwereportedonthepriorbasistheunderlyingearningswouldhavebeenhigherbysome$570million.

Excludingidentifieditems,ShellCCSearningswere$1.6billion.Thatisa63%decreaseinearningspersharefromthefirstquarterlastyear.ThatEPSfigureforQ1usestheweightedaveragenumberofsharesinthequarter,andclearlythatchangedduringthequarter,muchloweropeningbalance,1.5billionroughlyshares,roughlyhigherbytheendofthesecondquarterduetotheacquisitionofBG.OnaQ1-to-Q1basiswesawanincreaseinthelossintheupstreamandlowerearningsinbothintegratedgasandindownstream.

Returnontheaveragecapitalemployedwas3.8%excludingidentifieditems.Andcashflowfromopswasaround$650million,or$4.6billionexcludingworkingcapitalmovements.Dividendsdistributedinthefirstquarterwere$3.7billion,or$0.47ashare,ofwhich$1.5billionwassettledundertheScripProgram.

Turningtothebusinesssegmentsinalittlemoredetail.Upstreamearningsexcludingidentifieditemsforfirstquarter2016werealossof$1.4billion,butwith$2billionofpositivecashgenerationexcluding




workingcap.Lowoilpricesdominatedtheseearnings,andthatisa$1.4billionaffectcomparedtoayearago.However,Ithinkitisveryimportanttopointoutthattheactualoperatingperformancecontinuestoimprove.Thefocusonmargins,reliabilityanduptime,itisdelivering.Youcanseetheincreaseinunderlyingproductioncontributing,andwealsohaveadeclineintheoperatingcolumn.

Turningnowtointegratedgas.Earningstherewere$1billioninthequarter,andthatcompareswith$1.5billionayearago.Loweroilandgaspricesreducedtheseresultsbysome$700million.

AndresultsalsoexcludethedividendsfromtheMalaysianLNGDuajointventurewhichlastyear,were$90millioninthefirstquarter.WeexitedthatjointventureinMaylastyear.UpliftfromBGincreasedthecontributionfromtrading,andlowerwellwrite-offs,theyallcombinedtodeliveraprofitablequarter,despitetheloweroilprice.

Theheadlineoilandgasproductionforthefirstquarterwas3.7millionbarrelsoilequivalentperday,16%higherthanthefirstquarterlastyear.TheupliftfromtheBGacquisitionaccountsforthemajorityofthatincrease.Letmealsonotewe'reseeingbenefitsofShell'sactionstoimprovetheuptime.Lessmaintenancethanayearago,betterreliabilityinuptime,forexampleintheUKandinMalaysia,allgoodtosee.LNGvolumeswerealsohigher,mainlyreflectinghighervolumesasaresultoftheBGcombination.

Turningnowtothedownstream.Earningsthereforthequarterexcludingidentifieditemswere$2billion,mainlyduetolowerresultsinoilproducts.Inoilproductstherefiningandtradingresultswerelowerthaninthesamequarterlastyear.Andthatreflectedtheweakerglobalrefiningconditionsacrosstheboardandalsoreducedavailabilityduetodowntime,particularlyintheBukomrefineryinSingapore.

Marketingdeliveredstrongunderlyingperformanceforthequarter.Resultsofthesamelevelaslastyearinfact,drivenbyhighunitandlowercost.Chemicalsearningswere8%lowerthanayearago.ThatwasduetothelowermarginintheUSbasechemicals,[both]inthemargin(ExIM)marginandthedowntime,againattheBukomrefineryinSingapore.

ThiswaspartiallyoffsetbylowercostsandtherecoveryofproductionattheMoerdijksiteintheNetherlandsÐoverall,anotheragoodquarterforthedownstream.ReturnonaveragecapitalonacleanCCSbasiswas18.8%attheendofthequarterona12-monthbasis.AndthedownstreamCFFO,cashfromops,wasaround$11billionoverthatsame12-monthperiod.

Wemadeseveralannouncementsonthedownstreamportfolioduringthequarter.IntheUS,ShellandSaudiAramcodecidedtoendtheMotivajointventureontheGulfCoast.Wearedividingtherefiningandthemarketingassetsportfoliobetweenus.We'verecentlycompletedthesaleoftheDenmarkmarketingbusinessforaround$300million.

Wealsodelivereda$400millionMLPequityofferintheMidstreamPipelineCompanyintheUnitedStates.WeexpecttocompletetheShowaShellinvestmentsinJapanandthesaleofsharesintherefinerycompanyinMalaysiathisyear.Takentogether,theShowaShell,Malaysia,DenmarkandthetypicalMLPyearlydealsshouldresultinaround$3billionofdisposalproceedsthisyear.AndtogetherwithpotentialcontributionfromtheMotivadissolution,thatisaprettygoodstartfortheyear.

Turningnowtothecashposition.Cashfromopsonthe12-monthrollingbasiswas$23billionatanaverageprintpriceofaround$48perbarrel.Thatisprettyclosetotoday'sspot.CashportionoftheBGdealwas$19billion.Thatresultedinnegativefreecashflowpositionintotalforthequarter.Thenetdebtposition,whichisaround$69billion,nowreflectsthetotalBGbalancesheet,andofcoursethepurchasepricepaidforthat.

Gearingsattheendofthequarterwas26.1%.WerecognizecertainoperatingleasesfromBGasfinanceleases.TheseincludeFBSOs,someoftheshippingvesselsandsome--oneLNGfacility.OveralltheBG




dealaddedsome9%--9percentagepointstoourgearingand2percentagepointsofthatisasaresultofeffectivelythefinanceleasechanges.

Prioritiesforcashhavenotchanged.First,debtreduction.Thendividend,thencapitalinvestmentsandsharebuybackscompeteforthemargin.Dividendsdeclaredwere$12.7billionoverthelast12months.

MorespecificallyontheBGconsolidation(inaudible)significantone-offimpacts.ThefinaltransactionpricefortheBGacquisitionwas$54billion,orGBP37billion.YouwillfinddetailsoftheaccountingimpactsfromBGintheresultsannouncement,buttheheadlines.Goodwillwas$9billion,andthisisanaccountingdefinition,anartifact,ifyoulike.Goodwillisthebalancingnumberbetweenthefairvalueasseenbymarketparticipantsandthepurchaseconsideration,the$54billion.

Undertheaccountingstandards,fairvalueiscalculatedusingforwardpricecurvesasatthedateofcompletionforthefirsttwoyearsandthenanalysts'macroforecastthereafter.Sojustareminder,theoilpriceontheFebruary15wasaround$33abarrel.Thereforetheforwardcurvewasfairlylowandthisdidimpactalowerfairvalueandthereforeahighergoodwill.

Theprofitsandlossaccountgoingforwardwillincludeannuallya$1.2billionafter-taxdepreciationchargeforthepurchasepricepremium.Thatisbasically$100millionamonth.Sowehavea$200millionimpactthefirstquarterof2016.Itwillbe$300millioninquartersgoingforward.

Letmenowjustmoveontotheex-BGassetsandtheirperformance.Wewill,ofcourse,talkaboutthissomewhatinmoredetailattheCapitalMarketDaywe'rehavinginLondononJune7.However,itisgreattoseethattheformerBGassetgrowthreallyiscomingthroughnowinthisquarter.Theoilandgasproductionfromtheseassetsaveragedaround800,000barrelsoilequivalentadayinthefirstquarter.Thatis25%higherthantheyearago,anditisathirdhigherthantheproductionthatwasinthepublicdomainwhenwenegotiatedandannouncedthebid.Theproductionin2014was600,000barrelsaday.

Inthefirstquarter(inaudible)forShell,thesharewebookedonlytwo-thirdsofthisamount,522,000barrels-a-dayoilequivalenttobeprecise,and(inaudible)thatreflectsjusttwomonthsofcontribution.Thegrowthactuallycomesfromtheramp-upofQueenslandgasinAustraliaandalsothesixthandseventhnon-operatedFPSOsinDeepwaterBrazil.BG'sassetsoveralladdedaround$200milliontoShell'searningsinthequarterandapproximately$800millionofcashflowfromops.Stillearlydays,butthesynergiesprogramisontrack,butIwouldsaymorethanontrack,andyouwillhaveseensomeannouncementsrecentlytoreduceourUnitedKingdomofficepresence.Basedontheexcellentprogressthatwemadeinthedetailedintegrationplanning,wearelikelytoseedeliveryofthesynergytargetsmuchearlierthanplanned--andatthelowerthanexpectedimplementationcosts.Overall,greatstartwithintegration,andobviouslyalotmoretocomethere.

BeforeIclose,afewwordsonspending.Wecontinuetoreducecapitalspendingandoperatingcosts.We'rereducingthosecostsacrosstheboard,redesign,postponenewoptions.Earlierthisyear,afewmonthsago,weprovidedacapitalinvestmentguidancefor2016,a$33billionpotentialtoreducethatfigurefurtherbecauseofcoursewehaven'tactuallygottenunderthehoodoftheBGportfolioatthatpoint.

