1 ROYAL DUTCH SHELL PLC QUARTER 201 9 RESULTS FIRST ND 2 201 9 MAY FIRST QUARTER 201 9 RESULTS WEBCAST TO MEDIA AND ANALYSTS BY , CHIEF FINANCIAL OFFICER OF ROYAL DUTCH SHELL PLC JESSICA UHL , welcome to Shell’s first quarter Ladies and gentlemen 2019 results call. Before we start, let me pause on the disclaimer statement. Shell delivered another strong set of results in the first quarter of 2019. Building on the successes of 2018, in Q1 2019 we generated cash flow from ope rations excluding working capital movements of $12.1 billion and CCS earnings of $5.3 billion. These results show the and combined strength of our strategy, portfolio , operational performance. We have reshaped Shell to deliver higher returns across our U pstream, Integrated Gas and Downstream businesses. Today, I will present our Q1 results and then talk about portfolio highlights, before providing more insight into our I go earnings and cash flow, including the impact of the new IFRS 16 accounting standard. As IFRS 16 basis. - through the results, please keep in mind they are presented on a post For Shell to deliver a world - class investment case, we need to generate leading, growing and resilient cash flows and returns, and be disciplined with our cash allo cation. In the first quarter we did just that. Cash flow from operations excluding working capital movements were $12.1 billion, once again the highest in our sector. This was at an average Brent price of $63 per barrel. Our organic free cash flow for the quarter was $3.4 billion. This includes a working capital impact of some $3.5 billion . CCS earnings excluding identified items amounted to $5.3 billion, and ROACE reached 8.4%. We are continuing to demonstrate progress towards ROACE of 10% by the end of 2020, even with the headwinds associated with IFRS 16 . For Q1 2019, our gearing is 26.5% post - IFRS 16, or 21.9% on an IAS 17 basis, in line with the expected change. I will talk through this further later in the presentation. Our capital investment in the quarter was $6.7 billion. Our share buyback programme is progressing with some $6.75 billion in share s purchased in the last 7 months. And the next tranche of up to $2.75 billion begins today. The share buyback programme is executed under irrevocable contracts of approximately three months with a bank. The contracts allows for some flexibility with respe ct to the total value of shares purchased and the time period over which they are purchased, in order to achieve the best commercial terms. Once the contract has commenced, we do not have the ability to alter the phasing or amount of shares purchased. We c ontinue to believe in our ability to complete $25 billion in share buybacks by the end of 2020, subject to further progress on debt reduction and oil price conditions. In summary, a good quarter, with very competitive performance from our Upstream, Integr ated Gas and Downstream businesses. This competitive performance can be seen when we look at
2 ROYAL DUTCH SHELL PLC QUARTER 201 RESULTS FIRST 9 - - class our cash flow generation and returns on a 4 quarter rolling basis. To deliver on our world investment case ambition we have reshaped Shell. Our leading cash generation and returns position reflects the strategic and portfolio choices we have made. And our focus on operational excellence, integration and our brand has made the most of these choices . maintaining our leading position in each of these metrics to continue We are committed to , cash flow from operations , while it is a priority for us delivering competitive returns and . And to deliver our results, how we run our business is also key to our strategy. To sustainably deliver - class investment case, Shell has to be known as a company that performs and the world e behaves in the right way to achiev its strategic ambitions. Maintaining a strong societal licence to operate is a key pillar of our strategy. For us to do this, we need to demonstrate commitment to three core elements. Firstly, no harm. No harm to We ment. The second element is to have good products. people and no harm to the environ , and we must be good need to make and sell products that our customers want and need The third product stewards. and final – element , is to contribute to society in order to be a – valued part of socie ty . This means supplying energy, providing employment, bringing . investment and prosperity with our projects , and more How we conduct our business needs to reflect our values and principles, with Shell seeking to contribute positively to key issues such as transparency, ethics and compliance, worker , we recently issued a report welfare, and diversity and inclusion, among others. As an example, - related positions of trade associations and the basis for that provides transparency on climate our particip . This is one of the steps we are taking to increase ation in these associations transparency and ensure alignment with our positions on key matters. We believe by demonstrating commitment