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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, 2007

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


Title of each class		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		New York Stock Exchange

American Depositary Receipts representing Class B ordinary shares of the issuer of an aggregate nominal value of €0.07 each		New York Stock Exchange

5.625% Guaranteed Notes due 2011 4.95% Guaranteed Notes due 2012 5.2% Guaranteed Notes due 2017		New York Stock Exchange New York Stock Exchange New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act

None


Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Outstanding as of December 31, 2007: 3,486,221,746 RDS Class A ordinary shares of the nominal value of €0.07 each. 2,724,135,015 RDS Class B ordinary shares of the nominal value of €0.07 each.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.		þ Yes	o No

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.		o Yes	þ No

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.

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.		þ Yes	o No

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):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP o International Financial Reporting Standards as issued by the International Accounting Standards Board		þ	Other o

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.	Item 17 o		Item 18 o

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).		o Yes	þ No

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, 2007

Royal Dutch Shell
Our Business

With 104,000 employees in more than 110 countries and territories, Shell plays a key role in helping to meet the world’s growing demand for energy in economically, environmentally and socially responsible ways.

Our Exploration & Production business searches for and recovers oil and natural gas around the world. Many of these activities are carried out as joint venture partnerships, often with national oil companies.

Our Gas & Power business liquefies natural gas and transports it to customers across the world. Its gas to liquids (GTL) process turns natural gas into cleaner-burning synthetic fuel and other products. It develops wind power to generate electricity and invests in solar power technology. It also licenses our coal gasification technology, a cleaner way of turning coal into chemical feedstocks and energy.

Our Oil Sands business, the Athabasca Oil Sands Project, extracts bitumen from oil sands in Alberta, western Canada and converts it to synthetic crude oils.

Our Oil Products business makes, moves and sells a range of petroleum-based products around the world for domestic, industrial and transport use. Its Future Fuels and CO₂ business unit develops fuels such as biofuels and hydrogen and synthetic fuels made from natural gas (GTL Fuel) and potentially from biomass; and leads company-wide activities on CO₂ management. With 46,000 service stations, ours is the world’s largest single-branded fuel retail network.

Our Chemicals business produces petrochemicals for industrial customers. They include the raw materials for plastics, coatings and detergents used in the manufacture of textiles, medical supplies and computers.

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, 2007, for Royal Dutch Shell plc (“Royal Dutch Shell”, “the Company”) and its subsidiaries. It presents the Consolidated Financial Statements of Royal Dutch Shell (pages 112-161) and the Parent Company Financial Statements of Royal Dutch Shell (pages 182-194). 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, 2007, as filed with the U.S. Securities and Exchange Commission (“SEC”). Cross references to Form 20-F are set out on page 2 of this Report.

In this Report “Shell”, “Shell group” and “Royal Dutch Shell” are sometimes used for convenience where references are made to Royal Dutch Shell and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also used to refer to subsidiaries 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. “Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this Report refer 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 Shell has significant influence but not control are referred to as “associated companies” or “associates” and companies in which Shell 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 term “Shell interest” is used for convenience to indicate the direct and/or indirect equity interest held by Shell 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 subsidiaries 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 “Shell share” is used for convenience to indicate not only the volumes to which subsidiaries are entitled (without deduction in respect of minority interests in subsidiaries) but also the portion of the volumes of equity-accounted investments to which Shell is entitled or which is proportionate to the Shell interest in those companies.

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 both International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and IFRS as adopted by the European Union. IFRS as defined above includes International Financial Reporting Interpretations Committee (“IFRIC”) interpretations.

Prior to the Shell’s 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 2003 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 3) 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 management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as “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 Shell’s 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, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. 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 Shell’s 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 Shell are available to the public at the SEC website at www.sec.gov (commission file number 001-32575). 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.

ii Royal Dutch Shell plc

REVIEW OF THE YEAR

Unification of Royal Dutch and Shell Transport

Selected financial data

Chairman’s message

Chief Executive’s review

OPERATING AND

Business and market overview

Research and development

FINANCIAL REVIEW

Risk factors

Key performance indicators

Summary of results

Liquidity and capital resources

Exploration & Production

Our people

Gas & Power

Environment and society

Share plans and other matters

Corporate

REPORT OF THE DIRECTORS

The Board of Royal Dutch Shell plc

Report of the Directors

CORPORATE GOVERNANCE

Corporate governance

DIRECTORS’

Directors’ Remuneration Report

REMUNERATION REPORT

REPORTS OF THE

110

Reports of the Independent Auditors

INDEPENDENT AUDITORS

CONSOLIDATED

112

Consolidated Financial Statements

FINANCIAL STATEMENTS

117

Notes to the Consolidated Financial Statements

SUPPLEMENTARY

163

Oil and gas (unaudited)

INFORMATION

170

Oil sands (unaudited)

171

Derivatives and other financial instruments and derivative
commodity instruments (unaudited)

173

Control of registrant (unaudited)

PARENT COMPANY

182

Parent Company Financial Statements

FINANCIAL STATEMENTS

186

Notes to the Parent Company Financial Statements

REPORTS OF THE

195

Reports of the Independent Auditors

INDEPENDENT AUDITORS

ROYAL DUTCH SHELL

197

Royal Dutch Shell Dividend Access Trust Financial Statements

DIVIDEND ACCESS TRUST

202

Notes to the Royal Dutch Shell Dividend Access Trust Financial Statements

FINANCIAL STATEMENTS

ADDITIONAL SHAREHOLDER

204

Additional shareholder information (unaudited)

INFORMATION

EXHIBITS

208

Exhibits

Royal Dutch Shell plc 1

Calculation of Ratio of Earnings to Fixed Charges.

Significant Shell subsidaries as at December 31, 2007.

Section 302 Certification of Royal Dutch Shell plc.

Section 906 Certification of Royal Dutch Shell plc.

Consent of PricewaterhouseCoopers LLP, London.

Consent of PricewaterhouseCoopers LLP, London relating to the Royal Dutch Shell Dividend Access Trust.

Cross Reference to Form 20-F


PART I			PAGES


Item 1.	Identity of Directors, Senior Management and Advisers			N/A
Item 2.	Offer Statistics and Expected Timetable			N/A
Item 3.	Key Information
	A.	Selected financial data		4-5, 207
	B.	Capitalisation and indebtedness		N/A
	C.	Reasons for the offer and use of proceeds		N/A
	D.	Risk factors		13-15
Item 4.	Information on the Company
	A.	History and development of the company		4-5, 10, 17-18, 21-22, 29-33, 35-40, 42-43, 45-48, 55-57, 117, 174-175
	B.	Business overview		10-12, 16-61, 66-75, 163-170
	C.	Organisational structure		3, E2-E4
	D.	Property, plant and equipment		10-12, 16-58, 68-71
Item 4A.	Unresolved Staff Comments			N/A
Item 5.	Operating and Financial Review and Prospects
	A.	Operating results		4-5, 10-12, 16-61
	B.	Liquidity and capital resources		62-65
	C.	Research and development, patents and licences, etc.		22, 36, 42, 46, 55, 59, 82, 121, 126
	D.	Trend information		10-12, 16-21, 34-36, 41-42, 44-45, 54-55
	E.	Off-balance sheet arrangements		64
	F.	Tabular disclosure of contractual obligations		65
	G.	Safe harbour	ii
Item 6.	Directors, Senior Management and Employees
	A.	Directors and senior management		80-85, 175
	B.	Compensation		93, 95-98
	C.	Board practices		82-92
	D.	Employees		66-67
	E.	Share ownership		76-77, 83
Item 7.	Major Shareholders and Related Party Transactions
	A.	Major shareholders		84, 173, 179
	B.	Related party transactions		83,134-135, 181, 203
	C.	Interests of experts and counsel		N/A
Item 8.	Financial Information
	A.	Consolidated Statements and Other Financial Information		50-52, 62, 110-161, 182-194, 195-203, 204-206
	B.	Significant Changes		82,161
Item 9.	The Offer and Listing
	A.	Offer and listing details		173, 204
	B.	Plan of distribution		N/A
	C.	Markets		173, 204
	D.	Selling shareholders		N/A
	E.	Dilution		N/A
	F.	Expenses of the issue		N/A
Item 10.	Additional Information
	A.	Share capital		N/A
	B.	Memorandum and articles of association		86, 106-107, 174-181
	C.	Material contracts		84, 103-104
	D.	Exchange controls		180
	E.	Taxation		180-181
	F.	Dividends and paying agents		N/A
	G.	Statement by experts		N/A
	H.	Documents on display	ii
	I.	Subsidiary Information		N/A
Item 11.	Quantitative and Qualitative Disclosures About Market Risk			90-91, 120, 145-149, 171-172
Item 12.	Description of Securities Other than Equity Securities			N/A


PART II			PAGES


Item 13.	Defaults, Dividend Arrearages and Delinquencies			N/A
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds			N/A
Item 15.	Controls and Procedures			90-92
Item 16.	[Reserved]
Item 16A.	Audit committee financial expert			87
Item 16B.	Code of Ethics			86
Item 16C.	Principal Accountant Fees and Services			77, 88, 158, 203
Item 16D.	Exemptions from the Listing Standards for Audit Committees			86
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers			64


PART III			PAGES


Item 17.	Financial Statements			N/A
Item 18.	Financial Statements			111-161, 196-203
Item 19.	Exhibits			208

2 Royal Dutch Shell plc

Abbreviations

Listed below are the most common abbreviations used throughout this Report.


UNITS OF MEASUREMENT

acre		approximately 0.4 hectares
bcf/d		billion cubic feet per day
boe(/d)		barrels of oil equivalent (per day)
b/d		barrels per day
Btu		British thermal units
(k)dwt		(thousand) deadweight tonnes
mtpa		million tonnes per annum
MW		megawatts
scf		standard cubic feet


PRODUCTS

BTX		benzene, toluene, xylene
GTL		gas to liquids
LNG		liquefied natural gas
LPG		liquefied petroleum gas
NGL		natural gas liquids
MEG		mono-ethylene glycol
PTT		polytrimethylene terephthalate
SM/PO		styrene monomer/propylene oxide


MISCELLANEOUS

ADR		American Depositary Receipt
AGM		Annual General Meeting
CO₂		carbon dioxide
EPC		engineering, procurement and construction
FEED		front-end engineering design
GHG		greenhouse gas
HSE		health, safety and environment
HSSE		health, safety, security and environment
IFRIC	International Financial Reporting Interpretations Committee
IFRS		International Financial Reporting Standards
NGO		non-governmental organisation
NOC		national oil company
OFR		Operating and Financial Review
OPEC		Organization of the Petroleum Exporting Countries
PSA		production-sharing agreement
PSC		production-sharing contract
R&D		research and development
REMCO		Remuneration Committee
SEC		United States Securities and Exchange Commission
TRCF		total recordable case frequency
US GAAP	United States Generally Accepted Accounting Principles
USGC		United States Gulf Coast
WTI		West Texas Intermediate

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.

Royal Dutch Shell plc 3

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) as issued by the International Accounting Standard Board (IASB). Prior to 2004, financial statements prepared in accordance with IFRS are not available. With effect from 2008, the usual five years of selected financial data will be provided.

With effect from 2007, wind and solar activities, which were previously reported within Other industry segments, are reported within the Gas & Power segment and Oil Sands activities, which were previously reported within the Exploration & Production segment, are reported as a separate segment. Prior period financial statements have been reclassified accordingly. During 2007, the hydrogen and CO₂ coordination activities were moved from Other industry segments to the Oil Products segment and all other activities within Other industry segments are now reported within the Corporate segment.


CONSOLIDATED STATEMENT OF INCOME DATA								$ million
	2007		2006		2005			2004
Revenue		355,782		318,845		306,731			266,386
Income from continuing operations		31,926		26,311		26,568			19,491
Income/(loss) from discontinued operations		–		–		(307	)		(234	)

Income for the period		31,926		26,311		26,261			19,257

Income attributable to minority interest		595		869		950			717

Income attributable to shareholders of Royal Dutch Shell plc		31,331		25,442		25,311			18,540


CONSOLIDATED BALANCE SHEET DATA							$ million
	2007		2006		2005		2004
Total assets		269,470		235,276		219,516		187,446
Share capital		536		545		571		604
Equity attributable to shareholders of Royal Dutch Shell plc		123,960		105,726		90,924		86,070

Minority interest		2,008		9,219		7,000		5,313


CAPITAL INVESTMENT							$ million
	2007		2006		2005		2004
Capital expenditure^[A]:
– Exploration & Production		13,723		15,773		10,584		8,559
– Gas & Power		2,951		2,009		1,573		1,370
– Oil Sands		1,931		865		274		140
– Oil Products		3,671		3,363		2,810		2,761
– Chemicals		1,415		821		387		529
– Corporate		414		265		288		207

Total		24,105		23,096		15,916		13,566

Exploration expenses (excluding depreciation and release of currency translation differences)		1,115		949		815		651
New equity in equity-accounted investments		1,472		598		390		681
New loans to equity-accounted investments		380		253		315		377

Total capital investment*		27,072		24,896		17,436		15,275

*comprising
– Exploration & Production		15,919		17,079		11,772		9,569
– Gas & Power		3,532		2,351		1,656		1,652
– Oil Sands		1,931		865		274		139
– Oil Products		3,856		3,457		2,844		2,823
– Chemicals		1,419		877		599		868
– Corporate		415		267		291		224

Total		27,072		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.


