e20vf
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 20-F
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2005
Commission file number 1-32575
Royal Dutch Shell plc
(Exact name of registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organisation)
Carel van Bylandtlaan 30, 2596 HR, The Hague, The Netherlands
tel. no: (011 31 70) 377 9111
(Address of principal executive offices)
Securities Registered Pursuant to Section 12(b) of the Act
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Title of Each Class |
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Name of Each Exchange on Which Registered |
American Depositary Receipts representing Class A ordinary shares of the
issuer of an aggregate nominal value 0.07 each
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New York Stock Exchange |
American Depositary Receipts representing Class B ordinary shares of the
issuer of an aggregate nominal value of 0.07 each
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New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act
None
Securities For Which There is a Reporting Obligation Pursuant to Section 15(d) of the Act
None
Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report.
Outstanding as of December 31, 2005:
3,817,240,213
Class A ordinary shares of the nominal value of 0.07 each.
2,707,858,347 Class B ordinary shares of the nominal value of 0.07 each.
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
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Yes |
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No |
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If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
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Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 from their obligations under those Sections. |
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the
past 90 days.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the
Exchange Act. (Check one): |
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Large accelerated
filer þ Accelerated
filer o |
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Non-accelerated
filer o |
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Indicate by check mark which financial statement item
the registrant has elected to follow.
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Item 17 o |
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Item 18 þ |
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If this is an annual report, indicate by check mark
whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
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Copies of notices and communications from the Securities and Exchange Commission should be sent to:
Royal Dutch Shell plc
Carel van Bylandtlaan 30
2596 HR, The Hague, The Netherlands
Attn: Mr. M. Brandjes
Cross Reference to Form 20-F
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Part I |
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Pages |
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Item 1. |
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Identity of Directors, Senior Management and Advisers |
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N/A |
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Item 2. |
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Offer Statistics and Expected Timetable |
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N/A |
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Item 3. |
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Key Information |
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A. |
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Selected financial data |
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7-9, 212 |
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B. |
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Capitalisation and indebtedness |
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N/A |
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C. |
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Reasons for the offer and use of proceeds |
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N/A |
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D. |
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Risk factors |
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15-17 |
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Item 4. |
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Information on the Company |
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A. |
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History and development of the company |
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6, 12, 17, 21, 23-24, 27, 33-42, 44-47, 55-58, 60-63, 181 |
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B. |
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Business overview |
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12-18, 20-42, 44-58, 60-63, 66-70, 157-163 |
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C. |
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Organisational structure |
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6, 199-200 |
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D. |
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Property, plants and equipment |
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12-14, 17, 20-42, 44-58, 60-63, 65-70 |
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Item 4A. |
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Unresolved Staff Comments |
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N/A |
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Item 5. |
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Operating and Financial Review and Prospects |
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A. |
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Operating results |
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7-9, 12-18, 20-42, 44-58, 60-74, 157-177 |
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B. |
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Liquidity and capital resources |
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62-65 |
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C. |
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Research and development, patents and licences, etc. |
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21, 36-37, 42, 47, 58, 61, 75 |
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D. |
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Trend information |
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12-18, 20-42, 44-47, 54-58, 60-70 |
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E. |
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Off-balance sheet arrangements |
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63 |
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F. |
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Tabular disclosure of contractual obligations |
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65 |
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G. |
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Safe harbour |
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N/A |
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Item 6. |
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Directors, Senior Management and Employees |
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A. |
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Directors and senior management |
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4-5 |
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B. |
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Compensation |
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84-101 |
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C. |
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Board practices |
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5, 79-85 |
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D. |
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Employees |
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71-72 |
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E. |
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Share ownership |
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73-74, 178 |
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Item 7. |
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Major Shareholders and Related Party Transactions |
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A. |
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Major shareholders |
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78, 178, 183 |
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B. |
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Related party transactions |
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186, 197, 208 |
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C. |
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Interests of experts and counsel |
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N/A |
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Item 8. |
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Financial Information |
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A. |
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Consolidated Statements and Other Financial Information |
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50-51, 75, 102-155, 187-208, 210-211 |
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B. |
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Significant Changes |
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75, 198 |
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Item 9. |
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The Offer and Listing |
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A. |
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Offer and listing details |
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178-179, 209 |
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B. |
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Plan of distribution |
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N/A |
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C. |
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Markets |
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178 |
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D. |
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Selling shareholders |
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N/A |
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E. |
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Dilution |
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N/A |
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F. |
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Expenses of the issue |
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N/A |
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Item 10. |
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Additional Information |
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A. |
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Share capital |
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N/A |
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B. |
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Memorandum and articles of association |
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180-184 |
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C. |
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Material contracts |
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76, 94-95 |
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D. |
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Exchange controls |
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184 |
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E. |
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Taxation |
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184-185 |
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F. |
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Dividends and paying agents |
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N/A |
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G. |
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Statement by experts |
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N/A |
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H. |
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Documents on display |
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iii |
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I. |
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Subsidiary Information |
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N/A |
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Item 11. |
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Quantitative and Qualitative Disclosures About Market Risk |
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17, 164-177 |
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Item 12. |
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Description of Securities Other than Equity Securities |
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N/A |
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Part II |
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Pages |
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Item 13. |
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Defaults, Dividend Arrearages and Delinquencies |
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N/A |
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Item 14. |
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Material Modifications to the Rights of Security Holders and Use of Proceeds |
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N/A |
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Item 15. |
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Controls and Procedures |
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18, 82-83 |
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Item 16. |
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[Reserved] |
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Item 16A. |
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Audit committee financial expert |
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80 |
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Item 16B. |
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Code of Ethics |
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79 |
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Item 16C. |
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Principal Accountant Fees and Services |
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73, 81 |
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Item 16D. |
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Exemptions from the Listing Standards for Audit Committees |
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79 |
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Item 16E. |
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
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64 |
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Part III |
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Pages |
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Item 17. |
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Financial Statements |
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N/A |
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Item 18. |
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Financial Statements |
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102-155, 187-208 |
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Item 19. |
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Exhibits |
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213 |
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ii
About this Report
This Report combines the Annual Report and Accounts and the Annual Report on Form 20-F (Report)
for the year ended December 31, 2005, for Royal Dutch Shell plc (Royal Dutch Shell) and its
subsidiaries. It presents the Consolidated Financial Statements of Royal Dutch Shell (pages
102-155) and the parent company-only Financial Statements of Royal Dutch Shell (pages 187-200).
This Report complies with all applicable UK regulations. The official English language version of
this Report prevails for statutory purposes. The Dutch language version of the Report is a
convenience translation only. This Report also includes the disclosure included in the Annual
Report on Form 20-F for the year ended December 31, 2005 as filed with the U.S. Securities and
Exchange Commission (SEC). Cross references to Form 20-F are set out on the previous page of this
Report.
In this Report Group is defined as Royal Dutch Shell together with all of its consolidated
subsidiaries. The expressions Shell, Group, Shell Group and Royal Dutch Shell are sometimes
used for convenience where references are made to the Group or Group companies in general.
Likewise, the words we, us and our are also used to refer to Group companies in general or to
those who work for them. These expressions are also used where no useful purpose is served by
identifying the particular company or companies. The expression Group companies as used in this
Report refers to companies in which Royal Dutch Shell either directly or indirectly has control, by
having either a majority of the voting rights or the right to exercise a controlling influence. The
companies in which the Group has significant influence but not control are referred to as
associated companies or associates and companies in which the Group has joint control are
referred to as jointly controlled entities. In this Report, associates and jointly controlled
entities are also referred to as equity accounted investments.
The expression operating companies as used in the Report refers to those Group and equity
accounted investments that are engaged in the exploration for and extraction of oil and natural gas
and delivery of these hydrocarbons to market, the marketing and trading of natural gas and
electricity, the conversion of natural gas to liquids and the refining of crude oil into products
including fuels, lubricants, petrochemicals, and other industry segments such as Hydrogen and
Renewables. The term Group interest is used for convenience to indicate the direct and/or
indirect equity interest held by the Group in a venture, partnership or company (i.e., after
exclusion of all third-party interests).
Except as otherwise specified, the figures shown in the tables in this Report represent those in
respect of Group companies only, without deduction of minority interests. However, where figures
are given specifically for oil production (net of royalties in kind), natural gas production
available for sale, and both the refinery processing intake and total oil product sales volumes,
the term Group share is used for convenience to indicate not only the volumes to which Group
companies are entitled (without deduction in respect of minority interests in Group companies) but
also the portion of the volumes of associated companies and jointly controlled entities to which
Group companies are entitled or which is proportionate to the Group interest in those companies.
Except as otherwise stated, the Financial Statements contained in this Report have been prepared in
accordance with applicable laws in England and Wales and with International Financial Reporting
Standards (IFRS) as adopted by the European Union. As applied to Royal Dutch Shell, there are no
material differences with IFRS as issued by the International Accounting Standards Board. This
Report is prepared under the one-time accommodation provided by the SEC to allow, for a limited
period, foreign private issuers that prepare financial statements in accordance with IFRS to
present only one year of comparative information in their first IFRS Financial Statements. Tables
and disclosure that provide data over a five year period show 2005 and 2004 on an IFRS basis and
2003, 2002 and 2001 on a US GAAP basis.
The Consolidated Financial Statements of Royal Dutch Shell and its subsidiaries have been prepared
using the carry-over basis to account for the Unification and on the basis that the resulting
structure was in place throughout the periods presented.
Except as otherwise noted, the figures shown in this Report are stated in US dollars. As used
herein all references to dollars or $ are to the US currency.
The Operating and Financial Review (OFR) and other sections of this Report contain historical and
forward-looking statements 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 managements 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 managements expectations, beliefs, estimates, forecasts, projections and
assumptions. These forward-looking statements are identified by their use of terms and phrases such
as anticipate, believe, could, estimate, expect, intend, may, plan,
objectives, outlook, probably, project, will, seek, target, risks,
goals, should 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 Report,
including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in
demand for the Groups products; (c) currency fluctuations; (d) drilling and production results;
(e) reserve estimates; (f) loss of market 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 potential litigation and regulatory effects arising
from recategorisation of reserves; (k) economic and financial market conditions in various
countries and regions; (l) political risks, project delay or advancement, approvals and cost
estimates; and (m) changes in trading conditions. All forward-looking statements contained in this
Report 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. Each
forward-looking statement speaks only as of the date of this Report. Neither Royal Dutch Shell 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 Report.
This report contains references to Shells website. These references are for the readers
convenience only. Shell is not incorporating by reference any information posted on www.shell.com.
Documents on display
Documents concerning Royal Dutch Shell, or its predecessors for reporting purposes, which are
referred to in this Report have been filed with the SEC and may be examined and copied at the
public reference facility maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C.
20549. You may also obtain copies of this Report by mail. For further information on the operation
of the public reference room and the copy charges, please call the SEC at (800) SEC-0330. All of
the SEC filings made electronically by the Group are available to the public at the SEC website at
www.sec.gov (commission file number 1-32575). This Report, as well as the Annual Review, is
available in the Dutch and English language, free of charge, at
www.shell.com/investor or at the
offices of Royal Dutch Shell in The Hague, the Netherlands and London, UK.
iii
Abbreviations
Listed below are the most common abbreviations used throughout this Report.
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Units of measurement |
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Abbreviation |
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barrels of oil equivalent (per day)
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boe(/d)
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billion cubic feet per day
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bcf/d |
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British thermal units
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Btu |
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megawatts
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MW |
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million tonnes per annum
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mtpa |
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standard cubic feet
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scf |
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(thousand) deadweight tonnes
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(k)dwt |
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Products |
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Gas to Liquids
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GTL |
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liquefied natural gas
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LNG |
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liquefied
petroleum gas
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LPG |
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mono-propylene glycol
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MPG |
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natural gas liquids
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NGL |
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polytrimethylene terephthalate
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PTT |
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propylene oxide derivatives
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POD |
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styrene monomer/propylene oxide
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SM/PO |
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Miscellaneous |
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American Depositary Receipt
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ADR |
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Annual General Meeting
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AGM |
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Corporate Social Responsibility
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CSR |
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engineering, procurement and construction
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EPC |
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front-end engineering design
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FEED |
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health, safety and environmental
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HSE |
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health, safety, security and environmental
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HSSE |
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International Financial Reporting Interpretation Committee
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IFRIC |
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International Financial Reporting Standards
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IFRS |
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Operating and Financial Review
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OFR |
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production sharing contract
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PSC |
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Remuneration Committee
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REMCO |
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Research and Development
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R&D |
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United States Generally Accepted Accounting Principles
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US GAAP |
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United States Securities and Exchange Commission
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US SEC |
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iv
Royal Dutch Shell Vision
The
objectives of the Shell Group are to engage efficiently, responsibly
and profitably in oil, oil
products, gas, chemicals and other selected businesses and to participate in the search for and
development of other sources of energy to meet evolving customer needs and the worlds growing
demand for energy.
We believe that oil and gas will be integral to the global energy needs for economic development
for many decades to come. Our role is to ensure that we extract and deliver them profitably and in
environmentally and socially responsible ways.
We seek a high standard of performance, maintaining a strong long-term and growing position in the
competitive environments in which we choose to operate.
We aim to work closely with our customers, our partners and policymakers to advance more efficient
and sustainable use of energy and natural resources.
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CHAIRMANS
MESSAGE
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In 2005 shareholders approved the
Unification Transaction of our parent
companies under Royal Dutch Shell
plc. This far-reaching change is
already bringing benefits. Our new
clearer, simpler governance structure
is helping to reduce duplication,
speed up decision making and increase
accountability. The single smaller
Board and its committees are working
well and their reports can be found
on pages 75 to 101. I am also pleased
that the clearer lines of
accountability in the new structure
have been widely welcomed by
shareholders.
The Board believes that our
organisation is now better placed
to build and develop our business
for the future and meet the
challenges ahead. At the heart of
those challenges is the need to
find and develop the resources to
meet the growth in global energy
demand. We will also need to
produce those
resources in a way that minimises the effect on the environment. The Chief Executive and his team have been
successfully driving forward Shells work both in securing and producing more oil and gas and in
developing energy solutions for the longer term. This will ensure that Shell can play its part in
meeting the worlds future energy needs.
There were many business challenges in 2005, some of which were linked to the natural disasters
that struck many parts of the world. The effects of the tsunami in Asia, hurricanes in the Gulf of
Mexico and the earthquake in India and Pakistan, were felt across Shell and in the communities in
which we work. The Board is proud of the response of Shell staff to these tragedies and their
tireless work both to support the affected communities and to restore our business as quickly as
possible.
It has been a great privilege for me
to be the first Chairman of Royal
Dutch Shell plc and to see it make
such a successful start. I am
confident that we can build on that
success and that, with the proposed
appointment of Jorma Ollila as my
successor, the future of the company
is in good hands.
Aad Jacobs Chairman
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Shells commitment to technology and innovation, combined with the dedication and skill of our employees, will enable us to play a leading and competitive role in meeting the worlds future energy needs.
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CHIEF EXECUTIVES
MESSAGE |
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Thanks to the great efforts of
many Shell people, 2005 was a year of
recovery. We achieved a great deal,
but there is more to be done to ensure
that recovery continues. We delivered
record earnings and cash generation;
we were successful in securing
significant new resources; and we
reinforced our leading positions in
liquefied natural gas (LNG) and Oil
Products. Our strong financial
position has allowed us to return over
$17 billion to our shareholders. We
also made capital investments of $15.6
billion (excluding the minority share
in Sakhalin). Our strategy continues
to be more upstream and profitable
downstream. This is reflected in our
capital investment programme, which
will increase to $19 billion in 2006,
keeping pace with our earnings, and
will be targeted at the upstream.
In Exploration & Production a number
of important new fields came on stream
and we met our production target,
despite the damage to our facilities
caused by hurricanes in the Gulf of
Mexico. There were, however, large
cost overruns on our Sakhalin II
project and we are ensuring that we
learn the lessons from these. We
believe that gas demand will continue
to grow rapidly and, in 2005 our Gas &
Power business strengthened its
leading positions in the key markets
of Asia, Europe and North America,
with a number of new LNG projects
starting operation or construction.
In the downstream, Oil Products earnings were up 31%, reflecting strong refining margins and good
operational performance. By standardising and simplifying our processes we have reduced costs and
improved customer service. We also continued to provide customers with an increasing range of fuels
that can improve engine performance and reduce environmental impact. At the same time, we
strengthened our position as the worlds leading marketer of biofuels. Chemicals also had good
earnings in 2005 and, with the completion of the Nanhai petrochemicals complex in southern China,
made an important step in securing a position in this rapidly growing market. Much of the increase
in energy demand is coming from emerging economies in the Asia Pacific region and we are ensuring
that we extend our presence in those growth markets.
I believe that Shells commitment to technology and innovation, combined with the dedication and
skill of our employees, will enable us to play a leading and competitive role in meeting the
worlds future energy needs. This includes taking on bigger and more demanding projects and
ensuring we integrate economic, and social and environmental considerations into our management of
those projects. Our Project and Commercial Academies, which have made a good start, will be at the
heart of our work to acquire and to develop projects successfully in the future. In our operations
we aim to be a first-quartile performer. We
continue to focus on Health, Safety,
Security and Environment (HSSE).
We also realise the importance of
managing the carbon dioxide emissions
from oil and gas resources. This
offers opportunities to develop our
business and we are investing in a
range of research into carbon capture
and storage that can help us to
develop greener fossil fuels. At the
same time, Shell aims to develop at
least one substantial business in
alternative energy. In the past year
we have made good progress on projects
in wind, hydrogen and advanced solar
technology that will help us move
towards that aim.
All of us in Shell are pleased with
the progress we have made in 2005 in
improving our operational performance;
in developing projects; and in
securing new resources. I believe we
now have a strong foundation to build
for the future to deliver the leading
performance and competitive returns
that our shareholders want to see. So
this means 2006 will be the year of
delivery and growth for Shell.
Jeroen van der Veer Chief Executive
|
|
|
Chief Executives Message |
|
3 |
The Board of Royal Dutch Shell plc
Royal Dutch Shell has a single
tier Board of Directors chaired by a
Non-executive Chairman, Aad Jacobs.
The executive management is led by the
Chief Executive, Jeroen van der Veer.
The members of the Board of Royal
Dutch Shell plc meet regularly to
discuss reviews and reports on the
business and plans of Royal Dutch
Shell. In 2005, the Nomination and
Succession Committee recommended to
the Board the appointment of Jorma
Ollila, currently Chairman and CEO of
Nokia Corporation, to succeed Aad
Jacobs as Non-executive Chairman of
Royal Dutch Shell. The Board adopted
this proposal. A resolution has been
proposed to be put to the Annual
General Meeting of shareholders of
Royal Dutch Shell, to be held on May
16, 2006, for the election of Mr
Ollila as a Director of Royal Dutch
Shell, with effect from June 1, 2006.
1 Aad Jacobs ○
Non-executive Chairman
Born May 28, 1936. A Dutch
national, appointed Non-executive
Chairman of Royal Dutch Shell in
October 2004. He became a member of
the Royal Dutch supervisory board in
1998 and Chairman in 2002 and was a
Board member1 of Royal
Dutch until the merger of the company
on December 21, 2005. He was
previously Chairman of the Board of
Management of ING Groep N.V. He is
Chairman of the supervisory boards of
Joh. Enschedé B.V., Imtech N.V. and
VNU N.V.; Vice-Chairman of the
supervisory boards of Buhrmann N.V.
and SBM Offshore N.V.; and a member of
the supervisory board of ING Groep
N.V.
2 Lord Kerr of Kinlochard GCMG + ○
Deputy Chairman and Senior Independent Non-executive Director
Born February 22, 1942. A British
national, appointed a Non-executive
Director of Royal Dutch Shell in
October 2004. He was a Non-executive
Director of Shell Transport from 2002
to 2005. A member of the UK Diplomatic
Service from 1966 to 2002 (and its
Head from 1997 to 2002), he was
successively UK Permanent
Representative to the EU, British
Ambassador to the USA, Foreign Office
Permanent Under Secretary of State and
Secretary-General of the European
Convention. He is a Non-executive
Director of Rio Tinto plc and Rio
Tinto Limited and Scottish American
Investment Company plc and Chairman of
Court/Council of Imperial College.
Trustee of the National Gallery and of
the Rhodes Trust.
3 Jeroen van der Veer
Chief Executive
Born October 27, 1947. A Dutch
national, appointed Chief Executive of
Royal Dutch Shell in October 2004. He
was appointed President of Royal Dutch
in 2000, having been a Managing
Director of Royal Dutch since 1997 and
was a Board member of Royal Dutch
until the merger of the company on
December 21, 2005. He was a Director
of Shell Canada Limited from April 24,
2003 until April 29, 2005. He joined
the Group in 1971 in refinery process
design and held a number of senior
management positions around the world.
He is a Non-executive Director of
Unilever (which includes Unilever
N.V., Unilever plc and Unilever
Holdings Ltd.).
4 Peter Voser
Chief Financial Officer
Born August 29, 1958. A Swiss
national, appointed Chief Financial
Officer of Royal Dutch Shell in
October 2004. He was appointed a
Managing Director of Shell Transport
and Chief Financial Officer (CFO) in
October 2004. In 2002, joined the Asea
Brown Boveri (ABB) Group of Companies,
based in Switzerland as CFO and Member
of the Group Executive Committee. Also
responsible for ABBs Group IT and the
Oil, Gas and Petrochemicals business.
Originally joined the Group in 1982
where he held a variety of finance and
business roles in Switzerland, UK,
Argentina and Chile, including CFO of
Oil
Products. He is a member of the supervisory board of Aegon N.V. (he will retire April 25, 2006) and
a member of the supervisory board of UBS AG.
5 Malcolm Brinded CBE FREng
Executive Director, Exploration & Production
Born March 18, 1953. A British national, appointed an Executive Director of Royal Dutch Shell
in October 2004. He was previously a Managing Director of Shell Transport since March 2004 and
prior to that a Managing Director of Royal Dutch since 2002. Joined the Group in 1974 and has held
various positions around the world including Country Chair for Shell in the UK, and Director of
Planning, Environment and External Affairs at Shell International Ltd.
6 Linda Cook
Executive Director, Gas & Power
Born June 4, 1958. A US national, appointed an Executive Director of Royal Dutch Shell in
October 2004. She was appointed a Managing Director of Royal Dutch in August 2004 and was a Board
member of Royal Dutch until the merger of the company on December 21, 2005. She was President and
Chief Executive Officer and a member of the Board of Directors of Shell Canada Limited from August
2003 to July 2004. Joined Shell Oil Company in Houston in 1980, and worked for Shell Oil Company in
Houston and California in a variety of technical and managerial positions. Member of the Society of
Petroleum Engineers and a Non-executive director of The Boeing Company.
7 Rob Routs
Executive Director, Oil Products and Chemicals
Born September 10, 1946. A Dutch national,
appointed Executive Director of Royal Dutch Shell in October 2004. He was a Managing Director of Royal Dutch
from 2003 to July 4, 2005. Joined the Group in 1971. Held various positions in the Netherlands,
Canada and the USA. Previously President and Chief Executive Officer of Shell Oil Products USA,
President of Shell Oil Company and Country Chair for Shell in the USA and Chief Executive of
Equilon. He is a member of the Board of Directors of Shell Canada Limited since April 29, 2005 and
director of INSEAD.
8 Maarten van den Bergh #
Non-executive Director
Born April 19, 1942. A Dutch national, appointed Non-executive Director of Royal Dutch Shell in
October 2004. He was a member of the Royal Dutch supervisory board from 2000 to July 4, 2005.
Managing Director of Royal Dutch from 1992 to 2000 and President from 1998 to 2000. Chairman of the
Board of Directors of Lloyds TSB (he will retire at the AGM of Lloyds in May 2006) and, member of
the Boards of Directors of BT Group plc and British Airways plc and a member of the supervisory
board of Akzo Nobel N.V.
9 Sir Peter Burt FRSE ■
Non-executive Director
Born March 6, 1944. A British national, appointed a Non-executive Director of Royal Dutch Shell in October 2004. Non-executive Director of Shell
Transport from 2002 to 2005. He was Chief General Manager and Chairman of the Management Board and
subsequently Group Chief Executive, Bank of Scotland. Executive Deputy Chairman HBOS plc. Governor
of Bank of Scotland from 2001. Retired 2003. He is a Chairman of ITV
plc and Promethean plc.
10 Mary R. (Nina) Henderson ■ #
Non-executive Director
Born July 6, 1950. A US national, appointed a Non-executive Director of Royal Dutch Shell in
October 2004. She was a Non-executive Director of Shell Transport from 2001 to 2005. Previously
President of a major division and Corporate Vice-President of Bestfoods, a major US foods company,
responsible for worldwide core business development. Non-executive Director of Pactiv Corporation,
AXA Financial Inc., Del Monte Foods Company and Visiting Nurse Service of New York.
11 Sir Peter Job KBE +
Non-executive Director
Born July 13, 1941. A British national, appointed a Non-executive Director of Royal Dutch Shell in October 2004.
He was a Non-executive Director of
Shell Transport from 2001 to 2005.
Previously he was Chief Executive of
Reuters Group plc. He is a
Non-executive Director of Schroders
plc, TIBCO Software Inc., Instinet
Group Inc., and a member of the
supervisory board of Deutsche Bank AG.
12 Wim Kok #
Non-executive Director
Born September 29, 1938. A Dutch
national, appointed a Non-executive
Director of Royal Dutch Shell in
October 2004. He was a member of the
Royal Dutch supervisory board from
2003 to July 4, 2005. Chaired the
Confederation of Dutch trade unions
(FNV) before becoming a member of the
Lower House of Parliament and
parliamentary leader of the Partij van
de Arbeid (Labour Party). Appointed
Minister of Finance in 1989 and Prime
Minister in 1994, serving for two
periods of government up to July 2002.
Member of the supervisory boards of
ING Groep N.V., KLM N.V. and TNT N.V.
13 Jonkheer Aarnout Loudon + ○
Non-executive Director
Born December 10, 1936. A Dutch
national, appointed a Non-executive
Director of Royal Dutch Shell in
October 2004. He was a member of the
Royal Dutch supervisory board from
1997 and was a Board member of Royal
Dutch until the merger of the company
on December 21, 2005. He was a member
of the Board of Management of Akzo
from 1977 to 1994 (Akzo Nobel as from
1994) and its Chairman from 1982 to
1994. He is Chairman of the
supervisory boards of ABN AMRO Holding
N.V. and Akzo Nobel N.V. (he will
retire per May 1, 2006) and a member
of the International Advisory Board of
Allianz AG.
14 Christine Morin-Postel ■
Non-executive Director
Born October 6, 1946. A French
national, appointed a Non-executive
Director of Royal Dutch Shell in
October 2004. She was a member of the
Royal Dutch supervisory board from
July 2004 and was a Board member of
Royal Dutch until the merger of the
company on December 21, 2005. Formerly
she was Chief Executive of Société
Générale de Belgique and Executive
Vice-President and member of the
Executive Committee of Suez S.A. She
is Non-executive director of Alcan
Inc., 3i Group plc and Pilkington plc.
15 Lawrence Ricciardi ■
Non-executive Director
Born August 14, 1940. A US
national, appointed a Non-executive
Director of Royal Dutch Shell in
October 2004. He was appointed a
member of the Royal Dutch supervisory
board in 2001 and was a Board member
of Royal Dutch until the merger of the
company on December 21, 2005.
Previously he was President of RJR
Nabisco, Inc. and subsequently Senior
Vice-President and General Counsel of
IBM. He is Senior Advisor to the law
firm Jones Day and to Lazard Frères &
Co and member of the Board of
Directors of The Readers Digest
Association, Inc.
Beat Hess
Group Legal Director
Born July 6, 1949. A Swiss
national, appointed as Shell Group
Legal Director in June 2003.
Previously General Counsel of ABB
Group. Non-executive board member of
Ciba Specialty Chemicals.
Michiel Brandjes
Company Secretary
Born December 14, 1954. A Dutch
national, appointed as Company
Secretary of Royal Dutch Shell in
February 2005. Previously Company
Secretary of Royal Dutch Petroleum
Company and Group general counsel
corporate. Joined the Group in 1980 as
a Legal Adviser.
|
|
|
■ |
|
Audit Committee |
|
+ |
|
Remuneration Committee |
|
# |
|
Social Responsibility Committee |
|
○ |
|
Nomination and Succession Committee |
|
1 |
|
As from July 4, 2005 Royal
Dutch had a one tier board
instead of a two tier board.
This one tier board existed
until the company merged into
Shell Petroleum N.V. per
December 21, 2005. |
|
|
|
The Board of Royal Dutch Shell plc
|
|
5 |
Unification of Royal Dutch and Shell Transport
In 2005, Royal Dutch Shell became the single 100%
parent company of Royal Dutch Petroleum Company (Royal
Dutch) and of Shell Transport and Trading Company Limited
(previously known as The Shell Transport and Trading
Company, p.l.c.) (Shell Transport) the two former public
parent companies of the Group. These transactions include:
> |
|
the scheme of arrangement of Shell Transport under
the applicable laws of England and Wales (the Scheme)
on July 20, 2005, pursuant to which Royal Dutch Shell
acquired all the outstanding capital stock of Shell
Transport; |
> |
|
the exchange offer (the Exchange Offer, and together
with the Scheme, the Unification Transaction) for all of
the ordinary shares of Royal Dutch, commenced on May 19,
2005, which became unconditional (gestanddoening) on July
20, 2005, and, including the subsequent offer acceptance
period which expired on August 9, 2005, through which Royal
Dutch Shell acquired a total of 98.49% of the outstanding
capital stock of Royal Dutch; and |
|
> |
|
the series of restructuring transactions of the Group
(the Restructuring and together with the Unification
Transaction the Unification), which included the merger
under Dutch law of Royal Dutch with its wholly-owned
subsidiary, Shell Petroleum N.V. (Shell Petroleum), which
became effective on December 21, 2005 (the Merger).
Pursuant to the terms of the Merger exchange ratio, the
remaining public shareholders of Royal Dutch, who
collectively held 1.51% of the outstanding shares, received 52.21 per share in cash (or for certain eligible
shareholders an equivalent principal amount of loan notes)
and Royal Dutch Shell received shares of the surviving
company, Shell Petroleum. As a result of the Merger,
former holders of Royal Dutch shares received an aggregate
of $1.9 billion equivalent in cash and loan notes. The
loan notes were exchanged by Royal Dutch Shell for an
aggregate of 4,827,974 Class A ordinary shares on January
6, 2006. As a result of the Merger, Royal Dutch and the
Royal Dutch shares have ceased to exist and Shell
Petroleum, the surviving company in the Merger, became a
100% owned subsidiary of Royal Dutch Shell. |
The diagram at the bottom of this page illustrates the
structure of the Group following completion of the
Unification. Operating and service company subsidiaries
are not shown.
Pursuant to the terms of the Unification Transaction,
holders of ordinary shares of Royal Dutch (Royal Dutch
ordinary shares), holders of Shell Transport Ordinary
Shares (the Shell Transport Ordinary Shares), holders of
Shell Transport bearer warrants and holders of American
Depositary Receipts representing Shell Transport Ordinary
Shares (the Shell Transport ADRs) received, respectively:
> |
|
for each Royal Dutch ordinary share held in
New York registry form tendered:
1 Royal Dutch Shell Class A American Depositary
Receipta |
> |
|
for each Royal Dutch ordinary share held in bearer
or Hague registry form tendered:
2 Royal Dutch Shell Class A ordinary shares |
> |
|
for each Shell Transport Ordinary Share
(including Shell Transport Ordinary Shares to which
holders of Shell Transport bearer warrants were
entitled):
0.287333066 Royal Dutch Shell Class B ordinary shares |
> |
|
for each Shell Transport ADR:
0.861999198 Royal Dutch Shell Class B American Depositary Receiptsb |
Royal Dutch Shell Class A ordinary shares (Class A
shares) and Royal Dutch Shell Class B ordinary shares
(Class B shares) have identical rights as set out in the
Royal Dutch Shell Articles, except in relation to the
dividend access mechanism applicable to the Royal Dutch
Shell Class B ordinary shares. The dividend access
mechanism is described more fully in Supplementary
Information Control of registrant Rights attaching to
shares.
The Unification Transaction did not result in the formation
of a new reporting entity. Immediately after the
Unification Transaction each former Royal Dutch and Shell
Transport shareholder who participated in the Unification
Transaction held the same economic interest in Royal Dutch
Shell as the shareholder held in the Group immediately
prior to implementation of the Unification Transaction.
Accordingly, the Unification Transaction has been accounted
for using a carry-over basis of the historical costs of the
assets and liabilities of Royal Dutch, Shell Transport and
the other companies comprising the Group.
Royal Dutch and Shell Transport entered into a scheme of
amalgamation dated September 12, 1906 and agreements from
1907 by which the scheme of amalgamation was implemented
and pursuant to which they amalgamated their interests in
the oil industry in a transaction that would have been
accounted for as a business combination under current
accounting standards. From that time until the
Restructuring, Royal Dutch owned 60% of the other companies
comprising the Group and Shell Transport owned 40% of the
other companies comprising the Group. All operating
activities have been conducted through the subsidiaries of
Royal Dutch and Shell Transport which have operated as a
single economic enterprise. Prior to the consummation of
the Unification Transaction, economic interests of the
Royal Dutch and Shell Transport shareholders in the other
companies comprising the Group reflected the 60:40 economic
interests of Royal Dutch and Shell Transport in these
companies. The Unification Transaction had little impact on
the economic rights and exposures of shareholders of Royal
Dutch and Shell Transport, as the separate assets and
liabilities of Royal Dutch and Shell Transport are not
material in relation to their interests in the rest of the
Group, and the Unification Transaction did not result in
the acquisition of any new businesses or operating assets
and liabilities. In addition, the Unification Transaction
did not affect the proved oil and gas reserve information
reported by Royal Dutch Shell, Royal Dutch and Shell
Transport or the other companies comprising the Group.
|
|
|
a |
|
Each Royal Dutch Shell Class A American Depositary
Receipt represents 2 Royal Dutch Shell Class A ordinary shares. |
b |
|
Each Royal Dutch Shell Class B American Depositary
Receipt represents 2 Royal Dutch Shell Class B ordinary shares. |
Selected Financial Data
The selected financial data set out below is derived, in part, from the Consolidated Financial
Statements. The selected data should be read in conjunction with the Consolidated Financial
Statements and related Notes, as well as the Operating and Financial Review in this Report.
The Consolidated Financial Statements have been prepared in accordance with International Financial
Reporting Standards (IFRS), which differ in certain respects from US GAAP. For a summary of the
material differences between IFRS and US GAAP, see Note 38 to the Consolidated Financial
Statements.
Except as otherwise stated, all selected financial data are prepared in accordance with IFRS.
