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, 2006
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 |
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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 |
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5.625% Guaranteed Notes due 2011 |
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New York Stock Exchange |
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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, 2006:
3,585,194,588 RDS Class A ordinary shares of the nominal value of 0.07 each.
2,713,568,281 RDS 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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þ Yes |
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o 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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o Yes |
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þ No |
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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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þ Yes |
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o No |
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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 |
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 |
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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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o Yes
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þ No |
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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
Delivery and growth
Royal Dutch Shell plc
Annual Report and Form 20-F for the year ended December 31, 2006
Royal Dutch Shell
Our purpose
The objectives of the Shell Group are to engage safely, responsibly, efficiently and
profitably in oil, gas, oil products, 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 in environmentally
and socially responsible ways, safely and profitably.
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 stakeholders to advance more efficient and sustainable use of
energy and natural resources.
Cross Reference to Form 20-F
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Part I |
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Pages |
Item 1. |
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Identity of Directors, Senior Management and Advisers |
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N/A |
Item 2. |
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Offer Statistics and Expected Timetable |
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N/A |
Item 3. |
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Key Information |
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A. |
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Selected financial data |
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4-6, 220 |
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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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13-14 |
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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4-5, 10, 17, 20, 23, 27-31, 33-37, 39-41, 49-53, 108,184 |
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B. |
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Business overview |
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10-12, 16-55, 62-67, 161-167 |
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C. |
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Organisational structure |
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4, 204-207 |
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D. |
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Property, plant and equipment |
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10-12, 16-53, 62-64 |
Item 4A. |
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Unresolved Staff Comments |
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N/A |
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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4-7, 10-12, 16-64, 68-69 |
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B. |
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Liquidity and capital resources |
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56-57 |
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C. |
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Research and development, patents and licences, etc. |
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20, 34, 40, 49, 53, 74, 112 |
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D. |
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Trend information |
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10-14, 16-21, 32-34, 38-41, 48-49, 52-55 |
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E. |
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Off-balance sheet arrangements |
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57 |
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F. |
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Tabular disclosure of contractual obligations |
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59 |
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G. |
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Safe harbour |
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N/A |
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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72-73, 185 |
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B. |
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Compensation |
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84-99 |
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C. |
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Board practices |
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78-83 |
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D. |
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Employees |
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60-61, 77 |
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E. |
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Share ownership |
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76,183 |
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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76,183,188 |
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B. |
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Related party transactions |
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75, 190, 203, 216 |
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C. |
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Interests of experts and counsel |
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N/A |
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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44-46, 57, 74, 100-160, 191-207, 217-219 |
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B. |
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Significant Changes |
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74, 204 |
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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183, 217 |
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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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183 |
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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 |
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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78, 98-99, 184-190 |
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C. |
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Material contracts |
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75, 93-96 |
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D. |
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Exchange controls |
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189 |
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E. |
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Taxation |
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189-190 |
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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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v |
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I. |
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Subsidiary Information |
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N/A |
Item 11. |
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Quantitative and Qualitative Disclosures About Market Risk |
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82, 111, 168-182 |
Item 12. |
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Description of Securities Other than Equity Securities |
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N/A |
Part II |
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Pages |
Item 13. |
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Defaults, Dividend Arrearages and Delinquencies |
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N/A |
Item 14. |
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Material Modifications to the Rights of Security Holders and Use of Proceeds |
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N/A |
Item 15. |
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Controls and Procedures |
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81-83 |
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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79 |
Item 16B. |
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Code of Ethics |
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78 |
Item 16C. |
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Principal Accountant Fees and Services |
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69, 80, 148 |
Item 16D. |
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Exemptions from the Listing Standards for Audit Committees |
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78 |
Item 16E. |
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
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58 |
Part III |
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Pages |
Item 17. |
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Financial Statements |
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N/A |
Item 18. |
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Financial Statements |
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100-160, 191-207 |
Item 19. |
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Exhibits |
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221 |
iv
Royal Dutch Shell plc
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, 2006, for Royal Dutch
Shell plc (Royal Dutch Shell) and its subsidiaries. It
presents the Consolidated Financial Statements of Royal
Dutch Shell (pages 103160) and the parent company-only
Financial Statements of Royal Dutch Shell (pages
191207). This Report complies with all applicable UK
regulations. This Report also includes the disclosure
included in the Annual Report on Form 20-F for the year
ended December 31, 2006 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 equity accounted investments 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 the provisions of the Companies Act 1985, Article 4
of the International Accounting Standards (IAS)
Regulation 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. Prior to the Shell Groups
date of transition to IFRS of January 1, 2004 it prepared
Consolidated Financial Statements in accordance with US
Generally Accepted Accounting Principles (US GAAP).
Tables and disclosure that provide data over a five year
period show 2006, 2005 and 2004 on an IFRS basis and 2003
and 2002 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 (see page 4) 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 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. 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 also available, free of charge, at
www.shell.com/annualreport or at the offices of Royal
Dutch Shell in The Hague, The Netherlands and London, UK.
You may also obtain copies of this Report, free of
charge, by mail.
Royal Dutch Shell plc v
Abbreviations
Listed below are the most common abbreviations used throughout this Report.
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units of measurement |
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acre (approximately 0.4 hectares)
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acre |
barrels of oil equivalent (per day)
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boe(/d) |
billion cubic feet per day
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bcf/d |
British thermal units
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Btu |
megawatts
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MW |
million tonnes per annum
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mtpa |
standard cubic feet
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scf |
(thousand) deadweight tonnes
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(k)dwt |
products |
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Gas to Liquids
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GTL |
liquefied natural gas
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LNG |
liquefied petroleum gas
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LPG |
mono-propylene glycol
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MPG |
natural gas liquids
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NGL |
polytrimethylene terephthalate
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PTT |
propylene oxide derivatives
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POD |
styrene monomer/propylene oxide
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SM/PO |
miscellaneous |
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American Depositary Receipt
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ADR |
Annual General Meeting
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AGM |
carbon dioxide
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CO2 |
corporate social responsibility
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CSR |
engineering, procurement and construction
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EPC |
front-end engineering design
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FEED |
greenhouse gas
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GHG |
health, safety and environment
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HSE |
health, safety, security and environment
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HSSE |
International Financial Reporting Interpretations Committee
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IFRIC |
International Financial Reporting Standards
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IFRS |
non-governmental organisation
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NGO |
Operating and Financial Review
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OFR |
production sharing agreement
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PSA |
production sharing contract
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PSC |
Remuneration Committee
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REMCO |
Research and development
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R&D |
Total Recordable Case Frequency
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TRCF |
United States Generally Accepted Accounting Principles
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US GAAP |
United States Securities and Exchange Commission
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SEC |
United States Gulf Coast
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USGC |
vi
Royal Dutch Shell plc
Chairmans message
As Shell marks its centenary year, I hope shareholders share my
excitement at being part of a
business that is successfully playing its part in meeting the
worlds energy needs.
In this, my first message to shareholders, I would like to share
with you some of the impressions I have gained since I became Chairman
of Royal Dutch Shell plc in 2006.
The energy business, as I am seeing first-hand, is at the heart of some
of the most important economic, environmental and social issues facing the world. Reliable and
affordable supplies of energy are essential for economic growth and for
raising living standards amongst the worlds poorest people. Equally, as
the growing concern over climate change shows, providing those energy
supplies in a way that minimises the impact on the environment is one of
the greatest challenges we all face.
Shell is playing its part in addressing those challenges. Our business
strategy is focused on finding and producing the resources to help meet
the worlds growing demand for energy, and doing so in a responsible
way. This includes researching and developing projects to reduce carbon
dioxide emissions and ensuring that the operations at individual Shell
facilities meet the highest environmental standards. The Boards Social
Responsibility Committee has a very direct role in overseeing the
companys approach to these issues and makes regular visits to Shell
locations to see how environmental and social challenges are being met.
I see the Boards role as providing both support and challenge to the
Chief Executive and his team in their work; and ensuring that Shell
continues to provide shareholders with the returns they expect. I
believe that the structures put in place since our 2005 unification
provide an effective framework for the Board to fulfil that role. I
would like to pay a particular tribute to my predecessor as Chairman,
Aad Jacobs, for his role in seeing the company through a challenging
period.
Across Shell I have met dedicated and committed people working in a
productive corporate culture with very strong values. I have been
particularly impressed with the way they are responding to the pace
of change in the energy industry; how they are delivering strong
results; and how they are putting in place plans to secure the
future growth of Shells business.
As Shell marks its centenary year, I hope shareholders share my
excitement at being part of a business that is successfully playing
its part in meeting the worlds energy needs.
Jorma Ollila
Chairman
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Shell performed well in 2006. Our financial position is strong
and we posted record income of $26.3 billion, returning $16.3 billion
to shareholders. We built on our achievements of 2005 by focusing on
delivery and growth, laying solid foundations for our future.
Our strategy of more upstream, profitable downstream is on track. We
made good progress in rejuvenating our diverse portfolio. Our
upstream exploration efforts are paying off. We invested large stakes
in major integrated long-life projects that will generate cash for
decades to come. Downstream, we added to our growth portfolio,
especially in China.
The
security situation in Nigeria which has shut significant
production in the Delta region remains a serious concern and we do
not know when production will resume. Our deep water projects in
Nigeria really delivered in 2006, partially offsetting lost production
onshore. In Sakhalin, we cleared the way forward by agreeing to partner
with Gazprom on what is the worlds largest integrated oil and gas
project under construction.
Our Exploration & Production business performed well. Earnings were up
7% from 2005 at $15.2 billion. We added approximately 2 billion barrels
of oil equivalent to our proved oil and gas reserves and proven mining
reserves. The bid for the minority shares in Shell Canada and expansion
of the Athabasca Oil Sands Project reaffirm our commitment to
maintaining a leading position in unconventional oil.
Our Gas & Power division delivered particularly strong earnings growth
of 68% at $2.7 billion. We are proceeding with construction of the Pearl Gas to Liquids
(GTL) plant in Qatar, the largest such plant in the world. Sales of
liquefied natural gas (LNG) grew 14%, strengthening our leading position
in the LNG markets of North America, Asia Pacific and Europe.
Downstream we are investing in major manufacturing projects,
particularly in Asia. The expansion of our petrochemicals complex in
Singapore and a successful start-up of the Nanhai complex in China
strengthen our position in Asias dynamic markets. We acquired a 75%
interest in Chinas leading lubricants manufacturer and marketer, making
Shell the leading lubricants company in China. Plans to expand our Port
Arthur facilities would create the largest refinery in the USA.
As we operate in ever more demanding environments, safety becomes a
bigger challenge. We continue to place great emphasis on training to
support safetys role as a key component of operational excellence.
Our safety performance in 2006 was mixed, however, with an increase in
fatalities. We have responded by reinforcing our safety focus through
a dedicated global safety function that will improve compliance with
standards and procedures worldwide.
We remain committed to developing one substantial business in
alternative energy. We launched our first offshore wind farm in the
North Sea off the Netherlands. We continue to make progress on
projects in hydrogen, advanced solar technology and second-generation
biofuels.
I am convinced that technology is key to delivering our business
strategy and the complex projects of the future. In 2006 we appointed a
Chief Technology Officer to head our technology drive with seven Chief
Scientists and thousands of technical staff at our worldwide technology
centres, including our new one in Bangalore, India. We also published
Shells first Technology Report.
Technology is central to managing carbon dioxide
(CO2) emissions. Within Shell we are pursuing a range of
activities to address the challenge of CO2, including
improving efficiency, reducing flaring and exploring opportunities for CO2 capture and storage.
None of this would be possible without the efforts of our
people, who I would like to thank. Our strong performance in 2006
prepares us well for the increasingly fierce competition in the
energy industry and confirms our ability to deliver results to
both shareholders and our partners. In 2007 we will strive to
maintain our momentum by continuing to focus on delivery and
growth.
Jeroen van der Veer
Chief Executive
Our strong performance in 2006
confirms
our ability to deliver
results. This is the basis
for our
growth.
Unification of Royal Dutch and Shell Transport
In 2005, Royal Dutch Shell plc (Royal Dutch
Shell) became the single parent company of Royal
Dutch Petroleum Company (Royal Dutch) and of
The Shell Transport and Trading Company, p.l.c.
(Shell Transport) the two former public parent
companies of the Group (the Unification).
Immediately after the Unification each former
Royal Dutch and Shell Transport shareholder who
participated in the Unification held the same
economic interest in Royal Dutch Shell as the
shareholder held in the Group immediately prior
to implementation of the Unification.
Accordingly, the Unification 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.
4 Royal Dutch Shell plc
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[A] |
|
|
$ million |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenue |
|
|
318,845 |
|
|
|
306,731 |
|
|
|
266,386 |
|
Income from continuing operations |
|
|
26,311 |
|
|
|
26,568 |
|
|
|
19,491 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
(307 |
) |
|
|
(234 |
) |
|
Income for the period |
|
|
26,311 |
|
|
|
26,261 |
|
|
|
19,257 |
|
|
Income attributable to minority interest |
|
|
869 |
|
|
|
950 |
|
|
|
717 |
|
|
Income attributable to shareholders of
Royal Dutch Shell plc |
|
|
25,442 |
|
|
|
25,311 |
|
|
|
18,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
|
|
$ |
|
Basic earnings per 0.07 ordinary share |
|
|
3.97 |
|
|
|
3.79 |
|
|
|
2.74 |
|
from continuing operations |
|
|
3.97 |
|
|
|
3.84 |
|
|
|
2.77 |
|
from discontinued operations |
|
|
|
|
|
|
(0.05 |
) |
|
|
(0.03 |
) |
Diluted earnings per 0.07 ordinary share |
|
|
3.95 |
|
|
|
3.78 |
|
|
|
2.74 |
|
from continuing operations |
|
|
3.95 |
|
|
|
3.83 |
|
|
|
2.77 |
|
from discontinued operations |
|
|
|
|
|
|
(0.05 |
) |
|
|
(0.03 |
) |
|
|
|
[A] |
|
Prior to 2004, financial statements prepared in accordance with IFRS are not
available. Going forward, additional years will be presented until the usual five years of
data is provided. |
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEET DATA |
|
$ million |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Total assets |
|
|
235,276 |
|
|
|
219,516 |
|
|
|
187,446 |
|
Share capital |
|
|
545 |
|
|
|
571 |
|
|
|
604 |
|
Equity attributable to shareholders of
Royal Dutch Shell plc |
|
|
105,726 |
|
|
|
90,924 |
|
|
|
86,070 |
|
Minority interest |
|
|
9,219 |
|
|
|
7,000 |
|
|
|
5,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL INVESTMENT |
|
$ million |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Capital expenditure[A]: |
|
|
|
|
|
|
|
|
|
|
|
|
Exploration & Production |
|
|
16,638 |
|
|
|
10,858 |
|
|
|
8,699 |
|
Gas & Power |
|
|
1,977 |
|
|
|
1,568 |
|
|
|
1,357 |
|
Oil Products |
|
|
3,363 |
|
|
|
2,810 |
|
|
|
2,761 |
|
Chemicals |
|
|
821 |
|
|
|
387 |
|
|
|
529 |
|
Other industry segments and Corporate |
|
|
297 |
|
|
|
293 |
|
|
|
220 |
|
|
|
|
|
23,096 |
|
|
|
15,916 |
|
|
|
13,566 |
|
Exploration expenses (excluding depreciation
and release of currency translation differences) |
|
|
949 |
|
|
|
815 |
|
|
|
651 |
|
New equity in equity accounted investments |
|
|
598 |
|
|
|
390 |
|
|
|
681 |
|
New loans to equity accounted investments |
|
|
253 |
|
|
|
315 |
|
|
|
377 |
|
|
Total capital investment* |
|
|
24,896 |
|
|
|
17,436 |
|
|
|
15,275 |
|
|
*comprising |
|
|
|
|
|
|
|
|
|
|
|
|
Exploration & Production |
|
|
17,944 |
|
|
|
12,046 |
|
|
|
9,708 |
|
Gas & Power |
|
|
2,200 |
|
|
|
1,602 |
|
|
|
1,633 |
|
Oil Products |
|
|
3,457 |
|
|
|
2,844 |
|
|
|
2,823 |
|
Chemicals |
|
|
877 |
|
|
|
599 |
|
|
|
868 |
|
Other industry segments and Corporate |
|
|
418 |
|
|
|
345 |
|
|
|
243 |
|
|
|
|
|
24,896 |
|
|
|
17,436 |
|
|
|
15,275 |
|
|
[A] |
|
The difference between capital expenditure in this table and capital expenditure
in the adjacent table (other consolidated data) relates to non-cash effects from new
finance leases, the acquisition of assets with non-cash consideration and the pre-funding
of working capital within jointly controlled assets. |
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER CONSOLIDATED DATA |
|
$ million |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Cash flow provided by operating activities |
|
|
31,696 |
|
|
|
30,113 |
|
|
|
26,537 |
|
Capital expenditure |
|
|
22,922 |
|
|
|
15,904 |
|
|
|
13,566 |
|
Cash flow used in investing activities |
|
|
20,861 |
|
|
|
8,761 |
|
|
|
5,964 |
|
Dividends paid |
|
|
8,431 |
|
|
|
10,849 |
|
|
|
7,655 |
|
Cash flow used in financing activities |
|
|
13,741 |
|
|
|
18,573 |
|
|
|
13,592 |
|
Increase/(decrease) in cash and
cash equivalents |
|
|
(2,728 |
) |
|
|
2,529 |
|
|
|
7,094 |
|
|
Income by industry segment |
|
|
|
|
|
|
|
|
|
|
|
|
Exploration & Production |
|
|
15,195 |
|
|
|
14,238 |
|
|
|
9,823 |
|
Gas & Power |
|
|
2,650 |
|
|
|
1,573 |
|
|
|
1,815 |
|
Oil Products |
|
|
7,125 |
|
|
|
9,982 |
|
|
|
7,597 |
|
Chemicals |
|
|
1,064 |
|
|
|
991 |
|
|
|
1,148 |
|
Other industry segments and Corporate |
|
|
277 |
|
|
|
(523 |
) |
|
|
(1,126 |
) |
Minority interest |
|
|
(869 |
) |
|
|
(950 |
) |
|
|
(717 |
) |
|
|
|
|
25,442 |
|
|
|
25,311 |
|
|
|
18,540 |
|
|
Gearing ratio[A] |
|
|
14.8 |
% |
|
|
13.6 |
% |
|
|
17.5 |
% |
|
Dividends declared /share |
|
|
1.00 |
|
|
|
0.92 |
[B] |
|
|
0.86 |
[C] |
Dividends equivalent $/share |
|
|
1.27 |
|
|
|
1.13 |
[B] |
|
|
1.07 |
[C] |
[A] |
|
See Note 19D to Consolidated Financial Statements on page 130. |
[B] |
|
See Note 13 to the Parent Company Financial Statements on page 202. |
[C] |
|
Comprises Royal Dutch interim dividend of 0.75 made payable in September 2004 and
a second interim dividend of 1.04 made payable in March 2005 as well as a Shell Transport
interim dividend of 6.25 pence and a second interim dividend of 10.7 pence that are used
to calculate the equivalent dividend on a Royal Dutch Shell basis. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTERLY INCOME DATA (unaudited)
|
|
$ million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
Quarter 1 |
|
|
Quarter 2 |
|
|
Quarter 3 |
|
|
Quarter 4 |
|
|
Year |
|
|
Quarter 1 |
|
|
Quarter 2 |
|
|
Quarter 3 |
|
|
Quarter 4 |
|
|
Year |
|
Revenue |
|
|
75,964 |
|
|
|
83,127 |
|
|
|
84,254 |
|
|
|
75,500 |
|
|
|
318,845 |
|
|
|
72,156 |
|
|
|
82,644 |
|
|
|
76,435 |
|
|
|
75,496 |
|
|
|
306,731 |
|
Cost of sales |
|
|
61,922 |
|
|
|
67,838 |
|
|
|
70,383 |
|
|
|
62,846 |
|
|
|
262,989 |
|
|
|
58,565 |
|
|
|
69,464 |
|
|
|
60,704 |
|
|
|
63,889 |
|
|
|
252,622 |
|
|
Gross profit |
|
|
14,042 |
|
|
|
15,289 |
|
|
|
13,871 |
|
|
|
12,654 |
|
|
|
55,856 |
|
|
|
13,591 |
|
|
|
13,180 |
|
|
|
15,731 |
|
|
|
11,607 |
|
|
|
54,109 |
|
|
Selling, distribution and administrative
expenses |
|
|
3,413 |
|
|
|
4,429 |
|
|
|
4,126 |
|
|
|
4,648 |
|
|
|
16,616 |
|
|
|
3,539 |
|
|
|
3,917 |
|
|
|
3,763 |
|
|
|
4,263 |
|
|
|
15,482 |
|
Exploration |
|
|
281 |
|
|
|
250 |
|
|
|
401 |
|
|
|
630 |
|
|
|
1,562 |
|
|
|
261 |
|
|
|
248 |
|
|
|
275 |
|
|
|
502 |
|
|
|
1,286 |
|
Share of profit of equity accounted investments |
|
|
1,823 |
|
|
|
1,829 |
|
|
|
1,358 |
|
|
|
1,661 |
|
|
|
6,671 |
|
|
|
1,573 |
|
|
|
1,080 |
|
|
|
3,081 |
|
|
|
1,389 |
|
|
|
7,123 |
|
Interest and other income |
|
|
441 |
|
|
|
228 |
|
|
|
346 |
|
|
|
413 |
|
|
|
1,428 |
|
|
|
198 |
|
|
|
247 |
|
|
|
521 |
|
|
|
205 |
|
|
|
1,171 |
|
Interest expense |
|
|
286 |
|
|
|
275 |
|
|
|
286 |
|
|
|
302 |
|
|
|
1,149 |
|
|
|
268 |
|
|
|
286 |
|
|
|
253 |
|
|
|
261 |
|
|
|
1,068 |
|
|
Income before taxation |
|
|
12,326 |
|
|
|
12,392 |
|
|
|
10,762 |
|
|
|
9,148 |
|
|
|
44,628 |
|
|
|
11,294 |
|
|
|
10,056 |
|
|
|
15,042 |
|
|
|
8,175 |
|
|
|
44,567 |
|
Taxation |
|
|
5,310 |
|
|
|
4,865 |
|
|
|
4,507 |
|
|
|
3,635 |
|
|
|
18,317 |
|
|
|
4,274 |
|
|
|
4,595 |
|
|
|
5,558 |
|
|
|
3,572 |
|
|
|
17,999 |
|
|
Income from continuing operations |
|
|
7,016 |
|
|
|
7,527 |
|
|
|
6,255 |
|
|
|
5,513 |
|
|
|
26,311 |
|
|
|
7,020 |
|
|
|
5,461 |
|
|
|
9,484 |
|
|
|
4,603 |
|
|
|
26,568 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(214 |
) |
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
(307 |
) |
|
Income for the period |
|
|
7,016 |
|
|
|
7,527 |
|
|
|
6,255 |
|
|
|
5,513 |
|
|
|
26,311 |
|
|
|
6,806 |
|
|
|
5,461 |
|
|
|
9,391 |
|
|
|
4,603 |
|
|
|
26,261 |
|
|
Income attributable to minority interest |
|
|
123 |
|
|
|
203 |
|
|
|
313 |
|
|
|
230 |
|
|
|
869 |
|
|
|
131 |
|
|
|
225 |
|
|
|
359 |
|
|
|
235 |
|
|
|
950 |
|
|
Income attributable to shareholders |
|
|
6,893 |
|
|
|
7,324 |
|
|
|
5,942 |
|
|
|
5,283 |
|
|
|
25,442 |
|
|
|
6,675 |
|
|
|
5,236 |
|
|
|
9,032 |
|
|
|
4,368 |
|
|
|
25,311 |
|
|
Royal
Dutch Shell plc 5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF INCOME DATA (US GAAP)
|
$ million |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Revenue |
|
|
312,323 |
|
|
|
300,565 |
|
|
|
260,229 |
|
|
|
195,236 |
|
|
|
160,797 |
|
Income attributable to minority interest |
|
|
883 |
|
|
|
1,010 |
|
|
|
626 |
|
|
|
353 |
|
|
|
174 |
|
Income from continuing operations |
|
|
24,692 |
|
|
|
24,443 |
|
|
|
16,440 |
|
|
|
12,055 |
|
|
|
9,549 |
|
Income/(loss) from discontinued operations |
|
|
105 |
|
|
|
691 |
|
|
|
1,742 |
|
|
|
12 |
|
|
|
122 |
|
Cumulative effect of a change in accounting principle, net of tax |
|
|
|
|
|
|
554 |
|
|
|
|
|
|
|
255 |
|
|
|
|
|
|
Income attributable to shareholders of Royal Dutch Shell plc |
|
|
24,797 |
|
|
|
25,688 |
|
|
|
18,182 |
|
|
|
12,322 |
|
|
|
9,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE (US GAAP)
|
|
|
|
|
|
|
|
|
$ |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Basic
earnings per €0.07 ordinary share [A][B] |
|
|
3.87 |
|
|
|
3.84 |
|
|
|
2.69 |
|
|
|
1.81 |
|
|
|
1.41 |
|
from continuing operations |
|
|
3.85 |
|
|
|
3.66 |
|
|
|
2.43 |
|
|
|
1.77 |
|
|
|
1.39 |
|
from discontinued operations |
|
|
0.02 |
|
|
|
0.10 |
|
|
|
0.26 |
|
|
|
|
|
|
|
0.02 |
|
cumulative effect of a change in accounting principle, net of tax |
|
|
|
|
|
|
0.08 |
|
|
|
|
|
|
|
0.04 |
|
|
|
|
|
Diluted earnings per €0.07 ordinary share [A][B] |
|
|
3.85 |
|
|
|
3.83 |
|
|
|
2.69 |
|
|
|
1.81 |
|
|
|
1.41 |
|
from continuing operations |
|
|
3.83 |
|
|
|
3.65 |
|
|
|
2.43 |
|
|
|
1.77 |
|
|
|
1.39 |
|
from discontinued operations |
|
|
0.02 |
|
|
|
0.10 |
|
|
|
0.26 |
|
|
|
|
|
|
|
0.02 |
|
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 2006 calculation uses a weighted-average number of
shares of 6,413,384,207 (2005: 6,674,179,767; 2004: 6,770,458,950; 2003: 6,811,314,175;
2002: 6,876,188,213). 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.
2006: 6,439,977,316; 2005: 6,694,427,705; 2004: 6,776,396,429; 2003: 6,813,444,740; 2002:
6,878,412,716. The difference between the basic and diluted number of shares relates to
share-based compensation plans. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEET DATA (US GAAP)
|
|
|
|
|
|
|
|
$ million |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Total assets |
|
|
240,085 |
|
|
|
223,646 |
|
|
|
193,625 |
|
|
|
169,766 |
|
|
|
153,320 |
|
Equity attributable to shareholders of Royal Dutch Shell plc |
|
|
108,018 |
|
|
|
94,103 |
|
|
|
90,545 |
|
|
|
78,251 |
|
|
|
66,195 |
|
Minority interest |
|
|
9,197 |
|
|
|
7,006 |
|
|
|
5,309 |
|
|
|
3,415 |
|
|
|
3,568 |
|
|
|
|
|
|
|
|
|
|
CAPITALISATION TABLE (US GAAP)
|
$ million |
|
|
|
Dec 31, 2006 |
|
|
Dec 31, 2005 |
|
|
Total equity |
|
|
108,018 |
|
|
|
94,103 |
|
|
Short-term debt |
|
|
6,017 |
|
|
|
5,328 |
|
Long-term debt [A] |
|
|
6,880 |
|
|
|
4,589 |
|
|
Total debt [B] |
|
|
12,897 |
|
|
|
9,917 |
|
|
Total capitalisation |
|
|
120,915 |
|
|
|
104,020 |
|
[A] |
|
Long-term debt excludes $2.7 billion of certain tolling commitments (2005: $2.8
billion). |
[B] |
|
As of December 31, 2006, the Shell Group had outstanding guarantees of $2.8
billion (2005: $2.8 billion), of which $2.0 billion (2005: $1.7 billion) related to
project financing. |
6 Royal Dutch Shell plc
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, 2005 and 2006 and on a
US GAAP basis for the years ended December 31, 2002, 2003, 2004, 2005 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIO OF EARNINGS TO FIXED CHARGES (IFRS and US GAAP) |
|
|
% |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Ratio of Earnings to Fixed Charges (IFRS) |
|
|
19.99 |
|
|
|
23.33 |
|
|
|
19.17 |
|
|
|
|
|
|
|
|
|
Ratio of
Earnings to Fixed Charges (US GAAP) |
|
|
23.31 |
|
|
|
26.84 |
|
|
|
17.13 |
|
|
|
15.67 |
|
|
|
11.69 |
|
For the purposes of this table, earnings consists of pre-tax income from continuing
operations before adjustment for minority interest 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 7.1 for details concerning the calculation of the Ratio of Earnings to Fixed
Charges.
Royal Dutch Shell plc 7
Operating and Financial Review
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 management. It
describes the activities, properties and performance and also
discusses the risks and environmental and social challenges
facing the Group.
The
OFR set out on pages 9 to 69 fulfils the requirements of
the Business Review, which forms part of the Report of the
Directors set out on pages 71 to 77 of this Report.
The Nanhai petrochemicals complex
in southern China
Royal Dutch Shell plc 9
OPERATING AND FINANCIAL REVIEW
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 alternative energy sources
including Renewables and Hydrogen.