to these core elements : no harm, good products, and being a trusted , we build and maintain trust, underpinning a strong societal licence to company operate . Let us now go through some of our portfolio highlights. In February, we announced the start of production at the Lula North deep - water field in Brazil. Production fr om Lula North is processed - by the P 67 floating production and storage offloading vessel, and this is in addition to the P - 69 FPSO which started up in the fourth quarter of 2018. Both facilities are ramping up towards peak production and we expect another FPSO to come onstream in 2019. This reinforces our , position as a major producer of oil and gas in Brazil, with total equity production this quarter of some 375 thousand barrels of oil equivalent per day the largest in the sector behind – Petrobras. Now, m oving to the Gulf of Mexico, another heartland for our Deep water business. We continue to make investments in both exploration and new projects to sustain this business for decades to come. Supporting this future growth, Shell announced a significant disc overy at the Blacktip prospect in the D eep water US Gulf of Mexico. The Blacktip exploration well has encountered more than 400 feet, or 122 metres, of net oil pay. Evaluation is ongoing to further delineate the discovery and define development options. Shell also announced the divestment of the Caesar - Tonga asset for a total consideration of $965 million. This transaction reflects continued portfolio optimisation, focusing on assets where we see the most value in the longer - term.
3 ROYAL DUTCH SHELL PLC QUARTER 201 9 RESULTS FIRST We have also announced t , our refinery he divestment of a number of other assets, for example in Saudi Arabia, and the interest in the Greater Sunrise fields for $300 million. The total of these announced divestments to date amounts to some $2 billion. Another project that reached a key milestone is Prelude. In the fourth quarter of 2018, we announced that we opened wells to supply gas to this facility . We have produced the first condensate cargo, and we expect to his year. ship our first cargo of LNG in Q2 t As you can see, the Upstream and Integrated Gas businesses achieved important milestones in the first quarter. The same holds true for Downstream. In our retail business, for example, we made important progress on our strategy, building on our position in existing markets, and increasing our presence in five growth markets: China, India, Mexico, Indonesia, and Russia. Progress is gathering pace and we are pleased to report that some 250 sites were opened in wo quarters. But to achieve our Downstream growth these growth markets across the last t ambitions, we will also need to enhance our existing market positions, and China is a great We have seen growing demand for our premium fuel, V - example of this. Power, which is now being offered at over 900 service stations in China, and we expect further demand for these types of products, allowing us to achieve greater margins . Another example of Shell offering new solutions to our customers is our Nature based solutions - offering , where we are mak ing it possible for our customers to drive carbon - neutral. Starting in April, Shell customers in the Netherlands can use nature - based carbon credits to compensate ost for the carbon associated with the use of fuels purchased from us. This is done at no extra c for customers who choose Shell V - Power, while those who fill up with regular Shell fuels can participate for an additional 1 cent per litre. We plan to make similar opportunities available to customers in other countries, starting with the UK later thi s year. We are further enhancing the customer experience with additional products and services. With the Shell App, we can provide customers with multiple flexible solutions to meet their needs as part of our loyalty proposition. In the UK, for example, wi th the recent rebranding of First Utility to Shell Energy, we can now use our Shell Go+ loyalty programme, to provide Shell Energy customers an integrated set of offers at the service station, and in their homes. To further meet the needs of customers, while enabling a lower carbon future , Shell Energy will now supply all of its household customers with electricity that comes from 100% renewable sources like wind, solar and biomass. A recent survey indicated that 60% of British households want to power their homes with renewable electricity, so this is about knowing our customers and providing , low carbon solutions today. So, as you can see, we are building on the solid foundations of our retail business to further innovate and grow. We are taking these steps to build a competitive and sustainable business , and with opportunities to scale with attractive and resilient returns up once proven. So, in Q1 - we saw new Upstream and Integrated Gas projects starting - up, we saw Downstream reaching new customers, an d existing customers in new ways, and we saw New Energies growing . We continue to invest in our portfolio to drive our strategy, market leadership and competitive returns. This is also reflected in how we are further high - grading our Refining portfolio. I n April, Shell announced the sale of its 50% interest in the SASREF refining joint venture to its and we are expecting the transaction to partner, Saudi Aramco, for some $630 million ,
