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Royal Dutch Shell plc second quarter 2018 results webcast presentation

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Royal Dutch Shell plc webcast presentation slides for second quarter 2018 results.

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Royal Dutch Shell plc second quarter 2018 results webcast presentation

  1. 1. Royal Dutch Shell July 26, 2018 Royal Dutch Shell plc July 26, 2018 Second quarter 2018 results Delivering a world-class investment case #makethefuture
  2. 2. Royal Dutch Shell July 26, 2018 Ben van Beurden Chief Executive Officer Royal Dutch Shell
  3. 3. Royal Dutch Shell July 26, 2018 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 forward- looking 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. 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 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 3 Definitions & cautionary note
  4. 4. Royal Dutch Shell July 26, 2018 4 Summary 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). Key messages  Confidence in free cash flow outlook  Focus on capital discipline in line with financial framework  $30 billion divestments1 completed or announced  $25 billion share buyback programme launched Q2 2018  Strong results, momentum continues  Portfolio reshaping and project delivery Thrive in the energy transition World-class investment case Strong license to operate
  5. 5. Royal Dutch Shell July 26, 2018 HSSE performance Injuries – TRCF (per million working hours) Goal Zero on safety Million tonnes CO2e Upstream flaring Volume in thousand tonnes Operational spills Number of incidents Process safety  HSSE priority  Performance and transparency million working hours # 0 300 600 900 0 1 2 2008 2010 2012 2014 2016 18H1 0 250 500 0 5 10 2008 2010 2012 2014 2016 18H1 0 5 10 15 2008 2010 2012 2014 2016 18H1 0 100 200 300 2013 2014 2015 2016 2017 18H1 Working hours (RHS)TRCF Volume of spills Number of spills (RHS) Tier 1 incidents Tier 2 incidents 5
  6. 6. Royal Dutch Shell July 26, 2018 6 H1 2018 Financial summary Earnings and ROACE on CCS basis, excluding identified items 10.1 18.9 Earnings ($ billion); EPS +34% versus H1 2017 Cash flow from operations ($ billion) 14.7 6.5 Free cash flow ($ billion) ROACE (%) 23.6 Gearing (%) Nanhi petrochemicals plant - China
  7. 7. Royal Dutch Shell July 26, 2018 7 Portfolio & projects Recent portfolio developments  Whale and Dover discoveries in the Gulf of Mexico  Bid rounds in Mexico and Brazil  Entry into Mauritania  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  Downstream: Argentina  Integrated Gas: Bongkot Thailand, New Zealand, Malaysia LNG Tiga  Upstream: Norway, West Qurna Portfolio re-shaping (A&D) Project delivery Exploration success Divestments based on headline size, announced in H1 2018.  Continue to grow & high-grade portfolio  >100kboe/d Shell share new FIDs Divestments: ~$4.0 billion  First Utility  Silicon Ranch  Other Acquisitions: ~$0.5 billion
  8. 8. Royal Dutch Shell July 26, 2018 8 Portfolio & projects Gulf of Mexico  Leading position  Growth and longevity operational excellence Project delivery Exploration success Whale – discovery Dover – discovery Bid round - Mexico Appomattox on location Kaikias start-up Vito FID Bid round – Mexico
  9. 9. Royal Dutch Shell July 26, 2018 9 Portfolio & projects Projects delivery Nanhai petrochemicals expansion – start-up Prelude – progress towards start-up  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%  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% Projects delivery on track
  10. 10. Royal Dutch Shell July 26, 2018 0 10 20 30 40 - 5,000 10,000 15,000 Percentage of capital investment 0% 100%50% Percentage of capital investment 10 Portfolio & projects High-quality Upstream growth options 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). Billion boe Reserves & resources Pre-FID funnel break-even price $ per barrel Upstream – Conventional oil & gas Pre-FID funnel break-even price $ per barrel Upstream – Deepwater Permian – break-even price $ per barrel Upstream – Shales Since 2014: >45% reduction in expected unit development cost for major projects 0 20 40 60 80 0% 50% 100% 2014 2017 0 40 20 Net risked well count 260013000 <$40 $40-50 Reserves (SEC proved) Discovered resources (2P+2C development pending) Conventional oil & gas Deep water Shales 0