We are active in more than 130 countries and territories
worldwide. We are exploring for oil and gas in
well-established regions such as the Gulf of Mexico and
in frontier territories such as the Beaufort Sea. Key
producing areas today are the USA, Europe and our
operations in Africa and the Middle East. New supplies
are being brought onstream from major projects in
challenging frontier environments such as Sakhalin and
Athabasca. We are a world leader in liquefied natural
gas (LNG) and are pioneering new uses of gas including
Gas to Liquids (GTL). We have a diverse and well
balanced downstream portfolio and are one of the worlds
largest distributors of biofuels.
10 Royal Dutch Shell plc
ROYAL DUTCH SHELL STRATEGY
A key challenge facing the global oil and gas
industry is to find and develop sufficient resources to
help meet growing world demand for energy. Over time and
across the commodity cycle the Group has achieved higher
earnings and returns on investment in the upstream
compared with its other businesses and sees significant
growth potential for oil and natural gas. Our upstream
business will therefore be the focus for future growth.
In the downstream the emphasis will be on sustained cash
generation and on continuing to reshape our portfolio
with a focus on the growing markets of Asia Pacific.
Our strategy of more upstream and profitable downstream
will reinforce our position as a leader in the industry
and provide investors with a competitive and sustained
total shareholder return. We plan net capital spending
[A] of $22 to $23 billion in 2007, of which
around 80% will be invested in upstream projects. This
investment will help create an upstream portfolio of
assets that will have long, productive lives. These
investments will be in both conventional and
unconventional hydrocarbon projects. Our capital
programme will also maintain and enhance our
competitive position in the downstream by improving the
quality, integrity and competitiveness of our refinery
portfolio and by developing our presence in growth
markets.
Meeting growing world demand for energy in ways that
minimise the impact on the environment is a major
challenge for the global energy industry. We are pursuing
a range of potential opportunities to develop businesses
based on alternative energies. We also recognise the
importance of CO2 management to
our business and the opportunities it
represents. We are playing a key role in developing responsible ways to manage carbon dioxide. These include
CO2 sequestration projects, energy efficiency and investment in
CO2 mitigation technology.
A commitment to technology and innovation continues to
be at the heart of our business strategy. We believe our
technological expertise will be a key factor in the
growth of our business as energy projects become more
complex and more technically demanding. The Groups core
strengths include the development and application of
technology, and the financial and project management
skills that allow us to undertake large oil and gas
projects. We also benefit from having a diverse
international business portfolio and customer-focused
businesses built around the strength of the Shell brand.
Our ability to manage large and challenging projects in
conventional and unconventional oil and gas; to find ways of managing CO2 emissions; and
to provide alternative energy solutions means we are
well placed to be preferred partners for governments
and other resource holders, now and in the future.
MARKET OVERVIEW
The global economy expanded by a robust 5.4% in
2006, up from 4.8% in 2005, supported by strong activity
in China, India and Russia. While growth in the USA also
entered the year on a firm note, the economy slowed in
the course of the year. In contrast, growth in key
developing countries strengthened and surpassed
expectations by the years end.
In the USA, the key development was the sharp slowdown
in the housing sector in the second half of the year.
However, consumer spending and business investment
remained firm and underpinned growth. Employment and
consumer confidence was relatively immune to the
downturn in housing, while business investment was
supported by high corporate profit. For 2007, the
housing downturn is likely to continue to weigh on the
economy, but growth is expected to pick up as the drag
from housing diminishes, according to the Federal
Reserve Bank.
|
|
|
[A] |
|
Net capital spending represents the expected capital expenditure after including cash received from divestments as well as cash utilised in relation to acquisitions. |
The European economy strengthened significantly
in 2006: what was initially an export led recovery
became increasingly driven by domestic demand. Business
investment was particularly robust, buoyed by high
corporate profits and looking ahead, the European
economy is set to grow solidly according to the
European Central Bank.
In contrast to the European economy, the Japanese economy
hit an unexpected soft patch in 2006 as consumer spending
waned. Nevertheless, exports and business investment
remained strong and this points to a stronger 2007,
particularly if employment and wages remain firm.
China and India saw particularly robust growth in 2006.
In China, business investments and exports were the
drivers of growth while in India it was domestic demand
and the services sector. For 2007, growth in these two
countries is expected to ease back from their recent
heights, but to continue apace.
While global growth is likely to slow towards its
longer-term trend rate in 2007, risks to the outlook are
evenly balanced on the upside and downside, in contrast
to 2006 when risks were slanted towards downside by the
impending turn in the US cycle. The main downside risk
remains the potential for a wider slowdown in the US
domestic demand. The main upside potential is in Europe
and in the major developing countries. Both have scope
for above trend growth, as they showed in 2006.
OIL AND NATURAL GAS PRICES
Brent crude oil prices averaged $65.10 per barrel
in 2006 compared with $54.55 in 2005, while West Texas
Intermediate (WTI) averaged $66.04 per barrel compared
with $56.60 a year earlier. Oil prices increased in 2006
due to a combination of strong world economic growth,
supply disruptions in countries including Nigeria and
Alaska, geopolitical tensions in the Middle East, and
limited OPEC spare production capacity. Prices started
the year with Brent and WTI at $58 and $61 a barrel
respectively, reaching highs of just under $79 per barrel
for Brent and $77 per barrel WTI in early August before
declining to around $56 per barrel for Brent and $57 per
barrel WTI in October due to rising oil stocks in the
USA. Prices recovered marginally in late fourth quarter
on OPECs decision to curtail supply, but were tempered
again by a mild winter in the northern hemisphere. Brent
and WTI crude oil prices ended 2006 at $59 and $61 per
barrel respectively.
We expect oil prices, on balance, to remain robust in
2007 with ongoing geopolitical tensions, but in the
absence of major supply disruptions may trend lower
than in 2006 against the prospect of potentially slower
economic growth, stronger non-OPEC supply growth and
higher OPEC spare capacity levels. 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 a higher price environment and
OPEC spare capacity is being rebuilt.
Henry Hub gas prices in the USA averaged $6.76 per
million British thermal units (Btu) in 2006 compared
with $8.80 in 2005. Prices moderated as far down as
$4.00 per million Btu in early October, due to high
inventory levels caused by a relatively warm winter and
the absence of weather related supply disruptions during
the hurricane season, before recovering to $8.3 per
million Btu by the end of November with the onset of the
winter season. Henry Hub closed at $5.48 per million Btu
at year-end.
Henry Hub prices are expected to remain at present
levels in 2007, supported by anticipated modest demand
growth, mainly in the electricity generation sector, and
balanced by modest growth in domestic supply and LNG
imports.
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, and regulatory circumstances
and therefore pricing structures. Natural gas prices in
continental Europe and Asia Pacific are predominantly
indexed to oil prices. In Europe prices have risen
reflecting higher oil prices and strong demand. In the UK
prices at the National Balancing Point averaged $41.93
pence/therm compared with $40.61 pence/therm in 2005.
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 2006, the Group used a grid based on low, medium
and high oil and gas prices to test the economic
performance of long-term projects at different prices or
margin levels. The prices utilised were significantly
lower than the average market industry prices for 2006.
As part of normal business practice, the range of prices
used for this purpose continues to be under review and
may change.
DOWNSTREAM MARKET TRENDS
Refining margins remained well supported in 2006,
with robust product demand and constraints on supply due
to unusually intense industry refinery turnaround
activity on the US Gulf Coast following the extensive
hurricane-related damages in 2005. In the absence of any
major disruptions, refining margins are expected to
trend lower in 2007 than 2006 with new conversion
capacities coming on-stream and the prospect for
potentially slower global economic growth. However, the
eventual levels are uncertain and will be strongly
influenced by the pace of global economic growth, the
effect of persistently high oil prices on product demand
and start-up timing of expected refinery expansions.
The demand for petrochemicals in 2007 is expected to
increase in line with the growth in the global economy,
mainly in Asia Pacific. Globally, new expected industry
capacity additions coupled with the prospect of
continued high feedstock and energy costs may limit the
opportunities for improving margins.
ACTIVITIES, INTERESTS AND PROPERTY
Our various activities are conducted in more than
130 countries and territories. The Group constitutes 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 nearly 90% of revenue in 2006. 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
Royal Dutch Shell plc 11
OPERATING AND FINANCIAL REVIEW
throughout the world. The Group also ranks among the worlds major chemical companies (by
sales); in 2006, the Chemicals segment accounted for just over 10% of the revenue of the Group. In
downstream, we intend to continue to 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 summary of revenue of the Group by business segment and by geographical region for the years
2004, 2005 and 2006 is set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE BY BUSINESS SEGMENT (including intersegment sales) |
|
|
$ million |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
EXPLORATION & PRODUCTION |
|
|
|
|
|
|
|
|
|
|
|
|
Third parties |
|
|
17,909 |
|
|
|
23,970 |
|
|
|
18,400 |
|
Intersegment |
|
|
37,047 |
|
|
|
21,704 |
|
|
|
18,895 |
|
|
|
|
|
54,956 |
|
|
|
45,674 |
|
|
|
37,295 |
|
|
GAS & POWER |
|
|
|
|
|
|
|
|
|
|
|
|
Third parties |
|
|
15,887 |
|
|
|
13,766 |
|
|
|
9,625 |
|
Intersegment |
|
|
1,303 |
|
|
|
1,858 |
|
|
|
1,210 |
|
|
|
|
|
17,190 |
|
|
|
15,624 |
|
|
|
10,835 |
|
|
OIL PRODUCTS |
|
|
|
|
|
|
|
|
|
|
|
|
Third parties [A] |
|
|
248,581 |
|
|
|
237,210 |
|
|
|
210,424 |
|
Intersegment |
|
|
2,728 |
|
|
|
16,643 |
|
|
|
11,924 |
|
|
|
|
|
251,309 |
|
|
|
253,853 |
|
|
|
222,348 |
|
|
CHEMICALS |
|
|
|
|
|
|
|
|
|
|
|
|
Third parties [B] |
|
|
36,306 |
|
|
|
31,018 |
|
|
|
26,877 |
|
Intersegment |
|
|
4,444 |
|
|
|
3,978 |
|
|
|
2,620 |
|
|
|
|
|
40,750 |
|
|
|
34,996 |
|
|
|
29,497 |
|
|
OTHER INDUSTRY SEGMENTS AND CORPORATE |
|
|
|
|
|
|
|
|
|
|
|
|
Third parties |
|
|
162 |
|
|
|
767 |
|
|
|
1,060 |
|
Intersegment |
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
162 |
|
|
|
767 |
|
|
|
1,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE BY GEOGRAPHICAL AREA (excluding intersegment sales) |
|
|
$ million |
|
|
|
2006 |
|
|
% |
|
|
2005 |
|
|
% |
|
|
2004 |
|
|
% |
|
Europe |
|
|
136,307 |
|
|
|
42.8 |
% |
|
|
122,684 |
|
|
|
40.0 |
% |
|
|
94,206 |
|
|
|
35.4 |
% |
Other Eastern Hemisphere |
|
|
76,898 |
|
|
|
24.1 |
% |
|
|
61,388 |
|
|
|
20.0 |
% |
|
|
50,652 |
|
|
|
19.0 |
% |
USA |
|
|
80,974 |
|
|
|
25.4 |
% |
|
|
101,308 |
|
|
|
33.0 |
% |
|
|
103,429 |
|
|
|
38.8 |
% |
Other Western Hemisphere |
|
|
24,666 |
|
|
|
7.7 |
% |
|
|
21,351 |
|
|
|
7.0 |
% |
|
|
18,099 |
|
|
|
6.8 |
% |
|
|
|
|
318,845 |
|
|
|
100.0 |
% |
|
|
306,731 |
|
|
|
100.0 |
% |
|
|
266,386 |
|
|
|
100.0 |
% |
|
|
|
|
[A] |
|
The figures in this table, which include crude oil sales and non-fuel revenue, are
different from the table shown on page 46, which excludes these sales and revenues. |
|
[B] |
|
The figures in this table, which includes chemical feedstock trading, are
different from the table shown on page 50, which excludes chemical feedstock trading. |
12 Royal Dutch Shell plc
Royal Dutch Shell has a single risk based
control framework the Shell Control Framework
to identify and manage risks (see page 82).
The Groups operations and earnings are subject to
various key risks, described below, involving changing
competitive, economic, political, legal, social,
industry, business and financial conditions. Investors
should carefully consider these risks. These risks could
have a material
adverse effect on the Groups results from operations
and/or financial condition.
FLUCTUATING PRICES FOR OIL, NATURAL GAS, OIL
PRODUCTS AND CHEMICALS
Oil, natural gas, oil products and chemical
prices rise and fall for various reasons involving
supply and demand. These include natural disasters,
weather, political instability or conflicts, economic
conditions or actions by major oil-exporting
countries. Price fluctuations can test our business
assumptions, and can affect the Groups investment
decisions, operational performance and financial
position.
PROJECT DELIVERY AND THE ABILITY TO REPLACE OIL AND GAS RESERVES
The Groups future oil and gas production depends
on the success of very large projects. In developing
these projects we are faced with numerous challenges
such as uncertain geology, frontier conditions,
availability of new technology and engineering
capacity, availability of skilled resources, project
delays and potential cost overruns, as well as
technical, fiscal, regulatory and other conditions.
Such potential obstacles may impair our delivery of
these projects and, in turn, our operational
performance and financial position. Future oil and gas
production will depend on our access to new reserves
through exploration, negotiation with countries and
other owners of known reserves, and acquisitions.
Failures in exploration or in identifying and
finalising transactions to access potential reserves
could slow the Groups oil and gas production and
replacement of reserves. This could weaken the Groups
future operational performance and financial position.
COMPETITION
The Group faces competition within the energy
industry and from other industries for land and
reserves, developing innovative products and solutions,
and developing and applying new technology. Failure to
clearly understand or effectively respond to competition
could affect our financial position. Furthermore, Shell
is increasingly in competition with state run oil
companies with access to significant resources.
LOSS OF BUSINESS REPUTATION
The Shell brand is one of the worlds leading
energy brands. We have a strong corporate reputation,
which is important to maintaining our licence to
operate. The Shell General Business Principles govern
how the Group and our individual companies conduct our
affairs. The Shell Code of Conduct describes how the
Business Principles apply to individual employees of
Shell. Failure real or perceived to follow these
principles could harm our reputation, which could reduce
our licence to operate, damage our brand and affect our
operational performance and financial position.
IMPACT OF CLIMATE CHANGE
Concerns over climate change and any resulting
challenges from society and governments could lead to
project delays and compliance risks for existing
assets. As such, delivery of future projects may be at
risk. There is also a compliance risk if existing
facilities cannot show that they are managing emissions
in line with changing laws and regulations. These
risks, if realised, could affect the Groups
operational performance and financial position.
HEALTH, SAFETY, SECURITY AND ENVIRONMENT
Given the range and complexity of the daily
operations undertaken by the Group, the potential HSSE
risks faced cover a wide spectrum. These risks include
major process safety incidents, failure to comply with
approved policies, effects of natural disasters and
pandemics, social unrest, civil war and terrorism,
exposure to general operational hazards, personal health
and safety and crime. The consequences of such risk
events can be injuries, loss of life, environmental harm
and disruption to business activities and can affect the
Groups reputation, operational performance and
financial position.
POLITICALLY SENSITIVE OR UNSTABLE COUNTRIES
Developments in politics, laws and regulations can
affect the Groups operations and earnings. These include
forced divestment of assets, limits on production,
imports and exports, international conflicts, including
war, 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. It is difficult to
predict the timing or severity of these occurrences or
their effect upon the Group and when such risks
materialise they could affect our employees, reputation,
operational performance and financial positions of the
Group and Group companies located in the country
concerned.
PARTNERS AND VENTURES
Many of our major projects and operations are
conducted with partners or in joint ventures. Our
investment with partners and in joint ventures decreases
our ability to manage risks and costs. As a result, the
Group could have limited influence over and control of
the operations, behaviours and performance of these
operations with whom the Group is engaged in business.
This could affect the Groups operational performance and
financial position.
INFORMATION TECHNOLOGY (IT)
Growing standardisation, more reliance on global
systems, relocation of information technology services
and increased regulations lead to a risk that the Groups
IT systems may fail to deliver products, services and
solutions in a compliant, secure and efficient manner.
This could affect the Groups operational performance and
financial position.
TECHNOLOGY AND INNOVATION
Technology and innovation are essential to the
delivery of the Groups strategy. If the Group does not
develop or does not have access to the right technology,
it may affect delivery of the strategy and affect the
Groups operational performance and financial position.
RESOURCING CHALLENGES
Skilled employees are essential to the successful
delivery of the Group strategy. Top quality talent is a
scarce resource and we sometimes experience recruitment
shortfalls. Such shortfalls could affect the Groups
operational performance and financial position.
CHANGES IN LEGISLATION AND FISCAL AND REGULATORY POLICIES
Changes in legislation, taxation (tax rate or
policy), regulation and to policies on renationalisation
and the seizure of property all pose a risk to our
operations and can affect the operational performance
and financial position of the Group or Group companies
concerned. In the upstream these matters affect land
tenure, entitlement to produced hydrocarbons, production
rates, royalties, pricing, environmental protection,
social impact, exports, taxes and foreign exchange.
CURRENCY FLUCTUATIONS AND EXCHANGE CONTROLS
As a global group, changes in currency values
and exchange controls could affect our operational
performance and financial position.
Royal Dutch Shell plc 13
OPERATING AND FINANCIAL REVIEW
ECONOMIC AND FINANCIAL MARKET CONDITIONS
Group companies are subject to differing economic
and financial market conditions throughout the world.
Political or economic instability pose a risk to such
markets. If such a risk materialises it could affect the
operational performance and financial position of the
Group companies operating in the country or region
concerned.
ESTIMATION OF RESERVES
The estimation of oil and gas reserves involves
subjective judgements and determinations based on
available geological, technical, contractual and economic
information. It is not an exact calculation. It may
change because of new information from production or
drilling activities or changes in economic factors. It
may also alter because of acquisitions and dispositions,
new discoveries and extensions of existing fields, as
well as the application of improved recovery techniques.
Published reserves estimates may also be subject to
correction in the application of published rules and
guidance.
LIMITATIONS ON SHAREHOLDER REMEDIES
Our Articles of Association generally require that
all disputes between
our shareholders in such capacity and us or our
subsidiaries (or our directors or former Directors) or
between us and our directors or former directors be
exclusively resolved by arbitration in The Hague, the
Netherlands under the Rules of Arbitration of the
International Chamber of Commerce. Our Articles of
Association also provide that if this provision is for
any reason determined to be invalid or unenforceable, the
dispute may only be brought in the courts of England and
Wales. This provision may affect the ability of
shareholders to obtain monetary or other relief,
including in respect of securities law claims. See
Supplementary information Control of registrant
(unaudited).
ANTITRUST AND COMPETITION LAW
Antitrust and competition law apply to Group
companies in the vast majority of countries in which we
do business. In 2006 the Group was fined over $200
million by the European Commission Directorate-General
for Competition. Due to the European Commission
Directorate-General for Competitions 2006 fining
guidelines any future conviction by Group companies could
result in significant fines. In addition, it is becoming
increasingly more common for plaintiffs to seek payment
of damages for anti-trust violations. Both these factors
could have a material adverse effect on the Groups
results.
US GOVERNMENT SANCTIONS
The Group has investments in Iran and Syria and
certain operations in Sudan. US laws and regulations
identify certain countries, including Iran,
Syria and Sudan, as state sponsors of terrorism and
currently impose economic sanctions against these
countries. Certain activities and transactions in these
countries are banned. Breaking these bans can trigger
penalties including criminal and civil fines and
imprisonment. For Iran, US law sets a limit of $20
million in any 12-month period on certain investments
knowingly made in that country, prohibits the transfer of
goods or services made with the knowledge that they will
contribute materially to that countrys weapons
capabilities and authorises sanctions against any company
violating these rules (including 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, which means the statutes conflict with
each other in some respects. The Group has exceeded and
expects to exceed in the future the US imposed investment
limits in Iran. While we seek to comply with 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.
PROPERTY AND LIABILITY
The Groups operating companies are exposed to
property and liability risks that could affect its
operational performance and financial position. The Group
insures itself against most of these risks through its
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 $550 million.
TRADING AND TREASURY
In the course of normal business activities the
Group is subject to trading and treasury risks. These
include inter alia exposure to movements in commodity
prices, interest rates, and foreign exchange rates,
counter party default and various operational risks.
PENSION FUNDS
The risk with respect to pensions is the ability
of the pension assets to meet future liabilities and
fund defined benefit plans going forward. Note 21 to
the Consolidated Financial Statements provides further
disclosure on retirement benefits.
Liabilities associated with and cash funding of
pensions can be significant. Should the Group
inappropriately value, provide for and/or fund these
obligations, there could be a significant impact on its
financial performance.
Local trustees manage the pension funds and set the
required contributions from Group companies based on
independent actuarial valuation rather than the IFRS
measures. These valuations are sensitive to changes in
the assumptions made regarding future outcomes, the
principal ones being in respect of increases in
remuneration and pension benefits, demography (including
mortality), the discount rate used to convert future
cash flows to current values and the long-term return on
plan assets. Substantial judgement is required in
determining the assumptions.
For further information regarding the judgement applied
in these assumptions and the relation to the financial
position and performance of the company, see Note 21 to
the Consolidated Financial Statements.
The Groups pension risk response has been developed
based on a comprehensive risk review. The following
framework reflects the key responses to the identified
sponsor risks:
|
|
A Joint HR/Finance Pensions Forum is responsible for the retirement benefit strategy and risk responses. |
|
|
Controls are established over retirement benefit and plan
(re)design. |
|
|
Controls are established over pension plan investments, liabilities and funding. |
|
|
Centres of excellence have been established to deliver support services to Sponsor
Companies and Pension Funds. |
|
|
Controls are established over pension reporting. |
14 Royal Dutch Shell plc
OPERATING AND FINANCIAL REVIEW
OVERVIEW
Our strategy of more upstream and profitable
downstream is well on track to reinforce our position
in the industry while providing competitive and
sustainable shareholder return.
HIGHLIGHTS
|
|
Earnings per share increased 4.7%. |
|
|
Return on average capital employed of 23.4%. |
|
|
Cash flow from operations improved by over 5% reaching $31.7 billion. |
|
|
Cash returned to shareholders of $16.3 billion, representing an increase of 5%,
excluding the minority shareholder buy out in 2005. |
|
|
Dividends to shareholders increased by 9% compared with 2005. |
Our strong cash generation and
capital discipline continued to
support our objectives of making
significant investments to support
long-term growth while increasing
cash returned to
shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS |
|
$ million |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Income from continuing operations |
|
|
26,311 |
|
|
|
26,568 |
|
|
|
19,491 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
(307 |
) |
|
|
(234 |
) |
|
Income for the period |
|
|
26,311 |
|
|
|
26,261 |
|
|
|
19,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEGMENT EARNINGS [A] |
|
$ million |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration & Production |
|
|
15,195 |
|
|
|
14,238 |
|
|
|
9,823 |
|
Gas & Power |
|
|
2,650 |
|
|
|
1,573 |
|
|
|
1,815 |
|
Oil Products |
|
|
7,125 |
|
|
|
9,982 |
|
|
|
7,597 |
|
Chemicals |
|
|
1,064 |
|
|
|
991 |
|
|
|
1,148 |
|
Other industry segments and Corporate |
|
|
277 |
|
|
|
(523 |
) |
|
|
(1,126 |
) |
|
Total |
|
|
26,311 |
|
|
|
26,261 |
|
|
|
19,257 |
|
|
|
|
|
[A] |
|
Segment earnings as disclosed in the table above differ from the segment results
disclosed in Note 10 beginning on page 117. Segment earnings include share of profit of
equity accounted investments, other income/expense and taxation attributable to the
segment. |
2006 COMPARED TO 2005 AND 2004
EARNINGS
The Groups businesses delivered strong operational
and financial performance in 2006, resulting in earnings
of $26.3 billion. The Groups healthy financial position
allowed it to return $16.3 billion to shareholders,
through dividends and share repurchases, while capital
investment reached $24.9 billion.
The 2006 earnings were in line with 2005 which were up
36% from 2004. The increase in 2005 reflected higher
realised oil and gas prices as well as higher LNG
volumes and prices.
Exploration & Production earnings were $15,195 million in
2006 compared with $14,238 million in 2005, up 7%.
Earnings reflected higher oil prices, partly offset by
lower production volumes, higher
operating costs reflecting industry conditions, increased
pre-development activity levels and lower US gas prices.
In 2005, earnings increased by 45% compared with 2004 as
hydrocarbon prices increased by nearly the same amount
(e.g. Brent increased by 42%) over the same period.
Production in 2006 was 2% higher than 2005, excluding the
impact of security concerns in Nigeria, price effects and
hurricanes in the Gulf of Mexico and one-off contractual
settlements. This represented an improvement over 2005
where volumes had declined by 1% compared with 2004
volumes, when calculated on a similar basis.
Hydrocarbon prices were higher in 2006 compared with 2005
and 2004, Brent crude prices averaged $65.10 per barrel
in 2006 compared with $54.55 in 2005 and $38.30 in 2004.
West Texas Intermediate prices averaged $66.04 per barrel
in 2006 compared with $56.60 in 2005 and $41.50 in 2004.
Gas & Power earnings were up 68% in 2006 reaching $2,650
million, compared with $1,573 million in 2005 and $1,815
million in 2004. The earnings decline in 2005 compared
with 2004 was driven by non-operational gains and losses
related to divestments. Excluding these non-recurring
items, earnings were 21% higher in 2005.
LNG sales volumes in 2006 of 12.1 million tonnes showed
an increase of 14% compared to 2005 due to the capacity
growth in Nigeria and Oman. Income from LNG cargo
optimisation in 2006 increased reflecting market
conditions and success in accessing high value markets.
Marketing and trading earnings reflected gas storage
optimisation in the USA and overall strong marketing
performance across North America and Europe.
Oil Products earnings in 2006 were $7,125 million, 29%
lower than 2005. Refining earnings in 2006 were lower
than 2005 reflecting reduced refining margins. Marketing
earnings in 2006 were higher than 2005, mainly due to
higher earnings in Lubricants offsetting lower earnings
in Retail and Business to Business (B2B). Trading
earnings increased from 2005 to 2006 as a result of
capitalising on the global downstream portfolio and the
attractive trading conditions, which stemmed from high
price volatility and market structure. The impact of
price volatility on inventory had favourable effects on
2006 earnings of approximately $0.1 billion compared
with approximately $2.5 billion in 2005. Earnings in
2005 grew 31% compared with 2004 reflecting high
refining margins, improved operational performance and
increased trading results and higher inventory gains.
Chemicals earnings were $1,064 million compared with $991
million in 2005 and $1,148 million in 2004. Earnings in
2006 included $113
million of net charges, including legal costs and pension
costs partly offset by tax effects. Earnings in 2005
included charges of $565 million mainly from the
divestment of the polyolefins joint venture, Basell, and
legal provisions. Excluding these effects, 2006 earnings
were 24% lower than a year ago reflecting lower margins
partly offset by higher earnings from equity accounted
investments, including Nanhai petrochemicals complex in
China. Earnings in 2005 were 14% lower than 2004 due to
the impact of discontinued operations as well as lower
volumes and higher costs.
BALANCE SHEET AND CAPITAL INVESTMENT
The most significant changes to the balance sheet
in 2006 reflect the Groups strategy to invest in the
development of long-term growth projects, primarily in
the upstream businesses. Property, plant and equipment
and equity accounted investments increased by over $17
billion in 2006 as capital investment increased by over
40% in 2006
compared with 2005 reaching $24.9 billion. This was
partly offset by depreciation, depletion and
amortisation of nearly $13 billion. Over $20 billion of
the capital investment was dedicated to projects in
upstream that will primarily deliver organic growth over
the long term. These projects include several
multi-billion, integrated facilities that should provide
significant cash flow for the coming decades.
The capital investment programme in 2006 was primarily
funded internally, either from cash from operations of
$31.7 billion or with proceeds from divestments of $1.7
billion, with net debt (defined as total debt, including
tolling arrangements, minus cash) increasing by $5.6
billion to a year-end balance of $6.8 billion. Total
equity increased by $17 billion in 2006 resulting in a
year-end balance of $115 billion.
Gearing increased from 13.6% at year-end 2005 to 14.8%
at year-end 2006. See Note 19D to the Consolidated
Financial Statements for a further discussion on
gearing.
PORTFOLIO ACTIONS
In January 2007 the Group made an offer to the
shareholders of Shell Canada Limited to acquire all of
the outstanding common shares not owned by the Group at a
cash price of C$45 per share. The offer would value Shell
Canadas fully diluted minority share capital at
approximately C$8.7 billion (approximately $7.5 billion).
In December 2006 the Group, Gazprom, Mitsui & Co., and
Mitsubishi Corporation signed a protocol to bring Gazprom
into the Sakhalin Energy Investment Company Ltd. (SEIC)
as the leading shareholder. Under the terms of the
protocol, Gazprom will acquire a 50% interest plus one
share in SEIC for a total cash purchase price of $7.45
billion of which Shell is expected to receive
approximately $4.1 billion. The current SEIC partners
will each dilute their interests by 50% to accommodate
this transaction, with a proportionate share of the
purchase price. Shell will retain a 27.5% interest, with
Mitsui and Mitsubishi holding 12.5% and 10% interests,
respectively.
PERFORMANCE AND CAPITAL
Please refer to page 54 and 56 for a discussion
of key performance indicators and liquidity and capital
resources.
Royal Dutch Shell plc 17
OPERATING AND FINANCIAL REVIEW
OVERVIEW
Exploration & Production explores for and extracts oil and gas. Together with Gas & Power it builds
and operates the infrastructure necessary to deliver these hydrocarbons to market.