Thecapitalinvestmentfor2016,thisistheactualresults,isclearlytrendingtowards$30billion.WelookatdetailoftheBGportfolio.Wecontinuetodrivemorecapitalefficiencyinourownopportunityfunnel.Andinpracticewe'retakingcostaoutofprojectsandprojectsoutofthefunnel.

The$30billionfigure,andjusttobeclear,in2014beforeacquisition,beforewestartedeitherCompanyworkingonreductions,thecombinedcapitalin2014was$47billion.This$30billionfigureis35%belowthatlevel.Itincludes--itactuallyincludeswellover$1billionofnon-cashitemsforfinanceleasesstilltocomethisyear,acoupleofFPSOsinBrazilandStonesintheGulfofMexico.




Onoperatingcosts,similarlytheunderlyingoperatingcostistrendingdownwardstoarunrateofaround$40billionbytheendoftheyear.Andduringtheyearwewilltakeafewone-offscostsmostlikelyassociatedwiththetransaction,whichiswhywedonotgiveafull-yearfigure.That$40billion,comparesagain,gobackto2014withsome$52billion,$53billion,20%lowerthatthe2014combinedlevel.Insimpletermswe'resayingallthroughlastyearjudgeusonwhatwe,notwhatwesaywe'regoingtodo.

Weareeffectivelytaking$17billionoutoftheCapExand$13billionoutoftheOpEx,$30billionoutofthespendbetween2014and2016.Inverysimpleterms,weareexpectingtoabsorbtheentiretyofBG'sactivity,OpExandCapExandkeepthespendlevelinbothcasesatthesamelevelitwasforShellalonein2015.ThatisallaresultofwhatIwouldhumblysuggestisaworld-classintegrationprocessthathasbeenrunningsinceJulylastyear,andhasreallyhitthegroundrunning,bothteamsBGandShell.

Justtosummarizeagainthen,integratedactivitieswellaheadthroughthecustomerdodifferentiateus.Downstream,integratedgas,bothdeliveringgoodresultsunderpinningthefinancialperformancedespite$34oiland$2HenryHub.We'realreadyseeingthepositiveeffectsfromBG.WeareverybusynowcombiningthetwoCompanies,lookingtoaddyetmorevalueforshareholders.Atthesametime,we'recontinuingacross-the-boardreductionofcostsandspending.Lotsofmaterialopportunitythereinthedowncycle.Earlydays,verypleasedwithwhatwe'reseeingsofarfromtheacquisition.

Withthatletstakeyourquestions.Isortofraiseditearlier,butIdoacknowledgeforallofyou,wehavechangedsomeofthereportingsegmentationandthismaybemakingsomeofthemodelingquitedifficult.CanIsuggestthatwedonotcoverthoseonthecallandthatwecanfollowupwiththeIRteamprimarily?IwilldowhatIcantohelp,butitmaybeadistractionforthemainpointsinthecall.Iwillalsoremindyou,havetheCapitalMarketsDayinLondononJune7,whenhopefullyeverybodyonthecallwillbeabletojoinus.

(CallerInstructions)

Operator,pleasecouldyoupollforquestions?Thanks.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

OswaldClint.

OswaldClint (Analyst-Bernstein):

Twoquestions.Firstone,justontheupstreambusinessitself.YouspokeaboutthereductionintheOpEx,whichIcansee.Butobviouslyonacountrybasis,weseehereinthesegmentthatyourlossmakingineverygeographicalbusinessthisquarterforthefirsttime.OpExhasfallen.Youruptimeisgood,reliabilityisgood.Istheremoreyoucandoheretogetthis,theupstreamacrossthesegeographiesbackintotheblack?Isthatgoingtobesufficientfor2Q?Ormaybeifyoucouldtalkaboutfurthercostreductionacrossthegeographies.Secondquestion,ontheCapExtrendingtowards$30billion.I'mprettysureinvestorsaregoingtofindthatalittlebitvague.SoI'mwondering,doesthatmeanyoufeelconfidentabout$30billion?Willbeabovethat?Isthereachanceitcouldfallbelowthat?JustabitmoreclarityaroundtheCapExnumber,please.Thankyou.

SimonHenry(CFO):

Theprimarydriveroftheupstreamnumberisthe$34oilpriceplusthefactthatevenwherewe'reproducinggasthereisalinkagetotheoilprice,withsomelaginsomecases.Thatfundamentallyisthe




difference.Buttoday'soilprice,$45whenIlastlooked,wouldberoughly$1billionbetteroffacrosstheboard,whichmovessomeoftheregionsbackintoplace.Thefundamentalreaction,though,you'reabsolutelyright,itcosts.Wehavemadecleartoday,theorganizationsometimeago,andwe'reseeingthebottom-lineresultscoming[down]butinthinkingaboutcosts,thecombinationofBGandthe$40world,it'safantasticopportunitytotakeour(inaudible)forever,aslongasyouthinkaboutthecost--thepricebeinglowforever,andensuringthatcostdon'tcomebackagainwhentheygobackup.

Verystrongfocusoncost.Thatwillcomethrough.It'sdifficulttodo$1billioninthequarter,butitiscertainlyprogressingintherightdirectionandthere'smoretocome.Therewillbeassetsales.We'llseethat.Andwehavebeenlookingverycloselyatsomeofthemoredifficultareas,shouldwesay,atcostssuchastheNorthSea,andthereforeworkinghardinthat.Aswegoforwardyou'regoingtoseesomenewproductioncomingoninplaceslikeGorgonandallofthat,inintegratedgas,ofcourse.AndtheninKazakhstanandinStonesandinthedeepwater.AndwewillseetheBGsynergieskickin,althoughquitealotofthatinthefirstyearisonlowerlevelsofexploration.Allofthosethingscontribute,andeachintheirownsmallway.

Thebiggershort-termfactorisclearlytheoilprice.Thattrendingtowards$30,whatdoesitmean?Well,firstlywegenuinelyonlyhavenow10weeksunderthehoodinBG,andlookingattheactualCapExprogram.Beforethatwedidhavesixconstructivemonthswherewewerelimitedinwhatwecouldshareforlegalreasons,butextremelyconstructiveprocessduringintegration.So-ortheplanningforintegrations.Sowedidhaveareasonableviewaboutwhatsomeofthechoicesare.TheactualCapExinquarteronewas$6.5billion.ThatisroundeduptoincludetheJanuaryspendinBG.Multiplythatbyforfour,youcomeupwithanumberlessthan$30billion.Ifyoulookatthe12-monthnumber,it'sslightlyabove$30billionifyouincludeBG.

We'reheadingdirectlyfor$30billion,andwe'remakingbasicallydecisionsaswegoalongatthemargin.Iwouldexpectwewillhit$30billionorbelowaswegothroughforthetotalfortheyear,becausethatiswhatthetrendistellingus.Andwewerefinalizingthat,really,overthenextmonthorsoaheadoftheCapitalMarketsDay.ifthereisanissuearoundrigcommitments,thenthepotentiallyidlerigsandwhatwechoosetodowiththemhavesomenoiseimpact,itcouldbearonOpEx,itcouldbearonexpense,itcouldbearinCapEx,whichiswhyI'mslightlyreluctanttocommittoaveryspecificnumber.Itwillgetto$30billionorthere(inaudible).90%isalreadycommitted.Sohopefullythathelps,Oswald.That(inaudible)chance,butIthinkit'saquestionthatquitealotofpeoplewillbelookingtoheartheanswerto.

Operator :

LydiaRainforth,Barclays.

LydiaRainforth (Analyst-BarclaysCapital):

Twoquestions,ifIcould.Thefirstone,andIcomebacktofocusontheOpExside.IfIlookatthechartthatyoushow,basedon2015,2016seemstoimplyabout$8billionreduction,whichisclearlymorethanthe$3billionstandaloneguidanceforShellcostreductionsonthe$2billionsynergies.Isthattherightwayoflookingatit?Thatyouareactuallydoingmoreonthecostsavingsthanyoumighthaveexpectedcomingthrough?Andthatpartlylinkstothesecondquestionof,areyouabletogettowhatyouthinkisnowthecashflowbreak-evensbecausetheCapExanddividends,andsincetheoilprice(inaudible)forthisyearornextyear?Thanks.

SimonHenry(CFO):

Thereductionbetween2015and2016thatwe'reseeing,effectivelyyou'reusingarulerthere.It'snotnecessarily$8billionbecausewe'retrendingtowardsarunrateof2014.Sowemightendupwithslightly




morethan2014fortheyearbecauseofone-offitemsinthefirstpartoftheyear.Butbroadlyspeakingitis$47billiontoarunrateof$40billionintheyear.

Andyes,we'reseeingmoreopportunitythanwehadoriginallyexpected.Andwepreviouslystated$38forShellandaddonabitforBG,whichisnotnecessarilyallbeingaccountedforonthesamebasis.Butalltold,allintegratedweshouldbeatarunrateof$40billionbytheendoftheyear.Andthisiscomingfromavarietyofplaces.Butonebighelpissynergiesbasicallyemergingmuchmorequicklythanwehadoriginallyplannedfororexpected.Andthat'sbothontheexplorationside,whichwehavebeenworkingatnowfor6or8months,butalsoontheOpExsidewhereitisclearwecanabsorbinquitealotofareas,whetheritisatthecorporatefunctionlevelor1or2countries'(inaudible)activitieswithnoincreased,netincreaseinstafforcost.