Consolidated Statement of Income data
|
|
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
|
2005 |
|
|
2004 |
|
|
Revenue |
|
|
306,731 |
|
|
|
266,386 |
|
Income from continuing operations |
|
|
26,568 |
|
|
|
19,491 |
|
Income/(loss) from discontinued operations |
|
|
(307 |
) |
|
|
(234 |
) |
Income for the period |
|
|
26,261 |
|
|
|
19,257 |
|
Income attributable to minority interest |
|
|
950 |
|
|
|
717 |
|
Income attributable to shareholders of Royal Dutch Shell |
|
|
25,311 |
|
|
|
18,540 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
$ |
|
|
Basic
earnings per 0.07 ordinary share |
|
|
3.79 |
|
|
|
2.74 |
|
from continuing operations |
|
|
3.84 |
|
|
|
2.77 |
|
from discontinued operations |
|
|
(0.05 |
) |
|
|
(0.03 |
) |
Diluted
earnings per 0.07 ordinary share |
|
|
3.78 |
|
|
|
2.74 |
|
from continuing operations |
|
|
3.83 |
|
|
|
2.77 |
|
from discontinued operations |
|
|
(0.05 |
) |
|
|
(0.03 |
) |
|
Consolidated Balance Sheet data
|
|
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
|
2005 |
|
|
2004 |
|
|
Total assets |
|
|
219,516 |
|
|
|
187,446 |
|
Share capital |
|
|
571 |
|
|
|
604 |
|
Equity attributable to shareholders of Royal Dutch Shell |
|
|
90,924 |
|
|
|
86,070 |
|
Minority interest |
|
|
7,000 |
|
|
|
5,313 |
|
|
Capital investment
|
|
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
|
2005 |
|
|
2004 |
|
|
Capital expenditure: |
|
|
|
|
|
|
|
|
Exploration & Production |
|
|
10,858 |
|
|
|
8,699 |
|
Gas & Power |
|
|
1,568 |
|
|
|
1,357 |
|
Oil Products |
|
|
2,810 |
|
|
|
2,761 |
|
Chemicals |
|
|
387 |
|
|
|
529 |
|
Other industry segments and Corporate |
|
|
293 |
|
|
|
220 |
|
|
|
|
|
15,916 |
a |
|
|
13,566 |
|
Exploration expenses (excluding depreciation and release of currency translation differences) |
|
|
815 |
|
|
|
651 |
|
New equity in equity accounted investments |
|
|
390 |
|
|
|
681 |
|
New loans to equity accounted investments |
|
|
315 |
|
|
|
377 |
|
|
Total capital investment* |
|
|
17,436 |
|
|
|
15,275 |
|
|
*comprising |
|
|
|
|
|
|
|
|
Exploration & Production |
|
|
12,046 |
|
|
|
9,708 |
|
Gas & Power |
|
|
1,602 |
|
|
|
1,633 |
|
Oil Products |
|
|
2,844 |
|
|
|
2,823 |
|
Chemicals |
|
|
599 |
|
|
|
868 |
|
Other industry segments and Corporate |
|
|
345 |
|
|
|
243 |
|
|
|
|
|
17,436 |
|
|
|
15,275 |
|
|
|
|
|
a |
|
The difference between capital expenditure in this table and the capital expenditure on the
next page (other consolidated data) relates to non-cash effects relating to leases. |
|
|
|
Selected Financial Data |
|
7 |
Selected Financial Data
Other consolidated data
|
|
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
|
2005 |
|
|
2004 |
|
|
Cash flow provided by operating activities |
|
|
30,113 |
|
|
|
26,537 |
|
Capital expenditure |
|
|
15,904 |
|
|
|
13,566 |
|
Cash flow used in investing activities |
|
|
8,761 |
|
|
|
5,964 |
|
Dividends paid |
|
|
10,849 |
|
|
|
7,655 |
|
Cash flow used in financing activities |
|
|
18,573 |
|
|
|
13,592 |
|
Increase/(decrease) in cash and cash equivalents |
|
|
2,529 |
|
|
|
7,094 |
|
|
Income by industry segment |
|
|
|
|
|
|
|
|
Exploration & Production |
|
|
14,238 |
|
|
|
9,823 |
|
Gas & Power |
|
|
1,573 |
|
|
|
1,815 |
|
Oil Products |
|
|
9,982 |
|
|
|
7,597 |
|
Chemicals |
|
|
991 |
|
|
|
1,148 |
|
Other industry segments and Corporate |
|
|
(523 |
) |
|
|
(1,126 |
) |
Minority interest |
|
|
(950 |
) |
|
|
(717 |
) |
|
|
|
|
25,311 |
|
|
|
18,540 |
|
|
Total debt ratioa |
|
|
11.7 |
% |
|
|
13.8 |
% |
|
Dividends
declared |
|
|
0.92 |
b |
|
|
0.86 |
c |
Dividends
equivalent payment in dollars |
|
|
1.13 |
b |
|
|
1.07 |
c |
|
|
|
|
a |
|
The debt ratio is defined as short-term plus long-term debt as a percentage of capital
employed. Capital employed is net assets (defined as total assets minus total liabilities) plus
short-term and long-term debt. Management of the Group believes that the debt ratio calculated on
this basis (rather than the ratio of total debt to shareholders equity) is useful to investors
because it takes account of all amounts of capital employed in the business. Management uses this
measure to assess the level of debt relative to the capital invested in the business. |
|
b |
|
Includes a first interim dividend of 0.23 ($0.2973) made payable to shareholders of Royal Dutch Petroleum
Company in June 2005 and a first interim dividend of 15.84 pence ($0.3014) made payable to
shareholders of The Shell Transport and Trading Company, p.l.c. in June 2005, a second interim
dividend of 0.23 ($0.2771) made payable to shareholders of Royal Dutch Shell plc in September
2005, a third interim dividend of 0.23 ($0.2787) made payable to shareholders of Royal Dutch Shell
plc in December 2005 and a fourth interim dividend of 0.23 ($0.2771) made payable to shareholders
of Royal Dutch Shell plc in March 2006. Together they will constitute the total dividend for 2005. |
|
c |
|
Includes interim dividend of 0.75 ($0.90) made payable in September 2004 and a second interim
dividend of 1.04 ($1.33) made payable in March 2005. Together they constituted the total dividend
for 2004. |
Quarterly income data
The following tables contain our unaudited quarterly information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
|
2005 |
|
|
2004 |
|
|
|
Quarter 4 |
|
|
Quarter 3 |
|
|
Quarter 2 |
|
|
Quarter 1 |
|
|
Year |
|
|
Quarter 4 |
|
|
Quarter 3 |
|
|
Quarter 2 |
|
|
Quarter 1 |
|
|
Year |
|
|
Revenue |
|
|
75,496 |
|
|
|
76,435 |
|
|
|
82,644 |
|
|
|
72,156 |
|
|
|
306,731 |
|
|
|
76,301 |
|
|
|
70,685 |
|
|
|
62,132 |
|
|
|
57,268 |
|
|
|
266,386 |
|
Cost of sales |
|
|
63,889 |
|
|
|
60,704 |
|
|
|
69,464 |
|
|
|
58,565 |
|
|
|
252,622 |
|
|
|
65,358 |
|
|
|
58,604 |
|
|
|
51,860 |
|
|
|
47,437 |
|
|
|
223,259 |
|
|
Gross profit |
|
|
11,607 |
|
|
|
15,731 |
|
|
|
13,180 |
|
|
|
13,591 |
|
|
|
54,109 |
|
|
|
10,943 |
|
|
|
12,081 |
|
|
|
10,272 |
|
|
|
9,831 |
|
|
|
43,127 |
|
|
Selling, distribution and administrative
expenses |
|
|
4,263 |
|
|
|
3,763 |
|
|
|
3,917 |
|
|
|
3,539 |
|
|
|
15,482 |
|
|
|
4,406 |
|
|
|
3,643 |
|
|
|
3,668 |
|
|
|
3,381 |
|
|
|
15,098 |
|
Exploration |
|
|
502 |
|
|
|
275 |
|
|
|
248 |
|
|
|
261 |
|
|
|
1,286 |
|
|
|
515 |
|
|
|
294 |
|
|
|
889 |
|
|
|
111 |
|
|
|
1,809 |
|
Share of profit of equity accounted
investments |
|
|
1,389 |
|
|
|
3,081 |
|
|
|
1,080 |
|
|
|
1,573 |
|
|
|
7,123 |
|
|
|
1,519 |
|
|
|
1,254 |
|
|
|
1,111 |
|
|
|
1,131 |
|
|
|
5,015 |
|
Interest and other income |
|
|
205 |
|
|
|
521 |
|
|
|
247 |
|
|
|
198 |
|
|
|
1,171 |
|
|
|
621 |
|
|
|
177 |
|
|
|
134 |
|
|
|
551 |
|
|
|
1,483 |
|
Interest expense |
|
|
261 |
|
|
|
253 |
|
|
|
286 |
|
|
|
268 |
|
|
|
1,068 |
|
|
|
229 |
|
|
|
188 |
|
|
|
269 |
|
|
|
373 |
|
|
|
1,059 |
|
|
Income before taxation |
|
|
8,175 |
|
|
|
15,042 |
|
|
|
10,056 |
|
|
|
11,294 |
|
|
|
44,567 |
|
|
|
7,933 |
|
|
|
9,387 |
|
|
|
6,691 |
|
|
|
7,648 |
|
|
|
31,659 |
|
Taxation |
|
|
3,572 |
|
|
|
5,558 |
|
|
|
4,595 |
|
|
|
4,274 |
|
|
|
17,999 |
|
|
|
2,893 |
|
|
|
3,790 |
|
|
|
2,663 |
|
|
|
2,822 |
|
|
|
12,168 |
|
|
Income from continuing operations |
|
|
4,603 |
|
|
|
9,484 |
|
|
|
5,461 |
|
|
|
7,020 |
|
|
|
26,568 |
|
|
|
5,040 |
|
|
|
5,597 |
|
|
|
4,028 |
|
|
|
4,826 |
|
|
|
19,491 |
|
Income/(loss) from discontinued
operations |
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
(214 |
) |
|
|
(307 |
) |
|
|
(299 |
) |
|
|
23 |
|
|
|
22 |
|
|
|
20 |
|
|
|
(234 |
) |
|
Income for the period |
|
|
4,603 |
|
|
|
9,391 |
|
|
|
5,461 |
|
|
|
6,806 |
|
|
|
26,261 |
|
|
|
4,741 |
|
|
|
5,620 |
|
|
|
4,050 |
|
|
|
4,846 |
|
|
|
19,257 |
|
Income attributable to minority interests |
|
|
235 |
|
|
|
359 |
|
|
|
225 |
|
|
|
131 |
|
|
|
950 |
|
|
|
170 |
|
|
|
249 |
|
|
|
153 |
|
|
|
145 |
|
|
|
717 |
|
|
Income attributable to shareholders |
|
|
4,368 |
|
|
|
9,032 |
|
|
|
5,236 |
|
|
|
6,675 |
|
|
|
25,311 |
|
|
|
4,571 |
|
|
|
5,371 |
|
|
|
3,897 |
|
|
|
4,701 |
|
|
|
18,540 |
|
|
Consolidated Statement of Income data (US GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Revenue |
|
|
306,111 |
|
|
|
264,281 |
|
|
|
198,362 |
|
|
|
163,453 |
|
|
|
122,453 |
|
Income attributable to minority interest |
|
|
1,010 |
|
|
|
626 |
|
|
|
353 |
|
|
|
175 |
|
|
|
360 |
|
Income from continuing operations |
|
|
24,756 |
|
|
|
16,536 |
|
|
|
12,042 |
|
|
|
9,484 |
|
|
|
10,284 |
|
Income/(loss) from discontinued operations |
|
|
378 |
|
|
|
1,646 |
|
|
|
25 |
|
|
|
187 |
|
|
|
37 |
|
Cumulative effect of a change in accounting principle, net of tax |
|
|
554 |
|
|
|
|
|
|
|
255 |
|
|
|
|
|
|
|
|
|
Income attributable to shareholders of Royal Dutch Shell |
|
|
25,688 |
|
|
|
18,182 |
|
|
|
12,313 |
|
|
|
9,656 |
|
|
|
10,301 |
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Basic
earnings per 0.07 ordinary share ab |
|
|
3.85 |
|
|
|
2.68 |
|
|
|
1.81 |
|
|
|
1.41 |
|
|
|
1.45 |
|
from continuing operations |
|
|
3.71 |
|
|
|
2.44 |
|
|
|
1.77 |
|
|
|
1.38 |
|
|
|
1.45 |
|
from discontinued operations |
|
|
0.06 |
|
|
|
0.24 |
|
|
|
|
|
|
|
0.03 |
|
|
|
|
|
cumulative effect of a change in accounting principle, net of tax |
|
|
0.08 |
|
|
|
|
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
Diluted
earnings per 0.07 ordinary share ab |
|
|
3.84 |
|
|
|
2.68 |
|
|
|
1.81 |
|
|
|
1.41 |
|
|
|
1.45 |
|
from continuing operations |
|
|
3.70 |
|
|
|
2.44 |
|
|
|
1.77 |
|
|
|
1.38 |
|
|
|
1.45 |
|
from discontinued operations |
|
|
0.06 |
|
|
|
0.24 |
|
|
|
|
|
|
|
0.03 |
|
|
|
|
|
cumulative effect of a change in accounting principle, net of tax |
|
|
0.08 |
|
|
|
|
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
a |
|
Earnings per Royal Dutch Shell Class A ordinary and Class B ordinary shares are identical.
The historical earnings per share following the Unification have been accounted for on a carry-over
basis using the aggregate weighted average outstanding shares of the constituent businesses
adjusted to the equivalent shares of Royal Dutch Shell for all periods presented. |
b |
|
The basic earnings per share amounts shown relate to income attributable to shareholders of Royal Dutch
Shell. The 2005 calculation uses a weighted-average number of shares of 6,674,179,767 (2004:
6,770,458,950; 2003: 6,811,314,175; 2002: 6,876,188,213; 2001: 7,100,044,876). The basic earnings
per share number has been restated to exclude shares held by Share-Ownership Trusts for share-based
compensation plans. For the purpose of the calculation, shares repurchased under the buyback
programme are deemed to have been cancelled on purchase date. The diluted earnings per share are
based on the same income figures. For this calculation, the following weighted-average number of
shares are used. 2005: 6,694,427,705; 2004: 6,776,396,429; 2003: 6,813,444,740; 2002:
6,878,412,716; 2001: 7,105,915,746. The difference between the basic and diluted number of shares
relates to share-based compensation plans as mentioned above. |
Consolidated Balance Sheet data (US GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Total assets |
|
|
223,646 |
|
|
|
193,625 |
|
|
|
169,766 |
|
|
|
153,320 |
|
|
|
112,050 |
|
Equity attributable to shareholders of Royal Dutch Shell |
|
|
94,103 |
|
|
|
90,545 |
|
|
|
78,251 |
|
|
|
66,195 |
|
|
|
62,822 |
|
Minority interest |
|
|
7,006 |
|
|
|
5,309 |
|
|
|
3,415 |
|
|
|
3,568 |
|
|
|
3,466 |
|
|
Capitalisation table (US GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
|
Dec 31, |
|
|
Dec 31, |
|
|
|
2005 |
|
|
2004 |
|
|
Equity |
|
|
|
|
|
|
|
|
Ordinary share capital |
|
|
571 |
|
|
|
584 |
|
Preference share capital |
|
|
|
|
|
|
20 |
|
Additional paid-in capital |
|
|
3,637 |
|
|
|
5,371 |
|
Treasury shares |
|
|
(3,809 |
) |
|
|
(4,187 |
) |
Retained earnings |
|
|
95,965 |
|
|
|
85,791 |
|
Accumulated other comprehensive income/(loss) |
|
|
(2,261 |
) |
|
|
2,966 |
|
Total equity |
|
|
94,103 |
|
|
|
90,545 |
|
|
Short-term debt |
|
|
5,328 |
|
|
|
5,762 |
|
Long-term
debta |
|
|
4,589 |
|
|
|
5,774 |
|
Total debt
b |
|
|
9,917 |
|
|
|
11,536 |
|
|
Total capitalisation |
|
|
104,020 |
|
|
|
102,081 |
|
|
|
|
|
a |
|
Long-term debt exclude $2.8 billion of certain tolling commitments (2004: $2.8 billion). |
b |
|
As of June 30, 2005, the Shell Group had outstanding guarantees of $2.9 billion (2004: $2.9
billion), of which $1.7 billion (2004: $1.7 billion) related to guarantees in respect of debt
related to project financing. |
Ratio of Earnings to Fixed Charges (IFRS and US GAAP)
The following table sets forth the consolidated unaudited Ratio of Earnings to Fixed Charges of
Royal Dutch Shell on an IFRS basis for the years ended December 31, 2004 and 2005 and on a US GAAP
basis for the years ended December 31, 2001, 2002, 2003, 2004 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Ratio of Earnings to Fixed Charges (IFRS) |
|
|
23.81 |
|
|
|
19.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Earnings to Fixed Charges (US GAAP) |
|
|
27.72 |
|
|
|
17.56 |
|
|
|
15.91 |
|
|
|
11.71 |
|
|
|
18.52 |
|
|
For the purposes of this table, earnings consists of pre-tax income from continuing operations
before adjustment for minority interests and Group share of profit of equity accounted investments
plus fixed charges (excluding capitalised interest) less undistributed earnings of equity accounted
investments, plus distributed income from equity accounted investments. Fixed charges consists of
expensed and capitalised interest plus interest within rental expenses (for operating leases) plus
preference security dividend requirements of consolidated subsidiaries.
Please refer to Exhibit 7 for details concerning the calculation of the Ratio of Earnings to Fixed
Charges.
|
|
|
Selected Financial Data |
|
9 |
THIS PAGE INTENTIONALLY LEFT BLANK
Index to the Operating and Financial Review (OFR)
|
|
|
|
Operating and Financial Review 2005 |
|
12 |
|
Business and market overview |
15 |
|
Risk factors and control |
20 |
|
Summary of Group results |
22 |
|
Upstream Exploration & Production |
38 |
|
Upstream Gas & Power |
44 |
|
Downstream Oil Products |
54 |
|
Downstream Chemicals |
60 |
|
Other industry segments and Corporate |
62 |
|
Liquidity and capital resources |
66 |
|
Social and environmental |
71 |
|
People |
73 |
|
Other matters |
|
|
|
|
Operating and Financial Review
Index
|
|
11 |
Operating and Financial Review Business and market overview
Business and market overview
The Operating and Financial Review (OFR) provides a
business, market and strategic overview of the operations
and financial situation of the Group, as seen by Group
management. It describes the activities, properties and
performance of the Group and also discusses the risks and
social and environmental challenges facing the Group.
Business overview
Royal Dutch Shell consists of the upstream businesses of
Exploration & Production and Gas & Power and the
downstream businesses of Oil Products and Chemicals. We
also have interests in other industry segments such as
Renewables and Hydrogen.
Over time and across the commodity cycle the Group has
achieved higher earnings and returns on investment in the
upstream compared with the other businesses, and sees
significant growth potential in demand for natural gas. The
downstream businesses continue to offer attractive returns,
cash flow and growth potential in the growth markets of
Asia Pacific and the Middle East and the portfolio is being
restructured to capture that potential. The Groups core
strengths include the application of technology, financial
and project management skills to develop large oil and gas
projects; the ability to develop and manage a diverse and
international business portfolio; and the development of
customer-focused businesses built around the strength of
the Shell brand.
Royal Dutch Shell strategy
Our strategy of more upstream and profitable downstream
aims to reinforce our position as a leader in the industry,
which aims to provide investors with a competitive and
sustained total shareholder return.
We have announced an increase in capital investment to
support that strategy and in 2006 we plan to spend a total
of $19 billion (excluding capital contribution of minority
shareholders in Sakhalin), of which around $15 billion will
be invested in upstream projects. This increased investment
will be used to grow and mature our hydrocarbons resource
base; increase production; build on our strong position in
integrated gas and unconventionals and enhance our
competitive leadership in the downstream.
More upstream Increased capital investment will enable more
upstream oil and gas development. This will include a
sustained high exploration activity level and significant
projects such as Salym, Bonga, Erha, Kashagan, Sakhalin,
Qatargas 4, Pearl GTL and Ormen Lange. Further work will
continue to develop unconventional oil projects including
the expansion of the Athabasca Oil Sands project and also
to prolong profitable production from our existing
producing areas.
Included in the planned upstream investment are projects in
Gas & Power, predominantly in liquefied natural gas (LNG)
such as Sakhalin II, Qatargas 4 and expansions of LNG
projects in Nigeria and Australia. These projects are part
of the continued development of our integrated gas business
through selective investment in opportunities across the
value chain. That strength along the whole gas value chain
from exploration to marketing will continue to be a key
factor in our ability to maintain our global leadership in
natural gas. At the same time, we will continue to promote
our interests in Gas to Liquids (GTL), coal gasification
and new opportunities in carbon management.
Profitable downstream Our downstream strategy focuses on
sustaining strong cash delivery while building profitable
new positions in higher-growth markets, especially in Asia
Pacific, and maintaining and strengthening established
positions in attractive markets.
We continue to reshape the portfolio and, in 2005,
generated proceeds from divestments from various markets of
over $3 billion. We will continue to focus on
differentiating our business through the provision of
premium fuels such as Optimax and V-Power as well as
working to make cleaner fuels such as biofuels more widely
and competitively available. Capital investment in
downstream in 2006 will be over $4 billion and $1.7 billion
of investment will include areas of strong growth potential
to deliver competitive returns.
Meeting growing global demand for energy in ways that
minimise the effect on the environment is a key challenge
for our future business and we are pursuing a range of
opportunities to develop alternative energy that will both
complement todays core businesses and establish major new
income streams over the long term.
Reshaping
the portfolio The target of raising $12-15
billion in divestment proceeds for the period 2004-06
has been achieved one year ahead of schedule. The
investment programme is based on our strategy of more
upstream and profitable downstream and is intended to
position the Group competitively in a future environment.
Operational excellence Improving operational performance
across all of our activities is a priority. This means
operating in a safe, reliable and cost competitive way and
ensuring that we meet high standards of environmental and
social performance. Performance is measured through
comprehensive internal and external benchmarking to
establish a measure of performance relative to competitors.
Our aim is to achieve top quartile performance across all
of our activities when measured against those competitors.
Effective project delivery has become increasingly
important as we take on larger and more complex projects.
We have allocated more resources to improving project
planning and delivery including setting up a Project
Academy. The Project Academy will provide focused training
and development on all aspects of project management to
those working on projects across our businesses.
Technology and innovation Developing and implementing new
technology is important to our business activities and to be
competitive in securing new business opportunities.
Technology plays a particularly important role in helping
us to access new resources, maximise the recovery of oil
and gas from existing resources, develop the potential of
unconventional hydrocarbons and alternative energy and find
ways of reducing and managing the CO2 emissions related to energy production and
use.
Creating the culture and organisation to deliver We
have made significant progress in changing our organisation
and shaping our culture to deliver our strategy and
competitive returns to our shareholders over time. The
Unification Transaction of the former parent companies
under Royal Dutch Shell in 2005 has provided us with a
clearer, simpler, more efficient and accountable form of
governance. We continue to work to simplify our
organisation and continue to make good progress in
standardising processes across our businesses. The
integration of the Oil Products and Chemicals businesses
into one downstream organisation has been successful in
creating a more dynamic, responsive and competitive
downstream organisation.
Market overview
Global economic output expanded by around 4.5% in 2005,
supported by strong activity in the US and Asia, down from
5.1% in 2004. The two key
drivers underpinning this growth were US consumer
resilience to higher energy prices and interest rates, and
generally moderate inflationary pressures in key
industrialised economies. Economic expansion is expected to
stay broadly on track for 2006, despite prospects of
continued higher oil prices, monetary tightening and
further easing of investment growth in China.
In the US, business investment, residential sector spending
and robust manufacturing output all contributed to high
economic growth levels in 2005. For 2006, the expected
moderate slow down in personal consumption and easing of
the housing market would bring GDP growth largely in line
with potential output growth of around 3.4%. In Europe,
economic growth in 2005 came from export growth, partially
fuelled by a weaker than expected euro, and a moderate
increase in personal consumption, leading to an expansion
of roughly 1.4%. Assuming moderate monetary tightening, and
a more substantial recovery in personal consumption, this
could increase to 1.8% in 2006. The Japanese economy is
continuing on a path of gradual recovery with both private
consumption and non-residential business investments
generating substantial momentum during the first half of
2005. Whether such momentum can be maintained over the next
year remains uncertain, but the structural factors are in
place for the economy to grow at around 2% in 2006. In
China, 2005 was characterised by a change in the structure
of growth, with the economy relying increasingly on
exports, and to a lesser extent on domestic demand. For
2006, domestic demand growth is expected to slow and net
exports to make a smaller contribution. GDP growth is
expected to reduce moderately to around 8% in 2006.
Risks are slanted to the downside with sustained higher
energy prices, uncertainty linked to the US consumer,
possible dollar depreciation, unusual trends in the bond
markets, and the expected cooling of the housing market.
Given the present forward momentum of the global economy,
the probability of a severe slowdown in 2006 seems low.
Oil and natural gas prices
Brent crude oil prices averaged $54.55 per barrel in 2005
compared with $38.30 in 2004, while West Texas Intermediate
(WTI) averaged $56.60 per barrel compared with $41.50 a
year earlier. 2005 saw a steady increase in crude oil
prices mainly driven by limited spare OPEC crude oil
production capacity, weather related demand and supply
effects and geopolitical tensions in the Middle East. WTI
reached a new record high of just under $70 per barrel at
hurricane Ritas landfall at the end of August, but prices
were subsequently reduced by the International Energy
Agencys decision to release emergency stocks. Brent and
WTI crude oil prices ended 2005 at $58 and $61 per barrel
respectively.
Based on internal Group analysis, oil prices are expected
to remain strong in 2006 against ongoing supply concerns,
the projection of low OPEC spare capacity and projected
strong world economic growth, in particular the US and
China. In the medium to longer term, the Group anticipates
prices to moderate from present levels, as both supply and
demand are expected to respond to the present higher price
environment and stocks and OPEC spare capacity is being
rebuilt.
Henry Hub gas prices in the US averaged $8.80 per million
British thermal units (Btu) in 2005 compared with $5.87 in
2004. Prices were driven up in the summer by record hot
weather boosting electricity demand from gas-fired power
stations to run air conditioning. Prices increased further
from late
August to the end of the year as a result of extensive
supply disruptions caused by Gulf of Mexico hurricanes.
Henry Hub closed at $9.45 per million Btu at year end. In
2006 Henry Hub prices are expected to ease with recovery
from the weather related supply disruptions in 2005 and an
increase in LNG imports, but are expected to remain above
historical levels as robust demand continues to challenge
the growth in supply.
The drivers of natural gas prices are more regionalised
than the relatively global nature of crude oil pricing.
While the Henry Hub price is a recognised price benchmark
in North America, the Group also produces and sells natural
gas in other areas that have significantly different
supply, demand, regulatory circumstances and therefore
pricing structure. Natural gas prices in continental Europe
and Asia Pacific are predominantly indexed to oil prices.
In Europe prices have also risen reflecting higher oil
prices and strong demand. In the UK prices at the National
Balancing Point averaged $6.39 per million Btu versus $4.72
in 2004 and Germany border prices averaged around $5.81 per
million Btu versus $4.30 in 2004.
Oil and natural gas prices for investment evaluation
The range of possible future crude oil and natural gas
prices to be used in project and portfolio evaluations
within the Group are determined after assessment of short,
medium and long-term price drivers under different sets of
assumptions. Historical analysis, trends and statistical
volatility are part of this assessment, as well as analysis
of global and regional economic conditions, geopolitics,
OPEC actions, cost of future supply and the balance of
supply and demand. Sensitivity analyses are used to test
the impact of low price drivers, like economic weakness and
high investment levels in new production, and high price
drivers, like strong economic growth, and low investment
levels in new production. Short-term events, such as
relatively warm winters or cool summers, weather and
(geo)political related supply disruptions and the resulting
effects on demand and inventory levels, contribute to price
volatility.
During 2005, the Group used prices ranging from around $20
to the mid $30s per barrel to test the economic performance
of long term projects at different prices or margin levels.
As part of normal business practice, the range of prices
used for this purpose continues to be under review and may
change.
|
|
|
Operating and Financial Review
Business and market overview
|
|
13 |
Operating and Financial Review Business and market
Activities, major interests and property
Our various activities are conducted in more than 140 countries and territories. The Group and its
equity accounted investments constitute one of the largest independent oil and gas enterprises in
the world (by a number of measures, including market capitalisation, operating cash flow and oil
and gas production). Oil and gas, by far the largest of our business activities (including the
Groups Exploration & Production, Gas & Power, and Oil Products segments), accounted for
approximately 90% of net proceeds in 2005. We market oil products in more countries than any other
oil company and have a strong position not only in the major industrialised countries but also in
the developing ones. The distinctive Shell pecten (a trademark in use since the early part of the
twentieth century) and trademarks in which the word Shell appears support this marketing effort
throughout the world. Taken together, the Group and its equity accounted investments also rank
among the worlds major chemical companies (by sales); in 2005, the Chemicals segment accounted for
almost 10% of the revenue of the Group. In downstream, we intend to further integrate the Oil
Products and Chemicals businesses in order to provide opportunities to achieve cost efficiencies
from shared services and common manufacturing sites, and from improved use of hydrocarbon resources
on integrated sites.
A breakdown of revenue of the Group by industry segment and by geographical region for the years
2004 and 2005 is set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by industry segment (including intersegment sales)a |
|
|
$ million |
|
|
% |
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
Exploration
& Production
Third parties |
|
|
23,970 |
|
|
|
18,400 |
|
|
|
|
|
|
|
|
|
Intersegment |
|
|
21,704 |
|
|
|
18,895 |
|
|
|
|
|
|
|
|
|
|
|
|
45,674 |
|
|
|
37,295 |
|
|
|
13.0% |
|
|
|
12.4% |
|
|
Gas
& Power
Third parties |
|
|
13,766 |
|
|
|
9,625 |
|
|
|
|
|
|
|
|
|
Intersegment |
|
|
1,858 |
|
|
|
1,210 |
|
|
|
|
|
|
|
|
|
|
|
|
15,624 |
|
|
|
10,835 |
|
|
|
4.5% |
|
|
|
3.6% |
|
|
Oil
Products
Third parties |
|
|
237,210 |
|
|
|
210,424 |
|
|
|
|
|
|
|
|
|
Intersegment |
|
|
16,643 |
|
|
|
11,924 |
|
|
|
|
|
|
|
|
|
|
|
|
253,853 |
|
|
|
222,348 |
|
|
|
72.3% |
|
|
|
73.8% |
|
|
Chemicals
Third parties |
|
|
31,018 |
|
|
|
26,877 |
|
|
|
|
|
|
|
|
|
Intersegment |
|
|
3,978 |
|
|
|
2,620 |
|
|
|
|
|
|
|
|
|
|
|
|
34,996 |
|
|
|
29,497 |
|
|
|
10.0% |
|
|
|
9.8% |
|
|
Other
industry segments and Corporate
Third parties |
|
|
767 |
|
|
|
1,060 |
|
|
|
|
|
|
|
|
|
Intersegment |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
767 |
|
|
|
1,070 |
|
|
|
0.2% |
|
|
|
0.4% |
|
|
|
|
|
350,914 |
|
|
|
301,045 |
|
|
|
100.0% |
|
|
|
100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by geographical area (excluding intersegment sales) |
|
|
$ million |
|
|
% |
|
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
Europe |
|
|
122,684 |
|
|
|
94,206 |
|
|
|
40.0% |
|
|
|
35.4% |
|
Other Eastern Hemisphere |
|
|
61,388 |
|
|
|
50,652 |
|
|
|
20.0% |
|
|
|
19.0% |
|
USA |
|
|
101,308 |
|
|
|
103,429 |
|
|
|
33.0% |
|
|
|
38.8% |
|
Other Western Hemisphere |
|
|
21,351 |
|
|
|
18,099 |
|
|
|
7.0% |
|
|
|
6.8% |
|
|
|
|
|
306,731 |
|
|
|
266,386 |
|
|
|
100.0% |
|
|
|
100.0% |
|
|
|
|
|
a |
|
The figures in this table are different from the table shown on page 51 as this table
includes crude oil sales and non-fuel revenue. |
Operating and Financial Review Risk factors and control
Risk management and internal control
The Group takes a risk-based approach to internal control.
Management in the Group is responsible for implementing,
operating and monitoring the system of internal control,
which is designed to provide reasonable, but not absolute,
assurance of achieving business objectives. Related
requirements are set out in a Statement on Risk
Management, which describes the methodology to be followed
to manage risks to objectives. Our control framework is
supported by a set of risk-based standards; these
establish rules and instructions on enterprise-wide risks
that require common treatment across the Group.
We have a variety of processes for obtaining assurance on
the adequacy of risk management and internal control.
The Group has a structured process to identify and review
risks to the achievement of Group objectives. The
Executive Committee and the Audit Committee regularly
consider Group-level risks and associated control
mechanisms.
A formalised self-appraisal and assurance letter process
is in place. As part of this annual process concerns about
business integrity or instances of bribery or illegal
payments are reported and assurance is provided on
compliance with Group standards. The assurance letters
are reviewed by the Audit Committee and support
representations made to the external auditors.
In addition to these structured self-appraisals,
internal audits risk-based audits of Group
operations provide the Audit Committee with an independent view on the effectiveness of risk and
control management systems.
Internal audit operates a business control incident
reporting procedure, the results of which are reported to
the Executive Committee and to the Audit Committee.
Additionally, incidents or compliance issues relating to
other standards, for example on Health, Safety and
Environmental (HSE) are identified, investigated and
their learnings shared. They report significant
non-compliance to senior executives and to the relevant
function head.
An ethics and compliance programme also supports the risk
management and internal control environment. The Chief
Compliance Officer leads the programme and champions
ethics and legal and regulatory compliance in the Group
and reports regularly to the Audit Committee.
These established processes allow the Board, via the
Audit Committee, to regularly consider the overall
effectiveness of the system of internal control and to
perform a full annual review of the systems
effectiveness. Taken together, these processes provide
confirmation to the Board that relevant policies are
adopted and procedures implemented with respect to risk
management and internal control.
In the context of reserves estimation and reporting, the
Group has improved controls and procedures following the
reserves restatements in 2004 and the related investigation
and report to the Audit Committee at the time. We are
continuing to make improvements to the controls and
procedures relating to the determination of proved
reserves, among other things to address those areas where
existing procedures or compliance need improvement.
Risk factors
The Group is subject to various risks relating to changing
competitive, economic, political, legal, social, industry,
business and financial conditions. These risks to Group
objectives are described below.
The Groups operations and earnings are subject to risk related to fluctuating prices for oil, natural gas, oil products and chemicals.
Oil, natural gas, oil products and chemical prices can
vary as a result of various factors, including natural
disasters, political instability or conflicts, economic
conditions or action taken by major oil-exporting
countries. Fluctuations in these prices could test our
business assumptions, and could have an adverse impact on
the Groups investment decisions, operational performance
and financial position.
The Groups operations and earnings are subject to risks related to project delivery and the ability to replace oil and gas reserves
The Groups future oil and gas production
is to a significant extent dependent upon the successful
implementation of large-scale projects. Several
uncertainties exist in developing these projects including
uncertain geology, effect of frontier conditions,
availability of new technology and engineering capacity,
availability of skilled resources, project delay, cost
overruns, and technical, fiscal, regulatory and other
conditions. If these uncertainties materialise they could
have an adverse effect on our ability to deliver these
projects, which in turn could have an adverse impact on
our results of operations and financial position. In
addition, future oil and gas production will depend on the
Groups ability to access new reserves through
exploration, negotiation with countries and other owners
of known reserves and acquisitions. Failures in
exploration, and in identifying and consummating
transactions to access suitable potential reserves, could
adversely impact the Groups oil and gas production and
reserve replacement, which in turn could have an adverse
impact on the Groups results of operations and financial
position in the future.
Loss of business reputation may adversely impact results of operations and financial position
The Group has a strong
corporate reputation and the Shell brand is one of the worlds leading energy brands. The
Shell General Business Principles govern how the Group and
its individual companies conduct their affairs. Perceived
failure to meet these principles could impact our
reputation, which in turn could impact our licence to
operate, damage our brand and have an adverse impact on our
results of operations and financial position.
The Groups operations and earnings are subject to security breaches which could disrupt our activities
A number of our staff and assets are exposed to the threats of crime,
social unrest, civil war and terrorist attacks. If these
threats to our staff and assets materialise they could
cause severe disruption to our activities.
The Groups operations and earnings are subject to strong competition which may affect the Groups financial position
The Group is subject to competition from within the energy
industry and other industries. We face competition in
several areas including: securing access to acreage and
reserves; developing innovative products and solutions; and
developing and applying new technology. Failure to
adequately understand or respond to the competitive
landscape could have an adverse impact on our financial
position.
The Groups operations and earnings are subject to risks related to operational hazards, natural
disasters, pandemics and breaches of technical integrity
The Group operates in more than 140 countries and
territories and employs approximately 109,000 people. The
scale, diversity and complexity of the Groups activities
place it at the risk of operational hazards, natural
disasters, pandemics and breaches of technical integrity,
which could result in loss of life, adverse impact on the
environment and cause disruption to business activities.
Realisation of these risks could have an adverse effect on
the results of operations and financial position of the
impacted Group company.
|
|
|
Operating and Financial Review
Risk factors and control
|
|
15 |
Operating and Financial Review Risk factors and control
The Groups operations and earnings are subject to
risk of change in legislation and fiscal and regulatory policies
The Groups operations are subject to risk of
change in legislation, taxation and regulation and to
expropriation of property. For exploration and production
activities, these matters include land tenure, entitlement
to produced hydrocarbons, production rates, royalties,
pricing, environmental protection, social impact, exports,
taxes and foreign exchange. Changes in legislation,
taxation, and regulations and expropriation of property
could have an adverse effect on the results of operations
and financial position of the impacted Group companies.