  11. 11. Royal Dutch Shell July 26, 2018 11 Cash momentum 1 Pricing assumption 2019-21: $60 per barrel real term 2016. 2 At $71 per barrel. $ billion Total cash flow  New projects cash delivery on track  Confidence in 2020 free cash flow outlook -10 0 10 20 30 40 50 60 2015 2016 2017 18Q2 4Q rolling 2019-21 5452 44 64 Cash flow from operations (excluding working capital movements) Average Brent oil price ($/bbl)# Organic free cash flow 0 10 20 2018E 2020E $ billion cash flow per annum Project start-ups 2014 to 2020 ~$10 billion CFFO1 2018 YTD estimate2 ~651 $/bbl
  12. 12. Royal Dutch Shell July 26, 2018 12 Financial framework Capital discipline supporting growth Excludes BG acquisition in 2016; historical BG capital investment is based on BG’s published Annual Report. $ billion Capital investment  $25-30 billion organic & inorganic  2018: lower part of the range Capital investment $ billion (p.a.) 2018-20 Oil products 4-5 Conventional oil + gas 4-5 Integrated gas 4-5 Deep water 5-6 Chemicals 3-4 Shales 2-3 New energies 1-2 Total 25-30 0 20 40 2015 2016 2017 2018-20 avg p.a. -$12 billion 30 25 Shell BG
  13. 13. Royal Dutch Shell July 26, 2018  Attractive dividend key to total shareholder return and world-class investment case  $25 billion share buyback by end 20201  First buyback tranche $2 billion in Q3 2018 13 Shareholder returns 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. % Total shareholder returns January 2016 to end June 2018 Delivering a world- class investment case 0 25 50 75 100 Shell
  14. 14. Royal Dutch Shell July 26, 2018 Jessica Uhl Chief Financial Officer Royal Dutch Shell
  15. 15. Royal Dutch Shell July 26, 2018 15 Foundation of the world-class investment case Key features  Maximising value for shareholders through cycle  Focus on shareholder distributions  Multi-year timescales  Surplus free cash flow in up-cycle and dividends fully covered in down-cycle  Gearing 0-30%; AA equivalent credit metrics Thrive in the energy transition World-class investment case Strong license to operate  Conservative financial management  FCF & ROACE growth
  16. 16. Royal Dutch Shell July 26, 2018 16 Financial framework Cash flow priorities Priorities for cash Debt reduction Dividends Buybacks & capital investment 1 2 3 Continue to reduce gearing Cancel scrip dividend Buy back shares Progress towards a world-class investment case Increase shareholder distributions
  17. 17. Royal Dutch Shell July 26, 2018 % 17 Financial summary 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). $ billion -5 5 15 25 -5 5 15 25 2014 2015 2016 2017 18Q2 4Q rolling Earnings & ROACE $ billion Divestments $ billion -15 0 15 30 45 2014 2015 2016 2017 18Q2 4Q rolling Cash flow $ billion Net debt & gearing % Upstream ROACE (RHS) Downstream Integrated Gas Corporate + NCI CFFO CFFI FCF 15 20 25 30 50 60 70 80 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 Net debt Gearing (RHS) 0 10 20 30 40 Completed Announced or signed In progress Total
  18. 18. Royal Dutch Shell July 26, 2018 18 Q2 2018 Financial highlights Earnings and ROACE on CCS basis, excluding identified items. Dividend distributed to RDS shareholders $ billion Earnings Q2 2017 to Q2 2018$ 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 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 3.6 4.7 2.2 0.1 0.1 (0.1) (0.5) (0.4) (0.3) 0 2 4 6
  19. 19. Royal Dutch Shell July 26, 2018 19 Downstream US Gulf Coast: one year after Motiva Integration delivering value Shell terminals Shell refineries Deer Park: crude and feedstock flexibility integrated with trading No rco Co nvent D eer P ark Mo bile Shell chemical plants G eismar Retail product supply: end to end value generation Sewaren: integrated operations Mobile: retail, refining & trading integration Norco: hydrocracker upgrade & integration Convent: FCC reliability & integration