Thathasbeenabigdriver.PlusIthinkmomentum.Wetalkedlastyearaboutlotsof,notsmallbutforyouasobserversprobablynotthatmaterial,but$100million,sayafew$100millionnet.Quiteafewongoinginitiativeswhicharecontinuing.Andtheytookcostoutlastyearandthey'retakingmoreoutthisyear.Itisaggregationofthecontributionsfrommanypeople,the90,000(inaudible)andnotjustsomethingthatBenorIareexhortingpeopletodo.Couldbefurtherroomaswegoforwardaswell.Iexpectobviouslywiththeoilpricebeingwhereitis,thatisverymuchthedirectionwewillhead.IsthatcovereverythingLydia?

Operator :

ChristopherKuplent.

ChristopherKuplent (Analyst-BoAMerrillLynch):

Simon,twoquickones.Iwantedtocheck.Ithinkyouhavenowgotalmost$70billionunderyourdefinitionoffinancialnetdebt.ThefreecashflowobviouslystillnegativeinQ1.Iguesswillremainnegativethisyear.Justwantedtocheckhowworriedyouareonthegearingsideofthings,andwhetherthat$70billionnumberiscausingalarmclocks--sorry,alarmbellsaswelltoring.

Secondly,justwantedtogetmyhandsaround,again,the$40billionOpEx,whetheryoucouldgiveusabitmoredetailwherethatOpExactuallysits,whatyouincludeinthere,howmuchyouwoulddefineasstructuralcoststhatarenotcomingbackshouldtheoilpricerecoverintothenextthreeyears?Orindeed,howmuchofthosesavingsarepurelypricingandcyclical?Thankyou.

SimonHenry(CFO):

Iwilltryonthesecondone.Thefirstoneisthereallyimportantpoint.$69billionofnetdebt.Yes,itissomethingthatIam--mightlosesleepaboutbutnotjustyet.26.1%gearing.FreecashflownegativeinthefirstquarterobviouslydrivenbytheBGdealandtheworkingcapitalto$4billion.$15billionofthatthatimpactsthefreecashflow.The$34oilpricedidn'thelpeither.Goingforward.Intheshorttermat$45withthecurrentlevelofspend,thegearingandthenetdebtislikelytogoupbeforeitgoesdown.

Whatbrings--eventhe$45?Whatbringsitdown?ItisthecontinuedreductioninOpEx,it'sthecontinuedreductionininvestmentlevel.Andimportantlyit'sthecomingonstreamwithnewprojects.Noneoftheseareeasyfixes.Iamconfident,veryconfidentthattherightthingsarebeingdone.Whatweneedtodoisdothematpaceandensurethatwearedeliveringsoonerratherthanlater,whichiswhyit'sgreattoseetheBGsynergiescominginaswedo.

Thegearingfigureof26.1%isacoupleofpercentagepointshigherthanpreviousadvice,andisdrivenentirelybythetreatmentoftheleases,thefinancialleases,ratherthanoperatingleases.Andthishasnoimpactorlittleimpactonthecreditratingbecausetheratingagencieslookthroughthat.Butitdoes




meanthatanystatementsmadearoundgearing,youtohavetoadd2percentagepointsontoanypreviousstatementofexpectation,andthat(inaudible)hastheimpactofgoingforwardbynewFPSOsaswell.Amanageablesituation,butnotonesthathasaneasyfixes.ButIthinkalltherightthingsarebeingdone.

Thecreditratingagencieshavetakenacloselookand[whatitdid]isbroughtmostoftheindustrydown.WecamedowntoAAwithMoody's.S&PweareatanA-plusratingatthemoment,andthatis--thatstillwithanegativeoutlook.Sowe'relookingateffectivelyourfutureperformancebenchmarksagainstthosemetricsasakeyperformanceparameterforthemanagement.Sobothdebtreductionandincreasedcashflowgenerationarerequiredtogetthosemetricsbackintotherightplace.

Our$40billionOpEx,here'sthehighlevelbreakdown.Itishalf-and-halfupstream/downstream.$1billionorsoisinthedownstreamandthe$20billionupstreamsplittwothirds/onethirdbetweenupstreamandIG.That'safterallocatingeverythingtothebusinesses.Soaroundabout$10billionofthe$40billioniswhatyoumightthinkofascorporate-typecost,finance,IT,realestate,HR,etcetera.

Thereductionsthatwe'vetalkedaboutarecomingacrosstheboard.Manyarelinkeddirectlytoreductionsinthenumberofpeoplebychangingthewaywedothingsorchangingwherewedothework.Differentrelationshipswith,forexample,suppliers,notjustonunitratesbutfundamentallychangingthewaywedealwithstandardizeddesign,differentwayofhandlingIT,etcetera.Itisnotsomethingwestartedthreemonthsago.Itissomethingwestarted3to5yearsago,dependingontheareawearelookingat.Thereforewe'reprettyconfidentmostofwhatwedowillstay[active]iftheoilpricedoesrecoveratsomepointinthefuture.

Clearlyatthemarginwhereweareinthethird-partyservicesarebigsupplytous,butthereisexposureiffuelpricecomesback.Buttobehonest,alotofthesavingsthatwehaveseensofarhavebeenin,forexample,areaslikedrilling.It'sbeenbetterperformanceasmuchasithasbeenlowunitrates.OrithasbeeninareasofactivitysuchastheNorthSeawherereducingcostisnotanice-to-have.It'sanimperativeorfacilitieswillbeclosedin.Andthereforesomeverysignificantchangesinthewayofdoingthingsthatwillnotbereversedintheeventofoilpricegobackup.We'requitepleasedwithwhatwehavebeenseeingsofar,andlet'sseehowmuchfurtherthereistogo.Manythanks,Chris.Hopefullyagainbothquestionsquiterelevanttomostoftheaudience.Nextquestion,please?

Operator :

JonRigby.

JonRigby(Analyst-UBS):

Twoquestions.JustaskaquestiononLNG.Ithinkyousaidthere'sabouta$200millioncontributionfromBG.Socanyouconfirmordiscussalittlemoreaboutwhatyou'reseeingintermsofoptimizingcargoes?AreyouabletoseethekindoftradingandoptimizationandearningsthatBGwasabletogenerate?AndisthatstartingtospreadintotheShellbusinessaswell,thebiggerShellbusiness?Andmaybesomecoloraroundthatwouldbereallyuseful.Secondly,onchemicals.ObviouslyMoerdijkcomingback,butIthinkyoureferencedBukomdown.Isitfairtosaychemicalsisunder-earningagainstwhereyouwouldexpectittobe,allthingsequal?Andmaybeareyouabletocalculateorindicatewhatyouthinkthedeltamightbeifeverythingwasrunningrathermoresmoothly?Thanks.

SimonHenry(CFO):

ThanksJon.Youarerightonchemicals.I'llsaythatfirst.Itis$200million,$300million.It'sbecauseMoerdijkcameback,butessentiallytheethylenecrackerinBukomhasbeendown.Shouldcomebackinthemiddleoftheyear,plusorminustheendofQ2.Butyouaretalkingafewhundredmilliondollarsleft




onthetablecomparedtoeverythingrunningsmoothly.

LNGoptimization.Stillabitearlydays.Idon'twantsaytomuch,butsomecommercialsensitivityhere.ButIthinkwe'reseeingjustasmuchflexibilityandoptimizationintheShellportfolioasthereisintheBGportfolio.Itisagreatopportunitytolearnfrombothsideshowtooptimizenotjustintheshorttermbutthemediumtothelongterm.Andinverysimpleterms,Shell'straditionalapproachwassupply-drivenandBG'straditionalapproachwasmarket-driven.Startwiththemarket,workbackwardstosupply,andvice-a-versa.Asthetwomeetinthemiddle,youmaybeawarethatSteveHillwhousedtoruntheGEMSbusinessforBGisnowrunningbasicallysamebusinessbuttwicethesizeforShellplusBG.HavingStevethereplustheguyswhoworkedonourportfolioisindeedidentifyingfurtheropportunities.

Butcertainlyintheshortterm,interestinglytheoptimizationisjustaspositivefromtheShellportfolioasBG.Althoughonehastosayatthisparticularpointintimeneitherofthemisaslucrativeastheyhavebeeninthepast.Butitisagreatpointforthefuture--opportunityforthefuture.Iwouldjustsaythere'sopportunitytonote.We'venowgottwovolumesinforLNG,whichareeffectivelytheshareofequityproductionwhichisabout7milliontonnesinthequarter.You'relookingatover30milliontonnesonanannualizedbasis.AndwehavealsochurnedtheShellshareofeffectivelythesales,becauseinBG'sportfolioandincreasinginShellportfoliowe'relistingotherpeople'sproductionandsellingit.Ourshareofsalescellsisactually12milliontonnesinthequarter,andthereforefullyannualizedyou'retalkingaround50milliontonnes,or20%ofthe[oil]marketintermsofShellequitymolecules.Itgivesyouafeelofthescaleandtheopportunity.ThanksJon,andgoodluckagainstBrightononSaturday.Nextquestion.