The Groups operations and earnings are subject to risks related to currency fluctuations and exchange controls
The Group is present in more than 140 countries and territories
throughout the world and is subject to risks from changes
in currency values and exchange controls. Changes in
currency values and exchange controls could have an adverse
effect on our results of operations and financial position.
The Groups operations and earnings are subject to
resourcing inefficiencies which could impede delivery of the Group strategy
Successful delivery of the Group strategy depends on the availability of skilled employees.
Changing global demographics, specifically declining
numbers of science graduates in Europe and the US, add to
the resourcing challenge and there is a risk of failing to
resource critical aspects of the business, which could
impede delivery of our strategy.
The Groups operations and earnings are subject to
information technology failures which could result in disruption to business activities and legal penalties
With an increasing focus on standardisation, reliance on global
systems, relocation of IT services, and a dynamic
regulatory landscape, the risk of the Groups IT systems
failing to deliver products, services and solutions in a
compliant, secure and efficient manner, could result in
disruption to business activities and legal penalties.
The Groups operations and earnings are subject to the risk
of doing business in politically sensitive or unstable countries
The Groups operations and earnings throughout
the world have been, and may in the future be, affected
from time to time to varying degrees by political
developments and laws and regulations, such as forced
divestiture of assets; restrictions on production, imports
and exports; war or other international conflicts; civil
unrest and local security concerns that threaten the safe
operation of company facilities; price controls; tax
increases and other retroactive tax claims; expropriation
of property; cancellation of contract rights; and
environmental regulations. Both the likelihood of such
occurrences and their overall effect upon the Group vary
greatly from country to country and are not predictable.
Realisation of these risks could have an adverse impact on
the results of operations and financial position of the
Group companies located in the affected country.
The Groups operations and earnings are subject to risks
related to effective governance of the Group
Successful delivery of the Group strategy requires effective
governance. There is a risk of non-compliance with laws
and regulations, and the risk of incorrect design and
operation of internal controls, which may result in damage
to the Groups reputation, financial results and
employees.
The Groups operations and earnings are subject to risks
related to failure of senior management
The Groups leadership plays a critical role in the delivery of the
strategy. There is the risk that leadership may make decisions, or take
actions, whose outcomes may cause damage to the Groups
reputation, results and employees.
The Groups operations and earnings are subject to risks
related to the lack of access to technology and inadequate innovation
Technology and innovation are critical for the
successful delivery of the Groups strategy. There is a
risk that the Group does not develop or does not have
access to the right technology, which may impede delivery
of the strategy with a consequent impact on the Groups
financial results.
The Groups operations and earnings are subject to risks
related to partners and ventures
There is a risk that the Group could lose the ability to influence and control the
operations, behaviours and performance of business
activities of other parties with whom the Group is
engaged, This could result in the loss of access to
hydrocarbons, damage to staff, assets and financial
results.
The Groups operations and earnings are subject to risks
related to economic and financial market conditions
Group companies are subject to differing economic and financial
market conditions in countries and regions throughout the
world. There are risks to such markets from political or
economic instability. Realisation of one of these risks in
a country or region could have an adverse impact on the
results of operations and financial position of the Group
companies operating in that country or region.
The Groups operations and earnings are subject to risks
related to the estimation of reserves
The estimation of oil and gas reserves involves subjective judgments and
determinations based on available geological, technical,
contractual and economic information. They are not exact
determinations. In addition, these judgments may change
based on new information from production or drilling
activities or changes in economic factors, as well as from
developments such as acquisitions and dispositions, new
discoveries and extensions of existing fields and the
application of improved recovery techniques. Published
reserve estimates can also be subject to correction for
errors in the application of published rules and guidance.
The Groups operations and earnings are subject to risks
related to US government sanctions
The Group currently has investments in Iran and Syria and certain operations in
Sudan. US laws and regulations currently identify certain countries, including Iran, Syria and Sudan, as state
supporters of terrorism and currently impose economic
sanctions against Iran, Syria and Sudan. In the case of
these countries, there are prohibitions on certain
activities and transactions and penalties for violation of
these prohibitions include criminal and civil fines and
imprisonment. In addition, in the case of Iran, US
legislation includes a limit of $20 million in any 12 month
period on certain investments knowingly made in that country
and authorises the imposition of sanctions (from a list that
includes denial of financings by the US export/import bank,
denial of certain export licences, denial of certain
government contracts and limits of loans or credits from US
financial institutions). However, compliance with this
investment limit by European companies is prohibited by
Council Regulation No. 2271/96 adopted by the Council of the
European Union, so that the statutes conflict with each
other in certain respects. The Group has exceeded and
expects to exceed in the future the US imposed investment
limits in Iran. While the Group seeks to comply with
applicable legal requirements in its dealings in these
countries, it is possible that the Group or persons employed
by the Group could be found to be subject to sanctions or
other penalties under this legislation in connection with
their activities in these countries. Considering both the
likelihood of the imposition of sanctions on the Group
and the possible effects thereof, the Group does not
believe that there will be a material negative effect on
its results of operations or financial condition
resulting from its investments and activities in these
countries.
The Groups operations and earnings are subject to risks
related to the impact of climate change
Concern about climate change is leading to government action to manage
emissions and societal challenge to future oil and gas
developments. As such, there is a delivery risk to future
projects and a compliance risk for existing facilities
which cannot demonstrate adequate emissions management.
Realisation of these risks could have an adverse impact on
the Groups operational performance and financial position.
Risk mitigation programmes
Property and liability risks
The Groups operating companies insure against most major
property and liability risks with our captive insurance
companies. These companies reinsure part of their major
catastrophe risks with a variety of international insurers.
The effect of these arrangements is that uninsured losses
for any one incident are unlikely to exceed $400 million.
Treasury and trading risks
Group companies, in the normal course of their
business, use financial instruments of various kinds
for the purposes of managing exposure to currency,
commodity price and interest rate movements.
The Group has treasury guidelines applicable to all Group
companies and each Group company is required to adopt a
treasury policy consistent with these guidelines. These
policies cover financing structure, foreign exchange and
interest rate risk management, insurance, counterparty risk
management and derivative instruments, as well as the
treasury control framework. Wherever possible, treasury
operations are operated through specialist Group regional
organisations without removing from each Group company the
responsibility to formulate and implement appropriate
treasury policies.
Each Group company measures its foreign currency exposures
against the underlying currency of its business (its
functional currency), reports foreign exchange gains and
losses against its functional currency and has hedging and
treasury policies in place which are designed to manage
foreign exchange exposure so defined. The functional
currency for most upstream companies and for other
companies with significant international business is the US
dollar, but other companies usually have their local
currency as their functional currency.
The financing of most operating companies is structured
on a floating-rate basis and, except in special cases,
further interest rate risk management is discouraged.
Apart from forward foreign exchange contracts to meet known
commitments, the use of derivative financial instruments by
most Group companies is not permitted by their treasury
policy.
Specific Group companies have a mandate to operate as
traders in crude oil, natural gas, oil products and other
energy-related products, using commodity swaps, options
and futures as a means of managing price, and timing risks
arising from this trading. In effecting these
transactions, the companies concerned operate within
procedures and policies designed to ensure that risks,
including those relating to the default of counterparties,
are minimised. The Group measures exposure to the market
when trading. Exposure to substantial trading losses is
considered limited with the Groups approach to risk.
Other than in exceptional cases, the use of external
derivative instruments is generally confined to specialist
oil and gas trading and central treasury organisations
which have appropriate skills, experience, supervision and
control and reporting systems.
Supplementary information on derivatives and other
financial instruments and derivative commodity instruments
is provided on pages 164 to 177 of this Report.
Environmental and decommissioning costs
Group companies are present in over 140 countries and
territories throughout the world and are subject to a
number of different environmental laws, regulations and
reporting requirements. It is the responsibility of each
Group company to comply with Group HSE standards,
including the implementation of an HSE management system.
The costs of prevention, control, abatement or elimination
of releases into the air and water, as well as the disposal
and handling of waste at operating facilities, are
considered to be an ordinary part of business. As such,
these amounts are included within operating expenses. An
estimate of the order of magnitude of amounts incurred in
2005 for Group companies, based on allocations and
managerial judgment, is $1.2 billion (2004: $1.4 billion).
Expenditures of a capital nature to limit or monitor
hazardous substances or releases include both remedial
measures on existing plants and integral features of new
plants. While some environmental expenditures are discrete
and readily identifiable, others must be reasonably
estimated or allocated based on technical and financial
judgments which develop over time. Consistent with this,
estimated environmental capital expenditures made by
companies with major capital programmes during 2005 were
$0.8 billion (2004: $0.6 billion).
It is not possible to predict with certainty the magnitude
of the effect of required investments in existing
facilities on Group companies future earnings, since this
will depend among other things on the ability to recover
the higher costs from consumers and through fiscal
incentives offered by governments. Nevertheless, it is
anticipated that over time there will be no material impact
on the total of Group companies earnings. These risks are
comparable to those faced by other companies in similar
businesses.
At the end of 2005, the total liabilities being carried for
environmental clean-up were $878 million (2004: $817
million). In 2005, there were payments of $190 million and
increases in provisions of $243 million. The fair value of
the obligations being carried for expenditures on
decommissioning and site restoration, including oil and gas
platforms, at December 31, 2005 amounted to $5,925 million
(2004: $5,397 million).
Pension funds
It is anticipated that the actuarial valuations of the
Groups four main pension funds in aggregate at the end of
2005 will show a surplus of assets over liabilities. These
actuarial valuations, rather than the Group Consolidated
Financial Statements measures in accordance with IAS 19
(Note 22 to the Consolidated Financial Statements), are the
basis on which the funds trustees manage the funds and
define the required contributions from the member
companies.
|
|
|
Operating and Financial Review
Risk factors and control |
|
17 |
Operating and Financial Review Risk factors and control
Controls and procedures
As of the end of the period covered by this Report, the
Chief Executive and Chief Financial Officer conducted an
evaluation pursuant to Rule13a-15 promulgated under the
Securities Exchange Act of 1934, as amended (the Exchange
Act), of the effectiveness of the design and operation of
the disclosure controls and procedures of the Group. Based
on this evaluation, the Chief Executive and Chief
Financial Officer concluded that, as of the end of the
period covered by this Report, such disclosure controls
and procedures were effective to provide reasonable
assurance that information required to be disclosed by
Royal Dutch Shell in reports it files or submits under the
Exchange Act is recorded, processed, summarised and
reported within the time periods specified in the rules
and forms of the SEC.
There has not been any change in the internal controls over
financial reporting of the Group or the Dividend Access
Trust that occurred during the period covered by this
report that has materially affected, or is reasonably
likely to materially affect, such internal controls over
financial reporting.
In 2005, the Royal Dutch Shell Group Dividend
Access Trust was established in connection with
the Unification Transaction. See Supplementary Information Control of registrant for
a discussion on the operation of, and controls relating
to, the Trust.
THIS PAGE INTENTIONALLY LEFT BLANK
|
|
|
Operating and Financial Review |
|
19 |
SUMMARY OF GROUP RESULTS
Contents
|
|
Earnings |
|
|
|
Capital investment |
|
|
|
Research and development |
|
|
|
IFRS |
PETER VOSER, CHIEF FINANCIAL OFFICER
|
The Groups income reflects
higher realised oil and gas prices
and strong underlying performance
in all segments. Cash flow from
operating activities reached $30.1
billion, an increase of 13% from
2004. |
Overview
Our strategy of more upstream and
profitable downstream will
reinforce our position with the aim
to provide investors with a competitive and
sustainable shareholder return.
Highlights
> |
|
Income for 2005 of $26.3
billion, an increase of
36% from 2004. |
|
> |
|
Robust financial position
returning over $17 billion in
the form of dividends and
buybacks to our shareholders. |
|
> |
|
Capital investment of $17.4 billion
in the business.
|
|
> |
|
The 2004-2006 divestment
programme was completed one
year early, delivering $14.3
billion in 2004 and 2005
combined. |
Earnings
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
2005 |
|
|
2004 |
|
|
Income from continuing operations |
|
|
26,568 |
|
|
|
19,491 |
|
Income/(loss) from discontinued operations |
|
|
(307 |
) |
|
|
(234 |
) |
|
Income for the period |
|
|
26,261 |
|
|
|
19,257 |
|
|
2005 compared to 2004
Earnings
The Groups income for 2005 was $26.3
billion, an increase of 36% from 2004.
These earnings reflect higher realised
oil and gas prices in Exploration &
Production and higher liquefied
natural gas (LNG) volumes and prices
in Gas & Power, as well as increases
in refining margins and trading
profits in Oil Products and higher
margins in Chemicals.
The Groups financial position is
solid, and we returned over $17
billion to our shareholders through
dividends, buybacks and the payment
to Royal Dutch minority shareholders
in 2005.
Exploration & Production earnings were
$14,238 million, 45% higher than in
2004. Production in 2005 was 1% lower
compared to 2004, excluding the impact
of divestments, price effects and
hurricanes in the Gulf of Mexico. The
decline in production in mature areas
was largely offset by the start of
production in new fields. Hydrocarbon
prices were higher in 2005 compared
with 2004 with Brent crude prices
averaging $54.55 a barrel compared
with $38.30 in 2004 and West Texas
Intermediate prices averaging $56.60 a
barrel in 2005 compared with $41.50 in 2004. Prices reflected
the effect of strong US and Chinese
demand, geopolitical uncertainty in a
number of producer countries,
disruptions to production as a result
of the hurricanes in the Gulf of
Mexico and lower OPEC spare production
capacity. The benefits of higher oil
and gas prices were partly offset by
lower hydrocarbon production, higher
costs and depreciation.
Earnings in Gas & Power were $1,573
million, 13% lower than in 2004.
Earnings in 2005 included net charges
of $84 million mainly relating to
divestments (InterGen). Earnings in
2004 reflected net gains of $444
million also mainly
related to divestments. Excluding these non-operational
items earnings were 21% higher, benefiting from higher
LNG sales prices and volumes, and more favourable
marketing and trading conditions. LNG volumes were up 5%.
Oil Products earnings increased by 31% compared with 2004
to $9,982 million, benefiting significantly from higher
refining margins, improved operational performance and
increased trading earnings. These results included
divestment gains of $427 million.
Earnings in Chemicals were $991 million, after a loss from
discontinued operations of $307 million from an impairment
and charges associated with the divestment of the
polyolefins joint venture Basell. In 2004, earnings of
$1,148 million included a loss from discontinued operations
of $199 million from an impairment of the investment in
Basell of $353 million. The reduction in earnings from
continuing operations relative to 2004 was attributable
mainly to higher costs, partly offset by higher margins.
The results discussed above include a loss from
discontinued operations of $307 million (2004: $234
million) including impairment charges as described in
Note 10 to the Consolidated Financial Statements.
Capital investment
Capital investmenta in 2005 was $17.4 billion
compared with $15.3 billion in 2004. Gross proceeds from
divestments were $6.6 billion and cash flow from operating
activities was $30.1 billion, an increase of 13% from 2004.
At the end of 2005, the total debt ratiob was
11.7% compared with 13.8% in 2004. Cash and cash
equivalents were $11.7 billion compared with $9.2 billion
in 2004.
a |
|
Capital investment is capital expenditure, exploration expense and new investments in equity
accounted investments. |
b |
|
The total debt ratio is defined as short-term plus long-term debt as a percentage of capital employed.
Capital employed is Group total assets minus total liabilities before deduction of minority interests, plus
short-term and long-term debt. |
Research and development (R&D)
Group R&D programmes are carried out through a worldwide
network of laboratories, with major efforts concentrated in
the Netherlands, the UK and the US. Other laboratories are
located in Belgium, Canada, France, Germany, Japan and
Singapore. Group companies R&D expenses (including
depreciation) were $588 million in 2005 (2004: $553
million, 2003: $584 million, 2002: $472 million and 2001:
$387 million.)
International Financial Reporting Standards (IFRS)
With effect from the first quarter of 2005, the Group has
released its quarterly (unaudited) results under IFRS,
including comparative data for 2004, together with
reconciliations to opening balance at January 1, 2004 and
to 2004 data previously published in accordance with
accounting principles generally accepted in the United
States (US GAAP). The Consolidated Financial Statements
have been prepared in accordance with the applicable laws
in England and Wales and with IFRS as adopted by the
European Union. As applied to Royal Dutch Shell, there are
no material differences with IFRS as issued by the
International Accounting Standards Board.
See Note 2 to the Consolidated Financial Statements
for disclosure on elections made on transition to
IFRS.
|
|
|
Operating and Financial Review
Summary of Group results |
|
21 |
EXPLORATION & PRODUCTION
Exploration & Production is one
part of the upstream organisation. Together with Gas & Power, upstream
explores for and extracts oil and gas and builds and operates the
infrastructure necessary to deliver these hydrocarbons to market.
|
Contents |
|
|
|
Earnings |
|
|
|
Prices |
|
|
|
Capital investment and portfolio actions |
|
|
|
Exploration |
|
|
|
Production |
|
|
|
Outlook and strategy |
|
|
|
Business and property |
|
|
|
Research and development |
MALCOLM BRINDED, EXECUTIVE DIRECTOR
|
In 2005, we met our production target and delivered record cash flows. We are well
positioned for future growth, building on our strong project portfolio and exploration
successes. |
Overview
Our Exploration & Production
business searches for and recovers
oil and natural gas around the
world and is active in 38
countries. Most of these activities
are carried out with joint venture
partners.
Highlights
> |
|
Achieved production target of 3.5 million boe/d despite hurricanes and production sharing contract (PSC) effects |
|
> |
|
Increased earnings by 45% from 2004 |
|
> |
|
Added 160 thousand square kilometres of exploration acreage including seven new basin entries |
Earnings
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
|
2005 |
|
|
2004 |
|
|
Revenue (including intersegment sales) |
|
|
45,674 |
|
|
|
37,295 |
|
Purchases (including change in inventories) |
|
|
(1,673 |
) |
|
|
(2,669 |
) |
Exploration |
|
|
(1,286 |
) |
|
|
(1,809 |
) |
Depreciation |
|
|
(8,152 |
) |
|
|
(7,015 |
) |
Operating expenses |
|
|
(9,295 |
) |
|
|
(8,467 |
) |
Share of profit of equity accounted investments |
|
|
4,112 |
|
|
|
2,463 |
|
Other income/(expense) |
|
|
(272 |
) |
|
|
(95 |
) |
Taxation |
|
|
(14,870 |
) |
|
|
(9,880 |
) |
|
Segment earnings from continuing operations |
|
|
14,238 |
|
|
|
9,823 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
Segment earnings |
|
|
14,238 |
|
|
|
9,823 |
|
|
2005 compared to 2004
Earnings
Segment earnings in 2005 were $14,238
million, 45% higher than in 2004 due to
the benefits of higher oil and gas
prices, which were partly offset by
lower hydrocarbon production and higher
costs.
The higher costs in 2005 reflected
increased market rates and commodity
prices, the build up of new production
in Nigeria, Malaysia, Russia, the UK
and the US, the development of projects
and the impact of hurricanes in the US.
Earnings included a net gain of $1,727
million compared with a net charge of
$4 million a year ago. The net gain in
2005 comprised divestment gains of
$2,027 million, largely from the
Netherlands, Norway, the UK and
Australia, offset by a loss of $492
million related to the mark-to-market
valuation of certain UK gas contracts.
The $4 million charge in 2004 comprised
divestment gains of $699 million and
impairment reversals of $469 million,
offset by mark-to-market losses,
impairments, elimination of unrealised
profit in stock and tax items.
Prices
Oil prices increased significantly in
2005 with Brent and West Texas
Intermediate crude prices 43% and 36%
higher than in 2004, respectively.
The Groups overall realised oil and
natural gas liquids (NGL) prices were
$50.36 a barrel, up from $35.61 in
2004. In the US, realised oil and NGL
prices averaged $48.94 a barrel, compared with $36.15 a
year earlier and outside the US,
realised prices averaged $50.56 a
barrel compared with $35.53 in 2004.
Realised prices differ from published
crude oil prices because the quality,
and therefore price, of actual crude
oil produced differs from the quoted
blends. In general, the Group produces
crude oil of a lower quality than the
quoted blends. The Groups overall
realised gas prices (excluding equity
accounted
investments) in Exploration & Production averaged
$4.77 per thousand standard cubic feet (scf) compared
with $3.59 in 2004.
Capital investment and portfolio actions
Capital investment in 2005 of $10.8 billion (excluding
the contribution of our minority partners in Sakhalin of
$1.3 billion) was 25% higher than 2004 and
included exploration expenditure of $2.1 billion. The
major centres of investment in 2005 included Russia,
Canada, Nigeria and Norway.
Production started from the deepwater Bonga field, which
is 120km off the Nigerian coast. The total investment to
the startup of the field was $3.6 billion. Bonga field is
expected to ramp up production to over 200 thousand
barrels of oil per day in 2006. Shell Nigeria Exploration
& Production Company has a 55% interest in the field, and
operates the field on behalf of the Nigerian National
Petroleum Corporation under a PSC.
Significant progress has been made with the Sakhalin
project. The offshore concrete structures have been towed
into position and by the end of 2005, construction of phase
2 of the project was 60% complete. During the year the
Sakhalin Energy Investment Company announced that phase 2
project investment costs were now estimated at $20 billion.
This represents very substantial cost overruns compared to
earlier estimates. LNG deliveries are expected to start in
2008.
A Memorandum of Understanding was signed with Gazprom
outlining the terms for an asset swap under which Gazprom
could acquire a 25% interest plus 1 share in the Sakhalin
II project and Shell could acquire a 50% interest in the
Zapolyarnoye Neocomian field. The difference in value would
be made up of a settlement of cash and other assets agreed
by both parties.
In April 2005, the participants of the Gorgon LNG and
domestic gas project (SDA, Chevron Australia and
subsidiaries of ExxonMobil Corporation) announced the
integration of their interests in these fields and the
associated gas facilities, with Chevron holding 50% and
Shell and ExxonMobil 25% each. The project has also now
moved into the front-end engineering design (FEED) phase.
The Groups equity interest was increased by 1.85% to
18.52% in the North Caspian Sea PSC, which includes the
Kashagan project in Kazakhstan.
Agreement was reached to further develop the Changbei gas
field in China in a joint venture with PetroChina. The
development is expected to start delivering 1.5 billion
cubic metres of gas a year (53 billion standard cubic feet)
in 2007 and, when operating at full capacity, will produce
3 billion cubic metres of gas a year (106 billion standard
cubic feet (scf)).
A Memorandum of Understanding was signed with Mubadala
Development Company in Abu Dhabi forming a strategic
alliance to seek areas of cooperation focusing initially on
the Middle East and North Africa.
Extended production licences were secured in western
Siberia for the Upper Salym field to 2032 and the West
Salym field to 2034. The original licences had been due to
expire in 2013. In November 2005, commercial production
started at West Salym, the largest of the Salym fields.
Total investment in developing the three Salym fields and
associated infrastructure will be $1.25 billion.
In the US, the Groups 17% interest in the Tahiti field,
deepwater Gulf of Mexico was exchanged for Totals 100%
interest in four producing natural gas fields in South
Texas with current production of 107 million scf per day.
The swap was completed in the first quarter of 2006. The
Group already operates fields close to those acquired.
First gas was delivered from the Shallow Clastics field in
Malaysia which, once fully developed, is expected to
produce 430 million scf per day to the E11 hub integrated
gas project (Group interest 50%). The E11 hub will be
further developed to reach a capacity of two billion scf
per day (100%) from various new and existing fields.
We completed the divestment of the Laminaria and Corallina
fields in Australia, and Schooner and Ketch in the UK. The
sale of our interest in
Gasunies gas transportation assets in the Netherlands was
also completed (Group interest 25%).
Exploration
During 2005, we participated in 93 successful exploratory
wells (including appraisal wells). These included
discoveries in Australia, Brazil, Brunei, Egypt, Malaysia,
the Netherlands, Nigeria, Norway, Oman, the UK and the US.
All discoveries will now be appraised in order to establish
the extent of the reserves they contain.
The Group made significant additions to its overall acreage
position with new exploration licences in Algeria,
Australia, Brazil, Canada, Cameroon, the Faroe Islands,
Kazakhstan, Libya, Malaysia, Norway, Nigeria, the Republic
of Ireland, the UK and the US (Alaska, Onshore and Gulf of
Mexico). In 2005, 145 thousand square kilometres of
additional exploration acreage was added in the above
mentioned countries. Globally, the additional acreage was
160 thousand square kilometres.
|
|
|
Operating and Financial Review Exploration & Production |
|
23 |
Operating and Financial Review Exploration & Production
Production
In 2005, total hydrocarbon production (including oil
sands) was 3,518 thousand barrels of oil equivalent (boe)
per day, in line with our target, despite the impact of
hurricanes in the Gulf of Mexico. This was 7% lower than
in 2004. Excluding the effects of the hurricanes, the end
of a PSC in the Middle East, the impact of higher prices
on our entitlements from PSCs, and divestments, production
was 1% lower than 2004.
Oil production was also specifically affected by field
declines in the US, Norway, the UK, Brazil, Oman and
Nigeria, as well as lower production from fields in the
UK and Nigeria due to operational shutdowns.
Similarly, natural gas production was impacted by field
declines in the US and the UK as well as by lower demand
in the Netherlands.
A number of new fields started production during the year,
including Bonga in Nigeria, the E11 Shallow Clastics field
in Malaysia, West Salym in Russia and Clair in the UK.
There was also increased production over the year from the
Goldeneye Field in the UK, Jintan in Malaysia and Holstein
in the US. These increases, along with production from new
fields, added 131 thousand boe per day of production. Both
oil and gas field declines were offset by additional
production from new fields.
Outlook and strategy
The overall context for the exploration and production
industry is characterised by current high oil prices, high
activity levels, tightness in the supply of oilfield goods
and services, cost escalation and competition for new
opportunities and we expect this to continue in 2006. We
believe that crude prices in the near future will continue
to be influenced by OPEC supply policy, the rate of global
economic expansion, particularly in the US and China, and
the severity of the northern hemisphere winter. We also
believe that growing global energy demand and the increased
upstream investment required to meet that demand means that
the oil price shift to higher levels will continue for at
least the medium term.
Our strategy has four portfolio themes: existing oil; new
material oil; integrated gas and unconventional oil. We
will pursue an exploration programme to add more new
acreage in these areas. We will also invest in organic
growth, open up new positions and make selective
acquisitions, divestments and asset swaps. Within our new
and existing assets, we will focus on operational
excellence and project delivery.
To deliver this strategy, capital investment in Exploration
& Production will be increased to some $13 billion in 2006
(excluding investment by our minority partners in
Sakhalin).
The Group will seek to sustain long-term production from
existing assets and invest in new material oil projects
such as Kashagan in Kazakhstan and offshore Nigeria.
The Group believes that natural gas demand will continue to
grow at a faster rate than oil demand. We will look for
further integrated gas positions, extending our leadership
position in LNG, with opportunities in GTL production such
as Qatar GTL. The Groups significant presence across the
natural gas value chain from exploration to production and
markets enables maximisation of the value from integrated
gas projects such as Sakhalin.
We also intend to build on our existing strength in
unconventional oil technology and the success of the
Athabasca Oil Sands Project in Canada, and are looking to
expanding our presence in this area.
The Group has a good record of developing and applying
technology and we intend to strengthen these capabilities
to maintain our competitiveness in
the future. This will include investing in technology to
recover and process conventional oil and gas as well as
unconventional resources.
Another important focus of our strategy is to reduce costs
through improving management of the supply chain and
standardising processes globally. We are taking action to
ensure improved and consistent project delivery. Having the
skilled professionals in place will be vital in delivering
our strategy and we are increasing our capacity through
redeployment and external recruitment.
The Groups production forecast for 2006 is expected at the
low end of the range of 3.5-3.8 million boe per day. We
expect production to grow and reach between 3.8 and 4.0
million boe per day by 2009. The Groups longer term
production aspiration remains some 4.5-5.0 million boe per
day by 2014.
Community disturbances remain an ongoing risk to our
business in Nigeria. In early 2006 there was an increase in
such incidents targeting our facilities and those of other
oil companies. This situation will be closely monitored
throughout 2006.
Business and property
The Group and its equity accounted investments are involved
in the exploration for and production of crude oil and
natural gas and operate under a broad range of laws and
regulations that change over time. These cover virtually
all aspects of exploration and production activities,
including matters such as land tenure, entitlement to
produced hydrocarbons, production rates, royalties,
pricing, environmental protection, social impact, exports,
taxes and foreign exchange. The conditions of the leases,
licences and contracts under which oil and gas interests
are held vary from country to country. In almost all cases
(outside North America), the legal agreements generally are
granted by or entered into with a government, government
entity or state oil company, and the exploration risk
practically always rests with the oil company. In North
America, these agreements may also be with private parties
who own mineral interests. Of these agreements, the
following are most relevant to Shells interests:
> |
|
Licences (or concessions) which entitle the holder
to explore for hydrocarbons and exploit any
commercial discoveries. Under a licence, the holder
bears the risk of exploration, development and
production activities and of financing these
activities. In principle, the licence holder is
entitled to the totality of production minus any
royalties in kind. The state or state oil company may
sometimes enter as a joint venture partner sharing
the rights and obligations
of the licence but usually without sharing the
exploration risk. In a few cases, the state oil company
or agency has an option to purchase a certain share of
production. The lease agreement, typical in North
America, is generally the same except for treatment of
royalties paid in cash. |
|
> |
|
PSCs entered into with a state or state oil company
oblige the oil company, as contractor, to provide all
the financing and bear the risk of exploration,
development and production activities in exchange for
a share of the production. Usually this share consists
of a fixed or variable part, which is reserved for the
recovery of contractors cost (cost oil); the
remainder is split with the state or state oil company
on a fixed or volume/revenue-dependent basis. In some
cases, the state oil company will participate in the
rights and obligations of the contractor and will
share in the costs of development and production. Such
participation can be across the venture or be on a per
field basis. |
Group companies exploration and production interests,
including acreage holdings and statistics on wells drilled
and drilling, are shown on pages 30 to 32.
Proved reserves
Details of Group companies and the Group share of equity accounted investments estimated net
proved reserves are summarised in the following table and are set out under the heading
Supplementary information Oil and gas (unaudited) on pages 157 to 163. Oil and gas reserves
cannot be measured exactly since estimation of reserves involves subjective judgment. Estimates
remain subject to revision. It should be noted that totals are further influenced by acquisition
and divestment activities. Proved reserves are shown net of any quantities of crude oil or natural
gas that are expected to be taken by others as royalties in kind but do not exclude quantities
related to royalties expected to be paid in cash (except in North America and in other situations
in which the royalty quantities are owned by others) or those related to fixed margin contracts.
Proved reserves include certain quantities of crude oil or natural gas that will be produced under
arrangements which involve Group companies in upstream risks and rewards but do not transfer title
of the product to those companies.
During 2005, a net total of 676 million boe was added to proved developed and undeveloped reserves
by Group companies, consisting of 320 million barrels of oil and natural gas liquids and 2,066
thousand million scf of natural gas (in each case before taking account of production). These net
additions include 655 million boe from organic activities (which excludes purchases and sales of
minerals in place). The net addition to proved developed and undeveloped reserves consisted of
reductions of 170 million boe from revisions and additions of 6 million boe from improved recovery
and 819 million boe from extensions and discoveries, and 21 million boe from acquisitions and
divestments. There was a net addition of 575 million boe to proved developed reserves and a net
addition of 101 million boe to proved undeveloped reserves (before taking account of production).
During the same period, the Group share of proved developed and undeveloped reserve additions by
equity accounted investments was 160 million boe, consisting of 157 million barrels of oil and
natural gas liquids and 15 thousand million scf of natural gas (in each case before taking account
of production). The Group share of net additions to proved developed and undeveloped reserves by
equity accounted investments consisted of additions of 158 million boe from revisions, a reduction
of 3 million boe from acquisitions and divestments and an increase of 5 million boe from extensions
and discoveries. There was a net addition of 280 million boe to proved developed reserves and a net
reduction of 120 million boe to proved undeveloped reserves (before taking account of production).
The most significant 2005 additions in proved reserves arose from new sales agreements and
modifications to development plans covering gas volumes to be produced from the Sakhalin
development in Russia and the recognition of volumes associated with the further development of the
Kashagan field in Kazakhstan. Reserves from both these projects are expected to be produced later
in the decade. The 2005 revisions reflect changes brought about by our
reserves review procedures, including additional well and reservoir
performance data.
At December 31, 2005, after taking account of Group companies 2005 net additions to proved
developed and undeveloped reserves and production, total proved reserves for Group companies was 4%
lower than at December 31, 2004. At the same date, after taking into account the Groups share of
equity accounted investments net additions and production, the Groups share of total proved
developed and undeveloped reserves of equity accounted investments was 3% lower than at December
31, 2004.
