SLIDE 1
Royal Dutch Shell January 31, 2019
Royal Dutch Shell January 31, 2019
Fourth quarter 2018 results Delivering a world-class investment case - - PowerPoint PPT Presentation
Fourth quarter 2018 results Delivering a world-class investment case - - PowerPoint PPT Presentation
Fourth quarter 2018 results Delivering a world-class investment case Royal Dutch Shell plc January 31, 2019 #makethefuture Royal Dutch Shell January 31, 2019 Ben van Beurden Chief Executive Officer Royal Dutch Shell Royal Dutch Shell
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SLIDE 3
Royal Dutch Shell January 31, 2019 3
Definitions & cautionary note
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.). Headline divestments is a non-GAAP metric. 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, 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 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 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
- ther 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
- f 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, 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, January 31, 2019. Neither Royal Dutch Shell plc nor any of its subsidiaries undertake any obligation to publicly update
- r 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.
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Royal Dutch Shell January 31, 2019 4
Summary
Divestments: headline. Share buybacks: completed by January 28, 2019. CFFO from new projects: estimated 2018 contribution of key projects started up 2014-2018, with pricing assumption of $60 per barrel real terms 2016, mid-cycle Downstream.
Key messages
Deliv
iverin ing strong c cash f flow
Free cash flow of $16.7 billion in Q4, and $39.4 billion in 2018 Cash flow from operations excluding working capital of $12.9 billion in Q4 and $49.6 billion in 2018 Strengthenin
ing the f fin inancia ial framework
$25 billion share buyback programme: $4.5 billion purchased so far Gearing further reduced to 20.3% Fully covered dividend, interest, and share buybacks in 2018 Reshapin
ing the p portfolio io
$30 billion divestment programme completed New projects delivering >$10 billion in cash flow from operations Leadin
ing through t the e energy transit itio ion
Short-term targets to reduce Net Carbon Footprint Methane emissions intensity targets
Thrive in the energy transition World-class investment case Strong license to operate
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Royal Dutch Shell January 31, 2019 5
2018
Financial Summary
Earnings and ROACE on CCS basis, excluding identified items
21.4 49.6
Earnings ($ billion); EPS +34% vs. 2017 Cash flow from operations excluding working capital ($ billion)
39.4 7.6
Free cash flow ($ billion) ROACE (%)
20.3
Gearing (%)
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Royal Dutch Shell January 31, 2019
2018
HSSE performance
Injuries – TRCF (per million working hours)
Goal Zero on safety
Million tonnes CO2e
Upstream flarin ing
Thousand tonnes
Operatio ional spil ills
Number of incidents
Process safety
HS
HSSE prio iorit ity
Performance and
transparency
million working hours # Working hours (RHS) TRCF Volume of spills Number of spills (RHS) Tier 1 incidents Tier 2 incidents
6
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Royal Dutch Shell January 31, 2019 7
2018
Leading through the energy transition
Changes to executive remuneration subject to shareholder approval. Methane emissions intensity is for Shell operated oil and gas assets.
Hig Highligh ights Proof poin ints Innovatin ing g to meet changin ing g socie iety and customer preferences
Net Carbon Footprin
int – long-term ambition
- perationalised with short-term targets; linked to
executive remuneration
Methane – maintain emissions intensity below
0.2% by 2025
Task force on Clim
imate-related d Fin inancia ial Dis isclosures (TCFD) – driving effective climate change disclosures as a member of Oil & Gas Preparer Forum
Thought leadership
ip – Shell Energy Transition report and Sky Scenario publication
Nigeria Decrease in flaring intensity by ~70% over the last 10 years Brent D Delta platform (UK) Decommissioning >97% to be recycled Quest CCS ( (Canada) >3.5 million tonnes CO2 captured and stored Solar Investments in Asia and North America
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Royal Dutch Shell January 31, 2019
Gabon onshore $0.9bln
8
Divestment programme
$30 billion completed 2016-2018
Divestments: headline as per announcement.
