Second quarter 2018 results - PDF Free Download

Second quarter 2018 results Delivering a world-class investment case Royal Dutch Shell plc July 26, 2018 #makethefuture Royal Dutch Shell July 26, 2018

Ben van Beurden Chief Executive Officer Royal Dutch Shell Royal Dutch Shell July 26, 2018

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. 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. 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 prices (BEP) presented are calculated based on all forwardlooking 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 the projects are expected to be multi-decade producing the 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. Forwardlooking 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, July 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 Royal Dutch Shell July 26, 2018 3

Summary Key messages Thrive in the energy transition Confidence in free cash flow outlook Focus on capital discipline in line with financial framework $30 billion divestments 1 completed or announced World-class investment case $25 billion share buyback programme launched Q2 2018 Strong results, momentum continues Strong license to operate Portfolio reshaping and project delivery 1 Divestments: headline, cash proceeds in 2016, 2017 and H1 2018: $23.8 billion (in CFFI), $2.1 billion related to Shell Midstream Partners, L.P. (in CFFF). Royal Dutch Shell July 26, 2018 4

HSSE performance Goal Zero on safety Injuries TRCF (per million working hours) Operational spills 1 million working hours Volume in thousand tonnes # TRCF Working hours (RHS) Volume of spills Number of spills (RHS) Upstream flaring Million tonnes CO 2 e Process safety Number of incidents HSSE priority Performance and transparency Tier 1 incidents Tier 2 incidents 1 Revised July 27, 2018. Royal Dutch Shell July 26, 2018 5

H1 2018 Financial summary 10.1 18.9 14.7 6.5 Earnings ($ billion); EPS +34% versus H1 2017 Cash flow from operations ($ billion) Free cash flow ($ billion) ROACE (%) 23.6 Gearing (%) Nanhi petrochemicals plant - China Earnings and ROACE on CCS basis, excluding identified items Royal Dutch Shell July 26, 2018 6

Portfolio & projects Recent portfolio developments Exploration success Whale and Dover discoveries in the Gulf of Mexico Bid rounds in Mexico and Brazil Entry into Mauritania Project delivery FID: Gumusut Kakap Ph2, Vito, Penguins, Fram and Borssele 3/4 Start-up: Kaikias and Nanhai petrochemicals facility Progress: Appomattox sail away and Prelude LNG import Continue to grow & high-grade portfolio >100kboe/d Shell share new FIDs Portfolio re-shaping (A&D) Divestments: ~$4.0 billion Downstream: Argentina Integrated Gas: Bongkot Thailand, New Zealand, Malaysia LNG Tiga Acquisitions: ~$0.5 billion First Utility Silicon Ranch Other Upstream: Norway, West Qurna Divestments based on headline size, announced in H1 2018. Royal Dutch Shell July 26, 2018 7

Portfolio & projects Gulf of Mexico Exploration success Whale discovery Dover discovery Bid round - Mexico Bid round Mexico Project delivery Appomattox on location Kaikias start-up Vito FID Leading position Growth and longevity operational excellence Royal Dutch Shell July 26, 2018 8

Portfolio & projects Projects delivery Nanhai petrochemicals expansion start-up Prelude progress towards start-up Projects delivery on track New ethylene cracker and derivatives unit in China Key component of growth and competitiveness in chemicals strategic theme 1.2 million tonnes per annum ethylene capacity Shell share 50% Floating LNG facility offshore Australia Final plant commissioning underway with start-up expected in 2018 LNG production 3.6 million tonnes per annum with 1.7 million tonnes per annum natural gas liquids Shell share 68% Royal Dutch Shell July 26, 2018 9

Portfolio & projects High-quality Upstream growth options Reserves & resources Billion boe Upstream Deepwater Pre-FID funnel break-even price $ per barrel Conventional oil & gas Reserves (SEC proved) Deep water Shales Discovered resources (2P+2C development pending) 2014 2017 Percentage of capital investment Upstream Conventional oil & gas Pre-FID funnel break-even price $ per barrel Upstream Shales Permian break-even price $ per barrel Since 2014: >45% reduction in expected unit development cost for major projects 0% 50% 100% Percentage of capital investment 40 20 0 0 <$40 $40-50 1300 Net risked well count 2600 Reserves and resources as per year end 2017 excluding Groningen; Break-even price charts as per November 2017 Management Day; Unit development costs are defined as lifecycle capital expenditure divided by total production (Shell working interest share, present value). Royal Dutch Shell July 26, 2018 10