Operator :

BirajBorkhataria,RBC.

BirajBorkhataria(Analyst-RoyalBankofCanada):

Ihadacouple.ThefirstoneinlookingatupstreamAmericas,orNorthAmerica,nowthatit'sstate.CapExwasdownquitesharplyQonQbyabout$1billion.Iwaswonderingifyouwouldtalkabouttheunconventionalsbusinessspecificallyandpostthedepartureofmanagementthere,andhowthatfitsintoyouroverallportfolio?Aswellashowmuchcapitalthatbusinesswillgetfor2016andgoingforward.Thesecondquestionwasmoreofaclarification,really.InoticedtheOceanagasrealizationswereparticularlyweakinthequarterversustherunrate.AndIwaswonderingifyoucouldgiveabitmorecoloronwhatisgoingonthere.Thanks.

SimonHenry(CFO):

TheunconventionalbusinessinNorthAmericaandArgentinatogetherisgettingabout$2billionofcapitalallocationthisyear.Thatisquitealockdownonpreviousyear.Andwe'regettingalotmoreforitasithappens,becausetheykeepcominginaheadoftarget.About70%ofthewellsarecominginwitha1000barreladayinitialproductionorbetter.Andwe'reseeingcostscontinuetobedownsortof20%,30%lifeforlife,yearonyear.Themajorityoftheactivitystillremainsexplorationandappraisal.We'verarely,ifatall,pulledthetriggeronmajordevelopmentsforobviousreasons,$2gasand$34oilisnotthetimetobedoingmajordevelopment.Soitisabitinaholdingpattern.

Strategicallywe'reinagoodplace.Wehavegotinthereintermsofresourcepotential,you'retalkingupto12billionbarrelsoilequivalentresourcepotentialacrossCanada,UnitedStatesandArgentina.Aroundthree-quartersor70%orsoofthatisgasandwehavethebalancesheetvalueisjustunder$15billion.Soyouhavegotmassiveresource,justover$1abarrel.Ithinkovertimethisisgoingtobeagreatvaluetodevelop.Butintheshortandthemediumtermitwillbeonthereprettymuchat[carry]ormaintaincapitalallocation.




TheOceanicgasrealization,andultimatelythisisdriveninpartbecausewhatyouseeisanetback.SoitisanetbackbothinQueenslandandinWesternAustralia.Andthereforetherealization--anetbackfortheLNGpricefitsalmostdirectlytotheLNGprice.Onceyoudeductthe--effectivelythewayQueenslandgashasbeenstructuredwithtotal-inagreementsandpipelinetotaling.Onceyou'vedeductedthecostsoftakingthegasfromthewellhead,liquefyingitandgettingittomarket,thathasbasicallydrivendowntheaveragerealizationprice.Allofthepriceupsidegetsshownintheupstreamratherthanthemidstreaminpractice.ButthatisjustthenatureoftheBGset-upinQueensland.ButitisalsonotdissimilarinWesternAustralia,atleastintermsoftherealizationthatwewouldrecognize.

Operator :

IreneHimona,SG.

IreneHimona(Analyst-SocieteGenerale):

Myfirstquestionisonvolumes,ifImay.YouhavehighlightedthecontributionofBGtoQ1productionandLNG.Areyouabletoprovidesomeguidanceonthenewgroup'sproductioninfullyear2016and2017,givenallthemovingpartsofthepuzzle?

Secondly,goingbacktothe$40billion.Effectivelyyouaretalkingaboutfasternearer-termOpExreductions,asIunderstandit.Howdoesthatrelatetothe$3.5billionsynergiesfromBGby2018?Isitthesamenumberhappeningearlier?Areyouabletoraisethat?Andisthereanythingyoucansayatthisstageonthequestionofvaluesynergies,oroverandabovethatnumberwhichIunderstandhadtobestrictlyaudited?Thankyou.

SimonHenry(CFO):

Volumes,ifwehadthreemonthsofBGratherthantwomonthswe'dhavebeenabout3.95millionbarrelsofoilequivalentaday.Soquiteastepup.Andaswegoforward,Icannotgiveyouguidance,simplybecauseitliterallyisnotonmyradarscreen,theproduction,becausewearespendingallthetimeonthecash.Whatarewespending,whatareweearning,andwherearethepriorities?

Production,tobebrutallyhonest,apartneedingtobesafeandreliable,isanoutcome.Itwillobviouslybeimpactednotjustbydivestmentsbutalsonewprojectscomingonstreamaswell.Idothinkfundamentallyatthemomentwe'reputtingtogethertheasset-leveldetail,themaintenanceandtheunderlyingspendprograms.Andweareaimingtoputtogetheramuchfirmerandclearercollectiveunifiedplanbythebackendofthisyear.Soduringthisyearquitealotofwhatwesayremainsalittlebitprovisional,althoughitwillbeaccurate.Andthetargetsfortheindividualswillbesetinthebackendofthisyear.Icannotgivefurtherguidanceonthevolumes.

The$40billionasitrelatestothe$3.5billion.Well,the$3.5billionby2018was,ifyouwillrecall,$1.5billionofexplorationand$2billionofOpEx.The$1.5billionofexplorationissomethingthatwewillalmostcertainlydeliverearly,quiteearly.Idon'tknowifwe'llactuallygettherethisyear,butwewillgetprobablyclosethisyear.Ofthe$2billionofOpEx,itisabithardertowork,butactuallywe'refindingwe'redoingthatmuchmorequickly.Icannotsay,againdon'tactuallyhavetheexactfigures,butalotmorethantheyoriginallyexpectedwhenwedidtheperspectiveswillbedeliveredthisyear,anditwillalsocostusless.Wehavesaidintheperspectivethat$1.2billionwouldbethetotalexpectedone-offcostoftheacquisition.Itshouldbelowerthanthat.Andwewillalsomostlikelytryandensurethatthatcostisincurredallin2016anddoesnotspilloverinto2017.

Thosearethemovingparts.Areweinapositiontoraisethenumber?ClearlythereareindicationsthatthereareopportunitiesfromwhatI'vejustsaid.Ithinkitissomethingwe'llprobablyrevisitedinamonthorsoastimeforCapitalMarketDay.Butatthemoment,thefocusisonachievingthesynergies,not




necessarilyextendingthem.Andwe'reseeingsomegreatprogress.

Thesameistrueonvaluesynergies.Whatweareseeingisacombinationoffactorsweneedtounderstand,notonlythenumbersintheBGplanbutalsothepsychologybehindthem.Howoptimisticorconservativearethey,andhowaretheycomparingwithwhatisactuallybeingdelivered.TheactualassetperformanceisextremelygoodagainsttheoriginalBGplantodate,Imustsay.Thereforethatmightactuallythrowoff,yes,therearesomevaluesynergiesthatwecanbankearlierratherthanlater.We'redefinitelyseeinglowercostsinoneortwoareas,cruciallyinbothBrazilandAustralia.Andthatishelpfulindeed,becausetheyarebydefinitionthetwomostvaluableassetsintheportfolio.Sofar,sogood.ButIcannotbemorespecificthanthat.I'msorry.Nextquestion,please.

Operator :

MartijnRats.

MartijnRats (Analyst-MorganStanley):

Iwantedtoaskyoutwothings.Ilistenedtopartofthemediacallthismorning.AndinthereyousortofevokedaspiritofMarioAndrettibysaying,wewilldowhateverittakestobalanceourfinancialframeworkoverthecycle.Iwaswonderingifyoucouldelaborateonthat?It'ssoundedlikeyoupotentiallyhadsomethingspecificinmind.Andalsohowfardoesthebalancesheetgearingneedtorisebeforewhateverittakesreallykicksin?

ThesecondquestionIwantedtoaskiswithregardstooperatingcashflowinthequarter.Eventakingintoaccountloweroilprices,the$4.6billionexworkingcapitallookedalittlelight.AndIwaswonderingifsomeoftheone-offcostsrelatedtotheacquisition,someofthe$1.2billionfigurethatyoualsojustmentioned,mightalreadyhavebeenintherewhilstnottakenasaspecific--sorryasanidentifieditem?

SimonHenry(CFO):

WhatIactuallysaidthismorningwasinresponsetoaquestion,sowhatisyourbreak-evenpriceincashterms?Andsofarthisafternoonyouhaveallbeenkindenoughnottoaskthesamequestion,asyouprobablywould'vegotthesameanswer.Wedon'thaveone,wastheanswer.BecauseIwouldparaphraseMarioAndretti,wewilldowhateverittakestobalancethecashflowthroughthecycle.Becauseactuallythereisn'tanalternative,ifyouquotesomebodyelse.Unfortunately,itisthroughthecycle.Theaimisnottoachieveanygivenbreak-evenpointinanygivenyear.SoIalsoquoteasgoingbackwardstotheprevious12monthsis[$61billion]to12monthsof2015,break-evenwas[$55billion],oraround[$70billion]excludingdivestments.