Reshape, sim
implif ify and hig igh-grad ade the portfolio io
Attractiv
ive valuatio ions
More than 50 transactions in 25 countries Business country exits in Argentina, Ireland, Gabon,
Thailand, Japan and New Zealand
Continue divestments of at least $5 billion average
per annum in 2019-2020 Portfolio io sim implif ific ication
Oil Sands Oil Products Chemicals MLP Deep water Conventional Oil & Gas Shales Integrated Gas Oil Sands $7.3bln UK North Sea package up to $3.8bln Thailand Bongkot $0.8bln Showa Shell JV $1.4bln MOTIVA JV $2.2bln Woodside shares $2.6bln Downstream Argentina $1.0bln SADAF JV $0.8bln
Net debt reduction Net liabilities (e.g. D&R) reduction Credit rating upgrades
Supportin ing the fin inancia ial framework
MLP $1.8bln Top
- p 20 t
20 transaction ions: Upstream Ireland up to $1.3bln
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Royal Dutch Shell January 31, 2019
Delivery
Key projects start-ups
Pricing assumption 2019E-2020E and 2018 estimate: $60 per barrel real terms 2016, mid-cycle Downstream. Brazil accumulations are subject to unitisation agreements.
Key proje jects
$ billion
Cash contrib ibution ion from key proje jects: de-ris isked
>$10 bil
illio ion CFFO deliv ivered in in 2018
Addit
itio ional proje jects wit ith >150kboe/d of p peak productio ion capacit ity to start up in in 2019 Start-up up
Brazil (8 FPSOs) Gulf of Mexico (Cardamom, Mars, Stones, Kaikias) Malikai Gumusut Kakap Ph1 Lula North (P-67) Appomattox Permian QCLNG Gorgon Prelude Kashagan Schiehallion redevelopment Clair Ph2
Nanhai China Chemicals Geismar AO4 Pernis SDA Scotford
Q3 2019
2017-2020
Deep water Integrated Gas Conventional Oil & Gas Shales Chemicals Oil Products
Projects started up Projects under construction
9
+$5 billion Q1 2019
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Royal Dutch Shell January 31, 2019 10
Portfolio & projects
Projects delivery 2018
Fourth alpha olefins unit, with 425,000 metric tonnes
per annum additional capacity, Shell interest 100%
Largest alpha olefins site globally Integrated US Gulf coast position with ethylene
crackers at Deer Park and Norco
Geis ismar alpha olefin ins – start-up
Floating LNG facility offshore Australia, with capacity
to produce 3.6 million tonnes LNG per annum and 1.7 million tonnes natural gas liquids per annum, Shell interest 68%
First gas in wells and production of condensate Preparations for first LNG cargo underway
Prelude – start-up up
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Royal Dutch Shell January 31, 2019 11
Portfolio & projects
Projects delivery 2019-2020
Appomattox – in installatio ion and commis issio ioning Permia ian – contin inued growth
~260,000 net acres in the Delaware basin, Shell
interest ~57%
Shell share of production 145 thousand barrels of oil
equivalent per day
Strong delivery to date and continued growth Free cash flow growth well into the next decade Gulf of Mexico hub development producing from the
Appomattox and Vicksburg fields
Peak production capacity of 175 thousand barrels of
- il equivalent per day, Shell interest 79%
40% cost reduction since FID Offshore installation and commissioning underway
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Royal Dutch Shell January 31, 2019 12
Portfolio & projects
Projects delivery 2020+
Gulf o
- f Mexic
ico – Whale development Unit ited States – Pennsylvania petrochemicals
Pennsylvania petrochemicals complex with production
capacity of 1.6 million tonnes of polyethylene per annum, Shell interest 100%,
Commercial production early next decade Supporting growth in Shell’s global Chemicals
business, which sells ~18 million tonnes of products per annum
Gulf of Mexico deep-water discovery, Shell interest 60% Assessing exploration and appraisal results Progressing development options and targeting
potential FID in 2020
Standardisation and replication enabling cycle time
reduction
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Royal Dutch Shell January 31, 2019 13
World-class investment case
Strategic themes delivery:
- n track
2019-21: 2016 RT $60 per barrel, mid-cycle Downstream. Deep water and Shales categorised as per the 2019-2021 outlook.