Cash momentum Project start-ups 2014 to 2020 Total cash flow $ billion cash flow per annum $ billion 52 44 54 64 ~65 1 $/bbl ~$10 billion New projects cash delivery on track Confidence in 2020 free cash flow outlook CFFO 1 2018 YTD estimate 2 Cash flow from operations (excluding working capital movements) Organic free cash flow # Average Brent oil price ($/bbl) 1 Pricing assumption 2019-21: $60 per barrel real term 2016. 2 At $71 per barrel. Royal Dutch Shell July 26, 2018 11

Financial framework Capital discipline supporting growth Capital investment $ billion (p.a.) 2018-20 Oil products 4-5 Conventional oil + gas 4-5 Capital investment $ billion -$12 billion 30 Integrated gas 4-5 25 Deep water 5-6 Chemicals 3-4 Shales 2-3 New energies 1-2 $25-30 billion organic & inorganic Total 25-30 2018: lower part of the range Shell BG Excludes BG acquisition in 2016; historical BG capital investment is based on BG s published Annual Report. Royal Dutch Shell July 26, 2018 12

Shareholder returns Attractive dividend key to total shareholder return and world-class investment case Total shareholder returns January 2016 to end June 2018 % $25 billion share buyback by end 2020 1 First buyback tranche $2 billion in Q3 2018 Delivering a worldclass investment case Shell 1 Subject to further progress with debt reduction and oil price conditions. Total shareholder return calculated on a basis of 90-day average around period start and end dates. Royal Dutch Shell July 26, 2018 13

Jessica Uhl Chief Financial Officer Royal Dutch Shell Royal Dutch Shell July 26, 2018

Foundation of the world-class investment case Thrive in the energy transition Key features Maximising value for shareholders through cycle Focus on shareholder distributions World-class investment case Multi-year timescales Surplus free cash flow in up-cycle and dividends fully covered Conservative financial management FCF & ROACE growth Strong license to operate in down-cycle Gearing 0-30%; AA equivalent credit metrics Royal Dutch Shell July 26, 2018 15

Financial framework Cash flow priorities 1 2 3 Priorities for cash Debt reduction Dividends Buybacks & capital investment Continue to reduce gearing Cancel scrip dividend Buy back shares Progress towards a world-class investment case Increase shareholder distributions Royal Dutch Shell July 26, 2018 16

Financial summary Earnings & ROACE $ billion % Cash flow $ billion Upstream Downstream CFFO CFFI FCF Integrated Gas Corporate + NCI ROACE (RHS) Divestments Net debt & gearing $ billion $ billion % Net debt Gearing (RHS) Earnings and ROACE on CCS basis, excluding identified items. Divestments: headline, cash proceeds in 2016, 2017 and H1 2018: $23.8 billion (in CFFI), $2.1 billion related to Shell Midstream Partners, L.P. (in CFFF). Royal Dutch Shell July 26, 2018 17

Q2 2018 Financial highlights $ billion Q2 2017 Q2 2018 Upstream 0.3 1.5 Integrated Gas 1.2 2.3 Downstream (CCS) 2.5 1.7 Corporate & non-controlling interest (0.4) (0.7) CCS earnings 3.6 4.7 CCS earnings, $ per share 0.44 0.56 Earnings Q2 2017 to Q2 2018 $ billion Cash flow from operations 11.3 9.5 Free cash flow 12.2 9.5 Dividend 3.9 3.9 ROACE (%) 4.2 6.5 Earnings and ROACE on CCS basis, excluding identified items. Dividend distributed to RDS shareholders Royal Dutch Shell July 26, 2018 18

Downstream US Gulf Coast: one year after Motiva Shell terminals Shell refineries Shell chemical plants Retail product supply: end to end value generation Sewaren: integrated operations Mobile: retail, refining & trading integration M o b i l e Integration delivering value D e e r P a r k Deer Park: crude and feedstock flexibility integrated with trading N o r c o C o n v e n t G e i s m a r Convent: FCC reliability & integration Norco: hydrocracker upgrade & integration Royal Dutch Shell July 26, 2018 19