4 ROYAL DUTCH SHELL PLC QUARTER 201 9 RESULTS FIRST complete later this year – subject to customary closing conditions. This sale is aligned with our strategy of consolidating our footprint to focus on increasingly complex sites, which offer greater flexibility, proximity to customers, and integration with Shell’s trading network. The focus on high - grading our portfolio has imp roved our competitive position. And by continually optimising the core assets we will further improve the competitiveness of these assets. In Bukom, for example, we have installed two crude oil tanks at the refinery. Once the is will increase the site’s total storage by around 1.3 million final permits are approved, th barrels of crude oil. This strengthens Bukom’s flexibility and enables supply and distribution - value crude for the refinery. Again, another example of how optimisation, to secure the best Shel l ensures it is optimising its operations, unlocking the best value from the integrated value chain. This also provides further opportunity as we implement the new marine fuel specification, IM , O, aligned with the International Maritime Organisation 2020 targets. And, this project did not follow conventional construction practices, but instead used novel automated welding technology to help accelerate construction – another example of how we are doing more for less, and using technology to our advantage. And finally, we are using technology to further help us improve the safety of our people, and support our continued drive for operating cost efficiencies. These new tanks feature an automated cleaning system that will help improve the long term integrity o f the tanks and, - importantly, reduces the need for employees to manually perform this task going forward. This is safer and costs less. Enhancing our refinery storage capacity, and optimising our blending capabilities is a key part of how we unlock val ue from our integrated Refining and Trading and Supply businesses. Last year, we installed two new crude oil storage tanks with mixing capabilities at our Deer Park our refinery on the US Gulf Coast. And we are also investing in additional storage capacity at Scotford refinery in Canada and Geismar Chemical plant in Louisiana. Both of these projects will use best practices and learnings from Bukom. In summary, these are great examples of how we have looked to optimise assets at every step through constructi on to operations. , N ow we have seen some of the elements Shell has delivered across its portfolio, let me turn to our financials. On a post IFRS 16 basis, our Q1 2019 CCS earnings excluding identified items - amounted to $5.3 billion, which is 2% lower than in Q1 2018. In our Int egrated Gas business, total production was 12% lower compared with the first quarter 2018, mainly due to divestments and the transfer of the Salym asset into the Upstream segment. LNG liquefaction 8, mainly driven by higher volumes decreased by 2% compared with the first quarter 201 maintenance activities and divestments, partly offset by increased feedgas availability. Integrated Gas earnings excluding identified items were $2.6 billion, or 5% higher than in the same quarter last year, largely driven by h igher realised LNG and gas prices and increased contributions from LNG portfolio optimisation, partly offset by the impact of lower production and LNG sales volumes. Earnings excluding identified items in Upstream were approximately $1.7 billion, or some mainly from the US $ 170 million higher than in Q1 2018. This was driven by higher volumes , Gulf of Mexico and shales operations, and reduced operating expenses. This more than offsets
5 ROYAL DUTCH SHELL PLC QUARTER 201 9 RESULTS FIRST the impact of higher tax charges and lower realised oil prices. First quar ter Upstream production increased by 1%, compared with the same quarter a year ago, mainly due to higher production from our North American assets , and the transfer of the Salym asset from the Integrated Gas segment. This was partly offset by the impact of divestments, field decline and lower production in the NAM joint venture. Excluding these portfolio impacts, production was up 2% over the same period. In Downstream, CCS earnings excluding identified items in Q1 2019 were $1.8 billion. Downstream benefi ted from higher contributions from crude oil and oil products trading, partly offset by lower refining, intermediates and base chemicals margins. In Corporate, we have seen the additional impact of IFRS 16 with the interest recognition residing in thi s segment. This is consistent with the expected impact as