  20. 20. Royal Dutch Shell July 26, 2018 20 Integrated Gas LNG portfolio Million tonnes per annum (DES) Emerging LNG Supply – Demand gap 0 100 200 300 400 500 600 2000 2005 2010 2015 2020 2025 2030 2035 LNG supply in operation LNG supply under construction Demand forecasts 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  Affordability  Returns
  21. 21. Royal Dutch Shell July 26, 2018 21 Upstream Permian Performance Thousand boe per day 0 50 100 150 200 250 2016 2017 18Q2 4Q rolling 2018E 2019E 2020E  ~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  Growth plans not impacted by infrastructure bottlenecks  Free cash flow growth well into the next decade  Continue to reduce costs despite supply chain pressure Production growth $ per boe Direct field unit operating costs Continued strong delivery of organic growth and improved cost performance +160% +85% 0 2 4 6 8 2016 2017 2018E Ambition -18%
  22. 22. Royal Dutch Shell July 26, 2018 Capital employed ($ bln) Free cash flow ($ bln p.a) ROACE (%) ~70% 25-30 >10 ~20% 1-2 ~5 ~5% (2) - (1) ~5 25-30 >5 ~290 30-35 ~10 22 Strategic themes delivery: on track 2019-21: 2016 RT $60 per barrel, mid-cycle Downstream; includes Deepwater in cash engines and Shales in growth priorities by 2020. 2019-21 ~$60Q2 2018 4Q rolling ~$64 Strategic themes Cash engines Growth priorities Emerging opportunities Organic FCF Divestments & acquisitions Total (incl. Corporate) Capital employed ($ bln end 2017) Free cash flow ($ bln p.a) ROACE (%) ~60% ~10 ~10 ~28% ~4 ~5 ~6% ~(2) ~(4) ~13 ~12 284 ~25 ~6Price sensitivity: +/- $10 Brent = +/- ~$6 billion CFFO
  23. 23. Royal Dutch Shell July 26, 2018 Ben van Beurden Chief Executive Officer Royal Dutch Shell
  24. 24. Royal Dutch Shell July 26, 2018 24 Summary 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) Key messages  Confidence in free cash flow outlook  Focus on capital discipline in line with financial framework  $30 billion divestments1 completed or announced  $25 billion share buyback programme launched Q2 2018  Strong results, momentum continues  Portfolio reshaping and project delivery Thrive in the energy transition World-class investment case Strong license to operate
  25. 25. Royal Dutch Shell July 26, 2018 25 Questions & Answers Ben van Beurden Chief Executive Officer Jessica Uhl Chief Financial Officer Royal Dutch Shell July 26, 2018
  26. 26. Royal Dutch Shell July 26, 2018 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. 26
  27. 27. Royal Dutch Shell July 26, 2018 Q2 2018 Prices & margins $/barrel Shell oil & gas realisations $/barrel Industry refining margins $/tonne Industry chemicals margins 0 1 2 3 4 5 6 0 20 40 60 80 17Q2 17Q3 17Q4 18Q1 18Q2 0 3 6 9 12 15 18 17Q2 17Q3 17Q4 18Q1 18Q2 0 200 400 600 800 1000 17Q2 17Q3 17Q4 18Q1 18Q2 US ethane Western Europe naphtha NE/SE Asia naphtha US West Coast US Gulf Coast coking Rotterdam complex Singapore Oil Gas (RHS) 27 $/mscf
  28. 28. Royal Dutch Shell July 26, 2018 28 Q2 2018 Financial highlights Earnings and ROACE on CCS basis, excluding identified items $ billion Earnings Q2 2017 to Q2 2018 3.6 4.7 1.1 1.1 (0.9) (0.3) 0 1 2 3 4 5 6 7 $ 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 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
  29. 29. Royal Dutch Shell July 26, 2018 1.2 2.3 1.0 0.3 ~0 ~0 (0.2) 0 1 2 3 29 Q2 2018 Integrated Gas results $ billion Earnings Q2 2017 to Q2 2018 Environment Choice Earnings on CCS basis, excluding identified items
  30. 30. Royal Dutch Shell July 26, 2018 0.3 1.5 1.5 0.1 ~0 0.1 0.1 (0.4) (0.3) 0 1 2 30 Q2 2018 Upstream results $ billion Earnings Q2 2017 to Q2 2018 Environment Choice Earnings on CCS basis, excluding identified items
  31. 31. Royal Dutch Shell July 26, 2018 2.5 1.7 ~0 ~0 (0.3) ~(0) (0.6) (0.2) 0 1 2 3 31 Q2 2018 Downstream results Earnings on CCS basis, excluding identified items $ billion Earnings Q2 2017 to Q2 2018 $ billion Earnings mix 0 5 10 2015 2016 2017 18Q2 4Q rolling Marketing Refining & Trading Chemicals
  32. 32. Royal Dutch Shell July 26, 2018

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