Proved developed and undeveloped reservesa (at December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
million barrels of oil equivalentb |
|
|
|
|
2005 |
|
|
2004 |
|
|
2003c |
|
|
Group companies |
|
|
7,761 |
|
|
|
8,064 |
|
|
|
11,625 |
|
Group share of equity accounted investments |
|
|
3,705 |
|
|
|
3,818 |
|
|
|
1,355 |
|
|
|
|
|
a |
|
Petroleum reserves from operations that do not qualify as oil and gas producing activities,
such as our Athabasca Oil Sands Project, are not included. |
b |
|
For this purpose natural gas has been converted to crude oil equivalent using a factor of 5,800
standard cubic feet per barrel. |
c |
|
In connection with the adoption of IFRS as of January 1, 2004, an entity in Europe that had
previously been accounted for as a Group company on a proportionate basis, has instead been
accounted for as an equity accounted investment. As a result of this change, some 20 million
barrels of oil and 13.2 trillion standard cubic feet of gas proved reserves that, as of December
31, 2003, are shown for Group companies are, as of January 1, 2004, shown as part of the Group
share of equity accounted investments. |
|
|
|
Operating and Financial Review Exploration & Production |
|
25 |
Operating and Financial Review Exploration & Production
Proved developed and undeveloped reservesa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
million barrels of oil equivalente |
|
|
2005 |
|
|
|
|
Eastern Hemisphere |
|
|
Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia |
|
|
Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
Africab |
|
|
Pacificc |
|
|
Russia, CISd |
|
|
USA |
|
|
Other |
|
|
Total |
|
|
Proved developed and
undeveloped reservesa |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1 |
|
|
1,981 |
|
|
|
1,582 |
|
|
|
1,418 |
|
|
|
1,726 |
|
|
|
945 |
|
|
|
412 |
|
|
|
8,064 |
|
At December 31 |
|
|
1,848 |
|
|
|
1,257 |
|
|
|
1,169 |
|
|
|
2,213 |
|
|
|
878 |
|
|
|
396 |
|
|
|
7,761 |
|
Group share of equity accounted investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1 |
|
|
2,175 |
|
|
|
|
|
|
|
791 |
|
|
|
457 |
|
|
|
395 |
|
|
|
|
|
|
|
3,818 |
|
At December 31 |
|
|
2,078 |
|
|
|
|
|
|
|
709 |
|
|
|
490 |
|
|
|
428 |
|
|
|
|
|
|
|
3,705 |
|
|
Proved developed reservesa |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1 |
|
|
1,302 |
|
|
|
775 |
|
|
|
600 |
|
|
|
504 |
|
|
|
565 |
|
|
|
301 |
|
|
|
4,047 |
|
At December 31 |
|
|
1,270 |
|
|
|
667 |
|
|
|
496 |
|
|
|
461 |
|
|
|
507 |
|
|
|
242 |
|
|
|
3,643 |
|
Group share of equity accounted investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1 |
|
|
1,693 |
|
|
|
|
|
|
|
464 |
|
|
|
360 |
|
|
|
352 |
|
|
|
|
|
|
|
2,869 |
|
At December 31 |
|
|
1,755 |
|
|
|
|
|
|
|
412 |
|
|
|
360 |
|
|
|
348 |
|
|
|
|
|
|
|
2,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
million barrels |
|
|
Oil sandsa |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
615 |
|
|
|
615 |
|
At December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
746 |
|
|
|
746 |
|
|
|
|
|
a |
|
Petroleum reserves from operations that do not qualify as oil and gas producing activities, such as our Athabasca Oil Sands Project, are not included in oil and gas reserves. |
b |
|
Excludes Egypt. |
c |
|
Excludes Sakhalin. |
d |
|
Middle East and former Soviet Union (Commonwealth of Independent States), which includes Caspian region, Egypt and Sakhalin. |
e |
|
For this purpose natural gas has been converted to crude oil equivalent using a factor of 5,800 standard cubic feet per barrel. |
Capital expenditure and exploration expense of Group companies by geographical areaa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
|
2005 |
|
|
2004 |
|
|
2003b
f |
|
|
Europeb |
|
|
1,991 |
|
|
|
1,625 |
|
|
|
2,185 |
|
Africac |
|
|
1,937 |
|
|
|
1,982 |
|
|
|
1,861 |
|
Asia Pacificd |
|
|
1,070 |
|
|
|
536 |
|
|
|
579 |
|
Middle East, Russia, CISe |
|
|
3,841 |
|
|
|
3,199 |
|
|
|
2,155 |
|
USA |
|
|
1,486 |
|
|
|
1,282 |
|
|
|
1,652 |
|
Other Western Hemisphere |
|
|
1,074 |
|
|
|
588 |
|
|
|
686 |
|
|
|
|
|
11,399 |
|
|
|
9,212 |
|
|
|
9,118 |
|
|
|
|
|
a |
|
Capital expenditure is the cost of acquiring property, plant and equipment, and following
the successful efforts method in accounting for exploration costs includes exploration drilling
costs capitalised pending determination of commercial reserves. In the case of material capital
projects, the related interest cost is included until these are substantially complete. The amounts
shown above exclude capital expenditure relating to the Athabasca Oil Sands Project. |
|
|
Exploration expense is the cost of geological and geophysical surveys and of other exploratory
work charged to income as incurred. Exploration expense excludes depreciation and release of
currency translation differences. |
b |
|
In connection with the adoption of IFRS as of January 1, 2004, an entity in Europe that had
previously been accounted for as a Group company on a proportionate basis, has instead been
accounted for as an equity accounted investment. |
c |
|
Excludes Egypt. |
d |
|
Excludes Sakhalin. |
e |
|
Middle East and former Soviet Union (Commonwealth of Independent States), which includes Caspian Region, Egypt and Sakhalin. |
f |
|
Figures for 2003 are presented on a US GAAP basis. |
Average production costs of Group companies by geographical areaa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$/barrel of oil equivalentf |
|
|
|
|
2005 |
|
|
2004 |
|
|
2003b
g |
|
|
Europec |
|
|
6.03 |
|
|
|
4.80 |
|
|
|
3.24 |
|
Africad |
|
|
4.13 |
|
|
|
3.23 |
|
|
|
2.69 |
|
Asia Pacifice |
|
|
2.89 |
|
|
|
2.92 |
|
|
|
2.05 |
|
Middle East, Russia, CISf |
|
|
6.39 |
|
|
|
3.21 |
|
|
|
3.83 |
|
USA |
|
|
6.57 |
|
|
|
4.19 |
|
|
|
2.93 |
|
Other Western Hemisphere |
|
|
8.45 |
|
|
|
6.38 |
|
|
|
5.04 |
|
|
Total Group |
|
|
5.54 |
|
|
|
4.02 |
|
|
|
3.19 |
|
|
|
|
|
a |
|
Excludes oil sands. |
b |
|
Natural gas has been converted to crude oil equivalent using a factor of 5,800 standard cubic feet per barrel. |
c |
|
Excludes Egypt. |
d |
|
Excludes Sakhalin. |
e |
|
Middle East and former Soviet Union (Commonwealth of Independent States), which includes Caspian Region, Egypt and Sakhalin. |
f |
|
In connection with the adoption of IFRS as of January 1, 2004, an entity in Europe that had
previously been accounted for as a Group company on a proportionate basis, has instead been
accounted for as an equity accounted investment. |
g |
|
Figures for 2003 are presented on a US GAAP basis. |
|
|
|
Operating and Financial Review Exploration & Production |
|
27 |
Operating and Financial Review Exploration & Production
Crude oil and natural gas liquids productiona
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousand barrels/day |
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
UK |
|
|
250 |
|
|
|
275 |
|
|
|
354 |
|
Norway |
|
|
107 |
|
|
|
129 |
|
|
|
143 |
|
Denmark |
|
|
143 |
|
|
|
142 |
|
|
|
141 |
|
Italy |
|
|
30 |
|
|
|
21 |
|
|
|
19 |
|
Netherlands |
|
|
7 |
|
|
|
8 |
|
|
|
8 |
|
Germany |
|
|
4 |
|
|
|
5 |
|
|
|
5 |
|
Others |
|
|
|
b |
|
|
|
b |
|
|
1 |
|
Total Europe |
|
|
541 |
|
|
|
580 |
|
|
|
671 |
|
|
Other Eastern Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
Africa |
|
|
|
|
|
|
|
|
|
|
|
|
Nigeria |
|
|
324 |
|
|
|
349 |
|
|
|
314 |
|
Gabon |
|
|
36 |
|
|
|
35 |
|
|
|
35 |
|
Cameroon |
|
|
13 |
|
|
|
15 |
|
|
|
16 |
|
Others |
|
|
|
|
|
|
|
|
|
|
|
|
Total Africa |
|
|
373 |
|
|
|
399 |
|
|
|
365 |
|
|
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
Brunei |
|
|
95 |
|
|
|
98 |
|
|
|
103 |
|
Australia |
|
|
53 |
|
|
|
60 |
|
|
|
73 |
|
Malaysia |
|
|
41 |
|
|
|
47 |
|
|
|
51 |
|
China |
|
|
20 |
|
|
|
20 |
|
|
|
22 |
|
New Zealand |
|
|
15 |
|
|
|
15 |
|
|
|
19 |
|
Thailand |
|
|
|
|
|
|
|
|
|
|
14 |
|
Others |
|
|
4 |
|
|
|
3 |
|
|
|
3 |
|
Total Asia Pacific |
|
|
228 |
|
|
|
243 |
|
|
|
285 |
|
|
Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
Oman |
|
|
214 |
|
|
|
246 |
|
|
|
269 |
|
Abu Dhabi |
|
|
134 |
|
|
|
133 |
|
|
|
126 |
|
Syria |
|
|
36 |
|
|
|
35 |
|
|
|
44 |
|
Russia |
|
|
35 |
|
|
|
32 |
|
|
|
30 |
|
Egypt |
|
|
14 |
|
|
|
10 |
|
|
|
11 |
|
Others |
|
|
10 |
|
|
|
15 |
|
|
|
17 |
|
Total Middle East |
|
|
443 |
|
|
|
471 |
|
|
|
497 |
|
|
Total Other Eastern Hemisphere |
|
|
1,044 |
|
|
|
1,113 |
|
|
|
1,147 |
|
|
USA |
|
|
333 |
|
|
|
375 |
|
|
|
414 |
|
|
Other Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
39 |
|
|
|
40 |
|
|
|
44 |
|
Venezuela |
|
|
14 |
|
|
|
22 |
|
|
|
46 |
|
Brazil |
|
|
26 |
|
|
|
43 |
|
|
|
11 |
|
Others |
|
|
1 |
|
|
|
|
b |
|
|
|
b |
Total Other Western Hemisphere |
|
|
80 |
|
|
|
105 |
|
|
|
101 |
|
|
Grand total |
|
|
1,998 |
|
|
|
2,173 |
|
|
|
2,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
million tonnes a year |
|
|
Metric equivalent |
|
|
100 |
|
|
|
109 |
|
|
|
117 |
|
|
|
|
|
a |
|
Of Group companies, plus Group share of equity accounted investments, and including natural
gas liquids (Group share of equity accounted investments is assumed to be equivalent to Group
interest). Oil sands and royalty purchases are excluded. In those countries where PSCs operate, the
figures shown represent the entitlements of the Group companies concerned under those contracts.
|
b |
|
Less than one thousand barrels daily. |
Natural gas production available for salea
|
|
|
|
|
|
|
|
|
|
|
|
|
|
million standard cubic feet/day |
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
Netherlands |
|
|
1,562 |
|
|
|
1,667 |
|
|
|
1,527 |
|
UK |
|
|
925 |
|
|
|
984 |
|
|
|
1,002 |
|
Germany |
|
|
428 |
|
|
|
411 |
|
|
|
437 |
|
Denmark |
|
|
410 |
|
|
|
383 |
|
|
|
302 |
|
Norway |
|
|
298 |
|
|
|
260 |
|
|
|
287 |
|
Others |
|
|
36 |
|
|
|
34 |
|
|
|
32 |
|
Total Europe |
|
|
3,659 |
|
|
|
3,739 |
|
|
|
3,587 |
|
|
Other Eastern Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
Africa |
|
|
|
|
|
|
|
|
|
|
|
|
Nigeria |
|
|
377 |
|
|
|
375 |
|
|
|
352 |
|
Total Africa |
|
|
377 |
|
|
|
375 |
|
|
|
352 |
|
|
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
Malaysia |
|
|
858 |
|
|
|
739 |
|
|
|
706 |
|
Brunei |
|
|
544 |
|
|
|
554 |
|
|
|
549 |
|
Australia |
|
|
525 |
|
|
|
436 |
|
|
|
403 |
|
New Zealand |
|
|
234 |
|
|
|
258 |
|
|
|
288 |
|
Others |
|
|
164 |
|
|
|
145 |
|
|
|
190 |
|
Total Asia Pacific |
|
|
2,325 |
|
|
|
2,132 |
|
|
|
2,136 |
|
|
Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
Oman |
|
|
|
|
|
|
471 |
|
|
|
468 |
|
Egypt |
|
|
238 |
|
|
|
211 |
|
|
|
228 |
|
Syria |
|
|
15 |
|
|
|
9 |
|
|
|
11 |
|
Total Middle East |
|
|
253 |
|
|
|
691 |
|
|
|
707 |
|
|
Total Other Eastern Hemisphere |
|
|
2,955 |
|
|
|
3,198 |
|
|
|
3,195 |
|
|
USA |
|
|
1,150 |
|
|
|
1,332 |
|
|
|
1,527 |
|
|
Other Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
413 |
|
|
|
449 |
|
|
|
466 |
|
Others |
|
|
86 |
|
|
|
90 |
|
|
|
74 |
|
Total Other Western Hemisphere |
|
|
499 |
|
|
|
539 |
|
|
|
540 |
|
|
Grand total |
|
|
8,263 |
|
|
|
8,808 |
|
|
|
8,849 |
|
|
|
|
|
a |
|
By country of origin from gas produced by Group and equity accounted investments (Group
share). In those countries where PSCs operate, the figures shown represent the entitlements of the
Group companies concerned under those contracts. |
|
|
|
Operating and Financial Review Exploration & Production |
|
29 |
Operating and Financial Review Exploration & Production
Location of activitiesa b c (at December 31, 2005)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development and/ |
|
|
|
|
|
|
|
Exploration |
|
|
or production |
|
|
Shell Operatord |
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austria |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denmark |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ireland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Italy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norway |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Algeria |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Angola |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cameroon |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gabon |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libya |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morocco |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nigeria |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brunei |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Malaysia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pakistan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philippines |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle East, Russia, CIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAE (Abu Dhabi) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Azerbaijan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Egypt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iran |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kazakhstan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oman |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qatar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saudi Arabia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syria |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentina |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Venezuela |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a |
|
Including equity accounted investments. |
b |
|
Where an equity accounted investment has properties outside its base country, those properties are not shown in this table. |
c |
|
This table shows different geographical categories compared to the map on page 23. |
d |
|
In several countries where Shell Operator is indicated, a Group company is operator of some but not all exploration and/or production ventures. |
Oil and gas acreage at year enda b c d (at December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousand acres |
|
|
thousand acres |
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
Developed |
|
|
Undeveloped |
|
|
Developed |
|
|
Undeveloped |
|
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Europe |
|
|
9,852 |
|
|
|
3,110 |
|
|
|
14,507 |
|
|
|
4,415 |
|
|
|
8,449 |
|
|
|
3,200 |
|
|
|
14,024 |
|
|
|
4,904 |
|
Africae |
|
|
7,175 |
|
|
|
2,382 |
|
|
|
27,206 |
|
|
|
14,806 |
|
|
|
6,597 |
|
|
|
2,058 |
|
|
|
15,584 |
|
|
|
8,398 |
|
Asia Pacificf |
|
|
7,777 |
|
|
|
3,589 |
|
|
|
129,149 |
|
|
|
36,279 |
|
|
|
7,094 |
|
|
|
3,283 |
|
|
|
106,326 |
|
|
|
29,388 |
|
Middle East, Russia, CISg |
|
|
32,064 |
|
|
|
10,284 |
|
|
|
64,956 |
|
|
|
29,995 |
|
|
|
34,753 |
|
|
|
11,152 |
|
|
|
63,469 |
|
|
|
29,882 |
|
USA |
|
|
1,250 |
|
|
|
563 |
|
|
|
4,359 |
|
|
|
3,069 |
|
|
|
961 |
|
|
|
531 |
|
|
|
3,998 |
|
|
|
2,864 |
|
Americas, Other |
|
|
872 |
|
|
|
551 |
|
|
|
30,097 |
|
|
|
20,314 |
|
|
|
855 |
|
|
|
529 |
|
|
|
27,236 |
|
|
|
20,421 |
|
|
|
|
|
58,990 |
|
|
|
20,479 |
|
|
|
270,274 |
|
|
|
108,878 |
|
|
|
58,709 |
|
|
|
20,753 |
|
|
|
230,637 |
|
|
|
95,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousand acres |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed |
|
|
Undeveloped |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,172 |
|
|
|
3,204 |
|
|
|
15,977 |
|
|
|
5,307 |
|
Africae |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,956 |
|
|
|
2,193 |
|
|
|
18,595 |
|
|
|
10,253 |
|
Asia Pacificf |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,793 |
|
|
|
1,638 |
|
|
|
113,978 |
|
|
|
33,357 |
|
Middle East, Russia, CISg |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,729 |
|
|
|
11,062 |
|
|
|
65,106 |
|
|
|
30,079 |
|
USA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,512 |
|
|
|
694 |
|
|
|
4,040 |
|
|
|
2,802 |
|
Americas, Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
853 |
|
|
|
529 |
|
|
|
28,094 |
|
|
|
19,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,015 |
|
|
|
19,320 |
|
|
|
245,790 |
|
|
|
101,633 |
|
|
Number of productive wellsa b (at December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
Oil |
|
|
Gas |
|
|
Oil |
|
|
Gas |
|
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Europe |
|
|
1,762 |
|
|
|
491 |
|
|
|
1,355 |
|
|
|
448 |
|
|
|
1,786 |
|
|
|
478 |
|
|
|
1,445 |
|
|
|
491 |
|
Africae |
|
|
1,234 |
|
|
|
413 |
|
|
|
36 |
|
|
|
12 |
|
|
|
1,215 |
|
|
|
396 |
|
|
|
36 |
|
|
|
12 |
|
Asia Pacificf |
|
|
1,080 |
|
|
|
483 |
|
|
|
304 |
|
|
|
121 |
|
|
|
1,191 |
|
|
|
551 |
|
|
|
237 |
|
|
|
90 |
|
Middle East, Russia, CISg |
|
|
4,128 |
|
|
|
1,279 |
|
|
|
38 |
|
|
|
38 |
|
|
|
3,795 |
|
|
|
1,198 |
|
|
|
40 |
|
|
|
38 |
|
USA |
|
|
16,159 |
|
|
|
8,270 |
|
|
|
873 |
|
|
|
636 |
|
|
|
16,131 |
|
|
|
8,163 |
|
|
|
719 |
|
|
|
520 |
|
Americas, Other |
|
|
122 |
|
|
|
117 |
|
|
|
351 |
|
|
|
284 |
|
|
|
117 |
|
|
|
112 |
|
|
|
329 |
|
|
|
270 |
|
|
|
|
|
24,485 |
|
|
|
11,053 |
|
|
|
2,957 |
|
|
|
1,539 |
|
|
|
24,235 |
|
|
|
10,898 |
|
|
|
2,806 |
|
|
|
1,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
|
Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,799 |
|
|
|
468 |
|
|
|
1,432 |
|
|
|
485 |
|
Africae |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,380 |
|
|
|
414 |
|
|
|
43 |
|
|
|
14 |
|
Asia Pacificf |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,313 |
|
|
|
726 |
|
|
|
247 |
|
|
|
99 |
|
Middle East, Russia, CISg |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,673 |
|
|
|
1,145 |
|
|
|
203 |
|
|
|
129 |
|
USA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,891 |
|
|
|
7,998 |
|
|
|
697 |
|
|
|
486 |
|
Americas, Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116 |
|
|
|
111 |
|
|
|
322 |
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,172 |
|
|
|
10,862 |
|
|
|
2,944 |
|
|
|
1,478 |
|
|
|
|
|
a |
|
Including equity accounted investments. |
b |
|
The term gross relates to the total activity in which Group and equity accounted
investments have an interest, and the term net relates to the sum of the fractional interests
owned by Group companies plus the Group share of equity accounted investments fractional
interests. |
c |
|
One thousand acres equals approximately four square kilometres. |
d |
|
Excludes oil sands. |
e |
|
Excludes Egypt. |
f |
|
Excludes Sakhalin. |
g |
|
Middle East and former Soviet Union (Commonwealth of Independent States), which includes Caspian region, Egypt and Sakhalin. |
|
|
|
Operating and Financial Review Exploration & Production |
|
31 |
Operating and Financial Review Exploration & Production
Number of net productive wells and dry holes drilleda
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
Productive |
|
|
Dry |
|
|
Productive |
|
|
Dry |
|
|
Productive |
|
|
Dry |
|
|
Exploratory |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
5 |
|
|
|
3 |
|
|
|
6 |
|
|
|
2 |
|
|
|
6 |
|
|
|
3 |
|
Africab |
|
|
9 |
|
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
|
|
5 |
|
|
|
|
|
Asia Pacificc |
|
|
6 |
|
|
|
3 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
7 |
|
Middle East, Russia, CISd |
|
|
5 |
|
|
|
3 |
|
|
|
7 |
|
|
|
2 |
|
|
|
7 |
|
|
|
4 |
|
USA |
|
|
9 |
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
|
|
10 |
|
|
|
|
|
Americas, Other |
|
|
3 |
|
|
|
4 |
|
|
|
1 |
|
|
|
2 |
|
|
|
2 |
|
|
|
5 |
|
|
|
|
|
37 |
|
|
|
17 |
|
|
|
24 |
|
|
|
15 |
|
|
|
35 |
|
|
|
19 |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
25 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
19 |
|
|
|
1 |
|
Africab |
|
|
13 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
20 |
|
|
|
1 |
|
Asia Pacificc |
|
|
21 |
|
|
|
1 |
|
|
|
22 |
|
|
|
1 |
|
|
|
41 |
|
|
|
2 |
|
Middle East, Russia, CISd |
|
|
173 |
|
|
|
4 |
|
|
|
150 |
|
|
|
6 |
|
|
|
149 |
|
|
|
4 |
|
USA |
|
|
446 |
|
|
|
|
|
|
|
504 |
|
|
|
1 |
|
|
|
465 |
|
|
|
|
|
Americas, Other |
|
|
26 |
|
|
|
|
|
|
|
10 |
|
|
|
1 |
|
|
|
8 |
|
|
|
|
|
|
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704 |
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5 |
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724 |
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9 |
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702 |
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8 |
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a |
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Including equity accounted investments. The term net relates to the sum of the fractional
interests (on a well basis) owned by Group companies plus the Group share of equity accounted
investments. |
b |
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Excludes Egypt. |
c |
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Excludes Sakhalin. |
d |
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Middle East and former Soviet Union (Commonwealth of Independent States), which includes Caspian region, Egypt and Sakhalin. |
Major oil and gas interests
Major oil and gas interests as well as recent
developments in countries where Group or equity
accounted investments have exploration and production
interests are summarised, by country, on the following
pages. Certain aspects of the legislation, regulations
or agreements affecting the activities of the
significant companies are also included.
Europe
Austria Group companies hold 25% equity in
Rohol-Aufsuchungs AG (RAG), an integrated upstream and
downstream business headquartered in Vienna. RAG holds
concessions in Austria and Germany (Bavaria) and produces
and sells gas (predominantly), and some oil, primarily for
the domestic Austrian market. RAG also owns and operates gas
storage facilities in Austria.
Denmark A Group company has a 46% non-operator interest in a
producing concession until 2012. The interest will be
reduced to 36.8% thereafter, when the state will take a 20%
interest in the concession. The licence was extended until
2042 in late 2003. Further, it holds interests in two
(non-operated) exploration licences. Three other licences
were relinquished in 2004. Shell has non-operated
exploration interests in three licences in the Faroes (crown
territory of Denmark with autonomous status), Shell EP
Offshore Ventures Ltd (Licence 006, Group equity interest of
12.5%) and Shell U.K. Ltd (Licence 007, Group equity
interest of 25% and Licence 009, Group equity interest of
20%). During 2005 a number of commercial deals have been
successfully concluded in order to rationalise the acreage
position, resulting in two wells planned for drilling in
2006 and 2007 on material prospects. There are no
development assets in the Faroes.
Germany A Group company holds a 50% interest in the
Brigitta & Elwerath Betriebsfuehrungsgesellschaft (BEB)
joint venture (50:50). Exploration and production licences
are awarded under the terms of Germanys Federal Mining
Law. Most licences are awarded to more than one company and
are governed by joint ventures. Operatorship is normally
awarded to the party holding the highest equity share. BEB
is involved in some 30 joint ventures with varying
interests and is the main operator in Germany. Further
German interests include the 43% Group share in the
outside-operated Deutsche Offshore Konsortium. Royalties
are determined by the individual German states on a yearly
basis and are different for the production of natural gas
and oil. Royalty incentives are given for the development
of tight gas reservoirs. Activities include production
activities, gas storage, the operation of two large
sour-gas treatment plants, numerous compression stations
and some 3,000km of pipelines.
Ireland Shell E&P Ireland Ltd. (Group interest 100%) is the
operator for the Corrib Gas Project (Group equity 45%),
currently under development, and has further exploration
interests in five licences in total offshore Ireland, of
which four are operated and one is non-operated, two of
these licences in the Rockall Basin were awarded in early
2005. In October 2004, planning permission was granted for
a proposed gas terminal at Bellanboy Bridge, County Mayo to
bring Corrib gas ashore.
Italy Shell Italia E&P S.p.A. (Group interest 100%) has
assets onshore in southern Italy and various interests in
producing assets (Monte Alpi, Monte Enoc and Cerro
Falcone, which are operated by Eni on behalf of the JV
partners), development projects (including Tempa Rossa,
managed by Total) and nearby exploration prospects.
The Netherlands The Group share of natural gas and crude
oil in the Netherlands is produced by Nederlandse
Aardolie Maatschappij B.V. (NAM, Group interest 50%) in a
50:50 joint venture. An important part of NAMs gas
production is from its onshore Groningen gas field in
which the
Dutch state has a 40% financial interest (through the
wholly state-owned company EBN). NAMs production of oil
and gas is covered by production licences. Government
participation in development and production does not exist
in some older onshore production licences and one offshore
production licence, but is otherwise 40% or 50%, depending
mainly on the legislation applicable when the licences
were granted.
Norway A/S Norske Shell holds an interest in a number of
production licences, seven of which encompass producing oil
and gas fields. A/S Norske Shell also holds an interest in
several potential development assets, including Ormen Lange
and Skarv. The development decision for the Ormen Lange gas
development discovered in 1997 was taken by the joint
venture in 2003, involving an onshore plant/terminal and
pipelines for transportation to the markets in the UK and
continental Europe. During 2004, Shell divested its
interest in the producing Murchinson Field (Norwegian
sector). Shell International Pipelines Inc. (Group interest
100%) holds interests in gas transportation and processing
systems, pipelines and terminals. The licence period for
these assets expires in the period from 2010 to 2020.
UK Shell U.K. Limited (Group interest 100%) is one of the
largest integrated oil
and gas exploration and production companies operating in
the UK (by production volumes). Shell operates most of its
interests in the UK Continental Shelf on behalf of a 50:50
joint venture. Most of Shell UKs production comes from the
North Sea. Natural gas comes from associated gas in mixed
oil and gas fields in the northern sector of the North Sea
and gas fields in the southern sector of the North Sea.
Crude oil comes from the central and northern fields, which
include Brent, Nelson and Cormorant. Fallow exploration
acreage has become a significant issue for Shell throughout
the UK sector of the North Sea. Exploration blocks that are
not subject to significant investment, e.g. drilling of
exploration and appraisal wells after three years, are
deemed fallow acreage. The situation is similar with
fallow discoveries that for various reasons have not been
developed to date. The company is currently investigating
ways of progressing undeveloped discoveries in light of the
high oil price regime and capacity availability in existing
infrastructure. On the Atlantic Margin, Shell UK also has
interests as a non-operating partner principally in the
West of Shetlands fields (Clair/Schiehallion/Loyal).
Licences issued before August 20, 1976 were valid for an
initial period of six years. Following successful
exploration, these were extended for a further 40 years in
respect of half the original licence area. The exploration
activity on the Atlantic Margin is in growth mode for Shell
and, in the most recent licence rounds, Shell has been
awarded acreage as operator and non-operator. Significant
investment in the form of drilling and seismic acquisition
is anticipated. Effective January 1, 2006, the corporate
tax rate increased from 40% to 50%. Production under older
licences is also subject to Petroleum Revenue Tax. The
overall effective tax rate for the Group changes annually,
falling over time as the relative share of production from
older licences declines.
Africa
Algeria Shell Erdgas Beteiligungsgesellschaft mbH (SEB,
Group interest 100%) acquired interests in two onshore
permits, in the areas of Reggane Djebel Hirane and Zerafa,
pursuant to contracts signed in April 2005. The contracts
were gazetted and became effective September 2005, both
licences are operated by the company. SEB is in the process
of assigning its interest in each contract to two
wholly-owned subsidiaries namely Shell Algeria Reggane GmbH
and Shell Algeria Zerafa GmbH.
In February 2006, Shell and Sonatrach, the Algerian
national energy company, signed a Memorandum of
Understanding covering multiple
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Operating and Financial Review Exploration & Production
business initiatives, both in Algeria and
internationally. Areas of cooperation will include
investigating the commercial and technical feasibility for
joint developments in Algeria, including upstream
development projects, LNG, products and marketing, and
investigating possible asset swap transactions for upstream
exploration, development and appraisal projects.
Angola Shell Deepwater Development A/S has a non-operating
interest of 15% in Block 34 (Sonangol operator).
Cameroon Pecten Cameroon Company LLC (PCC, Group interest
80%) has a 40% working interest in a PCC operated property
(Mokoko-Abana) and a 24.5% interest in a non-operated
property (Rio del Rey). PCC has a 50% interest in
exploration licences (PH60, PH59, Dissoni), which can
reduce to 25% (PH60, PH59) or to 37.5% (Dissoni) depending
on state participation after a commercial
discovery.
Gabon Shell Gabon (Group interest 75%) has interests in
eight onshore concessions/exploitation permits, five of
which (Rabi/Kounga, Gamba/Ivinga, Toucan, Totou and Bende)
are operated by the company. The Rabi/Kounga concession was
transferred to a PSC with effect from January 1, 2003; it
expires in 2022 and includes an option for a five year
extension. The Gamba/Ivinga concession expires in 2042, the
Toucan concession in 2023 and the Totou/Bende concession in
2020. The other three concessions (Avocette, Coucal and
Atora) expire between 2010 and 2018 and are operated by
Total Gabon. Shell Gabons
portfolio also includes two onshore exploration permits
(Awoun and Ozigo). The onshore Bilinga exploration permit
was relinquished by Shell Gabon in 2005. Two Group
companies, Shell Offshore North Gabon B.V. (SONG) and Shell
Offshore Gabon B.V. (SOSG), were established to hold
permits in ultra-deepwater areas in the north and south
respectively. SOSG has relinquished its offshore licences
and is in the process of being liquidated. SONG holds two
licences (Ighengue and Igoumou).
Libya A Group company signed an agreement with the
National Oil Corporation of the Great Socialist Peoples
Libyan Arab Jamahiraya (NOC) in May 2005 to conduct
exploration activities in a number of onshore blocks in
the Sirte Basin and to carry out improvements
(rejuvenation) to the existing NOC Marsa El Brega LNG
plant.
Morocco Two Group companies, Shell Exploration et
Production du Maroc GmbH (SEPM), and Shell Deepwater
Exploration Morocco GmbH (SDEM) relinquished interests in
two exploration licences offshore Morocco at the end of
the five year licence period on January 21, 2006.
Nigeria The Shell Petroleum Development Company of Nigeria
Ltd. (SPDC, Group interest 100%) is the operator of a joint
venture (Group interest 30%) with the Nigerian National
Petroleum Corporation and two other companies. The
ventures onshore oil and gas mining leases expire in 2019
and offshore leases expire in 2008. SPDC voluntarily
relinquished nine leases to the Nigerian Government as of
July 2005.
Shell Nigeria Exploration & Production Company (SNEPCO,
Group interest 100%) operates under a PSC (30 year term)
with a 55% working interest in deepwater block OPL-212 and
OPL-219. SNEPCO also has a 49.81% interest in deepwater
blocks OML-125 and OPL-211 (Agip operated), a 43.75%
interest in deepwater block OPL-209 (ExxonMobil operated),
and 40% equity interest in shallow water block OPL 238
(co-venturer Sunlink with 60% equity).
Shell Nigeria Offshore Prospecting Limited (SNP, Group
interest 100%) has a 35% working interest in block OPL250
(PSC, 50% Chevron operated, 8.625% Petrobras, 6.375%
ConocoPhilips).
Shell Nigeria Ultra Deep Limited (SNUD, Group interest
100%) has a 100% interest in block OPL245 (PSC).
Shell Nigeria Upstream Ventures (SNUV, Group Interest
100%) has a 40% equity interest in OML 122 (co-venturer
Peak Petroleum with 60%).
Shell Nigeria Exploration Properties Alpha Ltd. (SNEPA,
Group interest 100%) operates under a 100% working interest
in deepwater block OPL322 (40% Shell equity, 50% PSC with
NNPC, 10% PSC with an indigenous Nigerian company Dajo
Oil).
Shell Nigeria Exploration Properties Beta Ltd. (SNEPB,
Group interest 100%) has a 27% working interest in
deepwater block OPL318 (PSC, ConocoPhillips operated with
35%, ChevronTexaco with 18%, NPDC with 20%).
Somalia Shell Somalia B.V. holds a 50% working interest
and operatorship of Blocks M3-M7, where operations are
currently suspended due to force majeure
conditions.
Asia Pacific
Australia Shell Development Australia (SDA, Group interest
100%) has interests in a number of offshore production and
exploration licences in the Carnarvon basin, namely the
North West Shelf (NWS), Greater Gorgon fields, Browse basin
and Timor Sea area. The interests are held directly and/or
indirectly through a shareholding (34%) in Woodside
Petroleum Ltd. (Woodside), which is the operator on behalf
of six joint venture participants of the NWS gas/condensate
and oil fields. Gas and condensate are produced from the
North Rankin and Goodwyn facilities to an onshore treatment
and LNG facility on the Burrup peninsula. Together with
Woodside, Shell also has interests in the significant
liquids-rich Sunrise gas field in the Timor Sea, as well as
the Browse basin. SDA is also a non-operating participant
in the Gorgon joint venture (operator Chevron Australia Pty
Ltd) covering a number of gas fields in the Greater Gorgon
area of the Carnarvon basin, situated west of Barrow
Island. In April 2005, the participants of the Gorgon LNG
and domestic gas project (SDA, Chevron Australia and
subsidiaries of ExxonMobil Corporation) announced the
integration of their interests in these fields and the
associated gas facilities, with Chevron holding 50% and
Shell and ExxonMobil 25% each.
Brunei A Group company is a 50% shareholder in Brunei
Shell Petroleum Company Sendirian Berhad (the other 50%
shareholder being the Brunei government). The company,
which has long term oil and gas concession rights both
onshore and offshore Brunei, sells most of its natural gas
production to Brunei LNG Sendirian Berhad (Group interest
25%). A Group company has a 35% non-operating share in the
Block B Joint Venture (BBJV) concession where gas is
produced from the Maharaja Lela Field, and a 53% operating
interest in exploration Block A.
China Group companies hold a 30% interest in the offshore
South China Sea Xijiang oil producing fields. Shell holds
100% of the contractors interest in the Changbei Petroleum
Contract with China National Petroleum Corporation (CNPC),
to develop the Changbei gas field in the Ordos Basin,
onshore China. Changbei is expected to start delivering 1.5
billion cubic metres per annum of natural gas to markets in
Beijing, Shandong, Hebei and Tianjin by 2007, rising to 3
billion cubic metres per annum by 2008.
Malaysia Group companies have 17 PSCs with the state oil
company Petronas. In many of these contracts Petronas
Carigali Sendirian Berhad (PCSB), a 100% Petronas
subsidiary, is the sole joint venture partner. Shell is the
operator, with a 50% working interest, of eight
non-associated producing gas fields and the operator, with
a 37.5% working interest, of a further two non-associated
producing gas fields. Over 92% of the gas is supplied to
Malaysian LNG Sendirian Berhad (Group interest 15% in MLNG
Dua & Tiga plants) for deliveries of LNG to customers
mainly in Japan, Korea and Taiwan. Regarding oil production
and exploration, Shell has a 40% equity
stake in the non-operated Baram Delta PSC and exploration
interests in the deepwater SK-E block and inboard blocks
SK-307 and SK-308. Shell operates five producing fields in
Sabah waters of which Kinabalu in the SB1 PSC (80% equity
share) is the most significant current producer. Group
companies also have PSCs for exploration and production in
Blocks SB-301, SB-G, SB-J, ND-6 and ND-7 offshore Sabah;
material oil discoveries have been announced in Blocks G
and J. Shell also holds a 50% interest in Blocks PM-301 and
PM-302, which are operated by a joint operating company
with PCSB; five gas discoveries have been made in the last
two years in PM-301.
New Zealand Group companies have an 83.75% interest in the
production licence for the offshore Maui gas field. In
addition, Group companies have a 50% interest in the
onshore Kapuni gas field and a 48% interest in the
undeveloped Pohokura gas field. The gas produced is sold
domestically, mainly under long term contracts. Group
companies also have interests in other exploration licence
areas in the Taranaki Basin. All of these interests are
operated by Shell Todd Oil Services Ltd, a service company
(Group interest
50%).
Pakistan A Group company (Group interest 100%) holds a 28%
non-operated interest in the Bhit and Badhra development
and production leases. These leases were excised from the
Kirthar exploration licence, which was relinquished in
2003. Another Group company (Group interest 100%) holds
25% of an operated deepwater licence offshore of Pakistan,
which was acquired in April 1998.
Philippines Group companies hold a 45% interest in the
deepwater PSC for
block SC-38. The SC-38 interest includes an exploration
area and a production licence, the latter relating to the
Malampaya and San Martin fields. Current production is gas
and condensate from the Malampaya field via a platform
located offshore north west of the island of Palawan. Condensate is exported via tankers at the platform and gas
is transported via a 504km pipeline to an onshore gas plant
in Batangas, on the main island of Luzon. Gas is sold to
three combined-cycle gas turbine power plants. Shell also
holds a 55% interest (and is operator) in SC-60, converted
from the geophysical survey and exploration contract 99 or
GSEC-99, covering a relatively unexplored area offshore
north east Palawan.
Middle East, Russia and CIS (including Sakhalin, Egypt and Caspian region)
Abu Dhabi Crude oil and natural gas liquids
are produced by the Abu Dhabi Company for Onshore Oil
Operations in which a Group companys concessionary share
is 9.5% (licence expiry in 2014), arising from a 23.75%
Group interest in the Abu Dhabi Petroleum Company, which in
turn holds a 40% interest in the concession granted by the
Abu Dhabi government. A Group company has a 15% interest in
Abu Dhabi Gas Industries Limited, which extracts propane
and butane, as well as heavier liquid hydrocarbons, for
export sales from wet associated natural gas produced by
Abu Dhabi Petroleum Company.
Azerbaijan A Group company holds a 25% interest in the
non-operated Inam licence, offshore of Azerbaijan.