a result of IFRS 16, as previously communicated. Now let us review the cash flow. Our Q1 2019 cash flow from operations, excluding working capital movements, amounted to $12.1 billion, which is $1 .8 billion higher than in Q1 2018. This is against a back - drop of lower chemicals and refining margins and decreased realised oil prices, and also includes the IFRS 16 impact on cash flow, as previously communicated in our call, of around $950 million. In our Integrated Gas business, cash flow from operations in Q1 2019 was $4.2 billion, and includes positive working capital movements in the quarter. In our Upstream business, our cash flow from operations was $1.7 billion higher, and includes a help rking capital, in addition to the increased volumes in the quarter from the US Gulf of from wo Mexico which are, as I have said before, the higher cash margin barrels. The Upstream cash flow from operations in Q1 2019 also include a cash tax payment of approximate ly $500 million relating to the agreement signed between Shell and the Government of Oman in Q2 2018. These payments will offset future tax payments from 2020 onwards. In our Downstream business, our cash flow from operations is $3.7 billion lower in Q1 20 19 when compared to Q1 2018, largely due to the impact in working capital resulting from the higher inventory price and volume movements. In Q4 2018, we saw a help to cash flow from working capital movements largely linked to the fall in oil prices and red uced inventory levels. At that time we flagged our expectation that this would partially reverse should prices increase, and in Q1 2019 we observed the closing Brent price move up versus last quarter. This change in price, in addition to our usual seasonal inventory movements, has contributed to an increase in working capital of some $3.5 billion from Q4 2018. So, now that we have seen the business drivers, it is worth briefly touching upon how this all - rolls up for Shell on the summary financials at both a - and post pre IFRS 16 level. I would first like to emphasise, implementing IFRS 16 does not change Shell’s strategy or financial framework. We still have the same financial discipline, the same focus on results, and we are well on our way to become a world - class investment case. Cash flow from operations excluding working capital movements was $12.1 billion, including an IFRS 16 impact of $800 million. Our free cash flow for the quarter of $4 billion includes an IFRS 16 impact of approximately $1.1 billion. This is the result of lease payments being reported under cash flow from financing and no longer under cash flow from operations and investing, therefore free cash flow . This was as expected, and was communicated in our IFRS 16 call.
6 ROYAL DUTCH SHELL PLC QUARTER 201 RESULTS FIRST 9 n the quarter was $6.7 billion. This includes a $ 00 m illion impact due to Capital investment i 7 IFRS 16, as it now includes the capitalisation of operating leases in the period. As highlighted and the in the IFRS 16 call, in order to improve the transparency of our capital expenditure cash capital – cash implications of our financial framework, we are introducing a new metric expenditure, as from Q1 2019. In Q1 2019, our cash capital expenditure was $5.6 billion. And finally, our gearing increased, as mentioned earlier, from 21 .9% to 26.5%, in line with our expected increase as a result of the accounting change. We now recognise operating lease liabilities on the balance sheet, resulting in higher debt and capital employed, and therefore increasing the quoted gearing percentage. And while our gearing might fluctuate from quarter to quarter, the underlying trend on gearing is moving in the right direction and we are progressing towards our 20% target on a pre IFRS 16 basis, or 25% on a post - IFRS 16 basis. - Let me summarise. Q1 was another good quarter for Shell, across all of our businesses. Our , delivery reflects the strength of our strategy, portfolio performance . C apital and operational and operating expense discipline remains key to achieving competitive returns. We continue to focus on consistent delivery and performance in the short term and we are confident in meeting our 2020 outlook. We are also building our business to generate profitable and resilient cash into the 2020s. And, all of this is bu flow ilt with continued disciplined management of our s financial framework. I look forward to providing more details on our strategy and post - 2020 outlook at our Management Day event in June. st one or two each, so With that, let’s go for your questions please. Please could we have ju everyone has the opportunity to ask a question. Thank you for your questions and for joining the call today. Our Annual General Meeting is on – along with Ben and the rest of the the 21st of May 2019. I look forward to talking to you Executive C ommittee – further at our Management Day 2019, on the 4th of June in London and on the 5th of June in New York. The second quarter results are scheduled to be announced on the 1st of August 2019, and Ben and I will talk to you all then. E N D -------------------- ----------------- ROYAL DUTCH SHELL PLC ND 201 2 MAY 9 WWW.SHELL.COM/IR