2019-21 ~$60RT 2018 ~$71
Strategic themes Orga ganic free cash flow
$ billion
Orga ganic free cash flow
$ billion
Orga ganic free cash flow
$ billion p.a.
Integrated Gas 2.8 10.8 8-10 Deep water 0.8 5.0 6-7 Conventional Oil & Gas 6.1 6.5 5-6 Oil Products 5.3 6.3 6-7 Cash engines 15 15.0 28 28.7 25 25-30 30 Shales (1.1) (0.6) 1-2 Chemicals 1.1 0.4 Growth priorities (0.0) 0.0) (0.2) 0.2) 1-2 New Energies (0.2) (0.5) (2) - (1) Emerging opportunities (0.2) 0.2) (0.5) 0.5) (2) 2) - (1) 1) Organic free cash flow
(incl. Corporate & Other)
15 15.1 30 30.8 25 25-30 30 Divestments & acquisitions 12.5 8.7 >5 Free cash flow
(incl. Corporate & Other)
27 27.6 39 39.4 30 30-35 35
Pric ice sensit itiv ivit ity: +/ +/- $10 Brent = +/ +/- ~$6 bil illio ion CFFO
2017 ~$54
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Royal Dutch Shell January 31, 2019
Delivery in 2016-2018
14
World-class investment case
Delivering on commitments
Continued delivery in 2019-2020 Cancel scrip dividend Start $2
$25 5 bil illio ion buyback programme: $4 $4.5 5 bil illio ion completed
Disciplined & efficient capital allocation: $2
$25 5 bil illio ion capital investment Financial Framework Delivery Portfolio & projects
delivery Financial Framework Delivery Portfolio & projects delivery
Divestments: headline. 2020 organic free cash flow outlook at $60 per barrel real terms 2016, mid-cycle Downstream. Share buybacks: subject to further progress with debt reduction and oil price conditions. CFFO from new projects in 2018 and 2020 compared with 2014, at $60 per barrel real terms 2016, mid-cycle Downstream.
$25
$25-30 30 bil illio ion organic free cash flow per year by 2020
Complete $2
$25 5 bil illio ion buyback programme
Capital investment of $25
$25-30 30 bil illio ion per annum
>$5 bil illio ion divestments per annum
Another $5 $5 bil illio ion CFFO from new projects by end 2020
Deliver $3
$30 0 bil illio ion divestment programme
Realise $1
$10 0 bil illio ion CFFO from new projects in 2018
Reduce underlying operating expenses: $3
$39 9 bil illio ion in 2018
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Royal Dutch Shell January 31, 2019
Jessica Uhl Chief Financial Officer
Royal Dutch Shell
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Royal Dutch Shell January 31, 2019
Of which $14.3 billion organic free cash flow Significant working capital release
Disciplined cash allocation Cash generation
16
Q4 2018
Financial highlights: summary
Earnings and ROACE on CCS basis, excluding identified items. Dividend distributed to RDS shareholders. Share buybacks: repurchases completed in Q4 2018, tranches announced do not align with quarters. Share buybacks subject to further progress with debt reduction and oil price conditions.