Most of our Exploration & Production activities are carried out with a wide range of joint venture
partners. Our business is active in 39 countries and we are investing strongly for future growth,
with some $16.5 billion of capital investment in 2006.
HIGHLIGHTS
|
|
Achieved record segment earnings which increased 7% from 2005. |
|
|
|
Production in line with 2005 production of 3.5 million barrels of oil equivalent (boe)
per day, despite security issues in Nigeria. |
|
|
|
Added approximately 2 billion boe of proved oil and gas reserves and proven oil sands mining reserves. |
|
|
|
Added some 45 thousand square kilometres of exploration acreage. |
|
|
|
Commenced execution of several major long-life projects, including Athabasca oil sands
expansion, Pearl Gas to Liquids (GTL) in Qatar and two major ultra-deep water developments
in the USA and Brazil. |
In 2006 we delivered record earnings,
again met our production
targets,
continued our exploration
success and
decided to proceed with new projects
which will
create major new legacy assets.
Our
focus is on delivery and long-term
growth through technology,
integration
and scale.
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS [A]
|
|
$ million |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenue (including intersegment
sales) |
|
|
54,956 |
|
|
|
45,674 |
|
|
|
37,295 |
|
Purchases (including change in
inventories) |
|
|
(3,451 |
) |
|
|
(1,673 |
) |
|
|
(2,669 |
) |
Exploration |
|
|
(1,562 |
) |
|
|
(1,286 |
) |
|
|
(1,809 |
) |
Depreciation |
|
|
(8,844 |
) |
|
|
(8,152 |
) |
|
|
(7,015 |
) |
Operating expenses |
|
|
(11,722 |
) |
|
|
(9,295 |
) |
|
|
(8,467 |
) |
Share of profit of equity accounted
investments |
|
|
3,075 |
|
|
|
4,112 |
|
|
|
2,463 |
|
Other income/(expense) |
|
|
(317 |
) |
|
|
(272 |
) |
|
|
(95 |
) |
Taxation |
|
|
(16,940 |
) |
|
|
(14,870 |
) |
|
|
(9,880 |
) |
|
Segment earnings from continuing
operations |
|
|
15,195 |
|
|
|
14,238 |
|
|
|
9,823 |
|
Income/(loss) from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
SEGMENT EARNINGS |
|
|
15,195 |
|
|
|
14,238 |
|
|
|
9,823 |
|
|
|
|
[A] |
|
Segment earnings as disclosed in the table above differ from the segment results
disclosed in Note 10 beginning on page 117. Segment earnings include share of profit of
equity accounted investments, other income/expense and taxation attributable to the
segment. |
2006 COMPARED TO 2005 AND 2004
EARNINGS
Segment earnings in 2006 were $15,195 million, 7% higher than in 2005 and 55% higher than in 2004.
The increase in 2006 from 2005 reflected higher realised oil prices, partly offset by the impact of
lower US gas prices, marginally lower production volumes and higher operating costs reflecting
industry conditions, increased pre-development activity levels and higher maintenance costs
(including increased technical integrity spend). 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.
Earnings in 2006 included net gains of $641 million compared with net gains of $1,727 million in
2005 and net charges of $4 million in 2004. The net gains in 2006 mainly related to the
mark-to-market valuation of certain UK gas contracts and divestment gains. The net gains in 2005
were almost entirely related to the divestment of pipeline assets in the Netherlands, as various
taxation credits and other divestments were almost offset by a net charge relating to
mark-to-market gas contracts in the UK. The net charges in 2004
comprised mainly divestment gains of $699 million and impairment reversals of $469 million, offset
by mark-to-market losses and impairments.
OUTLOOK AND STRATEGY
The environment for the exploration and production industry has continued to be characterised by
higher oil prices, high activity levels, tightness in the supply of oilfield goods and services,
cost escalation and strong competition for new opportunities. We anticipate that the environment in
2007 will be similar. We believe that crude oil prices in the near future will continue to be
influenced by OPEC supply policy and the industrys limited ability to generate significant
additional near-term production capacity, the rate of global economic expansion, particularly in
the USA, India and the Asia Pacific region and, to a lesser extent, the severity of the northern
hemisphere winter.
The Exploration & Production strategy pursued consistently for the last three years is unchanged
and delivery remains on track. Our strategy has four portfolio themes: sustaining our heartlands,
focusing on new oil and gas plays where technology is a differentiator, integrated gas
opportunities and unlocking unconventional resources. We will continue to pursue an aggressive
exploration programme to add more acreage in support of these themes. We will also invest in
organic growth, open up new positions and make selective acquisitions, divestments and asset swaps
as a means to expand and high-grade
our asset portfolio. In terms of our existing portfolio, we will focus on production and project
delivery, cost performance and operational excellence.
The Group will seek to sustain long-term production from our existing heartlands, i.e. our core
countries that have the available infrastructure, expertise and remaining growth potential for the
Group to sustain top quartile operations and support continued investment. We will look for further
and stronger integrated gas positions such as onshore USA and through projects like Ormen Lange in
Norway. We will extend our leadership position in LNG, leveraging our presence across the natural
gas value chain from exploration to production and markets to maximise the value from our
integrated gas projects. Examples of key project activity in this area include Sakhalin in Russia,
Nigeria, the North West Shelf in Australia and Qatar. We intend to build on our existing strengths
in unconventional oil and gas technologies. We have taken investment decisions on the Pearl GTL
project in Qatar and are building on the success of the Athabasca Oil Sands Project in Canada where
we have already started to expand. We intend to maintain our emphasis on developing and applying
technology as a key differentiator in securing access to good upstream opportunities and then
delivering more value from them. Such areas of focus include deep water, enhanced oil recovery,
tight gas, contaminated gas and heavy oil. Leveraging technology is central to our strategy. We
have tripled our R&D budget and shifted our emphasis further to subsurface and unconventionals.
Our focus on the reduction of costs will be sustained through optimised management of the supply
chain and standardising processes globally. We will continue to strengthen our capabilities in
project delivery. Having people in place with the requisite skills is vital to the successful
delivery of our strategy: in 2006 we have increased our establishment of technical professionals by
over 1,500 people and we will continue to build our capacity through redeployment and external
recruitment.
PRODUCTION
In 2006, total hydrocarbon production (including oil sands) was 3,473 thousand boe per day. This
was 1% lower than in 2005 and 8% lower than in 2004. Contractual settlements benefited production
by 27 thousand boe per day. The underlying production trend was up 2% (excluding the impacts of
security issues in Nigeria, hurricane damage in the Gulf of Mexico, PSC price impacts and one-off
contractual settlements).
Field declines affecting oil production were seen in the USA, Oman, UK, Norway and Brunei during
2006. Operational shutdowns in the UK and Canada also impacted production levels. Similarly,
natural gas production was impacted by declining fields in the USA and the UK, as well as by lower
seasonal demand in Northwest Europe.
The effect of declining fields was more than offset by production from new fields such as Erha in
Nigeria, E8 in Malaysia, Champion West Phase III in Brunei and Pohokura in New Zealand, and by
increased production from Bonga in Nigeria and West Salym in Russia. Total new production added was
207 thousand boe per day in 2006. Production was boosted by the re-start of operations at the Mars
platform in the Gulf of Mexico which achieved daily production levels over 20% above those prior to
the shut down due to hurricanes.
The Groups production for 2007 is expected to be around 3.3-3.5 million boe per day. Community
disturbances in the Nigeria Western Delta have significantly increased in 2006 and remain an
ongoing risk to our business in Nigeria, not only affecting our current production levels but also
our ability to grow production in the future because of damage to existing facilities and lack
|
|
|
|
|
|
|
|
|
COUNTRIES IN WHICH EXPLORATION & PRODUCTION OPERATE
|
USA
Other Western
Hemisphere
Argentina
Brazil
Canada
Venezuela
|
|
Europe
Austria
Denmark
Germany
Ireland
Italy
The Netherlands
Norway
Ukraine
UK
|
|
Africa
Algeria
Angola
Cameroon
Gabon
Libya
Nigeria
Tunisia
|
|
Middle East,
Russia, CIS[A]
Abu Dhabi
Azerbaijan
Egypt
Iran
Kazakhstan
Oman
Pakistan
Qatar
Russia
Saudi Arabia
Syria
|
|
Asia Pacific
Australia
Brunei
China
Indonesia
Malaysia
New Zealand
Philippines |
|
|
|
[A] |
|
Commonwealth of Independent States |
of drilling and construction activity. This situation will be closely monitored throughout 2007. We
expect production growth for the Group to be modest over the coming years, around 1-2% per annum from 2007 to the end of the decade,
as a result of the impact of the Nigeria security issues and the portfolio management actions we
intend to take. Following this, the Group has a strong resource base with the potential to support
2-3% per annum average growth. Actual growth each year will depend on project start-ups, portfolio
management action and the tightness of the market. Our investment decision making will focus on
value generation rather than specific reserves or volumes targets.
Several new fields came onstream delivering additional production volumes in 2006. In Brunei, oil
production started from the first well of Phase III of the Champion West field (Group interest 50%)
using Shells Smart Fields® technology. This makes use of a network of down-hole and surface
sensors to create a real-time picture of reservoir dynamics and production which integrates with
data from production facilities allowing optimisation of the entire production system. Unique snake
wells were drilled which follow complex trajectories allowing them to pass through multiple
reservoirs. The additional production helped Brunei Shell Petroleum (BSP) achieve a 25-year
production record. Over time almost a quarter of BSPs production is expected to come from Champion
West.
First gas was delivered from the offshore E8 field (Group interest 50%) in Malaysia, which is a key
component of the E11 Hub integrated gas project which aims to rejuvenate existing E11 facilities
and develop several offshore gas fields over the next years. The E11 hub has a design capacity of
1.6 billion cubic feet (bcf) of gas per day.
First gas was also delivered from the Pohokura field (Group interest 48%) in New Zealand, which is
expected to produce around 40 thousand boe a day at its peak.
In Nigeria, the deep water Erha field (Group interest 43.75%) started up in April 2006 and the deep
water Bonga field (Group interest 55%) which started production in late 2005 continued to ramp up.
Both fields achieved their nameplate capacity in 2006 which on a combined basis is some 220
thousand boe per day (Group interest).
PRICES
Oil prices increased in 2006 with Brent and West Texas Intermediate crude prices 19% and 17% higher
than in 2005, respectively. The Groups overall realised oil and natural gas liquids (NGL) prices
were $60.13 a barrel, compared with $50.36 in 2005 and $35.61 in 2004. In the USA, realised oil and
NGL prices averaged $58.53 a barrel, compared with $48.94 in 2005 and $36.15 in 2004. Outside the
USA, realised oil and NGL prices averaged $60.37 a barrel compared with $50.56 in 2005 and $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
Royal Dutch Shell plc 19
OPERATING AND FINANCIAL REVIEW
Exploration & Production averaged $5.08 per thousand standard cubic feet (scf) in 2006 compared
with $4.77 in 2005 and $3.59 in 2004. In the USA, realised gas prices averaged $7.74 per thousand
standard cubic feet (scf), compared with $8.43 in 2005 and $6.33 in 2004. Outside the USA, realised
gas prices averaged $4.41 compared with $3.84 in 2005 and $2.81 in 2004.
CAPITAL INVESTMENT AND PORTFOLIO ACTIONS
Capital investment in 2006 increased 53% to $16.5 billion (excluding the contribution of our
minority partners in Sakhalin of $1.4 billion). This included exploration expenditure of $5.1
billion of which $2.4 billion was related to acquisitions. Overall, the costs of the acquisitions
totalled $2.9 billion. In 2005, capital investment was $10.8 billion and was $8.8 billion in 2004
(excluding the contribution of our minority partners in Sakhalin of $1.3 billion and $1.1 billion
respectively).
Decisions were made to proceed with a number of major projects in 2006. We announced the go ahead
of the development of the BC-10 deepwater block offshore Brazil following an earlier declaration of
commerciality. The BC-10 development consists of multiple subsea wells and manifolds, tied back to
a floating production, storage and offloading vessel with a capacity of 100 thousand barrels per
day. First production is expected around the turn of the decade. Earlier in the year, Shell
exercised its pre-emption option for an additional 30% participating interest in the BC-10 block
and subsequently sold half of the additional stake acquired to the Indian National Oil Company,
ONGC Videsh Ltd (OVL) resulting in a 50% interest in this block together with Petrobras (35%) and
OVL (15%).
Shell announced the development of the Great White (Group interest 33.34%), Tobago (Group interest
32.5%) and Silvertip fields (Group interest 40%), via the Perdido development host (Group interest
35%), located in Alaminos Canyon, offshore Gulf of Mexico. The facility will be designed to handle
130 thousand boe per day. Also in the USA, major multi-year investment programmes were approved to
further develop our onshore gas projects at Pinedale in Wyoming and in South Texas.
In 2006, Shell Canada received the regulatory approvals needed to proceed with Athabasca Oil Sands
Project Expansion 1 (Shell Canada interest 60%), a fully integrated 100 thousand barrels per day
expansion of oil sands mining and upgrading facilities. Shell Canada acquired 100% of BlackRock
Ventures Inc (BlackRock). The integration of the acquired assets and operations into Shell Canada
has now been completed.
Also in Canada, the wholly-owned Shell subsidiary, SURE Northern Energy Ltd., acquired 19 parcels
of land in Northern Alberta to evaluate and potentially develop heavy oil resources.
Royal Dutch Shell plc announced in January 2007 that it has reached agreement with and obtained the
recommendation of the Board of Directors of Shell Canada on a revised offer to acquire all of the
outstanding common shares of Shell Canada not owned by Royal Dutch Shell at a cash price of C$45
per share. This offer would value Shell Canadas fully diluted minority share capital at around
C$8.7 billion. Royal Dutch Shell currently owns 78% of the common shares of Shell Canada.
Shell acquired acreage in the Carnarvon Basin in Australia through the offshore block WA-374-P in
the Greater Gorgon Area (Group interest 25%) and in the Browse Basin through the permit area
WA-371-P in the Caswell Sub-basin.
In Russia, Shell, Gazprom, Mitsui and Mitsubishi signed a protocol to bring Gazprom into the
Sakhalin Energy Investment Company Ltd. (SEIC) as the
leading shareholder. Under the terms of the protocol, Gazprom will acquire a 50% interest plus one
share in SEIC for a total cash purchase price of $7.45 billion. The current SEIC partners will each
dilute their interest by 50% to accommodate this transaction, with a proportionate share of the
purchase price. Shell will retain a 27.5% interest, with Mitsui and Mitsubishi holding 12.5% and
10% interest, respectively. Gazprom and existing SEIC shareholders will enter into an Area of
Mutual Interest arrangement, which will cover both future Sakhalin oil and gas exploration and
production opportunities, and building of Sakhalin II into a regional oil and LNG hub. Furthermore,
agreement has been reached with the Ministry of Industry and Energy, regarding the amended budget
of Sakhalin II and cost recovery. The Production Sharing Agreement for the project will continue
and the amended project budget for phase 2 is expected to be approved by the Supervisory Board of
SEIC.
A number of divestments were completed in 2006. In the UK, Shell completed the sale of its 50%
holding in the Auk and 43% holding in the Fulmar fields and associated infrastructure, while in
Norway, the divestment of the Jotun field (Group interest 45%) was also completed. In the
Netherlands, Energie Beheer Nederland B.V. has agreed to take a 40% financial interest from NAM
(Group interest 50%) in the possible redevelopment of a part of the Schoonebeek oilfield.
In Norway, Shell and Statoil signed an agreement to work towards developing the worlds largest
project using carbon dioxide (CO2) for enhanced oil recovery offshore. If technical and economic
challenges can be overcome, the Halten project would involve
capturing CO2 from power generation
and using it to enhance oil recovery initially at the Shell-operated Draugen field and later at the
Statoil-operated Heidrun field.
A Joint Activity Agreement was signed in Ukraine, with Ukrgazvydobuvannya, a subsidiary of Naftogaz
Ukrainy. Shell has farmed into eight licences in the Dniepr Donets Basin and exploration work
commenced in 2006.
EXPLORATION
During 2006, we participated in 198 successful exploratory wells (wells drilled outside proved
area). These included exploration discoveries in Australia, Brunei, Cameroon, Egypt, Malaysia,
Netherlands, Nigeria, Oman, Syria and the USA. Discoveries will be evaluated in order to establish
the extent of the volumes they contain.
The Group made significant additions to its overall acreage position with new exploration licences
in Australia, Canada, Denmark, Ireland, Norway, Philippines, Tunisia, Ukraine and the USA (Gulf of
Mexico and Onshore). In 2006, some 45 thousand square kilometres of additional exploration acreage
was added in the above-mentioned countries. Globally, we maintained our acreage position to the
same level in comparison to last year.
RESEARCH AND DEVELOPMENT
The Shell Exploration & Production Technology organisation is responsible for the research,
development and application of integrated technology solutions for Group operating businesses and
assets around the world. The primary 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 continuous improvement in cost-efficiency and performance; to
increase operational safety and to reduce environmental impact.
Exploration & Production R&D is carried out in two main laboratory locations: Rijswijk (the
Netherlands) and Houston (Texas, USA). Additional technology facilities are in Oman, Qatar,
Stavanger (Norway) and Calgary (Canada). In-house teams and facilities are used in the research and
20 Royal Dutch Shell plc
development of proprietary exploration and production technologies along with service industry
and/or academic capabilities where applicable.
The primary focus of the research and development work is in the following areas: enhanced
subsurface imaging; reservoir surveillance and characterisation; smart reservoir management;
improving hydrocarbon recovery efficiency; reducing the cost of wells and facilities; enabling the
development of ultra-deep water fields; separation and utilisation of contaminated gas; recovery of
unconventional hydrocarbons; upgrading recovered unconventional hydrocarbons; and developing
solutions for capture and sequestration of CO2.
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 generally, 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 on a per field
basis. Additionally, as the price of oil or gas increases above certain pre-determined
levels, the Groups entitlement share of production would normally decrease. |
Group companies exploration and production interests, including acreage holdings and statistics on
wells drilled and drilling, are shown on pages 22 to 26.
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 161 to 167. Oil and gas reserves
cannot be measured exactly since estimation of reserves involves subjective judgement. 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 2006, a total of 1,638 million boe was added to proved developed and undeveloped reserves by
Group companies, consisting of 367 million barrels of oil and natural gas liquids and 7,373
thousand million scf of natural gas (in each case before taking account of production). The
addition to proved developed and undeveloped reserves consisted of additions of 7 million boe from
revisions, 27 million boe from improved recovery and 1,539 million boe from extensions and
discoveries, and 65 million boe from acquisitions and divestments. There was a net addition of 463
million boe to proved developed reserves and a net addition of 1,175 million boe to proved
undeveloped reserves (before taking account of production).
During the same period, the Group share of proved developed and undeveloped reserves additions by
equity accounted investments, that are in addition to the additions to the reserves by Group
companies described above, represented a reduction of 59 million boe, consisting of a reduction of
95 million barrels of oil and natural gas liquids and an increase of 208 thousand million scf of
natural gas (in each case before taking account of production). The Group share of changes to proved developed
and undeveloped reserves by equity accounted investments consisted of a reduction of 89 million boe
from revisions and an increase of 30 million boe from extensions and discoveries. There were no
changes to reserves as a result of acquisitions and divestments. There was a net addition of 101
million boe to proved developed reserves and a net reduction of 160 million boe to proved
undeveloped reserves (before taking account of production).
Details of the main proved reserves changes during 2006 are provided in the section entitled
Supplementary information Oil and gas (unaudited).
At December 31, 2006, after taking account of Group companies 2006 net additions to proved
developed and undeveloped reserves and production, total proved reserves for Group companies was 9%
higher than at December 31, 2005. 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 9% lower than at December
31, 2005.
In December 2006, Shell signed a protocol with Gazprom, which results in a reduction in Shells 55%
interest in Sakhalin II, in Russia, to a 27.5% interest. At the end of 2006, Sakhalin II was
recorded in Shells reserves on a fully consolidated basis, with net reserves of 0.8 billion barrel
of oil equivalent (boe), consisting of approximately 1.5 billion boe for Group companies, partly
offset by 0.7 billion boe attributable to minority interests. On successful completion of this
transaction, Shells net share of these reserves would be reduced by approximately 0.4 billion boe
and the remaining reserves of approximately 0.4 billion boe on a 2006 basis would be reclassified
to Group share of equity accounted investments. This transaction is expected to close in 2007 and
to reduce Shells reserves from 2007.
In addition to proved conventional liquids and natural gas reserves, the Group has significant
interests in proven oil sands reserves in Canada associated with the Athabasca Oil Sands Project.
The Group views these reserves and their development as an integral part of the companys total
upstream operations. However, since SEC regulations define these reserves as mining-related and not
part of conventional oil and gas reserves, these are presented separately to
Royal Dutch Shell plc 21
OPERATING AND FINANCIAL REVIEW
the conventional oil and gas reserves. Net proven oil sands reserves were 1,134 million barrels at
December 31, 2006, a net addition of 418 million barrels compared to 2005 (before taking account of
production). The oil sands reserves are not included in the standardised measure of discounted cash
flows for conventional oil and gas reserves presented on pages 166 to 167.