Clearlythatneedstocomedownalittlebitifwearetostayinbusiness.Andthereforewewilldowhateverittakes.AndthatmeansreduceOpEx,reduceinvestmentfurther,ensurethatwedeliverprojects,keepthemupandrunning,maximizethemarginsanddivestassets.Thebiggestshort-termfactorwillremaintheoilprice.Thesecondbiggestis,inpractice,divestments.Thatisonewecancontrol,theotherwecan't.ButafterthatitisinvestmentsinOpEx.Andwealreadytalkedaboutthat.Soyoucanseewe'redoingwhateverittakesinthoseareas.

Howfardoesgearingneedtogobeforewe'reinthatsituation?We'reinthatnow.Wealwaysknewwewouldbepost-BG,butthecreditratingmetricsIreferredtoearlier,theactualnumberstodaywouldnotnecessarilymechanicallysupporttheratingsthatwecurrentlycarry.Weneedtoimprovetheratings.Thatisclearlystatedbytheratingagencies.Weneedtostarttoreducethedebt.Thatthesimple--thatisprioritynumberone.Weareinthatsituationnow.

Hopefully$6billionofworkingcapitallooksalittleweakwasthepremise.The[AES]perhaps.Yes,itis




gotsomeone-offsandit'sgot,example,the$70(inaudible)and--payingforthedeal.Thepresent$300millionorsoto[GeorgeOsborne].Intermsofthecostofdetail,butthatislessthan$0.5billionintermsofthequarterincashterms.Andthereare--thereisalwaysafewone-offs.Butbyandlarge,thebigfactorwastheworkingcapitalandthecostofsalesadjustmentwhichultimatelysomeofthoseareone-offsandsomeofthosewillreverseovertime.

Ican'trecallwhetherImentioneditearlier,butthereisatradinginventory.It'sbasicallyacontangoaffectaswell.Sothatisreversible.ThepaymenttotheIraniansfortheircrudeliftingsafewyearsagoisnotreversiblebutitisone-off.Thosethingswillplaythrough.Andit'salwaysdifficulttolookatonequarteralonetosee(technicaldifficulties).Let'sseehowthatgoesgoingforward.

Operator :

ThomasAdolff.

T homasAdolf f (Analyst-CreditSuisse):

Twoquestionsaswell,please.FirstoneonCapEx.AndIguessthere'snosuchthingasanapples-to-applescomparisonwhenwelookatthereportedCapExguidanceamongstthesuper-majors.Ifwelookatthe$30billionorsothatyoutalkabout,isthattherightbalanceforshort-termcashandreturnsandthelonger-termhealthofthebusiness?I'mkindofaskingthisquestionbasedonobviouslytoday'scostenvironmentand(inaudible)costreductiontocomeoutsideofShell.

Thesecondquestiononthelower48.ObviouslyMarvinleft.Thelower48isnowpartofAndy'sportfolioagain.IthinkbackinNovemberyousaidwe'regoingtotrytorunitindependently.AndIthinkwhenIspoketoMarvinhesaid,Ihaven'tquitefigureditoutwhetheritistheXTO-typemanagementorwhetheritistheBP-typemanagementwhichistrulyindependent.Haveyoufigureditoutyet?Thankyou.

SimonHenry(CFO):

StillhavewordswithMarvin.OnCapEx,is$30billiontherightnumberinthecurrentpriceenvironment?Probablynot.Let'slookwherewe'recomingfrom.Westartedat$47billiontwoyearsago.Thatismassivereductions.Butevenatwhatwespenttodaysomeofthatwascommittedinanoilpriceenvironmentalothigherthantoday.Sotheunitrateofcompletedprojects,thinkofGorgon,(inaudible)Stones,etcetera,(inaudible).Thosecostsreflectahigheroilpriceenvironment,nottoday'soilpriceenvironment.The--tostayinbusinessandmaybeinvestalittlebitforthehealth,thelong-termhealthofthebusiness,isprobablylowerthan$30billionattoday'sunitrate,thecostthatwewouldexpecttosee.Again,nospecifics.Itisjustlessthan$30billioniswhatIwouldsay.Couldbeseveralbilliondollarsless.

Onthelower48,therecertainlyaretwomodelsthere.ThereverseintegrationintoanXPO-typemodelortheUDIinternally.ThatcouldbeconceivedinpracticetheteamrunningtheonshoreShellbusinesstodayisthesameteamthatwasreportingtoMarvin.TheyjustnowreporttoAndy.Whattheyhavedoneistakehugeamountsofcostoutonthe(inaudible)indrilling.Andtotheextentthey'reabletodointheaggregationandotherfacilities,whattheyandweareworkingonisbasicallytheabove-assetcosts.Andhowwedealwiththatwilldeterminetheanswertoyourquestion.Itiscomingdown.Itiscomingdownacrosstheboard,partofthe$40billion.

Itisnotyetdecidedthatthespecificanswertoyourquestion,orwhetherthere'sahybridversion.WhatIwouldliketothinkisiflowerlevelsofabove-assetcostsarefeasiblefortheshalebusinessthenitshouldbefeasibleeverywhereelseinShell.Let'susethatasthepilottoidentifywherewecangofurther,fasterelsewhere.Bothofthoseareinprogressatthemoment.IthinkAndywillbewithusontheCapitalMarketDay.Idon'tknow.HewasintheUSlastweek.Soagoodquestiontoaskhim.




Operator :

AlastairSyme,Citi.

AlastairSyme (Analyst-Citigroup):

Twoquickquestions.OneonOpEx.Yougivethe2014referenceproforma.Canyougivethe2015byanychance?Secondly,appreciatetheintegratedgasandupstreamfromanaccountingstandpoint.Butdoesthatdistinctionimplywhollyinternally?IknowMartinandAndyarerunningthebusiness.Butourpeopleallocatedtothesedifferentbusinessesdistinctly?

SimonHenry(CFO):

Onthelatter,yes.Theyarebeingbasicallyrunningasseparatebusinesses.Wehad,althoughwereportedexternallyanIGsegmentwhichwasbasicallythesameassetspreviously,thatthereportinglineswerenotunified,tosayso.MartinisnowdirectlyaccountableforactivitiessuchasTrinidadandPeruandallofthetradingthatisdonethroughSteve,SteveHillinSingapore.Thatiseffectivelyhowthatworks.

OntheOpEx.2015proforma,itwasbasicallyinterpolatebetweenthetwo.It'ssomewherearound$46billion,giveortake.ThereasonI'mnotcitingmorespecificistherearesomedifferenceindefinitionsandaccountingtreatment.Itiscloseenoughstraightlinebetweenthe$52billion,$53billionin2014andthe$40billionbytheendof2016.Unfortunately,andI(inaudible)quiteextrapolatethatrateofimprovement.Buthopefullythere'ssomeimprovementsthatcomethereafteraswell.

Operator :

LucasHerrmann.

LucasHerrmann (Analyst-DeutscheBank):

Bytheway,thanksfortheaddeddisclosure,whichisusefuleventhoughitwillrequirealotmorespreadsheeting.Threebriefquestions,ifImight.Firstly,hardchoicesgivenwhereyou'reat.DoyouwanttosayanythingaroundthePennsylvaniacrackertiming,ifatall?Secondly,oncashflow.Deferredtaxandotherprovisions,andthisisnotthedeferredtaxadjustmentyouhavebeenmaking(inaudible)butthedeferredtaxnegativethathasbeenrunningthroughyourcashflowstatement.Canyoutalkthroughthatinalittlemoredetail?Thenumberhasbecomeincreasinglylarge,andjustsitsthereasabignegativewithnorealexplanation.

Thirdly,ifImight.Theoperatingcashflowintheupstreambusiness,whichhasclearlysunkoverthecourseofthelastfouryears.CanyougiveusanyindicationthroughlastyearorintothisyearwhatproportionofthatcomesfromtheDeepwater?Notthecollapsebuttheabsolutetoday,whatproportionistheDeepwaterthatyousuggesttouswilldeliver$15billionto$20billionofoperatingcashflowbackendofthisdecade,andwhatproportionisthetraditionalupstreamengines'business?That'sit.Simon.Thankyou.

SimonHenry(CFO):

Thanks,Hermann.Andapologies.

LucasHerrmann (Analyst-DeutscheBank):

YoucancallmeLucas.Boththesameproblem,bytheway.

SimonHenry(CFO):




Thearehardchoices.Therearethreeorfourbigprojects.Andthefirstonthelistisinfacttheonethatyourelated,thechemicalsinPennsylvania.TheothersbeingLakeCharles,GulfCoast,LNGCanada,BritishColumbiaandVitoDeepwaterofMexico.Thosearethebigfourgreenfieldoverwhichwecouldtakeafinalinvestmentdivisioninthenext,well,lessthan12months.Itishighlyunlikelythat(inaudible)Iwouldsaytoyou,maybeonlyone,thatwe'llactuallygoaheadinthattimeframe.Andbasicallyitisachoiceofwhether--whatisthebestwayofretainingormaximizingvaluefromthatsetofopportunities?