7 ROYAL DUTCH SHELL PLC QUARTER 201 9 RESULTS FIRST DEFINITIONS AND CAUTIONARY NOTE NOT FOR RELEASE, PRESENTATION, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR VIOLATION OF THE RELEVANT LAWS FROM ANY JURISIDICTION WHERE TO DO SO WOULD CONSTITUTE A OF SUCH JURISDICTION. Gearing is defined as net debt (current and noncurrent debt less cash and cash equivalents, adjusted for fair value isks relating to debt, and of derivative financial instruments used to hedge foreign exchange and interest rate r associated collateral balances) as a percentage of total capital (net debt plus total equity). Free Cash Flow is defined as the sum of “Cash flow from operating activities” and “Cash flow from investing activities”. Cash flow fro m 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; Q1 2019 4Q rolling amounting to $0.4 billion) and divestment proceeds (Q1 2019 4Q rolling amounting to $9.6 billion). ROACE on a CCS basis excluding identified items is defined as the sum of CCS earnings excluding identified items for the current and previous three quarters, adjusted for after tax interest expense, expressed as a percentage of the average capital - - employed for the same period. The after tax interest expense is calculated using the effective tax rate for the same period. Capital employed consists of total equity, current debt and non - current debt. Earnings on a cur rent cost of supplies basis (CCS earnings) is the income for the period, adjusted for the after - tax effect of oil - price changes on inventory. Basic CCS earnings per share is calculated by dividing CCS earnings attributable to shareholders by the average nu mber of shares outstanding over the year. Capital investment comprises Capital expenditure, Investments in joint ventures and associates and Investments in equity securities, exploration expense excluding well write - offs, leases recognised in the period an d other adjustments. Cash capital expenditure is introduced with effect from January 1, 2019, comprising the following lines from the Consolidated Statement of Cash Flows: Capital equity securities. Reconciliations of the expenditure, Investments in joint ventures and associates and Investments in above non - GAAP measures are included in the Royal Dutch Shell plc Unaudited Condensed Interim Financial Report - arbon for three month period ended March 31, 2019. Also, in this presentation we may refer to “Shell’s Net C 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 ts we sell. Shell only controls its own emissions but, to support society in achieving the Paris use of the energy produc 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 fo otprint” 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 ell”, “Shell group” and “Royal Dutch Shell” are sometimes used for convenience where this presentation “Sh 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 presentati on 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 enti - party interest. ty or unincorporated joint arrangement, after exclusion of all third - 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 statem ents 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 state ments are identified by their use of terms and phrases such as “aim”, “ambition’, ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘goals’’, ‘‘intend’’, ‘‘may’’, ‘‘objectives’’,
8 ROYAL DUTCH SHELL PLC QUARTER 201 RESULTS FIRST 9 “schedule”, ‘‘seek’’, ‘‘should’’, ‘‘target’’, ‘‘will’’ and similar ‘‘outlook’’, ‘‘plan’’, ‘‘probably’’, ‘‘project’’, ‘‘risks’’, terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and forward - could cause those results to differ materially from those expressed in the looking statements included in this presentation, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand reserves estimates; (f) loss of for Shell’s products; (c) currency fluctuations; (d) drilling and production results; (e) 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 cial market conditions in various countries and regions; (l) political risks, including change; (k) economic and finan 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 - fied in their entirety by payments. All forward looking statements contained in this presentation are expressly quali the cautionary statements contained or referred to in this section. Readers should not place undue reliance on - looking statements. Additional risk factors that may affect future results are contained in Royal Dutch Shell’s forward 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 forw ard - looking statement speaks only as of the date of this presentation, May 2, 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 the - F, File No 1 - 32575, available on SEC. U.S. investors are urged to consider closely the disclosure in our Form 20 SEC website www.sec.gov.