|
|
|
PROVED DEVELOPED AND UNDEVELOPED RESERVES [A][F] (At December 31)
|
|
million barrels of oil equivalent [B] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Group companies |
|
|
8,452 |
|
|
|
7,761 |
|
|
|
8,064 |
|
Group share
of equity accounted investments |
|
|
3,355 |
|
|
|
3,705 |
|
|
|
3,818 |
|
|
|
|
PROVED DEVELOPED AND UNDEVELOPED RESERVES 2006
|
|
million barrels of oil equivalent [B] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Hemisphere |
|
|
|
Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle East, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia |
|
|
Russia, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
Africa[C] |
|
|
Pacific[D] |
|
|
CIS[E] |
|
|
USA |
|
|
Other |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed and undeveloped
reserves [A] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1 |
|
|
|
1,848 |
|
|
|
1,257 |
|
|
|
1,142 |
|
|
|
2,240 |
|
|
|
|
878 |
|
|
|
396 |
|
|
|
|
7,761 |
|
At December 31 |
|
|
|
1,565 |
|
|
|
1,135 |
|
|
|
1,102 |
|
|
|
3,424 |
|
|
|
|
851 |
|
|
|
375 |
|
|
|
|
8,452 |
|
Group share
of equity accounted investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1 |
|
|
|
2,078 |
|
|
|
|
|
|
|
709 |
|
|
|
490 |
|
|
|
|
428 |
|
|
|
|
|
|
|
|
3,705 |
|
At December 31 |
|
|
|
2,064 |
|
|
|
|
|
|
|
558 |
|
|
|
387 |
|
|
|
|
313 |
|
|
|
33 |
|
|
|
|
3,355 |
|
|
|
|
|
|
|
|
|
|
|
Proved developed reserves [A] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1 |
|
|
|
1,270 |
|
|
|
667 |
|
|
|
481 |
|
|
|
476 |
|
|
|
|
507 |
|
|
|
242 |
|
|
|
|
3,643 |
|
At December 31 |
|
|
|
1,089 |
|
|
|
478 |
|
|
|
482 |
|
|
|
409 |
|
|
|
|
463 |
|
|
|
238 |
|
|
|
|
3,159 |
|
Group share of equity accounted investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1 |
|
|
|
1,755 |
|
|
|
|
|
|
|
412 |
|
|
|
360 |
|
|
|
|
348 |
|
|
|
|
|
|
|
|
2,875 |
|
At December 31 |
|
|
|
1,705 |
|
|
|
|
|
|
|
349 |
|
|
|
350 |
|
|
|
|
257 |
|
|
|
24 |
|
|
|
|
2,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIL SANDS [F] |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Group companies |
|
|
|
|
|
|
|
|
|
|
|
|
At January 1 |
|
|
746 |
|
|
|
615 |
|
|
|
572 |
|
At December 31 |
|
|
1,134 |
|
|
|
746 |
|
|
|
615 |
|
|
|
[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] |
For this purpose natural gas has been converted to barrels of oil equivalent using a
factor of 5,800 standard cubic feet per barrel. |
|
[C] |
Excludes Egypt. |
|
[D] |
Excludes Sakhalin. |
|
[E] |
Includes Caspian region, Egypt and Sakhalin. |
|
[F] |
Although presented separately, management regards reserves obtained from equity
accounted investments on an equal basis to those obtained from Group companies. Proved
developed and undeveloped reserves of Group companies and Group share of equity accounted
investments equalled 11,807 million boe at December 31, 2006 (2005: 11,466 million boe and
2004: 11,882 million boe). Additionally, management considers proven mining reserves (oil sands) on an equal basis to
oil and gas reserves. |
22 Royal Dutch Shell plc
|
|
|
CAPITAL EXPENDITURE AND EXPLORATION EXPENSE OF GROUP COMPANIES BY GEOGRAPHICAL AREA[A]
|
|
$ million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005[E] |
|
|
2004[E] |
|
Europe |
|
|
2,684 |
|
|
|
1,991 |
|
|
|
1,625 |
|
Africa [B] |
|
|
1,840 |
|
|
|
1,937 |
|
|
|
1,982 |
|
Asia Pacific [C] |
|
|
1,264 |
|
|
|
1,067 |
|
|
|
525 |
|
Middle East, Russia, CIS [D] |
|
|
4,528 |
|
|
|
3,844 |
|
|
|
3,210 |
|
USA |
|
|
2,306 |
|
|
|
1,486 |
|
|
|
1,282 |
|
Other Western Hemisphere |
|
|
4,100 |
|
|
|
1,074 |
|
|
|
588 |
|
|
Total |
|
|
16,722 |
|
|
|
11,399 |
|
|
|
9,212 |
|
|
|
|
[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
placed in service. 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] |
Excludes Egypt. |
[C] |
Excludes Sakhalin. |
[D] |
Includes Caspian region, Egypt and Sakhalin. |
|
[E] |
2004 and 2005 comparative figures have been reclassified in line with 2006 to reflect
the move of Pakistan from Asia Pacific to the Middle East, Russia and CIS region for
reporting purposes. |
|
|
|
AVERAGE PRODUCTION COSTS OF GROUP COMPANIES BY GEOGRAPHICAL AREA [A] [B] [G]
|
|
$/barrel of oil equivalent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005[F] |
|
|
2004[F] |
|
Europe |
|
|
7.56 |
|
|
|
6.03 |
|
|
|
4.80 |
|
Africa [C] |
|
|
5.60 |
|
|
|
4.13 |
|
|
|
3.23 |
|
Asia Pacific [D] |
|
|
3.35 |
|
|
|
2.94 |
|
|
|
2.94 |
|
Middle East, Russia, CIS [E] |
|
|
7.83 |
|
|
|
6.21 |
|
|
|
3.19 |
|
USA |
|
|
8.08 |
|
|
|
6.57 |
|
|
|
4.19 |
|
Other Western Hemisphere |
|
|
11.03 |
|
|
|
8.45 |
|
|
|
6.38 |
|
|
Total |
|
|
6.95 |
|
|
|
5.54 |
|
|
|
4.02 |
|
|
|
|
[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] |
Includes Caspian region, Egypt and Sakhalin. |
|
[F] |
2004 and 2005 comparative figures have been reclassified in line with 2006 to reflect
the move of Pakistan from Asia Pacific to the Middle East, Russia and CIS region for
reporting purposes. |
|
[G] |
Production costs exclude royalty payments of $1,569 million in 2006, $1,940 million in
2005 and $2,007 million in 2004. |
Royal Dutch Shell plc 23
OPERATING AND FINANCIAL REVIEW
|
|
|
CRUDE OIL AND NATURAL GAS LIQUIDS PRODUCTION [A]
|
|
thousand barrels/day |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
UK |
|
|
223 |
|
|
|
250 |
|
|
|
275 |
|
Norway |
|
|
85 |
|
|
|
107 |
|
|
|
129 |
|
Denmark |
|
|
134 |
|
|
|
143 |
|
|
|
142 |
|
Italy |
|
|
44 |
|
|
|
30 |
|
|
|
21 |
|
Netherlands |
|
|
6 |
|
|
|
7 |
|
|
|
8 |
|
Germany |
|
|
4 |
|
|
|
4 |
|
|
|
5 |
|
Others |
|
|
|
[B] |
|
|
|
[B] |
|
|
|
[B] |
|
Total Europe |
|
|
496 |
|
|
|
541 |
|
|
|
580 |
|
|
Other Eastern Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
Africa |
|
|
|
|
|
|
|
|
|
|
|
|
Nigeria |
|
|
293 |
|
|
|
324 |
|
|
|
349 |
|
Gabon |
|
|
32 |
|
|
|
36 |
|
|
|
35 |
|
Cameroon |
|
|
14 |
|
|
|
13 |
|
|
|
15 |
|
|
Total Africa |
|
|
339 |
|
|
|
373 |
|
|
|
399 |
|
|
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
Brunei |
|
|
104 |
|
|
|
95 |
|
|
|
98 |
|
Australia |
|
|
57 |
|
|
|
53 |
|
|
|
60 |
|
Malaysia |
|
|
42 |
|
|
|
41 |
|
|
|
47 |
|
China |
|
|
20 |
|
|
|
20 |
|
|
|
20 |
|
New Zealand |
|
|
14 |
|
|
|
15 |
|
|
|
15 |
|
Others |
|
|
5 |
|
|
|
4 |
|
|
|
3 |
|
|
Total Asia Pacific |
|
|
242 |
|
|
|
228 |
|
|
|
243 |
|
|
Middle East, Russia, CIS |
|
|
|
|
|
|
|
|
|
|
|
|
Oman |
|
|
202 |
|
|
|
214 |
|
|
|
246 |
|
Abu Dhabi |
|
|
147 |
|
|
|
134 |
|
|
|
133 |
|
Syria |
|
|
30 |
|
|
|
36 |
|
|
|
35 |
|
Russia |
|
|
52 |
|
|
|
35 |
|
|
|
32 |
|
Egypt |
|
|
11 |
|
|
|
14 |
|
|
|
10 |
|
Others |
|
|
13 |
|
|
|
10 |
|
|
|
15 |
|
|
Total Middle East, Russia, CIS |
|
|
455 |
|
|
|
443 |
|
|
|
471 |
|
|
Total Other Eastern Hemisphere |
|
|
1,036 |
|
|
|
1,044 |
|
|
|
1,113 |
|
|
USA |
|
|
322 |
|
|
|
333 |
|
|
|
375 |
|
|
Other Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
38 |
|
|
|
39 |
|
|
|
40 |
|
Venezuela |
|
|
31 |
|
|
|
14 |
|
|
|
22 |
|
Brazil |
|
|
25 |
|
|
|
26 |
|
|
|
43 |
|
Others |
|
|
|
[B] |
|
|
1 |
|
|
|
|
[B] |
|
Total Other Western Hemisphere |
|
|
94 |
|
|
|
80 |
|
|
|
105 |
|
|
Grand total |
|
|
1,948 |
|
|
|
1,998 |
|
|
|
2,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metric equivalent |
|
|
97 |
|
|
|
100 |
|
|
|
109 |
|
|
|
|
[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] |
|
Fewer than 1,000 barrels daily. |
|
|
|
NATURAL GAS PRODUCTION AVAILABLE FOR SALE [A]
|
|
million standard cubic feet/day |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 [B][C] |
|
|
2004[B][C] |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
Netherlands |
|
|
1,525 |
|
|
|
1,562 |
|
|
|
1,667 |
|
UK |
|
|
775 |
|
|
|
925 |
|
|
|
984 |
|
Germany |
|
|
421 |
|
|
|
428 |
|
|
|
411 |
|
Denmark |
|
|
416 |
|
|
|
410 |
|
|
|
383 |
|
Norway |
|
|
325 |
|
|
|
298 |
|
|
|
260 |
|
Others |
|
|
61 |
|
|
|
36 |
|
|
|
34 |
|
|
Total Europe |
|
|
3,523 |
|
|
|
3,659 |
|
|
|
3,739 |
|
|
Other Eastern Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
Africa |
|
|
|
|
|
|
|
|
|
|
|
|
Nigeria |
|
|
455 |
|
|
|
377 |
|
|
|
375 |
|
|
Total Africa |
|
|
455 |
|
|
|
377 |
|
|
|
375 |
|
|
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
Malaysia |
|
|
956 |
|
|
|
858 |
|
|
|
739 |
|
China |
|
|
36 |
|
|
|
|
|
|
|
|
|
Brunei |
|
|
574 |
|
|
|
544 |
|
|
|
554 |
|
Australia |
|
|
529 |
|
|
|
525 |
|
|
|
436 |
|
|
New Zealand |
|
|
241 |
|
|
|
234 |
|
|
|
258 |
|
Others |
|
|
85 |
|
|
|
89 |
|
|
|
72 |
|
|
Total Asia Pacific |
|
|
2,421 |
|
|
|
2,250 |
|
|
|
2,059 |
|
|
Middle East, Russia, CIS |
|
|
|
|
|
|
|
|
|
|
|
|
Oman |
|
|
|
|
|
|
|
|
|
|
471 |
|
Egypt |
|
|
201 |
|
|
|
238 |
|
|
|
211 |
|
Pakistan |
|
|
79 |
|
|
|
75 |
|
|
|
73 |
|
Syria |
|
|
11 |
|
|
|
15 |
|
|
|
9 |
|
|
Total Middle East, Russia, CIS |
|
|
291 |
|
|
|
328 |
|
|
|
764 |
|
|
Total Other Eastern Hemisphere |
|
|
3,167 |
|
|
|
2,955 |
|
|
|
3,198 |
|
|
USA |
|
|
1,163 |
|
|
|
1,150 |
|
|
|
1,332 |
|
|
Other Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
425 |
|
|
|
413 |
|
|
|
449 |
|
Others |
|
|
90 |
|
|
|
86 |
|
|
|
90 |
|
|
Total Other Western Hemisphere |
|
|
515 |
|
|
|
499 |
|
|
|
539 |
|
|
Grand total |
|
|
8,368 |
|
|
|
8,263 |
|
|
|
8,808 |
|
|
|
|
|
[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. |
|
[B] |
|
2004 and 2005 comparative figures for gas production volumes have been reclassified in
line with 2006 to reflect the move of Pakistan from Asia Pacific to the Middle East Russia,
CIS region for reporting purposes. |
|
[C] |
|
2004 production for the Troll field, Norway was presented on an entitlement basis,
whilst reserves data for this field (pages 164 and 165) were presented on the basis of
actual production. The total difference in 2004 production between the two methodologies
was approximately 45 million standard cubic feet per day. Production data was aligned at
the end of quarter 1 of 2005. |
24 Royal Dutch Shell plc
|
|
|
|
|
|
|
|
|
|
|
|
|
LOCATION OF ACTIVITIES AND DEVELOPMENTS [A][B] (At December 31, 2006) |
Location |
|
Exploration |
|
Development and/or production |
|
Shell Operator [C] |
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
Austria |
|
|
■ |
|
|
|
■ |
|
|
|
|
|
|
Denmark |
|
|
■ |
|
|
|
■ |
|
|
|
|
|
|
Germany |
|
|
■ |
|
|
|
■ |
|
|
|
|
|
|
Ireland |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Italy |
|
|
|
|
|
|
■ |
|
|
|
|
|
|
The Netherlands |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Norway |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
UK |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Ukraine |
|
|
■ |
|
|
|
|
|
|
|
■ |
|
|
Africa |
|
|
|
|
|
|
|
|
|
|
|
|
|
Algeria |
|
|
■ |
|
|
|
|
|
|
|
■ |
|
|
Angola |
|
|
■ |
|
|
|
|
|
|
|
|
|
|
Cameroon |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Gabon |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Libya |
|
|
■ |
|
|
|
|
|
|
|
■ |
|
|
Nigeria |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Tunisia |
|
|
■ |
|
|
|
|
|
|
|
|
|
|
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Brunei |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
China |
|
|
|
|
|
|
■ |
|
|
|
■ |
|
|
Indonesia |
|
|
■ |
|
|
|
|
|
|
|
|
|
|
Malaysia |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
New Zealand |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Philippines |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Middle East, Russia, CIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Abu Dhabi |
|
|
■ |
|
|
|
■ |
|
|
|
|
|
|
Azerbaijan |
|
|
■ |
|
|
|
|
|
|
|
|
|
|
Egypt |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Iran |
|
|
|
|
|
|
■ |
|
|
|
|
|
|
Kazakhstan |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Oman |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Pakistan |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Qatar |
|
|
|
|
|
|
■ |
|
|
|
■ |
|
|
Russia |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
Saudi Arabia |
|
|
■ |
|
|
|
|
|
|
|
■ |
|
|
Syria |
|
|
■ |
|
|
|
■ |
|
|
|
■ |
|
|
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] |
|
In several countries where Shell Operator is indicated, a Group company is operator of some but not all exploration and/or production ventures. |
OPERATING AND FINANCIAL REVIEW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIL AND GAS ACREAGE [A][B][C][D][H] (At December 31) |
|
|
|
|
|
|
thousand acres |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
Developed |
|
|
Undeveloped |
|
|
Developed |
|
|
Undeveloped |
|
|
Developed |
|
|
Undeveloped |
|
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
9,850 |
|
|
|
3,225 |
|
|
|
12,860 |
|
|
|
4,025 |
|
|
|
9,852 |
|
|
|
3,110 |
|
|
|
14,507 |
|
|
|
4,415 |
|
|
|
8,449 |
|
|
|
3,200 |
|
|
|
14,024 |
|
|
|
4,904 |
|
Africa [E] |
|
|
7,159 |
|
|
|
2,318 |
|
|
|
24,396 |
|
|
|
15,351 |
|
|
|
7,175 |
|
|
|
2,382 |
|
|
|
27,206 |
|
|
|
14,806 |
|
|
|
6,597 |
|
|
|
2,058 |
|
|
|
15,584 |
|
|
|
8,398 |
|
Asia Pacific [F] |
|
|
7,228 |
|
|
|
3,277 |
|
|
|
125,421 |
|
|
|
34,290 |
|
|
|
7,292 |
|
|
|
3,313 |
|
|
|
123,829 |
|
|
|
34,455 |
|
|
|
7,032 |
|
|
|
3,266 |
|
|
|
104,443 |
|
|
|
28,504 |
|
Middle East, Russia, CIS [G] |
|
|
32,238 |
|
|
|
10,284 |
|
|
|
66,579 |
|
|
|
30,321 |
|
|
|
32,125 |
|
|
|
10,302 |
|
|
|
66,839 |
|
|
|
30,467 |
|
|
|
34,815 |
|
|
|
11,169 |
|
|
|
65,352 |
|
|
|
30,766 |
|
USA |
|
|
1,234 |
|
|
|
665 |
|
|
|
3,962 |
|
|
|
3,280 |
|
|
|
1,250 |
|
|
|
563 |
|
|
|
4,359 |
|
|
|
3,069 |
|
|
|
961 |
|
|
|
531 |
|
|
|
3,998 |
|
|
|
2,864 |
|
Other Western Hemisphere |
|
|
945 |
|
|
|
569 |
|
|
|
30,413 |
|
|
|
20,328 |
|
|
|
872 |
|
|
|
551 |
|
|
|
30,097 |
|
|
|
20,314 |
|
|
|
855 |
|
|
|
529 |
|
|
|
27,236 |
|
|
|
20,421 |
|
|
|
|
|
58,654 |
|
|
|
20,338 |
|
|
|
263,631 |
|
|
|
107,595 |
|
|
|
58,566 |
|
|
|
20,221 |
|
|
|
266,837 |
|
|
|
107,526 |
|
|
|
58,709 |
|
|
|
20,753 |
|
|
|
230,637 |
|
|
|
95,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMBER OF PRODUCTIVE WELLS [A][B][H] (At December 31) |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
Oil |
|
|
Gas |
|
|
Oil |
|
|
Gas |
|
|
Oil |
|
|
Gas |
|
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
1,647 |
|
|
|
475 |
|
|
|
1,487 |
|
|
|
461 |
|
|
|
1,762 |
|
|
|
491 |
|
|
|
1,355 |
|
|
|
448 |
|
|
|
1,786 |
|
|
|
478 |
|
|
|
1,445 |
|
|
|
491 |
|
Africa [E] |
|
|
945 |
|
|
|
333 |
|
|
|
40 |
|
|
|
13 |
|
|
|
1,234 |
|
|
|
413 |
|
|
|
36 |
|
|
|
12 |
|
|
|
1,215 |
|
|
|
396 |
|
|
|
36 |
|
|
|
12 |
|
Asia Pacific [F] |
|
|
1,095 |
|
|
|
520 |
|
|
|
259 |
|
|
|
109 |
|
|
|
1,076 |
|
|
|
480 |
|
|
|
264 |
|
|
|
100 |
|
|
|
1,191 |
|
|
|
551 |
|
|
|
230 |
|
|
|
88 |
|
Middle East, Russia, CIS
[G] |
|
|
4,333 |
|
|
|
1,364 |
|
|
|
50 |
|
|
|
44 |
|
|
|
4,128 |
|
|
|
1,279 |
|
|
|
45 |
|
|
|
40 |
|
|
|
3,795 |
|
|
|
1,198 |
|
|
|
47 |
|
|
|
40 |
|
USA |
|
|
15,977 |
|
|
|
8,077 |
|
|
|
1,069 |
|
|
|
830 |
|
|
|
16,159 |
|
|
|
8,270 |
|
|
|
873 |
|
|
|
636 |
|
|
|
16,131 |
|
|
|
8,163 |
|
|
|
719 |
|
|
|
520 |
|
Other Western Hemisphere |
|
|
355 |
|
|
|
264 |
|
|
|
326 |
|
|
|
250 |
|
|
|
122 |
|
|
|
117 |
|
|
|
303 |
|
|
|
284 |
|
|
|
117 |
|
|
|
112 |
|
|
|
284 |
|
|
|
270 |
|
|
|
|
|
24,352 |
|
|
|
11,033 |
|
|
|
3,231 |
|
|
|
1,707 |
|
|
|
24,481 |
|
|
|
11,050 |
|
|
|
2,876 |
|
|
|
1,520 |
|
|
|
24,235 |
|
|
|
10,898 |
|
|
|
2,761 |
|
|
|
1,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMBER OF NET PRODUCTIVE WELLS AND DRY HOLES DRILLED [A][B][D][H] (At December
31) |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
Productive |
|
|
Dry |
|
|
Productive |
|
|
Dry |
|
|
Productive |
|
|
Dry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploratory |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
7 |
|
|
|
7 |
|
|
|
5 |
|
|
|
3 |
|
|
|
6 |
|
|
|
2 |
|
Africa [E] |
|
|
7 |
|
|
|
1 |
|
|
|
9 |
|
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
Asia Pacific [F] |
|
|
8 |
|
|
|
4 |
|
|
|
6 |
|
|
|
3 |
|
|
|
5 |
|
|
|
5 |
|
Middle East, Russia, CIS
[G] |
|
|
18 |
|
|
|
7 |
|
|
|
5 |
|
|
|
3 |
|
|
|
7 |
|
|
|
2 |
|
USA |
|
|
30 |
|
|
|
3 |
|
|
|
9 |
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
Other Western Hemisphere |
|
|
41 |
|
|
|
3 |
|
|
|
3 |
|
|
|
4 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
111 |
|
|
|
25 |
|
|
|
37 |
|
|
|
17 |
|
|
|
24 |
|
|
|
15 |
|
|
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
32 |
|
|
|
1 |
|
|
|
25 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
Africa [E] |
|
|
15 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
Asia Pacific [F] |
|
|
27 |
|
|
|
|
|
|
|
20 |
|
|
|
1 |
|
|
|
22 |
|
|
|
1 |
|
Middle East, Russia, CIS
[G] |
|
|
155 |
|
|
|
2 |
|
|
|
173 |
|
|
|
4 |
|
|
|
150 |
|
|
|
6 |
|
USA |
|
|
478 |
|
|
|
|
|
|
|
446 |
|
|
|
|
|
|
|
504 |
|
|
|
1 |
|
Other Western Hemisphere |
|
|
118 |
|
|
|
1 |
|
|
|
26 |
|
|
|
|
|
|
|
10 |
|
|
|
1 |
|
|
|
|
|
825 |
|
|
|
4 |
|
|
|
703 |
|
|
|
5 |
|
|
|
724 |
|
|
|
9 |
|
|
|
|
[A] |
Including equity accounted investments. |
[B] |
The term gross relates to the total activity in which Group companies 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] |
Includes Caspian region, Egypt and Sakhalin. |
[H] |
2004 and 2005 comparative figures have been reclassified in line with 2006 to
reflect the move of Pakistan from Asia Pacific to the Middle East, Russia and CIS region
for reporting purposes. |
26 Royal Dutch Shell plc
OIL AND GAS INTERESTS
A selection of oil and gas interests, as well as
recent developments in countries where Group or equity
accounted investments have exploration and production
interests, are summarised on the following pages. The
summary includes aspects of the legislation, regulations
or agreements affecting the activities of significant
companies. None of the below-mentioned properties or
interests is individually significant to the Group.
EUROPE
Denmark A Group company has a 46% non-operator
interest in a producing concession until mid 2012, after
which it will reduce to 36.8% when the state takes a 20%
interest in the concession. In late 2003 this licence was
extended until mid 2042. The Shell company also holds
interests in four (non-operated) exploration licences.
Germany A Group company holds a 50% interest in the
Brigitta & Elwerath Betriebsfuehrungsgesellschaft (BEB)
50:50 joint venture. BEB is involved in some 30
concessions with varying interests and is the main
operator in Germany. Further German interests include the
43.9% Group share in the non-operated Deutsche Offshore
Konsortium. Royalties are determined by the individual
German states each year and differ for the production of
natural gas and oil. Royalty incentives, for example, are
given for the development of tight gas reservoirs.
Activities include production, gas storage, the operation
of two large sour gas treatment plants, numerous
compression stations and some 3,000 kilometres of
pipelines.
Ireland Shell E&P Ireland Ltd. (Group interest 100%) is
the operator for the Corrib Gas Project (Shell 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.
Also in 2006, the company gained additional exploration
licences and acreage.
Most construction work onshore was suspended in 2005 and
resumed in October 2006 following an Independent Safety
Review and a mediation process. Shell E&P Ireland have
agreed to modify the route of the onshore pipeline and
community consultation began in late 2006. A new
route is not expected to be identified until the end of
2007. Offshore well completion work was carried out
successfully in 2006 and will continue through 2007.
Italy Shell Italia E&P S.p.A. (Group interest 100%) was
formed following the Groups 2002 acquisition of
Enterprise Oil. The main assets are onshore in southern
Italy and include various interests in producing assets
(Val dAgri, which includes the Monte Alpi, Monte Enoc
and Cerro Falcone highs, operated by Eni on behalf of the
joint venture partners), development projects (including
Tempa Rossa), nearby exploration prospects, as well as an
oil transport and storage company (Società Oleodotti
Meridionali Group interest 30%), jointly owned with
Eni. A unification/unitisation and settlement heads of
agreement was completed in December 2006 with Eni, which
provides for new equity of the Val dAgri accumulation
(Group share 39.23%) and settlement of past costs and
production volumes.
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 is 40% or 50%
mainly depending on the legislation applicable at the
time licences were granted. This applies to all licences
except one offshore and a number of older onshore
production licences.
Norway A/S Norske Shell holds an interest in a number of
production licences, seven of which involve 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. This
development involves an onshore plant/terminal and
pipelines for transportation to the markets in the UK
and continental Europe. During 2005, Shell swapped its
interest in both Norne and Snorre fields in exchange for
an increased interest in the Kvitebjorn field. Shell
International Pipelines Inc. (Group interest 100%) holds
interests in gas transportation and processing systems,
pipelines and terminals. The licence period for these
fields is due to expire between 2010 and 2020.
Ukraine Ukrgazvydobuvannya (UGV) and Shell Exploration
& Production (Shell) signed a wide-ranging oil and gas
exploration joint activity agreement (JAA) in June
2006.
The agreement covers licences, agreed work programme
levels and the terms of joint activities. UGV is a
subsidiary of NaftogazUkrainy (NAK) and this JAA
represents a further important milestone in
co-operation between NAK and Shell following an
agreement in May 2005 to carry out joint studies in the
Dniepr Donets Basin, in central-eastern Ukraine.
Under the terms of the JAA, Shell has farmed into eight
UGV-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 the JAA 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
period. Work started in 2006.
United Kingdom Shell UK Limited (Group interest 100%) is
one of the largest integrated oil and gas exploration
and production companies operating in the UK (by
production volumes). It operates a significant number of
its interests in the UK Continental Shelf (UKCS) on
behalf of a 50:50 joint venture with ExxonMobil.
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. In the
Atlantic Margin area, Shell also has interests as a
non-operating partner principally in the West of
Shetlands area including the Schiehallion, Clair and
Loyal fields.
The UKCS is a mature area and although Shell has
invested significantly over the past decade to extend
field lives, organic growth has been more of a challenge
with new field discoveries smaller than discoveries
15-20 years ago.
In 2006, Shell completed the sale of its 50% holding
in Auk and 42.9% holding in the Fulmar fields and
associated infrastructure.
As of January 1, 2006, the supplementary change to
corporation tax rate on UK exploration and production
activities was increased from 10% to 20%.
Royal Dutch Shell plc 27
OPERATING AND FINANCIAL REVIEW
AFRICA
Algeria During 2006 Shell Erdgas
Beteiligungsgesellschaft mbH (SEB, Group interest 100%)
assigned its interests in the permits Reggane Djebel
Hirane and Zerafa to Shell Algeria Reggane GmbH and Shell
Algeria Zerafa GmbH (SARG and SAZG, Group interest 100%).
SARG and SAZG are conducting an exploration programme in Algeria under a PSC with Algeria-based Sonatrach. The
first phase of the PSC extends to September 2008. Toward
the end of 2006, a farm out of 20% of Shell interests in
the two blocks had been agreed with Liwa, a subsidiary of
Mubudala Development Company, an Abu Dhabi Investment
Company. Approval of the farm outs is required from
Sonatrach and Competent Authorities, which is expected in
2007. In February 2006, Shell and Sonatrach, the Algerian
national energy company, signed a Memorandum of
Understanding covering multiple business initiatives,
both in Algeria and internationally.
Cameroon Pecten Cameroon Company (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 licence Dissoni (PSC), which
can reduce to 37.5% depending on state participation
after a commercial discovery.
Gabon Shell Gabon (Group interest 75%) has interests in
eight onshore mining concessions/exploitation permits,
five of which (Rabi/Kounga, Gamba/Ivinga, Toucan Totou
and Bende) are operated by the company. The Rabi/Kounga
PSC expires in 2022 and includes an option for a
five-year extension. The Gamba/Ivinga concession expires
in 2042. The Toucan PSC expires in 2023 while the
Totou/Bende PSC expires in 2020. The other three
concessions/PSC (Avocette, Coucal and Atora) expire
between 2010 and 2018 and are operated by Total Gabon.
Production in Gabon is dominated by the Rabi field,
operated by Shell Gabon, which holds 42.5% equity in the
field. Shell Gabons portfolio includes two more fields
near the Rabi, Toucan and Avocette (Awoun and Ozigo). A
Group company, Shell Offshore North Gabon BV (SONG),
holds the Igoumou Marin permit in ultra-deep water
offshore Gabon. The same
company relinquished the Ighengue licence in 2005.
Libya In May 2005, a Group company and the 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 in Libyas
major oil and gas producing Sirte Basin. During 2006, the
Group company continued its exploration activities under
the LNG development agreement in those five areas.
Nigeria The Shell Petroleum Development Company of
Nigeria Ltd. (SPDC) (Group interest 100%) is operator of
a joint venture (Group interest 30%) with the Nigerian
National Petroleum Corporation and two other companies,
Total (10%) and Agip (5%). The ventures onshore oil
mining leases expire in 2019 and the shallow water
offshore leases expire in 2008. Currently SPDC is
operator of the SPDC JV.
Shell Nigeria Exploration and Production Company Ltd.
(SNEPCO) (Group interest 100%) operates under a PSC with
a 55% working interest in deep water blocks OML 118 and
OML 135 in partnership with ExxonMobil, Total and Agip.
SNEPCO also has a 49.81% interest in deep water blocks
OML-125 and Oil Prospecting Licence (OPL)-211 (Agip
operated), a 43.75% interest in deep water block OML 133
(ExxonMobil operated), and a 40% 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 OPL
250 (PSC, 50% Chevron operated,
8.625%
Petrobras, 6.375% ConocoPhillips) which is in the
process of being relinquished.
Shell Nigeria Ultra Deep Limited (SNUD) (Group
interest 100%) has a 100% interest in block OPL 245
(PSC).
Shell Nigeria Upstream Ventures (SNUV) (Group
interest 100%) has a disputed 40% equity interest in
OML 122 (co-venturer Peak Petroleum).
Shell Nigeria Exploration Properties Alpha Ltd. (SNEPA)
(Group interest 100%) operates under a 100% working
interest in deep water block OPL322 (40% Shell equity,
50% PSC with NNPC, 10% PSC with indigenous operator Dajo
Oil).
Shell Nigeria Exploration Properties Beta Ltd. (SNEPB),
(Group interest 100%) has a 27% working interest in deep
water block OPL318 (PSC, ConocoPhillips operated with
35%, ChevronTexaco with 18%, NPDC with 20%).
ASIA PACIFIC
Australia Shell Development (Australia) Pty Ltd
(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) and
Greater Gorgon fields, as well as exploration licences in
the Browse Basin and Timor Sea area. The interests are
held directly and/or indirectly through a shareholding
(34%) in Woodside Petroleum Ltd., 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. 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 (25%) 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 2006, Shell was awarded 100% interest in Block
WA-371-P in the Browse Basin, marking a return for Shell
as an operator in Australia. Drilling of the first of 12
commitment wells in Block WA-371-P commenced in December
2006.
Brunei A Group company is a 50% shareholder in Brunei
Shell Petroleum Company Sendirian Berhad (BSP) (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. In 2006, oil production started from the first well
from Phase III of the Champion West field (Group
interest 50%) using Shells Smart Fields® technology.
Over time almost a quarter of BSPs production is
expected to come from Champion West.
China Group companies hold some 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 PetroChina Company
Limited, to develop the Changbei gas field in the Ordos
Basin, onshore China. Group companies also hold a 61%
interest in the Jilin Shell Oil Shale Development
Company Limited for minerals exploration, exploitation
and development of oil shale resources.
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 nine
non-associated producing
28 Royal Dutch Shell plc
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
ranging from 50% to 60% in the deep water SK-E block and
inboard blocks SK-307 and SK-308. Shell operates four
producing fields in Sabah. Group companies also have
PSCs for exploration and development 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.
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
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. The Maui and Kapuni
interests are operated by Shell Todd Oil Services Ltd, a
service company (Group interest 50%), with the Pohokura
field operated by Shell Exploration New Zealand Limited
(Group interest 100%).
Philippines Group companies hold a 45% interest in the
deep water 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 north-west of the island
of Palawan. Shell also holds a 55% interest (and is
operator) in SC-60, converted from the geophysical survey
and exploration contract GSEC-99, covering a relatively
unexplored area offshore north-east Palawan.
MIDDLE EAST, RUSSIA AND CIS
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 associated wet
natural gas produced by Abu Dhabi Petroleum Company.
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 is the operator.
Iran In early 2007, Shell and Repsol entered into a
service contract with respect to development of the
South Pars fields for the Persian LNG project. However,
the parties will not reach a final decision on whether
to proceed with the project until the remaining
significant commercial and engineering work is
complete.
A Group company (Group interest 100%) has a 70% interest
in an agreement with the National Iranian Oil Company
(NIOC), who is the operator of the
Soroosh/Nowrooz offshore fields. The term of the
agreement expires when all petroleum costs and the
remuneration fee have been recovered, which is expected
to occur by 2012.
Kazakhstan A Group company (Group interest 100%) holds
an 18.52% interest in the North Caspian PSC in respect
of some 6,000 square kilometres in the Kazakhstan sector
of the Caspian Sea. Development of the giant Kashagan
field is continuing. Oil and gas discoveries at
Kalamkas, Aktote, Kairan and Kashagan SW are being
further appraised. Shell holds a 50% interest in the
Arman joint venture, a small onshore producing company.
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 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.
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.
Qatar In July 2006, Qatar Petroleum (QP) and the Group
took the final investment decision on the integrated
Pearl GTL project, which is being developed under a
development and production sharing agreement with the
government of the State of Qatar. Shell provides 100% of
project funding. The fully integrated project includes
upstream production of some 1.6 billion cubic feet per
day of wellhead gas from Qatars North Field, transport
and processing of the gas to produce around 120 thousand
boe per day of natural gas liquids and ethane; and the
construction of a new onshore GTL complex to convert the
remaining gas into 140 thousand boe per day of clean
liquid hydrocarbon products.
In February 2005, the Group and Qatar Petroleum 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 of natural gas, including an average of around 70
thousand boe per day of associated natural gas liquids
(NGL) from Qatars North field, a single LNG train
yielding around 7.8mtpa of LNG and shipping of the LNG to
the intended markets. The final investment decision was
taken in December, 2005. At the same time the
engineering, procurement and construction (EPC) contract
for the onshore facilities was awarded.
Russia Shell Sakhalin Holdings, B.V. (Group interest
100%) currently holds a 55% interest in Sakhalin Energy
Investment Company Ltd. (SEIC). However on December 21,
2006 OAO Gazprom (Gazprom), Shell, Mitsui & Co., Ltd
(Mitsui) and Mitsubishi Corporation (Mitsubishi) signed
a protocol to bring Gazprom into SEIC. Under the terms
of this protocol, Gazprom will acquire a 50% interest
plus one share in SEIC. The current SEIC partners will
each dilute their interest by 50% to accommodate this
transaction, with a proportionate share of the purchase
price. When effective Shell will retain a 27.5%
interest, with Mitsui and Mitsubishi holding 12.5% and
10% interest, respectively. SEIC will continue to be the
operator of the Sakhalin II project. Gazprom and
existing SEIC shareholders will enter into an Area of
Mutual Interest arrangement, which will cover both
future Sakhalin area oil and gas
Royal Dutch Shell plc 29
OPERATING AND FINANCIAL REVIEW
exploration and production opportunities, and building of Sakhalin II into a
regional oil and LNG hub. Furthermore, the Sakhalin II shareholders reached
agreement with the Ministry of Industry and Energy as the authorised state
body for the supervision of Production Sharing Agreements of the Government
of the Russian Federation, regarding the amended budget of Sakhalin II and
cost recovery. The Production Sharing Agreement for the Sakhalin II project
will continue. The Sakhalin II amended project budget for phase 2 is expected
to be approved by the SEIC Supervisory Board. Seasonal oil production
continues from the Molikpaq facility on the Piltun-Astokhskoye field, offshore
Sakhalin Island. Full development of the Piltun-Astokhskoye oil field and
Lunskoye gas field, including a LNG plant in the south of Sakhalin Island,
continued during 2006.
Salym Petroleum Development (Group interest 50%) continued to increase
production from its Salym fields in Western Siberia while pursuing their
development.
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. A Group company
entered into two production sharing contracts, effective from February 2007,
for Block 13 and 15 in the South of Syria. Work on the first 4-year
exploration period is expected to start in 2007.
