ROYAL DUTCH SHELL PLC 4 th QUARTER 2012 RESULTS AND STRATEGY MEDIA UPDATE JANUARY 31 st 2013 4 th QUARTER 2012 RESULTS AND STRATEGY MEDIA UPDATE BY PETER VOSER, CHIEF EXECUTIVE OFFICER OF ROYAL DUTCH SHELL PLC SIMON HENRY, CHIEF FINANCIAL OFFICER OF ROYAL DUTCH SHELL PLC Ladies and gentlemen a very warm welcome to you all and to those of you joining by phone and on the web. We‟ve announced our full year results today, and we‟ll run you through that . But we want to spend most of the time today updating you on portfolio and strategy and showing you where we are with the targets that we set for Shell a year ago. So Simon and I will talk to you about 2012 performance and the outlook, and of course there will be plenty of time for your questions. The disclaimer statement. We‟re a year into the strategic targets we set out a year ago and we are on track, despite some headwinds in 2012. Our targets are unchanged, 30-50% higher cash flow in 2012 to 2015 than the preceding four years, funding sustained investment for future growth, and a competitive dividend for shareholders. Global energy markets are seeing continued high levels of volatility – this is the interplay between robust structural growth in energy demand, and geopolitical events that impact both supply and demand. Shell has the scale and portfolio choices to manage a through-cycle investment strategy for sustainable growth. Innovation and a competitive mindset are at the heart of what we do. Our strategy is delivering results. Our 2012 CCS earnings were $27 billion and cash flow from operations was $46 billion. We distributed some $11 billion of dividends in 2012, which is the largest dividend in our sector, and the dividend is expected to rise again in 2013. Shell has some 12 billion boe of resources on stream, and another 20 billion boe of resources potential in our development funnel with new barrels added in 2012 from exploration and acquisitions. Our growth priorities are clear. We are maintaining strong positions in our base Upstream and Downstream businesses – we call them “engines”. But we want more integrated gas, more deep-water, and more resources plays – such as shales. This strategy is paying off. Start-ups since the end of 2009 added substantial cash flow in 2012, $6 billion, or more than 10% of the total with more growth to come. I‟m pleased with the way our project funnel is developing and we‟ve built up important new option sets in Shell. This gives us more choice as to where we invest which in turn helps us get the best returns and the right risk balance for shareholders.
ROYAL DUTCH SHELL PLC 4 th QUARTER 2012 RESULTS AND STRATEGY MEDIA UPDATE Making sure that we have safe and reliable operations is at the heart of everything we do. We are making progress, and you can see the trackers here, heading in the right direction. However, the statistics don‟t tell the whole story. We still had fatalities and other incidents last year. We have to make further improvements here – we look at these incidents and take the learning across our global portfolio, with a continuous improvement mindset. Turning to the macro … Rapid economic development in non-OECD countries is driving sustained and long-term demand growth for all forms of energy. Energy demand overall could double in the first half of this century, from the year 2000 to 2050. This growth will require huge industry investment, perhaps $15 trillion over the next 10 years. Higher volatility in energy prices, and volatility in our quarterly results, is a fact of life. We are looking through these short term effects, and are implementing a long term strategy. During the last few years, downstream has been affected by excess industry refining capacity, which has dragged on industry margins. This overhang, currently some 4 to 5 million barrels per day, looks set to continue. More recently, the rapid growth in North America resources plays has led to depressed prices for natural gas, and inland crudes, such as WTI and WCS. We expect to see a narrowing of liquids differentials as new industry infrastructure comes into play, although this could take several years. Low North American natural gas prices look set to stay, which is a major opportunity for integrated gas projects like LNG, GTL and chemicals. Shell is one of the few companies that get the full value here from integration along value chains. Shell‟s activities p rovide affordable, safe and reliable energy supplies for our customers world-wide. In Upstream we are investing for growth, with a strong focus on deep-water, integrated gas and resources plays. In Downstream we‟ve taken out a lot of capacity in the last few years. Now, we are optimizing this re-shaped portfolio to maximize profitability with some very selective growth themes. On climate change, we are investing in natural gas and biofuels, which have a CO2 advantage and we see mitigation opportunities in energy efficiency and CCS. For example, Shell is participating in the construction of 2 carbon capture and storage facilities storing over 4 mpta of CO2, in Canada oil sands and Australia LNG. On the financial side, we are planning for a balance between attractive payout for shareholders today, and investing for shareholder value in the longer term. Let me remind you about the agenda we set out a year ago. There‟s no change to the outlook for cash flow, capex, gearing and production and there‟s continued growth in the dividend. We continued to build up new options in the company – more choice for where to invest our dollars and by implementing hard capital ceilings, we are driving tough choices in the company. Our drive to increase our option set means that Shell today is capital constrained, rather than opportunity constrained. I think this is a rather different position than many other sectors in the market today.
ROYAL DUTCH SHELL PLC 4 th QUARTER 2012 RESULTS AND STRATEGY MEDIA UPDATE Strong capital rationing means we can prioritize the most attractive opportunities, and re- scope or exit from other positions. For example, in 2012, we walked away from Cove on valuation grounds, and went ahead with an attractive acquisition in the Permian. We slowed down on North America tight gas drilling, and stepped up in liquids-rich plays. We slowed the pace on new FIDs for LNG in Australia, where there‟ s cost inflation pressure and we‟re taking more time on Gorgon Train 4 and Arrow. And in the North Sea, we postponed the Linnorm FID in Norway, where there were cost pressures, but went ahead with the Fram development in the UK. These are real examples of dynamic decisions, which we can do, given the breadth of the portfolio we have in play. Let‟s look at the performance since 2010. Our CCS earnings have increased by some 45% and cash flow from operations has increased by some 70% to $46 billion. Underlying oil & gas production, and LNG volumes have both increased, as we deliver our growth plans. And for shareholders, our TSR - total shareholder return – was around 40% over the last 3 years, with a softer year in 2012. We‟ve been working hard to improve Shell‟s operating performance, which is a key driver of those results. Unplanned downtime in Downstream and reliability of facilities such as LNG are now amongst the best in our industry and on the contracting and procurement side, our Projects & Technology division continues to drive a top quartile wells performance and to extract value from the supply chain. We spent $64 billion last year on contracting and procurement. I‟m pleased with t he project flow over the last few years, we‟ve started up 18 new projects since end-2009, which delivered $6 billion cash flow in 2012 – over 10% of the total, and nearly 20% of our production. The Shell operated projects here had more than 1 billion manhours with just 170 Lost Time Injuries. This is a good performance. The three largest of these developments – Pearl gas-to-liquids, Qatargas 4 LNG and AOSP – oil sands in Canada – produced over 400,000 barrels per day in the fourth quarter 2012, and Pearl completed its ramp up, with both GTL trains reaching over 90% utilization rate at the end of the quarter. These plays will generate cash flow for shareholders for decades to come. So, good progress, but a lot more to do. I‟ll pause there. Simon will give you more details on 2012 and then I ‟ll come back on the outlook and then back to Simon on the financial framework. So, Simon, over to you please. Thanks Peter. We‟re one year into a four year financial growth programme, and it‟s
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