EARNINGS PER SHARE								$
	2007		2006		2005			2004
Basic earnings per €0.07 ordinary share		5.00		3.97		3.79			2.74
– from continuing operations		5.00		3.97		3.84			2.77
– from discontinued operations		–		–		(0.05	)		(0.03	)
Diluted earnings per €0.07 ordinary share		4.99		3.95		3.78			2.74
– from continuing operations		4.99		3.95		3.83			2.77
– from discontinued operations		–		–		(0.05	)		(0.03	)

Basic weighted average number of Class A and B shares		6,263,762,972		6,413,384,207		6,674,179,767			6,770,458,950
Diluted weighted average number of Class A and B shares		6,283,759,171		6,439,977,316		6,694,427,705			6,776,396,429

4 Royal Dutch Shell plc


QUARTERLY INCOME DATA (unaudited)																			$ million
	Quarter 1		Quarter 2		Quarter 3		Quarter 4		2007 Year		Quarter 1		Quarter 2		Quarter 3		Quarter 4		2006 Year
Revenue		73,480		84,896		90,703		106,703		355,782		75,964		83,127		84,254		75,500		318,845
Cost of sales		60,666		68,715		76,713		90,603		296,697		61,922		67,838		70,383		62,846		262,989

Gross profit		12,814		16,181		13,990		16,100		59,085		14,042		15,289		13,871		12,654		55,856

Selling, distribution and administrative expenses		3,778		4,120		3,843		4,880		16,621		3,413		4,429		4,126		4,648		16,616
Exploration		272		450		608		382		1,712		281		250		401		630		1,562
Share of profit of equity-accounted investments		1,808		2,138		1,912		2,376		8,234		1,823		1,829		1,358		1,661		6,671
Interest and other income		1,125		747		340		486		2,698		441		228		346		413		1,428
Interest expense		224		270		302		312		1,108		286		275		286		302		1,149

Income before taxation		11,473		14,226		11,489		13,388		50,576		12,326		12,392		10,762		9,148		44,628
Taxation		4,032		5,415		4,448		4,755		18,650		5,310		4,865		4,507		3,635		18,317

Income for the period		7,441		8,811		7,041		8,633		31,926		7,016		7,527		6,255		5,513		26,311

Income attributable to minority interest		160		144		125		166		595		123		203		313		230		869

Income attributable to shareholders		7,281		8,667		6,916		8,467		31,331		6,893		7,324		5,942		5,283		25,442


OTHER CONSOLIDATED DATA										$ million
	2007			2006			2005			2004
Cash flow from operating activities		34,461			31,696			30,113			26,537
Capital expenditure		24,576			22,922			15,904			13,566
Cash flow used in investing activities		14,570			20,861			8,761			5,964
Dividends paid		9,204			8,431			10,849			7,655
Cash flow used in financing activities		19,393			13,741			18,573			13,592
Increase/(decrease) in cash and cash equivalents		654			(2,728	)		2,529			7,094

Income by segment
– Exploration & Production		14,686			14,544			13,577			9,522
– Gas & Power		2,781			2,633			1,378			1,774
– Oil Sands		582			651			661			301
– Oil Products		10,439			7,125			9,982			7,597
– Chemicals		2,051			1,064			991			1,148
– Corporate		1,387			294			(328	)		(1,085	)
– Minority interest		(595	)		(869	)		(950	)		(717	)

Total		31,331			25,442			25,311			18,540

Gearing ratio^[A]		16.6	%		14.8	%		13.6	%		17.5	%

Dividends – declared $/share^[B]		1.44			1.27			1.13			1.07	^[C]


[A]		See Note 19[D] to the Consolidated Financial Statements on page 138.
[B]		From 2007 onwards, dividends are declared in US dollars. 2005 and 2006 dividends were declared in euros and translated, for comparison purposes, to US dollars (based on the dollar dividend of American Depositary Receipts converted to ordinary shares in the applicable period).
[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.


CAPITALISATION TABLE			$ million
	Dec 31, 2007		Dec 31, 2006
Total equity		123,960		105,726

Short-term debt		5,736		6,060
Long-term debt^[A]		9,659		7,005

Total debt^[B]		15,395		13,065

Total capitalisation		139,355		118,791


[A]		Long-term debt excludes $2.7 billion of certain tolling commitments (2006: $2.7 billion).
[B]		As of December 31, 2007, Shell had outstanding guarantees of $1.9 billion (2006: $2.8 billion), of which $0.6 billion (2006: $2.0 billion) related to project financing.

Royal Dutch Shell plc 5

Chairman’s message

It has been another dynamic year for the energy industry, and it will be fascinating to see how it develops in the years to come. There has been a step-change in the world’s energy demand, along with rising concern for the environmental impact of fossil fuel use. Many wonder whether energy can be affordable, clean and secure in the coming decades.

For Shell, three hard truths will determine our business environment. Firstly: demand growth for energy, driven by rising population and living standards. Savings through energy efficiency will help, but net demand growth will be very substantial. Secondly: access to “easy” oil or gas is getting more difficult. It is either already produced or not easily open to international oil companies. Thirdly: the increased use of fossil fuels, especially coal, means emissions of carbon dioxide (CO₂) will rise, making it essential to develop solutions to tackle greenhouse gases. Energy from renewable sources will grow, but it is typically more costly than energy generated from fossil fuels.

In this business environment Shell has a strong strategy based on technology, project management and applying our experience in how to operate with excellence in a responsible way. This enables us to increase our focus on unconventionals, which offer large potential resources but often in environmentally sensitive places. We also continue to focus on downstream refining, base chemicals, clean coal technology and developing at least one substantial business in renewable energy.

Shell has a clear long-term strategy, an ability to use technology and innovation to find and produce oil and gas – sometimes in highly challenging environments – and to turn them into products that are essential to our everyday lives. Technology and good work practice, quite simply, are part of the DNA of Shell people.

As Chairman of Royal Dutch Shell plc, I have visited a number of our major projects and operations and seen how we apply our strategy, technology and imagination to meet the challenges I have described.

For example, our efforts to get the most from the world’s abundant natural gas resources were clear when I visited a North Sea gas production platform, 200 kilometres offshore Aberdeen. Onshore, I met teams from the vast Ormen Lange gas field in Norway and the Corrib gas field project in Ireland. I also saw our real time operations centre at work – one of the advanced ways we keep up round-the-clock monitoring of our global oil and gas production.

At Sakhalin, I was amazed at the complexity of the world’s largest integrated oil and gas project in one of the harshest environments we face. I visited the Athabasca Oil Sands Project in Canada – now part of our downstream operations and important to our plans to increase production from unconventional sources – and saw the mine expansion under construction. And in Qatar, I was impressed by the scale of the Pearl GTL construction site, which will eventually employ 40,000 workers.

On another front, the year has seen record high oil prices and volatility. Our spending on key projects has continued to rise. Our shareholders, of course, want to see good returns on our major investments, such as Pearl GTL and Sakhalin II. They expect Shell to be a first-quartile performer in all areas. And they want to see growth in our company, especially in the upstream. I feel we have a capital investment programme and the people to make good progress towards meeting these expectations.

By continuing to follow our strategy, I believe we can keep delivering what our shareholders want – in 2007, for example, our dividend to shareholders increased 13% on 2006. Equally importantly, we can continue to deliver energy to help the world grow and prosper.

Jorma Ollila
Chairman

6 Royal Dutch Shell plc

Chief Executive’s review

Fittingly for our centenary year, Shell made important strides forward on many fronts in 2007. Our strong focus on delivery and growth again paid off. Our financial performance was satisfactory, with record income of $31.9 billion and the return of $13.4 billion to shareholders. Our reputation generally improved and I would like to express my appreciation to all Shell staff for achieving this.

Safety, however, is the starting point for everything we do. In 2007, we had the fewest number of recordable incidents ever. We continue to strive for continuous improvement in this area. We suffered fewer fatalities among employees and contractors than the year before, but our aim is to achieve zero fatalities. Our improvements to our safety culture during the year – including two global safety days and a major drive to further improve process safety – should help us towards that goal. But constant effort and awareness are needed too.

Our strategy of More Upstream, Profitable Downstream is on track. We pushed ahead with major, integrated long-life projects that once in operation will generate cash for decades to come. Of course, we take into account sustainability, including biodiversity and respect for local communities, when constructing and operating all our assets. During the year we also sold assets that did not fit our strategy.

We welcomed Shell Canada fully into our family with the acquisition of its minority shares. As easy-to-access oil gets rarer, unconventional resources such as Canada’s oil sands will become increasingly important sources of energy. The move will help the Oil Sands business to better integrate bitumen upgrading with our manufacturing operations across North America.

In Nigeria, bright spots were the performance of our offshore operations and the completion of a sixth liquefied natural gas (LNG) train. In the Delta region onshore, however, much of our production again remained shut in because of the security situation. Faced with security and funding problems in our onshore joint venture company, we may have to streamline this operation.

The Sakhalin II venture progressed well and is on course to be a successful mega-project, as we have always believed it would be.

Our Exploration & Production earnings were slightly up on the year before at $14.7 billion. We made 11 notable discoveries of potential resources and secured rights to more than 43,000 square kilometres of acreage, an area around the size of the Netherlands.

Our Gas & Power earnings were $2.8 billion, up 6% on the previous year. Sales of LNG were up 9% at 13.18 million tonnes. In Qatar, construction of our major integrated projects, Pearl GTL and Qatargas 4 LNG, made good progress. We are also well under way with new LNG projects in Australia. In the USA, we decided to proceed with the 100 MW phase II expansion of the Mount Storm wind project.

Our downstream business is hugely important to us, with two out of three Shell people working in our many refineries, chemical plants, supply and distribution, retail operations and, of course, Oil Sands. They performed well in 2007, with total earnings for Oil Sands, Oil Products and Chemicals of $13.1 billion, considerably up on 2006. Trading and Shipping continued to provide significant support to our key businesses.

We continued to invest in major downstream projects such as the 325,000 barrels per day expansion of the Motiva Port Arthur refinery. In China, our Nanhai petrochemical complex enjoyed a successful first full year of operations.

Two new partnerships in next-generation biofuels added an exciting momentum to our work in this area. One is to work on developing super-fast enzymes that can speed up the conversion of organic non-food material into ethanol; the other to work on developing algae as a source of vegetable oil for transport fuel.

Operational excellence, technology and good project management remain central to our efforts to produce more energy from conventional oil and gas and unconventional sources such as oil sands. We must also work to further improve energy efficiency in all our operations, upstream and downstream. Our differentiated fuels, such as V-Power, will continue to help us lead in the products we offer our retail customers. We aim to develop our ability to capture and safely store carbon dioxide underground, and we are working with governments to establish the incentives and policies needed to make this technology viable.

Our performance in 2007 leaves us in good health and shows our ability to deliver results to our shareholders and partners. We have recruited many new people as an investment for our future, knowing that some of our experienced people will be retiring in the coming years. I would like to thank our people for their hard work and dedication. I am proud of their contribution.

To meet the challenges we see in our business environment, I believe we have good people and assets, a healthy financial position and a clear strategy. Delivery is on track. My wish is that 2008 is again one of further delivery and growth, achieved in a responsible way.

Jeroen van der Veer
Chief Executive

Royal Dutch Shell plc 7

8 Royal Dutch Shell plc



OPERATING AND	10	Business and market overview	59	Research and development
FINANCIAL REVIEW	13	Risk factors	60	Key performance indicators
	16	Summary of results	62	Liquidity and capital resources
	19	Exploration & Production	66	Our people
	34	Gas & Power	68	Environment and society
	41	Oil Sands	72	Environmental data
	44	Oil Products	75	Social data
	54	Chemicals	76	Share plans and other matters
	58	Corporate

OPERATING AND FINANCIAL REVIEW

Business and market overview

Royal Dutch Shell consists of the upstream businesses of Exploration & Production and Gas & Power and the downstream businesses of Oil Sands, Oil Products and Chemicals. In 2007, we incorporated our wind and solar activities into the Gas & Power business and our hydrogen and CO₂ activities into the Oil Products business.

We are active in more than 110 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, Africa and the Middle East. New supplies are being brought on-stream from major projects in challenging frontier environments, such as Sakhalin in Russia and Athabasca in Canada. We are a leader in liquefied natural gas (LNG) and in the large scale commercialisation of gas to liquids (GTL) technology. We have a diverse and well-balanced downstream portfolio of refineries and chemicals plants and are one of the world’s largest distributors of biofuels.

10 Royal Dutch Shell plc

ROYAL DUTCH SHELL STRATEGY

Our strategy of More Upstream, Profitable Downstream remains unchanged. Realising our strategy will increasingly be shaped by what we believe are three hard truths: there has been a step-change in global energy demand as a result of a growing world population and the emerging economies of China and India entering into a more energy-intensive phase of their development; conventional supplies of oil and gas will struggle to keep pace with demand; and emissions of greenhouse gases, such as carbon dioxide (CO₂), will continue to rise with increased use of fossil fuels. Against this background Shell is leveraging a strong, wide-ranging energy portfolio and integrated value chains to meet the challenge of providing more energy in a secure and responsible way.

Against the background of high energy prices, competition for access to resources will remain intense. Cost inflation continues at a high rate, in certain cases exacerbated by a weakening US dollar. Capital cost inflation impacts the upstream and downstream projects alike. Continued focus on project delivery and on operational excellence will be key for success.

In our upstream businesses, we will continue to focus on developing major new projects with long, productive lives. In the downstream businesses, our emphasis will be on sustained cash generation and on continuing to reshape our portfolio with a focus on the faster growing markets of Asia Pacific. We create further value by managing our portfolio and leveraging our proprietary technology and the quality of our people.