USA
Shell Exploration & Production Company (SEPCo, Group interest 100%)
produces crude oil, natural gas and NGL principally in the Gulf of Mexico,
California (AERA), Texas (South Texas and Fort Worth Basin), and Wyoming
(Pinedale). 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).
In 2006, SEPCo acquired exploration interests in acreage located in Alaska,
North Dakota, Utah, Arkansas, 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 in South Texas.
In the Gulf of Mexico, SEPCo took the final investment decision to develop
the Perdido Regional host, where it holds a 35% interest. Moored in 8,000
feet of water, this will be the deepest spar production facility in the world.
First production is expected around the end of the decade.
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.
Shell Frontier Oil & Gas Inc (Group interest 100%) was awarded three leases
in 2006 by the US Bureau of Land Management to allow it to conduct oil
shale research, development and demonstration activities in the Piceance Basin
in north-west Colorado.
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% interest. Shell Brasil
also has interests in 14 offshore exploration blocks (five operated by Shell and
nine non-operated) in the Campos, Santos and Espirito Santo basins. Group
interest in these blocks ranges from 20% to 100%. In 2006 Shell started to
award contracts for the development of the fields Ostra, Abalone and
Argonauta on the BC-10 block, in the Campos Basin.
These heavy oil fields will tie back to an FPSO moored in around 5,000 feet
of water. In 2006 Shell Brasil also increased its interest in the BC-10 project
from 35% to 50% by exercising its pre-emption right. Shell Brasil is the
operator of the development. Production is expected to start by the turn of
the decade. Shell Brasil also declared commerciality of two fields in block BS-4, in the Santos Basin, late 2006.
Through Pecten Victoria Inc (Group interest 100%), the Group retains an
economic interest via a service contract in the producing Merluza gas field,
operated by Petrobras, in the offshore Santos Basin.
Canada Shell Canada Limited (Group interest 78%) is a producer of natural
gas, NGL, bitumen, synthetic crude and sulphur. Around 75% of Shell
Canadas gas production comes from the Foothills region of Alberta. Shell
Canada also owns and operates four natural gas processing and sulphur
extraction plants in southern and south-central Alberta, and is among the
worlds largest producers and marketers of sulphur. In addition, it holds a
31.3% interest in the Sable Offshore Energy Project, a natural gas complex
offshore eastern Canada. In 2006, Shell Canada progressed its unconventional
gas development efforts in central Alberta through continued land acquisition,
its drilling programme, as well as investment in infrastructure facilitating new
production. It has expanded its land inventory with varying interest
percentages in conventional exploration prospects, in Alberta, north-eastern
British Columbia and the Beaufort Sea. It is also the largest landholder
offshore West Coast, which remains under a governmental moratorium.
Exploration rights in Canada are generally granted for varying terms
depending upon the provincial jurisdiction and applicable regulations. 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 Canadas oil sands business has operations in each of Canadas three main
oil sands deposits: Athabasca, Peace River and Cold Lake, Alberta. It holds a
60% interest in the Athabasca Oil Sands Project (AOSP) in Northern Alberta
under a joint venture agreement to develop and produce synthetic crude from
Shells Athabasca oil sands leases and a 100% interest in in-situ bitumen
production from the Peace River and Cold Lake regions. The AOSP
comprises the Muskeg River mine, 75 kilometres north of Fort McMurray,
Alberta, and the Scotford Upgrader, next to Shell Canadas Scotford refinery
north of Fort Saskatchewan, Alberta. In 2006, Shell Canada announced its
30 Royal Dutch Shell plc
EXPLORATION & PRODUCTION
plan to proceed with the AOSP Expansion 1, which
will add 100 thousand boe per day total project
production capacity at the mine and the upgrader. This
is the first of multiple expansion opportunities in the
oil sands mining area.
Shell Canada produces heavy oil through cold (primary)
production and thermal recovery in the Peace River area
of Alberta (Shell Canadas interest is 100%). In 2006,
the company increased its heavy oil production and
acreage through the acquisition of BlackRock Ventures
Inc., Shell Canada also plans the completion and
start-up of a 10 thousand boe per day steam assisted
gravity drainage project (Phase 1) near Cold Lake,
Alberta.
Shell Unconventional Resources Energy Northern Energy
Ltd (SURE Northern Ltd, Group interest 100%) has
acquired 19 land parcels in Alberta in 2006 to evaluate
and potentially develop heavy oil resources. The
parcels represent some 290 thousand acres of land.
Venezuela Shell Exploration and Production Investments
B.V. (Group interest 100%) holds a 40% interest in
Empresa Mixta (Joint Venture) with a state oil company,
Petroleos de Venezuela (PDVSA), to develop and produce
the Urdaneta West Field in Lake Maracaibo. The Empresa
Mixta entity is called Petroregional Del Lago, S.A.
(PERLA). The Empresa Mixta took effect in 2006, and
replaced the existing operating services agreement.
 |
OPERATING AND FINANCIAL REVIEW
OVERVIEW
Gas & Power is part of Upstream, which includes
Exploration & Production. Our Gas & Power business
liquefies and transports natural gas and develops
natural gas markets and related infrastructure. It is
also involved in Gas to Liquids (GTL) and coal
conversion technologies. Gas & Power operates in 33
countries around the world and employed on average
2,500 employees including contractors during 2006. Its
revenue was $17 billion with segment earnings of $2.7
billion in 2006.
HIGHLIGHTS
|
|
Segment earnings up 68%. |
|
|
|
Record Liquefied Natural Gas (LNG) equity sales volume, up 14%. |
|
|
|
Strong marketing and trading performance in Europe, North America and in global LNG. |
|
|
|
Progress on major LNG projects under construction or development in which Shell
either holds a direct or indirect interest (Sakhalin II; Qatargas 4; Gorgon, North West
Shelf Train 5 and Pluto in Australia; Nigeria LNG Trains 6 and 7 and Olokola in Nigeria;
and Persian LNG in Iran). |
|
|
|
Altamira (Mexico) LNG regasification terminal commissioned. |
|
|
|
First LNG cargoes delivered to China and Mexico. |
|
|
|
Pearl GTL project construction launched. |
|
|
|
First equity coal gasification plant (China) began operations. |
In 2006, we delivered record earnings, cash
flows and LNG volumes. We also achieved
significant progress on the development of our
major projects. We are on track to grow our
position as one of the largest natural gas
producers and suppliers of LNG.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (including intersegment sales) |
|
|
17,190 |
|
|
|
15,624 |
|
|
|
10,835 |
|
Purchases (including change in inventories) |
|
|
(12,636 |
) |
|
|
(12,855 |
) |
|
|
(8,680 |
) |
Depreciation |
|
|
(289 |
) |
|
|
(290 |
) |
|
|
(903 |
) |
Operating expenses |
|
|
(3,023 |
) |
|
|
(2,087 |
) |
|
|
(1,452 |
) |
Share of profit of equity accounted investments |
|
|
1,515 |
|
|
|
999 |
|
|
|
1,142 |
|
Other income/(expense) |
|
|
231 |
|
|
|
223 |
|
|
|
733 |
|
Taxation |
|
|
(338 |
) |
|
|
(41 |
) |
|
|
140 |
|
|
Segment earnings from continuing operations |
|
|
2,650 |
|
|
|
1,573 |
|
|
|
1,815 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
SEGMENT EARNINGS |
|
|
2,650 |
|
|
|
1,573 |
|
|
|
1,815 |
|
|
|
|
[A] |
|
Segment earnings as disclosed in the table above differ from the segment results
disclosed in Note 10 beginning on page 117. Segment earnings include share of profit of
equity accounted investments, other income/expense and taxation attributable to the
segment. |
2006 COMPARED TO 2005 AND 2004
EARNINGS
Segment earnings in 2006 were $2,650 million, a 68%
increase over $1,573 million in 2005. The earnings in
2005 included net charges of $84 million, mainly related
to the divestment of the joint venture, InterGen.
Excluding these items, earnings increased by 60% from
2005. The earnings increase was mainly due to record LNG
equity sales volumes, product prices reflecting high
crude oil and natural gas prices, LNG supply
optimisation, a strong performance from marketing and
trading
activities in Europe and North America, and higher
dividends from our investments. Although clean coal makes
up only a very limited portion of earnings, its earnings
grew through the granting of new coal gasification
technology licences.
Segment earnings in 2005 ($1,573 million) were lower
than in 2004 ($1,815 million) mainly due to the impact
of asset divestments. Results in 2005 included net
charges of $84 million whereas 2004 included net gains
of $444 million. These items were mainly related to
asset divestments and impairment, without which earnings
in 2005 increased by 21% over 2004. The increase was
driven by higher LNG volumes and prices, and favourable
marketing and trading conditions.
LNG equity sales volumes in 2006 of 12.12 million tonnes
were a record, increasing 14% from 2005 (10.65 million
tonnes). The volume increase was driven mainly by the
start-up of the fourth and fifth trains at Nigeria LNG
(Shell interest 26%), and Qalhat LNG in Oman (Shell
indirect interest 11%). This was complemented by high
LNG plant reliability across all joint ventures.
LNG equity sales volumes in 2005 were up 5% from 2004
driven by the ramp up of the fourth train at the North
West Shelf project (Shell direct and indirect interest
22%) in Australia.
With our joint venture partners, we continue to deliver
LNG into various Asia Pacific, European and North
American markets. Through our European and North American
marketing organisations, we supplied some of this gas, in
addition to local Shell and third party gas production,
to a broad range of customers. LNG volumes to India
increased in 2006, using the Hazira (Shell interest 74%)
regasification terminal completed in 2005. Together with
our joint venture partners we delivered the first LNG
cargo into China. We also delivered the first LNG cargo
into Mexico following the successful commissioning of the
Altamira regasification terminal (Shell ownership 50%,
with rights to 75% of the terminal capacity).
OUTLOOK AND STRATEGY
The business environment for natural gas remains
robust. We expect natural gas demand growth to remain at
around 2-3% per annum over the medium term, reflecting
moderate economic growth. Demand weakness, if it
occurred, would likely be the result of a severe
economic downturn. LNG demand is expected to continue to
grow at around 10% per annum for the next few years with
growth in all major natural gas markets.
We anticipate continued high levels of industry
investment in engineering, design, construction,
materials and services for major natural gas projects.
Competition for access to natural gas resources and
for commercially and technically skilled people will
continue.
Concerns over security and diversity of energy supply
will continue to drive increasing interest in
alternative sources of energy, including clean coal. New
opportunities for applying Shells proprietary coal
gasification technology are expected to continue to
emerge, particularly in countries with high levels of
coal reserves.
Our strategy remains unchanged. We seek to build 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 skills. We will also
use these skills to pursue opportunities related to our
clean coal technology.
CAPITAL INVESTMENT AND PORTFOLIO ACTIONS
Capital investment in 2006 of $2.2 billion,
including the minority interest share of capital
investment in Sakhalin II of $400 million, was 37% higher
than the $1.6 billion capital investment in 2005.
Investment continued to focus on integrated gas projects
involving LNG liquefaction plants at Sakhalin II,
Qatargas 4, North West Shelf Train 5, and Nigeria LNG
Train 6, as well as the Altamira, Mexico regasification
terminal and the Qatar Pearl (GTL) project. We also
completed the construction of our first coal gasification
plant located in Dongting, China. The capital investment
increase from 2005 is mainly due to the increased
spending on the Qatar Pearl GTL project following final
investment decision in July 2006.
Capital investment in 2005 of $1,602 million was similar
to $1,633 million in 2004. Increased investment in 2005
mainly related to LNG projects offset by investments in
InterGen power assets in 2004 that are now divested.
There was no major divestment activity in 2006, whereas
2005 saw major divestment activities relating to the
joint venture company InterGens power generation
assets and Gasunies gas transportation assets (gains
recorded in Exploration & Production earnings).
NEW BUSINESS DEVELOPMENT
In Qatar, following approval from Qatar Petroleum,
the integrated Pearl GTL project was launched in July
2006. A number of contracts were subsequently awarded to
begin site preparation and construction. The Pearl GTL
project includes the development of offshore natural gas
resources from Qatars North Field, transporting and
processing the gas onshore to extract liquids, and the
conversion of gas into clean liquid hydrocarbon products
for export through the use of proprietary GTL
technology. The plant, when fully onstream, is expected
to have a daily output of 140,000 barrels of oil
equivalent per day GTL products with a further 120,000
barrels of oil equivalent per day of natural gas liquids
and ethane extracted for sale.
|
|
|
COUNTRIES IN WHICH GAS & POWER OPERATE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
Canada
Latin/Central
America
Bolivia
Brazil
Mexico
|
|
Europe
Denmark
Germany
Greece
Italy
The Netherlands
Norway
Spain
Turkey
UK
Ukraine
|
|
Africa
Algeria
Ghana
Libya
Nigeria
Middle East
Egypt
Iran
Oman
Qatar
United Arab
Emirates
|
|
Commonwealth of
Independent States
Russia
|
|
Asia Pacific
Australia
Brunei
China
India
Japan
Malaysia
Singapore
South Korea |
Also in Qatar, construction continued during 2006
on the Qatargas 4 LNG project (Shell interest 30%). This
integrated project includes upstream gas and liquids
production and a LNG liquefaction plant with a capacity
of 7.8 million tonnes of LNG per annum.
In Nigeria, construction continued on Nigeria LNG (NLNG)
liquefaction train 6 (Shell interest 26%) which will have
a capacity of 4 million tonnes per annum. In parallel,
NLNG is also progressing development activities for a
seventh (8.5 mtpa) LNG train. In February 2006, Shell
signed a project development agreement with the Nigerian
National Petroleum Corporation and other partners for the
joint development of the new Olokola LNG project (Shell
interest 18.5%).
In Australia, the North West Shelf venture (Shell direct
and indirect interest, 22%) delivered the first LNG
cargo to China in May 2006 at the Guangdong LNG import
terminal under a 25 year, 3.3 million tonnes per annum
sales and purchase agreement.
Also in the North West Shelf venture, construction
continued on LNG train 5 which, when completed, will
increase the overall plant capacity to 16.3 million
tonnes per annum. A number of Japanese customers
renewed their supply contracts from the North West
Shelf venture during the year.
The Greater Gorgon joint venture (Shell interest 25%) is
considering development of an LNG liquefaction plant on
Barrow Island off Western Australia, to be supplied with
natural gas from the offshore Gorgon and Jansz/Io gas
fields. Shell also has an indirect interest in Woodside
Petroleum Ltd.s (Woodside) proposed Pluto LNG project
located in the Carnarvon Basin in Western Australia
through the 34.3% Shell shareholding in Woodside. This
project entered the front-end engineering design phase
during 2006 and progressed with site preparation and
ordering of long lead items in the first quarter of 2007,
ahead of a final investment decision.
In Russia, further contracts were signed with customers
for LNG supply from the Sakhalin II project (Shell
interest 55%). Total firm sales over the plateau period
amount to 9.37 mtpa, representing some 98% of the
nameplate capacity of the plant. In 2006, a protocol was
signed with Gazprom to acquire an interest in Sakhalin
II. Shells interest will reduce to 27.5% when the
protocol becomes effective, which is expected to take
place in 2007.
In Mexico, the Altamira regasification terminal (Shell
ownership 50%, with 75% of the initial capacity of 4.4
million tonnes of LNG per annum) was commissioned in
August 2006 with the first LNG cargo to be delivered to
the country. The State power company in Mexico, Comisión
Federal de Electricidad (CFE), has contracted to
purchase 5.2 billion cubic metres of regasified LNG per
annum from the facility (equivalent to 3.9 million
tonnes of LNG per year).
In the USA, permitting activities are progressing for
the Broadwater LNG regasification terminal (Shell
ownership 50%) in the Long Island Sound
Royal Dutch Shell plc 33
OPERATING AND FINANCIAL REVIEW
region of New York and Connecticut. Shell will
hold 100% of the terminals capacity of 7.7 million tonnes of LNG per
annum.
In Europe, Shell was successful in a gas contract
release tender organised by BOTAS, the Turkish natural
gas and pipeline company, as part of the liberalisation
of the gas market in Turkey. We started natural gas
marketing in Ukraine, entering into a gas supply
contract with JKX and a number of gas sales agreements
with various industrial customers. A licence to use
clean coal technology was granted to Nuon, a Dutch
utility company.
In China, Hubei Shuanghuan Ltd started production of
synthesis gas in May 2006 from the first plant in China
to use Shells coal gasification technology. We
completed the construction of the Dongting coal
gasification plant (Shell equity share 50%), producing
synthesis gas for a Sinopec fertiliser production plant.
We granted two additional licences in China for the use
of our proprietary coal gasification technology, taking
the total number of licences granted globally to date to
17.
Shell and Shenhua Ningxia Coal Industry Ltd announced an
agreement in July 2006 for a multi-year study on the
feasibility of developing a plant to convert coal into
liquids using Shell technology in China. In Australia,
Shell and Anglo American signed a joint development
agreement to further evaluate the Monash Energy
coal-to-liquids project. This potential development
involves the gasification of Anglo Americans brown coal
from Victorias Latrobe Valley for conversion into
transportation fuels, including virtually sulphur-free
synthetic diesel, using Shells proprietary coal
gasification and GTL technologies.
RESEARCH AND DEVELOPMENT
The focus of research and development (R&D) is on
technical, environmental 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, environmental impact, transport and
storage. Shell is further developing its strong position
in GTL conversion through R&D programmes aimed at
improving catalysts and process technology to reduce
capital costs and improve process efficiency and
environmental performance. GTL product development is
also an important focus of work. In support of its clean
coal energy business Shell has expanded its coal
gasification and coal-to-liquids (CTL) technology
activities, with an emphasis on reducing capital costs,
increasing the scale and efficiency of plants and on
environmental performance.
BUSINESS AND PROPERTY
Our Gas & Power business liquefies, transports and
delivers natural gas to our customers, 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.
New opportunities are also emerging for application of
our proprietary coal gasification process. Most of these
activities, in particular involving LNG, are carried out
by equity accounted investments. None of the below
mentioned properties or interests is individually
significant to the Group.
|
|
|
SHELL EQUITY INTEREST, DIRECT AND INDIRECT, IN LNG LIQUEFACTION PLANT CAPACITY (At December 31, 2006)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shell equity interest, |
|
|
100% capacity million |
|
|
|
|
|
direct and indirect (%) |
[A] |
|
tonnes per annum [B] |
|
|
|
|
|
|
|
|
|
|
|
|
Australia NWS |
|
Karratha |
|
|
22 |
|
|
|
11.9 |
|
Brunei LNG |
|
Lumut |
|
|
25 |
|
|
|
7.2 |
|
Malaysia LNG
(Dua and Tiga) |
|
Bintulu |
|
|
15 |
|
|
|
14.6 |
|
Nigeria LNG |
|
Bonny |
|
|
26 |
|
|
|
17.6 |
|
Oman LNG |
|
Sur |
|
|
30 |
|
|
|
7.1 |
|
Qalhat (Oman) |
|
Sur |
|
|
11 |
|
|
|
3.7 |
|
|
|
|
[A] |
|
Percentage rounded to nearest whole percentage point where appropriate. |
|
[B] |
|
As reported by the joint venture partner. |
|
|
|
SHELL EQUITY SHARE OF LNG SALES VOLUME (million tonnes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
2.6 |
|
|
|
2.6 |
|
|
|
2.0 |
|
|
|
1.8 |
|
|
|
1.7 |
|
Brunei |
|
|
1.9 |
|
|
|
1.7 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
1.7 |
|
Malaysia [A] |
|
|
2.1 |
|
|
|
2.0 |
|
|
|
1.9 |
|
|
|
1.5 |
|
|
|
2.3 |
|
Nigeria |
|
|
3.3 |
|
|
|
2.3 |
|
|
|
2.4 |
|
|
|
2.1 |
|
|
|
1.5 |
|
Oman |
|
|
2.2 |
|
|
|
2.1 |
|
|
|
2.1 |
|
|
|
2.1 |
|
|
|
1.9 |
|
|
Total |
|
|
12.1 |
|
|
|
10.7 |
|
|
|
10.2 |
|
|
|
9.3 |
|
|
|
9.1 |
|
|
|
|
|
[A] |
|
Malaysia includes Dua and Tiga for all years shown and Satu only in 2002. |
34 Royal Dutch Shell plc
|
|
|
LNG REGASIFICATION TERMINAL CAPACITY (At December 31, 2006)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regas capacity |
|
|
Capacity rights |
|
Capacity right |
|
|
|
|
|
|
|
Project name |
|
Location |
|
(100% million tonnes per annum) |
|
|
(Shell share %) |
|
period |
|
|
Status |
|
Start-up date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huelva |
|
Huelva, Spain |
|
|
8.0 |
|
|
|
3 |
% |
[A] |
|
2001-2008 |
|
|
In operation |
|
|
1988 |
|
Barcelona |
|
Barcelona, Spain |
|
|
8.3 |
|
|
|
11 |
% |
[A] |
|
2005-2020 |
|
|
In operation |
|
|
1969 |
|
Cartagena |
|
Cartagena, Spain |
|
|
8.0 |
|
|
|
4 |
% |
[A] |
|
2002-2034 |
[A] |
|
In operation |
|
|
1989 |
|
Hazira |
|
Gujarat, India |
|
|
2.0 |
|
|
|
74 |
% |
|
2005 open ended |
|
|
In operation |
|
|
2005 |
|
Altamira |
|
Altamira, Mexico |
|
|
4.4 |
|
|
|
75 |
% |
|
2006 open ended |
|
|
In operation |
|
|
2006 |
|
Cove Point |
|
Lusby, MD, USA |
|
|
5.5 |
|
|
|
33 |
% |
|
|
2003-2023 |
|
|
In operation |
|
|
2003 |
|
Elba Island |
|
Elba Island, GA, USA |
|
|
6.2 |
|
|
|
45 |
% |
|
|
2006-2036 |
[B] |
|
In operation |
|
|
2006 |
|
Elba Expansion |
|
Elba Island, GA, USA |
|
|
10.0 |
[C] |
|
|
45 |
% |
[C] |
|
2010-2035 |
|
|
Permitting |
|
|
2010 |
|
Baja |
|
Baja California, Mexico |
|
|
7.5 |
|
|
|
50 |
% |
|
|
2008-2028 |
|
|
In construction |
|
|
2008 |
|
|
|
|
[A] |
|
Capacity right as at end of 2006, which will change over the capacity right period. |
|
[B] |
|
Capacity leased to third party until mid-2007. |
|
[C] |
|
Assumes completion of third party announced Elba expansion. |
|
|
|
LNG GAS CARRIERS (At December 31, 2006)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
number of ships |
|
|
|
thousand cubic metres |
|
Contract |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned/demise-hire (LNG) |
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
5 |
|
|
|
4 |
|
|
|
|
797 |
|
|
|
797 |
|
|
|
797 |
|
|
|
662 |
|
|
|
522 |
|
Time-Charter (LNG) |
|
|
4 |
[B] |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
573 |
|
|
|
145 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
10 |
|
|
|
7 |
|
|
|
7 |
|
|
|
5 |
|
|
|
4 |
|
|
|
|
1370 |
|
|
|
942 |
|
|
|
942 |
|
|
|
662 |
|
|
|
522 |
|
|
|
|
|
Owned/demise-hire (LNG) under
construction or on order [A] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135 |
|
|
|
275 |
|
|
|
|
[A] |
|
Excludes LNG ships owned or chartered by LNG joint ventures. |
|
[B] |
|
Three of these were on flexible charter based on market demand. |
|
GTL PLANTS (At December 31, 2006)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location |
|
|
Group interest % |
|
|
100% capacity bbl/day |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Malaysia |
|
Bintulu |
|
|
72 |
|
|
|
14,700 |
|
Pearl GTL [A] |
|
Qatar |
|
|
100 |
|
|
|
140,000 |
|
EUROPE
Shell Energy Europe B.V., a wholly-owned Shell 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, Ukraine, Turkey and other countries within Europe.
Other specific activities are summarised as follows:
Germany BEB Erdgas und Erdöl GmbH, a joint venture in which a Shell
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, Shell companies have indirect minority shareholdings in gas
transmission and distribution companies in Germany.
Greece A Shell company holds a 24% interest in Attiki Gas Supply Company
S.A., a local gas distribution company currently with some 42,000 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 Athens area.
Italy Work continues to develop the LNG regasification terminal in Italy based on the joint venture
agreement (Shell interest 50%) entered into with ERG Power and Gas S.p.A. in June 2005. The
terminal is planned to have an initial capacity of around 5.8 million tonnes per annum of LNG.
The Netherlands A Shell company holds a 25% interest in GasTerra B.V., a
marketer of Dutch natural gas. GasTerra was previously operating under the
name of Gasunie Trade & Supply.
AFRICA
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 co-operation 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.
Libya In May 2005, Shell 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.
Nigeria Shell has a 26% interest in Nigeria LNG Ltd (NLNG), which had
an LNG capacity at year-end 2005 of 13.6 million tonnes per annum (100%)
from four trains. A fifth train began production in January 2006, increasing
Royal Dutch Shell plc 35
OPERATING AND FINANCIAL REVIEW
capacity by a further 4 million tonnes per annum (100%). A sixth train is under construction
and, when complete, will add an additional 4 million tonnes per annum (100%) of LNG capacity. NLNG
is also progressing development for a seventh (8.5 mtpa; 100%) LNG train. NLNG currently has
operational control of 20 LNG vessels.
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, Shell interest 18.5%) in Nigeria. This project, which is expected to include up to four
LNG trains, is currently in the front-end engineering and design phase of maturation.
Shell has an 18% interest in the West Africa Gas Pipeline Project. This project is under
construction and is planned to supply gas from Nigeria to the neighbouring countries of Ghana,
Benin and Togo.
Within Nigeria, we operate a gas sales and distribution company, Shell Nigeria Gas (Shell interest
100%), to supply gas to a number of industrial and commercial customers in the south of the
country.
Also in Nigeria, Shell and its joint venture partners (Shell interest 30%) signed various
agreements with Nigerian state companies for the operation and development of two power plants
(Afam V and VI) in the Niger Delta.
ASIA PACIFIC
Australia Shell has a combined 22% direct and indirect (via Woodside) interest in the LNG
export phase and a 25% interest in the domestic gas phase of a joint venture formed to develop and
produce the gas fields of the North West Shelf (NWS). Current capacity (100%) of the LNG plant at
year-end 2006 was 11.9 million tonnes per annum. The LNG is sold mainly to customers in Japan.
Shell directly and indirectly has a 22% interest in seven LNG vessels used to deliver LNG from the
NWS.
The construction of a fifth NWS LNG train began in 2005. This will raise total capacity of the
plant to 16.3 million tonnes per annum (100%). Shell has a 5% interest in two LNG vessels under
construction in China that will be used to deliver LNG from NWS under a long-term contract.
Shell has a 25% interest in the Greater Gorgon joint venture that is considering development of a
LNG liquefaction plant on Barrow Island off Western Australia, to be supplied with natural gas from
the offshore Gorgon and Jansz/Io gas fields.
Shell has an indirect interest in Woodsides proposed Pluto LNG project located in the Carnavon
Basin in Western Australia through its 34.3% shareholding in Woodside.
A wholly-owned Shell company is also involved in a number of exploration licences in the Browse
Basin and in the Timor Sea which include opportunities for LNG export.
Brunei Shell has a 25% interest in Brunei LNG Sendirian Berhad. This company liquefies and sells
gas to customers in Japan and Korea. Current LNG capacity is 7.2 million tonnes per annum (100%).
The LNG continues to be delivered in a fleet of seven LNG vessels owned by Brunei Shell Tankers
Sendirian Berhad (Shell interest 25%), and an additional LNG vessel owned by Brunei Gas Carriers
Sendirian Berhad (Shell interest 10%).
China In a 50:50 joint venture with China Petroleum and Chemical Corporation (Sinopec), we
developed our first coal gasification plant. The
plant will supply synthesis gas to Sinopec downstream business units in Yueyang (Dongting). The
project completed construction at the end of 2006. Shells proprietary coal gasification technology
had been licensed to a total of 15 projects in China by the end of 2006.
In 2005 we entered into a joint venture with the Hangzhou Gas Group and Hong Kong China Gas for the
supply of natural gas to industrial and commercial customers in Hangzhou, China. Shell companies
interest in the City Ring joint venture, Hangzhou Natural Gas Company Limited, is currently 39%.
India Shell holds 74% interest in three legal entities in Hazira, located in the State of Gujarat,
covering the LNG regasification and storage terminal, port facilities, and marketing activities.
The terminal facilities, commissioned in 2005, are being used to import LNG and market natural gas
to customers in Gujarat and North West India.
Malaysia Shell companies hold a 15% interest in each of the Malaysia LNG Dua Sendirian Berhad and
Malaysia LNG Tiga Sendirian Berhad projects. Current total LNG capacity is 14.6 million tonnes per
annum. Our interest in the Dua plant is due to expire in 2015.
Next to the LNG facilities is a GTL plant, operated by Shell MDS (Malaysia) Sendirian Berhad (Shell
interest 72%). This 14,700 barrels per day capacity plant converts around three million cubic
metres per day of natural gas into high-quality middle distillates and other products using
Shell-developed technology. A full range of liquid and wax products is being sold into markets
around the world.
MIDDLE EAST, RUSSIA AND CIS
Egypt At the end of 2006, Shell held a controlling interest (47%) in Fayum Gas Company and an
18% interest in Natgas, local gas distribution companies in Egypt. In February 2007, Shell divested
its interest (47%) in Fayum Gas Company.