Egypt Shell Egypt (Group interest 100%) participates as
operator in five exploration concessions and in four
development leases. All concessions and leases are
granted on the basis of PSCs. Included in Shell Egypts
portfolio is an 84% interest in the north-eastern
Mediterranean deepwater concession. Shell Egypt has a 50%
interest in Badr Petroleum Company (Bapetco), a joint
venture company with the Egyptian General Petroleum
Corporation (the Egyptian national oil company). Bapetco
executes the operations for those producing fields where
Shell has formal operatorship.
Iran A Group company (Group interest 100%) has a 70%
interest in an agreement with the National Iranian Oil
Company (NIOC), as contractor, to develop the Soroosh and
Nowrooz fields in the northern Gulf. This Group company
handed over operatorship to NIOC following production
startup in 2005. Under the agreement, the contractor is
responsible for the execution of the development plan, the
development operations and the provision of technical
assistance and services following completion of the
development phase. The term of the agreement expires when
all petroleum costs and the remuneration fee have been
recovered, which period shall not exceed seven years from
the date of first production, unless extended by mutual
agreement.
Kazakhstan A Group company (Group interest 100%) holds an
18.52% interest in the North Caspian PSC (increased from
16.67%) in respect of some 6,000 square kilometres offshore
in the Kazakhstan sector of the Caspian Sea. Development of
the giant Kashagan field is ongoing. Oil and gas
discoveries at Kalamkas, Aktote, Karain and Kashagan SW are
being further appraised. Shell holds a 50% interest in the
Arman joint venture, a small onshore producing company.
In December 2005, a Group company (Group interest 100%)
entered into
agreements with Oman Oil Company and the Republic of
Kazakhstan to take a 55% interest in a project to explore
two offshore blocks in the Caspian Sea.
Oman A Group company has a 34% interest in Petroleum
Development Oman (PDO), which is the operator of an oil
concession expiring in 2044, or at such a later date as
the government and the 40% concession-owning company
Private Oil Holdings Oman Ltd. (in which a Group company
has an 85% shareholding), may agree.
In July 2005 a Group company entered into a production
sharing agreement
(17% interest) to develop the Mukhaizna oil field.
Qatar In July 2004, Qatar Shell GTL (Group interest 100%)
signed a development and production sharing agreement with
the State of Qatar for the construction of a 140,000
barrels per day GTL plant in Ras Laffan, Qatar. Following
the successful testing of two appraisal wells in 2004, the
project is currently in the final stages of design and
cost estimating. Final investment decision could be as
early as 2006.
In February 2005, the Group and Qatar Petroleum (QP)
signed a heads of agreement for the development of a
large-scale LNG project (Qatargas 4, Group interest 30%).
The project comprises the integrated development of
upstream gas production facilities to produce 1.4 billion
cubic feet per day (bcf/d) of natural gas, including an
average of approximately 70,000 barrels per day of
associated NGL from Qatars North field, a single LNG
train yielding approximately 7.8mtpa of LNG for a period
of 25 years and shipping of the LNG to the intended
markets, primarily North America. The final investment
decision was taken in December 2005 and at the same time
the engineering, procurement and construction (EPC)
contract for the project onshore facilities was awarded.
Russia Shell Sakhalin Holdings, B.V. (Group interest 100%)
holds a 55% interest in Sakhalin Energy Investment Company
Ltd. (SEIC). SEIC continues seasonal oil production from
the Molikpaq facility on the Piltun-Astokhskoye field,
offshore Sakhalin Island. Full development of the Piltun
Satokhskoye oil field and Lunskoye gas field, including a
LNG plant in the south of Sakhalin Island, continued during
2005. Salym Petroleum Development (Group interest 50%)
commissioned the main facilities of the Salym fields in
western Siberia in November 2005.
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Shell Caspian B.V. holds a 5.425% interest in the
Caspian Pipeline Company, which manages a pipeline running
from Western Kazakhstan to the Black Sea.
Saudi Arabia The Group is conducting an exploration
programme in the Rub Al-Khali area in the south of the
Kingdom. The Group leads the project and has a 40%
interest, with Total and Saudi Aramco holding 30% each.
Syria A registered branch of Syria Shell Petroleum
Development B.V. (Group interest 100%) holds undivided
participating interests ranging from 62.5% to 66.67% in
three PSCs that expire between 2008 and 2014 (Deir Ez Zor,
Fourth Annex and Ash Sham). In addition, Group companies
are parties to a gas utilisation agreement for the
collection, processing and sharing of natural gas from
designated fields for use in Syrian power generation and
other industrial plants. Operations under these contracts
are performed by Al Furat Petroleum Company, a Syrian joint
stock company in which Syria Shell Petroleum Development
B.V. holds a 31.25% interest.
Ukraine In December 2005 a Group company signed a
cooperation agreement with national joint stock company
Naftogaz Ukrainy (NAK) covering licences, agreed work
programme levels and the main terms of joint activities.
Under the terms of the cooperation agreement, Shell will
farm into 10 NAK
Naftogaz Ukrainy held licences in the Dniepr-Donets Basin
with access to deep potential reservoirs, which partly lie
beneath large-scale shallower fields already in production.
Shell will acquire a 50% interest in a joint activity
agreement covering these licences (excluding the producing
fields) in exchange for a commitment that comprises
acquisition of seismic data and drilling of deep
exploration wells over a three year time frame. It involves
a total initial investment by Shell of around $100 million
over this period. Work is scheduled to start during 2006.
USA
Shell Exploration & Production Company (SEPCo, Group
interest 100%) produces crude oil, natural gas and NGL
principally in the Gulf of Mexico, California, Texas, and
Wyoming. The majority of SEPCos oil and gas production
interests are acquired under leases granted by the owner of
the minerals underlying relevant acreage (including many
leases for federal onshore and offshore tracts). Such
leases are currently running on an initial fixed term that
is automatically extended by the establishment of
production for so long as production continues, subject to
compliance with the terms of the lease (including, in the
case of federal leases, extensive regulations imposed by
federal law). SEPCo has acquired interests in acreage
located in Alaska, North Dakota, and Washington, where
current and future exploration activities are being
pursued. SEPCo acquired additional interests in the Gulf of
Mexico and Texas. In Texas, the acreage is located in the
Fort Worth Basin and is additionally producing natural gas
interests in the Pinedale field in the Rocky Mountain
region under two separate transactions.
Affiliates of SEPCo hold a 51.8% interest in a US-based
exploration and production limited liability company, Aera
Energy LLC, holding exploration and production assets in
California. This venture is accounted for using the equity
method of accounting.
Other Western Hemisphere
Argentina Shell Compania Argentina de Petroleo
(CAPSA, Group interest 100%) holds a 22.5% interest
in the Acambuco concession.
Brazil Shell Brasil Ltda (Group interest 100%) produces
oil and gas in the Bijupirá and Salema fields located in
the Campos Basin, offshore Rio de Janeiro, where the
company is the operator with an 80% share. Shell Brasil
also has interests in 14 offshore exploration blocks six
operated (BC-10, BS-4, BM-S-31, ES-M-438, BM-S-43 and
S-M-518) and eight non-operated (BM-S-8, BM-C-25, BM-C-31,
ES-M-411, ES-M-436, ES-M-437, BM-ES-23 and BM-S-45). Group
interest in these blocks ranges from 30% to100%. Through
Pecten Victoria Inc (Group Interest 100%), the Group retain
an interest in the producing Merluza gas field operated by
Petrobras and located in the offshore Santos Basin.
Canada Shell Canada Limited (Group interest 78%) is a
producer of natural gas, NGL, bitumen, synthetic crude and
sulphur. 77% of Shell Canadas gas production comes from
the Foothills region of Alberta. In addition, Shell Canada
holds a 31% interest in the Sable gas fields offshore of
Nova Scotia and a 31% interest in the onshore gas plant. Shell
Canada expanded its land inventory with varying interest
percentages in onshore exploration prospects onshore in
northeastern British Columbia and offshore in the Orphan
Basin located in Newfoundlands deepwater region. It is
also the largest landholder in the West Coast offshore
which is currently under a governmental moratorium.
Exploration rights in Canada are generally granted for
terms ranging from one to nine years. Subject to certain
conditions, exploration rights can be converted to
production leases, which may be extended as long as there
is commercial production pursuant to the lease.
Shell Canada produces heavy oil through thermal recovery in
the Peace River area (Shell Canadas interest is 100%) and
mining operations in the Athabasca oil sands area of
Northern Alberta. Shell Canada holds a 60% interest in the
Athabasca Oil Sands Project (AOSP) under a joint venture
agreement to develop and produce synthetic crude from
Shells Athabasca oil sands leases. The AOSP comprises the
Muskeg River mine, located 75km north of Fort McMurray,
Alberta, and the Scotford upgrader, which is adjacent to
Shell Canadas existing Scotford refinery north of Fort
Saskatchewan, Alberta. In 2005 these facilities produced an
average of 159,900 barrels per day of bitumen.
The production of bitumen and synthetic crude is considered
under the SECs regulations to be mining activity rather
than oil and gas activity.
In 2005, Shell Canada acquired additional oil sand leases
in the Athabasca area. Shell Canada also owns four
Shell-operated natural gas plants in southern and
south-central Alberta.
Venezuela Shell Venezuela S.A. (Group interest 100%) holds
an operating service agreement (expiring in 2013) with a
state oil company, Petroleos de Venezuela (PDVSA), to
develop and produce the Urdaneta West Field in Lake
Maracaibo. In 2005, the Venezuelan Ministry of Petroleum
mandated that all operating service agreements migrate to a
joint venture in which PDVSA will have the majority
interest. A Transistory Agreement signed on December 1,
2005 between PDVSA and SVSA will allow the two companies to
continue negotiating the terms of reference for the new
joint venture agreement under the 2001 Organic Hydrocarbon
Law.
Research and development (R&D)
Our Exploration & Production R&D Directorate is responsible
for the research, development and application of integrated
technology solutions for Group operating businesses and
assets around the world. The R&D
Directorates primary business objectives are to select,
develop and implement technologies that enable the Group
operating businesses and assets to successfully discover
and produce greater levels of hydrocarbons; to achieve
continual improvement in cost-efficiency and performance;
to increase operational safety and to reduce environmental
impact.
Exploration & Production R&D has two laboratory locations;
Rijswijk, the Netherlands and Houston, Texas, USA. In-house
capabilities are used in the research, development and
application of proprietary exploration and production
technologies in conjunction with service industry and/or
academic capabilities where applicable. In 2006 a third
technology centre will be opened in Bangalore, India.
The primary focus of our research and development work is
in the following areas: enhanced sub-surface imaging;
complex reservoir performance modelling; improving
hydrocarbon recovery efficiency; improving well inflow
performance to enhance production; recovery of
unconventional hydrocarbons; enhanced well construction;
reducing the unit technical cost of onshore and offshore
processing facilities; enabling the development of
ultra-deepwater fields; upgrading produced hydrocarbons;
and developing solutions for utilisation and sequestration of
CO2.
|
|
|
Operating and Financial Review Exploration & Production |
|
37 |
GAS & POWER
Gas & Power is one part of
the upstream organisation.
Together with Exploration &
Production, upstream explores for
and extracts oil and natural gas,
and builds and operates the
infrastructure necessary to
deliver these hydrocarbons to
market.
Contents
|
|
Earnings |
|
|
|
LNG volumes |
|
|
|
Capital investment and portfolio actions |
|
|
|
New business development |
|
|
|
Outlook and strategy |
|
|
|
Business and property |
|
|
|
Research and development |
LINDA COOK, EXECUTIVE DIRECTOR
|
Shells Gas & Power business
continued to benefit from its
leading position in a strong
business environment during 2005. We
are well on track to deliver strong
growth throughout the remainder of
this decade. |
Overview
Our Gas & Power business liquefies
and transports natural gas and
develops natural gas markets and
related infrastructure.
Highlights
> |
|
Earnings, excluding non-operational items, up 21% |
|
> |
|
Record LNG sales volume, up 5% |
|
> |
|
LNG capacity increased at year end by 13% |
|
> |
|
Significant progress on major LNG and GTL project development |
Earnings
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
2005 |
|
|
2004 |
|
|
Revenue (including intersegment sales) |
|
|
15,624 |
|
|
|
10,835 |
|
Purchases (including change in inventories) |
|
|
(12,855 |
) |
|
|
(8,680 |
) |
Depreciation |
|
|
(290 |
) |
|
|
(903 |
) |
Operating expenses |
|
|
(2,087 |
) |
|
|
(1,452 |
) |
Share of profit of equity accounted investments |
|
|
999 |
|
|
|
1,142 |
|
Other income/(expense) |
|
|
223 |
|
|
|
733 |
|
Taxation |
|
|
(41 |
) |
|
|
140 |
|
|
Segment earnings from continuing operations |
|
|
1,573 |
|
|
|
1,815 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
Segment earnings |
|
|
1,573 |
|
|
|
1,815 |
|
|
2005 compared to 2004
Earnings
Segment earnings were $1,573 million,
compared to $1,815 million in 2004,
benefiting in 2005 from record LNG
volumes and strong prices, and
favourable marketing and trading
conditions. Whereas 2005 earnings
included net charges of $84 million,
mainly related to divestments of joint
venture company InterGens power
generation assets, earnings in 2004
included net gains of $444 million
mainly related to divestments partly
offset by an impairment in Coral
(Shells principal Gas & Power
marketing and trading entity in the
US). Excluding these items, earnings
increased by 21%.
LNG volumes
Record LNG sales volumes were up 5%
from last year driven by the ramp up
of the fourth train at the North West
Shelf project (Group share 22%) in
Australia. Following completion of
construction of Train 4 in Nigeria and
the new Qalhat project in Oman,
Shells global LNG production capacity
increased by 13% at year end.
Capital investment and portfolio actions
Capital investment in 2005 of $1,602
million was consistent compared to 2004
($1,633 million) and mainly related to
LNG projects. The total capital
investment was focused on new
integrated gas projects such as
Sakhalin II, Qatargas 4 and Qatar GTL,
displacing 2004 spend on InterGen.
We completed our exit from the InterGen
power generation joint venture (Group
interest was 68%) with the sale of
InterGen assets through various
transactions. These transactions
contributed over $1 billion of proceeds
to Shells divestment programme.
The sale of our interest in Gasunies
gas transportation assets in the
Netherlands was completed with net
proceeds of $1.7 billion (gains recorded in Exploration & Production earnings).
38 Royal Dutch Shell plc
New business development
Shell and Qatar Petroleum moved the Qatargas 4 joint
venture (Group share 30%) into construction phase with the
award of the onshore EPC contract in December 2005. This
integrated LNG project includes upstream gas and liquids
production and a LNG plant with a capacity of 7.8 million
tonnes of LNG per annum (mtpa).
This will be Shells seventh LNG joint venture. We have
also agreed to acquire additional capacity at the Elba
Island LNG import terminal in Georgia, US. This is intended
to be utilised to import Qatargas 4 volumes into natural
gas markets in the eastern US.
In Australia, joint venture partners moved the Gorgon
greenfield integrated LNG project (Group interest 25%) into
the FEED phase. This project, on Barrow Island in Western
Australia, will provide a new two train LNG plant that will
have an initial capacity of 10mtpa. Also in Australia,
final investment decision was taken to build a fifth LNG
train in the NWS LNG venture (Group direct and indirect
interest 22%). The new train, currently under construction,
will increase plant capacity to a total of 15.9mtpa.
In Nigeria, the Train 4 and 5 expansion at Nigeria LNG Ltd
(Group interest 26%) has been completed. First production
from Train 4 started in the fourth quarter 2005, and from
Train 5 in January 2006. These two trains increase Nigeria
LNGs overall production capacity to over 17mtpa.
Construction of Train 6 (4mtpa) continues to make good
progress.
In February 2006, Shell signed a project development
agreement with the Nigerian National Petroleum Corporation
(NNPC) and other partners for the joint development of a
greenfield LNG project (Olokola) in Nigeria. This project,
envisioned to include up to four LNG trains, is in the
early stages of engineering and design.
Further contracts were signed to supply LNG from the
Sakhalin II project (Group interest 55%) to customers in
Korea and Japan. Total firm sales now amount to 7.3mtpa,
more than 75% of the total capacity of the plant.
Construction of the Qalhat LNG project in Oman (Group
indirect share 11%) was completed, with first
production achieved towards the end of 2005. LNG
production capacity from the plant is 3.7mtpa.
In India the LNG regasification terminal at Hazira began
operations. LNG from the first cargo was sold into the
emerging Indian market in 2005.
An agreement was reached with the National Oil Corporation
in Libya for exploration and development of gas in the
Sirte basin, along with a project to modernise and upgrade
the existing Marsa El Brega LNG plant. Options
to expand the existing plant and possibly build a new LNG
plant are part of the agreement.
In the US, the US Maritime Administration gave approval
for our offshore Gulf Landing LNG import terminal.
A joint venture agreement was signed with ERG Power and Gas
S.p.A in Italy (Group share 50%) to build an LNG import
terminal in Sicily. The terminal is planned to have an
initial capacity of 5.8mtpa. Engineering and permitting
work is ongoing.
The Pearl GTL project in Qatar awarded a project management
contract to JGC and Kellogg. The Pearl project includes the
development of upstream gas production facilities and the
construction of the worlds largest GTL plant, which will
produce 140,000 barrels per day of GTL products. Following
the successful testing of two appraisal wells in 2004, the
project is currently in the final stages of design and cost
estimating. Final investment decision could be as early as
2006.
Our coal gasification technology was licensed to Datang
International Power for its coal to propylene project in
China. It was also selected by the Stanwell Corporation in
Australia for a research study into an integrated
gasification combined cycle (IGCC) plant, in which coal is
converted into synthesis gas for power production and the
carbon dioxide generated is captured and sequestered.
Outlook and strategy
The business environment for natural gas remains robust. We
expect demand for natural gas to continue to increase at
2-3% per annum in the next 10 years. We forecast LNG
demand growth to be in the order of 10% per annum in the
coming years with demand growth in all major natural gas
markets. In addition, new opportunities are emerging
related to the clean use of coal and, in particular,
Shells proprietary coal gasification technology.
We will seek to maximise opportunities from growing demand
building on our position as one of the worlds largest
natural gas producers and suppliers of LNG, with a
significant presence in the key markets of North America,
Asia Pacific and Europe. We aim to access and monetise new
natural gas resources by offering competitive value
propositions to our customers and major resource holders.
In doing so, we leverage a diverse natural gas portfolio;
global capabilities including commercial skills, financing,
marketing, trading, shipping and project management
expertise; premium market access (for LNG and GTL); and
leading technology and technical services.
Operating
and Financial Review Gas & Power 39
Operating
and Financial Review Gas & Power
Business and property
Our Gas & Power business liquefies and transports natural gas, and develops natural gas markets and
related infrastructure. It also markets and trades natural gas and electricity, and converts
natural gas to liquids to provide clean fuels. A number of new opportunities are also emerging for
application of our proprietary coal gasification process. The majority of these activities, in
particular LNG, are carried out by associated companies.
LNG plants, Group interest in plantsa and capacityb (at December 31, 2005)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group |
|
|
100% |
|
|
|
|
|
|
|
interest |
|
|
capacity |
|
|
|
|
|
|
|
% |
|
|
mtpa |
|
|
Australia NWS |
|
Karratha
|
|
|
22 |
|
|
|
11.7 |
|
Brunei |
|
Lumut
|
|
|
25 |
|
|
|
7.2 |
|
Malaysia (Dua and Tiga) |
|
Bintulu
|
|
|
15 |
|
|
|
14.6 |
|
Nigeria |
|
Bonny
|
|
|
26 |
|
|
|
13.6 |
|
Oman |
|
Sur
|
|
|
30 |
|
|
|
6.6 |
|
Oman (Qalhat) |
|
Sur
|
|
|
11 |
|
|
|
3.7 |
|
|
|
|
|
a |
|
Percentage rounded to nearest whole percentage
point where appropriate. |
b |
|
As reported by the joint
venture (excluding the impact of Train 4 debottlenecking
in Australia). |
LNG sales volumes (Group equity share) (million tonnes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Australia |
|
|
2.6 |
|
|
|
2.0 |
|
|
|
1.8 |
|
|
|
1.7 |
|
|
|
1.7 |
|
Brunei |
|
|
1.7 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
1.7 |
|
|
|
1.7 |
|
Malaysia |
|
|
2.0 |
|
|
|
1.9 |
|
|
|
1.5 |
|
|
|
2.3 |
|
|
|
2.3 |
|
Nigeria |
|
|
2.3 |
|
|
|
2.4 |
|
|
|
2.1 |
|
|
|
1.5 |
|
|
|
1.5 |
|
Oman |
|
|
2.1 |
|
|
|
2.1 |
|
|
|
2.1 |
|
|
|
1.9 |
|
|
|
1.7 |
|
|
Total |
|
|
10.7 |
|
|
|
10.2 |
|
|
|
9.3 |
|
|
|
9.1 |
|
|
|
8.9 |
|
|
GTL plant (at December 31, 2005)
|
|
|
|
|
|
|
|
|
|
|
|
Group |
|
|
100% |
|
|
|
interest |
|
|
capacity |
|
|
|
% |
|
|
bbl/day |
|
|
Malaysia Bintulu |
|
|
72 |
|
|
|
14,700 |
|
|
Europe
Shell Energy Europe B.V., a wholly-owned Group company
located in the Netherlands, continued to develop gas and
power activities throughout Europe, and provided advice and
assistance to wholly-owned Shell affiliates active in the
natural gas sector in Denmark, Germany, Italy, Spain, the
Netherlands, the UK and other countries.
Other specific activities are summarised as follows:
Germany BEB Erdgas und Erdöl GmbH, a joint venture in which
a Group company holds a 50% economic interest, is a major
producer of gas in Germany and also one of the countrys gas
transmission companies. Through BEB, Group companies have
indirect minority shareholdings in gas transmission and
distribution companies in Germany.
Greece The Group holds a 24% interest in Attiki Gas Supply
Company S.A., a local gas distribution company currently
with some 30,000 customers (mainly residential, but also
some commercial and small industrial). Attiki Gas Supply
Company S.A. holds a distribution licence to develop the
distribution system infrastructure and to distribute gas to
residential, commercial and small industrial customers in
the Attiki area.
Italy In June 2005, Shell and ERG Power & Gas S.p.A. signed
a joint venture agreement for the development of a LNG
regasification terminal in Italy. The terminal is planned
for an initial capacity of around 5.8mtpa of LNG.
The Netherlands On July 1, 2005, the Group transferred its
25% interest in N.V. Nederlandse Gasunies transport
business to the Dutch State for a consideration of $1.7
billion (accounted for in Exploration & Production). The
Group continues to be a 25% shareholder in Gasunie Trade &
Supply, a large marketer of Dutch natural gas.
Eastern Hemisphere
Algeria Shell and Sonatrach, the Algerian national energy
company, signed a Memorandum of Understanding in February
2006 covering multiple business initiatives, both in
Algeria and internationally. Areas of cooperation will
include investigating the commercial and technical
feasibility for joint developments in Algeria, including
upstream development projects, LNG, products and marketing,
and investigating possible asset swap transactions for
upstream exploration, development and appraisal projects.
Australia A Group company has a combined 22% direct and
indirect interest in the LNG export phase and a 26%
interest in the domestic gas phase of a joint venture
formed to develop the gas fields of the North West Shelf
(NWS). Current capacity (100%) of the LNG plant at year end
2005 was 11.7mtpa. The LNG is sold predominantly to
customers in Japan. A Group company directly and indirectly
has a 22% interest in seven vessels used to deliver LNG
from the NWS.
The construction of a fifth LNG train commenced during 2005.
This will raise total capacity of the plant to close to
16mtpa (100%). Under a contract agreed in 2004, the first
deliveries of LNG to China from the NWS venture are expected
in 2006. A Group company has a 5% interest in two LNG
vessels under construction in China that will be used to
deliver LNG under this contract.
A Group company has a 25% interest in the Greater Gorgon
joint venture that is considering development of a LNG and
domestic gas project on Barrow Island off Western
Australia, to be supplied from the Gorgon and Jansz/Io gas
fields.
The project commenced FEED during 2005. A wholly-owned
Group company is also involved in a number of licences in
the Browse Basin and in the Timor Sea with opportunities
for both domestic gas and LNG export.
40 Royal Dutch Shell plc
Brunei Gas is liquefied and sold to customers in Japan and
Korea by Brunei LNG Sendirian Berhad (Group interest 25%).
Current LNG capacity is 7.2mtpa (100%). The LNG continues
to be delivered in a fleet of seven LNG vessels owned by
Brunei Shell Tankers Sendirian Berhad (Group interest 25%),
and an additional vessel owned by Brunei Gas Carriers
Sendirian Berhad (Group interest 10%).
China In a 50:50 joint venture with China Petroleum and
Chemical Corporation (Sinopec), we are developing our
first coal gasification plant to supply synthesis gas to
Sinopec downstream business units in Yueyang (Dongting),
China. Project startup is expected around mid 2006.
Shells proprietary coal gasification technology has been
licenced to a total of 13 projects in China.
In 2005 we entered into a joint venture with the Hangzhou
Gas Group and Hong Kong China Gas for supply of gas to
industrial and commercial customers in Hangzhou, China.
India Shell holds a 74% interest in three companies
Hazira Gas Private Ltd., Hazira Port Private Ltd. and
Hazira LNG Private Ltd., all of which are located in the
State of Gujarat. Hazira Port Private Ltd. and Hazira LNG
Private Ltd. commissioned the Hazira LNG import terminal in
2005, and the first gas was sold to customers. Hazira Gas
Private Ltd. is using these facilities to import LNG and
market natural gas to customers in Gujarat and north west
India.
Iran A project framework agreement for the Persian LNG project
(Group interest 25%) was signed in 2004. During 2005, the
project made further engineering and design progress.
Libya In May 2005, a Group company and National Oil
Corporation of the Great Socialist Peoples Libyan Arab
Jamahiriya (NOC) signed an LNG development agreement for
the rejuvenation and upgrade of the existing LNG plant at
Marsa Al Brega on the Libyan coast, together with
exploration and development of five areas located in
Libyas major oil and gas producing Sirte Basin. Options to
expand the existing plant and possibly build a new LNG
plant are part of the agreement.
Malaysia Group companies hold a 15% interest in each of
Malaysia LNG Dua Sendirian Berhad and Malaysia LNG Tiga
Sendirian Berhad. Current LNG capacity is 14.6mtpa. Our
interest in the Dua plant expires in 2015.
Adjacent to the LNG facilities is a GTL plant, operated by Shell
MDS (Malaysia) Sendirian Berhad (Group interest 72%). This
plant has the capacity to convert approximately three
million cubic metres per day of natural gas into some
14,700 barrels per day of high-quality middle distillates
and other products using Shell-developed technology. A full
range of liquid and wax products is being sold into
specialty markets in Asia Pacific, the US and Europe.
Nigeria Nigeria LNG Ltd (Group interest 26%) had a LNG
capacity at year end 2005 of 13.6mtpa (100%) from Trains
1-4. Train 5 commenced production in January 2006,
increasing capacity by a further 4mtpa. Train 6 is under
construction and, when complete, will add an additional
4mtpa (100%) of LNG capacity.
In 2004, a Shell company (together with other venture
partners) committed to proceed with the West Africa Gas
Pipeline Project (Group interest 18%). This project is
planned to supply gas from Nigeria to the neighbouring
states of Ghana, Benin and Togo.
In February 2006, Shell signed a project development
agreement with the Nigerian National Petroleum Corporation
(NNPC) and other partners for the
joint development of a greenfield LNG project (Olokola) in
Nigeria. This project, envisioned to include up to four LNG
trains, is in the early stages of engineering and design.
In December 2005, Shell and its partners awarded the EPC
and long-term service agreement contracts for the 630MW
Afam VI power station, a key element of the Afam
Integrated Gas & Power Project in Rivers State, Nigeria.
Within Nigeria, we operate a gas sales and distribution
company, Shell Nigeria Gas (Group interest 100%), to supply
gas to a number of industrial and commercial customers in
the south of the country.
Oman Oman LNG L.L.C. (Group interest 30%) has an annual
capacity of some 6.6mtpa. The majority of the LNG is sold
to Korea and Japan under long-term contracts with
remaining volumes sold to customers on short-term sales
agreements.
During 2005, the Qalhat LNG S.A.O.C. project (in which Oman
LNG has a 37% equity interest, giving Shell an 11% indirect
interest) was commissioned. The first delivery from the
Qalhat LNG project, which has a single LNG train with a
capacity of 3.7mtpa, was achieved in late 2005.
Qatar In July 2004, Qatar Shell GTL (Group interest 100%)
signed a development and production sharing agreement with
the State of Qatar for the construction of a 140,000
barrels per day GTL plant in Ras Laffan, Qatar. Following
the successful testing of two appraisal wells in 2004, the
project is currently in the final stages of design and
cost estimating.
In February 2005, the Group and Qatar Petroleum (QP) signed
a heads of agreement for the development of a large-scale
LNG project (Qatargas 4, Group interest 30%). The project
comprises the integrated development of upstream gas
production facilities to produce 1.4 bcf/d of natural gas,
including an average of approximately 70,000 barrels per
day of associated NGL from Qatars North field, a single
LNG train yielding approximately 7.8mtpa of LNG for a
period of 25 years and shipping of the LNG to the intended
markets, primarily North America. The final investment
decision was taken in December 2005 and at the same time
the EPC contract for the onshore facilities was awarded.
Russia Shell Sakhalin Holding B.V. (Group interest 100%)
holds a 55% interest in Sakhalin Energy Investment Company
Ltd. (SEIC). Activities for the development of the
offshore fields and onshore LNG facilities continued
during 2005. The development includes a two-train LNG
plant with a 9.6mtpa capacity.
In July 2005, Shell and Gazprom signed a Memorandum of
Understanding regarding a swap of shares in the
Zapolyarnoye-Neocomian and Sakhalin II projects. The
Memorandum of Understanding sets out the high level
principles of a transaction through which Gazprom could
acquire up to 25% plus one share in the Sakhalin II venture
and Shell could acquire a 50% interest in the
Zapolyarnoye-Neocomian field. Negotiations on definitive
arrangements for the transaction continue in 2006.
USA and Canada
During 2005, the Gas & Power business portfolio included:
investments in Enterprise Product Partners L.P.; holding of
capacity rights in US LNG import terminals; natural gas and
power marketing, trading and storage; long-term gas
transportation contracts; and energy management services.
The focus of the business in the USA on LNG has increased,
encompassing existing LNG import capacity rights at the
Cove Point and Elba Island terminals as well as the
continued evaluation of various options to expand its
Operating and Financial Review Gas & Power 41
Operating and Financial Review Gas & Power
LNG import capabilities. The US Maritime Administration
approved the issuance of a licence for our offshore Gulf
Landing LNG terminal in the Gulf of Mexico.
Other Western Hemisphere
Bolivia Transredes Transporte De Hidrocarburos S.A. (Group
interest 25%), an oil and gas pipeline company has over
3,500 miles in total pipeline network. It also exports gas
to Brazil through a pipeline owned by Gas Transboliviano
S.A. (combined Group interests 30%), and interconnected to
Transredes.
Brazil Companhia de Gas de São Paulo (Comgás) is a
Brazilian natural gas distribution company in the state
of São Paulo. The Group holds 18% through a joint
venture.
Transportadora Brasileira Bolivia Brasil S.A. (Br),
(combined Group interests 7%), interconnected to Gas
Transboliviano S.A. (Bol), constitutes the Brazilian side
of the Bolivia-Brazil pipeline with around 1,400 miles in
total pipeline network covering five Brazilian states.
In the western part of Brazil, Shell has 50% interests
across four companies related to an integrated pipeline
and power station project in Cuiabá. The pipeline also
crosses through eastern Bolivia. The Cuiabá gas-fired
power plant (480MW) became commercially operational in
2002.
Mexico The Altamira LNG regasification terminal (Group
interest 50%) is located in the port of Altamira,
Tamaulipas, on Mexicos Gulf coast. The facility is under
construction and when complete will have an initial peak
capacity of 4.4mtpa. Completion is scheduled for 2006. A
separate marketing company (Group interest 75%) holds the
capacity rights in the terminal and will supply up to the
equivalent of 3.6mtpa natural gas for 15 years to CFE
(state power company), ramping up from an initial 2.1mtpa.
Shell also holds capacity rights to the Costa Azul LNG
import terminal under construction in Baja California on
Mexicos west coast. Shells capacity rights total
3.75mtpa. Supply is expected from Shells portfolio of
Asian LNG projects such as Sakhalin (Russia) and Gorgon
(Australia).
LNG supply and shipping
Two operations, Shell Western LNG (SWLNG) and Shell
Eastern LNG (SELNG), aim to secure supplies for downstream
markets that we are developing. SWLNG sources LNG in the
West and supplies our outlets in the Atlantic Basin
(currently Spain and the US), while SELNG sources LNG in
the East, and supplies our terminal in India and other
potential outlets in the Pacific region, including China
and the west coast of Mexico. These operations will
primarily use ships, currently a fleet totalling seven,
which have been acquired or chartered by Shell Tankers
Singapore Limited, Shell Tankers (UK) Ltd, Shell Bermuda
(Overseas) Ltd and SWLNG.
InterGen
In 2005, Shell divested all of its interests in InterGen
(Group interest was 68%), an international operator and
developer of power plants. This marked a significant step
in our portfolio restructuring activities.
Research and development (R&D)
The focus of R&D is on technical and cost leadership in
existing businesses and the creation of viable new business
opportunities. A key focus is on maintaining our
competitive position in LNG technology, particularly LNG
processing, safety, transport and storage. The Group is
further developing its strong position in GTL conversion
through R&D programmes aimed at improving catalysts and
process technology to further reduce capital costs
and improve process efficiency, leading to lower CO2 emissions. GTL
product development is also an important focus of
work. The emphasis of work on coal gasification is on
reducing capital costs and increasing the scale and
efficiency of plants.
42 Royal Dutch Shell plc
THIS PAGE INTENTIONALLY LEFT BLANK
Operating and Financial Review 43
OIL PRODUCTS
Oil Products are part of the
downstream organisation. Shells
downstream businesses engage in
refining crude oil into a range of
products including fuels,
lubricants and petrochemicals, and
marketing of the refined products.
Contents
|
|
Earnings |
|
|
|
Capital investment and portfolio actions |
|
|
|
Outlook and strategy |
|
|
|
Business and property |
|
|
|
Trading |
|
|
|
Shell Global Solutions |
|
|
|
Research and development |
ROB ROUTS, EXECUTIVE DIRECTOR
We made great progress
towards achieving our goal of
sustainable downstream leadership.
We strengthened our position in
key markets as we reshaped our
portfolio and increased our
investment in higher growth
markets in Asia and Eastern
Europe. Our drive to bring
innovative and new fuels to our
customers continues.
Overview
Shells downstream Oil Products
include all of the activities
necessary to transform crude oil
into petroleum products and
deliver these to customers
worldwide.
Highlights
> |
|
Earnings of $9.98 billion; an increase of 31% over
2004 |
|
> |
|
Strong cash generation; $11 billion of cash
surplus |
|
> |
|
Excellent operational
performance; reduction of
non hurricane related
refining downtime to 4% |
|
> |
|
Continued portfolio
management; $1.7 billion
proceeds in 2005 |
Earnings
|
|
|
|
|
|
|
|
|
|
$ millions |
|
|
|
2005 |
|
|
2004 |
|
|
Revenue (including intersegment sales) |
|
|
253,853 |
|
|
|
222,348 |
|
Purchases (including change in inventories) |
|
|
(223,482 |
) |
|
|
(195,270 |
) |
Depreciation |
|
|
(2,622 |
) |
|
|
(3,357 |
) |
Operating expenses |
|
|
(16,141 |
) |
|
|
(15,022 |
) |
Share of profit of equity accounted investments |
|
|
1,713 |
|
|
|
1,277 |
|
Other income/(expense) |
|
|
69 |
|
|
|
61 |
|
Taxation |
|
|
(3,408 |
) |
|
|
(2,440 |
) |
|
Segment earnings from continuing operations |
|
|
9,982 |
|
|
|
7,597 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
Segment earnings |
|
|
9,982 |
|
|
|
7,597 |
|
|
Canada
USA
Latin America
Argentina
Belize
Bolivia
Brazil
Chile
Colombia
Costa Rica
Ecuador
El Salvador
Guatemala
Guyana
Honduras
Mexico
Nicaragua
Panama
Paraguay
Peru
Surinam
Uruguay
Venezuela
The Caribbean
Bahamas
Barbados
Bermuda
British Antilles
Dominican Republic
French Antilles &
Guiana
Grenada
Haiti
Jamaica
Netherlands Antilles
Puerto Rico
St. Kitts & Nevis
St. Lucia
St. Vincent
Trinidad & Tobago
Europe
Austria
Belgium
Bulgaria
Croatia
Czech Republic
Denmark
Estonia
Finland
France
Germany
Gibraltar
Greece
Hungary
Iceland
Republic of Ireland
Italy
Latvia
Lithuania
Luxembourg
The Netherlands
Norway
Poland
Portugal
Romania
Serbia and
Montenegro
Slovakia
Slovenia
Spain
Sweden
Switzerland
Turkey
Ukraine
UK
2005 compared to 2004
Earnings
Segment earnings in 2005 were $9,982
million, 31% higher than 2004,
reflecting strong refining margins,
improved operational performance and
increased trading results partially
offset by lower marketing results.