Our strategy seeks to reinforce our position as a leader in the industry and provide investors with a competitive and sustained total shareholder return. In 2008, we expect around 80% of our capital investment will be in upstream and oil sands projects. In downstream, our capital programme will maintain and enhance our competitive position by improving the quality, safety and competitiveness of our refineries and building on our presence in growth markets.

Meeting growing world demand for energy in ways that minimise environmental and social impact is a major challenge for the global energy industry. Shell is committed to improving energy efficiency in its own operations and supporting customers in managing their energy demands. We are also working to create a world leading biofuels business and aim to build a material capability in the capture and storage of CO₂.

Our commitment to technology and innovation continues to be at the core of our strategy. As energy projects become more complex and more technically demanding, we believe our technologies and technical expertise will be telling factors in the growth of our business. Shell’s key strengths include the development and application of technology, the financial and project management skills that allow us to undertake large oil and gas projects, and the management of integrated value chains. We also benefit from having a diverse international business portfolio and customer-focused businesses built around the strength of the Shell brand. As such, we are well placed to be preferred partners for governments and other resource holders, now and in the future.

MARKET OVERVIEW

Despite the US housing slump and bouts of turbulence in international credit and money markets, the ongoing expansion of the global economy remained robust in 2007. At 4.9% in 2007, global growth was down slightly from the 5.0% registered in 2006, but up from 4.4% in 2005. China, India, Russia and other emerging markets accounted for much of global growth in 2007. In contrast, growth in advanced countries slowed with the weakening of the US economy.

In the USA, growth in 2007 was 2.2%, well below its trend rate. For 2008, the housing downturn and financial strains are likely to continue to weigh on the US economy according to the Federal Reserve.

European economic growth moderated in 2007 to 2.6% from 2.8% in 2006, as appreciation of the euro reduced the contribution to growth from net exports. Business investment remained firm, buoyed by corporate profits. However, the strong currency and strains in international credit and money markets began to weigh on business and consumer sentiment as the year progressed. These factors point to a possible moderation of growth in 2008 towards its trend rate.

Growth in the Japanese economy also moderated in 2007 to 1.9%. Growth in domestic demand has been mixed with net exports and business investment holding up well while consumption growth faltered.

China and India saw continued robust growth in 2007. In China, consumption made a growing contribution to growth as exports slowed. Meanwhile in India, it was domestic demand and the services sector that underpinned the expansion. For 2008, growth in these two countries is expected to ease back from their recent heights, but still to continue apace.

Global growth is likely to moderate further towards its longer-term trend rate in 2008, with risks slanted toward the downside. The main downside risk remains the potential for a wider and deeper slowdown in US domestic demand. The main upside potential is in the major emerging markets growing more rapidly than expected. As in 2007, these markets have the potential to continue to perform above expectations.

OIL AND NATURAL GAS PRICES
Brent crude oil prices averaged $72.45 per barrel in 2007 compared with $65.10 in 2006, while West Texas Intermediate (WTI) averaged $72.16 per barrel compared with $66.04 a year earlier. Oil prices increased in 2007 due to a combination of strong world economic growth, political tensions in the Middle East and Nigeria, modest non-OPEC supply growth and OPEC supply restraint, reaching highs of just over $96.00 per barrel for Brent and WTI late December.

We expect oil prices in 2008, on balance, to remain robust with modest non-OPEC supply growth, continuing geopolitical tensions and OPEC supply restraint, but moderated by slower economic growth.

Henry Hub gas prices in the USA averaged $6.94 per million British thermal units (Btu) in 2007 compared with $6.76 in 2006. Prices moderated as far down as $5.97 per million Btu in September, due to high inventory levels caused by a relatively warm winter and the absence of weather related supply disruptions during the hurricane season. Prices rebounded to $7.01 per million Btu in November with the onset of the winter season.

In the UK, prices at the National Balancing Point averaged 30.02 pence/therm in 2007 compared with 41.93 pence/therm in 2006.

The drivers of natural gas prices are more regional in nature than the relatively global nature of crude oil pricing. While the Henry Hub price is a recognised price benchmark in North America, Shell 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 both regions, prices have risen reflecting higher oil prices and strong demand.

OIL AND NATURAL GAS PRICES FOR INVESTMENT EVALUATION
The range of possible future crude oil and natural gas prices used in project and portfolio evaluations within Shell 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 possible future 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 2007, Shell used a grid based on low, medium and high oil and gas prices to test the economic performance of long-term projects. The prices utilised were significantly lower than the average market industry prices for 2007. 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
Industry refining margins remained strong in 2007, particularly in the USA, amid robust global product demand growth. In the absence of any major disruptions, refining margins are expected to trend lower in 2008 than 2007 with new conversion capacities expected to come 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 2008 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.

Royal Dutch Shell plc 11

OPERATING AND FINANCIAL REVIEW BUSINESS AND MARKET OVERVIEW

ACTIVITIES, INTERESTS AND PROPERTY

Our various activities are conducted in more than 110 countries and territories. Shell 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 oil and gas related revenues from the Exploration & Production, Gas & Power, Oil Sands and Oil Products segments), accounted for nearly 90% of revenue in 2007. We market oil products in more countries than any other oil company and have a strong position not only in the major industrialised countries but also in the developing ones. The distinctive Shell pecten (a trademark in use since the early part of the twentieth century) and trademarks in which the word Shell appears support this marketing effort throughout the world. Shell also ranks among the world’s major chemical companies (by sales); in 2007, the Chemicals segment accounted for just over 10% of the revenue of Shell.

A summary of revenue of Shell by business segment and by geographical region for the years 2005, 2006 and 2007 is set out below:


REVENUE BY BUSINESS SEGMENT (including intersegment sales)					$ million

	2007		2006		2005
EXPLORATION & PRODUCTION
Third parties		14,963		16,750		22,865
Intersegment		38,345		35,796		20,416

		53,308		52,546		43,281

GAS & POWER
Third parties		15,982		16,035		14,014
Intersegment		1,056		1,303		1,858

		17,038		17,338		15,872

OIL SANDS
Third parties		1,069		1,159		1,105
Intersegment		1,785		1,340		1,359

		2,854		2,499		2,464

OIL PRODUCTS
Third parties^[A]		282,665		248,581		237,210
Intersegment		3,407		2,728		16,643

		286,072		251,309		253,853

CHEMICALS
Third parties^[B]		41,046		36,306		31,018
Intersegment		4,865		4,444		3,978

		45,911		40,750		34,996

CORPORATE
Third parties		57		14		519
Intersegment		–		–		–

		57		14		519


[A]		The figures in this table, which include crude oil sales and non-fuel revenue, are different from the table shown on page 52, 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 56, which excludes chemical feedstock trading.


REVENUE BY GEOGRAPHICAL AREA (including intersegment sales)											$ million

	2007		%		2006		%		2005		%
Europe		148,465		41.8		136,307		42.8		122,684		40.0
Africa, Asia, Australia/Oceania^[A]		90,141		25.3		76,898		24.1		61,388		20.0
USA		87,548		24.6		80,974		25.4		101,308		33.0
Other Americas^[B]		29,628		8.3		24,666		7.7		21,351		7.0

Total		355,782		100.0		318,845		100.0		306,731		100.0


[A]		Also referred to as Other Eastern Hemisphere in this Report.
[B]		Also referred to as Other Western Hemisphere in this Report.

12 Royal Dutch Shell plc

Risk factors

Shell has a single risk-based control framework, the Shell Control Framework (see page 90), to identify and manage risks.

Shell’s operations and earnings are subject to risks from changing conditions in competitive, economic, political, legal, regulatory, social, industry, business and financial fields. Investors should carefully consider these risks. They could have a material adverse effect separately or in combination on Shell’s results from operations and/or our financial condition.

FLUCTUATING PRICES FOR OIL, NATURAL GAS, OIL PRODUCTS AND CHEMICALS

Prices of oil, natural gas, oil products and chemicals are affected by supply and demand. Factors that influence these include operational issues, 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 Shell’s investment decisions, operational performance and financial position.

PROJECT DELIVERY AND THE ABILITY TO REPLACE OIL AND GAS AND OIL SANDS RESERVES

Shell’s future oil and gas and oil sands production depends on the success of very large projects. In developing these projects we face numerous challenges. These include 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, political and other conditions. Such potential obstacles may impair our delivery of these projects and, in turn, our operational performance and financial position (including the financial impact from failure to fulfil contractual commitments related to project delivery). Future oil and gas and oil sands production will depend on our access to new reserves through exploration, negotiations with governments and other owners of known reserves, and acquisitions. Failures in exploration or in identifying and finalising transactions to access potential reserves could slow our oil and gas and oil sands production and replacement of reserves. This could weaken our future operational performance and financial position.

COMPETITION

We face significant competition in each of our businesses for access to raw materials, including oil and gas and oil sands reserves and refinery feedstock, in the sale of our products to customers, in the development of innovative products and solutions, including the development of new technologies and in our search for employees with the skills and experience we need. Increasingly, we compete with state-run oil and gas companies, particularly in seeking access to reserves. Today, these state-run oil and gas companies control vastly greater quantities of oil and gas reserves than the major publicly-held oil and gas companies. State-run entities have access to significant resources and may be motivated by political or other non-economic factors in their business decisions.

LOSS OF BUSINESS REPUTATION

Shell is one of the world’s leading energy brands. We have a strong corporate reputation, which is important to maintaining our licence to operate and securing new resources. The Shell General Business Principles govern how Shell and our individual companies conduct our affairs. The Shell Code of Conduct describes how the Shell General

Business Principles apply to every Shell employee. Failure – real or perceived – to follow these principles, or any of the risk factors materialising, could harm our reputation, which could impact our licence to operate, damage our brand and affect our operational performance and financial position.

IMPACT OF CLIMATE CHANGE CONCERNS

Emissions of greenhouse gases and associated climate change are real risks to the company and society in general. In the future, in order to help meet the world’s energy demand, we will produce more oil from unconventional sources. Therefore, in the long term, it is expected that the CO₂ intensity of our production will increase. If we are unable to find CO₂ solutions for new and existing projects, future government regulation or challenges from society could lead to project delays, additional costs as well as compliance and operational risks. These risks if realised could affect our operational performance and financial position.

HEALTH, SAFETY, SECURITY AND ENVIRONMENT (HSSE)

Given the range and complexity of Shell’s daily operations, our potential HSSE risks 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 risks materialising can be injuries, loss of life, and environmental harm and disruption to business activities. Depending on their cause and severity, they can affect Shell’s reputation, operational performance and financial position.

POLITICALLY SENSITIVE OR UNSTABLE COUNTRIES

Developments in politics, laws and regulations can affect our operations and earnings. Potential developments include forced divestment of assets; limits on production; import and export restrictions; 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 potential effect upon us. If such risks materialise they could affect the employees, reputation, operational performance and financial position of Shell as well as of the Shell 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 may reduce our ability to manage risks and costs. We could have limited influence over and control of the behaviours and performance of operations in which Shell is engaged. This could affect our operational performance, financial position and reputation.

INFORMATION TECHNOLOGY (IT)

Growing standardisation, more reliance on global systems, relocation of information technology services and increased regulations lead to a risk that our IT systems may fail to deliver products, services and solutions in a compliant, secure and efficient manner. This could affect Shell’s operational performance and financial position.

TECHNOLOGY AND INNOVATION

Technology and innovation are essential to the delivery of our business strategy. If we do not develop the right technology or do not have access

Royal Dutch Shell plc 13

OPERATING AND FINANCIAL REVIEW RISK FACTORS

to it or do not deploy it effectively, it may affect delivery of the strategy as well as our operational performance and financial position.

RESOURCING CHALLENGES

Skilled employees are essential to the successful delivery of our business strategy. We sometimes experience recruitment and retention shortfalls. Such shortfalls could affect our 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 re-nationalisation and the seizure of property all pose a risk to our operations and can affect Shell’s operational performance and financial position. In exploration and production activities they 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 company, changes in currency values and exchange controls could affect our operational performance and financial position.

ECONOMIC AND FINANCIAL MARKET CONDITIONS

Shell companies are subject to differing economic and financial market conditions throughout the world. Political or economic instability affect such markets. If such a risk materialises it could affect our operational performance and financial position.

ESTIMATION OF RESERVES

The estimation of oil and gas and minable oil sands reserves involves subjective judgements and determinations based on available geological, technical, contractual and economic information. It is not an exact calculation. The estimate may change because of new information from production or drilling activities or changes in economic factors. It may also alter because of acquisitions and disposals, new discoveries and extensions of existing fields and mines, 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.

SHAREHOLDER REMEDIES

Our Articles of Association generally require that most 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. Accordingly, the ability of shareholders to obtain monetary or other relief, including in respect of securities law claims, may be determined in accordance with these provisions. See “Supplementary Information – Control of registrant (unaudited)”.

ANTITRUST AND COMPETITION LAW

Antitrust and competition law apply to Shell companies in the vast majority of countries in which we do business. Shell companies have been fined for violations of antitrust and competition law, including a fine by the European Commission Directorate-General for Competition (EC Competition Authority). Due to the EC Competition Authority’s fining guidelines, any future conviction of Shell companies by the EC

Competition Authority could result in enhanced fines. It is not uncommon for persons allegedly injured by antitrust violations to sue for damages. Both of these factors could have a material adverse effect on Shell’s results.