Iran A project framework agreement for the Persian LNG project (Shell interest 25%) was signed in
2004 with Repsol and the National Iranian Oil Co. to take forward the Persian LNG project to the
next stage of design. Under this agreement, it is envisaged that Shell would acquire 50% interest
in an agreement to develop phases of the South Pars fields in the Northern Gulf, as contractor, and
a 25% interest in the midstream liquefaction company. Front-end
engineering design work for the offshore facilities and for the liquefaction plant has commenced
and in early 2007 a service contract with respect to development of the phases of the South Pars
fields by Shell and Repsol as contractor was entered into. However, the parties will not reach a
final decision on whether to proceed with the project until the remaining significant commercial
and engineering work is complete.
Oman Shell has 30% interest in Oman LNG L.L.C. (Oman LNG). This company has an annual capacity of
7.1 million tonnes per annum. 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.
The Qalhat LNG S.A.O.C. project (in which Oman LNG has a 36.8% equity interest, giving Shell an 11%
indirect interest) was commissioned in 2005.
Qatar In 2006, following approval from Qatar Petroleum, Shell made the final investment decision
and began construction on the integrated Pearl GTL project, which is being developed under a
development and production sharing agreement with the government of the State of Qatar. Shell
provides 100% of project funding. The fully integrated project includes upstream
36 Royal Dutch Shell plc
production of some 1.6 billion cubic feet per day of wellhead gas from Qatars
North Field, transport and processing of the gas to produce around 120,000
barrels of oil equivalent per day of natural gas liquids and ethane and the
construction of a new onshore GTL complex to convert the remaining gas
into 140,000 barrels per day of clean liquid hydrocarbon products.
Construction of the Qatargas 4 LNG project continues (Shell interest 30%).
The project comprises the integrated development of upstream gas production
facilities to produce 1.4 billion cubic feet per day of natural gas, including an
average of approximately 70,000 barrels per day of associated natural gas
liquids from Qatars North field, a single LNG train yielding around 7.8 mtpa
of LNG and shipping of the LNG to the intended markets, primarily North
America. The final investment decision was taken in December 2005. At the
same time the engineering, procurement and construction (EPC) contract for
the onshore facilities was awarded.
Russia Shell has a 55% interest in Sakhalin Energy Investment Company
Ltd. (SEIC). Activities for the Phase 2 development of the offshore fields
continued during 2006. The development includes a two-train LNG
liquefaction plant with a 9.6 million tonnes per annum capacity. Further
LNG supply contracts were signed from the Sakhalin II project in 2006.
Binding contracts amount to 9.37 mtpa and represents some 98% of the
plants capacity. Sales commitments are for deliveries to customers in Asia
Pacific and North American markets.
In December 2006, Shell and its partners, Mitsui & Co., Ltd (Mitsui) and
Mitsubishi Corporation (Mitsubishi), signed a protocol with OAO Gazprom
(Gazprom), for Gazprom to acquire a 50% interest plus one share in SEIC for
a total cash purchase price of $7,450 million. The current SEIC partners will
each dilute their interests by 50% to accommodate this transaction for a
proportionate share of the purchase price. When effective, Shell will retain a
27.5% interest, with Mitsui and Mitsubishi holding 12.5% and 10% interests,
respectively.
USA AND CANADA
During 2006, the Gas & Power business portfolio in North America 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; long-term power tolling
contracts and energy management services.
The scope 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
LNG import capabilities.
OTHER WESTERN HEMISPHERE
Bolivia Shell has a 25% interest in Transredes Transporte De Hidrocarburos
S.A., an oil and gas pipeline company that owns over 3,500 miles of pipeline
network. The Group also buys and exports natural gas to Brazil through a
pipeline owned by Gas Transboliviano S.A. (combined Shell interests 30%),
and interconnected to Transredes.
On May 1, 2006, the Bolivian Government issued a nationalisation decree for
hydrocarbon natural resources and related processing and transportation
elements. Shell is in discussion with the Government on this decree and its
impact on Shell investments in the country.
Brazil Companhia de Gas de São Paulo (Comgás) is a Brazilian natural gas
distribution company in the state of São Paulo. Shell holds 18% through a
joint venture.
Transportadora Brasileira Bolivia Brasil S.A. (Br), (combined Shell interests
7%), connected to Gas Transboliviano S.A. (Bol), constitutes the Brazilian
side of the Bolivia-Brazil pipeline with around 1,400 miles of 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 480 MW power station project in
Cuiabá. The pipeline also crosses through eastern Bolivia.
Mexico Shell has 50% equity interest in an LNG regasification terminal
located in the port of Altamira, Tamaulipas, on Mexicos Gulf coast. The
facility started commercial operations in September 2006 and has
an initial peak capacity of 4.4 million tonnes per annum. A separate marketing
company (Shell interest 75%) holds the capacity rights in the terminal and
will supply up to the equivalent of 3.9 million tonnes per annum natural gas
for 15 years to CFE (state power company). Shell also holds capacity rights
(3.75 million tonnes per annum) to the Costa Azul LNG import terminal
under construction in Baja California on Mexicos west coast.
LNG SUPPLY AND SHIPPING
Three operations, Shell Western LNG (SWLNG), Shell Eastern LNG
(SELNG) and Shell North American LNG (SNALNG), aim to secure LNG
supplies for downstream natural gas markets that we are developing. SWLNG
sources LNG in the West and supplies our outlets in the Atlantic Basin
(currently Spain, Mexico and through SNALNG the USA; SNALNG is the
exclusive buyer for the US terminals). 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 primarily use
ships, currently a fleet totalling ten, which have been acquired, leased or
chartered by Shell Tankers Singapore Limited, Shell Tankers (UK) Ltd, Shell
Bermuda (Overseas) Ltd., and SWLNG.
Royal Dutch Shell plc 37
OPERATING AND FINANCIAL REVIEW
OVERVIEW
Oil Products is part of Shells downstream organisation.
The downstream businesses turn crude oil into a range of refined products including fuels,
lubricants and petrochemicals, which they also deliver to market. Oil Products has a presence in
more than a hundred countries and employed on average 67,000 people in 2006, generating in 2006
some $251 billion of revenue and earnings of $7.1 billion.
HIGHLIGHTS
|
|
Segment earnings of $7.1 billion. |
|
|
China Lubricants and Bitumen acquisitions completed. |
|
|
Turkey retail venture established. |
|
|
Disposals generated gross proceeds of $1.4 billion. |
We achieved excellent financial
performance in 2006 and our strategy is
on track. We will continue to ensure that
our operations are safe, reliable and cost
competitive. We have made steady
progress with our portfolio development as
we strengthened our position in key
markets. We will continue to leverage the
Shell brand with strong customer focus and
the development of leading edge technologies.
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS [A]
|
$ million |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (including intersegment sales) |
|
|
251,309 |
|
|
|
253,853 |
|
|
|
222,348 |
|
Purchases (including change in inventories) |
|
|
(222,962 |
) |
|
|
(223,482 |
) |
|
|
(195,270 |
) |
Depreciation |
|
|
(2,580 |
) |
|
|
(2,622 |
) |
|
|
(3,357 |
) |
Operating expenses |
|
|
(18,389 |
) |
|
|
(16,141 |
) |
|
|
(15,022 |
) |
Share of profit of equity accounted investments |
|
|
1,712 |
|
|
|
1,713 |
|
|
|
1,277 |
|
Other income/(expense) |
|
|
7 |
|
|
|
69 |
|
|
|
61 |
|
Taxation |
|
|
(1,972 |
) |
|
|
(3,408 |
) |
|
|
(2,440 |
) |
|
Segment earnings from continuing operations |
|
|
7,125 |
|
|
|
9,982 |
|
|
|
7,597 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
SEGMENT EARNINGS |
|
|
7,125 |
|
|
|
9,982 |
|
|
|
7,597 |
|
|
|
|
[A] |
|
Segment earnings as disclosed in the table above differ from the segment results
disclosed in Note 10 beginning on page 117. Segment earnings include share of profit of
equity accounted investments, other income/expense and taxation attributable to the
segment. |
2006 COMPARED TO 2005 AND 2004
EARNINGS
Segment earnings in 2006 were $7,125 million, 29% lower than 2005 and 6% lower than 2004.
Refining earnings in 2006 were lower than 2005 reflecting reduced refining margins. Marketing
earnings in 2006 were higher than 2005, mainly due to higher earnings in Lubricants offsetting
lower earnings in Retail and Business to Business (B2B). In 2005, earnings were higher than 2004
mainly due to high refining margins and improved operational performance. Marketing earnings
declined in 2005 compared to 2004. Trading earnings increased from 2004 to 2005 and again from 2005
to 2006 as a result of capitalising on the global downstream portfolio and the attractive trading
conditions, which stemmed from high price volatility and market structure. The impact of price
volatility on inventory had favourable effects on 2004 earnings of approximately $1.0 billion on
2005 earnings of approximately $2.5 billion and of approximately $0.1 billion on 2006 earnings.
Earnings in 2006 included non-operational net gains of $38 million. Benefits relating to reductions
in deferred taxes in the Netherlands and Canada were largely offset by pension and employee
benefits charges in the USA and France. In 2005, earnings included net gains of $427 million mainly
related to divestments; in 2004 earnings were positively affected by gains of $540 million, mainly
relating to the net effect of divestments and impairments. In 2006
revenue declined $2,544 million from 2005. The positive effect of higher average crude prices in
2006 was more than offset by the netting of certain trading sales (effective from the third quarter
2005). In 2005 revenue increased compared to 2004 largely as a result of increased crude prices.
Gross margin (calculated as revenue less purchases) in 2006 declined $2,024 million from 2005
levels. Refining margins in Europe and Asia Pacific were down while refining margins in the USA
increased. In 2005, gross margin increased $3,293 million from 2004 with higher refining margins in
all regions.
Depreciation was $42 million lower in 2006 than 2005 mainly due to divestments partly offset by the
impact of foreign exchange translation. Lower depreciation in 2005 compared to 2004 was due to
divestments and the recognition in 2004 of impairment provisions on certain refining and marketing
assets.
Operating expenses, which include divestment gains, increased during the period 2004 to 2006.
Compared to 2005, 2006 was affected by lower gains
from divestments, increased refinery maintenance costs, higher trading expenses, increased energy
related costs and the effect of a weaker dollar on non-dollar denominated operating expenses. The
increase in 2005 over 2004 was largely due to lower gains from divestments.
Refinery processing intake in 2006 declined 3.0% from 2005, the result of lower utilisation rates
particularly in Europe and Asia Pacific. In 2005 intake volumes were lower in comparison to 2004
due to divestments in the USA and Asia Pacific and hurricane related downtime in the USA. Total
2006 product sales volumes were 8.1% lower than 2005, with 6.0% of this decline resulting from the
net reporting of certain contracts that are held for trading purposes as from the third quarter
2005. Furthermore, volumes in 2006 were affected by divestments, and rationalised volumes in B2B.
In 2005 volumes declined 7.1% compared to 2004. The netting effect of the held for trading volumes
accounted for 5.6% of the decline. Moreover, volumes were affected by divested marketing businesses
in 2005 and 2004.
OUTLOOK AND STRATEGY
Refining margins remained well supported in 2006, with robust product demand growth and
constraints on supply due to unusually intense industry refinery turnaround activity on the US Gulf
Coast following the extensive hurricane-related damage in 2005. In the absence of any major
disruptions, refining margins are expected to trend lower in 2007 than 2006 with new conversion
capacities coming on-stream and the prospect for potentially slower global economic growth.
However, the eventual levels are uncertain and will be strongly influenced by the pace of global
economic growth, the effect of persistently high oil prices on product demand and start-up timing
of expected refinery expansions.
Marketing margins will continue to be influenced by oil price volatility, exchange rates and
intense competition.
We aim to lead in the downstream markets in which we choose to operate. Our strategy supports this.
To improve downstream profitability we focus on six key areas:
|
|
Keeping our operational performance safe, reliable and cost-competitive. |
|
|
Reshaping the portfolio by divesting underperforming assets, making selective
investments in manufacturing and marketing to improve our competitive position and
investing in high growth markets such as China and India. |
|
|
Continuing to seek opportunities to reinforce our position as the leading global
brand across all the downstream businesses, including keeping our focus on differentiated
fuels. |
|
|
Continuing to implement simpler standard global processes supported by a single
common IT system for Oil Products businesses across the world. |
|
|
Continuing to maximise the value of our integrated hydrocarbon supply chain and
work towards a tighter integration of the Oil Products and Chemicals businesses. |
|
|
Continuous focus on human resources, development of leadership and progress in
diversity. |
CAPITAL INVESTMENT AND PORTFOLIO ACTIONS
Capital investment was $3.5 billion in 2006, up from $2.8 billion in 2005. The main areas of
investment were in our manufacturing and retail businesses. They included spending on refinery
maintenance, fuel specification and environmental compliance, upgrading and growing the retail
network and two acquisitions in China. During the period 2004-2006 approximately 65% of our capital
expenditure was allocated to asset integrity and care and maintenance projects.
|
|
|
COUNTRIES IN WHICH OIL PRODUCTS OPERATE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
USA
Latin America
Argentina
Brazil
Chile
Colombia
Costa Rica
Ecuador
El Salvador
Guatemala
Honduras
Mexico
Nicaragua
Panama
Peru
Surinam
Venezuela
The Caribbean
Antigua &
Barbuda
Bahamas
Barbados
Dominican Republic
|
|
French Antilles &
Guiana
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
Ireland
Italy
Latvia
Lithuania
Luxembourg
|
|
Montenegro
The Netherlands
Norway
Poland
Portugal
Romania
Serbia
Slovakia
Slovenia
Spain
Sweden
Switzerland
Turkey
UK
Africa
Algeria
Benin
Botswana
Burkina Faso
Cape Verde
Islands
Cote dIvoire
Democratic
Republic of
Congo
Djibouti
Egypt
|
|
Ethiopia
Gabon
The Gambia
Ghana
Guinea
Kenya
Lesotho
Madagascar
Mali
Morocco
Mozambique
Namibia
Nigeria
La Réunion
Senegal
South Africa
Sudan
Swaziland
Tanzania
Togo
Tunisia
Uganda
Zimbabwe
Middle East
Iran
Oman
Qatar
|
|
Saudi Arabia
United Arab
Emirates
Yemen
Commonwealth
of Independent
States
Russia
Ukraine
Asia Pacific
Australia
Brunei
China (including
Hong Kong)
Fiji
Guam
India
Indonesia
Japan
Laos
Malaysia
Mauritius
New Zealand
Pakistan
Philippines
Singapore
|
|
South Korea
Sri Lanka
Taiwan
Thailand
Vietnam |
We continued to focus on investment in high growth markets in Asia and Turkey, on
consolidation in Africa and retrenchment in Latin America.
Shell completed the sale of its Oil Products businesses in Jamaica, Bahamas, Paraguay and Rwanda in
the first quarter of 2006. An agreement was signed in March 2006 to acquire Koch Materials China
(Hong Kong) Limited, a bitumen manufacturing and marketing business in China. The deal increases
Shells bitumen production more than doubling it in China to 6,600 tonnes per day, which
represents around 20% of Shell Bitumen global volume.
In the second quarter of 2006, Shell announced that Motiva Enterprises (Shell share 50%) was
continuing progress towards a decision to expand the Port Arthur Refinery in the USA, which would
add up to 325 thousand barrels per day crude to the refinerys throughput and take its daily total
to more than 600 thousand barrels. Depending on commercial conditions and regulatory approvals,
Motiva expects to begin construction in 2007 with brownfield expansion to come on line after 2010.
The divestments of marketing and distribution assets in Colombia, Uruguay and Cameroon were
completed in the second quarter of 2006.
In Turkey, the venture between Shell and Turcas Petrol A.S. involving more than 1,200 service
stations (Shell share 70%) began operating on July 1, 2006. In July 2006, we announced the
divestments of our marketing and distribution businesses in various Pacific Islands (completed in
the fourth quarter).
In the third quarter 2006, Shell acquired a 75% share in Beijing Tongyi Petroleum Chemical Company
Limited and Xianyang Tongyi Petroleum Chemical Company Limited, which produce and market Chinas
leading independent lubricants brand. This transaction put Shell ahead of other international
energy companies in Chinas lubricants market and increased Shells global finished lubricants
volume by 8%. Sales of Shells retail and lubricants marketing assets in Puerto Rico and
distribution and marketing assets in Bermuda were completed. In the USA the sale of a residential
and small commercial natural gas marketing business was completed.
In the fourth quarter, agreement was signed for the sale of Shells retail, commercial fuels and
aviation businesses in Cambodia.
Early in 2007, as part of ongoing active investment and portfolio management, Shell announced a
strategic review of a number of refining and
Royal Dutch Shell plc 39
OPERATING AND FINANCIAL REVIEW
petrochemicals feedstock assets. This review will include, amongst other assets,
Petit-Couronne and Reichstett-Vendenheim refineries and the Berre-lEtang
refinery site complex in France, with a combined capacity of around 300,000
barrels per day (Shell share 100%). Shell had previously announced that it is
also reviewing its portfolio in the Dominican Republic, where the Company
has a 30,000 barrels per day interest in the Refidomsa refinery and storage
terminal. At the end of January 2007, Shell signed an agreement to sell its Los
Angeles Refinery, Wilmington Products Terminal and around 250 service
stations and supply agreements in and around Los Angeles and San Diego.
RESEARCH AND DEVELOPMENT
Research and development (R&D) programmes continue to focus on the
improvement of liquid fuels, lubricants, and bitumen products and their
applications together with advancement of process technologies that provide a
competitive advantage.
For the fuels business, top tier differentiated fuels have been launched in more
than 40 countries. Benefits, such as performance and fuel economy together
with environmental performance are key drivers in the development of new
products, while opportunities to reduce costs are pursued in current
formulations. Product stewardship considerations, especially in areas of health
and the environment, continue to be given high priority in all areas.
The need to conserve energy, protect the environment, and meet customer
requirements continues to drive new technology development in lubricants.
Key R&D themes are the development of energy efficient lubricant
technologies, new technologies enabling reduced maintenance and longer
equipment life and formulation technologies compatible with new emission
systems. Programmes focused on novel base oil and additive technologies,
lubricants for advanced coatings and lightweight materials, self-healing
lubricated surfaces and predictive models continue to be central to our
lubricants R&D.
In refinery process research we seek to achieve the highest standards of reliability
and availability, supply chain optimisation, cost reduction, feedstock flexibility,
and continuous reduction in energy consumption and CO2 emissions. Catalyst
development has contributed to increased margins generation. Programmes
focused on health, safety, and environment provide solutions ranging from soil
remediation techniques to explosion hazard assessments.
Additional R&D investments are made to achieve breakthrough options in
sustainable energy and mobility. Shell is partnering several leading companies
to develop second-generation biofuels from non-food sources, such as wood
and straw. The companies include Iogen Corporation of Canada, which uses
enzymes to convert straw into cellulose ethanol that can be blended with
gasolines, and CHOREN Industries of Germany which converts a woody
feedstock to a high-quality synthetic diesel fuel.
BUSINESS AND PROPERTY
The Oil Products organisation is made up of a number of different businesses,
which include Manufacturing, Supply and Distribution, Retail, 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 interest in more than 40
refineries with a Shell equity capacity in excess of 4 million barrels per day.
Our presence is truly global, with some 44% of Shells equity capacity in
Europe, 25% in North America, 25% in Asia Pacific, and 6% in Latin
America and Africa. Our refineries make 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.
As referred to on page 54 our unplanned downtime in 2006 was 4.9%
compared to 4.0% in 2005. This is due to extended turnarounds at some of
our larger refineries.
SUPPLY AND DISTRIBUTION
Supply and Distribution optimises the refineries hydrocarbon margin, drives
cross-business integration, and plays a large role in Shells hydrocarbon supply
chain strategies. The business acquires and delivers feedstock to Shell refineries
and chemical plants, and transports and delivers finished products to Shells
downstream marketing businesses and customers. It handles around 6 million
barrels of inland fuel sales per day. The distribution network includes
5,000 miles (over 8,000 km) of pipeline in the USA. It also includes some
20,000 trucks worldwide making 10,000 deliveries a day.
RETAIL
Shell branded sites constitute the worlds largest single branded retailer with
more than 45,000 service stations. Our research indicates that Shell is the
leading global differential fuels retailer with a portfolio that includes Shell V-Power and Shell V-Power Diesel. These are tailored to meet growing customer
needs for improved engine and environmental performance.
Shell continually seeks to make the most of its innovative and technical
knowledge and its partnerships in technology. In April 2006, using a standard
Volkswagen Golf model, Shell set a new Guinness world record for the most
fuel-efficient circumnavigation of the globe ever undertaken in a standard car.
It was completed using only 24 tanks (1,303 litres) of fuel containing the
innovative Shell Fuel Economy Formula. The end of the journey marked the
launch of our new Formula in several markets. In June, a special blend of
Shell V-Power Diesel and GTL fuel powered an Audi R10 TDI to victory in
the 24 Heures du Mans race (Le Mans), to become the first diesel-powered
winner of the legendary endurance event. The Audi remained unbeaten in its
first season.
LUBRICANTS
Shell Lubricants companies are the global leaders in finished lubricants,
marketing Shell Lubricants products in around 120 countries. Shells product
portfolio comprises some of the most recognised (by market share) lubricants
brands in both global and individual markets, including Shell Helix, Pennzoil,
Shell Rotella, Shell Rimula, Quaker State and the recently-acquired Tongyi in
China. 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, metal-working, food processing, mining,
power generation and agriculture industries. In addition, through the Jiffy
Lube fast lube network, Shell Lubricants provides oil change and service to
some 27 million customers in North America and is building a presence in
developing markets such as China.
BUSINESS TO BUSINESS (B2B)
B2B sells fuels and special products to a broad range of commercial customers
and 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, supplying over 87 million litres of
40 Royal Dutch Shell plc
fuels and lubricants every day. Shell regained the top spot in the Armbrust Award for the Worlds
Best Jet Fuel Marketer in 2006.
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, 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 from large ocean-going tankers to small fishing boats in
more than 730 ports in around 90 countries.
Shell Gas (LPG) Liquefied petroleum gas (LPG) fits well into Shells range of product offerings as
a cleaner-burning and convenient fuel. Shell Gas (LPG) is one of the largest players in the LPG
market, supplying LPG to over 30 million domestic, commercial and industrial customers. The
business works with 3,500 distributors and has around 100,000 points of sale, in more than 30
countries and territories, around the world.
Commercial Fuels provides high-quality heating, transport and industrial fuels to more than 4
million customers worldwide. The bulk fuels business, in close co-operation with the refineries,
plays a key role in optimising the value for the integrated supply chain. The domestic heating oil
business provides oil to heat more than 1.5 million homes. The Road Transport business provides
fuels and services to transporters around the world through a network of well-located sites with
payment-through-card systems.
Shell Bitumen is a global business. Every day it supplies around 12,000 million tonnes of bitumen
to 1,600 customers, through 250 applications, in 35 countries. Shell Bitumen resurfaces the
equivalent of 450 kilometres of road a day and our market share throughout the world is growing.
Most recently, we doubled our presence in China through Shell Road Solutions and we are now a
market leader in premium binders in that region.
SHELL GLOBAL SOLUTIONS
Shell Global Solutions provides business and operational consultancy, catalysts, technical
services and research and development expertise to Shell and the energy and processing industries
worldwide. It has an extensive network of offices around the world, with primary commercial centres
operating in the USA, Europe and Asia Pacific.