Q4 4 20 2018 18 average Brent pric ice: : $69 $69/bbl bbl
$5.7 billion earnings Continued improvement
Net debt reduction Share buybacks Capital investment
$12.9 billion
Good cash conversion of strong underlying earnings Seasonally higher cost and tax Positive contribution from margining, driven by falling
Brent oil price
$16.7 billion
Cash flow from operations
- excl. working
capital Free cash flow ROACE
7.6 %
Returns
$9.1 billion
20.3% gearing
$2.5 billion $8.0 billion
2018 capital investment of $25 billion at lower end of
indicated range
Second tranche completed January 28, 2019 Next tranche of up to $2.5 billion announced Intention to purchase $25 billion by the end of 2020
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Royal Dutch Shell January 31, 2019
Argentina S
Shales – progressed 3 Vaca Muerta blocks into development, up to 70 thousand barrels of oil equivalent per day, Shell interest 80-90%
Nigeria A
Assa North – FID on gas development project targeting 300 million standard cubic feet of gas per day, Shell interest 30%
US Offshore Wind – acquisition of 310,000 acres off the coast of Massachussets
and New Jersey with potential to generate 4.1 Gigawatts, Shell interest 50%
17
Q3 2018
Other portfolio developments
Clair phase 2 – up to 120 thousand barrels of oil per day production, Shell
interest 28%
Geismar Chemicals – start-up of fourth Alpha Olefins unit, Shell interest 100% Prelude FLNG – first gas in wells and condensate production, Shell interest 68% Ireland Upstream – completed sale of Corrib for $1.3 billion consideration Norway – completed sale of Draugen and Gjøa for $0.5 billion consideration New Z
Zealand – completed country exit for $0.6 billion consideration
Q4 2018
Portfolio highlights
Project delivery Portfolio Divestments
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Royal Dutch Shell January 31, 2019
$ b $ bil illion ion
Q4 4 20 2017 17 Q4 4 20 2018 18
Integrated Gas 1.6 2.4 Upstream 1.7 1.9 Downstream (CCS) 1.4 2.1 Corporate & non-controlling interest (0.4) (0.7) CCS earnin ings 4.3 4.3 5.7 5.7 CCS earnings, $ per share 0.52 0.69 ROACE (%) 5.6 5.6 7.6 7.6
18
Q4 2018
Financial highlights: earnings
Earnings and ROACE on CCS basis, excluding identified items.
$ billion
Earnin ings Q4 2017 to Q Q4 2018
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Royal Dutch Shell January 31, 2019
$ b $ bil illion ion
Q4 4 20 2017 17 Q4 4 20 2018 18
Integrated Gas 0.8 5.8 Upstream 3.8 6.9 Downstream 2.6 8.8 Corporate 0.0 0.6 Cash flow from operatio ions 7.3 7.3 22 22.0 Cash flow from operations
- excl. working capital
9.1 12.9 Cash flow from in investin ing g activ ivit ities (0.7) 0.7) (5.3) 5.3) Free cash flow 6.6 6.6 16 16.7 Dividend (2.3) (3.9) Interest paid (0.8) (0.9) Share buybacks
- (2.5)
19
Q4 2018
Financial highlights: cash flow
Dividend distributed to RDS shareholders.
$ billion
CFFO e excl. . workin ing g capit ital Q4 2017 to Q Q4 2018
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Royal Dutch Shell January 31, 2019 20
2018
Gulf of Mexico: Strong cash flow growth
Map shows Shell operated assets.
Operatio ional excellence
Improving asset availability Reduction in unit operating costs
Fil ill the hub strategy
Maximising existing production
through well reservoir facility management
Subsea tiebacks Optimised waterflood performance
Proje ject deliv ivery
Coulomb phase 2 on-stream Accelerated delivery of Kaikias Cycle time improvement for new wells
Thousand boe per day
Gulf o
- f Mexic
ico productio ion growth Growin ing productio ion of hig igh cash margin in barrels
+50%
SLIDE 21
Royal Dutch Shell January 31, 2019 21 Earnings and ROACE on CCS basis, excluding identified items. Pricing assumption 2020: $60 per barrel real terms 2016, mid-cycle Downstream. Divestments: headline.