US GOVERNMENT SANCTIONS

Shell 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 country’s 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. Shell 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 our dealings in these countries, it is possible that Shell or persons employed by Shell 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

Shell companies are exposed to property and liability risks that could affect Shell’s operational performance and financial position. Shell 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, we are subject to trading and treasury risks. These include among others exposure to movements in commodity prices, interest rates, and foreign exchange rates, counter party default and various operational risks (see also page 91).

PENSION FUNDS

The risk regarding pensions is the ability of the pension assets to meet future liabilities, and to 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 Shell inappropriately value, provide for and/or fund these obligations, there could be a significant impact on our financial performance.

INTERNATIONAL DISPUTES

Shell companies face litigation and disputes worldwide. From time to time cultural and political factors play a significant role in unprecedented and unanticipated judicial outcomes contrary to local and international law. In addition, certain governments, state and regulatory bodies have, in the opinion of Shell, exceeded their constitutional authority by attempting unilaterally to amend or cancel existing agreements or arrangements and by failing to honour existing contractual commitments and by seeking to adjudicate disputes between private litigants.

14 Royal Dutch Shell plc

COMPLIANCE WITH US FOREIGN CORRUPT PRACTICES ACT

In July 2007, Shell’s US subsidiary, Shell Oil, was contacted by the US Department of Justice regarding Shell’s use of the freight forwarding firm Panalpina, Inc and potential violations of the US Foreign Corrupt Practices Act (FCPA) as a result of such use. Shell has started an internal investigation and is cooperating with the US Department of Justice and the United States Securities and Exchange Commission investigations. While these investigations are ongoing, Shell may face fines and additional costs.

Royal Dutch Shell plc 15

OPERATING AND FINANCIAL REVIEW

Summary of results

HIGHLIGHTS

•		Earnings per share increased 26%.

•		Dividends to shareholders increased by 13% compared with 2006.

•		Return on average capital employed of 24.4%.

•		Cash flow from operations improved by 9% reaching $34.5 billion.

•		Gross proceeds from divestments were $9.9 billion.

•		Acquisition of the Shell Canada minority interest for a cash payment of $7.1 billion.

•		Cash returned to shareholders of $13.4 billion.


EARNINGS	$ million
	2007		2006		2005
Income from continuing operations		31,926		26,311		26,568
Income/(loss) from discontinued operations		–		–		(307	)

Income for the period		31,926		26,311		26,261


SEGMENT EARNINGS^[A]	$ million
	2007		2006		2005
Exploration & Production		14,686		14,544		13,577
Gas & Power		2,781		2,633		1,378
Oil Sands		582		651		661
Oil Products		10,439		7,125		9,982
Chemicals		2,051		1,064		991
Corporate		1,387		294		(328	)

Total		31,926		26,311		26,261


[A]		With effect from 2007, wind and solar activities, which were previously reported within Other industry segments, are reported within the Gas & Power segment and Oil Sands activities, which were previously reported within the Exploration & Production segment, are reported as a separate segment. Prior period financial statements have been reclassified accordingly. During 2007, the hydrogen and CO₂ coordination activities were moved from Other industry segments to the Oil Products segment and all other activities within Other industry segments are now reported within the Corporate segment.

16 Royal Dutch Shell plc

EARNINGS 2007 COMPARED TO 2006 AND 2005

Shell businesses delivered strong operational and financial performance in 2007, resulting in earnings of $31.9 billion. Shell’s healthy financial position allowed it to return $13.4 billion to shareholders, through dividends and share repurchases, while capital investment reached $27.1 billion (see page 4). Return on average capital employed (ROACE)^[A], at the end of 2007 was 24.4% compared to 23.4% at the end of 2006. Gearing was 16.6% at the end of 2007 compared to 14.8% at the end of 2006. The 2007 dividend increased 13% to $1.44 per share compared to $1.27 in 2006.

The 2007 earnings were up 21% from 2006, which were in line with 2005. The increase in 2007 reflected higher oil and gas prices, the positive impact of increasing crude prices on our inventory, improved chemical margins and substantially higher interest and investment income, offset by lower production volumes, lower realised refining margins and lower trading contribution. In 2007, oil and gas production, including oil sands production, was 3,315 thousand boe/d, compared to 3,473 thousand boe/d in 2006. Production in 2007 reflected a combination of the positive and negative effects of several factors, including new field start-ups, reduced demand for natural gas in Europe, normal field declines, the impact of higher oil prices, and the security situation in Nigeria.

Exploration & Production earnings were $14,686 million in 2007 compared with $14,544 million in 2006, up 1%. Earnings reflected the impact of higher oil and gas prices, which were partly offset by lower production volumes, higher exploration expenses and higher costs, reflecting current industry conditions. In addition, earnings were lower as Shell’s share of earnings in the Sakhalin II project were reduced, following the partial divestment of the project in April 2007 and the resulting change of Sakhalin II from a fully consolidated subsidiary to an equity-accounted investment (Shell interest 27.5%). In 2006, earnings increased by 7% compared to 2005. This reflected higher oil prices, partly offset by lower production volumes, higher operating costs in line with industry conditions, increased pre-development activity levels and lower US gas prices.

Hydrocarbon prices were higher in 2007 compared with 2006 and 2005. Brent crude prices averaged $72.45 per barrel in 2007 compared with $65.10 in 2006 and $54.55 in 2005. West Texas Intermediate prices averaged $72.16 per barrel in 2007 compared with $66.04 in 2006 and $56.60 in 2005. Shell’s overall realised oil and natural gas liquids (NGL) prices were $67.99 a barrel, compared with $60.64 in 2006 and $50.59 in 2005. In the USA, realised oil and NGL prices averaged $66.49 a barrel, compared with $58.53 in 2006 and $48.94 in 2005. Outside the USA, realised oil and NGL prices averaged $68.24 a barrel compared with $60.99 in 2006 and $50.84 in 2005. Our overall realised gas prices averaged $5.14 per thousand standard cubic feet (scf) in 2007 compared with $5.08 in 2006 and $4.77 in 2005. In the USA, realised gas prices averaged $7.23 per thousand scf, compared with $7.74 in 2006 and $8.43 in 2005. Outside the USA, realised gas prices averaged $4.61 compared with $4.41 in 2006 and $3.84 in 2005.

Gas & Power earnings were up 6% in 2007 reaching $2,781 million, compared with $2,633 million in 2006 and $1,378 million in 2005.


[A]		ROACE is defined as income attributable to shareholders adjusted for Shell’s share of interest expense, after tax, as a percentage of Shell’s share of average capital employed for the period. Capital employed consists of total equity, current debt and non-current debt. For more information on ROACE see key performance indicators on pages 60 and 61.

The 2007 higher earnings reflected increased liquefied natural gas (LNG) sales volumes, strong LNG and gas to liquids (GTL) prices, and a net gain of $275 million mainly related to the sale of common units in Enterprise Products Partners LP. This was partly offset by lower earnings from marketing and trading activities. The increase in 2006 earnings reflected growth in LNG sales volumes, higher realised LNG prices, LNG supply optimisation and strong marketing and trading performance. LNG sales volumes in 2007 of 13.18 million tonnes showed an increase of 9% compared to 12.12 million tonnes in 2006, due to growth in Nigeria. LNG sales volumes in 2006 showed an increase of 14% compared to 10.65 million tonnes in 2005 due to the capacity growth in Nigeria and Oman.

Oil Sands earnings were $582 million compared with $651 million in 2006 and $661 million in 2005. Earnings in 2007, compared to 2006, decreased due to an unplanned shutdown in September and a fire in November at the Scotford Upgrader, higher operating and maintenance costs and increased royalty expenses, which were partly offset by the impact of higher oil prices and a favourable tax adjustment of $94 million. Earnings in 2006 decreased compared to 2005, as higher oil prices and a favourable tax adjustment of $120 million were offset by lower production and the first major scheduled turnaround of both the Muskeg River Mine and the Scotford Upgrader. Bitumen production for 2007 was in line with 2006.

Oil Products earnings in 2007 were $10,439 million, 47% higher than 2006 while 2006 was 29% lower than 2005. The 2007 earnings increase reflected higher marketing margins and benefited from the impact of increasing crude prices on our inventory of $3,488 million. However, earnings were impacted by lower realised refining margins, a lower trading contribution and higher operating costs. The 2006 earnings decrease reflected reduced refining margins partially offset by higher marketing earnings, higher trading contribution and the favourable impact of price volatility on inventory of $98 million.

Chemicals earnings were $2,051 million compared with $1,064 million in 2006 and $991 million in 2005. The impact of price volatility on inventory had favourable effects on 2007 earnings of $369 million compared with an unfavourable effect of $31 million in 2006. The increased earnings in 2007 reflected higher margins, higher earnings from equity-accounted investments and lower fixed costs, which were partly offset by a reduced trading contribution. Earnings in 2005 included $307 million of losses from discontinued operations, related to the sale of Basell. Setting this aside, 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.

BALANCE SHEET AND CAPITAL INVESTMENT

Shell’s strategy to invest in the development of long-term growth projects, primarily in the upstream businesses, explains the most significant changes to the balance sheet in 2007. Property, plant and equipment and equity-accounted investments increased by almost $9 billion in 2007 as capital investment increased by over 9% in 2007 compared with 2006 reaching $27.1 billion. This was partly offset by depreciation, depletion and amortisation of $13.2 billion. $19.5 billion of the capital investment was dedicated to upstream projects that will primarily deliver organic growth over the long term. These projects include several multi-billion dollar, integrated facilities that should provide significant cash flow for the coming decades.

The capital investment programme in 2007 was primarily funded internally, either from cash from operations of $34.5 billion or with proceeds from divestments of $9.9 billion, with net debt (defined as total debt minus cash) increasing by $1.7 billion to a year-end balance of $8.4 billion. In 2007, Shell paid cash of $7.1 billion for shares in Shell Canada that it did not already own and, as a result, total equity decreased by the same amount. Overall total equity increased by $11.0 billion in 2007 resulting in a year-end balance of $126 billion. Gearing increased from 14.8% at year-end 2006 to 16.6% at year-end 2007. See Note 19[D] to the Consolidated Financial Statements for further discussion on gearing.

OUTLOOK

We want to maintain and enhance our competitive position and provide investors with a competitive and sustained total shareholder return. We plan net capital investment of $26-$27 billion in 2008 (net capital investment represents capital investment, less divestment proceeds). The majority of our capital investment will be in upstream, including LNG and GTL, and oil sands projects. The remainder will be invested in downstream on improving or expanding our oil products and chemicals business.

The production outlook for 2008 is uncertain. However, 2008 production is likely to decline slightly from 2007 levels, if 2007 operating and security conditions in Nigeria continue in 2008, and previously announced disposals are completed. In the long term, Shell expects to be capable of 2-3% per annum production growth on average from 2010, including production from oil, gas and oil sands. Actual growth each year will depend on project start-ups, portfolio management actions and project contracting conditions, among other things. Our investment decision-making will focus on generating value rather than specific reserves or volume targets.

PORTFOLIO ACTIONS

On March 31, 2007, Royal Dutch Shell, through its affiliates, acquired the minority interest in Shell Canada. Shell paid cash of $7.1 billion for the shares in Shell Canada that it did not already own. As a result of this transaction, the Consolidated Financial Statements of Shell as of December 31, 2007, reflect some $7.1 billion decrease in shareholders equity, with a $1,639 million decrease in minority interest, being the book value of the item acquired and the excess of the purchase price over the book value of $5,445 million being taken to retained earnings. In addition to the share purchase price, $0.4 billion of Shell Canada share options were exchanged for a corresponding amount of Shell share options.

On April 18, 2007, Royal Dutch Shell completed the divestment to OAO Gazprom of 50% of its shares in Sakhalin Energy Investment Company Ltd (SEIC), representing 27.5% of the total outstanding shares, for a sales price of $4.1 billion. Gazprom acquired a 50% interest plus one share, while Shell retains a 27.5% interest, with Mitsui and Mitsubishi holding a 12.5% and 10% interest, respectively. In addition, the Ministry of Natural Resources of the Russian Federation announced its approval of the revised Environmental Action Plan. Additional agreements were also signed with the Russian government, addressing the economic balance of the project.

Royal Dutch Shell plc 17

OPERATING AND FINANCIAL REVIEW SUMMARY OF RESULTS

These portfolio actions had the following impact on Shell’s reserves. As a result of the Sakhalin II divestment, minority interests were reduced by 658 million boe and 402 million boe of proved reserves were transferred from Shell subsidiaries to the Shell share of equity-accounted investments. In addition, as a result of the acquisition of the minority interest in Shell Canada, minority interests were reduced by 72 million boe associated with Shell Canada’s proved oil and gas reserves and by 250 million boe associated with Shell Canada’s proven minable oil sands reserves.

At the end of the first quarter 2007, 100% of the Sakhalin II project net assets of approximately $15 billion were included in Shell’s balance sheet, offset by a minority interest of $6.7 billion representing the partners’ 45% interest in the project. As a result of the partial divestment, the consolidated financial statements of Shell no longer include the separate assets, liabilities and associated minority interest of the Sakhalin II project. Shell’s asset position in the project is now accounted for as an equity-accounted investment.

SEIC continues to be the operator of the Sakhalin II project. Gazprom and existing SEIC shareholders entered into an area of mutual interest arrangement, which covers both future Sakhalin area oil and gas exploration and production opportunities, and building of Sakhalin II into a regional oil and LNG hub.

PERFORMANCE AND CAPITAL

Please refer to pages 60-61 and 62-65 for discussion of key performance indicators and liquidity and capital resources.