Trading earnings benefited from high
levels of volatility and profitable
storage deals. Earnings included $427
million net gains in 2005 compared with
$540 million in 2004, mainly relating
to divestments in both years and
impairments in 2004. Revenue was
significantly higher, largely as a
consequence of higher product prices in
2005.
Gross margin (calculated as revenue
minus purchases) increased by $3,293
million in 2005, primarily driven by
strong refining margins in all regions,
particularly in the US. The high
refining margins were sustained by a
combination of refining capacity
expansion continuing to lag behind
strong global product demand growth, a
cold winter in the northern hemisphere
in the first and fourth quarters and
extensive hurricane-related product
supply disruptions in the Gulf of
Mexico in the third and fourth
quarters. Marketing margins declined
mainly as a result of high crude-driven
product cost.
Operating expenses, which include
divestment gains, increased in 2005
mainly due to lower proceeds from
divestments. The impact of a weaker
dollar on non dollar denominated
operating expenses and higher
energy related operating costs also
resulted in increased expenses.
Depreciation was $735 million lower in
2005 than 2004, largely as a result of
divestments and impairment provisions
on certain refining and marketing
assets recognised in 2004.
44 Royal Dutch Shell plc
Capital investment and portfolio actions
Capital investment of $2.8 billion in 2005 was
consistent with 2004 spending levels. The main areas of
investment were in our manufacturing and retail
businesses and included spending on refinery maintenance
as well as upgrading and growing the retail network.
Our portfolio activities were focused on investment in high
growth markets in the East and Turkey and consolidation of
our position in Africa and Latin America. In China, our
retail joint venture with Sinopec commenced operations with
more than 200 stations now in service. In India, we are the
first international oil company to have secured a
nationwide retail licence. Eight service stations are
currently operating, with another 50 under various stages
of construction and acquisition. We started operation of
our first service station in Indonesia. In Russia, an
acquisition programme is ongoing, with 13 service stations
now operational, and land for an additional 20 sites
secured.
In China, a new joint venture, Anji Jiffy Lube Automotive
Services Company Limited, was established in April 2005.
Shell China holds a 40% Group interest in this business.
Total investment will be $23 million (Group interest $9
million). The venture will build a network of fast car
maintenance and service outlets and is modelled on the
Jiffy Lube chain that operates in North America. The aim is
to have 600 outlets in operation by 2015.
A partnership with CHOREN Industries GmbH was announced to
construct the worlds first commercial facility to convert
biomass into high-quality synthetic biofuel. A letter of
intent was signed by Volkswagen, Shell and Iogen
Corporation announcing a joint study to assess the economic
feasibility of producing cellulose ethanol in Germany. This
advanced biofuel,
which is produced by Iogen, can be used in todays cars and can cut CO2
emissions by 90% compared with conventional fuels.
A Memorandum of Understanding was signed with Kuwait
Petroleum International to explore opportunities to
develop and implement joint downstream investments
worldwide.
In the US, a capital expenditure strategy to increase
refining capacity at one or
more of the Motiva joint venture (Group interest 50%)
refineries was announced. Expansion projects being
considered range from 100,000 barrels per day to 325,000
barrels per day.
In Turkey, Shell and Turcas Petrol AS agreed a joint
venture to combine marketing and distribution activities.
In addition, as part of Turkeys privatisation programme,
Koç (Turkeys largest conglomerate) became the successful
bidder for 51% of Turkiye Petrol Rafinerileri AS (Tupras)
and we
acquired a 2% minority shareholding in Tupras. These
transactions will enhance our position in Turkey,
which is a key growth market.
The exchange of our 20% interest in the Rome refinery
for Totals 18% interest in the Reichstett Refinery in
France was completed, increasing our ownership interest
in the Reichstett refinery to 83%.
The Group sold 5% ownership of Showa Shell Sekiyu KK, a
refining and marketing company in Japan, to Saudi
Aramco. The Groups interest was reduced to 35% as a
result of this transaction.
The sales of the Bakersfield refinery and the LPG business
in Portugal were completed.
The divestment of retail and commercial fuels marketing
and distribution businesses in the Republic of Ireland,
Northern Ireland, Romania, the Canary Islands, Eastern
Caribbean and Guinea Bissau was completed.
Total proceeds from divestments during 2005 totalled $1.7 billion.
Agreements were signed relating to the sale of the marketing
and distribution businesses in Uruguay and Paraguay, the
retail and commercial fuels marketing business and
lubricants blending and distribution business in Colombia
and Shells retail business in Ecuador. Agreement was also
reached regarding divestments of Oil Products businesses in
Burundi, Rwanda, Cameroon, the Caribbean (Bahamas, Turks and
Caicos and Jamaica) and in Papua New Guinea. We expect to
complete these sales in 2006 when total combined proceeds of
$350 million are anticipated.
Several of the sales in 2005 and 2006 included innovative
Trade Mark Licence Agreements, whereby the buyer will
continue to use the Shell brand.
Bids relating to the sale of Shells LPG business were
received during the year. Following bid clarification and
negotiation, we will take a decision on whether to go ahead
with this divestment. We expect to complete this process
during the first half of 2006.
Outlook and strategy
If product demand growth continues to outstrip refinery
capacity additions, refining margins in 2006 are expected
to remain firm, albeit at lower levels than 2005. The
eventual level will be strongly influenced by the rate of
global economic growth particularly in the US and China.
Potential upside exists with tightening gasoline and diesel
specifications in the US.
Downward pressure may come with weaker product demand
through persistent high oil prices. Marketing margins
will continue to be influenced by oil price volatility,
exchange rates and intense competition.
Operating and Financial Review Oil Products 45
Operating and Financial Review Oil Products
Our strategy supports our aim of being the downstream
leader in the markets in which we choose to operate. This
includes improving the profitability of the
downstream businesses through a focus on four key areas.
The first is to reshape the portfolio by divesting
underperforming assets, making selective investments in
manufacturing and marketing to enhance our competitive
position and investing in high growth markets such as China
and India. The second element is our work to continue to standardise
our processes and systems through implementation of simpler
global processes including a common IT system (enterprise
resource planning) for Oil Products businesses across the
world. We will also continue to improve our operational
performance by ensuring our operations are safe, reliable
and cost competitive. Third, we will work to maximise the
value of our integrated hydrocarbon supply chain and the
benefits of the integration of the Oil Products and
Chemicals businesses. Finally, we will continue to seek
opportunities to reinforce our position as the leading
global brand across all the downstream businesses,
including maintaining our focus on differentiated fuels.
Business and property
The Oil Products organisation is comprised of a number of
different downstream businesses, which include
Manufacturing, Supply and Distribution, Retail, Business to
Business (B2B) and Lubricants. Collectively these
businesses refine, supply, trade and ship crude oil
products around the world and market fuels and lubricants
for domestic, industrial and transportation use.
Manufacturing
Our global Manufacturing portfolio includes interests in 47
refineries, which produce products such as gasoline,
diesel, light heating oil, aviation fuel, heavy heating
oil, lubricants, and bitumen. Finished and intermediate
products from the manufacturing sites provide a wide range
of quality hydrocarbons required by our downstream partners
in Retail, Lubricants, Chemicals and B2B to fulfil Shell
customer requirements. Manufacturing also works closely
with Supply and Distribution, Trading and Shell Global
Solutions to maximise earnings from our manufacturing
assets.
Supply and distribution
Supply and distribution acquires and delivers feedstock to
Shell refineries and Chemical plants, and transports and
delivers finished products to our downstream marketing
businesses and customers. It handles 6 million barrels of
inland fuel sales per day. Our distribution network
currently includes 5,000 miles of pipeline in the US and
some 20,000 trucks worldwide.
Retail
The Oil Products business operates the worlds largest fuel
retail network with some 45,000 service stations.
Convenience retailing offers a wide range of products and
services to customers worldwide.
A growing range of fuels are sold at these retail outlets,
including Shell
V-Power, V-Power Racing, V-Power Diesel,
and Optimax, that are tailored to meet growing customer
requirements for improved engine and environmental
performance. Differentiated fuels were launched during 2005
in a number of new markets, including V-Power in France and
a brand new V-Power Diesel using GTL technology in Italy.
In Australia, Shell Optimax Extreme, a 100-octane fuel that
uses 5% ethanol to deliver a higher level of engine
responsiveness and performance, was launched. In Africa,
Diesel Extra was launched in Swaziland, Botswana and Kenya
and the V-Power Diesel pilot in South Africa has already
achieved 15% market share.
Lubricants
Shell Lubricants is a global leader in finished lubricants,
operating in approximately 120 countries worldwide,
manufacturing and marketing some of the most recognised (by
market share) lubricants brands including Shell Helix,
Pennzoil, Shell Rotella, Shell Rimula and Quaker State.
These lubricants are used across the transport sector in
passenger cars, lorries, coaches, aeroplanes and ships.
Shell Lubricants also delivers lubrication solutions to the
manufacturing, food processing, mining and agriculture
industries. In addition, through the Jiffy Lube fast lube
network, Shell Lubricants provide oil change and service to
some 30 million customers in the US and is building a
presence in developing markets such as China.
Business to Business (B2B)
B2B sells fuels and specialty products to a broad
range of commercial customers. The B2B portfolio
comprises five separate businesses.
Shell Aviation is a leader in the marketing of aviation
fuels and lubricants, and in the operation of airport
fuelling. It supplies 1,100 airports in 90 countries and
fuels some 20,000 aircraft and supplies over 21 million
gallons (80 million litres) of fuel every day.
Shell Marine Products is a global sales and marketing
business supplying marine fuels, lubricants and related
services to the marine industry. The business supplies 20
different types of marine fuel to power diesel engines,
steam and gas turbine vessels, together with around 100
different types of marine lubricants blended to provide
optimum protection in the toughest environments. The
business serves more than 15,000 customer vessels, ranging
from large ocean going tankers to small fishing boats, in
more than 730 ports in some 90 countries worldwide.
Shell Gas (LPG) The Group markets LPG in over 40 countries
and territories. It supplies LPG to a range of customers
for domestic, commercial, agriculture and industry
purposes.
Commercial Fuels provides high-quality heating, transport
and industrial fuels and oils to more than four million
customers worldwide in three main segments. The bulk fuels
business plays a key role in managing sales to all inland
channels. The domestic heating oil business supplies more
than 1.5 million households.
Shell Bitumen is the world market leader in the manufacture
and sale of bitumen and bitumen products and works with
over 1,450 customers across 33 countries.
Trading
Shell Trading trades about 14 million barrels of crude oil
equivalent per day, comprising crude oil, refined products,
natural gas, electrical power and chemicals. Companies
within the Shell Trading network (including Houston,
Barbados, Rotterdam, London, Dubai, Moscow and Singapore)
are each distinct separate entities responsible for running
their own businesses.
Shell Global Solutions
Provides business and operational consultancy, catalysts,
technical services and research and development expertise
to the energy and processing industries worldwide. It has
an extensive network of offices around the world, with
primary commercial centres operating in the US, Europe and
Asia Pacific.
46 Royal Dutch Shell plc
Research and development (R&D)
R&D programmes continue to emphasise the improvement of key
products and their applications and the further advancement
of process technologies including related technical
services that provide us with a competitive advantage. For
the
fuels business, top tier differentiated fuels have been
launched in more than 40 countries. Further effort was
focused on the cost effective formulation of new products
and cost reduction in current formulations. Product
stewardship considerations, particularly those related to
health and the environment, continue to be given high
priority in all areas.
Key drivers in process research have been the need to
achieve best-in-class performance in terms of reliability
and availability, supply chain optimisation, cost reduction and
further reduction in energy consumption and
CO2 emissions. Catalyst development has contributed to
increased margin generation. Environmentally focused
programmes provide solutions ranging from soil remediation
techniques to explosion hazard assessments.
A strategic programme aimed at developing breakthrough
options in sustainable energy and sustainable mobility is
pursued, covering new routes from biomass to biofuels and a new
approach to CO2 sequestration by mineralisation. The further development of the coal
gasification, catalytic partial oxidation and GTL
technology continues to be an area of focus across the
business.
Operating and Financial Review Oil Products 47
Operating and Financial Review Oil Products
Refininga
Cost of crude oil processed or consumed (including upstream margin on crude supplied by Group and
equity accounted investment exploration and production companies)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ per barrel |
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
i |
|
2002 |
i |
|
2001 |
b |
|
|
|
|
48.24 |
|
|
|
37.22 |
|
|
|
26.75 |
|
|
|
24.35 |
|
|
|
23.56 |
|
|
Operable crude oil distillation capacityc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousand barrels/calendar day |
d e |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Europe |
|
|
1,822 |
|
|
|
1,835 |
|
|
|
1,808 |
|
|
|
1,809 |
|
|
|
1,400 |
|
Other Eastern Hemisphere |
|
|
899 |
|
|
|
1,050 |
|
|
|
1,072 |
|
|
|
1,108 |
|
|
|
1,155 |
|
USA |
|
|
955 |
|
|
|
1,032 |
|
|
|
1,073 |
|
|
|
1,075 |
|
|
|
689 |
|
Other Western Hemisphere |
|
|
350 |
|
|
|
350 |
|
|
|
361 |
|
|
|
395 |
|
|
|
398 |
|
|
|
|
|
4,026 |
|
|
|
4,267 |
|
|
|
4,314 |
|
|
|
4,387 |
|
|
|
3,642 |
|
|
Crude oil processedf
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousand barrels/calendar day |
d e |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Europe |
|
|
1,701 |
|
|
|
1,687 |
|
|
|
1,712 |
|
|
|
1,701 |
|
|
|
1,309 |
|
Other Eastern Hemisphere |
|
|
802 |
|
|
|
942 |
|
|
|
916 |
|
|
|
870 |
|
|
|
933 |
|
USA |
|
|
855 |
|
|
|
950 |
|
|
|
974 |
|
|
|
996 |
|
|
|
624 |
|
Other Western Hemisphere |
|
|
364 |
|
|
|
364 |
|
|
|
347 |
|
|
|
314 |
|
|
|
361 |
|
|
|
|
|
3,722 |
|
|
|
3,943 |
|
|
|
3,949 |
|
|
|
3,881 |
|
|
|
3,227 |
|
|
Group share of associated companies |
|
|
455 |
|
|
|
451 |
|
|
|
515 |
|
|
|
473 |
|
|
|
480 |
|
|
Crude oil distillation unit intake as percentage of operable capacityg
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Europe |
|
|
97 |
|
|
|
94 |
|
|
|
96 |
|
|
|
94 |
|
|
|
95 |
|
Other Eastern Hemisphere |
|
|
92 |
|
|
|
91 |
|
|
|
89 |
|
|
|
84 |
|
|
|
90 |
|
USA |
|
|
88 |
|
|
|
91 |
|
|
|
89 |
|
|
|
91 |
|
|
|
91 |
|
Other Western Hemisphere |
|
|
91 |
|
|
|
93 |
|
|
|
90 |
|
|
|
86 |
|
|
|
91 |
|
|
Worldwide |
|
|
93 |
|
|
|
92 |
|
|
|
92 |
|
|
|
90 |
|
|
|
92 |
|
|
Refinery processing intakeh
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousand barrels/calendar day |
d e |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Crude oil |
|
|
3,722 |
|
|
|
3,946 |
|
|
|
3,949 |
|
|
|
3,881 |
|
|
|
3,227 |
|
Feedstocks |
|
|
259 |
|
|
|
216 |
|
|
|
218 |
|
|
|
203 |
|
|
|
173 |
|
|
|
|
|
3,981 |
|
|
|
4,162 |
|
|
|
4,167 |
|
|
|
4,084 |
|
|
|
3,400 |
|
|
Europe |
|
|
1,804 |
|
|
|
1,770 |
|
|
|
1,776 |
|
|
|
1,761 |
|
|
|
1,358 |
|
Other Eastern Hemisphere |
|
|
849 |
|
|
|
962 |
|
|
|
956 |
|
|
|
941 |
|
|
|
1,018 |
|
USA |
|
|
953 |
|
|
|
1,055 |
|
|
|
1,079 |
|
|
|
1,064 |
|
|
|
663 |
|
Other Western Hemisphere |
|
|
375 |
|
|
|
375 |
|
|
|
356 |
|
|
|
318 |
|
|
|
361 |
|
|
|
|
|
3,981 |
|
|
|
4,162 |
|
|
|
4,167 |
|
|
|
4,084 |
|
|
|
3,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
million tonnes per year |
|
|
Metric equivalent |
|
|
195 |
|
|
|
204 |
|
|
|
204 |
|
|
|
201 |
|
|
|
166 |
|
|
48 Royal Dutch Shell plc
Refinery processing outturni
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousand barrels/calendar day |
e |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Gasolines |
|
|
1,492 |
|
|
|
1,542 |
|
|
|
1,575 |
|
|
|
1,537 |
|
|
|
1,242 |
|
Kerosines |
|
|
382 |
|
|
|
424 |
|
|
|
418 |
|
|
|
400 |
|
|
|
369 |
|
Gas/Diesel oils |
|
|
1,256 |
|
|
|
1,297 |
|
|
|
1,312 |
|
|
|
1,287 |
|
|
|
1,068 |
|
Fuel oil |
|
|
391 |
|
|
|
414 |
|
|
|
378 |
|
|
|
355 |
|
|
|
339 |
|
Other products |
|
|
567 |
|
|
|
557 |
|
|
|
550 |
|
|
|
546 |
|
|
|
417 |
|
|
|
|
|
4,088 |
|
|
|
4,234 |
|
|
|
4,233 |
|
|
|
4,125 |
|
|
|
3,435 |
|
|
|
|
|
a |
|
The basis of reporting from 2002 has been changed to reflect only those activities relating
to the Oil Products business; previously the volumes of the Mobil refinery in Alabama, a refinery
owned by Chemicals, was included within the US volumes. The 2001 figures have been restated on a
similar basis. Furthermore, from 2002 the US reported volumes include 100% of Shell Oil Products US
and 50% of Motiva; the 2001 figures have been restated in accordance with the ownership interests
prevailing at that time. |
b |
|
Figures for 2003, 2002 and 2001 are provided on a US GAAP basis. |
c |
|
Group average operating capacity for the year and excluding mothballed capacity. |
d |
|
One barrel daily is equivalent to approximately 50 tonnes a year, depending on the specific
gravity of the crude oil. |
e |
|
The calendar day capacity is the actual barrels processed during the year (maximum sustainable
rate x utilisation) divided by the number of days in the year. |
f |
|
Including natural gas liquids; includes processing for others and excludes processing by others. |
g |
|
Including crude oil and feedstocks processed in crude oil distillation units, and based on
calendar day capacities. |
h |
|
Including crude oil and natural gas liquids plus feedstocks processed in crude oil distillation
units and in secondary conversion units. |
i |
|
Excluding own use and products acquired for blending purposes. |
Operating and Financial Review Oil Products 49
Operating and Financial Review Oil Products
Oil salesa
Product volumes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousand barrels/day |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
569 |
|
|
|
576 |
|
|
|
616 |
|
|
|
647 |
|
|
|
531 |
|
Kerosines |
|
|
223 |
|
|
|
220 |
|
|
|
194 |
|
|
|
190 |
|
|
|
164 |
|
Gas/Diesel oils |
|
|
920 |
|
|
|
934 |
|
|
|
936 |
|
|
|
950 |
|
|
|
776 |
|
Fuel oil |
|
|
196 |
|
|
|
179 |
|
|
|
184 |
|
|
|
177 |
|
|
|
174 |
|
Other products |
|
|
185 |
|
|
|
203 |
|
|
|
207 |
|
|
|
209 |
|
|
|
207 |
|
|
|
|
|
2,093 |
|
|
|
2,112 |
|
|
|
2,137 |
|
|
|
2,173 |
|
|
|
1,852 |
|
|
Other Eastern Hemisphereb c |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
318 |
|
|
|
337 |
|
|
|
315 |
|
|
|
332 |
|
|
|
328 |
|
Kerosines |
|
|
174 |
|
|
|
168 |
|
|
|
166 |
|
|
|
142 |
|
|
|
132 |
|
Gas/Diesel oils |
|
|
470 |
|
|
|
511 |
|
|
|
489 |
|
|
|
476 |
|
|
|
460 |
|
Fuel oil |
|
|
151 |
|
|
|
168 |
|
|
|
180 |
|
|
|
188 |
|
|
|
200 |
|
Other products |
|
|
119 |
|
|
|
136 |
|
|
|
138 |
|
|
|
149 |
|
|
|
138 |
|
|
|
|
|
1,232 |
|
|
|
1,320 |
|
|
|
1,288 |
|
|
|
1,287 |
|
|
|
1,258 |
|
|
USA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
1,068 |
|
|
|
1,372 |
|
|
|
1,343 |
|
|
|
1,239 |
|
|
|
737 |
|
Kerosines |
|
|
236 |
|
|
|
258 |
|
|
|
212 |
|
|
|
221 |
|
|
|
138 |
|
Gas/Diesel oils |
|
|
368 |
|
|
|
430 |
|
|
|
430 |
|
|
|
401 |
|
|
|
266 |
|
Fuel oil |
|
|
107 |
|
|
|
209 |
|
|
|
189 |
|
|
|
105 |
|
|
|
65 |
|
Other products |
|
|
234 |
|
|
|
247 |
|
|
|
218 |
|
|
|
173 |
|
|
|
111 |
|
|
|
|
|
2,013 |
|
|
|
2,516 |
|
|
|
2,392 |
|
|
|
2,139 |
|
|
|
1,317 |
|
|
Other Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
263 |
|
|
|
293 |
|
|
|
296 |
|
|
|
317 |
|
|
|
315 |
|
Kerosines |
|
|
74 |
|
|
|
73 |
|
|
|
72 |
|
|
|
74 |
|
|
|
80 |
|
Gas/Diesel oils |
|
|
251 |
|
|
|
249 |
|
|
|
243 |
|
|
|
246 |
|
|
|
252 |
|
Fuel oil |
|
|
77 |
|
|
|
85 |
|
|
|
86 |
|
|
|
92 |
|
|
|
100 |
|
Other products |
|
|
43 |
|
|
|
44 |
|
|
|
52 |
|
|
|
49 |
|
|
|
54 |
|
|
|
|
|
708 |
|
|
|
744 |
|
|
|
749 |
|
|
|
778 |
|
|
|
801 |
|
|
Export salesd |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
186 |
|
|
|
182 |
|
|
|
193 |
|
|
|
251 |
|
|
|
202 |
|
Kerosines |
|
|
104 |
|
|
|
114 |
|
|
|
154 |
|
|
|
155 |
|
|
|
154 |
|
Gas/Diesel oils |
|
|
287 |
|
|
|
274 |
|
|
|
213 |
|
|
|
222 |
|
|
|
194 |
|
Fuel oil |
|
|
313 |
|
|
|
208 |
|
|
|
181 |
|
|
|
196 |
|
|
|
168 |
|
Other products |
|
|
121 |
|
|
|
130 |
|
|
|
138 |
|
|
|
198 |
|
|
|
197 |
|
|
|
|
|
1,011 |
|
|
|
908 |
|
|
|
879 |
|
|
|
1,022 |
|
|
|
915 |
|
|
Total product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
2,404 |
|
|
|
2,760 |
|
|
|
2,763 |
|
|
|
2,786 |
|
|
|
2,113 |
|
Kerosines |
|
|
811 |
|
|
|
833 |
|
|
|
798 |
|
|
|
782 |
|
|
|
668 |
|
Gas/Diesel oils |
|
|
2,296 |
|
|
|
2,398 |
|
|
|
2,311 |
|
|
|
2,295 |
|
|
|
1,948 |
|
Fuel oil |
|
|
844 |
|
|
|
849 |
|
|
|
820 |
|
|
|
758 |
|
|
|
707 |
|
Other products |
|
|
702 |
|
|
|
760 |
|
|
|
753 |
|
|
|
778 |
|
|
|
707 |
|
|
|
|
|
7,057 |
|
|
|
7,600 |
|
|
|
7,445 |
|
|
|
7,399 |
|
|
|
6,143 |
|
|
Sales by product as percentage of total product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Gasolines |
|
|
34.1 |
|
|
|
36.3 |
|
|
|
37.1 |
|
|
|
37.7 |
|
|
|
34.4 |
|
Kerosines |
|
|
11.5 |
|
|
|
10.9 |
|
|
|
10.7 |
|
|
|
10.6 |
|
|
|
10.9 |
|
Gas/Diesel oils |
|
|
32.5 |
|
|
|
31.6 |
|
|
|
31.1 |
|
|
|
31.0 |
|
|
|
31.7 |
|
Fuel oil |
|
|
12.0 |
|
|
|
11.2 |
|
|
|
11.0 |
|
|
|
10.2 |
|
|
|
11.5 |
|
Other products |
|
|
9.9 |
|
|
|
10.0 |
|
|
|
10.1 |
|
|
|
10.5 |
|
|
|
11.5 |
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
a |
|
Sales figures exclude deliveries to other companies under reciprocal purchase and sale
arrangements which are in the nature of exchanges. Sales of condensate and natural gas liquids are
included. |
b |
|
In Iran, a Group entity has a 61.57% interest in a joint venture that operates a lubricant oil
blending plant and sells lubricants in Iran. |
c |
|
The Group operates in Sudan through The Shell Company of the Sudan Limited (Shell Sudan), which
is an indirect wholly-owned subsidiary of Royal Dutch Shell. Shell Sudans activities consist of
the sale of fuels and lubricants to retail and commercial customers. Shell Sudan also sold aviation
fuels prior to the disposition of this activity in 2005. The Shell Group does not hold any oil or
gas reserves in Sudan. |
d |
|
Export sales as a percentage of total oil sales amount to 14.3% in 2005, 11.9% in 2004, 11.8% in
2003, 13.8% in 2002 and 14.9% in 2001. |
50 Royal Dutch Shell plc
Total oil sales volumesa
Oil products by geographical area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousand barrels/day |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
|
771 |
|
|
|
772 |
|
|
|
785 |
|
|
|
789 |
|
|
|
454 |
|
UK and Republic of Ireland |
|
|
323 |
|
|
|
311 |
|
|
|
313 |
|
|
|
317 |
|
|
|
319 |
|
France |
|
|
268 |
|
|
|
275 |
|
|
|
283 |
|
|
|
299 |
|
|
|
306 |
|
the Netherlands |
|
|
199 |
|
|
|
191 |
|
|
|
180 |
|
|
|
191 |
|
|
|
204 |
|
Others |
|
|
532 |
|
|
|
563 |
|
|
|
576 |
|
|
|
577 |
|
|
|
569 |
|
|
|
|
|
2,093 |
|
|
|
2,112 |
|
|
|
2,137 |
|
|
|
2,173 |
|
|
|
1,852 |
|
|
Other Eastern Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
222 |
|
|
|
215 |
|
|
|
190 |
|
|
|
194 |
|
|
|
203 |
|
Others |
|
|
1,010 |
|
|
|
1,105 |
|
|
|
1,098 |
|
|
|
1,093 |
|
|
|
1,055 |
|
|
|
|
|
1,232 |
|
|
|
1,320 |
|
|
|
1,288 |
|
|
|
1,287 |
|
|
|
1,258 |
|
|
USA |
|
|
2,013 |
|
|
|
2,516 |
|
|
|
2,392 |
|
|
|
2,139 |
|
|
|
1,317 |
|
|
Other Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
300 |
|
|
|
287 |
|
|
|
276 |
|
|
|
263 |
|
|
|
267 |
|
Brazil |
|
|
179 |
|
|
|
170 |
|
|
|
168 |
|
|
|
191 |
|
|
|
203 |
|
Others |
|
|
229 |
|
|
|
287 |
|
|
|
305 |
|
|
|
324 |
|
|
|
331 |
|
|
|
|
|
708 |
|
|
|
744 |
|
|
|
749 |
|
|
|
778 |
|
|
|
801 |
|
|
Export sales |
|
|
1,011 |
|
|
|
908 |
|
|
|
879 |
|
|
|
1,022 |
|
|
|
915 |
|
|
Total oil products |
|
|
7,057 |
|
|
|
7,600 |
|
|
|
7,445 |
|
|
|
7,399 |
|
|
|
6,143 |
|
Crude oil |
|
|
3,695 |
|
|
|
5,160 |
|
|
|
4,769 |
|
|
|
5,025 |
|
|
|
4,461 |
|
|
Total oil sales |
|
|
10,752 |
|
|
|
12,760 |
|
|
|
12,214 |
|
|
|
12,424 |
|
|
|
10,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
million tonnes per year |
|
|
Metric equivalent |
|
|
527 |
|
|
|
627 |
|
|
|
611 |
|
|
|
621 |
|
|
|
530 |
|
|
Revenue
by product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Gasolines |
|
|
62,189 |
|
|
|
55,594 |
|
|
|
44,830 |
|
|
|
38,861 |
|
|
|
30,455 |
|
Kerosines |
|
|
21,775 |
|
|
|
16,308 |
|
|
|
10,826 |
|
|
|
9,170 |
|
|
|
8,710 |
|
Gas/Diesel oils |
|
|
63,357 |
|
|
|
48,304 |
|
|
|
35,344 |
|
|
|
28,077 |
|
|
|
25,735 |
|
Fuel oil |
|
|
13,218 |
|
|
|
9,688 |
|
|
|
8,424 |
|
|
|
6,591 |
|
|
|
5,900 |
|
Other products |
|
|
17,505 |
|
|
|
15,279 |
|
|
|
13,834 |
|
|
|
11,420 |
|
|
|
9,845 |
|
|
Total oil products |
|
|
178,044 |
|
|
|
145,173 |
|
|
|
113,258 |
|
|
|
94,119 |
|
|
|
80,645 |
|
|
by geographical area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
55,968 |
|
|
|
44,010 |
|
|
|
35,618 |
|
|
|
30,228 |
|
|
|
25,077 |
|
Other Eastern Hemisphere |
|
|
31,705 |
|
|
|
25,725 |
|
|
|
19,957 |
|
|
|
16,801 |
|
|
|
17,371 |
|
USA |
|
|
49,574 |
|
|
|
46,500 |
|
|
|
34,533 |
|
|
|
26,200 |
|
|
|
17,199 |
|
Other Western Hemisphere |
|
|
19,957 |
|
|
|
15,116 |
|
|
|
12,751 |
|
|
|
10,836 |
|
|
|
12,118 |
|
Export sales |
|
|
20,840 |
|
|
|
13,822 |
|
|
|
10,399 |
|
|
|
10,054 |
|
|
|
8,880 |
|
|
Total oil products |
|
|
178,044 |
|
|
|
145,173 |
|
|
|
113,258 |
|
|
|
94,119 |
|
|
|
80,645 |
|
|
|
|
|
a |
|
By country of destination, except where the ultimate destination is not known at the
time of sale, in which case the sales are shown as export sales. |
b |
|
Export sales as a percentage of total oil sales volumes amount to 9.4% in 2005, 7.1% in
2004, 7.2% in 2003, 8.2% in 2002 and 8.6% in 2001. |
Operating and Financial Review Oil Products 51
Operating and Financial Review Oil Products
Average product revenue
by product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ per barrel |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
a |
|
2002 |
a |
|
2001 |
a |
|
Gasolines |
|
|
70.88 |
|
|
|
55.03 |
|
|
|
44.46 |
|
|
|
38.22 |
|
|
|
39.50 |
|
Kerosines |
|
|
73.52 |
|
|
|
53.52 |
|
|
|
37.18 |
|
|
|
32.12 |
|
|
|
35.70 |
|
Gas/Diesel oils |
|
|
75.61 |
|
|
|
55.04 |
|
|
|
41.90 |
|
|
|
33.52 |
|
|
|
36.19 |
|
Fuel oil |
|
|
42.91 |
|
|
|
31.17 |
|
|
|
28.14 |
|
|
|
23.82 |
|
|
|
22.85 |
|
Other products |
|
|
68.29 |
|
|
|
54.95 |
|
|
|
50.30 |
|
|
|
40.21 |
|
|
|
38.14 |
|
|
Total oil products |
|
|
69.12 |
|
|
|
52.19 |
|
|
|
41.68 |
|
|
|
34.85 |
|
|
|
35.96 |
|
|
by geographical area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
73.21 |
|
|
|
56.93 |
|
|
|
45.67 |
|
|
|
38.11 |
|
|
|
37.09 |
|
Other Eastern Hemisphere |
|
|
70.52 |
|
|
|
53.30 |
|
|
|
42.45 |
|
|
|
35.77 |
|
|
|
37.83 |
|
USA |
|
|
67.48 |
|
|
|
50.48 |
|
|
|
39.56 |
|
|
|
33.55 |
|
|
|
35.78 |
|
Other Western Hemisphere |
|
|
77.28 |
|
|
|
55.51 |
|
|
|
46.64 |
|
|
|
38.18 |
|
|
|
41.47 |
|
Export sales |
|
|
56.48 |
|
|
|
41.57 |
|
|
|
32.41 |
|
|
|
26.95 |
|
|
|
26.59 |
|
|
Total oil products |
|
|
69.12 |
|
|
|
52.19 |
|
|
|
41.68 |
|
|
|
34.85 |
|
|
|
35.96 |
|
|
|
|
|
a |
|
Figures for 2003, 2002 and 2001 are provided on a US GAAP basis. |
Trading
Shell Trading trades about 14 million barrels of crude oil equivalent per day, comprising crude
oil, refined products, natural gas, electrical power and chemicals. Companies within the Shell
Trading network (including Houston, Barbados, Rotterdam, London, Dubai, Moscow and Singapore) are
each distinct separate entities responsible for running their own businesses.
52 Royal Dutch Shell plc
Shipping
During 2005, shipping portfolio changes included the contracting of three General Purpose product
tankers (10,000 to 25,000dwt) on bareboat charter. Two new building US Jones Act Medium Range
product tankers (25,000 to 45,000dwt) were contracted on time charter for delivery in 2007. The
bareboat charters of two Large Range product tankers (45,000 to 160,000dwt) were extended from 2007
and two Large Range product tankers contracted in 2004 entered into service. Three LNG tankers (two
of 140,000 cubic metres and one of 145,000 cubic metres) were contracted on time charter. One VLCC
(Very Large Crude Carrier over 160,000dwt) and one LPG carrier (59,000 cubic metres) were
redelivered from bareboat charter. These changes and other new charters, charter renewals and
redeliveries from charter are summarised in the table below.