Integrated Gas LNG portfolio Emerging LNG Supply Demand gap Million tonnes per annum (DES) LNG Market & outlook LNG is the fastest-growing gas supply source 2017-18: continued supply/demand balance Early 2020s: supply gap Shell response Globally balanced and resilient portfolio Competitive pre-fid opportunities in all supply basins Pre-FID opportunities LNG Canada Attractive and differentiated position Decision criteria: Competitiveness LNG supply in operation LNG supply under construction Demand forecasts Affordability Returns Royal Dutch Shell July 26, 2018 20

Upstream Permian Performance Production growth Thousand boe per day +160% ~260,000 net acres with ongoing efforts to consolidate footprint through swaps Strong delivery to date and more than 30% annual production growth through 2020 +85% Growth plans not impacted by infrastructure bottlenecks Free cash flow growth well into the next decade Direct field unit operating costs Continue to reduce costs despite supply chain pressure $ per boe Continued strong delivery of organic -18% growth and improved cost performance Royal Dutch Shell July 26, 2018 21

Strategic themes delivery: on track Strategic themes Q2 2018 4Q rolling ~$64 Capital employed ($ bln end 2017) Free cash flow ($ bln p.a) ROACE (%) Capital employed ($ bln) 2019-21 ~$60 Free cash flow ($ bln p.a) ROACE (%) Cash engines ~60% ~10 ~10 ~70% 25-30 >10 Growth priorities ~28% ~4 ~5 ~20% 1-2 ~5 Emerging opportunities ~6% ~(2) ~(4) ~5% (2) - (1) ~5 Organic FCF ~13 25-30 Divestments & acquisitions ~12 >5 Price sensitivity: +/- $10 Brent = Total (incl. Corporate) 284 ~25 ~6 ~290 30-35 ~10 +/- ~$6 billion CFFO 2019-21: 2016 RT $60 per barrel, mid-cycle Downstream; includes Deepwater in cash engines and Shales in growth priorities by 2020. Royal Dutch Shell July 26, 2018 22

Ben van Beurden Chief Executive Officer Royal Dutch Shell Royal Dutch Shell July 26, 2018

Questions & Answers Ben van Beurden Chief Executive Officer Jessica Uhl Chief Financial Officer Royal Dutch Shell July 26, 2018 25

Q3 2018 Outlook Q3 Q3 OUTLOOK: Year-ago baseline reflects Shell s earnings seasonality Integrated gas Production volumes: negative impact of 40-70 thousand boe/d, mainly due to divestments and higher maintenance Liquefaction volumes: at similar level Upstream Production volumes: negative impact of 210-240 thousand boe/d, mainly due to divestments, field decline and higher maintenance, partly offset by volumes from new fields Downstream Refinery availability to increase: given unplanned downtime events in Q3 2017, partly offset by higher planned maintenance in Q3 2018 Chemicals availability to increase: given unplanned downtime events in Q3 2017, partly offset by higher planned maintenance in Q3 2018 Oil products sales volumes: at similar level 2018 OUTLOOK: Corporate segment: net charge of $400-450 million in Q3; $1.4-1.6 billion for the full year, excluding the impact of currency exchange rate effects. Royal Dutch Shell July 26, 2018 26

Q2 2018 Prices & margins Shell oil & gas realisations $/barrel $/mscf Industry refining margins $/barrel Industry chemicals margins $/tonne Oil Gas (RHS) US West Coast US Gulf Coast coking Rotterdam complex Singapore US ethane Western Europe naphtha NE/SE Asia naphtha Royal Dutch Shell July 26, 2018 27

Q2 2018 Integrated Gas results Earnings Q2 2017 to Q2 2018 $ billion Environment Choice Earnings on CCS basis, excluding identified items Royal Dutch Shell July 26, 2018 29

Q2 2018 Upstream results Earnings Q2 2017 to Q2 2018 $ billion Environment Choice Earnings on CCS basis, excluding identified items Royal Dutch Shell July 26, 2018 30

Q2 2018 Downstream results Earnings Q2 2017 to Q2 2018 $ billion Earnings mix $ billion Earnings on CCS basis, excluding identified items Marketing Refining & Trading Chemicals Royal Dutch Shell July 26, 2018 31

Royal Dutch Shell July 26, 2018