RESERVES

In 2007, we entered into two exceptional transactions that affected our proved oil and gas and proven minable oil sands reserves position (see pages 17 and 18 for a full description of these transactions):

•		the divestment of 27.5% of our interest in the Sakhalin II project; and

•		our acquisition of the 22% minority interest in Shell Canada.

The effects of these exceptional transactions are complex in the context of our reported reserves position. The purpose of the adjacent table is to set out those effects, together with other changes in our reserves position that occurred during the year, on the same basis as they are evaluated by management. The table presents; the total net proved oil and gas reserves for Shell subsidiaries and the Shell share of equity-accounted investments; the total net proven minable oil sands reserves for Shell subsidiaries; and then eliminates the portion of the reserves that is attributable to the equity held by those with a minority interest in our subsidiaries. The result is the total net proved oil and gas and net proven minable oil sands reserves attributable to Royal Dutch Shell shareholders. We believe it is appropriate to summarise our overall reserves position in this manner as it reflects how we manage our reserve base, and that we do not distinguish between reserves of Shell subsidiaries and equity-accounted investments when making commercial investment decisions. We believe that this summary is necessary in the context of the transactions that occurred in 2007 in order for investors to have a fair and complete understanding of the effects of these transactions on our reserves position.

As shown in the table below, the material effects of the Sakhalin II divestment and Shell Canada acquisitions, together with other events, on proved oil and gas reserves and proven minable oil sands reserves attributed to Royal Dutch Shell shareholders consisted of the following:

•		We reduced the minority interest in our proved oil and gas reserves and our proven minable oil sands reserves from 999 million boe to 17 million boe, mainly as a result of the elimination of the minority interest in Shell Canada (including net proven minable oil sands reserves, 322 million boe) and the minority interest in Sakhalin (658 million boe). The figures quoted above between parentheses are before taking account of 2007 production.

•		While proved oil and gas reserves attributable to Royal Dutch Shell shareholders reflected the net reduction of 402 million boe of proved reserves relating to Sakhalin, this was offset by our development programme that yielded organic reserves additions of 1,315 million boe of additional proved oil and gas reserves (comprised of 228 million boe in relation to Shell subsidiaries and 1,087 million boe in relation to Shell’s share of equity-accounted investments) and 6 million boe of additional minable oil sands reserves.

After taking these two events into account, total net proved oil and gas reserves and net proven minable oil sands reserves attributable to Royal Dutch Shell shareholders decreased by 22 million boe in 2007, from 11,942 million boe to 11,920 million boe, or less than 0.2%. These totals reflect the volume impact of year-end driven price reductions of some 183 million boe for 2007 (largely due to our Qatar GTL project), 59 million boe for 2006 and 60 million boe for 2005.



PROVED AND PROVEN RESERVES (At December 31)	million barrels of
	oil equivalent^[C]


	2007		2006		2005

Total net proved oil and gas reserves
Shell subsidiaries		6,686		8,452		7,761
Shell share of equity-accounted investments		4,140		3,355		3,705
Total net proven minable oil sands reserves		1,111		1,134		746

Total net minority interests share of Shell subsidiaries^[A]		17		999		900

Total net proved oil and gas and net proven minable oil sands reserves attributable to Royal Dutch Shell shareholders ^[B]		11,920		11,942		11,312


[A]		Total of minority interest associated with both net proved oil and gas reserves and net proven minable oil sands reserves.

[B]		Total of net proved oil and gas reserves and net proven minable oil sands reserves net of minority interests.

[C]		For this purpose, natural gas has been converted to barrels of oil equivalent using a factor of 5,800 standard cubic feet per barrel.

Investors should note that the above summary is presented to illustrate the complex effects of the two transactions that occurred during 2007. This summary should be read in the context of our Supplementary Information – Oil and gas (unaudited) and Supplementary Information – Oil sands (unaudited). This presentation has been included because we believe it is material to an investor’s understanding of our reserves position and the changes in 2007.

18 Royal Dutch Shell plc

Exploration & Production

HIGHLIGHTS

•		Record segment earnings of $14.7 billion.
•		Production of 3.2 million barrels of oil equivalent (boe) per day (excluding oil sands) despite the continuing security issues in Nigeria.
•		Another successful year for exploration: 11 notable discoveries.
•		Began execution of several major projects, including Gumusut-Kakap, Shell’s first deep-water project in Malaysia, and Qarn Alam in Oman, one of the world’s largest thermal enhanced oil recovery projects.
•		New ‘flagship’ upstream projects (Perdido in the Gulf of Mexico; BC-10 in Brazil; Qatar GTL and Qatargas 4) progressing well.
•		Started production from a number of new fields, including Ormen Lange in Norway, Deimos in the Gulf of Mexico and Changbei in China.
•		Stabilised future of Sakhalin II and Kashagan projects and continuity of production-sharing agreements, agreeing partial divestments to Gazprom and KazMunaiGas respectively, along with some modification of future terms.
•		Sustained portfolio rationalisation, reaching agreement on divestments in Norway, Austria, the North Sea in the UK and the USA.


EARNINGS^[A]							$ million
	2007			2006			2005
Revenue (including intersegment sales)		53,308			52,546			43,281
Purchases (including change in inventories)		(3,935	)		(2,710	)		(1,121	)
Exploration		(1,712	)		(1,562	)		(1,286	)
Depreciation		(9,338	)		(8,672	)		(7,973	)
Operating expenses		(11,458	)		(11,000	)		(8,631	)
Share of profit of equity-accounted investments		3,583			3,075			4,112
Other income/(expense)		(390	)		(316	)		(282	)
Taxation		(15,372	)		(16,817	)		(14,523	)

Segment earnings from continuing operations		14,686			14,544			13,577
Income/(loss) from discontinued operations		–			–			–

Segment earnings		14,686			14,544			13,577


[A]		As from 2007, the Oil Sands earnings are disclosed separately. Previously these were reported as part of Exploration & Production earnings. For comparison purposes, 2006 and 2005 earnings have been reclassified accordingly, resulting in a reduction of $651 million in 2006 and $661 million in 2005.


COUNTRIES IN WHICH EXPLORATION & PRODUCTION HAS OPERATIONS
Europe	Africa	Middle East	Asia Pacific	USA
Denmark	Algeria	Russia, CIS^[A]	Australia
Germany	Cameroon	Abu Dhabi	Brunei	Other
Ireland	Gabon	Azerbaijan	China	Western
Italy	Libya	Egypt	Malaysia	Hemisphere
The Netherlands	Nigeria	Iran	New Zealand	Argentina
Norway	Tunisia	Kazakhstan	Philippines	Brazil
Ukraine		Oman		Canada
UK		Pakistan		Colombia
		Qatar		Venezuela
		Russia
		Saudi Arabia
		Syria


[A]		Commonwealth of Independent States.

OVERVIEW

Exploration & Production explores for and extracts oil and gas. Together with Gas & Power and Oil Sands it builds and operates the infrastructure necessary to deliver these hydrocarbons to market.

Our business is active in 37 countries with an average of 18,000 employees in 2007. We carry out many of our activities with a diverse range of joint venture partners and have on average over 220,000 people (employees, joint venture staff and contractors) engaged daily in our operations, based on hours worked. We are investing strongly for future growth, with some $15.6 billion (excluding the contribution of minority partners in Sakhalin II of $0.3 billion) of capital investment in 2007.

Production is a key indicator of our short to medium-term operational performance, in terms of reliability of existing assets and on time delivery of new wells and projects. Longer term, a key strategic goal is the increase in surplus cash generation through accessing and unlocking new resources and growing production whilst sustaining strong unit cash generation.

Our investment decision-making focuses on generating value rather than specific reserves or volume targets.

EARNINGS 2007 COMPARED TO 2006 AND 2005

Segment earnings in 2007 were $14,686 million, 1% higher than in 2006 and 8% higher than in 2005. The increase in 2007 from 2006 was mainly driven by the impact of higher realised oil and gas prices on revenues and gains from divestments. This was partly offset by lower production volumes, higher exploration expenses (mainly from increased well write-offs and other exploration costs partly offset by lower seismic cost), higher costs (reflecting current industry conditions) and an exceptional charge related to our Nigerian operations. In addition, earnings were impacted by our reduced share in the profits from the Sakhalin II project, as a consequence of the partial divestment in the second quarter 2007. Segment earnings in 2006 were $14,544 million, 7% higher than in 2005 due to 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 spending on technical integrity).

Earnings in 2007 included net gains of $1,102 million compared with net gains of $521 million in 2006 and $1,662 million in 2005. The net gains in 2007 mainly related to the divestment of assets in Norway, Austria, Russia, Australia and the Netherlands and various taxation credits, which were partially offset by the mark-to-market valuation of certain UK gas contracts and a $716 million charge mainly relating to the onshore assets in Nigeria, including impairments and provisions arising from the funding and security situation. 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 the mark-to-market valuation of certain gas contracts in the UK.

Royal Dutch Shell plc 19

OPERATING AND FINANCIAL REVIEW EXPLORATION & PRODUCTION

OUTLOOK AND STRATEGY

In 2007, the business environment for the exploration and production industry continued to be characterised by increasing oil prices (Brent average price in 2007 was $72.45 per barrel, up 11% from $65.10 per barrel in 2006) and activity levels. Associated with these increased prices, we saw tightness in the supply of oilfield goods and services, cost escalation and strong competition for new opportunities. Looking forward, we believe that the world will continue to experience a strong growth in energy demand due to population growth and economic development, and that after 2015 supplies of easy-to-access oil and gas will be increasingly challenged to keep up with demand.

The Exploration & Production strategy pursued consistently for the last four years remains unchanged and delivery is on track. We recognise that access to new resources continues to become more difficult as a result of host government requirements and strong competition for more conventional resources. Our strategy has four portfolio themes:

•		Sustaining our heartlands, i.e. our core countries that have the available infrastructure, expertise and remaining growth potential for Shell to sustain strong operational performance and support continued investment;
•		Focusing on new oil and gas projects where technology is a differentiator;
•		Building integrated gas opportunities; and
•		Unlocking unconventional oil and gas resources.

For all of these themes, we seek portfolio opportunities that offer more upside potential, through more oil price exposure, and/or through securing additional scope for recovery from appraisal or the application of new technology.

We continue to pursue an aggressive exploration programme to add more acreage in support of these themes. Our emphasis remains on drilling large exploration prospects, in selected basins and targeting under-explored areas with significant potential. 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 revitalise our asset portfolio. In terms of our existing portfolio, we will continue to focus on production and project delivery, cost performance and operational excellence.

Shell seeks to sustain long-term production from our existing heartlands. This includes production from core countries such as Australia, Brunei, Canada, Denmark, Malaysia, the Netherlands, Nigeria, Norway, Oman, UK and USA.

We will look for further and stronger integrated gas positions such as in onshore USA, Europe, the Middle East, Russia, Africa and Australia. We will look to 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 II in Russia, Nigeria LNG, Angel in North West Shelf, Australia and Qatargas 4. With respect to Nigeria, the impact of community disturbances in the western Delta continues to present a challenge. While we have achieved some success with restoring production in the western Delta, the security situation remains an ongoing risk to our business in Nigeria, not only affecting current production levels but also our ability to grow production in the future. It is difficult to work safely to repair damage to existing assets and construct new facilities. This situation will

20 Royal Dutch Shell plc

be closely monitored throughout 2008. Deep-water Nigeria production continues to perform well and has good prospects for future growth.

Leveraging technology is central to our strategy and we continue to increase our investment in research and development (R&D) and technology piloting. We remain focused on the development and application of 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, heavy oil and GTL conversion. To build on our existing strengths, we have shifted our R&D emphasis further to subsurface and unconventional oil and gas technologies. For instance, in Canada, strengthened by the acquisition of the Shell Canada minority shares, we are maturing a variety of heavy oil opportunities. In the US Gulf of Mexico and Brazil, technology is key to the delivery of the Perdido and BC-10 deep-water projects respectively and in Qatar we are delivering the industry’s largest GTL facility. Across these themes we are increasing our portfolio of long-life projects, establishing new producing assets with low natural decline rates and high cash generation, especially at higher oil and gas prices.

Our focus on the reduction of costs will be sustained through optimised management of the supply chain and simplifying 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 2007 we recruited over 1,100 technical professionals in the upstream.

PRODUCTION

In 2007, hydrocarbon production (excluding production from oil sands) was 3,234 thousand boe per day. This was 5% lower than in 2006 and 6% lower than in 2005. Lower production in 2007 when compared with 2006 is attributable to field declines, divested volumes, one-off contractual settlements, and lower performance of non-operated assets, which were partly offset by new fields production and ramp-up volumes. The underlying production trend was down 2% compared with 2006 (excluding price impacts of production-sharing contracts (PSCs), divestments and one-off contractual settlements).

Field declines affecting oil production were seen in the USA, Brunei, Oman, Nigeria, Norway and UK during 2007. Operational shutdowns in the UK also impacted production levels. Similarly, natural gas production was impacted by declining fields in Malaysia, USA, UK and Canada as well as by lower seasonal demand in northwest Europe.

The effect of declining fields was partly offset by production from new fields. In China, Shell and PetroChina started commercial production and gas delivery from the Changbei gas field (Shell interest 50%). Located on the edge of the Maowusu desert in the Ordos Basin, it is the largest onshore Exploration & Production co-operative development Shell has had in China.