OPERATING AND FINANCIAL REVIEW
REFINING
|
|
|
|
COST OF CRUDE OIL PROCESSED OR CONSUMED
|
|
$ per barrel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of crude oil processed or consumed
(including upstream margin on crude supplied by Group and equity accounted investment exploration and production companies) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
[A] |
|
2002 |
[A] |
|
Total |
|
|
60.46 |
|
|
|
48.24 |
|
|
|
37.22 |
|
|
|
26.75 |
|
|
|
24.35 |
|
|
|
|
|
|
OPERABLE CRUDE OIL DISTILLATION CAPACITY [B]
|
|
thousand barrels/calendar day [C][D] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
1,823 |
|
|
|
1,822 |
|
|
|
1,835 |
|
|
|
1,808 |
|
|
|
1,809 |
|
Other Eastern Hemisphere |
|
|
923 |
|
|
|
899 |
|
|
|
1,050 |
|
|
|
1,072 |
|
|
|
1,108 |
|
USA |
|
|
946 |
|
|
|
955 |
|
|
|
1,032 |
|
|
|
1,073 |
|
|
|
1,075 |
|
Other Western Hemisphere |
|
|
348 |
|
|
|
350 |
|
|
|
350 |
|
|
|
361 |
|
|
|
395 |
|
|
Total |
|
|
4,040 |
|
|
|
4,026 |
|
|
|
4,267 |
|
|
|
4,314 |
|
|
|
4,387 |
|
|
|
|
|
|
CRUDE OIL PROCESSED [E]
|
|
thousand barrels daily [C] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
1,641 |
|
|
|
1,701 |
|
|
|
1,688 |
|
|
|
1,712 |
|
|
|
1,701 |
|
Other Eastern Hemisphere |
|
|
751 |
|
|
|
802 |
|
|
|
943 |
|
|
|
916 |
|
|
|
870 |
|
USA |
|
|
874 |
|
|
|
855 |
|
|
|
951 |
|
|
|
974 |
|
|
|
996 |
|
Other Western Hemisphere |
|
|
303 |
|
|
|
315 |
|
|
|
319 |
|
|
|
323 |
|
|
|
314 |
|
|
Total |
|
|
3,569 |
|
|
|
3,673 |
|
|
|
3,901 |
|
|
|
3,925 |
|
|
|
3,881 |
|
|
Group share of equity accounted investments |
|
|
417 |
|
|
|
455 |
|
|
|
451 |
|
|
|
515 |
|
|
|
473 |
|
|
|
|
|
|
REFINERY PROCESSING INTAKE [F]
|
|
thousand barrels daily [C] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil |
|
|
3,617 |
|
|
|
3,722 |
|
|
|
3,946 |
|
|
|
3,949 |
|
|
|
3,881 |
|
Feedstocks |
|
|
245 |
|
|
|
259 |
|
|
|
216 |
|
|
|
218 |
|
|
|
203 |
|
|
|
|
|
3,862 |
|
|
|
3,981 |
|
|
|
4,162 |
|
|
|
4,167 |
|
|
|
4,084 |
|
|
Europe |
|
|
1,732 |
|
|
|
1,804 |
|
|
|
1,770 |
|
|
|
1,776 |
|
|
|
1,761 |
|
Other Eastern Hemisphere |
|
|
808 |
|
|
|
849 |
|
|
|
962 |
|
|
|
956 |
|
|
|
941 |
|
USA |
|
|
956 |
|
|
|
953 |
|
|
|
1,055 |
|
|
|
1,079 |
|
|
|
1,064 |
|
Other Western Hemisphere |
|
|
366 |
|
|
|
375 |
|
|
|
375 |
|
|
|
356 |
|
|
|
318 |
|
|
Total |
|
|
3,862 |
|
|
|
3,981 |
|
|
|
4,162 |
|
|
|
4,167 |
|
|
|
4,084 |
|
|
42 Royal Dutch Shell plc
|
|
|
|
REFINERY PROCESSING INTAKE
|
|
million tonnes per year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metric equivalent |
|
|
189 |
|
|
|
195 |
|
|
|
204 |
|
|
|
204 |
|
|
|
201 |
|
|
|
|
|
REFINERY PROCESSING OUTTURN [G]
|
|
thousand barrels daily [C] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
1,444 |
|
|
|
1,492 |
|
|
|
1,542 |
|
|
|
1,575 |
|
|
|
1,537 |
|
Kerosines |
|
|
368 |
|
|
|
382 |
|
|
|
424 |
|
|
|
418 |
|
|
|
400 |
|
Gas/Diesel oils |
|
|
1,215 |
|
|
|
1,256 |
|
|
|
1,297 |
|
|
|
1,312 |
|
|
|
1,287 |
|
Fuel oil |
|
|
346 |
|
|
|
391 |
|
|
|
414 |
|
|
|
378 |
|
|
|
355 |
|
Other products |
|
|
597 |
|
|
|
567 |
|
|
|
557 |
|
|
|
550 |
|
|
|
546 |
|
|
Total |
|
|
3,970 |
|
|
|
4,088 |
|
|
|
4,234 |
|
|
|
4,233 |
|
|
|
4,125 |
|
|
|
|
|
[A] |
|
Figures for 2003 and 2002 are provided on a US GAAP basis. |
|
[B] |
|
Group average operating capacity for the year and excluding mothballed capacity. |
|
[C] |
|
One barrel daily is equivalent to approximately 50 tonnes a year, depending on the specific gravity of the crude oil. |
|
[D] |
|
Operable capacity is the calendar day capacity minus capacity loss due to normal unit downtime. |
|
[E] |
|
Including natural gas liquids; includes processing for others and excludes processing by others. |
|
[F] |
|
Including crude oil and natural gas liquids plus feedstocks processed in crude oil distillation units and in secondary conversion units. |
|
[G] |
|
Excluding own use and products acquired for blending purposes. |
Royal Dutch Shell plc 43
OPERATING AND FINANCIAL REVIEW
|
|
|
|
OIL SALES [A]
|
|
thousand barrels per day |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product volumes |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
563 |
|
|
|
569 |
|
|
|
576 |
|
|
|
616 |
|
|
|
647 |
|
Kerosines |
|
|
207 |
|
|
|
223 |
|
|
|
220 |
|
|
|
194 |
|
|
|
190 |
|
Gas/Diesel oils |
|
|
859 |
|
|
|
920 |
|
|
|
934 |
|
|
|
936 |
|
|
|
950 |
|
Fuel oil |
|
|
153 |
|
|
|
196 |
|
|
|
179 |
|
|
|
184 |
|
|
|
177 |
|
Other products |
|
|
191 |
|
|
|
185 |
|
|
|
203 |
|
|
|
207 |
|
|
|
209 |
|
|
|
|
|
1,973 |
|
|
|
2,093 |
|
|
|
2,112 |
|
|
|
2,137 |
|
|
|
2,173 |
|
|
Other Eastern Hemisphere [B][C] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
356 |
|
|
|
318 |
|
|
|
337 |
|
|
|
315 |
|
|
|
332 |
|
Kerosines |
|
|
167 |
|
|
|
174 |
|
|
|
168 |
|
|
|
166 |
|
|
|
142 |
|
Gas/Diesel oils |
|
|
450 |
|
|
|
470 |
|
|
|
511 |
|
|
|
489 |
|
|
|
476 |
|
Fuel oil |
|
|
140 |
|
|
|
151 |
|
|
|
168 |
|
|
|
180 |
|
|
|
188 |
|
Other products |
|
|
114 |
|
|
|
119 |
|
|
|
136 |
|
|
|
138 |
|
|
|
149 |
|
|
|
|
|
1,227 |
|
|
|
1,232 |
|
|
|
1,320 |
|
|
|
1,288 |
|
|
|
1,287 |
|
|
USA [D] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
845 |
|
|
|
1,068 |
|
|
|
1,372 |
|
|
|
1,343 |
|
|
|
1,239 |
|
Kerosines |
|
|
168 |
|
|
|
236 |
|
|
|
258 |
|
|
|
212 |
|
|
|
221 |
|
Gas/Diesel oils |
|
|
232 |
|
|
|
368 |
|
|
|
430 |
|
|
|
430 |
|
|
|
401 |
|
Fuel oil |
|
|
51 |
|
|
|
107 |
|
|
|
209 |
|
|
|
189 |
|
|
|
105 |
|
Other products |
|
|
175 |
|
|
|
234 |
|
|
|
247 |
|
|
|
218 |
|
|
|
173 |
|
|
|
|
|
1,471 |
|
|
|
2,013 |
|
|
|
2,516 |
|
|
|
2,392 |
|
|
|
2,139 |
|
|
Other Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
247 |
|
|
|
263 |
|
|
|
293 |
|
|
|
296 |
|
|
|
317 |
|
Kerosines |
|
|
71 |
|
|
|
74 |
|
|
|
73 |
|
|
|
72 |
|
|
|
74 |
|
Gas/Diesel oils |
|
|
237 |
|
|
|
251 |
|
|
|
249 |
|
|
|
243 |
|
|
|
246 |
|
Fuel oil |
|
|
65 |
|
|
|
77 |
|
|
|
85 |
|
|
|
86 |
|
|
|
92 |
|
Other products |
|
|
37 |
|
|
|
43 |
|
|
|
44 |
|
|
|
52 |
|
|
|
49 |
|
|
|
|
|
657 |
|
|
|
708 |
|
|
|
744 |
|
|
|
749 |
|
|
|
778 |
|
|
Export sales [E] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
195 |
|
|
|
186 |
|
|
|
182 |
|
|
|
193 |
|
|
|
251 |
|
Kerosines |
|
|
136 |
|
|
|
104 |
|
|
|
114 |
|
|
|
154 |
|
|
|
155 |
|
Gas/Diesel oils |
|
|
328 |
|
|
|
287 |
|
|
|
274 |
|
|
|
213 |
|
|
|
222 |
|
Fuel oil |
|
|
338 |
|
|
|
313 |
|
|
|
208 |
|
|
|
181 |
|
|
|
196 |
|
Other products |
|
|
160 |
|
|
|
121 |
|
|
|
130 |
|
|
|
138 |
|
|
|
198 |
|
|
|
|
|
1,157 |
|
|
|
1,011 |
|
|
|
908 |
|
|
|
879 |
|
|
|
1,022 |
|
|
Total product sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
2,206 |
|
|
|
2,404 |
|
|
|
2,760 |
|
|
|
2,763 |
|
|
|
2,786 |
|
Kerosines |
|
|
749 |
|
|
|
811 |
|
|
|
833 |
|
|
|
798 |
|
|
|
782 |
|
Gas/Diesel oils |
|
|
2,106 |
|
|
|
2,296 |
|
|
|
2,398 |
|
|
|
2,311 |
|
|
|
2,295 |
|
Fuel oil |
|
|
747 |
|
|
|
844 |
|
|
|
849 |
|
|
|
820 |
|
|
|
758 |
|
Other products |
|
|
677 |
|
|
|
702 |
|
|
|
760 |
|
|
|
753 |
|
|
|
778 |
|
|
|
|
|
6,485 |
|
|
|
7,057 |
|
|
|
7,600 |
|
|
|
7,445 |
|
|
|
7,399 |
|
|
|
|
|
[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 61.55% 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] |
|
Certain contracts are held for trading purposes and reported net rather than gross
was effect from Q3 2005. The effect in 2006 is a reduction in oil product sales of
approximately 844 thousand b/d and in 2005 424 thousand b/d. |
|
[E] |
|
Export sales as a percentage of total oil sales amount to 17.8% in 2006, 14.3% in
2005, 11.9% in 2004, 11.8% in 2003 and 13.8% in 2002. |
44 Royal Dutch Shell plc
|
|
|
|
SALES BY PRODUCT AS PERCENTAGE OF TOTAL PRODUCT SALES
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
34.0 |
|
|
|
34.1 |
|
|
|
36.3 |
|
|
|
37.1 |
|
|
|
37.7 |
|
Kerosines |
|
|
11.6 |
|
|
|
11.5 |
|
|
|
10.9 |
|
|
|
10.7 |
|
|
|
10.6 |
|
Gas/Diesel oils |
|
|
32.5 |
|
|
|
32.5 |
|
|
|
31.6 |
|
|
|
31.1 |
|
|
|
31.0 |
|
Fuel oil |
|
|
11.5 |
|
|
|
12.0 |
|
|
|
11.2 |
|
|
|
11.0 |
|
|
|
10.2 |
|
Other products |
|
|
10.4 |
|
|
|
9.9 |
|
|
|
10.0 |
|
|
|
10.1 |
|
|
|
10.5 |
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
TOTAL OIL SALES VOLUMES [A]
|
|
thousand barrels per day |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil products by geographical area |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
|
732 |
|
|
|
771 |
|
|
|
772 |
|
|
|
785 |
|
|
|
789 |
|
UK and Republic of Ireland |
|
|
252 |
|
|
|
323 |
|
|
|
311 |
|
|
|
313 |
|
|
|
317 |
|
France |
|
|
280 |
|
|
|
268 |
|
|
|
275 |
|
|
|
283 |
|
|
|
299 |
|
the Netherlands |
|
|
183 |
|
|
|
199 |
|
|
|
191 |
|
|
|
180 |
|
|
|
191 |
|
Others |
|
|
526 |
|
|
|
532 |
|
|
|
563 |
|
|
|
576 |
|
|
|
577 |
|
|
|
|
|
1,973 |
|
|
|
2,093 |
|
|
|
2,112 |
|
|
|
2,137 |
|
|
|
2,173 |
|
|
Other Eastern Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
221 |
|
|
|
222 |
|
|
|
215 |
|
|
|
190 |
|
|
|
194 |
|
Others |
|
|
1,006 |
|
|
|
1,010 |
|
|
|
1,105 |
|
|
|
1,098 |
|
|
|
1,093 |
|
|
|
|
|
1,227 |
|
|
|
1,232 |
|
|
|
1,320 |
|
|
|
1,288 |
|
|
|
1,287 |
|
|
USA [A] |
|
|
1,471 |
|
|
|
2,013 |
|
|
|
2,516 |
|
|
|
2,392 |
|
|
|
2,139 |
|
|
Other Western Hemisphere |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
288 |
|
|
|
300 |
|
|
|
287 |
|
|
|
276 |
|
|
|
263 |
|
Brazil |
|
|
180 |
|
|
|
179 |
|
|
|
170 |
|
|
|
168 |
|
|
|
191 |
|
Others |
|
|
189 |
|
|
|
229 |
|
|
|
287 |
|
|
|
305 |
|
|
|
324 |
|
|
|
|
|
657 |
|
|
|
708 |
|
|
|
744 |
|
|
|
749 |
|
|
|
778 |
|
|
Export sales [B] |
|
|
1,157 |
|
|
|
1,011 |
|
|
|
908 |
|
|
|
879 |
|
|
|
1,022 |
|
|
Total oil products |
|
|
6,485 |
|
|
|
7,057 |
|
|
|
7,600 |
|
|
|
7,445 |
|
|
|
7,399 |
|
Crude oil [A] |
|
|
2,472 |
|
|
|
3,695 |
|
|
|
5,160 |
|
|
|
4,769 |
|
|
|
5,025 |
|
|
Total oil sales |
|
|
8,957 |
|
|
|
10,752 |
|
|
|
12,760 |
|
|
|
12,214 |
|
|
|
12,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metric equivalent |
|
|
439 |
|
|
|
527 |
|
|
|
627 |
|
|
|
611 |
|
|
|
621 |
|
|
|
|
[A] |
|
Certain contracts are held for trading purposes and reported net rather than gross
with effect from Q3 2005. The effect in 2006 is a reduction in oil product sales of
approximately 844 thousand b/d and a reduction in crude oil sales of approximately 1,943
thousand b/d, in 2005 424 thousand b/d and 879 thousand b/d respectively. |
|
[B] |
|
Export sales as a percentage of total oil sales volumes amount to 12.9% in 2006,
9.4% in 2005, 7.1% in 2004, 7.2% in 2003 and 8.2% in 2002. |
Royal Dutch Shell plc 45
OPERATING AND FINANCIAL REVIEW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003[A] |
|
|
2002[A] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
by product |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
65,910 |
|
|
|
62,189 |
|
|
|
55,594 |
|
|
|
44,830 |
|
|
|
38,861 |
|
Kerosines |
|
|
23,485 |
|
|
|
21,775 |
|
|
|
16,308 |
|
|
|
10,826 |
|
|
|
9,170 |
|
Gas/Diesel oils |
|
|
68,899 |
|
|
|
63,357 |
|
|
|
48,304 |
|
|
|
35,344 |
|
|
|
28,077 |
|
Fuel oil |
|
|
13,948 |
|
|
|
13,218 |
|
|
|
9,688 |
|
|
|
8,424 |
|
|
|
6,591 |
|
Other products |
|
|
20,182 |
|
|
|
17,505 |
|
|
|
15,279 |
|
|
|
13,834 |
|
|
|
11,420 |
|
|
Total oil products |
|
|
192,424 |
|
|
|
178,044 |
|
|
|
145,173 |
|
|
|
113,258 |
|
|
|
94,119 |
|
|
by
geographical area[B] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
60,755 |
|
|
|
55,968 |
|
|
|
44,010 |
|
|
|
35,618 |
|
|
|
30,228 |
|
Other Eastern Hemisphere |
|
|
37,869 |
|
|
|
31,705 |
|
|
|
25,725 |
|
|
|
19,957 |
|
|
|
16,801 |
|
USA |
|
|
44,370 |
|
|
|
49,574 |
|
|
|
46,500 |
|
|
|
34,533 |
|
|
|
26,200 |
|
Other Western Hemisphere |
|
|
21,465 |
|
|
|
19,957 |
|
|
|
15,116 |
|
|
|
12,751 |
|
|
|
10,836 |
|
Export sales [B] |
|
|
27,965 |
|
|
|
20,840 |
|
|
|
13,822 |
|
|
|
10,399 |
|
|
|
10,054 |
|
|
Total oil products |
|
|
192,424 |
|
|
|
178,044 |
|
|
|
145,173 |
|
|
|
113,258 |
|
|
|
94,119 |
|
|
|
|
|
[A] |
|
Figures for 2003 and 2002 are provided on a US GAAP basis. |
|
[B] |
|
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. |
|
|
|
|
AVERAGE PRODUCT REVENUE
|
|
$ per barrel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003[A] |
|
|
2002[A] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
by product |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasolines |
|
|
81.85 |
|
|
|
70.88 |
|
|
|
55.03 |
|
|
|
44.46 |
|
|
|
38.22 |
|
Kerosines |
|
|
85.97 |
|
|
|
73.52 |
|
|
|
53.52 |
|
|
|
37.18 |
|
|
|
32.12 |
|
Gas/Diesel oils |
|
|
89.61 |
|
|
|
75.61 |
|
|
|
55.04 |
|
|
|
41.90 |
|
|
|
33.52 |
|
Fuel oil |
|
|
51.20 |
|
|
|
42.91 |
|
|
|
31.17 |
|
|
|
28.14 |
|
|
|
23.82 |
|
Other products |
|
|
81.64 |
|
|
|
68.29 |
|
|
|
54.95 |
|
|
|
50.30 |
|
|
|
40.21 |
|
|
Total oil products |
|
|
81.30 |
|
|
|
69.12 |
|
|
|
52.19 |
|
|
|
41.68 |
|
|
|
34.85 |
|
|
by geographical area |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
84.36 |
|
|
|
73.21 |
|
|
|
56.93 |
|
|
|
45.67 |
|
|
|
38.11 |
|
Other Eastern Hemisphere |
|
|
84.55 |
|
|
|
70.52 |
|
|
|
53.30 |
|
|
|
42.45 |
|
|
|
35.77 |
|
USA |
|
|
82.65 |
|
|
|
67.48 |
|
|
|
50.48 |
|
|
|
39.56 |
|
|
|
33.55 |
|
Other Western Hemisphere |
|
|
89.47 |
|
|
|
77.28 |
|
|
|
55.51 |
|
|
|
46.64 |
|
|
|
38.18 |
|
Export sales |
|
|
66.25 |
|
|
|
56.48 |
|
|
|
41.57 |
|
|
|
32.41 |
|
|
|
26.95 |
|
|
Total oil products |
|
|
81.30 |
|
|
|
69.12 |
|
|
|
52.19 |
|
|
|
41.68 |
|
|
|
34.85 |
|
|
|
|
|
[A] |
|
Figures for 2003 and 2002 are provided on a US GAAP basis. |
TRADING
Shell Trading is a global network of companies that are engaged in trading and shipping. The
trading portfolio includes natural gas, electrical power, crude oil, refined products, chemical
feedstocks and environmental products. Companies within the Shell Trading network (main locations
include Houston, London, Dubai, Moscow and Singapore) are separate entities responsible for running
their own businesses. Shell Trading trades about 13 million barrels of crude oil equivalent per
day. The Groups trading and shipping activities primarily occur in support of the Groups business
activities.
46 Royal Dutch Shell plc
SHIPPING
During 2006, shipping portfolio changes included the redelivery from bareboat charter of
three large range product tankers (45,000 to 160,000dwt) and the entering into service of one large
range product tanker contracted in 2005. Two very large crude carriers over 160,000dwt (VLCCs) were
redelivered from bareboat charter and two others converted from bareboat charter to time charter. A
further two VLCCs were contracted on time charter. The bareboat charter of one general purpose
tanker (10,000 to 25,000dwt) was extended from 2007 and one additional general purpose product
tanker was contracted on bareboat charter for delivery in 2007. One liquefied petroleum gas (LPG)
carrier (82,500 cubic metres) was contracted on time charter and one LPG carrier (80,600 cubic
metres) redelivered from time charter. These changes together with other new charters, charter
renewals and redeliveries from charter are summarised in the table below.
|
|
|
OIL TANKERS [A] (At December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
number of ships |
|
|
million deadweight tonnes |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned/demise-hired
VLCCs (over 160,000dwt) |
|
|
|
|
|
|
4 |
|
|
|
5 |
|
|
|
7 |
|
|
|
7 |
|
|
|
|
|
|
|
1.2 |
|
|
|
1.5 |
|
|
|
2.1 |
|
|
|
2.1 |
|
Large range (45,000 to 160,000dwt) |
|
|
11 |
|
|
|
13 |
|
|
|
11 |
|
|
|
13 |
|
|
|
16 |
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
0.7 |
|
|
|
0.9 |
|
|
|
1.3 |
|
Medium range (25,000 to 45,000dwt) |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
General purpose (10,000 to 25,000dwt)/
Specialist |
|
|
5 |
|
|
|
5 |
|
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
Total |
|
|
21 |
|
|
|
27 |
|
|
|
23 |
|
|
|
28 |
|
|
|
30 |
|
|
|
1.2 |
|
|
|
2.3 |
|
|
|
2.5 |
|
|
|
3.3 |
|
|
|
3.7 |
|
|
Time-chartered [B][C] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCCs (over
160,000dwt) [D] |
|
|
7 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
2.1 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
Large range (45,000 to 160,000dwt) |
|
|
22 |
|
|
|
18 |
|
|
|
19 |
|
|
|
15 |
|
|
|
18 |
|
|
|
1.9 |
|
|
|
1.6 |
|
|
|
1.7 |
|
|
|
1.3 |
|
|
|
1.5 |
|
Medium range (25,000 to 45,000dwt) |
|
|
14 |
|
|
|
14 |
|
|
|
8 |
|
|
|
13 |
|
|
|
15 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
0.6 |
|
General purpose (10,000 to 25,000dwt)/
Specialist |
|
|
24 |
|
|
|
13 |
|
|
|
12 |
|
|
|
10 |
|
|
|
6 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
Total |
|
|
67 |
|
|
|
46 |
|
|
|
40 |
|
|
|
39 |
|
|
|
40 |
|
|
|
4.9 |
|
|
|
2.7 |
|
|
|
2.5 |
|
|
|
2.3 |
|
|
|
2.5 |
|
|
Total oil tankers |
|
|
88 |
|
|
|
73 |
|
|
|
63 |
|
|
|
67 |
|
|
|
70 |
|
|
|
6.1 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
5.6 |
|
|
|
6.2 |
|
|
Owned/demise-hired under construction
or on order (oil) [E] |
|
|
1 |
|
|
|
1 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
GAS CARRIERS [A] (At December 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
number of ships |
|
|
thousand cubic metres |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned/demise-hired (LPG) |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
59 |
|
|
|
59 |
|
Time-chartered (LPG) |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
3 |
|
|
|
166 |
|
|
|
136 |
|
|
|
136 |
|
|
|
136 |
|
|
|
145 |
|
|
Total |
|
|
2 |
|
|
|
2 |
|
|
|
3 |
|
|
|
3 |
|
|
|
4 |
|
|
|
166 |
|
|
|
136 |
|
|
|
196 |
|
|
|
195 |
|
|
|
204 |
|
|
|
|
|
[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] |
|
Four of the time-chartered VLCCs are directly manned and managed by Group companies. |
|
[E] |
|
Owned/demise hired new building contracts not in service but due for delivery post December 31, 2006. |
Royal Dutch Shell plc 47
OPERATING AND FINANCIAL REVIEW
Chemicals
OVERVIEW
Chemicals is part of Shells downstream organisation.
The downstream businesses turn crude oil into a range of refined products including fuels,
lubricants and petrochemicals, which they also deliver to market. Chemicals produces and sells
petrochemicals to industrial customers worldwide. The products are widely used in plastics,
coatings and detergents found in items such as textiles, medical supplies and computers.
HIGHLIGHTS
|
|
Good financial performance with segment earnings of $1.1 billion and cash flow from
operations of $1.9 billion. |
|
|
Nanhai petrochemical complex successful commercialisation, world class operation. |
|
|
Final investment decision taken on new world scale ethylene cracker and
mono-ethylene glycol plant in Singapore. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48 Royal Dutch Shell plc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenue (including intersegment sales) |
|
|
40,750 |
|
|
|
34,996 |
|
|
|
29,497 |
|
Purchases (including change in inventories) |
|
|
(35,765 |
) |
|
|
(29,565 |
) |
|
|
(24,362 |
) |
Depreciation |
|
|
(668 |
) |
|
|
(599 |
) |
|
|
(695 |
) |
Operating expenses |
|
|
(3,615 |
) |
|
|
(3,613 |
) |
|
|
(3,205 |
) |
Share of profit of equity accounted
investments |
|
|
494 |
|
|
|
423 |
|
|
|
437 |
|
Other income/(expense) |
|
|
(13 |
) |
|
|
(9 |
) |
|
|
(25 |
) |
Taxation |
|
|
(119 |
) |
|
|
(335 |
) |
|
|
(300 |
) |
|
Segment earnings from continuing operations |
|
|
1,064 |
|
|
|
1,298 |
|
|
|
1,347 |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
(307 |
) |
|
|
(199 |
) |
|
SEGMENT EARNINGS |
|
|
1,064 |
|
|
|
991 |
|
|
|
1,148 |
|
|
|
|
[A] |
|
Segment earnings as disclosed in the table above differ from the segment results
disclosed in Note 10 beginning on page 117. Segment earnings include share of profit of
equity accounted investments, other income/expense and taxation attributable to the
segment. |
2006 COMPARED TO 2005 AND 2004
EARNINGS
Segment earnings in 2006 were $1,064 million, compared to $991 million in 2005, which
included $307 million of losses from discontinued operations; and 2004 earnings of $1,148 million,
which included $199 million of net losses from discontinued operations. 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.
Setting aside the effect of discontinued operations, earnings in 2006 were $234 million lower than
2005. This was due to lower margins and higher depreciation, partly offset by better earnings from
equity accounted investments and lower taxation. 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).
In 2006, sales volumes of chemical products grew by 1% from 2005 mainly due to increased aromatics
trading volumes in base chemicals. Unit proceeds increased by 11% from 2005. However the increase
in feedstock prices was greater, resulting in lower margins (proceeds less cost of feedstock and
energy). Asset utilisation declined by 1% and reflected a heavy planned maintenance programme in
2006. This involved scheduled maintenance turnarounds of major production plants in Europe and in
the USA. Depreciation was $69 million higher due to a $50 million increase in charges for asset
impairments. The impairments reflect changes in the assessment of future returns in relation to the
value of our assets. Operating expenses in 2006 were similar to those of 2005. Lower charges for
legal provisions and costs associated with portfolio activity, such as business exits and
divestments, were offset by higher manufacturing plant expenditure. Reduced taxation reflected
benefits from tax rate changes in Canada and in the Netherlands as well as a settlement of tax exposures in
the Netherlands.
Earnings in 2005 benefited from more favourable margins than seen in 2004, as well as 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 USA. Depreciation decreased by $96 million from 2004
due to lower asset impairments. Higher costs reflected charges for legal provisions, costs
associated with increased portfolio activity, such as project development, business exits and
divestments, as well as higher manufacturing plant expenditure.
OUTLOOK AND STRATEGY
The demand for petrochemicals in 2007 is expected to increase in line with the growth in the
global economy, mainly in Asia Pacific. Globally, new expected industry capacity additions coupled
with the prospect of continued high feedstock and energy costs may limit the opportunities for
improving margins.
The Chemicals strategy continues to focus on our portfolio of crackers and selected first-line
derivatives, which supply bulk petrochemicals to large industrial customers. Our strategy is to
strengthen the existing asset base in the Americas and Europe, and to achieve profitable growth in
Asia Pacific/Middle East.
Chemicals will continue to fully commercialise the Nanhai petrochemical complex joint venture in
China and progress a new world scale petrochemical facility in Singapore. Work continues on
developing more advantaged-feedstock investment opportunities in the Middle East.
The emphasis will be on exploiting Oil Products and Chemicals synergies to increase advantaged
cracker feed, on driving global standards and processes, on fully leveraging technology investment
and on optimising global market positions.
CAPITAL INVESTMENT AND PORTFOLIO ACTIONS
In 2006, capital investment was $877 million up from $599 million in 2005. Capital
expenditure increased by $434 million from last year driven by an increase in investment in
portfolio growth projects, particularly a cracker and mono-ethylene glycol (MEG) plant project in
Singapore for which Shell took the final investment decision, along with higher capitalised
expenditure for planned major plant maintenance and asset integrity programmes. The MEG facility
will include a new world-scale 800,000 tonnes per annum ethylene cracker on Bukom Island and a
750,000 tonnes per annum MEG plant on Jurong Island using Shells proprietary technology.
Construction began in the fourth quarter of 2006. Completion and start-up of the new and modified
facilities is expected in 2009/2010. When complete, the cracker and the new MEG plant will create a
site fully integrated with the 464,000 barrels per day Pulau Bukom refinery (Shell share 100%),
providing feedstock and operating benefits. Additions to equity accounted investments were $156
million less than those last year due to the completion of construction and start-up of the Nanhai
petrochemicals complex in southern China at the end of 2005.
The CNOOC and Shell Petrochemicals Company Limited joint venture (Shell share 50%) started
operation of the Nanhai petrochemicals complex in China. Construction of the complex was completed
on time and on budget. By the end of the first quarter of 2006 all plants were manufacturing
product in accordance with specification and commercial operations began. From start-up the joint
venture made excellent progress operationally and commercially. Production and sales volumes
increased in the course of the year and a total of 1.9 million tonnes of chemicals products were
sold to more than 800 customers in more than 20 provinces in China by the end of 2006. When
operating at full capacity the plant is expected to produce 2.3 million tonnes of chemicals a year
to supply Chinas domestic market.
In order to stay competitive in the longer term we actively review our portfolio of businesses and
assets. As part of our ongoing strategy, we are
|
|
|
COUNTRIES IN WHICH CHEMICALS OPERATE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
Europe
|
|
Africa
|
|
Middle East
|
|
Asia Pacific |
|
|
Denmark
|
|
Kenya
|
|
Saudi Arabia
|
|
Australia |
USA
|
|
France
|
|
South
|
|
United Arab
|
|
China |
|
|
Germany
|
|
Africa |
|
Emirates |
|
Japan |
Latin
America
|
|
Greece
|
|
|
|
|
|
Malaysia |
Argentina
|
|
Italy
|
|
|
|
|
|
New Zealand |
Brazil
|
|
The Netherlands
|
|
|
|
|
|
Philippines |
Chile
|
|
Poland
|
|
|
|
|
|
Singapore |
Colombia
|
|
Spain
|
|
|
|
|
|
South Korea |
Mexico
|
|
Switzerland
|
|
|
|
|
|
Taiwan |
Venezuela
|
|
Turkey
|
|
|
|
|
|
Thailand |
|
|
UK
|
|
|
|
|
|
Vietnam |
The
Caribbean |
|
|
|
|
|
|
|
|
Puerto Rico |
|
|
|
|
|
|
|
|
reviewing whether to sell the Yabucoa petrochemical feedstock plant in Puerto Rico.
RESEARCH AND DEVELOPMENT
Research and development (R&D) and other technical services continue to improve products and
process technologies that provide Shell with sustainable leadership positions in selected chemical
products and intermediates. Improvements in manufacturing processes
achieved by means of
increased feedstock flexibility, product yield, energy efficiency and
plant throughput are
leading to lower production costs at existing facilities and lower investment cost for new
facilities. Customer relationships and market positions are being enhanced through close technical
links with important industrial customers. Current process technologies and assets benefit from
integration with oil refining operations. Longer term R&D focuses on advantaged chemical process
technologies which integrate with upstream conversion technologies and which leverage the Groups
hydrocarbon positions.
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 several joint ventures: Infineum, Saudi Petrochemical Company
(SADAF), CNOOC and Shell Petrochemicals Company Ltd. (CSPCL) (each as described below).
Infineum, a 50:50 joint venture between Group companies and ExxonMobil with manufacturing locations
in seven countries (USA, Mexico, Brazil, Germany, France, Italy, and Singapore), 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.
CSPCL, a 50:50 joint venture between Group companies and CNOOC Petrochemicals Investment Ltd.,
produces a range of petrochemicals, intended primarily for the Chinese markets. The construction of
the Nanhai petrochemicals complex in southern China was completed end 2005 and a successful
start-up in early 2006 has brought the joint venture into full commercial operation.
Royal Dutch Shell plc 49
OPERATING AND FINANCIAL REVIEW
|
|
|
|
SALES VOLUMES BY MAIN PRODUCT CATEGORY [A]
|
|
thousand tonnes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base chemicals |
|
|
14,146 |
|
|
|
13,710 |
|
|
|
14,184 |
|
|
|
13,165 |
|
|
|
10,031 |
|
First-line derivatives |
|
|
8,964 |
|
|
|
8,891 |
|
|
|
9,499 |
|
|
|
9,779 |
|
|
|
9,595 |
|
Other |
|
|
27 |
|
|
|
225 |
|
|
|
477 |
|
|
|
164 |
|
|
|
1,767 |
|
|
Total |
|
|
23,137 |
|
|
|
22,826 |
|
|
|
24,160 |
|
|
|
23,108 |
|
|
|
21,393 |
|
|
|
|
|
|
SALES VOLUMES BY REGION
|
|
thousand tonnes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
9,361 |
|
|
|
10,018 |
|
|
|
10,159 |
|
|
|
9,902 |
|
|
|
9,077 |
|
Other Eastern Hemisphere |
|
|
5,673 |
|
|
|
5,252 |
|
|
|
5,526 |
|
|
|
5,397 |
|
|
|
4,672 |
|
USA |
|
|
7,464 |
|
|
|
6,893 |
|
|
|
7,819 |
|
|
|
7,108 |
|
|
|
6,970 |
|
Other Western Hemisphere |
|
|
639 |
|
|
|
663 |
|
|
|
656 |
|
|
|
701 |
|
|
|
674 |
|
|
Total |
|
|
23,137 |
|
|
|
22,826 |
|
|
|
24,160 |
|
|
|
23,108 |
|
|
|
21,393 |
|
|
|
|
|
|
REVENUE BY GEOGRAPHICAL AREA [B]
|
|
$ million |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
9,642 |
|
|
|
8,981 |
|
|
|
7,873 |
|
|
|
5,617 |
|
|
|
3,994 |
|
Other Eastern Hemisphere |
|
|
5,538 |
|
|
|
4,640 |
|
|
|
4,530 |
|
|
|
3,092 |
|
|
|
2,324 |
|
USA |
|
|
7,669 |
|
|
|
6,564 |
|
|
|
6,159 |
|
|
|
4,369 |
|
|
|
3,548 |
|
Other Western Hemisphere |
|
|
758 |
|
|
|
735 |
|
|
|
616 |
|
|
|
486 |
|
|
|
379 |
|
|
Total chemical products revenue |
|
|
23,607 |
|
|
|
20,920 |
|
|
|
19,178 |
|
|
|
13,564 |
|
|
|
10,245 |
|
Non-chemical products |
|
|
4,124 |
|
|
|
2,998 |
|
|
|
2,311 |
|
|
|
1,622 |
|
|
|
1,245 |
|
|
Total |
|
|
27,731 |
|
|
|
23,918 |
|
|
|
21,489 |
|
|
|
15,186 |
|
|
|
11,490 |
|
|
|
|
|
|
ETHYLENE CAPACITY GROUP
AND EQUITY ACCOUNTED INVESTMENTS[C]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominal capacity (thousand tonnes/year) |
|
|
6,178 |
|
|
|
6,414 |
|
|
|
6,701 |
|
|
|
6,203 |
|
|
|
6,023 |
|
Utilisation (%) |
|
|
82 |
|
|
|
86 |
|
|
|
87 |
|
|
|
90 |
|
|
|
92 |
|
|
|
|
[A] |
|
Excluding volumes sold by equity accounted investments, chemical feedstock trading and by-products. |
|
[B] |
|
Excluding revenue from equity accounted investments, chemical feedstock trading and intersegment revenue. |
|
[C] |
|
Data includes Group share of capacity entitlement (offtake rights) that may be different from nominal Group equity interest. |
At December 31, 2006, Group companies had major interests in chemical manufacturing plants,
as described below.