Andthechemicalsplantisprobablythefirstonebecauseofthetimingofcertaincommitments.Butthey'realreadyinplace.Itisanexcellentproject.It'sgotadiversesetofmarketexposuresandrisksassociatedwithit.Andthereforeprovidesquitesomeportfolioresiliencerelativetotherestoftheopportunities,notjustthebigonesbutsmalleronesaswell.Wehavehadquitealotofdiscussion,notyetpulledthetriggeronitonewayortheother.Itisnotafreeoption,ofcourse.Therearecostsofkeepingtheoptionopen.Notadecisionyet.Butitactuallyislooking,ifitwerenota$40worlditwouldbeprobablyaveryeasydecision.It'saverystrongandrobustproject.

Deferredtaxandotherprovisions.Iwilltrynottogointotoomuchdetailhere.Wejustaddeda$6billionliabilityasaresultofthePPAcalculation.Effectivelythetaxbenefitsofthestep-upinfairmarketvalueofanassethastobeaddedbackin,andthatincreasesthedeferredtaxliabilityby$6billion.ElsewherewehavedeferredtaxassetsasaresultofmakinglotsofincountriessuchastheUSandtheUK.Andwehavedeferredtaxliabilities,suchasbenefitingfromcapitalallowancesincountriessuchastheUKandelsewhere.Itisquiteacomplicatedsetofmovingpartsbehindthis.Thebiggestissueforusandforanalystsis,arethesetaxassetsrecoverable,whichbydefinitionsincethey'reonthebalancesheet,theyareassumedtobe.Thedeferredtaxliabilitieswillplayoutovertimeastheearningscomethroughfromtheassetstowhichtheyareassociated.Whichthestep-upof$6billionthatIjustmentioned,virtuallyallinBrazil.Thereforeyoucansee(inaudible)Brazilproduceandperform,thatyouwillseetheliabilityreduce.

Deepwaterproduction.I'mjustlooking.Isaround400,000barrelsadayatthemoment,whichbasicallyisthecombinationBrazil,US,Nigeria.ThatwouldbetheShell(inaudible)onBG.BGwasrunning--isapproachingnow200,000barrelsadayeffectivelyinBrazil.Youareseeingover0.5millionbarrelsaday.Itishighlyprice-sensitive,almostbydefinition.Allofthoseareashaveexcellentexposuretohigheroilprices.Butat$34thatwasacontributortothenegative.Itisprobablythemostprice-sensitiveelementwithintheupstreambusiness.Andtherefore--andit'salsopiecethatisgrowing.Soit'sthebigdriverofthefuture,butitisnothelpingtoday.IthinkthatisprobablyasmuchasIcansayonthat.Probablysomethingwe'llneedtofollowupaswedotheCapitalMarketsDay.

Operator :

AnishKapadia.

AnishKapadia(Analyst-TPH):

Acoupleofquestionsformeaswell,please.Justfollowinguponacoupleofthings.Thefirstthingonewasoncashflow.LookingatQ1,ifwetakethecashflowfromops,exportandcapitalandpost-interest,itseemslikeabout$4billion.IfyoutakeafullquarterofBG,feelsmorelike$4.5billion,or$18billionannualized.Isthatagoodbasistoestimatecashflowforthisyear,usingyoursensitivities,orarethereanyotherincrementalfactors,incrementalcashflowthatweshouldthinkoffortheremainderofthisyear?

Thesecondoneontaxesfollowingonfromyourlastpoint.Youhaveseenasubstantialincreaseinyourdeferredtaxassetandalsoyourunrecognizedtaxlosses.I'mjustwonderingwithBGcomingintothebusiness,isthereanopportunitytoacceleratetheuseofthesetaxlosseswithsomeofBG'skeyprofit




centerssuchasBrazilandAustralia?

SimonHenry(CFO):

Thesimpleansweronthesecondoneisyes,butIcannotgointotomuchfurtherdetailaboutthat.Weneedtobebothclearaboutthebestwayofdoingitandmakingsurethatitisagreedwiththerelevantauthorities.Butbringingtogethereffectivelyincome-generatingassetsandtaxlossesinagivencountryisanopportunityinatleasttwoorthreecountriesIamawareof.

Thecashflowestimatefortheyear,will4timesQ1suffice?Yesandno.Itisnotanyone-offfactors,minorquarteronefactorsgetmultipliedby4,positiveornegative.Soitisnotthebestwaytolookatit.Maybelookatthefullyear,fourquartersgoingbackwards,whichwereactuallyanaverageIthinkof$48cashflow,$23billion.AndaddabitforBGisjustasgoodasgoing4timesQ1.Butthatinitselfisnottobetakenasaprojection.Itisjustalittlehelpinmodeling,becausethereisalwaysnoiseinthecashflowstatement.AndrememberthataswegoforwardifoilpricesdocontinuetoriseastheydidinApril,wewillincreaseworkingcapitalandthereforetherewillbeworkingcapitaloutflow.Attheendofthedayweworkontheleversthatwecan,suchasinventorylevelandOpEx,andthentheactualnumbertoanextentwillbeanoutcome.

Operator :

GuyBabar,Simmons.

GuyBaber (Analyst-Simmons):

Simon,acouplefromme.Youreferencedtheimprovedreliabilityintheupstream.Isthereanywayyoucanelaborateonthatcomment?Orperhapsquantifytheextenttowhichreliabilityintheupstreamisimprovingyourproductionperformance?AndIamcurious,inanenvironmentwhereyouareattemptingtoreducespendingandtakeoutcosts,andthere'safocusonintegration,isthereariskthatyoumaybegintolosesomeofthosereliabilityimprovementsandhowdoyoumitigatethat?Secondly,inbalancingthecashinflowsandoutflowsyoumentionedspending,costsanddivestments.YoudidnotmentiontheScripdividend.SowantedtogetlatestthoughtsandcommentsaroundtheextensionofthatScripprograminto2017orbeyond.Andwhatyourmostrecentthoughtsarearoundthatprogram.

SimonHenry(CFO):

Goodpoints.Thereliability,yearonyearourproductionperformancewasabout110,000barrelsadaybetterthanitwasayearago,justasaresultofbetterreliabilityandavailability.OurbigdriversthereintheUKandMalaysia,butalsotheGulfandoneortwoothercountries.Thatisaverymaterialuptick.Itisalsocomingoffnotthebestofquartersayearago.Thatgivesyousomefeelofthevolumeimpact,andofcoursethemarginimpactdoesvary.Butitactuallymorethanoffsetsthedecline,theunderlyingdeclineintheassetsoverallacrosstheportfolio.

Thisisjustbetterreliability,andinpracticeoneoftheapproachescomingoutoftheimprovedprogramsormaintenanceisthetimingandtheschedulingofmaintenanceturnaround,andlookingattheminthesamewayintheupstreamaswedothedownstream.Atypicaldownstreamturnaroundperiodis3or4years.Atypicalperiodintheupstreamwasalotshorterthanthat,infactoneyearinmanyplaces.Everyyearthere'dbesometurnaroundformaintenance.Justtakingbestpracticewithinthegroupandimprovingthewaywedothework,workingbetterwithcontractors,managingthelogisticsoffshore,forexample,makingsurethepartsareavailablewhenyouneedthem.Theseareallhardyarnsbutwhenyou'redoingthemandwewereactuallymanagingthroughaproductionexcellenceprograminquiteadifferentwayacrosstheassetbasenowdrivenbyAndy,wehaveseenthatreallystarttodelivertothebottomline.Andthiswasoneofourbetterquarters,noquestion,withthatmorethan100,000barrela




dayuptick.

You'reabsolutelyrightthattakingcostoutatthesametime,ifwearetooindiscriminate,createsarisk.Whichiswhy,preciselywhywehavenotstoodupbefore,andnotreallystandinguptodayeitherandsaying,wewilltake$5billionoutofcost.Whatwehavesaidiswehavetaken,orwearetaking,notinmatteror[manner]thatwewilltakeXbilliondollarsout,becauseit'sthattypeofstatementthatcreatestheriskinexposurewheneverybodytriestodotherightthing,eventhoughtheysortofhavetheconcernabouttheriskyouhighlight.Itisaneverpresentriskinourbusiness.Safetycomesfirst,alwayshasdone,alwayswilldo.Andsafetyandreliabilityareverycloselycorrelated.

Scripdividend.It'sgreatquestion.Whatwehavesaidis,priorityforcashflow,justareminder.Firstofall,debtreduction.Thendividend,thencombinationofinvestmentandbuyback.TheScripisinherentlylinkedtothebuybacks.ItishighlyunlikelywewouldstartbuybacksbeforeswitchingofftheScrip.Butitisalsohighlyunlikelywe'dswitchofftheScripandcutthedividend.Wewill,andmustreduce,thedebtfirst.