Shell achieved first offshore gas from the Pohokura field (Shell interest 48%) in New Zealand. This follows the delivery of onshore gas achieved in September 2006. First production was also delivered from the Deimos (Shell interest 71.5%) discovery in the Gulf of Mexico Mars Basin with an expected peak production for Phase 1 of 30,000 boe per day.

In Norway, first gas was produced from the Ormen Lange field (Shell interest 17%). Production will increase gradually, reaching a peak of 70 million standard cubic metres per day – enough to meet as much as 20% of the UK’s gas needs. On December 1, 2007, Shell took over the operatorship of the Ormen Lange field from Norsk Hydro and we are also responsible for the second phase of the field development, which involves the installation of additional subsea templates, drilling of further gas wells and eventually field compression.

Production also increased from Erha in Nigeria, E8 and B12 in Malaysia, West Salym in Russia, Pohokura (onshore) in New Zealand, Merganser in the UK and Enfield in Australia.

PRICES

Oil prices increased in 2007 with Brent and West Texas Intermediate crude prices 11% and 9% higher than in 2006, respectively. Shell’s overall realised oil and natural gas liquids (NGL) prices were $67.99 a barrel, compared with $60.64 in 2006 and $50.59 in 2005. In the USA, realised oil and NGL prices averaged $66.49 a barrel, compared with $58.53 in 2006 and $48.94 in 2005. Outside the USA, realised oil and NGL prices averaged $68.24 a barrel compared with $60.99 in 2006 and $50.84 in 2005. 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, Shell produces crude oil of a somewhat lower quality than the quoted blends. Our overall realised gas prices (excluding equity-accounted investments) in Exploration & Production averaged $5.14 per thousand standard cubic feet (scf) in 2007 compared with $5.08 in 2006 and $4.77 in 2005. In the USA, realised gas prices averaged $7.23 per thousand scf, compared with $7.74 in 2006 and $8.43 in 2005. Outside the USA, realised gas prices averaged $4.61 compared with $4.41 in 2006 and $3.84 in 2005.

CAPITAL INVESTMENT AND PORTFOLIO ACTIONS

Capital investment in 2007 decreased 1% to $15.6 billion (excluding the contribution of our minority partners in Sakhalin II of $0.3 billion, up to the date of the partial divestment of our interest in Sakhalin II in April 2007) relative to 2006 (see Summary of results, page 17). This included exploration expenditure of $4.0 billion of which $807 million relates to the acquisition of new acreage. Included in the exploration expenditure are $594 million of mainly drilling costs associated with maturing fields for which Shell has taken a final investment decision but, for which no proved reserves have yet been recorded. In 2006, capital investment was $15.7 billion and $10.5 billion in 2005 (excluding the contribution of the minority partners in Sakhalin II of $1.4 billion and $1.3 billion respectively).

Shell took the final investment decision to proceed with a number of major projects in 2007. Together with our partners PETRONAS, ConocoPhillips and Murphy Oil Corporation, we decided to proceed with the development of the Gumusut-Kakap (Shell interest 33%) deep-water block offshore Sabah in Malaysia.

In Brunei, our joint venture company, Brunei Shell Petroleum (BSP), decided to proceed with the Champion West Phase 3B/3C project (Shell interest 50%) and with the Bugan Phase 2 project (Shell interest 50%).

In Oman, our joint venture company with the Omani government, Petroleum Development Oman, decided to proceed with the Qarn Alam

project (Shell interest 34%), one of the largest thermal enhanced oil recovery (EOR) projects in the world. It involves injecting steam in a fractured carbonate reservoir and is expected to increase the recovery factor in this complex reservoir by 20-25%.

A final investment decision was also taken to proceed with Valhall Redevelopment (Shell interest 28.1%) in Norway, which is aimed at delivering new facilities with fewer offshore staff and enabling production until the end of the licence period in 2028.

Shell, through its exploration and production joint venture in the Netherlands, Nederlandse Aardolie Maatschappij B.V. (NAM), has taken the decision to resume oil production in Schoonebeek (Shell interest 30%), northwest Europe’s largest onshore oil field, through the use of steam-injection EOR technology. NAM expects to produce some 100 to 120 million barrels of oil in the coming 25 years increasing oil reserves in the Netherlands.

Shell signed a PSC with PETRONAS, gaining a 30% interest in the Kebabangan Cluster gas fields in Sabah, Malaysia.

In Australia, Shell agreed to sell a 25% interest in the NT/P48 Permit, which includes the Evans Shoal joint venture in the Timor Sea, offshore Northern Territory, to PETRONAS.

In China, we acquired a 55% equity interest in a coalbed methane venture in Shanxi Province from Verona Development Corporation.

The Exploration & Production business made significant progress on its portfolio rationalisation programme in 2007, generating $5.4 billion of divestment proceeds.

In Norway, we completed the sale to E.ON Ruhrgas Norge AS of our 28% equity interest in the undeveloped Skarv and Idun fields.

Shell also completed the divestment of its 25% equity holding in Austrian oil and gas producer, Rohöl-Aufsuchungs AG (RAG).

Earlier in the year, we announced our intention to sell our equity interests in a number of northern North Sea assets, and mature NAM operated offshore assets in the NOGAT (Noordelijke Offshore Gas Transport) area of the southern North Sea. At the end of 2007, Shell reached an agreement with Fairfield Energy and Mitsubishi Corporation for the sale of the Dunlin Cluster in the North Sea covering the Dunlin, Dunlin South West, Osprey and Merlin fields.

In the USA, Shell completed the sale of leases in Barnett Shale in the Fort Worth Basin, Texas to Pioneer Natural Resources and Fayetteville Shale in the Arkoma Basin, Arkansas to Constellation Energy Commodities Group. Shell also completed the sale of the Wilcox properties in South Texas to Comstock Resources Inc. and North Padre Island 969 and West Cameron 565 assets in the Gulf of Mexico to Peregrine Oil. In addition, Shell reached an agreement with Marubeni Corporation for the sale of Boomvang fields.

In Egypt, Shell completed the sale of a 33% equity interest in the Northeast Mediterranean Deepwater (NEMed) concession located offshore Egypt to ONGC Videsh Ltd (OVL).

Royal Dutch Shell plc 21

OPERATING AND FINANCIAL REVIEW EXPLORATION & PRODUCTION

Shell sold 45% of the newly created Shell Technology Ventures Fund 1 B.V. (STV), an energy technology fund, to Coller Capital. Shell will remain the majority shareholder in the fund, which will focus on investing in non-exclusive Shell and third-party exploration and production technologies.

In Russia, Shell and its partners completed the divestment to OAO Gazprom of 50% of their interest plus one share in the Sakhalin II project in Russia (see Summary of results, page 17).

Also in Russia, a strategic cooperation agreement was concluded between Shell and Rosneft Open Joint Stock Company. Moreover, Shell reached an agreement with JSC Tatneft for a strategic partnership on heavy oil development and other potential joint activities.

In early 2008, the international members of the Kashagan consortium have agreed to sell their participating interests proportionally (if the sale is concluded, Shell interest would decrease from 18.52% to 16.81%), allowing Kazakhstan’s national oil company’s, KazMunaiGas (KMG), stake to increase to match that of the four major shareholders. The agreement includes a value transfer package from the consortium to the Kazakhstan authorities, provides for an increased role of KMG in operations and for a review and enhancement of the operating model. The agreement also provides the conditions for the continuity and stability of the project going forward.

EXPLORATION

During 2007, we participated in 314 successful exploratory wells (wells drilled outside proved area). These included exploration discoveries in Australia, Brunei, Egypt, Germany, Kazakhstan, Malaysia, the Netherlands, Nigeria, Oman and the USA. Discoveries will be evaluated in order to establish the extent of the volumes they contain. Of these, 11 are considered notable discoveries.

In 2007, we added new acreage to our portfolio mainly from exploration licences in Australia, Canada, China, Colombia, Gabon, Germany, Syria, Tunisia and the USA (Gulf of Mexico, onshore and Alaska). In the Gulf of Mexico, Shell was the highest bidder on three blocks in Lease sale 204 and on 67 blocks in Lease sale 205, adding significant acreage to the Shell portfolio. Overall, our acreage in 2007 decreased slightly when compared with 2006 mainly due to a combination of divestments, relinquishments and licence expiry of acreage in various countries, largely offset by the acreage additions in locations noted above.

In early 2008, Shell was announced as the apparent high bidder on 275 of the 302 blocks it bid in Lease Sale 193. The blocks are located in the Chukchi Sea, offshore Alaska, and their award is pending review and final decision by the US Minerals Management Service.

RESEARCH AND DEVELOPMENT

The Shell Exploration & Production Technology organisation is responsible for the research, development and application of integrated technology solutions for Shell operating businesses and assets around the world. The primary objectives are to select, develop and implement technologies that enable Shell 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.

22 Royal Dutch Shell plc

Exploration & Production research and development (R&D) is carried out in two main laboratory locations: Rijswijk (the Netherlands) and Houston (Texas, USA). Additional technology facilities are in Oman, Qatar, Oslo (Norway), Calgary (Canada) and Bangalore (India). In-house teams and facilities are used in the research and development of proprietary exploration and production technologies along with service industry and/or academic capabilities where applicable.

The primary focus of the R&D work, with increasing emphasis on the subsurface and unconventionals, is in the following areas: enhanced subsurface imaging; reservoir characterisation and surveillance; 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; and developing solutions for the capture and sequestration of CO₂.

BUSINESS AND PROPERTY

Shell subsidiaries and 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 Shell’s 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 contractor’s 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 Shell group’s entitlement share of production would normally decrease.

Shell’s exploration and production interests, including acreage holdings and statistics on wells drilled, are shown on page 28.

PROVED RESERVES

Details of Shell subsidiaries’ and the Shell 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 163 to 169. 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 Shell subsidiaries in upstream risks and rewards but do not transfer title of the product to those companies.

During 2007, proved developed and undeveloped reserves of Shell subsidiaries were reduced by a total of 880 million boe, consisting of a decrease of 9 million barrels of oil and natural gas liquids and a reduction of 5,056 thousand million scf of natural gas (in each case before taking account of production). The reduction to proved developed and undeveloped reserves consisted of reductions of 145 million boe from revisions and 1,108 million boe from acquisitions and divestments, and additions of 340 million boe from extensions and discoveries and additions of 33 million boe from improved recovery. There was a net addition of 624 million boe to proved developed reserves and a net reduction of 1,504 million boe to proved undeveloped reserves (before taking account of production).

During the same period, the Shell share of proved developed and undeveloped reserves additions by equity-accounted investments, that are in addition to the additions to the reserves by Shell subsidiaries described above, represented an increase of 1,080 million boe, consisting of an increase of 251 million barrels of oil and natural gas liquids and an increase of 4,807 thousand million scf of natural gas (in each case before taking account of production). The Shell share of changes to proved developed and undeveloped reserves by equity-accounted investments consisted of an

increase of 548 million boe from revisions, an increase of 26 million boe from improved recovery, an increase of 513 million boe from extensions and discoveries and a decrease of 7 million boe as a result of acquisitions and divestments. There was a net addition of 251 million boe to proved developed reserves and a net addition of 829 million boe to proved undeveloped reserves (before taking account of production).

Details of the main proved reserves changes during 2007 are provided in the section entitled “Supplementary Information – Oil and gas (unaudited)”.

At December 31, 2007, after taking account of Shell subsidiaries’ 2007 net additions to proved developed and undeveloped reserves and production, total proved reserves for Shell subsidiaries were 21% lower than at December 31, 2006. At the same date, after taking into account the Shell share of equity-accounted investments’ net additions and production, the Shell share of total proved developed and undeveloped reserves of equity-accounted investments was 23% higher than at December 31, 2006.

In April 2007, Shell along with its partners, completed the divestment to OAO Gazprom of a 50% interest (plus one share) in the Sakhalin II project in Russia. Royal Dutch Shell diluted its stake in the project from 55% to 27.5%. As a result of this divestment, proved developed and undeveloped reserves associated with minority interests reduced by a total of 658 million boe and 402 million boe of proved developed and undeveloped reserves were moved from Shell subsidiaries to equity-accounted investments.

As a result of the acquisition during 2007 of the Shell Canada minority interest, minority interests were reduced by 72 million boe.

If the agreement currently under discussion with KazMunaiGas is concluded, resulting in Shell’s interest in the north Caspian PSC declining from 18.52% to 16.81%, Shell’s proved reserves would decrease by approximately 36 million barrels of oil equivalent.

In addition to proved conventional liquids and natural gas reserves, Shell has considerable interests in proven oil sands reserves in Canada associated with the Athabasca Oil Sands Project. Since SEC regulations define these reserves as mining-related and not part of conventional oil and gas reserves, these are presented separately to the conventional oil and gas reserves in the Oil Sands section of this Operating and Financial Review.

Royal Dutch Shell plc 23

OPERATING AND FINANCIAL REVIEW EXPLORATION & PRODUCTION




PROVED DEVELOPED AND UNDEVELOPED RESERVES (At December 31)									million barrels of oil equivalent^[A]
									2007		2006			2005
Shell subsidiaries										6,686		8,452			7,761
Shell share of equity-accounted investments										4,140		3,355			3,705


PROVED DEVELOPED AND UNDEVELOPED RESERVES									million barrels of oil equivalent^[A]
					Eastern Hemisphere				Western Hemisphere					2007
							Middle East,
	Europe		Africa^[B]		Asia Pacific^[C]		Russia, CIS^[D]		USA		Other		Total
Proved developed and undeveloped reserves
Shell subsidiaries
At January 1		1,565		1,135		1,102		3,424		851		375			8,452
At December 31		1,460		841		1,064		2,176		801		344			6,686
Shell share of equity-accounted investments
At January 1		2,064		–		558		387		313		33			3,355
At December 31		2,022		–		542		1,247		299		30			4,140

Proved developed reserves
Shell subsidiaries
At January 1		1,089		478		482		409		463		238			3,159
At December 31		1,019		456		477		303		413		229			2,897
Shell share of equity-accounted investments
At January 1		1,705		–		349		350		257		24			2,685
At December 31		1,653		–		381		343		239		25			2,641


[A]		For this purpose natural gas has been converted to barrels of oil equivalent using a factor of 5,800 standard cubic feet per barrel.
[B]		Excludes Egypt.
[C]		Excludes Sakhalin.
[D]		Includes Caspian region, Egypt and Sakhalin.