$ billion
Earnin ings & ROACE
$ billion
Cash flow
$ billion
Gearin ing
$21.4 billion earnings ROACE increased to 7.6% On track to deliver 10% ROACE $39 billion free cash flow $31 billion organic free cash flow More than $30 billion divestments
completed since 2016
On track to deliver 2019-2021
- utlook
$26 billion of net debt reduction
since end 2016
Gearing reduced from 23.1% to
20.3% in Q4 2018
Improved credit rating
20 2018 18 average Brent pric ice: : $71/ $71/bbl bbl
% %
Upstream ROACE (RHS) Downstream Integrated Gas Corporate + NCI CFFO CFFI FCF Net debt (at year end) Gearing (RHS)
2018
Financial highlights: improving year on year
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Royal Dutch Shell January 31, 2019
2018 Reserves performance
2018 RRR 53% 2018 RRR (excl. A&D) 66% 2018 RRR (excl. Groningen) 98% 3-year average RRR 96% Reserves/Production at end 2018 ~8.3 years
22
Preliminary results
SEC proved reserves position
2016 and 3-year average RRR includes BG acquisition.
Billion boe
Reserves performance
bil illion ion boe
- e
2016 2016 2017 2017 2018 2018 Production 1.4 1.4 1.4 SEC proved reserves 13.2 12.2 11.6 Reserves/ Production (years) ~9.5 ~8.8 ~8.3 RRR 208% 27% 53%
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Royal Dutch Shell January 31, 2019
Capit ital in investment Buybacks Divestment proceeds CFFO Surplus CFFO
23
Financial framework
Cash allocation
Dividend distributed to RDS shareholders. 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 2018
Div ivid idend Interest Net debt reductio ion to 20% gearin ing
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Royal Dutch Shell January 31, 2019 24
Financial framework
Free cash flow performance and payout
2019-2021 outlook: 2016 RT $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
Dis istrib ibution ions from free cash flow
Organic free cash flow Divestment proceeds less acquisitions Cash dividend Scrip dividend Interest paid
$99/bbl
2019 2019-2021: : ample capacit ity for debt reductio ion and share buybacks
Share buybacks
2014 2017 2019-2021 average
Available for share buybacks and debt reduction
$54/bbl $71/bbl $60/bbl 2018
SLIDE 25
Royal Dutch Shell January 31, 2019
Competitive performance
World-class investment case
Competitive financial data as published. ROACE: European companies: CCS basis excluding identified items, US companies: reported earnings excluding special non-operating items; Capital employed on gross debt basis. Free cash flow: cash flow from operations less cash used in investing activities, corrected for interest paid for RDS. Gearing: gross debt less cash and cash equivalents as a percentage of total capital. TSR: in USD, 90-day averages until January 25, 2019.
%
ROACE
%
Gearin ing
$ billion
Free cash flow – 4 quarters rollin ing Total shareholder return
Shell Peer group
25
%
Since Jan 2016 Since Jan 2017 Since Jan 2018
Shell Peer group Thrive in the energy transition Wo World-class investment case Strong license to operate
SLIDE 26
Royal Dutch Shell January 31, 2019
Ben van Beurden Chief Executive Officer
Royal Dutch Shell
SLIDE 27
Royal Dutch Shell January 31, 2019 27
Summary
Divestments: headline. Share buybacks: completed by January 28, 2019. CFFO from new projects: estimated 2018 contribution of key projects started up 2014-2018, with pricing assumption of $60 per barrel real terms 2016, mid-cycle Downstream.
Key messages
Deliv
iverin ing strong c cash f flow
Free cash flow of $16.7 billion in Q4, and $39.4 billion in 2018 Cash flow from operations excluding working capital of $12.9 billion in Q4 and $49.6 billion in 2018 Strengthenin
ing the f fin inancia ial framework
$25 billion share buyback programme: $4.5 billion purchased so far Gearing further reduced to 20.3% Fully covered dividend, interest, and share buybacks in 2018 Reshapin
ing the p portfolio io
$30 billion divestment programme completed New projects delivering >$10 billion in cash flow from operations Leadin
ing through t the e energy transit itio ion
Short-term targets to reduce Net Carbon Footprint Methane emissions intensity targets
Thrive in the energy transition World-class investment case Strong license to operate
SLIDE 28
Royal Dutch Shell January 31, 2019 28
Questions & Answers
Ben van Beurden Chief Executive Officer Jessica Uhl Chief Financial Officer
Royal Dutch Shell January 31, 2019
Maarten Wetselaar Integrated Gas and New Energies Director
SLIDE 29
Royal Dutch Shell January 31, 2019
SLIDE 30
Royal Dutch Shell January 31, 2019
Outlook
Q1 2019 Outlook
As of 2019, Salym (Russia) is reported within the Upstream segment. 2018 production: 62 kboe/d Shell share (97% liquids); 2018 net income: $0.1 billion.