Weneed,andwhatIstatedbefore,justtobeclear,isthatweneedtoseethedebtandthecreditmetricsreturningtothepointwheretheysupportthecurrentratings,andastrongcreditrating.Theproxyforthatwasa20%gearing.Soweneedediteithertobeat20%orlineofsightto20%andbelow.Andthatfigureisnowprobablylow20%sbecauseofthepointsImadeearlieraboutfinanceleases.Sowehavetoturnthedebtaround,takethegearingdown.

Whenwegettothatpointwithclearlineofsightofhowwe'regoingtoensurethatthemetricsareinarobustplaceforcreditratingandarenotgoingtoslipbackwards,thenwemovetothenextsetofpriorities,whichinthefirstinstancewouldbealmostcertainlystoppingtheScrip.Thatisunlikelytohappenthisyear,lookingatwheretheoilpriceis.Andoneofthebigdriverswillbewheredoestheoilpricegointermsoftiming.Theoilpriceisnotthelongtermdriver.ThesequenceofeventsI'vejuststatedandthelogicwillapply.Itjustmaytakelongeriftheoilpricestayslowerformuchlonger.

SomerecoveryofoilpricetogetherwithdeliveryofeverythingthatIprobablyalreadytalkedaboutintermsofimprovingthecashflowsandreducingthedebtshould,withinthenext2to3years,leadtoswitchingofftheScrip.Andatthatpointconsideringwhatwedoatbuybacks.Butthesethingsmaybesequential.Therefore,wedoneedtoseethegearingdowninthelow20%sandstilltrendinglowerbeforewehavethatdiscussion.

Operator :

RobWest.

RobWest (Analyst-Redburn):

Iamchompingatthebittoaskquestionsaboutyourintegratedgassplitout.ButIwillkeepthemhighlevelandsavethereallynerdydetailedone.Mymainquestionforyouis,whycan'twehavemoredisclosures,specificallyaroundthethingswewouldreallywanttoknow,liketheaveragerealizedLNGpriceorthecashcontributionfromPearl,whichisaveryuniqueassetinthatportfolio?Canyousaywhatthoseare?Isthereareasonwhyyouspecificallycannotsaywhatthoseare?

Then,mysecondquestionisonthedivestmenttargets.Ithinkyoumentioned$3billioncominginfromShowaShell,ShellMalaysia,MLPsandDenmark.Canyoutellus,whatistheannualcashgenerationfromthoseassets?Andhowdoyouthinkabouttheannualcashflowyouwouldbewillingtodivestinthat$30billioninvestmenttarget?Thankyou.

SimonHenry(CFO):

Thedisclosure,Iappreciatetheinterest.UnfortunatelyIwouldliketothinkwe'reprobablyastransparent




asanybodyofourscaleandsize.Ifwewereatwo-assetcompanythanwemaybeneedtobeabitmore--givemoredisclosureinkeyasset.Pearlremainsoneofthemostvaluableassetsintheportfolio,ifnotthemostvaluablesingleasset.ButisalsoaconfidentialoneintermsoftheagreementsbetweenourselvesandtheQataris.Itisaverystrongcashflow,evenintoday'soilpriceenvironmentbecauseitisessentially--it'snotproductionsharing.Itisarevenueshareagreement.Butithasbeenagreatcashgenerator,bothforShellandfortheQatarigovernment.

TheaveragerealizedLNGprice,Idonothaveapush-backreasonwhywe'renotgivingit.IwilltakethatoneawayandIthinkaboutit.Ijustknowforsureit'llbeactuallyquitedifficulttocalculateatthemomentbecausewe'restillworkingonthesystems.Ididmentioninthepressconferencethismorningthatthefactweevenhavetheseresultsatallistheresultofanenormousamountofassetbytwoteams,primarilyinReddingandhereintheHaguetoactuallytaketwosetsofaccountsandbringthemtogether.Pointtaken.Wewillthinkaboutit.

$3billion(inaudible).Anyassetwesell,we'resellingtheassociatedcashflow.Andthatiswhathasbeenvaluedbythepurchaser.It'snoteasytoexplainwhatyoumightthinkofintermsofmodeling,butthereisprobablyonaverage,becausewe'resellingquitealotofassets,it'swhatwesellisprobablycashflow,samereturnonwhatwesellastheaveragecashflowoncapitalemployedinserviceinthebusiness.Capitalemployedinserviceinthebusinessisprobablynotfarshortof$200billion.Yes,welosecashflow,butitisnotthatmajor.Anditisprobablynotthatdifferentfromtheaverageintheportfolioonceyoulookacross.

Weare--thestageofreallylooking,Ithink,fundamentallythecashflowgenerationcharacteristicsoftheassetswehaveacquiredandhowtheyplay,andnotjustintermsofthenextsixmonthsbutthelongevity,theriskprofileandwhichofthoseassetsreallyformthepartsofthestrategicintent,thelong-termportfoliothatwe'retryingtocreate,thevalue'sverymuchthesortofdiscussionthatwewilladdressunderthestrategydiscussiononJune7.Iwon'tgoanyfurtheronIGdisclosure.Butthanksforthequestionandthesuggestion.

Operator :

JasonGammel,Jefferies.

JasonGammel(Analyst-Jefferies&Co.):

IjusthadacoupleofquestionsaroundMotiva,actually.Firstofall,Iwashopingthatyoucouldaddresssomeofthefactorsthatledyoutodecidetodissolvethatjointventure?Second,ifIlookattheassetsthatyouhaveelectedtoretain,itwouldseemtoindicateapreferenceforgasolinemanufacturingcapacityandlightcrackingcapacityinpreferenceoverdieselmanufacturingcapacityandbeingabletocracktheheavybarrel.HaveIgottenthatright?Finally,Iwilltakeafutileonehere.Dohaveanorderofmagnitudeintheamountofcashthatyouthinkyoumighttakeoutofthetransaction?

SimonHenry(CFO):

Havetobecarefulherebecausesomeofthisisstillcommerciallysensitiveandundernegotiationastohowwefinalizethedeal.Butwhydissolve?Theoriginaljointventurewas1998for20years.SoIwon'tcallitapre-nup,buttherewasanopportunitytolookatdowewanttocontinue.Anddowestillhavethesamelevelofstrategicalignmentandbelievethatwecancreatemorevaluetogetherthatwecanapart.Yes,wecancreategreatvaluetogether.Butwesaid,ifwedosplittheassets,isthereawaywhichwecanallocatethemwherewe'rebothmorecomfortablethatwecanmanagethevaluechain?Andthatisultimatelyhowitendedup.Andyes,wecouldhavetakenoneorothersetsofassets.Butattheendofthedayanegotiateddealiswhatpeoplewillaccept.




Abalancingpaymentislikelytobemade.Butitmaybemadeintermsoftakingondebtorotherwise.Soyoumightnotseecashactuallyflow.Thewaytheassetsarestructured,thatbalancingpaymentperseisclearlygoingtobeus,notintheotherdirection.Solikelihoodisitwillcontributetothedivestmentproceeds.Itjustmaynotshowthatwayinaccountingterms.AnditismostlikelythatMotivawillmovefrombeinganequityassociate,somethingwhereweonlyseecashflowswhendividendsarepaidout.It'llmovetoafullyconsolidatedbasis,butonlyhalforjustlessthanhalfasmuch.Sotherewillbesomechangesasandwhenweconcludethedeal.Butfirstofall,wehavetoconcludeit.Andwewilltryandbeastransparentandhelpfulaswecan,becauseitisabigpieceofkit.Andthenumbersarenontrivial.AnditwillimpacteverythingIhavesaidaboutOpExandCapEx,forexample.

Operator :

AneekHaq.

AneekHaq (Analyst-ExaneBNPParibas):

Twoquestions,please,ifIcan.One,youtalkabouttheurgencyofthedebt.Andthenobviouslythere'sabigfocusonsimplifyingthatupstreamportfolio,whichifIthinkaboutthebucketsyoulaidout,Deepwater,integratedgas,IthinkImightevenbeabitlighthere.Butthere'sonlyabout1millionbarrelsaday,whichisinsomewaysnon-core.AndIjustwonderedifthere'sa--oratleastwhywouldyounotconsideraspinofforanIPOpotentially,ifthat'ssortof--becomesthebestoptionintermsofdisposals,andmaybeevengetthedebtdownthatway?

Mysecondquestion.That$30billionguidance,justintermsof--canyoujusthelpmebringthatnumber,capitalinvestedbacktocapitalexpenditureintermsofthecashflows?Itseemsasthoughitistrendingaround$27billion.Ijustwantedtogetthatcashflowequivalentnumberbasedonthatguidance,please,ifpossible?