Oil tankersa (at December 31)
Owned/demise-hired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
number of ships |
|
|
million deadweight tonnes |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
VLCCs (very large crude carriers over
160,000dwt) |
|
|
4 |
|
|
|
5 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
1.2 |
|
|
|
1.5 |
|
|
|
2.1 |
|
|
|
2.1 |
|
|
|
2.1 |
|
Large range (45,000 to 160,000dwt) |
|
|
13 |
|
|
|
11 |
|
|
|
13 |
|
|
|
16 |
|
|
|
16 |
|
|
|
0.8 |
|
|
|
0.7 |
|
|
|
0.9 |
|
|
|
1.3 |
|
|
|
1.3 |
|
Medium range (25,000 to 45,000dwt) |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
6 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
General purpose (10,000 to 25,000dwt)
/Specialist) |
|
|
5 |
|
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
27 |
|
|
|
23 |
|
|
|
28 |
|
|
|
30 |
|
|
|
31 |
|
|
|
2.3 |
|
|
|
2.5 |
|
|
|
3.3 |
|
|
|
3.7 |
|
|
|
3.7 |
|
|
Time-charteredbc |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCCs (very large crude carriers over 160,000dwt) |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
|
|
Large range (45,000 to 160,000dwt) |
|
|
18 |
|
|
|
19 |
|
|
|
15 |
|
|
|
18 |
|
|
|
17 |
|
|
|
1.6 |
|
|
|
1.7 |
|
|
|
1.3 |
|
|
|
1.5 |
|
|
|
1.5 |
|
Medium range (25,000 to 45,000dwt) |
|
|
14 |
|
|
|
8 |
|
|
|
13 |
|
|
|
15 |
|
|
|
7 |
|
|
|
0.5 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
0.6 |
|
|
|
0.3 |
|
General purpose (10,000 to 25,000dwt) /Specialist) |
|
|
13 |
|
|
|
12 |
|
|
|
10 |
|
|
|
6 |
|
|
|
7 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
46 |
|
|
|
40 |
|
|
|
39 |
|
|
|
40 |
|
|
|
31 |
|
|
|
2.7 |
|
|
|
2.5 |
|
|
|
2.3 |
|
|
|
2.5 |
|
|
|
1.9 |
|
|
Total oil tankers |
|
|
73 |
|
|
|
63 |
|
|
|
67 |
|
|
|
70 |
|
|
|
62 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
5.6 |
|
|
|
6.2 |
|
|
|
5.6 |
|
|
Owned/demise-hired under construction or on order (oil)d |
|
|
1 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas carriersa (at December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
number of ships |
|
|
thousand cubic metres |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Owned/demise-hired (LNG)e |
|
|
6 |
|
|
|
6 |
|
|
|
5 |
|
|
|
4 |
|
|
|
2 |
|
|
|
797 |
|
|
|
797 |
|
|
|
662 |
|
|
|
522 |
|
|
|
253 |
|
Time-chartered (LNG)e |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned/demise-hired (LPG) |
|
|
0 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
0 |
|
|
|
60 |
|
|
|
59 |
|
|
|
59 |
|
|
|
59 |
|
Time-chartered (LPG) |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
|
|
136 |
|
|
|
136 |
|
|
|
136 |
|
|
|
145 |
|
|
|
113 |
|
|
Total gas carriers |
|
|
9 |
|
|
|
10 |
|
|
|
8 |
|
|
|
8 |
|
|
|
5 |
|
|
|
1,078 |
|
|
|
1,138 |
|
|
|
857 |
|
|
|
726 |
|
|
|
425 |
|
|
Owned/demise-hired under construction or on order (LNG)d |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
135 |
|
|
|
277 |
|
|
|
556 |
|
|
|
|
|
a |
|
Oil tankers, ocean going articulated tug barges and gas carriers of 10kdwt and above which
are owned/chartered by Group companies where the Group equity shareholding is at least 50%. |
b |
|
Time-chartered oil tankers include Consecutive Voyage Charters. |
c |
|
Contracts of affreightment are not included. |
d |
|
Owned/demise hired newbuilding contracts not in service but due for delivery post December 31,
2005. |
e |
|
LNG carriers reported in Gas & Power sector. |
Operating and Financial Review Oil Products 53
CHEMICALS
Chemicals are part of the
downstream organisation. Shells
downstream businesses engage in
refining crude oil into a range of
products including fuels,
lubricants and petrochemicals, and
marketing of the refined products.
Contents
|
|
Earnings |
|
|
|
Capital investment
and portfolio actions |
|
|
|
Outlook and strategy |
|
|
|
Business and property |
|
|
|
Research and development |
Overview
Chemicals produce and sell
petrochemicals to industrial
customers globally. The products
are widely used in plastics,
coatings and detergents, which in
turn are used in items such as
textiles, medical supplies and
computers.
Highlights
> |
|
Earnings from
continuing operations
of $1.3 billion |
|
> |
|
Strong cash generation;
cash surplus of over $3
billion |
|
> |
|
Nanhai petrochemicals
complex delivered on time, on
budget |
|
> |
|
Successful sale of Basell
and the cracker and butadiene
business at Berre |
Earnings
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
2005 |
|
|
2004 |
|
|
Revenue (including intersegment sales) |
|
|
34,996 |
|
|
|
29,497 |
|
Purchases (including change in inventories) |
|
|
(29,565 |
) |
|
|
(24,362 |
) |
Depreciation |
|
|
(599 |
) |
|
|
(695 |
) |
Operating expenses |
|
|
(3,613 |
) |
|
|
(3,205 |
) |
Share of profit of equity accounted investments |
|
|
423 |
|
|
|
437 |
|
Other income/(expense) |
|
|
(9 |
) |
|
|
(25 |
) |
Taxation |
|
|
(335 |
) |
|
|
(300 |
) |
|
Segment earnings from continuing operations |
|
|
1,298 |
|
|
|
1,347 |
|
Income/(loss) from discontinued operations |
|
|
(307 |
) |
|
|
(199 |
) |
|
Segment earnings |
|
|
991 |
|
|
|
1,148 |
|
|
2005 compared to 2004
Earnings
Segment earnings were $991 million and
included $307 million of losses related
to discontinued operations. 2004
earnings were $1,148 million, including
the effect of $199 million of net
losses from discontinued operations.
Earnings from continuing operations in
2005 were $49 million below those in
2004 as higher margins and lower
depreciation were offset by lower
volumes and higher costs (legal
provisions, increased portfolio
activity and manufacturing plant
expenditure).
Earnings this year benefited from more
favourable margins (defined as
proceeds less cost of feedstock and
energy) and improved trading earnings,
which outweighed the impact of lower
sales volumes. Trading earnings
increased, reflecting strong
fundamentals and increased chemical
feedstock trading. Sales volumes of
chemical products decreased by 6% from
2004 mainly due to lower sales in
first-line derivatives due to weaker
demand for some products and a
decrease in aromatics trading sales in
base chemicals. Asset utilisation
declined by some 3% mainly due to the
impact of hurricanes on operations in
the US. Depreciation decreased by $96
million from last year due to lower
asset impairments. Higher costs
reflected charges for legal
provisions, costs associated with
increased portfolio activity (project
development, business exits and
divestments) as well as higher
manufacturing plant expenditure.
The loss from discontinued operations
in 2005 related to a write-down of the
carrying value and charges from the
sale of Basell. In 2004, the loss from
discontinued operations comprised an
impairment of the investment in Basell
of $353 million partly offset by $154
million share of operating profit from
Basell.
Capital investment and portfolio actions
In 2005 capital investment was $599 million compared with
$868 million in 2004. Capital expenditure decreased by $142
million from last year due to lower spending on
manufacturing projects and lower capitalised expenditure
for major plant inspection costs. Additions to equity
accounted investments were $127 million below those last
year, largely as the result of the completion of
construction of the Nanhai petrochemicals complex in
southern China (Group interest 50%). Operational startup at
Nanhai is now well underway and when operating at full
capacity the plant is expected to produce 2.3 million
tonnes of chemicals a year to supply Chinas domestic
market.
Shell and BASF completed the sale of the polyolefins joint
venture Basell (Group interest 50%) to Nell Acquisition
S.a.r.l., an affiliate of New York based Access Industries.
The sale proceeds to Shell, after debt, were over $1
billion. Shell also sold to Basell its 50% share in the
ethylene cracker at Berre in France along with the
butadiene business and assets and logistic assets
associated with the cracker operation in Aubette, Berre and
Fos. With the completion of the sale, the cracker became
wholly-owned by Basell. Shell will continue to operate the
cracker for Basell.
We announced plans to expand the capacity of the isopropyl
alcohol plant at Pernis in the Netherlands by 50,000
tonnes a year. The expanded capacity is expected to be
available in 2006 and will strengthen Shells position in
the isopropyl alcohol market.
We awarded engineering and design contracts for the planned
world-scale ethylene cracker facility at the Pulau Bukom
manufacturing complex in Singapore. The integration of the
ethylene cracker complex with the refinery would enable us
to capture potential site and location benefits as well as
supply and market logistics. Final investment decision for
the project is expected in 2006.
Shell signed a letter of intent with Qatar Petroleum to
develop an ethane based cracker and derivatives complex
at Ras Laffan in Qatar. The agreement will allow for
work to develop the technical and commercial aspects of
the complex. It is intended that the plant will produce
petrochemicals to be marketed primarily in Asian growth
markets, with a startup date planned for early in the
next decade.
Outlook and strategy
Further growth is expected in world petrochemicals
demand in 2006. In addition, margins and demand may also
be impacted as a result of continued high feedstock and
energy costs.
The Chemicals strategy continues to focus on our
portfolio of crackers and selected first-line
derivatives, which supply bulk petrochemicals to large
industrial customers.
In the short term, the Nanhai petrochemicals complex is
expected to be onstream in early 2006 complementing a
strong asset base in North America and in Europe. In the
medium term, growth opportunities will be pursued,
particularly in the East, through projects including the
ethylene crackers in Singapore and in Qatar.
The integration of Chemicals into the Groups
downstream business is expected to deliver benefits
through further optimisation of hydrocarbon streams,
standardisation of processes and through the use of
shared services.
Business and property
Our chemicals companies produce and sell petrochemicals
to industrial customers globally. The products are widely
used in plastics, coatings and detergents, which in turn
are used in products such as fibres and textiles, thermal
and electrical insulation, medical equipment and sterile
supplies, computers, lighter and more efficient vehicles,
paints, and biodegradable detergents.
Group companies currently produce a range of base and
intermediate
chemicals. They are major suppliers of base chemicals
such as ethylene, propylene and aromatics, and
intermediates such as styrene monomer, propylene oxide,
solvents, detergents alcohols, and ethylene oxide.
The Chemicals portfolio includes CRI/Criterion, Inc. (CRIC)
and several joint ventures including Infineum, Saudi
Petrochemical Company (SADAF), CNOOC and Shell
Petrochemicals Company Ltd. (CSPCL) (each as described
below). Also included, until August 2005, is Shells
interest in Basell NV (as described below):
CRIC (Group interest 100%) and other CRI or Criterion
companies are major catalyst manufacturers in the global
refinery and petrochemical markets, with seven
manufacturing plants located throughout the world.
Infineum, a 50:50 joint venture between Group companies and
ExxonMobil with manufacturing locations in eight countries,
formulates, manufactures and markets high-quality additives
for use in fuel, lubricants, and specialty additives and
components.
SADAF, a 50:50 joint venture between Group companies and
Saudi Basic Industries Corporation (SABIC) produces base
and intermediate chemicals for international markets.
|
|
|
Operating and Financial Review
Chemicals
|
|
55 |
Operating
and Financial Review Chemicals
CSPCL, a 50:50 joint venture between Group companies and CNOOC Petrochemicals Investment Ltd.,
will produce a range of petrochemicals, intended primarily for the Chinese markets. The
construction of the $4.3 billion Nanhai petrochemicals complex in southern China is complete and
progress with startup is well underway.
In August 2005, Group companies sold their interests in Basell, a 50:50 joint venture with BASF.
Following the sale, Basell remains a major customer for the Groups downstream businesses. In
December 2005, Shell Pétrochimie Méditerranée (SPM) sold to Basell its 50% share in Société du
Craqueur de lAubette (SCA). SCA, now wholly-owned by Basell, owns the ethylene cracker at Berre.
As part of this transaction, Basell also acquired the butadiene business and assets of Shell at
Berre and the logistics assets associated with the cracker operation. SPM continues to operate the
cracker, logistics assets and butadiene plant under operating agreements with Basell.
Sales
Sales volumes by main product categorya
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousand tonnes |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Base chemicals |
|
|
13,710 |
|
|
|
14,184 |
|
|
|
13,165 |
|
|
|
10,031 |
|
|
|
8,760 |
|
|
First-line derivatives |
|
|
8,891 |
|
|
|
9,499 |
|
|
|
9,779 |
|
|
|
9,595 |
|
|
|
8,849 |
|
|
Other |
|
|
225 |
|
|
|
477 |
|
|
|
164 |
|
|
|
1,767 |
|
|
|
1,269 |
|
|
|
|
|
22,826 |
|
|
|
24,160 |
|
|
|
23,108 |
|
|
|
21,393 |
|
|
|
18,878 |
|
|
Sales volumes by region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousand tonnes |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Europe |
|
|
10,018 |
|
|
|
10,159 |
|
|
|
9,902 |
|
|
|
9,077 |
|
|
|
8,408 |
|
|
Other Eastern Hemisphere |
|
|
5,252 |
|
|
|
5,526 |
|
|
|
5,397 |
|
|
|
4,672 |
|
|
|
3,732 |
|
|
USA |
|
|
6,893 |
|
|
|
7,819 |
|
|
|
7,108 |
|
|
|
6,970 |
|
|
|
6,239 |
|
|
Other Western Hemisphere |
|
|
663 |
|
|
|
656 |
|
|
|
701 |
|
|
|
674 |
|
|
|
499 |
|
|
Total chemical products sales volume |
|
|
22,826 |
|
|
|
24,160 |
|
|
|
23,108 |
|
|
|
21,393 |
|
|
|
18,878 |
|
|
Revenue by geographical areab
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ million |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Europe |
|
|
8,981 |
|
|
|
7,873 |
|
|
|
5,617 |
|
|
|
3,994 |
|
|
|
3,734 |
|
|
Other Eastern Hemisphere |
|
|
4,640 |
|
|
|
4,530 |
|
|
|
3,092 |
|
|
|
2,324 |
|
|
|
1,642 |
|
|
USA |
|
|
6,564 |
|
|
|
6,159 |
|
|
|
4,369 |
|
|
|
3,548 |
|
|
|
3,419 |
|
|
Other Western Hemisphere |
|
|
735 |
|
|
|
616 |
|
|
|
486 |
|
|
|
379 |
|
|
|
283 |
|
|
Total chemical products revenue |
|
|
20,920 |
|
|
|
19,178 |
|
|
|
13,564 |
|
|
|
10,245 |
|
|
|
9,078 |
|
|
Non-chemical products |
|
|
2,998 |
|
|
|
2,311 |
|
|
|
1,622 |
|
|
|
1,245 |
|
|
|
1,538 |
|
|
Total Revenue |
|
|
23,918 |
|
|
|
21,489 |
|
|
|
15,186 |
|
|
|
11,490 |
|
|
|
10,616 |
|
|
Ethylene capacity Group and equity accounted investmentsc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
Nominal capacity (thousand tonnes/year) |
|
|
6,414 |
|
|
|
6,701 |
|
|
|
6,203 |
|
|
|
6,023 |
|
|
|
5,586 |
|
Utilisation (%) |
|
|
86 |
|
|
|
87 |
|
|
|
90 |
|
|
|
92 |
|
|
|
87 |
|
|
|
|
|
a |
|
Excluding volumes sold by equity accounted investments, chemical
feedstock trading and by-products. |
|
b |
|
Excluding proceeds from equity accounted investments and chemical
feedstock trading. |
|
c |
|
Data includes Group share of capacity entitlement (offtake rights) that
may be different from nominal Group equity interest. |
At December 31, 2005, Group companies had major
interests in chemical manufacturing plants, as described
below.
Europe
Belgium CRI Catalyst Co Belgium N.V. (Group interest 100%)
manufactures catalysts at its Ghent, Belgium facility.
France At Berre lEtang, Shell Pétrochimie Méditerranée
S.A.S. (SPM) (Group interest 100%), owns and operates a
refinery as well as petrochemicals units, manufacturing
oil products, solvents, and di-isobutylene. SPM also
operates at Berre additives units on behalf of
Infineum, several polymer units on behalf of third
party companies, and Basells ethylene cracker,
logistics assets and butadiene plant.
Germany Shell Deutschland Oil GmbH (SDO, Group interest
100%) operates manufacturing plants in Harburg (hydrocarbon
solvents), Godorf (benzene, toluene), Wesseling (ethylene,
propylene, benzene, toluene, xylenes, methanol), and Heide
(ethylene, propylene, benzene, toluene, xylenes,
hydrocarbon solvents and chemical solvents). By virtue of
our share interest (32.25%) in the relevant manufacturing
company, Shell Chemicals Europe B.V. (SCE) is entitled to a
proportion of the production of propylene and methyl
tertiary butyl ether from plants in Karlsruhe. Due to the
Groups share interest (37.5%) in a company in Schwedt, SCE
receives propylene, benzene, toluene and xylenes. Kataleuna
GmbH Catalysts, a CRIC company, manufactures catalyst at
its Leuna, Germany plant.
The Netherlands Shell Nederland Chemie B.V. (SNC, Group
interest 100%) manufactures solvents, methyl tertiary butyl
ether, brake fluids, glycol ethers and urethanes (polyols)
at the Pernis facility. SNC operates at Pernis a
polypropylene plant owned by Basell and several derivatives
plants on behalf of third party companies. SNC manufactures
lower olefins, benzene, ethyl benzene, ethylene oxide, and
styrene monomer/propylene oxide (SM/PO) at the Moerdijk
facility. SNC also operates a SM/PO plant owned by Ellba
CV, a 50:50 joint venture between Group companies and BASF
producing styrene monomer, primarily used in the production
of polystyrene and propylene oxide. Shell Chemicals Europe
B.V. (SCE) is responsible for all chemicals sales, supply
chain management and the procurement of feedstocks and
process chemicals for chemical products across Western
Europe other than in respect of chemicals joint ventures in
which Group companies have an interest.
UK Shell U.K. Oil Products Ltd. (as an agent for Shell U.K.
Ltd.) operates the plants of Shell Chemicals U.K. Ltd.
(SCUK, Group interest 100%) at Stanlow, which produce
propylene, benzene, toluene, and higher olefins and
derivatives. In
Carrington, SCUK owns plants producing derivatives from
ethylene oxide (ethoxylates) and propylene oxide (polyols),
which are operated by Basell. SCUK has announced that these
plants will close in 2007. The production of the polyols
will then transfer to SNCs polyols facility at Pernis,
Rotterdam, which will be upgraded to take on the additional
capacity. SCUK also owns NEODOL® ethoxylates
assets operated by Uniqema at Wilton, to which the
ethoxylates production at Carrington will be transferred in
2007. SCE has indirect rights to an ethylene oxide supply
from Dows Wilton facility. At Fife in Scotland, ExxonMobil
owns and operates an ethylene plant from which, under a
processing rights agreement, SCE is entitled to 50% of the
output.
Other Eastern Hemisphere
China CNOOC and Shell Petrochemicals Company Ltd. (CSPCL)
is a 50:50 joint venture between Group companies and CNOOC
Petrochemicals Investment Ltd. (CPIL). CPIL shareholders
include China National Offshore Oil Corporation (CNOOC) and
the Guangdong Investment & Development Company. CSPCL will
produce a range of petrochemicals, including ethylene,
propylene, styrene monomer, propylene oxide, polyols,
propylene glycol, mono-ethylene glycol, polypropylene,
high-density polyethylene, low-density polyethylene and
butadiene. Construction of CSPCLs Nanhai petrochemicals
complex in Chinas Guangdong Province is complete and
progress with startup is well underway. In addition,
several products have reached on specification status.
The complex is expected to produce 2.3mtpa of petrochemical
products. Pre-marketing activities are currently
coordinated by CNOOC and Shell Petrochemicals Marketing
Company Ltd. (CSPMCL), also a 50:50 joint venture between a
Group company and CPIL.
Saudi Arabia The Saudi Petrochemical Company (SADAF), a
50:50 joint venture between Group companies and Saudi Basic
Industries Corporation (SABIC), owns and operates a 1
million tonnes per year ethylene cracker and downstream
plant capable of producing 3.6mtpa of crude industrial
ethanol, ethylene dichloride, caustic soda, styrene, and
methyl tertiary butyl ether. The marketing arms of both
partners handle the local and international marketing of
SADAF products. Our marketing effort is coordinated by
Shell Trading (M.E.) Private Ltd. (Group interest 100%)
located in Dubai, United Arab Emirates.
Singapore Group companies own a 50% and 30% equity
interest in two Sumitomo-managed joint ventures,
Petrochemical Corporation of Singapore (Private) Ltd. (PCS)
and The Polyolefin Company (Singapore) Pte. Ltd. (TPC),
respectively. PCS owns and operates two ethylene crackers
with a total capacity of 1 million tonnes per year of
ethylene and 500,000 tonnes per year of propylene. Ethylene
Glycols (Singapore) Pte. Ltd. (Group interest 70%) owns and
operates an ethylene oxide/glycols plant. Seraya Chemicals
(Singapore) Pte. Ltd. (SCSL, Group interest 100%) owns and
operates a SM/PO plant, and operates a SM/PO plant owned by
Ellba Eastern Pte Ltd., a 50:50 joint venture between the
Group and BASF. SCSL also operates two propylene oxide
derivatives (POD) plants and one mono-propylene glycol
(MPG) plant owned by Shell Eastern Petroleum (Pte) Ltd.
USA
Shell Chemical LP (SCLP) and other associated entities have
manufacturing facilities located at Mobile, Alabama;
Martinez, California; St. Rose, Geismar and Norco,
Louisiana; and Deer Park, Texas. Chemical products include
lower olefins, aromatics, phenol, solvents, ethylene
oxide/glycols, higher olefins and their derivatives,
propanediol, styrene monomers, propylene oxide, additives
and catalysts. These chemical products are used in many
consumer and industrial products and processes, primarily
in the United States.
Infineum, a 50:50 joint venture between Group companies and
ExxonMobil, has manufacturing facilities at Argo,
Illinois; Baytown, Texas; Bayway, New Jersey and Belpre,
Ohio.
CRIC catalyst manufacturing locations are at Martinez,
Pittsburg and Azusa, California; Michigan City, Indiana and
Willow Island, West Virginia.
Sabina Petrochemicals LLC, a joint venture owned by SCLP
(62%), BASF Corporation (23%) and Total Petrochemicals
USA, Inc. (15%), produces butadiene at Port Arthur,
Texas.
|
|
|
Operating and Financial Review Chemicals
|
|
57 |
Operating and Financial Review Chemicals
Other Western Hemisphere
Canada Shell Chemicals Canada Limited (SCCL, Group interest
100%) produces styrene, isopropyl alcohol, and ethylene
glycol. Manufacturing locations are at Sarnia, Ontario and
near Fort Saskatchewan, Alberta. SCCL sells its products to
Shell Chemicals Americas Inc. (SCAI, Group interest 100%).
SCAI is the marketing company for (i) all Canadian domestic
sales of chemical products, (ii) all exports of Canadian
made chemical products, and (iii) exports of US made
chemical products where a Shell entity arranges
transportation. PTT Poly Canada, L.P., a 50:50 joint
venture (limited partnership pursuant to the Civil Code of
Quebec, Canada) between SCCL and Investissements
Petrochimie (2080) Inc., a subsidiary of the Société
Générale de Financement du Québec, owns and operates a
world-scale polytrimethylene terephthalate (PTT) plant near
Montreal, Quebec, Canada. The joint venture markets PTT
under the trademark CORTERRA, Polymers, with its main use
in carpet and textile fibres.
Basell operates the isopropyl alcohol plant at Sarnia
on behalf of Shell Chemicals Canada Ltd.
Criterion Catalysts & Technologies Canada Inc, a
CRI/Criterion company, manufactures catalyst at its
Medicine Hat, Alberta plant.
Puerto Rico Shell Chemical Yabucoa Inc. (SCYI, Group
interest 100%) owns and operates a 77,000 barrel per day
refinery producing feedstock for the Deer Park, Texas and
Norco, Louisiana chemical plants. The facility also
produces gasoline, diesel, jet fuel and residual fuels,
primarily for use in Puerto Rico.
Research and development (R&D)
R&D and other technical services continue to improve key
products and technologies that provide Shell chemical
companies with sustainable leadership positions in selected
products. Improvements in manufacturing processes
achieved by means of increased feedstock flexibility,
product yield, energy efficiency or plant throughput are
leading to lower production costs at existing facilities
and lower investment cost of new facilities. Customer
relationships and market positions are being enhanced
through close technical links with important industrial
customers. Longer term, R&D intends to create sustainable
cost advantaged technology that leverages upstream
technology and hydrocarbon positions.
THIS PAGE INTENTIONALLY LEFT BLANK
|
|
|
Operating and Financial Review |
|
59
|
OTHER INDUSTRY SEGMENTS
AND CORPORATE
Other industry segments include
Renewables and Hydrogen. Renewables
develop businesses based on
renewable sources of energy,
including wind and solar power.
Hydrogen develop business
opportunities in hydrogen and fuel
cell technology.
Corporate represents the functional
activities supporting the Group.
Contents
|
|
Earnings |
|
|
|
Renewables and Hydrogen |
|
|
|
Business and property |
|
|
|
Corporate |
Overview
Shells other industry segments
seek to enhance longer-term
prospects for Shells growth and
profitability, increase energy
security, and reduce the
environmental impact of developing
hydrocarbon resources through the
offset of greenhouse gases.
Shell Renewables is developing our
options in renewable energy,
focusing on solar and wind energy.
The combined operations of Shell
Renewables is expected to play an
increasingly important role in
managing our greenhouse gas
emissions in the future.
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ millions |
|
|
|
2005 |
|
|
2004 |
|
|
|
Other |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
industry |
|
|
|
|
|
|
industry |
|
|
|
|
|
|
segments |
|
|
Corporate |
|
|
segments |
|
|
Corporate |
|
|
Segment earnings from continuing operations |
|
|
(202 |
) |
|
|
(321 |
) |
|
|
(145 |
) |
|
|
(946 |
) |
Income/(loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35 |
) |
|
Segment earnings |
|
|
(202 |
) |
|
|
(321 |
) |
|
|
(145 |
) |
|
|
(981 |
) |
|
2005 compared to 2004
Earnings
Other industry segments consist of the
combined results of our renewables and
hydrogen businesses.
Corporate is a non-operating segment
consisting primarily of interest
expense on debt and certain other
non-allocated costs.
Renewables and Hydrogen
Shell aims to develop at least one
alternative energy source such as
wind, hydrogen or advanced solar
technology into a substantial
business.
We see wind as one of the most
promising sources of renewable energy
and we currently have interests in
wind projects around the world with a
capacity of 350 megawatts (based on
Group interest).
In 2005, we signed final contracts for the
NoordzeeWind project and expect
construction to start during 2006. This
will be the first Dutch offshore wind
project with 36 turbines and an overall
capacity of 108MW and is a joint
venture between Shell and Nuon (Group
interest 50%). We also made progress
with the London Array wind project.
This project, in the outer Thames
Estuary, if approved, would have up to
271 turbines and would generate up to
1,000MW of electricity (Group interest
33%).
We are also one of the largest wind
energy developers in the US and we are
extending our presence in this market
by pursuing the acquisition of the
development rights for the Mount Storm
wind park in West Virginia. We have
also made progress in securing the
appropriate permits for the Cotterel
Mountain wind project in Idaho.
In Solar we have revised our approach
to focus on advanced solar panel
technology, including CIS thin film,
rather than traditional silicon-based
materials.
In February 2006, Shell announced signing of a Memorandum of
Understanding with Saint-Gobain to further explore the
Shell CIS technology and consider joint development.
Shell reached agreement via a share purchase agreement to
divest its crystalline silicon business activities to
SolarWorld AG in early 2006. Shells silicon-based business
has an annual production of approximately 80MW.
Manufacturing facilities, sales and marketing, and silicon
research and development activities in Germany and the
United States will transfer to SolarWorld.
During the year, Shell Hydrogen continued its work to
promote and support the development of the infrastructure
and technology that will help hydrogen play its part in
meeting future energy needs. New projects agreed included
an agreement with the Tokyo Gas Company to conduct a
pre-feasibility
study for a combined LNG/Liquid Hydrogen/CO2 terminal in Tokyo and
with Tongji University to build a hydrogen station in Shanghai.
Business and property
Renewables and Hydrogen
Shells activities seek to enhance longer term prospects
for Shells growth and profitability, increase energy
security, and reduce the environmental impact of developing
hydrocarbon resources through the offset of greenhouse
gases.
Shell Renewables is developing our options in renewable
energy, focusing on wind, solar and hydrogen energy
projects. The combined operations of Shell Renewables is
expected to play an increasingly important role in managing
our greenhouse gas emissions in the future.
Shell WindEnergy continues to focus on developing and
operating wind farms and selling green electricity,
building on its strengths in project management,
financing and engineering design. Business development
activity is concentrated in Europe and North America.
Shell Solar focuses on advanced solar panel technology,
including CIS thin film.
Shell Hydrogen is developing projects with the aim of
introducing hydrogen as a commercial product into relevant
transportation and stationary markets.
Corporate
The Corporate segment is a non-operating segment
consisting primarily of interest expense on debt and
certain other non-allocated costs. Corporate net costs
were $321 million in 2005 compared with $981 million in
2004, due to a decrease in net interest expense and
shareholder costs coupled with an increase in tax
recoveries, which were offset by additional insurance
costs and exchange losses.
|
|
|
Operating and Financial Review Other industry segments and Corporate
|
|
61 |
Operating and Financial Review Liquidity and capital resources
2005 compared to 2004
Overview
In general, the most significant factors affecting
year-to-year comparisons of cash flow provided by operating
activities are changes in realised prices for crude oil and
natural gas, crude oil and natural gas production levels,
and refining and marketing margins. These factors are also
the most significant affecting income. Acquisitions and
divestments can affect the comparability of cash flows in
the year of the transaction. On a longer term basis, the
ability to replace proved reserves that are produced
affects cash provided by operating activities, as well as
income.
Because the contribution of Exploration & Production to
earnings is larger than our other businesses, changes
affecting Exploration & Production, particularly changes
in realised crude oil and natural gas prices and
production levels, have a significant impact on the
overall Group results. While Exploration & Production
benefits from higher realised crude oil and natural gas
prices, the extent of such benefit (and the extent of a
detriment from a decline in these prices) is dependent on
the extent to which the prices of individual types of
crude oil follow the Brent benchmark, the dynamics of
production sharing contracts, the existence of agreements
with governments or national oil companies that have
limited sensitivity to crude oil price, tax impacts, the
extent to which changes in crude oil price flow through
into operating costs and the impacts of natural gas
prices. Therefore, changes in benchmark prices for crude oil and
natural gas only provide a broad indicator of changes in
the earnings experienced in any particular period by
Exploration & Production.
In Oil Products, our second largest business, changes in
any one of a range of factors derived from either within or
beyond the industry can influence margins in the short or
long term. The precise impact of any such change at a given
point in time is dependent upon other prevailing conditions
and the elasticity of the oil markets. For example, a
sudden decrease in crude oil and/or natural gas prices
would in the very short term lead to an increase in
combined refining and marketing margins until responding
downward price corrections materialise in the international
oil products markets. The converse arises for sudden crude
or natural gas price increases. The duration and impact of
these dynamics is in turn a function of a number of factors
determining the market response, including whether a change
in crude price affects all crude types or only a specific
grade; regional and global crude oil and refined products
stocks; and the collective speed of response of the
industry refiners and product marketers in adjusting their
operations. It should be noted that commonly agreed
benchmarks for refinery and marketing margins do not exist
in the way that Brent crude oil prices and Henry Hub
natural gas prices in the US serve as benchmarks in the
Exploration & Production business.
In the longer term, reserve replacement will affect the
ability of the Group to continue to maintain or increase
production levels in Exploration & Production, which in
turn will affect our cash flow provided by operating
activities and income. We will need to take measures to
maintain or increase production levels and cash flows in
future periods, which measures may include developing new
fields, continuing to develop and apply new technologies
and recovery processes to existing fields, and making
selective focused acquisitions. Our goal is to offset
declines from production and increase reserve
replacements. However, volume increases are subject to a
variety of risks and other factors, including the
uncertainties
of exploration, project execution, operational
interruptions, reservoir performance and regulatory
changes. We currently expect overall production to
increase beginning in 2006 as additional production from
new projects begins to come on stream.
The Group has a diverse portfolio of development projects
and exploration opportunities, which helps mitigate the
overall political and technical risks of Exploration &
Production and the associated cash flow provided by
operating activities.
It is our intention to continue to divest and, where
appropriate, make selective focused acquisitions as
part of active portfolio management. The number of
divestments will depend on market opportunities and are
recorded as assets held for sale where appropriate.
We manage our portfolio of businesses to balance cash
flow provided by operating activities against uses of
cash over time based on conservative assumptions relating
to crude oil prices relative to average historic crude
oil prices.
Statement of cash flows
Cash flow provided by operating activities reached a record
level of $30.1 billion in 2005 compared with $26.5 billion
in 2004. Income increased to $26.3 billion in 2005 from
$19.3 billion in 2004, reflecting higher realised prices in
Exploration & Production and higher refining margins in Oil
Products. Additionally, $2.3 billion of cash flows were
realised in 2005 through sales of assets (2004: $5.1
billion). Proceeds from sales of equity accounted
investments amounted to $4.3 billion. Cash flow in 2005 has
mainly been deployed for capital expenditure ($15.9
billion), debt repayment ($2.7 billion) and dividends paid
to shareholders ($10.6 billion). In 2005, Royal Dutch
Shell, Royal Dutch and Shell Transport paid dividends of
$3.8 billion, $4.0 billion and $2.8 billion respectively
(2004: Shell Transport $2.8 billion, Royal Dutch $4.6
billion).
Cash flows from oil trading activities are primarily
driven by income and
movements in working capital. In 2005, net income and
reductions in working capital created strong cash
generation.
Cash flows in Gas & Power trading are also principally a
function of income and working capital movements. In
2005, a cash deficit from operating activities was the
result of increased levels of working capital.
At the end of 2005, the gross levels of current assets and
current liabilities in trading had materially increased,
driven by strong upward price moves particularly in the
Gas & Power markets in the second half of the year. The
net current assets have increased to a significantly
lesser extent.
Financial condition and liquidity
The Groups financial position is robust, and we returned
over $17 billion to our shareholders through dividends,
buybacks and payment to Royal Dutch minority shareholders
in 2005.
Cash and cash equivalents amounted to $11.7 billion at the
end of 2005 (2004: $9.2 billion). Total short and
long-term debt fell $1.7 billion between 2004 and 2005.
Total debt at the end of 2005 amounted to $12.9 billion
and the Groups total debt ratioa decreased
from 13.8% in 2004 to 11.7% in 2005. The current level of
the debt ratio falls below the medium-term gearing
objective of the Group, which establishes a target
gearingb of between 20% and
|
|
|
a |
|
The total debt ratio is defined as short-term plus
long-term debt as a percentage of capital employed.
Capital employed is Group total assets minus total
liabilities, plus short-term and long-term debt. |
b |
|
Target gearing differs from the total debt ratio as it
includes certain off-balance sheet obligations of a
financing nature. |
25% (inclusive of certain off-balance sheet obligations
of a financing nature). The total debt outstanding
(excluding leases) at December 31, 2005 will mature as
follows: 57% in 2006, 24% in 2007, 8% in 2008, 6% in 2009
and 5% in 2010 and beyond.
The Group currently satisfies its funding requirements from
the substantial cash generated within its business and
through external debt. Our external debt is principally
financed through two commercial paper programmes, which are
issued on a short-term basis (generally for up to six
months), and a euro medium-term note programme, each
guaranteed by Royal Dutch Shell plc. Each of the two
commercial paper programmes and the medium-term note
programme are for up to $10 billion in value.
In 2005, the Group established a US universal shelf
registration enabling it to offer up to $10 billion of
securities. The debt programmes now consist of:
a) |
|
a Global Commercial Paper Programme, exempt from
registration under section 3(a)(3) of the U.S. Securities
Act 1933, which funds current transactions, with
maturities not exceeding 364 days; |
|
b) |
|
a section 4(2) Commercial Paper Programme which can
be used to finance non-current transactions. The maximum
maturity of commercial paper issued under the programme
has been limited to 397 days; |
|
c) |
|
a euro medium-term note programme; and |
|
d) |
|
a US universal shelf registration. |
Other than described below, these programmes do not have
committed support from banks as the Group considers the
costs involved in securing such support are unnecessary
given the Groups current credit rating.
The Group currently maintains $2.5 billion of committed
bank facilities, as well as internally available liquidity
(some $1 billion), to provide back-up coverage for
commercial paper maturing within 30 days. Aside from this
facility and certain borrowing in local subsidiaries, the
Group does not have committed bank facilities as this is
not considered to be a cost-effective form of financing for
the company given its size, credit rating and cash
generative nature.