Q1 1 20 2018 18 – Q1 1 20 2019 19 OUTLOOK: : Year-ago baseline reflects Shell’s earnings seasonality
Integrated gas
Production volumes: 140-170 thousand boe/d lower, mainly due to divestments, the transfer of some activities into the Upstream segment as of 2019 and higher maintenance activities
LNG liquefaction volumes: 0.4-0.7 million tonnes lower, mainly as a result of divestments and higher maintenance activities
Upstream
Production volumes: 10-50 thousand boe/d lower, mainly due to divestments and field decline, partly offset by ramp-ups
- f existing fields. This includes the impact of additional activities reported in the Integrated Gas segment in 2018
Downstream
Refinery availability to decrease, as a result of higher maintenance activity
Chemicals availability expected to be at a similar level
Oil products sales volumes: 40-70 thousand boe/d lower, mainly as a result of the divestment of the Downstream business in Argentina 20 2019 19 OUTLOOK:
Corporate segment:
: net charge of $400-450 million in Q1, and $1.7-1.9 billion for the full year 2019, excluding the impact
- f currency exchange rate effects and the impact of IFRS 16 Leases
IFRS 16
16: : updates will be communicated during a webcast on March 28, 2019. The quantitative impact at transition date (January 1, 2019) will be disclosed in the 2018 Annual Report and Form 20-F
30
SLIDE 31
Royal Dutch Shell January 31, 2019 31
Outlook
Impact of IFRS16 Leases
Gearin ing Free cash flow Capit ital in investment Operatin ing expenses Segment earnin ings
~4% ~4%-5% 5% in increase
Operating lease liabilities on balance sheet Increase in net debt and gearing
~$4 bil illio ion in increase
Lease payments will be reported under CFFF, instead of
under CFFO and CFFI as previously ~$1 ~$1-2 bil illio ion in increase
Capital investment will include all leases, instead of only
finance leases ~$2 ~$2-3 3 bil illio ion decrease
Costs of operating leases will be reported as depreciation
and interest expense ~$1 bil illio ion im impact
Lease interest expenses will be treated as financing
expenses and will be reported in Corporate, with corresponding offsets in business segments
Unaudited and provisional. All figures quoted on a full-year basis. For 2019, we will provide estimates for key indicators on a pre-IFRS16 basis for comparability with actuals.
Key metric ics change, , no busin iness and value im impact
SLIDE 32
Royal Dutch Shell January 31, 2019
$ b $ bil illion ion
Q3 3 20 2018 18 Q4 4 20 2018 18
Integrated Gas 3.3 5.8 Upstream 6.7 6.9 Downstream 1.0 8.8 Corporate 1.1 0.6 Cash flow from operatio ions 12 12.1 22 22.0 Cash flow from operations
- excl. working capital
14.7 12.9 Cash flow from in investin ing g activ ivit ities (4.1) 4.1) (5.3) 5.3) Free cash flow 8.0 8.0 16 16.7 Dividend (3.9) (3.9) Interest paid (0.9) (0.9) Share buybacks (1.4) (2.5)
32
Q4 2018
Financial highlights: cash flow
Dividend distributed to RDS shareholders.
