Annual General Meeting 2019 Royal Dutch Shell plc May 21, 2019 - - PowerPoint PPT Presentation

Royal Dutch Shell May 21, 2019

Royal Dutch Shell plc May 21, 2019

Annual General Meeting

2019

#makethefuture

Royal Dutch Shell May 21, 2019

Chad Holliday Chair

Royal Dutch Shell plc

2

Royal Dutch Shell May 21, 2019

Definitions and cautionary note

This presentation contains data and analysis from Shell’s new Sky scenario. Unlike Shell’s previously published Mountains and Oceans exploratory scenarios, the Sky scenario is based on the assumption that society reaches the Paris Agreement’s goal of holding the rise in global average temperatures this century to well below two degrees Celsius (2°C) above pre-industrial levels. Unlike Shell’s Mountains and Oceans scenarios which unfolded in an open-ended way based upon plausible assumptions and quantifications, the Sky Scenario was specifically designed to reach the Paris Agreement’s goal in a technically possible manner. These scenarios are a part of an ongoing process used in Shell for over 40 years to challenge executives’ perspectives on the future business environment. They are designed to stretch management to consider even events that may only be remotely possible. Scenarios, therefore, are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities. Additionally, it is important to note that Shell’s existing portfolio has been decades in development. While we believe our portfolio is resilient under a wide range of outlooks, including the IEA’s 450 scenario (World Energy Outlook 2016), it includes assets across a spectrum of energy intensities including some with above-average intensity. While we seek to enhance our operations’ average energy intensity through both the development of new projects and divestments, we have no immediate plans to move to a net-zero emissions portfolio over our investment horizon of 10-20 years. Although we have no immediate plans to move to a net-zero emissions portfolio, in November of 2017, we announced our ambition to reduce our net carbon footprint in accordance with society’s implementation of the Paris Agreement’s goal of holding global average temperature to well below 2°C above pre-industrial levels. Accordingly, assuming society aligns itself with the Paris Agreement’s goals, we aim to reduce our Net Carbon Footprint, which includes not only our direct and indirect carbon emissions, associated with producing the energy products which we sell, but also our customers’ emissions from their use of the energy products that we sell, by around 20% in 2035 and by around 50% in 2050. Gearing is defined as net debt as a percentage of total capital. With effect from 2018, the net debt calculation includes the fair value of derivative financial instruments used to hedge foreign exchange and interest rate risks relating to debt, and associated collateral balances. Free Cash Flow is defined as the sum of “Cash flow from operating activities” and “Cash flow from investing activities”. Cash flow from operating activities excluding working capital movements is defined as “Cash flow from operating activities” less the sum of the following items in the Consolidated Statement of Cash Flows: (i) (increase)/decrease in inventories, (ii) (increase)/decrease in current receivables, and (iii) increase/(decrease) in current payables. Organic free cash flow is defined as free cash flow excluding inorganic capital investment (acquisitions) and divestment proceeds. ROACE (Return on Average Capital Employed) is defined as the sum of current cost of supplies (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.). Divestment cash proceeds in 2016-2018 were equal to $26.7 billion (in Cash flow from investing activities) and $2.1 billion (“Change in non-controlling interest” in Cash flow from financing activities, primarily related to Shell Midstream Partners, L.P.). Additionally certain contingent payments associated with these divestments are expected to be received in the future. This presentation contains the following forward-looking Non-GAAP measures: Organic Free Cash Flow, Free Cash Flow and Capital Investment. 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 with 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. 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. 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 forward-looking break-even price (BEP) presented is calculated based on all forward-looking costs associated from Final Investment Decision (FID). Accordingly, this typically excludes exploration and appraisal costs, lease bonuses, exploration seismic and exploration team overhead costs. The forward-looking BEP 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. 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. All outlook on financial metrics and/or alternative performance measures excludes the effect of IFRS 16 implementation.

Also, in this presentation we may refer to “Shell’s Net Carbon Footprint”, which includes Shell’s carbon emissions from the production of our energy products, our suppliers’ carbon emissions in supplying energy for that production and our customers’ carbon emissions associated with their use of the energy products we sell. Shell only controls its own emissions but, to support society in achieving the Paris Agreement goals, we aim to help and influence such suppliers and consumers to likewise lower their emissions. The use of the terminology “Shell’s Net Carbon Footprint” is for convenience only and not intended to suggest these emissions are those of Shell or its subsidiaries. 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 its 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

• ver 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 Form 20-F for the year ended December 31, 2018 (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, May 21, 2019. 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 the 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.