24 Royal Dutch Shell plc


CAPITAL EXPENDITURE AND EXPLORATION EXPENSE OF SHELL SUBSIDIARIES BY GEOGRAPHICAL AREA^[A]					$ million
	2007		2006			2005
Europe		2,767		2,684			1,991
Africa^[B]		1,895		1,840			1,937
Asia Pacific^[C]		1,326		1,264			1,067
Middle East, Russia, CIS^[D]		3,515		4,528			3,844
USA		3,873		2,306			1,486
Other Western Hemisphere		1,462		4,100			1,074

Total		14,838		16,722			11,399


[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 major capital projects, the related interest cost is included until these are placed in service. 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, up to April 2007, Sakhalin.


AVERAGE PRODUCTION COSTS OF SHELL SUBSIDIARIES BY GEOGRAPHICAL AREA^[A][E]	$/barrel of oil equivalent
	2007		2006		2005
Europe		9.15		7.56		6.03
Africa^[B]		7.85		5.60		4.13
Asia Pacific^[C]		4.31		3.35		2.94
Middle East, Russia, CIS^[D]		8.79		7.83		6.21
USA		8.35		8.08		6.57
Other Western Hemisphere		14.35		11.03		8.45

Total		8.27		6.95		5.54


[A]		Natural gas has been converted to crude oil equivalent using a factor of 5,800 standard cubic feet per barrel.
[B]		Excludes Egypt.
[C]		Excludes Sakhalin.
[D]		Includes Caspian region, Egypt and, up to April 2007, Sakhalin.
[E]		Production costs exclude royalty payments of $1,804 million in 2007, $1,569 million in 2006 and $1,940 million in 2005.

Royal Dutch Shell plc 25

OPERATING AND FINANCIAL REVIEW EXPLORATION & PRODUCTION


CRUDE OIL AND NATURAL GAS LIQUIDS PRODUCTION^[A]			thousand barrels/day
	2007			2006		2005
Europe
UK		183			223		250
Denmark		126			134		143
Norway		69			85		107
Italy		35			44		30
The Netherlands		6			6		7
Germany		4			4		4

Total Europe		423			496		541

Other Eastern Hemisphere
Africa
Nigeria		287			293		324
Gabon		31			32		36
Cameroon		14			14		13

Total Africa		332			339		373

Asia Pacific
Brunei		92			104		95
Australia		58			57		53
Malaysia		42			42		41
China		17			20		20
New Zealand		13			14		15
Others		5			5		4

Total Asia Pacific		227			242		228

Middle East, Russia, CIS
Oman		191			202		214
Abu Dhabi		146			147		134
Russia		51			52		35
Syria		24			30		36
Egypt		10			11		14
Others		11			13		10

Total Middle East, Russia, CIS		433			455		443

Total Other Eastern Hemisphere		992			1,036		1,044

USA		324			322		333

Other Western Hemisphere
Canada		47			38		39
Venezuela		9			31		14
Brazil		22			25		26
Others		1			^[B]		1

Total Other Western Hemisphere		79			94		80

Grand total		1,818			1,948		1,998


	million tonnes a year
Metric equivalent		91			97		100


[A]		Of Shell subsidiaries, plus share of equity-accounted investments, and including natural gas liquids (share of equity-accounted investments is assumed to be equivalent to Shell interest). Oil sands and royalty purchases are excluded. In those countries where PSCs operate, the figures shown represent the entitlements of the subsidiaries concerned under those contracts.
[B]		Fewer than 1,000 barrels per day.


NATURAL GAS PRODUCTION AVAILABLE FOR SALE^[A]			million standard cubic feet/day
	2007			2006		2005
Europe
The Netherlands		1,518			1,525		1,562
UK		663			775		925
Germany		390			421		428
Denmark		369			416		410
Norway		357			325		298
Others		53			61		36

Total Europe		3,350			3,523		3,659

Other Eastern Hemisphere
Africa
Nigeria		584			455		377

Total Africa		584			455		377

Asia Pacific
Malaysia		865			956		858
Brunei		553			574		544
Australia		542			529		525
New Zealand		230			241		234
China		106			36		—
Others		109			85		89

Total Asia Pacific		2,405			2,421		2,250

Middle East, Russia, CIS
Egypt		167			201		238
Pakistan		76			79		75
Syria		7			11		15

Total Middle East, Russia, CIS		250			291		328

Total Other Eastern Hemisphere		3,239			3,167		2,955

USA		1,130			1,163		1,150

Other Western Hemisphere
Canada		402			425		413
Others		93			90		86

Total Other Western Hemisphere		495			515		499

Grand total		8,214			8,368		8,263


[A]		By country of origin from gas produced by Shell subsidiaries and equity-accounted investments (Shell share). In those countries where PSCs operate, the figures shown represent the entitlements of the subsidiaries concerned under those contracts.

26 Royal Dutch Shell plc

LOCATION OF ACTIVITIES^[A][B] (At December 31, 2007)

Development and/

Location

Exploration

or production

Shell Operator^[C]

Europe

Denmark

■

Germany

■

Ireland

■

Italy

■

The Netherlands

■

Norway

■

Ukraine

■

Africa

Algeria

■

Cameroon

■

Gabon

■

Libya

■

Nigeria

■

Tunisia

■

Asia Pacific

Australia

■

Brunei

■

China

■

Malaysia

■

New Zealand

■

Philippines

■

Middle East, Russia, CIS

Abu Dhabi

■

Azerbaijan

■

Egypt

■

Iran

■

Kazakhstan

■

Oman

■

Pakistan

■

Qatar

■

Russia

■

Saudi Arabia

■

Syria

■

USA

USA

■

Other Western Hemisphere

Argentina

■

Brazil

■

Canada

■

Colombia

■

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, Shell is the operator of some but not all exploration and/or production ventures.

Royal Dutch Shell plc 27

OPERATING AND FINANCIAL REVIEW EXPLORATION & PRODUCTION


OIL AND GAS ACREAGE^[A][B][C] (At December 31)															thousand acres
	2007								2006									2005
	Developed				Undeveloped				Developed				Undeveloped					Developed				Undeveloped
	Gross		Net		Gross		Net		Gross		Net		Gross			Net		Gross		Net		Gross		Net
Europe		10,253		2,894		10,384		3,007		9,850		3,225		12,860			4,025		9,852		3,110		14,507		4,415
Africa^[D]		7,160		2,317		26,910		18,407		7,159		2,318		24,396			15,351		7,175		2,382		27,206		14,806
Asia Pacific^[E]		7,578		3,265		96,078		27,556		7,228		3,277		125,421			34,290		7,292		3,313		123,829		34,455
Middle East, Russia, CIS^[F]		27,520		9,614		74,666		31,176		32,238		10,284		66,579			30,321		32,125		10,302		66,839		30,467
USA		1,067		620		4,825		3,542		1,234		665		3,962			3,280		1,250		563		4,359		3,069
Other Western Hemisphere		917		598		31,795		21,077		945		569		30,413			20,328		872		551		30,097		20,314

Total		54,495		19,308		244,658		104,765		58,654		20,338		263,631			107,595		58,566		20,221		266,837		107,526



NUMBER OF PRODUCTIVE WELLS^[A][B] (At December 31)
	2007								2006									2005
			Oil				Gas				Oil					Gas				Oil				Gas
	Gross		Net		Gross		Net		Gross		Net		Gross			Net		Gross		Net		Gross		Net
Europe		1,638		427		1,334		452		1,647		475		1,487			461		1,762		491		1,355		448
Africa^[D]		1,006		356		35		11		945		333		40			13		1,234		413		36		12
Asia Pacific^[E]		1,096		517		286		117		1,095		520		259			109		1,076		480		264		100
Middle East, Russia, CIS^[F]		4,609		1,414		44		38		4,333		1,364		50			44		4,128		1,279		45		40
USA		15,493		7,825		1,040		765		15,977		8,077		1,069			830		16,159		8,270		873		636
Other Western Hemisphere		427		332		351		268		355		264		326			250		122		117		303		284

Total		24,269		10,871		3,090		1,651		24,352		11,033		3,231			1,707		24,481		11,050		2,876		1,520


NUMBER OF NET PRODUCTIVE WELLS AND DRY HOLES DRILLED^[A][B] (At December 31)
	2007				2006				2005
	Productive		Dry		Productive		Dry		Productive		Dry
Exploratory
Europe		10		1		7		7		5		3
Africa^[D]		3		1		7		1		9		1
Asia Pacific^[E]		5		11		8		4		6		3
Middle East, Russia, CIS^[F]		47		9		18		7		5		3
USA		23		3		30		3		9		3
Other Western Hemisphere^[G]		48		11		22		3		3		4

Total		136		36		92		25		37		17

Development
Europe		18		1		32		1		25		–
Africa^[D]		19		–		15		–		13		–
Asia Pacific^[E]		32		1		27		–		20		1
Middle East, Russia, CIS^[F]		159		1		155		2		173		4
USA		475		2		478		–		446		–
Other Western Hemisphere^[G]		44		–		76		2		26		–

Total		747		5		783		5		703		5


[A]		Including equity-accounted investments.
[B]		The term “gross” relates to the total activity in which Shell subsidiaries and equity-accounted investments have an interest, and the term “net” relates to the sum of the fractional interests owned by Shell subsidiaries plus the Shell share of equity-accounted investments’ fractional interest.
[C]		One thousand acres equals approximately four square kilometres.
[D]		Excludes Egypt.
[E]		Excludes Sakhalin.
[F]		Includes Caspian region, Egypt and Sakhalin.
[G]		A revision has been made to 2006 data to correctly reflect the effect of the BlackRock acquisition in Canada.

28 Royal Dutch Shell plc

OIL AND GAS INTERESTS

A selection of oil and gas interests, as well as recent developments in countries where Shell or equity-accounted investments have exploration and production interests, is summarised below. 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 Shell.

EUROPE

Denmark A Shell company holds a 46% non-operated interest in a producing concession until 2042. The Shell interest in this concession will reduce to 36.8% in July 2012 when the State takes a 20% fully participating stake in the concession. The Shell company also holds interests in four other non-operated exploration licences.

Germany A Shell 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.

Ireland Shell E&P Ireland Ltd. (Shell interest 100%) is the operator for the Corrib Gas Project (Shell interest 45%), currently under development. Shell has agreed to modify the route of the onshore pipeline and community consultation began in late 2006. A modified route is expected to be identified in 2008 and applications for consent for this new route will be submitted thereafter. Shell has further exploration interests in six licences offshore Ireland, of which four are operated and two are non-operated.

Italy Shell Italia E&P S.p.A.’s (Shell interest 100%) main assets are onshore in southern Italy and consist of Val d’Agri, which is in production and is operated by Eni (Shell interest 39.23%) and Tempa Rossa, operated by Total (Shell interest 25%), which is at the onset of its development phase. Shell Italia E&P S.p.A also has 100% interests in nearby exploration prospects, as well as a 30% interest in an oil transport and storage company (Società Oleodotti Meridionali), jointly owned with Eni.

The Netherlands The Shell share of natural gas and crude oil in the Netherlands is produced by Nederlandse Aardolie Maatschappij B.V. (NAM), a 50:50 joint venture between Shell and ExxonMobil. An important part of NAM’s 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. NAM’s production of oil and gas is covered by production licences. In 2007, NAM announced its decision to resume oil production in the Schoonebeek (Shell interest 30%) oil field.

Government participation in development and production is 40% or 50% mainly depending on the legislation applicable at the time the 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 potential development assets. On December 1, 2007, Shell assumed responsibility for operations of the Ormen Lange gas field, which was developed with sea-floor installations

at depths of between 850 and 1,100 metres. The development involved an onshore plant/terminal and pipelines for transport to the markets in the UK and continental Europe.

Shell International Pipelines Inc. (Shell interest 100%) holds interests in several Norwegian gas transportation and processing systems, pipelines and terminals. During 2007, Shell sold its equity interests in the undeveloped Skarv and Idun fields.

UK Shell UK Limited (Shell 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 UK’s 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. Crude oil comes from the central and northern fields. 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 significantly smaller than discoveries 15-20 years ago.

In 2007, Shell and ExxonMobil announced their intention to investigate market interest and valuation on their equity interests in a number of Northern North Sea assets, which include operated interests in Cormorant Alpha, Cormorant North, Tern, Eider, Kestrel and Pelican and non-operated interests in Otter and Hudson, as well as an operated interest in the Brent oil evacuation system. Shell and ExxonMobil reached an agreement with Fairfield Energy and Mitsubishi Corporation for the sale of the Dunlin Cluster in the North Sea covering the Dunlin, Dunlin South West, Osprey and Merlin fields, with completion of the deal still pending government approval.