The maturity profile of the Groups outstanding commercial
paper is actively managed to ensure that the amount of
commercial paper maturing within 30 days remains
consistent with the level of supporting liquidity. The
committed facilities, which are with a number of
international banks, will expire in 2010, with options to
extend to 2012. The Group expects to be able to renew
these facilities on commercially acceptable terms.
While the Group is subject to restrictions, such as foreign
withholding taxes, on the ability of subsidiaries to
transfer funds in the form of cash dividends, loans or
advances, such restrictions are not expected to have a
material impact on the ability of the Group to meet its
cash obligations.
Credit ratings
On February 4, 2005, Standard & Poors Ratings Services
(S&P) downgraded to AA from AA+ its long-term ratings
on the Group (through a downgrade of the Group Holding
Companies, The Shell Petroleum Company Limited and Shell
Petroleum N.V. and its subsidiary Shell Oil Company).
Moodys Investors Service (Moodys) continues to rate the
guaranteed long-term debt of Shell Finance (Netherlands)
B.V. and Shell Finance (U.K.) P.L.C,
as Aa1. In July, 2005, following implementation of the
Unification Transaction, S&P and Moodys each extended the
same ratings to debt programmes guaranteed by Royal Dutch
Shell. All long-term debt programmes which formerly
operated under the guarantee of the Shell Petroleum N.V.
and The Shell Petroleum Co. Ltd, now operate under the
guarantee of Royal Dutch Shell plc. The credit ratings
given to the commercial paper programmes guaranteed by
Royal Dutch Shell plc have been confirmed by S&P and
Moodys at their original levels of A-1+ and Prime-1,
respectively. Since the Unification Transaction, new
insurance has been undertaken through a new borrowing
vehicle, Shell International Finance B.V.
Capital investment and dividends
Group companies capital expenditure, exploration
expense and new investments in equity accounted
investments increased by $2.1 billion to $17.4 billion
in 2005.
Capital investment (excluding the contribution of the
Groups minority partners in Sakhalin) in 2006 is
estimated to be $19 billion, with Exploration & Production
continuing to account for the majority of this amount.
Royal Dutch Shell currently expects to return up to $5
billion to shareholders via buyback of shares for
cancellation in 2006. Share buyback plans will be reviewed
periodically, and are subject to market conditions and the
capital requirements of the company. In line with the
financial framework, the target for gearing over time in
the 20-25% range remains unchanged, including other
commitments such as operating leases, contingent
liabilities, retirement benefits and operating cash
requirements.
Exploration & Production expenditures of $12.0 billion
(2004: $9.7 billion) accounted for more than half the total
capital investment. Gas & Power accounted for $1.6 billion
(2004: $1.7 billion). Oil Products investment amounted to
$2.8 billion (2004: $2.8 billion). Chemicals investment was
$0.6 billion (2004: $0.9 billion). Investment in other
industry segments was $0.3 billion (2004: $0.2 billion).
Our first priority for applying our cash is our dividend,
which is declared in euro. We intend to pay quarterly
dividends and provide per share increases in dividend at
least in line with European inflation over time. After
dividends and capital investment, the priority for using
cash generated is to maintain a prudent balance sheet. Both
the medium and long-term focus will remain on improving the
underlying operational performance in order to continue to
deliver consistently strong cash flows.
Guarantees and other off-balance sheet obligations
Guarantees at December 31, 2005 were $2.9 billion (2004:
$2.9 billion). At December 31, 2005, $1.7 billion were
guarantees of debt of equity accounted investments, $0.3
billion were guarantees for customs duties and other tax
liabilities and $0.9 billion were other guarantees.
Guarantees of debt of equity accounted investments mainly
related to Nanhai ($1.1 billion).
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Operating and Financial Review Liquidity and capital resources
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63 |
Operating and Financial Review Liquidity and capital resources
Financial framework
The Group manages its business to deliver strong cash flows to fund investment and growth based on
cautious assumptions relating to crude oil prices. Our strong cash position in 2005, with
operational cash flow of $30 billion, gives us the financial flexibility both to fund capital
investment and to return cash to shareholders.
Royal Dutch Shell has announced it will seek to increase dividends at least in line with European
inflation over time. The base for the 2005 financial year was the dividend paid by Royal Dutch and
Shell Transport in respect of the financial year ending December 31, 2004. With the adoption of
quarterly dividends in 2005, Royal Dutch Shell, together with Royal Dutch and Shell Transport prior
to the Unification Transaction, returned $10.7 billion to shareholders in dividends during 2005.
Share repurchases
The table below provides an overview of the share repurchases that occurred in 2005. Prior to the
Unification Transaction, these transactions involved Royal Dutch and Shell Transport shares, and
after the Unification Transaction, they have involved Royal Dutch Shell Class A shares. Although
the transactions were executed in different currencies depending on the market and shares involved,
all purchases have been converted to the functional currency of the issuer: euro in the case of
Royal Dutch; sterling in the case of Shell Transport; and dollars in the case of Royal Dutch Shell,
(based on the average monthly exchange rate). The table omits certain Royal Dutch shares that were
repurchased for immediate redelivery under share plans and not held as treasury shares.
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Total number |
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Maximum number (or |
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of shares (or units) |
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approximate dollar value) |
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Average price |
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purchased as part |
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of shares (or units) that may |
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Total number of shares |
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paid per share |
|
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of publicly announced |
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yet be purchased under |
|
Purchase Perioda |
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(or units purchased) |
|
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(or units) |
|
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plans or programmes |
|
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the plans or programmes |
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January 1 to 31 |
|
|
|
|
|
|
|
|
|
|
|
|
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$5.0 billion |
|
February 1 to 29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Royal Dutch Shares |
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1,500,000 |
|
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46.16 |
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1,500,000 |
|
|
|
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Shell Transport Shares |
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6,800,000 |
|
|
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£4.84 |
|
|
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6,800,000 |
|
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$4.8 billion |
|
March 1 to 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Royal Dutch Shares |
|
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3,380,000 |
|
|
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47.31 |
|
|
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3,380,000 |
|
|
|
|
|
Shell Transport Shares |
|
|
14,750,000 |
|
|
|
£4.89 |
|
|
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14,750,000 |
|
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$4.5 billion |
|
April 1 to 30 |
|
|
|
|
|
|
|
|
|
|
|
|
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$4.5 billion |
|
May 1 to 31 |
|
|
|
|
|
|
|
|
|
|
|
|
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$4.5 billion |
|
June 1 to 30 |
|
|
|
|
|
|
|
|
|
|
|
|
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$4.5 billion |
|
July 1 to 31 |
|
|
|
|
|
|
|
|
|
|
|
|
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$4.5 billion |
|
Royal Dutch Shell Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1 to 31 |
|
|
18,962,250 |
|
|
|
$32.79 |
|
|
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18,962,250 |
|
|
$3.9 billion |
|
September 1 to 30 |
|
|
40,132,636 |
|
|
|
$32.75 |
|
|
|
40,132,636 |
|
|
$2.6 billion |
|
October 1 to 31 |
|
|
23,025,000 |
|
|
|
$30.94 |
|
|
|
23,025,000 |
|
|
$1.9 billion |
|
November 1 to 30 |
|
|
39,540,000 |
|
|
|
$31.10 |
|
|
|
39,540,000 |
|
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$0.6 billion |
|
December 1 to 31 |
|
|
19,475,000 |
|
|
|
$31.84 |
|
|
|
19,475,000 |
|
|
|
|
|
|
|
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a |
|
See page 6 for further disclosure on the Unification. |
The above table does not include shares of Royal Dutch or Shell Transport acquired or
extinguished as part of the Unification Transaction or the Restructuring (see Unification of Royal
Dutch and Shell Transport).
Contractual obligations
The table below summarises Group companies principal contractual obligations at December 31, 2005,
by expected settlement period. The amounts presented have not been offset by any committed third
party revenues in relation to these obligations.
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|
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$ billion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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After |
|
|
|
|
|
|
|
Within |
|
|
2/3 |
|
|
4/5 |
|
|
5 years |
|
|
|
|
|
|
|
1 year |
|
|
years |
|
|
years |
|
|
(2011 and |
|
|
|
Total |
|
|
(2006) |
|
|
(2007/2008) |
|
|
(2009/2010) |
|
|
2012) |
|
|
Long-term debta |
|
|
9.2 |
|
|
|
5.2 |
|
|
|
2.9 |
|
|
|
0.8 |
|
|
|
0.3 |
|
Finance leasesb |
|
|
7.8 |
|
|
|
0.5 |
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
5.5 |
|
Operating leasesc |
|
|
11.7 |
|
|
|
2.2 |
|
|
|
3.5 |
|
|
|
2.0 |
|
|
|
4.0 |
|
Purchase obligationsd |
|
|
248.1 |
|
|
|
96.7 |
|
|
|
47.5 |
|
|
|
30.2 |
|
|
|
73.7 |
|
Other long-term contractual liabilitiese |
|
|
0.7 |
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
Total |
|
|
277.5 |
|
|
|
104.7 |
|
|
|
55.2 |
|
|
|
34.0 |
|
|
|
83.6 |
|
|
|
|
|
a |
|
The total figure is comprised of $4 billion of long-term debt (debentures and other loans,
and amounts due to banks and other credit instruments), plus $5.2 billion of long-term debt due
within one year. The total figure excludes $3.7 billion of long-term finance lease obligations. See
Note 20(c) to the Consolidated Financial Statements. |
b |
|
Includes executory costs and interest. See Note 20(c) to the Consolidated Financial Statements. |
c |
|
See Note 20(c) to the Consolidated Financial Statements. |
d |
|
Includes any agreement to purchase goods and services that is enforceable, legally binding and
specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed,
minimum or variable price provisions; and the approximate timing of the purchase. The amounts
include $4.3 billion of purchase obligations associated with financing arrangements, which are
disclosed in Note 34 to the Consolidated Financial Statements. Raw materials and finished products
account for 93% of total purchase obligations. |
e |
|
Includes all obligations included in Non-current liabilities Other in the Consolidated
Balance Sheet that are contractually fixed as to timing and amount. In addition to these amounts,
the Group has certain obligations that are not contractually fixed as to timing and amount,
including contributions to defined benefit pension plans estimated to be $1.4 billion (see Note 22
to the Consolidated Financial Statements) and obligations associated with asset retirements (see
Note 23 to the Consolidated Financial Statements). |
The table above excludes interest expense related to long term debt estimated to be $0.5
billion in 2006, $0.2 billion in 2007/2008 and $0.1 billion in 2009/2010 (assuming interest rates
with respect to variable interest rate long-term debt remain constant and there is no change in
aggregate principal amount of long-term debt other than repayment at scheduled maturity as
reflected in the table).
Dividend Access Trust
The movements in cash and cash equivalents of the Dividend Access Trust consist primarily of
dividends received (£869 million) and distributions made on behalf of the Group to shareholders
(£869 million) and changes in net working capital (£Nil). See Supplementary Information control
of registrant Rights attaching to shares for an explanation of the Royal Dutch Shell Dividend
Access Trust.
|
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|
Operating and Financial Review Liquidity and capital resources
|
|
65 |
Operating and Financial Review Social and environmental
One of the main challenges in responding to societys
rapidly growing need for energy is to work in
environmentally and socially responsible ways. This means
addressing carbon dioxide impacts both from our own
operations as well as the use of our products. It also
means reducing the negative environmental and social
impacts of the large projects which we need to undertake.
This section examines
our objectives and strategies, the risks and issues we face
and our performance in these important areas.
Social and environmental objectives and strategies
The Group is committed to playing its part in meeting the
worlds growing demand for energy in environmentally and
socially responsible ways. We are governed by applicable
laws as well as the Shell General Business Principles
which include a commitment to contribute to sustainable
development. This requires balancing short and long-term
interests and integrating economic, environmental and
social considerations into business decision making. This
includes giving proper regard to health, safety, security
and the environment and working to achieve continuous
performance improvements towards our aspirations of no
harm to people and protecting the environment. We also
seek to manage the social impact of our business on the
communities in which we work.
The Groups business strategy of more upstream, profitable
downstream will mean that we will need to undertake more
very large upstream projects and these will present a range
of environmental and social challenges. To remain a
preferred partner for such projects we will need to
demonstrate that we can operate major energy facilities in
a safe and environmentally responsible way and be a good
neighbour to local communities. We will also need to show
that we consistently live by our business principles,
including our commitment to contribute to sustainable
development. Meeting these requirements effectively is a
pre-requisite both for obtaining financing and successful
project implementation. However, we cannot meet these
challenges on our own. We will need to continue to develop
our relationships with external organisations that can
bring added value and credibility through the provision of
scientific data and competences that we do not have.
Management of environmental and social activities
All Shell companies and joint ventures over which we have
operational control apply the Shell General Business
Principles. We also require contractors to follow the
principles and strongly promote their application or their
equivalent to ventures where we do not have operational
control, as well as to our suppliers. We also have a series
of Shell-wide standards that set consistent global
requirements for dealing with the main environmental and
social issues we face. They include standards for
environment, security, biodiversity, animal testing, ship
quality, health management, reputation, and diversity and
inclusiveness. New in 2005 is the launch of our Golden
Rules,which emphasise compliance with the law and company
procedures, and require intervention in unsafe situations
and respect for our neighbours. Three simple,
easy-to-remember rules which are designed to raise
awareness and increase personal accountability.
Our standards and commitments are integrated into our own
business processes in many different ways. They are
included in the criteria we use for assessing investment
proposals and in the planning and design of all major new
projects. An integrated environmental and social impact
assessment is required before we undertake significant work
and the actions identified must be included in the
projects design and operation. Social performance plans
have been implemented at 30 refineries and chemicals
facilities and are being implemented at upstream operations
where social impacts could be high.
Shell companies have a systematic approach to health,
safety and environmental (HSE) management to comply with
relevant laws and regulations and to drive continuous
improvement in performance. Every company is responsible
for the identification and assessment of hazards and the
implementation of control and recovery measures.
Sustainable development, including HSE, is part of the
Chief Executives responsibilities. Compliance with the
Business Principles and HSE standards is monitored through
an annual assurance letter process in which the relevant
senior manager is required to report back to the Chief
Executive on the performance of their business area or
country of operation against the Business
Principles.
Sustainable development makes up 20% of the overall Group
scorecard. The principal Key Performance Indicator (KPI)
for this element of the scorecard is Total Reportable Case
Frequency (TRCF), a measure of the number of injuries
sustained by our staff and contractors as a function of the
hours worked. The Chief Executive exercises judgment in the
final determination of this score based on his perception
of our overall sustainable development performance. Full
details of all of the components of the scorecard can be
found on page 87.
The Boards Social Responsibility Committee reviews our
policies and performance with respect to the Shell
General Business Principles, HSE standards and major
issues of public concern on behalf of the Board. This
committee is composed of three independent Directors.
Risk and issues
Selection of issues
A systematic assessment was made to identify the risks
which may have a potential impact on our social and
environmental performance.
Climate change
Meeting growing demand for energy while mitigating the
effect of carbon emissions on the environment is a key
challenge for the energy industry and Shell recognises the
importance of the need to take action on climate change.
Since 1997, Shell has taken a number of initiatives both to
reduce and manage carbon emissions from our own activities
and to reduce emissions by our customers from the products
we supply. This included setting voluntary targets to
reduce greenhouse gas emissions from our own operations. We
met the first target in 2002 and reconfirmed the second,
which requires our greenhouse gas emissions in 2010 to be
5% below 1990 levels. We are working to achieve this
through a continued focus on energy efficiency projects at
our major downstream operations and by ending continuous
flaring of natural gas at oil production facilities. We
have
also supported the development of CO2 management market mechanisms
and are an active participant in the EU Emissions
Trading Scheme. A senior level position has been created to
ensure that we take an integrated approach to the
management of carbon and drive carbon abatement
technologies consistently across the Group.
We recognise that there are particular challenges ahead in
producing oil and gas to meet future demand. More energy is
required to produce oil from older fields, and developing
unconventional resources such as oil sands. Our leading
position in clean-burning natural gas helps reduce
emissions but LNG and GTL facilities are energy intensive.
We are working to develop the technology such as carbon
capture and storage that will help reduce and manage these
emissions. We are also developing alternative energies in
wind, advanced solar, hydrogen and biofuels.
Perhaps the greatest challenge is the fast-growing
transportation sector, where we are helping customers
reduce their emissions through a differentiated fuels
strategy, providing premium quality transport fuels that
reduce local air pollution and fuel consumption.
Operating in ecologically sensitive areas
There is growing concern about the potential harmful
effects of the loss of the worlds biodiversity. This was
underlined by the Millennium Ecosystem Assessment,
carried out in 2005 by 1,300 scientists around the world,
which highlighted the extent to which worlds ecosystems
are being degraded. The
challenge we face is to establish an appropriate balance
between the need for development and the conservation of
nature.
Shell is responding to that challenge in a number of ways.
We have a Group Biodiversity Standard, which ensures that
the potential impact on biodiversity of any projects is
identified at an early stage. It requires plans to be
developed to manage that impact including work with experts
and relevant stakeholders. We have also made a commitment
not to operate in natural World Natural Heritage sites. We
have embedded biodiversity into the management of our
projects and are now developing Biodiversity Action Plans
(BAPs) for areas where we operate in IUCN (World
Conservation Union) category I-IV protected areas in
Brunei, the Netherlands, Nigeria and the US. We are
identifying other areas of high biodiversity value and we
aim to have BAPs in place for these areas by the end of
2007.
We have already developed considerable practical experience
in protecting biodiversity and one of the challenges will
be to apply what we have learned in new projects. We have
worked for five years with the Smithsonian Institution to
understand the impact of our business on the tropical
rainforests of Gabon. Elsewhere staff working on the
Sakhalin project have shared their work on mitigating the
impact on the Western Gray Whale population with the team
preparing to acquire seismic data in the Beaufort Sea north
of Alaska.
We are also working with over 100 scientific and
conservation organisations worldwide to help us manage
local biodiversity issues and are now embarking on the next
step to develop a select number of global partnerships to
take this work further.
Managing the risk of a significant HSE incident
One of the major risks the Group faces is the possibility
of a significant HSE incident involving the loss of life,
environmental impact or asset damage. Each of our sites is
responsible for the identification and assessment of
hazards and effects, and the maintenance of a documented
demonstration that major risks have been reduced to As Low
As Reasonably Practicable (ALARP). The risk management
process includes audits of the HSSE management system every
three years, certification of environmental aspects to
international standards such as ISO 14001 technical/HSE
reviews and asset integrity processes. There is also a need
to show that there is a framework in place to ensure that
staff in HSSE-critical positions are competent to carry out
their duties; a focus on the management of contractors; and
an emphasis on the need for staff to comply with procedures
and intervene in unsafe situations. The documentation also
requires there to be processes in place for all serious
incidents to be discussed with senior management, relevant
lessons disseminated and for the Shell Group crisis
management system to be applied should any serious incident
occur.
Protecting our people and facilities
Our security procedures are governed by the Shell Group
Security Standard. It applies to all Shell companies and
requires full compliance with
applicable legal requirements, international standards and
the Shell General Business Principles. Under the Standard,
armed security can only be used when required by law, or
where there is no other way to manage the risk, and only
then in ways that comply with the United Nations Guidelines
on the Use of Force. We also support the Voluntary
Principles on Security and Human Rights and, in 2005, made
progress in integrating these into our security practices.
In response to the increased risk of terrorism, we also
appointed a network of regional security advisers to work
with governments and security authorities and provide local
expertise and advice.
Human rights and political risks
An important element of our business principles is
supporting fundamental human rights. This means protecting
the rights of our employees and contractors,
for example by providing grievance procedures and offering
access to unions or staff councils, not using child labour
and providing a safe and healthy work environment. It also
includes addressing the challenges of operating in
countries with a poor record on human rights and we use
independent country assessments from The Danish Institute
of Human Rights to help us develop our plans for dealing
with human rights in specific countries.
This approach to human rights is part of our wider effort
to manage political risks, which also include civil unrest,
international sanctions and governments nationalising our
assets. To manage these risks, we set clear rules and apply
them using local knowledge. All of our operations are
required to follow our business principles, which we also
promote in joint ventures and with host governments. Our
operations must also follow our security standard and
comply with all applicable laws.
Behaving with integrity
Our business principles also make a very clear statement
that we will not, under any circumstances, make or accept
bribes or facilitation payments. Ensuring compliance with
these rules requires ongoing training programmes and
effective monitoring and detection. We have introduced a
single global whistle-blower hotline and website allowing
staff to report concerns anonymously.
Community relations
Shell works to establish good relations with the
communities living near our operations. We try to do this
through good environmental and safety performance, open
and inclusive dialogue, and joint efforts to address
issues of most concern.
We develop social performance plans to help us understand
the many different points of view in the community, and to
work with local representatives, often through a panel, on
the issues that matter most to the community. The plans
also involve monitoring our performance, for example
through independent surveys. Our social performance
management unit also provides expertise and support to
individual facilities.
Making a contribution
Taxes and royalties represent our biggest economic
contribution to the countries where we operate. In 2005 we
collected on behalf of governmental authorities more than
$72 billion in sales taxes and excise duties and paid
almost $19 billion in corporate taxes and $2 billion in
royalties to governments. In energy consuming countries,
energy taxes are often the largest source of government
revenues after income taxes. To help ensure these revenues
benefit local communities, we continue to support
initiatives such as the UK governments Extractive
Industries Transparency Initiative under which energy and
mining companies publicly declare the payments they make to
governments. In 2005, we published our payments to the
Nigerian government and to the Russian government for our
project on Sakhalin Island.
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Operating and Financial Review Social and environmental
|
|
67 |
Operating and Financial Review Social and environmental
We also work to promote the use of local suppliers and
contractors and, in 2005, we spent an estimated $9.2
billion on goods and services from locally owned companies
in low and medium income countries, up from $6.3 billion in
2004. In 2005, we spent $127 million on social investment
projects, up from $106 million in 2004. Our largest
programmes are in Nigeria and the US.
Performance
Reporting environmental and social data
Reporting environmental and social data differs from
financial data in a number of important ways (see our Group
Performance Monitoring and Reporting Guide
www.shell.com/envandsociety). Safety and environmental data
carry inherent limitations, which include the event nature
of incident data and the need for estimation. Culture,
individual behaviour and judgment can affect whether events
are reported. We are confident in the overall reliability
of our data, but we continue to improve data integrity by
strengthening internal controls.
Safety and environmental data are aggregated from those
entities under operational control (meaning we can require
all our HSE standards to be applied) and certain companies
to which we provide operational services. Data are reported
on a 100% basis regardless of our equity share in the
company. Other social data are either drawn from external
sources or aggregated from all entities under operational
control. Data from companies that were disposed of or
acquired during the year are included only for the period
that they were under operational control. During 2002,
acquisitions made a material difference to the data we
reported.
We set one year performance improvement targets for some of
our key HSE parameters (injuries, flaring, energy
efficiency and spills). We have also set longer term
targets to eliminate the disposal of gas by continuous
flaring and reduce greenhouse gas emissions.
Social
Safety
Fatal Accident Rate
Employees and contractors per 100 million working hours
We are deeply saddened that three employees and 33
contractors lost their lives at work in 2005, of which 10
were road accidents. We have reduced our Fatal Accident
Rate by about 15% since 2001. This has mainly been achieved
by a steady drop in the number of deaths from road
accidents, helped by our driver safety programmes and by
the introduction of stricter driving standards in 2005. It
has proved harder to reduce fatalities due to other causes,
both at our existing operations and on our new construction
projects. Many of these deaths, nine in 2005, come from
workers falling. We are strengthening our guidance for
working safely at heights.
Injuries
TRCF (Total Recordable Case Frequency)
Employees and contractors per
million working hours
Our injury rate, measured by the TRCF, has come down over time, improving
approximately 14% since 2001. In 2005 our reported TRCF was
in line with our target. However, unlike the reduction in
the number of fatalities, the improvement in TRCF has
stalled in recent years. This partly reflects an increase
in construction projects in challenging areas, which bring
a higher risk of injury than ongoing operations. It also
results from the need to improve the safety performance of
some acquisitions, for example in our lubricants business
in the US.
Continuing the trend and improving our safety performance
further remains an important priority. Our fatality target
remains zero. The failure to reduce TRCF further also
reflects the challenge of changing behaviour and
strengthening the safety culture in the Group, which the
Hearts and Minds, HSE competence and Golden Rules
programmes are designed to address. Making TRCF the lead
indicator in the Sustainable Development section of Shells
company scorecard in 2005 and 2006 underlines the
importance we place on improving our safety performance.
Our TRCF target for 2006 remains unchanged at 2.5, mainly
due to portfolio changes.
Safety data are subject to uncertainty due to difficulties
in underlying data
capture of incidents and control weaknesses in reporting
the hours worked.
Favourability
In 2005 we improved our indicator for tracking how society
views us. For the fourth year in a row, the Reputation
Tracker Survey was conducted on our behalf by a polling
agency. It polls the general public, the financial
community and media, non-governmental organisations (NGOs),
the government, academics and the business community, in 13
major Shell markets. We looked not only at the share of
favourable opinions of us, as in the past, but also at the
unfavourable, subtracting one from the other to get a sense
of the overall balance or net favourability and compared
it to the next most favourably viewed energy company in
each market.
According to this survey, we have been the most favourably
viewed energy company with the general public in these
markets every year since the survey began. In 2005, we
retained that position, though the gap with our
competitors narrowed slightly. Among special publics,
where we were also ahead in past years, competitors have
closed the gap. However, we are making progress in
repairing the damage to our reputation that was done with
this group by the 2004 reserves restatement and related
issues.
Integrity
We track our performance in living up to our policy of
zero tolerance for bribes, facilitation payments and
illegal acts, in two ways.
First, we ask all our staff, confidentially, in the Shell
People Survey, what their own experience has been. In 2004,
the last year the survey was done, 79% said that their part
of Shell was dealing with the outside world with integrity
and does not tolerate bribery or other breaches of our
business
principles. Approximately 5% did not. Scores have
improved steadily. We will check progress again in the
2006 Shell People Survey.
Second, we track the number of proven incidents of bribery
and fraud gathered by our internal incident reporting
system and reported to the Audit Committee of the Board of
Royal Dutch Shell. In 2005, we dismissed 175 staff and
contractors for violating our principles. This is a
significant drop from 2004. We believe this is partly a
result of well-publicised dismissals in 2004, particularly
in Nigeria. We continued to improve detection of bribery,
facilitation and other incidents of fraud, including
introducing whistle-blowing facilities for staff to report
concerns anonymously.
Environmental
Greenhouse gas emissions
CO2 equivalent in million tonnes
About three quarters of the greenhouse gas emissions
from our own operations result from fuel combustion, with
most of the rest due to the flaring of gas associated with
oil production. The volumes emitted in 2005 reversed their
slow six year rise, falling by 7 million tonnes. Most of
the reduction came from upstream operations, partly because
we reduced flaring at a major oil field in Nigeria and
partly because of lower production. Downstream emissions, approximately half our total, were
down slightly in 2005, as improvements in energy
efficiency at our refineries, particularly at US
facilities, and the divestment of the Bakersfield refinery
more than compensated for the extra energy needed to
refine cleaner, lower sulphur fuels.
We remain on track to meet our 2010 target of having 5%
lower greenhouse gas
emissions than in 1990, through a combination of improved
energy efficiency and ending the continuous flaring of
natural gas at oil production facilities during 2009. These
major efforts will be needed to offset business growth to
2010 and the extra energy needed to produce from fields
that are ageing or have heavier hydrocarbons.
Flaring
Flaring in Exploration & Production (million tonnes)
The amount of natural gas from oil wells that we flare has
been declining since 2001 thanks to a major programme to
install equipment to collect this gas and bring it to
market. The SPDC joint venture in Nigeria, responsible for
approximately two thirds of our total, has invested more
than $2 billion and
reduced its flaring by a third over five years. The 13% reduction from
2004 to 2005 in our total flaring was due partly to lower
production, partly to the increased availability of
compressors, which allowed us to run the gas gathering
equipment at existing facilities more, and partly to the
ending of continuous flaring at Nigerias Cawthorne Channel
field. Uncertainties arise because some data from Nigeria
are calculated without standardised procedures in place.
The SPDC joint venture programme remains on track to meet
its revised deadline of ending continuous flaring during
2009. New facilities are being built to avoid continuous
flaring, in line with our Group-wide environmental
standards.
Energy efficiency
Refineries Energy Intensity Index (EII)
In 2005 we switched to using the Solomon and Associates
Energy Intensity Index (EII) to measure and report the
energy efficiency of our refineries. This makes us
consistent with general practice in our industry and
allows us to compare our performance with other operators.
Our energy efficiency has continuously improved since we
began the annual measurement of EII in 2002, due to having
shorter and fewer planned shut downs, running refineries
closer to their full production capacity, and to energy
efficiency programmes. Despite our improvement programmes,
we missed our 2005 target due to:
> |
|
ambitious energy efficiency targets for several of our
refineries in Asia that were not fully realised; and |
|
> |
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a number of unplanned events that required the total
shutdown and startup of a few of our larger energy
contributing sites, including the effects of the hurricanes
in the US Gulf Coast. |
Chemicals Chemicals Energy Index (CEI)
In our chemicals plants, the Chemical Energy Index (CEI),
which compares the energy used to make a tonne of product
to a 2000 baseline of 100, worsened in 2005, after three
years of steady improvement. This was largely due to
unplanned shutdowns as a result of the Gulf Coast
hurricanes and a number of technical issues. Shutdowns
consume additional energy as the plants are safely brought
down and subsequently restarted. Chemicals remains on track
to meet its 2007 target of lowering its CEI by 10% compared
to 2001, through having fewer shut downs, investment
projects
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Operating and Financial Review Social and environmental
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69 |
Operating and Financial Review Social and environmental
and operational changes resulting from energy efficiency programmes.
Exploration & Production Gigajoule/tonne of production
In Exploration & Production, the trend of needing more
energy to produce each unit of oil and natural gas
continued in 2005, having increased by over 40% since
2001. This is mainly the result of producing from maturing
fields, which require more energy to produce resources and
of increasing production of heavier oil in Oman and oil
sands in Canada. Given the strategy of the company and the
current portfolio, we expect the current trend to
continue.
Spills volume
Thousand tonnes
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* |
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Data restated due to recovery of 564 tonnes of oil
contained in a pipeline damaged by hurricane Ivan. |
We have seen a gradual downward trend in the volumes of
spills caused by corrosion or operational failures over
time, but not the number of incidents. Part of this has
been due to our programme to improve pipeline monitoring
and maintenance in Nigeria over the last few years,
investments in Oman, and to greater focus in our downstream
distribution network. However, the impact of two other
important sources of spills meant that we did not meet our
target in 2005. In Nigeria, the volume of spills resulting
from sabotage was higher, although we have increased
community patrols and the protection of vulnerable pipeline
sections. Damage to onshore pipelines from hurricanes in
the US and Gulf of Mexico caused several spills, the
largest were at Nairn and Pilottown in Louisiana in
September. A total of 3,900 tonnes of oil were spilled as a
result of the hurricanes.
External perception of environmental performance
The Group scored highest in the industry for environmental
responsibility for the fourth year in a row, in the 2005
Reputation Tracker Survey (see favourability on page 68 for
details). A quarter of respondents from the general public
ranked Shell as the best or one of the best in acting
responsibly towards the environment; so did a third of
respondents from the media, non-governmental organisations
(NGOs) and government.
Operating and Financial Review People
People
Our ability to effectively recruit new talent, and
develop and engage approximately 109,000 employees in
more than 140 countries is critical to the sustained
success of Shell.
During 2005, we focused our people strategy in support of
the Groups strategy of more upstream and profitable
downstream. This included targeted recruitment of key
technical staff, greater investment in technical
professionalism, and driving the benefits of the simpler
corporate structure (one Company one Chief Executive)
deeply into the organisation.
Resourcing for the future
In 2005, we recruited more than 700 graduates and almost
2,000 experienced people from over 70 different
nationalities, underlining our focus on recruiting from a
wider range of countries and regions, especially Asia
Pacific and the Middle East.
We have made good progress in securing the required
technical talent. Our successful, large-scale recruitment
drive for experienced Exploration & Production
professionals in 2005 means that Shell is well positioned
to deliver on the increased level of investment in our
upstream business. The recent appointment of Chief
Scientists also demonstrates our continued commitment to
technology and innovation, and confirms the strength of
Shells career and development opportunities for
technical staff.
Our capacity to deploy skilled professionals to priority
work around the globe is matched by our strong emphasis
on local careers and employee development with 49
nationalities represented among our senior leaders.
Strengthening leadership and deepening professionalism
Shells ability to capitalise on growth opportunities in
emerging markets relies on the skills and professionalism
of our employees.
To maximise the potential of our existing staff, we
continue to invest in training and development through a
balance of on and off-the-job learning. The establishment
of Project and Commercial Academies will provide new
opportunities for staff to develop expertise in these
areas.
Just as important is the ability to manage change
effectively, and in 2005 we increased both resources and
capability in support of business critical change
initiatives.
In addition, we are committed to the development of
leadership capability through the integrated
cross-business Shell Leadership Development programmes.
These are delivered through strong partnerships with
major international academic institutions and in 2005,
more than 7,000 people with leadership potential
participated in these programmes.
Communication and involvement
The success of our business depends on the full
commitment of all employees. We encourage the
involvement of employees in the planning and direction
of their work, and provide them with safe and
confidential channels to report concerns.
Employees in all countries where we operate have access
to staff forums, grievance procedures or other support
systems. A global Ethics and Compliance Helpline was
introduced during December 2005, offering an independent,
confidential and anonymous facility for reporting
non-compliance and resolving dilemmas and concerns.
A wide range of methods is employed globally to communicate
and consult with employees on matters of concern to them
and to raise their awareness generally about the
performance of Shell. These methods range from face-to-face
communication, through targeted e-mails and intranet sites,
to focus groups and webcasts.
The Shell People Survey is conducted every two years, and
asks employees for their opinions on a number of topics
relating to how they feel about working at Shell. The last
survey in 2004 had a 78% response rate and showed an
overall satisfaction rate of 64%. The next survey will take
place in 2006.
We seek to establish and maintain high-quality, direct and
open dialogue with employees. Our staff are represented by
collective labour agreements, unions and staff councils in
many countries in which the Group has operations.
Diversity and inclusiveness
Shell has had a long-standing commitment to the integration
of diversity and inclusiveness into every aspect of our
operations and culture. This is pursued through explicit
expectations for all employees and leaders, underpinned by
clear plans and targets. There are three global objectives:
improving the representation of women in senior leadership
positions to a minimum of 20% in the long term, improving
the representation of local people in senior positions in
their own countries; and improving the positive perceptions
of inclusiveness in the workplace.
At the end of 2005, women in senior leadership positions
had increased to 9.9%, compared with 9.6% in 2004. In 36%
of countries, local nationals fill more than half of senior
leadership positions. The Shell People Survey (2004)
reported that 64% of employees perceived workplace
inclusiveness favourably. Overall, these results represent
good progress, but further improvement is needed to meet
our aspirations.
We endeavour to ensure equal opportunity in recruitment,
career development, promotion, training and reward for
all employees, including those with disabilities. All
applicants and employees are assessed against clear and
objective criteria.
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Operating and Financial Review People |
|
71 |
Operating and Financial Review People
People
Employees by segment (average numbers)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands |
|
|
|
2005 |
|
|
2004 |
|
|
2003a |
|
|
2002 |
|
|
2001 |
|
|
Exploration & Production |
|
|
18 |
|
|
|
16 |
|
|
|
17 |
|
|
|
17 |
|
|
|
14 |
|
Gas & Power |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
Oil Products |
|
|
71 |
|
|
|
78 |
|
|
|
82 |
|
|
|
75 |
|
|
|
58 |
|
Chemicals |
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
|
|
9 |
|
Other industry segments and Corporate |
|
|
10 |
|
|
|
9 |
|
|
|
9 |
|
|
|
8 |
|
|
|
7 |
|
|
Total |
|
|
109 |
|
|
|
113 |
|
|
|
119 |
|
|
|
111 |
|
|
|
90 |
|
|
Employees by geographical area (average numbers)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands |
|
|
|
2005 |
|
|
2004 |
|
|
2003a |
|
|
2002 |
|
|
2001 |
|
|