EUROPE
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 diisobutylene. 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 the Groups 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.
The Netherlands Shell Nederland Chemie B.V. (SNC) (Group interest 100%) manufactures solvents,
methyl tertiary butyl ether, brake fluids, glycol ethers, urethanes (polyols), isoprenes and
butene-1 at the Pernis facility. SNC operates at Pernis a polypropylene plant (Basell) and an
Elastomers (Kraton) plant on behalf of third party companies. SNC manufactures lower olefins,
benzene, butadiene, ethyl benzene, ethylene glycols, ethylene oxide, and styrene monomer/propylene
oxide (MSPO/1 plant) at the Moerdijk facility. SNC operates at Moerdijk a VEOVA (Hexion) plant and
styrene/propylene (MSPO/2, Ellba) plant on behalf of third party companies. 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
50 Royal Dutch Shell plc
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 are China
National Offshore Oil Corporation (CNOOC) and the Guangdong Investment & Development Company.
Construction of the world scale production facilities designed to produce 2.3 million metric tonnes
of petrochemical products per annum was completed end 2005. The complex is located in the Daya Bay
Economic and Technological Development Zone in the Huizhou Municipality of Guangdong Province.
Following a successful start-up in early 2006, the joint venture is now fully operational. CSPCL
produces and markets 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. These products are primarily marketed
domestically to meet the demand in the Chinese market for petrochemicals.
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 plants capable of producing 3.6 mtpa of crude industrial ethanol,
ethylene dichloride, caustic soda, styrene, and methyl tertiary butyl ether. The marketing arms of
both partners handle the international marketing of SADAF products, except for MTBE, which is
marketed by SABIC. Our marketing effort is co-ordinated 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 metric tonnes per annum of ethylene and 500,000 metric tonnes per annum of propylene.
Ethylene Glycols (Singapore) Pte. Ltd. (Group interest 70%) owns and operates an ethylene
oxide/glycols plant. Shell Chemicals Seraya 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 (SEPL). SEPL
received Group approval to build a world-scale ethylene cracker and MEG plant in Singapore in July
2006 with plant production expected to come on-stream in 2009/2010.
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, RM17 catalyst, propanediol, and additives.
These chemical products are used in many consumer and industrial products and processes, primarily
in the USA.
Shells major chemicals joint ventures in the USA are: Infineum, a 50:50 joint venture between
Group companies and ExxonMobil, which formulates, manufactures, and markets high-quality additives
for use in fuels, lubricants, and specialty additives and components; and Sabina Petrochemicals
LLC, a joint venture owned by SCLP (62%), BASF Corporation (23%) and Total Petrochemicals USA, Inc.
(15%) which produces butadiene at their facility at Port Arthur, Texas.
OTHER WESTERN HEMISPHERE
Canada Shell Chemicals Canada Ltd. (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.
A third party, Basell Canada Inc., operates the isopropyl alcohol plant at Sarnia on behalf of
Shell Chemicals Canada Ltd.
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 chemical plant. The
facility also produces gasoline, diesel, jet fuel and residual fuels, primarily for use in Puerto
Rico.
Royal Dutch Shell plc 51
OPERATING AND FINANCIAL REVIEW
Other industry segments
and Corporate
OVERVIEW
Other
industry segments include Renewables, Hydrogen and
CO2 co-ordination
activities. Renewables develops business opportunities based on renewable sources of energy
including wind and solar while Hydrogen works towards the introduction of hydrogen as a commercial
fuel. The CO2 group co-ordinates efforts to address carbon dioxide emissions across
Shells businesses and our research in technology to capture and store such emissions. Corporate
represents the functional activities supporting the Group.
Shell Renewables aims to develop at least one material alternative energy business for Shell. Its
activities include growth in the more mature wind energy business, and developing emerging
opportunities such as new solar technology and hydrogen. Shell Wind Energy develops and operates
onshore and offshore wind farms with activities in the USA, the UK, Germany, France, Spain, the
Netherlands and China. In 2006, it brought its first significant offshore wind farm into operation.
Shell Solar focuses mainly on advanced solar panel technology and is developing a CIS thin-film
solar plant in Germany with joint venture partner Saint-Gobain. Shell Hydrogen is developing
projects with the aim of introducing hydrogen as a commercial product into the road transportation
and industrial sectors. It has developed demonstration projects in the USA, Japan, Iceland,
Luxembourg, the Netherlands and China.
HIGHLIGHTS
|
|
108 megawatt (MW) Offshore Windpark Egmond aan Zee in operation in the Netherlands. |
|
|
New thin-film solar joint venture established with Saint-Gobain. |
|
|
Partnership initiated with Connexxion and MAN to develop worlds largest hydrogen
public transport operation in Rotterdam, the Netherlands. |
|
|
Halten project: A potential carbon dioxide capture and storage project in Norway
with Statoil. |
52 Royal Dutch Shell plc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS [A]
|
$ million |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
Other |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
industry |
|
|
|
|
|
|
industry |
|
|
|
|
|
|
industry |
|
|
|
|
|
|
segments |
|
|
Corporate |
|
|
segments |
|
|
Corporate |
|
|
segments |
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings from
continuing operations |
|
|
(37 |
) |
|
|
314 |
|
|
|
(202 |
) |
|
|
(321 |
) |
|
|
(145 |
) |
|
|
(946 |
) |
|
Income/(loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35 |
) |
|
SEGMENT EARNINGS |
|
|
(37 |
) |
|
|
314 |
|
|
|
(202 |
) |
|
|
(321 |
) |
|
|
(145 |
) |
|
|
(981 |
) |
|
|
|
[A] |
|
Segment earnings as disclosed in the table above differ from the segment results
disclosed in Note 10 beginning on page 117. Segment earnings include share of profit of
equity accounted investments, other income/expense and taxation attributable to the
segment. |
2006 COMPARED TO 2005 AND 2004
Other industry segments (OIS) covers the combined results of our Renewables and Hydrogen
businesses and CO2 co-ordination activities. Corporate is a non-operating
segment consisting primarily of interest expense on debt and certain other non-allocated costs.
OIS and Corporate results were a gain of $277 million compared to a loss of $523 million a year
ago. Net interest income, currency exchange results and corporate tax improved during the year
2006. Included in 2006 were net charges of $206 million related to a legal provision partly offset
by corporate tax credits versus net charges of $148 million in 2005 mainly in OIS. While income
from operating assets is improving, the level of business development costs associated with growing
the portfolio increased, contributing to an overall loss in 2006 in OIS.
The 2005 and 2004 earnings of OIS included one-off charges of $151 million and $42 million
respectively. Compared to 2004, corporate charges dropped due to a decrease in net interest expense
and shareholder costs, coupled with an increase in tax recoveries, which were partly offset by
additional insurance costs and exchange losses.
CAPITAL INVESTMENT AND PORTFOLIO ACTIONS
Shell aims to develop at least one alternative energy source such as wind, hydrogen or
advanced solar technology, into a substantial business. To that end, we invested in new projects
across our broad portfolio of activities.
On October 5, 2006, Offshore Windpark Egmond aan Zee delivered its first kilowatt-hours of clean
electricity to households in the Netherlands. This, the first Dutch offshore wind project, has 36
turbines with an overall capacity of 108 MW. It is a 50:50 joint venture between Shell and Nuon. We
also made progress with the London Array wind project in the outer Thames Estuary. If approved,
this project will have up to 271 turbines and could generate up to 1,000 MW of electricity (Shell
share 33%).
We are one of the largest wind energy developers in the USA. We extended our presence in this
market during 2006 by making an investment decision in the fourth quarter on the 164 MW Mount Storm
wind park in Virginia (Shell share 50%).
In solar we have revised our approach to focus on advanced copper indium diselenide (CIS) thin-film
technology. In October 2006, Shell formed a joint venture with Saint-Gobain to develop a 20 MW CIS
thin film technology plant in Germany.
Shell divested its crystalline silicon business activities to SolarWorld AG in mid-2006.
Manufacturing facilities, sales and marketing, and silicon research
and development activities in Germany, Singapore, South Africa and the USA have transferred to
SolarWorld.
Shell Hydrogen continued its work to promote the development of the infrastructure and technology
that will help hydrogen play its part in meeting future energy needs. Towards this goal, Shell
Hydrogen announced its plan to advance hydrogen as a future road transport fuel jointly with Total
France, BMW Group, DaimlerChrysler AG, Ford Motor Company, General Motors Europe AG, MAN
Nutzfahrzeuge AG and Volkswagen AG.
Shell Hydrogen, in partnership with Connexxion Holding N.V. and MAN Truck & Bus Company N.V.,
announced a project to create the worlds largest hydrogen-fuelled public transport operation in
Rotterdam, the Netherlands. Shell Hydrogen continued development of demonstration projects in the
USA, and with Tongji University in China.
Our hydrogen filling stations are present in Asia, Europe and the USA.
Shell CO2 seeks to develop solutions to address Shells CO2 emissions. In the
Halten Project, in agreement with Statoil, Shell is working towards the
potential use of CO2 for enhanced oil recovery offshore. The concept involves capturing
CO2 from power generation, piping it offshore and injecting it in
the Shell-operated Draugen and the Statoil-operated Heidrun fields, resulting
in increased energy production with minimised CO2 impact. In a partnership
with Stanwell Corporation, a project was initiated in Queensland Australia, to produce near
zero-emission electricity from coal by applying Shells coal
gasification technology together with re-injecting the CO2 in saline aquifers
(project ZeroGen). Both of these projects are in the early feasibility study phase.
|
|
|
|
|
COUNTRIES IN WHICH OTHER INDUSTRY SEGMENTS OPERATE
|
USA
|
|
Europe |
|
Asia Pacific |
|
|
France
|
|
China |
Canada |
|
Germany |
|
India |
|
|
Iceland |
|
Indonesia |
|
|
Luxembourg |
|
Japan |
|
|
The Netherlands
|
|
Philippines |
|
|
Spain
|
|
Singapore |
|
|
UK
|
|
Sri Lanka |
BUSINESS AND PROPERTY
Shell WindEnergy continues to focus on developing and operating wind farms, with a focus on
Europe and North America. Shell currently has interest in wind projects around the world with a
capacity of 850 MW (415 MW based on Shell equity interest).
Shell Solar
focuses on advanced solar panel technology, including CIS thin-film. In 2006 we formed a joint
venture with glassmaker Saint-Gobain, AVANCIS, to develop the next generation of this technology.
In November AVANCIS began construction of a 20 MW plant to manufacture CIS solar panels.
Shell Hydrogen is developing projects with the aim of introducing hydrogen as a commercial product
into road transportation and continues to participate in selected demonstration projects in the
USA, Europe and Asia. Shell is also exploring the development of stationary hydrogen power and
integrated manufacturing projects.
Shells research and development (R&D) activities are central to a technology programme
designed to discover, develop, demonstrate and deploy new technology in its upstream and downstream businesses as well as
Renewables, Hydrogen and CO2. In 2006, the Groups R&D costs (including depreciation)
were $885 million. This is up from $588 million in 2005 and $553 million in 2004. If field tests
and involvement in third party technology are included, the total investment in 2006 increases to
approximately $1.2 billion.
Shells R&D programmes focus primarily on creating technological solutions to increase access to
hydrocarbon resources, develop differentiated products and improve capital, operating and health,
safety and environmental performance of all of its businesses and assets. Exploration & Production,
Gas & Power, Oil Products, Chemicals and Renewables, Hydrogen and CO2 share these
objectives as the Group seeks to optimise its R&D investments to meet the energy demands of the
future efficiently and responsibly.
Group R&D programmes operate through a worldwide network of laboratories, with major efforts
concentrated in the Netherlands and the USA. Other laboratories and/or technology centres are
located in the UK, Belgium, Canada, France, Germany, India, Japan, Norway, Oman, Qatar and
Singapore.
Note that the reporting of the Groups R&D activities are included in the OFR sections of the
businesses.
Royal Dutch Shell plc 53
Key performance indicators
OVERALL PERFORMANCE SCORECARD
The Group measures its performance through a number of key performance indicators that intend
to evaluate the overall performance of the Group from a financial, efficiency, social and
sustainable development perspective. In addition to a number of key performance indicators the
Group monitors and manages the businesses by means of detailed parameters.
The Groups future oil and gas production depends on the success of very large projects that
require significant human and capital resources over longer periods of up to 10 to 30 years.
The key performance indicators and parameters do not necessarily reflect the long-term performance
of the Group although these might provide an impression of performance.
The Group Scorecard highlights four key performance factors which together provide a summarised
overview of the Groups performance. The four key performance indicators are measured on a
quarterly basis.
As explained on page 87 of the Directors Remuneration Report the Scorecard is also used to
determine remuneration for staff, Senior Management and Executive Directors.
|
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|
|
|
|
|
|
GROUP SCORECARD |
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
1) Total Shareholder Return |
|
|
10.9 |
% |
|
|
19.2 |
% |
2) Cash flow from operations ($ billion) |
|
|
31.7 |
|
|
|
30.1 |
|
3) Operational efficiency: |
|
|
|
|
|
|
|
|
Oil and Gas production (thousands boe/day) |
|
|
3,473 |
|
|
|
3,518 |
|
LNG sales (million tonnes) |
|
|
12.12 |
|
|
|
10.65 |
|
Refining unplanned downtime |
|
|
4.9 |
% |
|
|
4.0 |
% |
Chemical plant availability |
|
|
90.2 |
% |
|
|
82.2 |
% |
4) Sustainable development (TRCF) [A] |
|
|
2.3 |
|
|
|
2.5 |
|
|
|
|
[A] |
|
Please see page 67 for a description of TRCF. |
TOTAL SHAREHOLDER RETURN (25% SCORECARD WEIGHTING)
Total Shareholder Return (TSR) is measured as the sum of the difference between the share
price at the start of the year and the share price at the end of the year plus the cash value of
dividends paid during the calendar year (gross and reinvested quarterly). The TSR is compared
against other major integrated oil companies and provides therefore a benchmark of how the company
is performing against its industry peers.
CASH FLOW FROM OPERATING ACTIVITIES (25% SCORECARD WEIGHTING)
Cash flow from operating activities is considered a measure that reflects the Groups ability
to generate funding from operations for its investing and financing activities and is
representative of the realisation of value for shareholders from the
Group operations. The Consolidated Statement of Cash Flows on page 107 shows the components of cash flow.
OPERATIONAL EFFICIENCY (30% SCORECARD WEIGHTING)
Within each of the different businesses, operational performance is measured by means of
detailed parameters that are combined into a business dashboard. Operational excellence of
Exploration & Production, Gas & Power, Oil Products and Chemicals is measured quarterly. The four
key indicators for the businesses are production for Exploration & Production, LNG sales for Gas &
Power, unplanned downtime for Oil Products and technical plant availability for Chemicals.
SUSTAINABLE DEVELOPMENT (20% SCORECARD WEIGHTING)
As well as measuring financial performance and efficiency, the Group uses various indicators
to evaluate the Groups contribution to Sustainable Development. This Report discusses on pages
62-66 the Groups priorities with regards to staff and highlights key performance indicators such
as greenhouse gas emissions, use of flaring and energy use in its businesses and assets.
Safety remains a key topic in the Group and is measured by the number of injuries and fatal
accidents, as discussed on page 67. It is the aim of the Group to work closely with customers, partners and policymakers to advance
more efficient and sustainable use of energy and natural resources.
In addition to the four key performance indicators that determine the Groups Scorecard, additional
financial indicators are used to evaluate the Groups performance including:
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL INDICATORS |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income for the period ($ million) |
|
|
26,311 |
|
|
|
26,261 |
|
|
|
19,257 |
|
Return on average capital employed [A] |
|
|
23.4 |
% |
|
|
25.6 |
% |
|
|
20.1 |
% |
Gearing at December 31 |
|
|
14.8 |
% |
|
|
13.6 |
% |
|
|
17.5 |
% |
|
|
|
[A] |
|
Capital employed consists of total equity, current debt and non-current debt. |
INCOME FOR THE PERIOD
The
Consolidated Statement of Income on page 104 provides further information on income for
the period. The Summary of Group results on pages 16-17 of the Operating and Financial Review as
well as the discussion of segment results on pages 18-53 provide further information on the
contribution of the businesses to income.
RETURN ON AVERAGE CAPITAL EMPLOYED (ROACE)
ROACE measures the efficiency of the Groups utilisation of the capital that it employs. In
this calculation, ROACE equals the income attributable to shareholders plus interest expense, less
tax and minority interest share, as a percentage of the average of Royal Dutch Shells share of
closing capital employed [A] and the opening capital employed one year earlier. The tax
rate and the minority interest components are derived from calculations at the published segment
level. Between 2004 and 2006, ROACE has moved within a 20-25% range, mainly caused by strong income
generation. A significant increase in capital employed of 18% between 2005 and 2006 resulted in a
reduction in ROACE compared to 2005.
54 Royal Dutch Shell plc
|
|
|
COMPONENTS OF ROACE CALCULATION
|
|
$ million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to shareholders |
|
|
25,442 |
|
|
|
25,311 |
|
|
|
18,540 |
|
Interest expense after tax and minority interest |
|
|
662 |
|
|
|
602 |
|
|
|
751 |
|
ROACE numerator |
|
|
26,104 |
|
|
|
25,913 |
|
|
|
19,291 |
|
Capital
employed opening [A] |
|
|
102,917 |
|
|
|
99,815 |
|
|
|
92,505 |
|
Capital
employed closing [A] |
|
|
120,235 |
|
|
|
102,917 |
|
|
|
99,815 |
|
Capital
employed average |
|
|
111,576 |
|
|
|
101,366 |
|
|
|
96,160 |
|
|
ROACE |
|
|
23.4 |
% |
|
|
25.6 |
% |
|
|
20.1 |
% |
|
GEARING
The gearing ratio is a measure of the Groups financial leverage reflecting the degree to
which the operations of the Group are financed by debt and certain other off-balance sheet
obligations (see Note 19D on page 130). The amount of debt that the Group will commit to depends on
cash inflow from operations, divestment proceeds and cash outflow in the form of capital
investment[A] (including acquisitions), dividend payments and share repurchases. As
described in the section Liquidity and capital resources
(on pages 56-58), the Group has a
central financing and debt programme currently containing four different debt instruments. The
Group aims to maintain an efficient balance sheet to be able to finance investment and growth,
after the funding of dividends.
During 2005 the gearing ratio decreased from 17.5% to 13.6% and increased in 2006 to 14.8%. Higher
oil prices in 2005 compared with 2004 caused reduced debt levels and as a result a lower gearing
ratio.
|
|
|
[A] |
|
Capital investment consists of capital expenditure plus exploration expense and
new equity in equity accounted investments. Capital expenditure and exploration expense
are further defined on page 23. |
OPERATING AND FINANCIAL REVIEW
2006 COMPARED TO 2005 AND 2004
OVERVIEW
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, divestments and other portfolio changes can affect the
comparability of cash flows in the year of the transaction.
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 cash flow of the
Group. 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
impact of natural gas prices. Changes, therefore, 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 USA serve as benchmarks in the
Exploration & Production business.
In the longer term, reserve replacement of conventional oil and gas and unconventional mining
reserves 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.
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 historical crude oil prices.
STATEMENT OF CASH FLOWS
Cash flow provided by operating activities reached a record level of $31.7 billion in 2006
compared with $30.1 billion in 2005 and $26.5 billion in 2004. Income in 2006 compared to 2005
remained the same at $26.3 billion up from $19.3 billion in 2004, reflecting continuing high
realised prices in Exploration & Production and high refining margins in Oil Products.
|
|
|
|
|
|
|
|
|
|
|
|
|
EXTRACT FROM CASH FLOW STATEMENT
|
$ billion |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operations |
|
|
31.7 |
|
|
|
30.1 |
|
|
|
26.5 |
|
Proceeds from sales of assets |
|
|
1.6 |
|
|
|
2.3 |
|
|
|
5.1 |
|
Proceeds from sales of equity
accounted investments |
|
|
0.3 |
|
|
|
4.3 |
|
|
|
1.3 |
|
Cash flow utilised for: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure |
|
|
22.9 |
|
|
|
15.9 |
|
|
|
13.6 |
|
Debt repayment |
|
|
2.2 |
|
|
|
2.7 |
|
|
|
6.4 |
|
Dividends paid to shareholders |
|
|
8.1 |
|
|
|
10.6 |
[A] |
|
|
7.4 |
[A] |
Repurchases of shares |
|
|
8.2 |
|
|
|
5.0 |
|
|
|
0.8 |
|
|
|
|
[A] |
|
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:
Royal Dutch $4.6 billion,
Shell Transport $2.8 billion). |
FINANCIAL CONDITION AND LIQUIDITY
The Groups financial position is robust, and we returned over $16 billion to our
shareholders through dividends and buybacks in 2006.
Cash and cash equivalents amounted to $9.0 billion at the end of 2006 (2005: $11.7 billion). Total
short and long-term debt rose $2.9 billion in the year. Total debt at the end of 2006 amounted to
$15.8 billion. The total debt outstanding (excluding leases) at December 31, 2006 will mature as
follows: 51% in 2007, 18% in 2008, 8% in 2009, 9% in 2010 and 14% in 2011 and beyond.
The Group currently satisfies its funding requirements from the substantial cash generated within
its business and through issuance of external debt. Our external debt is principally financed from
the international debt capital markets through two commercial paper programmes (CP
programmes), a euro medium-term note programme (EMTN programme) and a US universal shelf
registration (US shelf), each guaranteed by Royal Dutch Shell plc.
The central debt programmes and facilities now consist of:
|
|
a $10 billion 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 270 days; |
|
|
a $10 billion 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 is limited to 397 days; |
56 Royal Dutch Shell plc
|
|
a $10 billion euro medium-term note programme; and |
|
|
|
a $10 billion US universal shelf registration statement. |
Under the debt programmes mentioned above, the Group made the following issuances. In 2006 some
$3.7 billion of new term debt was issued with maturities ranging from 18 months to 5.5 years more
than offsetting some $1.2 billion of maturing term debt. Term debt issuance included a 5 year $1
billion inaugural drawdown from the US shelf and some $2.7 billion issued from the EMTN Programme.
All CP, EMTN and US shelf issuance was undertaken by Shell International Finance B.V. (SIF BV), and
guaranteed by Royal Dutch Shell plc. Fuller disclosure on debt issued including maturity profile
and fixed/floating rate characteristics is included in Note 19. Certain joint venture operations
and subsidiary undertakings with minority interests are separately financed.
The Group currently maintains $2.5 billion of committed bank facilities, as well as internally
available liquidity primarily, 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 necessary or 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 2011, with an option to extend to 2012. The Group expects to be able to renew or
increase 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 June 12, 2006, Moodys Investors Services (Moodys) affirmed the Aa1 long term issuer
rating of Royal Dutch Shell plc, and of the guaranteed programmes/outstanding debt securities of
its issuance subsidiaries Shell International Finance B.V., Shell Finance (Netherlands) B.V. and
Shell Finance (U.K.) P.L.C., and changed its outlook on the credit from negative to stable.
Standard & Poors Ratings Services (S&P) continues to rate the Group AA and to maintain a stable
outlook on the credit. Short term credit ratings of the commercial paper programmes remain
unchanged at Prime-1, and A-1+ from Moodys and S&P respectively.
All central debt programmes and facilities continue to operate under the guarantee of Royal Dutch
Shell plc, with all debt issuance in 2006 undertaken by SIF BV.
CAPITAL INVESTMENT AND DIVIDENDS
After servicing outstanding debt, the Groups first priority for applying our cash is the
dividend. Up to and including the fourth quarter 2006 interim dividend, the dividend was declared
in euro, and per share increases in dividend were aligned with European inflation over time.
On February 1, 2007 the Group announced that, effective from the first quarter 2007, dividends will
be declared in US dollars and it expects that the first quarter 2007 interim dividend will be $0.36
per share, an increase of 14% over the US dollar dividend for the same period in 2006. The first
quarter 2007 interim dividend will be declared on May 3, 2007.
Royal Dutch Shells dividend policy of growing dividend at least in line with inflation over a
number of years has not changed. Going forward the inflation level will be based on inflation
levels in global, developed, economies, rather than a blend of European inflation rates. Dividend
growth in future will be measured in US dollars.
Group companies capital expenditure, exploration expense and new investments in equity accounted
investments increased by $7.5 billion to $24.9 billion in 2006.
Exploration & Production expenditures of $17.9 billion (2005: $12.0 billion) accounted for more
than half the total capital investment. Gas & Power accounted for $2.2 billion (2005: $1.6
billion). Oil Products investment amounted to $3.5 billion (2005: $2.8 billion). Chemicals
investment was $0.9 billion (2005: $0.6 billion). Investment in other industry segments was $0.4
billion (2005: $0.3 billion).
After dividends and capital investment, the priority for using cash generated is to maintain a
strong and flexible 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.
Share buyback plans will be reviewed periodically, and are subject to market conditions and the
capital requirements of the company. A resolution will be submitted to the 2007 AGM to seek
shareholder approval for the company to make such market purchases of its ordinary shares, together
with an explanation that shares so repurchased may, at the companys discretion, be either held in
treasury or cancelled.
The Group announced on February 9, 2007 that it has filed its formal offer to acquire all the
issued and outstanding common shares of Shell Canada Limited other than common shares already held
by the Group or its affiliates, with securities regulators in Canada.
In January 2007 the Group made an offer to the shareholders of Shell Canada Limited to acquire all
of the outstanding common shares not owned by the Group at a cash price of C$45 per share. The
offer would value Shell Canadas fully diluted minority share capital at approximately C$8.7
billion (approximately $7.5 billion).
In December 2006 the Group, Gazprom, Mitsui & Co. and Mitsubishi Corporation signed a protocol to
bring Gazprom into the Sakhalin Energy Investment Company Ltd. (SEIC) as the leading shareholder.
Under the terms of the protocol, Gazprom will acquire a 50% interest plus one share in SEIC for a
total cash purchase price of $7.45 billion of which Shell is expected to receive approximately $4.1
billion. The current SEIC partners will each dilute their interests by 50% to accommodate this
transaction, with a proportionate share of the purchase price. Shell will retain a 27.5% interest,
with Mitsui and Mitsubishi holding 12.5% and 10% interests, respectively.
GUARANTEES AND OTHER OFF-BALANCE SHEET OBLIGATIONS
Guarantees at December 31, 2006 were $2.8 billion (2005: $2.9 billion). At December 31, 2006,
$2.0 billion were guarantees of debt of associated companies, $0.1 billion were guarantees for
customs duties and $0.7 billion were other guarantees. Guarantees of debt of equity accounted
investments mainly related to Nanhai ($1.2 billion) and wind farms in the US and the Netherlands
($0.5 billion).
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.
Royal Dutch Shell plc 57
OPERATING AND FINANCIAL REVIEW
Our strong cash position in 2006, with operational cash flow of $31.7 billion, provided us
the financial flexibility both to fund capital investment and to return cash to shareholders.
The dividends paid by Royal Dutch Shell in respect of the financial year ending December 31, 2005
were the basis for determining the dividends for 2006. On a dividend per share basis the 2006
dividend (1.00 per Class A and Class B share) represented an increase of 9% over 2005 (0.92 per
Class A and Class B share). In total, Royal Dutch Shell returned $8.1 billion to shareholders in
quarterly dividends in 2006 (2005: $10.6 billion was paid following the change in 2005 to a
quarterly dividend cycle).
SHARE REPURCHASES
During 2006, Royal Dutch Shell purchased approximately 245 million shares of its common stock
for cancellation at a gross cost of $8.2 billion. These purchases were to reduce the number of
shares outstanding. Shares outstanding have reduced 5.6% since the commencement of share
repurchases following the Unification into Royal Dutch Shell and successful completion of the Royal
Dutch minority tender (August 2005).
The table provides an overview