$ billion
CFFO e excl. . workin ing g capit ital Q3 2018 to Q Q4 2018
SLIDE 33
Royal Dutch Shell January 31, 2019 33
2018
Working capital & IG Brent hedging
$ billion Working capital movements consistent with Brent oil price
movements
Q4 2018 movement of $9.1 billion: inventory price effect of
$5.3 billion, inventory volume effect of $2.4 billion (reduction of ~40 million boe), lower AP/AR of $1.4 billion
Full year 2018 movement of $3.4 billion: inventory price
effect of $1.9 billion, inventory volume effect of $0.9 billion, lower AP/AR of $0.6 billion
Workin ing capit ital
$ billion
Integrated d Gas – Brent hedgin ing cash im impact
Hedging programme based on Brent and Henry Hub to
manage cross commodity exposure – tool for managing and
- ptimising the portfolio for value
Volume and exposures vary over time Material volatility in Brent forward curve since Q4 2017
resulting in swings in margining requirements
The cash impact is timing only Movement in working capital Average Brent price for the quarter (RHS) IG Brent hedging cash impact Brent price at the end of the quarter (RHS) $/bbl $/bbl Cumulative movement in working capital IG Brent hedging cash impact (cumulative)
SLIDE 34
Royal Dutch Shell January 31, 2019 34
Outlook
Organic free cash flow
2019-2021 outlook at $60 per barrel real terms 2016, mid-cycle Downstream. Organic free cash flow normalised to stable $60 per barrel real terms 2016 oil price environment in 2020, assuming no working capital or margining movements. Price effect between current Brent price and 2019-2021 outlook is indicative, calculated using rule-of-thumb.
$ billion
Organic ic free cash flow 2018 to 2019-2021 outlook On track to deliver 2019-2021 outlook of
$25-30 billion organic free cash flow
Normalised organic free cash flow excludes
effects of margining and working capital movements
New projects provide free cash flow growth
25-30 >5 (4) ~31 ~23
Organic free cash flow Working capital movement and IG margining
SLIDE 35
Royal Dutch Shell January 31, 2019 35
Digitalisation in Shell
AI & machine learning powering
decision making
Strategic partnerships for cloud-
based solutions and infrastructure
Improved energy consumption in
- perations
Machine learning prevented loss of
production at Shearwater; approach being replicated across other assets
Residential & commercial customer
convenience
Applications for energy management
and smart charging
Flexible, pay as you go energy
service
1 million Shell app users; first
cashless payment system
Asset safeguarding & leak detection Automated materials, people and
equipment management
Reduced people exposure Drones have capability to cover up to
7,000 square kilometers in a single mission
Operatio ional Effectiv iveness Customer Experie ience Asset Management Aim im to b be a leadin ing player, , enablin ing g value uplif ift over the comin ing years
Shell Cashless App Shearwater UK QGC Australia
SLIDE 36
Royal Dutch Shell January 31, 2019
Q4 2018
Prices & margins
$/barrel
Shell oil il & g gas realis isatio ions
$/barrel
Industry refin inin ing margin ins
$/tonne
Industry chemic icals margin ins
US ethane Western Europe naphtha NE/SE Asia naphtha US West Coast US Gulf Coast coking Rotterdam complex Singapore Oil Gas (RHS)
36
$/mscf
SLIDE 37
Royal Dutch Shell January 31, 2019 37
Q4 2018
Upstream results
$ billion
Earnin ings Q4 2017 to Q Q4 2018
Environment Choice
Earnings on CCS basis, excluding identified items
SLIDE 38
Royal Dutch Shell January 31, 2019 38
Q4 2018
Integrated Gas results
$ billion
Earnin ings Q4 2017 to Q Q4 2018
Environment Choice
Earnings on CCS basis, excluding identified items
SLIDE 39
Royal Dutch Shell January 31, 2019 39
Q4 2018
Downstream results
Earnings on CCS basis, excluding identified items
$ billion
Earnin ings Q4 2017 to Q Q4 2018
$ billion
Earnin ings mix ix
Marketing Refining & Trading Chemicals
SLIDE 40
Royal Dutch Shell January 31, 2019