3

Royal Dutch Shell May 21, 2019 4

2018 Reports

Royal Dutch Shell May 21, 2019 5 5 Royal Dutch Shell May 21, 2019

Royal Dutch Shell May 21, 2019 6

#makethefuture

Royal Dutch Shell May 21, 2019

Shell Eco-marathon, Rotterdam, Netherlands

6

Royal Dutch Shell May 21, 2019 7

Global population

Billions of people

World population

4 5 6 7 8 9 10 11 2000 2010 2020 2030 2040 2050 UN Low variant UN Medium variant UN High variant 11 10 9 8

Billions of people

Royal Dutch Shell May 21, 2019 8

Golden thread

“Energy is the golden thread that connects economic growth, social equity and environmental sustainability.”

Ban Ki-Moon Former UN Secretary-General

Royal Dutch Shell May 21, 2019

Royal Dutch Shell May 21, 2019 9

Strategic ambitions

Focus on delivering strong results

Thrive in the energy transition World-class investment case Strong licence to operate

Royal Dutch Shell May 21, 2019

#makethefuture

Ford Model T, 1920 Ford Model-T, 1920

10

Royal Dutch Shell May 21, 2019 11

#makethefuture

Royal Dutch Shell May 21, 2019

Starship truck – prototype

Royal Dutch Shell May 21, 2019 12

Catalysts

Royal Dutch Shell May 21, 2019

Catalyst samples, Shell Technology Centre Bangalore, India

Royal Dutch Shell May 21, 2019

AI Drilling

Royal Dutch Shell May 21, 2019 13

Engineers discussing geological information for drilling plans, Houston, USA

Royal Dutch Shell May 21, 2019

Autonomous ships

Royal Dutch Shell May 21, 2019 14

Marine Autonomous Surface Ship (MASS), Gibraltar

Royal Dutch Shell May 21, 2019

No harm Good products Trusted company

15

Strong societal licence to

• perate

Shell has a long history of caring

Royal Dutch Shell May 21, 2019

Ben van Beurden Chief Executive Officer

Royal Dutch Shell plc

16

Royal Dutch Shell May 21, 2019 17

Strategic ambitions

1 Methane emissions intensity is for Shell operated oil and gas assets.

Focus on delivering strong results Thrive in the energy transition World-class investment case Strong licence to operate

2018

◼ Portfolio reshaped, positioned for long-term resiliency ◼ Focus on asset resilience and longevity through the energy

transition

◼ Growth in areas that will be essential in the energy transition ◼ Strong financial delivery and strengthened financial framework ◼ Simpler organisation with higher returns ◼ ~$31 billion of organic free cash flow ◼ Leading through the energy transition ◼ Shorter-term targets to reduce the Net Carbon Footprint ◼ Maintain emissions intensity below 0.2% by 20251

Royal Dutch Shell May 21, 2019 18

2018

Financial Summary

Earnings and ROACE on CCS basis, excluding identified items. All data on pre-IFRS basis. 1 2018 ROACE restated using revised definition.

21.4 49.6

Earnings ($ billion); EPS +34% vs. 2017 Cash flow from operations excluding working capital ($ billion)

39.4 8.7

Free cash flow ($ billion) ROACE1 (%)

20.3

Gearing (%)

Royal Dutch Shell May 21, 2019

Capital Capital in invest vestmen ment t Buyb Buybac acks Divestment proceeds CFFO Surplus CFFO

19

Financial framework

Cash allocation

1 Dividend distributed to RDS shareholders, 2 20% gearing as a proxy for AA equivalent credit metrics.

◼ Intention to purchase $25 billion by the end of 2020 ◼ Subject to further progress with debt reduction and oil price

conditions

◼ $25-30 billion per annum, organic & inorganic ◼ 2018: $25 billion ◼ 2019: within the $25-30 billion range ◼ $3.6 billion in 2018 ◼ 20.3% as of Q4 2018 ◼ $15.7 billion in 20181

Di Divi vide dend Int Intere rest st Ne Net t debt debt re reduc ducti tion n to to 20 20% g % gearin aring2

Royal Dutch Shell May 21, 2019 20

Financial framework

Free cash flow performance and payout

2019-2021 outlook: 2016 Real Terms $60 per barrel, mid-cycle Downstream. Dividend distributed to RDS shareholders. 2014 cash dividend includes scrip issuance of $2.4 billion offset by share buybacks. 2014 share buybacks of $3.3 billion presented net of $2.4 billion offsetting scrip issuance.