SimonHenry(CFO):

Ineedtoyoutoclarifythesecondquestion.Thefirstone,thefocusonsimplifyingtheupstream.WhynotIPOpartofitorotherwise?Yes,whynot?Theprimaryreasonisitis$45oil.Sohowattractivewoulditbethemarket?Buttherearenoprimafaciareasonswhywewouldn'tlookatsuchamonetizationrouteifthatwerethebestwaytocreatevalue.Itisnotobviousthatintoday'smarketitwouldbe.Buttheteamswehavelookingatmonetizingassetsarelookingataverywiderangeofassetsthat,ifweweretodivestallofthem,itwouldbeconsiderablynorthof$30billioncomingin.Butitisavarietyoftypesoftransaction.AndMotivabeingoneofthem,forexample,asplit.

Thereareothertransactionswhichcouldinvolvemarkets.WedidactuallycreatetheMLP,theIPOintheUS.Soitshouldbeclearthatnotonlyareweopentoitininnovationandideaterms,butweareabletodeliversuchcomplicateddealsandexecuteoveraperiodoftime.Thatisverymuchontheagenda.Butallofitissubjecttowhatwillthemarkettakeatanygivenpointintime.

Justonthesecondquestion,Iwilltrytoanswerandthenseeifitiscorrect.WhenItalkof$30billioncapitalinvestment,thatisn'tallcashinanygivenyear.ThetwomainfactorsthatdifferarefinanceleaseswhenwebringanFPSOonstreamandexpirationexpenses,whichactuallypatchthroughtheCFFOandnotthroughthecash(inaudible)beeninvestingonthecashflowstatement.$30billionofcapitalinvestmentmaywellindeedtranslatetosomethingthisyeararound$27billionofcashusedininvestingonthecashflowstatement.Indeed,thereisabitmore--abitbetterfreecashflowpositionthanyoumightotherwiseexpect.AndyoucanseesomeofthatinQ1wherethecapitalinvestmentwas[$6.1billion]butthecashflowandCapExwassomewhatlessthanthatifyoulookatthecashflowstatement.Doesthatcoveryoursecondquestion,orwastheremorespecificpointtothat?




AneekHaq (Analyst-ExaneBNPParibas):

No,no.That'sperfect.Thankyou.

Operator :

[ClydeSparkholder],ABN[Amaro].

ClydeSparkholder (Analyst-ABNAmaro):

TwoquestionsontheintegratedgasandtheBGcontribution.CanyoumaybetellwhattheBGcontributionisintheintegratedgassegment?Andsecondly,lookingatespeciallytheproductioncostinintegratedgas.Canyoutellmewhytheyaresomuchhigherthantheyusedtobe?IsthatonlyBGfor1.5months?

SimonHenry(CFO):

Firstquestion.About$200milliongeneratedinIGfromtheBGassets,whichwouldincludethetrade-incontributionaswell.Theproductioncost,I'mnotsureIhavearesponseforyou,tobebrutallyhonest.Theproductioncost,ifIweretothinkaboutit,wouldincludeQueensland,whichbydefinitionarerelativelyhighcomparedtoouraveragebecausemanyofourIGassetsareassociatecompaniesandwedon'tshowoperatingexpense,perse.They'reaccountedforinassociates.TheoperatingcostisprimarilyinPearlandmaybeoneortwootheroperatedassets.Butitisnotshownashigh,whereasQueenslandgas,abitasImentionedearlier,theupstreambearsthecostofthe--effectivelythetotalcostofrunningthroughtheLNGandmidstreamassets.Sothatmaybeoneofthedrivers.

ClydeSparkholder (Analyst-ABNAmaro):

Buttherearenospecialfactorsinthere?

SimonHenry(CFO):

Yes,althoughtheywillpersist.IfIamright,thatitisinfactQueenslandgas.Thatwillhappen.Itisalsotrue,bytheway,thatourPearkGTOhadabig,majorshutdownthatranoverthequarter.Andintheplanthasjustcomebackonlineinthelastcoupleofdays.Thatmajorshutdownandalsomuchlowerproductionwasalsoafactoratthebackendofthefirstquarter.

Operator :

AsitSen.

Asit Sen (Analyst-CLSA):

Twoquestions,please.FirstonBrazilandsecondonLNG.OnBrazil,couldyouquantifyproduction,orcurrentproduction,orproductioninthequarter,sinceitlookslike(inaudible).Soitstartedthere,butyoulistedBrazilassuchanimportantpartofthestory.Anycolor?SecondonlNG.CouldyouexplainorhelpusunderstandtheimpactofSabinePassLNGexportsonShell'sfinancial,sincethere'ssensorsafixedliquificationcharge?Soramp-upisexpectedtobefairlysubstantial.Sowonderingifyoucouldhelpus--frameforusthepotentialimpactonabroaderShellportfolio,please?

SimonHenry(CFO):

OnSabinePass,youareright.It'sisfixedliquificationontopofeffectivelyweputthegasinHenryHubandlift.Andwehaven'treallyisliftedmuchgasyet.Itisstillearlystages.Andwehavenotbeenthelifter,Ibelieve.MostofthevolumeIthinkinthatfirst(inaudible)doescomeourway.Butithasnotyethada




majorimpact.Andyes,wewillneedtoensurethatweareabletofillthegaptocovertheliquidificationcost.Thegoodnewsis,inourviewthatisthelowestcostLNGthatisavailablefromtheNorthAmericancontent,includingalltheotherprojectsthatsofarhavepassedFID,whichisagoodplacetobein.HenryHub's(inaudible)alsomakesitpotentiallyattractivetotakethegasoverto--eithertoLatinAmericaortoEurope.

Brazilproduction,absolutelyright.Majorfactor.We'rerunningaround200,000barrelsaday,Shellshare,atthemomentinBrazil,ofwhichourownlegacyisaroundabout30,000.TheBGcontributionaround175,000barrelsaday.Itisrampingupallthetime.Sowehaveseengreatwellperformance,up--it'llbe40,000barrelsadayonsomeofwellsifweopenupcompletely.Thatisoneofthereasonsthatwe'reseeinglowercoststhanwehadoriginallyenvisioned.TwofurtherFPSOstocomeonstreamthisyear.Soweshouldhavenineupandrunningbytheendoftheyear.Weshouldseealittlebitmoreeveryquarterforquitesometimetocome.Thereareactually16FPSOsinprogress.AndIthinkthelastonecomesonin2019.Sofar,sogood.Andtheactualongoingproduction,thedeclineratesinsomeofthewalls,someofthereservoirs,verylow.Butit'sstillveryearlydaystobetalkingaboutimpactonresourceandultimaterecovery.

Operator :

JasonKenney.

JasonKenney(Analyst-BancoSantander):

Ijustwantedtogobacktocashflowaswell.HereI'mlookingatthemedium-termsensitivityguidance,whichIthinkinthepastyouhavesaidwouldhavebeenaround$3billionto$4billionforevery$10perbarrelshiftoverthenextcoupleyears,maybemovingtowards$45billion2018onwards.Now,IwaslookingatsomeoftheconcernsthisestimateswhentheVAROResearchguyspulltogethertheannualnumbersandcomparingthattotheoilpriceestimatesthatweusetodrivethatconsensus.Theaverageanalysttherehasgotsomesortof$7billionshiftforevery$10perbarrelinnextfewyears,whichispotentiallyovereggingthecashflow.Butisthatapossibility,orisitsomethingIshouldbeignoring?

SimonHenry(CFO):

At$7billion,Ithinkyoushouldignore,Jason.Theproductionthatweseegoingforwardneedssomegrowthbeforewegettothe$5billionofearningsandcashflowforevery$10sensitivitythisyearisprobablycloserto$4billionthan$5billionaswerampup.AsInotedearlier,the--effectivelythenewBGproductionishighlyprice-sensitive.Mostofitisdirectlyprice-sensitiveinBrazil,Australia,Kazakhstan,UK,Trinidad.Thosearetheprimarycountriesthatweareadding.AndofcourseourownviewproductionisintheGulfandAustralia,alsoinKazakhstan.Thereforebasicallyeverybarrelbringssomekindofpriceexposurewithit.Sowearebecomingcertainlymorepricesensitiveaswegoforward.Butit'llbe2017,2018beforewehitthefull$5billionsensitivity.Wedon'thaveanyscenariosthatI'veseenwhereitgoesabove$5billion.

Ibelievenomorequestions.Orthat'stheendofthecall.We'reattheendofthetime.WhatIwouldliketodoissay,manythanksforyourquestionsandforjoiningthecalltodaytoeverybody.Reiterateagain,theCapitalMarketDay,London,Tuesday,June7.Everybodyonthecallhopefullywillbeabletojoinus.I'llbejoinedbyBenandbymostoftheexecutiveteam.Greatchanceforyoutohearabitmoreaboutstrategy,intent,someoftheopportunities,someofthechallengesthatweface.Verymuchlookforwardtotalkingwithyouallthen.

Andbetweennowandthen,pleasefeelfreetoconnectwiththeIRteamandhelpwithyourownmodeling,becauseIthinkitisineverybody'sinterestthatweareallunderstandthisbetterquicklysothataswegointoQ2andQ3we'reallworkingtothesameexpectations.Thankyouverymuch.Havea




greatday.Takecare.

Operator :

Thankyouforyourparticipation,ladiesandgentlemen.

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