$ billion

Distributions from free cash flow

Organic free cash flow Divestment proceeds less acquisitions Cash dividend Scrip dividend Interest paid

$99/bbl

Share buybacks

2014 2017 2019-2021 average

Available for share buybacks and debt reduction

$54/bbl $71/bbl $60/bbl 2018

2019 2019-20 2021 21: : am ample ple cap apaci acity ty for r debt debt re reduc ducti tion n and and sh share are buy buyba backs

Royal Dutch Shell May 21, 2019

2018

HSSE performance

Injuries – TRCF1 (per million working hours)

Goal Zero on safety

Million tonnes CO2-equivalent

Upstream flaring

Thousand tonnes

Operational spills

Number of incidents

Process safety Goal Zero No harm, no leaks

million working hours # Working hours (RHS2) TRCF Volume of spills Number of spills (RHS) Tier 1 incidents Tier 2 incidents

21 1 Total Recordable Case Frequency; 2 Right-hand side.

Royal Dutch Shell May 21, 2019

50:50 joint venture between Shell and ExxonMobil

NAM

January Earthquake Zeerijp with a force of 3.4

• n the Richter scale

22

January Minister Wiebes announces new damage protocol

Source: www.nam.nl, 1 Ministry of Economic Affairs and Climate.

February Gas production locations Loppersum shut down on behalf

• f Minister Wiebes

March Temporary commission for mining damage (RVO) opens counter and starts handling

• utstanding damage claims

March Minister announces proposal: gas production level and completion plan Groningen June Heads of Agreement MEAC1, ExxonMobil, Shell; signed September Final report on 6000

• utstanding damage claims to

MEAC October Presentation ‘Nationaal Programma Groningen’ October Change in ‘Gaswet/ Mijnbouwwet’ came into effect December Start new ‘National Coordinator Groningen’ December Announced extension to the new-build arrangement by NAM (at the request of MEAC) until 1 July 2019

2018

Royal Dutch Shell May 21, 2019

OPL 245

Update for investors

www.shell.com/investors

23

Responsible investor briefing – April 11, 2019

April 11, 2019 Ben van Beurden, Chief Executive Officer, Sir Nigel Sheinwald, Non-Executive Director and Chair of the Corporate and Social Responsibility Committee, Harry Brekelmans, Projects & Technology Director, Donny Ching, Legal Director, and Maarten Wetselaar, Integrated Gas & New Energies Director, presented in London during the annual responsible investors briefing.

Slides from

• m presentation
• n at the respon
• nsible investor
• r briefing in Lon
• ndon
• n, April 11

11, 20 2019 19 Scripted speech text from

• m respon
• nsible investor
• r briefing in Lon
• ndon
• n, April 11

11, 20 2019 19

Royal Dutch Shell May 21, 2019 24

Net Carbon Footprint ambition

Ambitions:

◼ Reduce Net Carbon

Footprint of our energy products by ~20% by 2035

◼ Be in line with

society Net Carbon Footprint by 2050

Royal Dutch Shell May 21, 2019

◼ Adjacencies to

existing businesses

◼ Value chain

integrator

◼ Demand-driven

development

Power value chain

CUSTOMERS OPTIMISATION SUPPLY AND GENERATION

Leverage portfolio flexibility and arbitrage opportunities Multiple parties are active on the demand side Not all products are supplied by Shell, some are purchased from third parties ◼ New Motion ◼ MP2 Energy LLC ◼ First Utility ◼ GI Energy ◼ sonnen ◼ Shell Energy North America ◼ Shell Energy Europe ◼ Shell Energy Australia ◼ Shell Energy Brazil ◼ Carbon emissions rights trading ◼ US onshore wind portfolio ◼ NoordzeeWind ◼ Borssele 3 and 4 offshore wind ◼ Silicon Ranch ◼ Moerdijk solar ◼ Cleantech Solar

25

Royal Dutch Shell May 21, 2019 26

Strategic ambitions

1 Methane emissions intensity is for Shell operated oil and gas assets.

Focus on delivering strong results

2018

◼ Portfolio reshaped, positioned for long-term resiliency ◼ Focus on asset resilience and longevity through the energy

transition

◼ Growth in areas that will be essential in the energy transition ◼ Strong financial delivery and strengthened financial framework ◼ Simpler organisation with higher returns ◼ ~$31 billion of organic free cash flow ◼ Leading through the energy transition ◼ Shorter-term targets to reduce the Net Carbon Footprint ◼ Maintain emissions intensity below 0.2% by 20251

Thrive in the energy transition World-class investment case Strong licence to operate

Royal Dutch Shell May 21, 2019

Royal Dutch Shell plc May 21, 2019

Annual General Meeting

2019

#makethefuture

Royal Dutch Shell May 21, 2019

Royal Dutch Shell May 21, 2019 29

Achieving the Paris Agreement will require huge changes in society’s relationship with energy…

Reduce greenhouse gas emissions

Change consumption patterns Maximise energy efficiency Use lower carbon energy Store remaining emissions

… Society will need to act in all areas.

Royal Dutch Shell May 21, 2019

We all have a role to play…illustrations for air and road travel

30

Maximise energy efficiency Use lower carbon energy Store remaining emissions Air tra ravel Roa Road Tra Travel Less air travel/transport. Users to offset emissions Change consumption patterns Drive less. Drive shorter distances. Car sharing. Public Transport. Produce lighter, more fuel-efficient cars. New engine types. Produce lighter, more fuel-efficient planes. New engine types. Supply low carbon fuels: Bio-Kerosene, synthetic fuels. Supply low carbon fuels: biofuels, renewable electricity, Hydrogen, LNG. Users to offset emissions Where Shell has a role to play - the focus of

• ur Net Carbon Footprint Ambition.

Royal Dutch Shell May 21, 2019

Our Net Carbon Footprint ambition focuses where we have most influence…

31

Baseline Operational efficiency Natural gas shift Renewable power CCS Natural sinks

CO2

Biofuels Electric Mobility

Exis istin ing examples:

Wind power Quest CCS Raizen biofuels Shell Recharge & New Motion Flare reduction Increased LNG Nature based offsets

…we will sell fewer pro products with hi high gher em emis issio ions, and and mor

• re

pro products with low

• wer or
• r no

no em emis issio ions.

…re realising our r ambition will mean tha that Shel ell will ill be e a ra radically diffe ifferent co company in in 2050.

In n 201 2019, , we e set set a a 3-year r tar arget to

• red

reduce our

• ur Net

et Car arbon Foo Footprin int by by 2% 2% to

• 3%

3% com compared to

• 201

2016. . Our ex executives' pay pay is s lin inked to

• thi

his tar arget.

Royal Dutch Shell May 21, 2019

We all have a role to play…illustrations for the heavy industry and housing

32

Maximise energy efficiency Use lower carbon energy Store remaining emissions He Heavy Ind ndustr try (e.g (e.g. . st steel) l) Hous

• usin

ing Change consumption patterns Buy into offset schemes? Reduce hot water and heating/cooling demand? Lower thermostat? Smart metering. Double-glaze windows. Insulate walls and roofs. Install solar panels, heat pumps, low energy lighting. District heating Help shift from coal to gas or to low carbon/ renewable electricity. Consume less? Produce different grade steel. 3-D metal printing. Recycling. Optimise use of

• machinery. Adopt new

technology e.g. electric-fed furnaces. Help shift from coal to

• gas. Supply electricity

from renewable sources and in time, (green) Hydrogen. Application of carbon, [use], capture and storage. Where Shell has a role to play - the focus of

• ur Net Carbon Footprint Ambition.

Royal Dutch Shell May 21, 2019

We all have a role to play…illustrations for light and heavy industry

33

Maximise energy efficiency Use lower carbon energy Store remaining emissions Li Light ind ndustr try e.g .g. . text xtile les Heavy ind ndustr try e.g .g. . st steel Accept a smaller range of clothing?

• Recycling. Reduce

wastage. Use of circular economy? Change consumption patterns Consume less? Produce different grade steel. 3-D metal printing. Recycling.

Optimise use of

• machinery. Adopt new

technology e.g. electric- fed furnaces.

Upgrade and electrify

• machinery. More

efficient heating/ cooling. Supply electricity from renewable sources Help shift from coal to

• gas. Supply electricity

from renewable sources and in time, (green) Hydrogen. Application of carbon, [use], capture and storage Where Shell has a role to play - the focus of

• ur Net Carbon Footprint Ambition.