Ukraine In 2006, Shell Ukraine Exploration and Production entered into a joint activity agreement (JAA) with Ukrgazvydobuvannya (UGV), a subsidiary of NaftoGasUkrainy (NAK), to explore for oil and gas across eight licences in the Dnieper-Donetsk Basin in central-eastern Ukraine.

The JAA which covers licences, agreed work programme levels and the terms of joint activities, gives Shell a 50% interest in the joint activities (excluding existing producing fields) in exchange for a commitment that comprises acquisition of seismic data and drilling of deep exploration wells over a three-year period. Seismic studies are expected to begin in 2008.

AFRICA

Algeria During 2007, Shell Algeria Reggane GmbH and Shell Algeria Zerafa GmbH (SARG and SAZG, Shell interest 80%) continued their exploration campaign in the permits Reggane Djebel Hirane and Zerafa in Algeria under a PSC with Algeria-based Sonatrach. The first phase of the PSC extends to September 2008. Liwa, a subsidiary of Mubudala Development Company, an Abu Dhabi Investment Company, has an interest of 20% in both permits, subject to final government approval.

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OPERATING AND FINANCIAL REVIEW EXPLORATION & PRODUCTION

Cameroon Pecten Cameroon Company (PCC) (Shell 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 (a PSC), which can reduce to 37.5% depending on state participation after a commercial discovery.

Gabon Shell Gabon (Shell interest 75%) has interests in nine onshore mining concessions/exploitation permits, six of which (Rabi/Kounga, Gamba/Ivinga, Toucan, Awoun, Totou and Bende) are operated by the company. The Rabi/Kounga PSC expires in 2022. The Gamba/Ivinga concession expires in 2042. The Toucan PSC expires in 2023 while the Totou/Bende PSC expires in 2021. In Awoun, an Exclusive Exploitation Authorisation has been asked for the Koula field for a duration of 20 years from 2008. The other three concessions/PSCs (Avocette, Coucal and Atora) expire between 2010 and 2021 and are operated by Total Gabon.

Shell’s production in Gabon is dominated by the Rabi field (Shell interest 42.5%). Shell Gabon’s portfolio includes two more producing fields: Toucan (near Rabi) and Gamba. A Shell company, Shell Offshore North Gabon B.V. (SONG), holds the Igoumou Marin permit in ultra-deep water. In 2007, Shell signed two exploration and production sharing contracts in offshore central Gabon.

Libya In May 2005, Shell and the National Oil Corporation of the Great Socialist People’s Libyan Arab Jamahiriya (NOC) signed an 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 Libya’s major oil and gas producing Sirte Basin. Initial seismic acquisition and analysis is now complete and exploration drilling is planned to commence in 2008. The engineering phase of the rejuvenation is also complete and construction work on Marsa Al Brega is expected to start in 2008 under the management of an NOC subsidiary. In December 2007, Shell Exploration and Development Libya GmbH was awarded two exploration blocks (Area 89, blocks 1 and 3) in Libya’s Sirte Basin in the EPSA 4.4 licensing round. The award is subject to final government ratification.

Nigeria The Shell Petroleum Development Company of Nigeria Ltd. (SPDC) (Shell interest 100%) is operator of a joint venture (Shell interest 30%) with the Nigerian National Petroleum Corporation (NNPC), Total (10%) and Agip (5%). The venture’s onshore oil mining leases (OML) expire in 2019 and the shallow water offshore leases expire in 2008.

Shell Nigeria Exploration and Production Company Ltd. (SNEPCO) (Shell 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 OML 134 (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 60% interest).

The OPL 250 contractor group, which includes Shell Nigeria Offshore Prospecting Limited (SNOP) (Shell interest 100%), has withdrawn from the PSC it entered into with NNPC in 2001.

Shell Nigeria Ultra Deep Limited (SNUD) (Shell interest 100%) has a 100% interest in block OPL 245 (PSC).

30 Royal Dutch Shell plc

Shell Nigeria Upstream Ventures (SNUV) (Shell interest 100%) has a disputed 40% equity interest in OML 122 (co-venturer Peak Petroleum).

Shell Nigeria Exploration Properties Alpha Ltd. (SNEPA) (Shell interest 100%) operates under a 100% working interest in deep-water block OPL 322 (40% Shell interest, 50% PSC with NNPC, 10% PSC with indigenous operator Dajo Oil).

Shell Nigeria Exploration Properties Beta Ltd. (SNEPB), (Shell interest 100%) has a 27% working interest in deep-water block OPL 318 (PSC, ConocoPhillips operated 35%, ChevronTexaco 18%, NPDC 20%).

ASIA PACIFIC

Australia Shell Development (Australia) Pty Ltd (SDA), (Shell 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 34% shareholding in Woodside Petroleum Ltd. Woodside 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 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. Shell also has rights to the gas in the Crux field (AC/P23) operated by Nexus Energy Ltd.

In 2007, SDA divested to PETRONAS its 25% interest in the NT/P48 Permit, which includes the Evans Shoal joint venture in the Timor Sea offshore Australia’s Northern Territory.

In 2007, the Prelude discovery was made in the 100% Shell owned WA-371-P block in the Browse Basin, marking a successful return of Shell as an operator in Australia. Shell also has a 22% indirect interest in the Persephone discovery by Woodside, in Australia’s NWS.

In early 2008, SDA purchased, subject to government approvals, three exploration permits offshore northwest Australia from Octanex N.L. and Strata Resources N.L. (members of the Albers Group of Companies). Also in early 2008, SDA agreed to sell its share in the Cossack-Wanaea-Lambert-Hermes and the Egret oil ventures and certain oil exploration opportunities in the NWS to Woodside.

Brunei Shell is a 50:50 shareholder with the Brunei government in Brunei Shell Petroleum Company Sendirian Berhad (BSP). BSP, 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 (Shell interest 25%). In 2006, oil production started from the first well from Phase III of the Champion West field (Shell interest 50%) using Shell’s Smart Fields^® technology. Other important primary development projects (such as Mampak Block 4 and Bugan Phase 2) are being matured. In 2007, BSP announced the discovery of gas in the Bubut structure.

Shell Deepwater Borneo Ltd. (Shell interest 100%) 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 54% operating interest in exploration Block A.

China Shell participates in the offshore South China Sea Xijiang oil producing fields (Shell interest ranges between 24.5% and 47.8%). Shell holds some 50% interest in full field development of the Changbei gas field in the Ordos Basin, onshore China, in partnership with PetroChina Company Limited. Shell also holds a 61% interest in the Jilin Shell Oil Shale Development Company Limited for minerals exploration, exploitation and development of oil shale resources.

In 2007, Shell acquired a 55% interest in the North Shilou coalbed methane project from Verona Development Corporation.

Malaysia Shell Malaysia Exploration & Production companies have 18 PSCs with the national 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 gas fields and the operator, with a 37.5% working interest, of a further two non-associated producing gas fields in Sarawak. Over 92% of the gas is supplied to the MLNG, MLNG Dua and MLNG Tiga plants (Shell 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% interest in the non-operated Baram Delta PSC, a 50% interest in the development of the SK308 discovered fields and exploration interests in the deep-water SK-E block and inboard SK-307 block. In Sabah, Shell operates four producing offshore fields with PSCs for the exploration and development of Blocks SB-301, SB-G, SB-J, ND-6 and ND-7. In 2007, an oil discovery was announced in Block SB-G. Also in 2007, Shell signed a PSC with PETRONAS to gain a 30% interest in the Kebabangan Cluster fields, and together with PETRONAS, ConocoPhillips and Murphy Oil Corporation, Shell took final investment decision to proceed with the development of the Gumusut-Kakap deep-water field.

In peninsula Malaysia, Shell holds a 50% interest in offshore Blocks PM-301 and PM-302, which are operated by a joint operating company with Shell and PCSB as shareholders.

New Zealand Shell has a 83.75% interest in the production licence for the offshore Maui gas field. In addition, Shell has 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. Shell also has 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 (Shell interest 50%), with the Pohokura field operated by Shell Exploration New Zealand Limited (Shell interest 100%).

Philippines Shell holds a 45% interest in the deep-water PSC for block SC-38. The SC-38 interest includes a production licence over 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 Shell company’s concessionary share is 9.5% (licence expiry in 2014), arising from a 23.75% Shell interest in the Abu Dhabi Petroleum Company, which in turn holds a 40% interest in the concession granted by the Abu Dhabi government. A Shell 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 (Shell interest 100%) participates as operator in five exploration concessions and has interests in four development leases, which are operated by Joint Venture Badr El-Din Petroleum Company (Bapetco). All concessions and leases are granted on the basis of PSCs. In 2007, Shell completed the sale of a 33% equity stake in the Northeast Mediterranean Deep-water (NEMed) concession located offshore Egypt to ONGC Videsh Ltd. As a result of the dilution Shell now has a 51% interest in NEMed. Shell Egypt has a 50% interest in 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 Shell company (Shell interest 100%) has a 70% interest in an agreement with the National Iranian Oil Company (NIOC). The development phase is finished and all permanent facilities were handed over to NIOC in 2005. Since then, the Soroosh/Nowrooz fields have been producing with NIOC responsible for all aspects of the operations. 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 Shell company (Shell interest 100%) currently holds an 18.52% interest in the North Caspian PSC (Kashagan) in respect of some 6,000 square kilometres in the Kazakhstan sector of the Caspian Sea. In early 2008, the international members of the Kashagan consortium agreed to sell their participating interests proportionally, allowing the Kazakhstan’s national oil company’s, KazMunaiGas (KMG), stake to increase to match that of the four major shareholders (if the sale is concluded, Shell interest would decrease to 16.81%). 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.

Shell has a 55% interest in the Pearls PSA which was signed in 2005 with KazMunaiTeniz, an offshoot of KMG (25%), and Oman Pearls, a subsidiary of Oman Oil (20%). The Pearls block is operated by the Caspi Meruerty Operating Company, which Shell has a 40% interest in, along with KMT (40%) and Oman Oil (20%). In 2007, the exploration well Khazar-1 discovered oil and gas reservoirs in the Pearls area, which is

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OPERATING AND FINANCIAL REVIEW EXPLORATION & PRODUCTION

another confirmation of the high potential of the Kazakhstan sector of the Caspian Sea. Shell has a 5.5% interest in the Caspian Pipeline Consortium.

Oman A Shell company has a 34% interest in Petroleum Development Oman (PDO), which is the operator of an oil concession expiring in 2044. The government of Oman holds a 60% interest in the concession and Private Oil Holdings Oman Ltd. (POHOL) holds the remaining 40%. A Shell company has an 85% shareholding in POHOL.

PDO has a number of pilots and commercial-scale projects under way using all three main enhanced oil recovery (EOR) technologies — thermal, chemical and miscible gas. Harweel aims to increase recovery up to four-fold and was the first miscible gas flood EOR project in the global Shell portfolio. Qarn Alam, on which final investment decision was taken in 2007, is one of the world’s largest steam injection EOR projects in a fractured carbonate reservoir.

Shell Technology Oman, a regional EOR research and development hub, was established in November 2006. Shell Technology Oman works closely with PDO and the Oil and Gas Research Centre of Sultan Qaboos University and its focus is on thermal and chemical EOR.

A Shell company is a 17% participant in the PSA operated by Occidental, to develop the Mukhaizna oil field.

Pakistan A Shell company (Shell 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 Shell company (Shell interest 100%) holds 25% of an operated deep-water licence offshore of Pakistan.

Qatar In July 2006, Qatar Petroleum and Shell launched the world-scale Pearl GTL project, which is being developed under a development and PSA with the government 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 Qatar’s North Field, and the transport and processing of the gas to produce around 120,000 boe per day of condensate, liquefied petroleum gas and ethane.

In July 2007, Qatar Petroleum and Shell announced the incorporation of Qatar Liquefied Gas Company Limited (4), a joint venture between Qatar Petroleum (70%) and Shell (30%), which will own the Qatargas 4 project’s onshore and offshore assets. The Qatargas 4 project comprises upstream gas production facilities to produce approximately 1.4 billion cubic feet per day of natural gas, including an average of approximately 70,000 boe per day of LPG and condensate from Qatar’s North Field over the 25-year life of the project.

Russia In April 2007, Shell and its partners completed the divestment to OAO Gazprom of 50% of their interest plus one share in Sakhalin Energy Investment Company Ltd (SEIC) in Russia (See Summary of results, page 17). Gazprom acquired a 50% interest plus one share while Shell retains a 27.5% interest minus one share, with Mitsui and Mitsubishi holding 12.5% and 10% interest, respectively.

Salym Petroleum Development (Shell interest 50%) continued to increase production from its Salym fields in Western Siberia, having crossed a threshold of 100,000 b/d in October, 2007.

Saudi Arabia Shell is a party to the joint venture conducting an exploration programme in the Rub Al-Khali area in the south of the Kingdom. Shell had a 40% interest in the project with Saudi Aramco holding a 30% interest. Total, who previously held the remaining 30% interest has, in early 2008, withdrawn from the joint venture. The remaining joint venture partners are in the process of agreeing to a new shareholding structure.

Syria A registered branch of Syria Shell Petroleum Development B.V. (Shell 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, Shell is party 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 (AFPC), a Syrian joint stock company in which Syria Shell Petroleum Development B.V. holds a 31.25% interest. A Shell company also entered into two PSCs, effective from February 2007, for Block 13 and 15 in the South of Syria. Work on the first four-year exploration period started in 2007.

USA

Shell Exploration & Production Company (SEPCo), (Shell interest 100%) produces crude oil, natural gas and NGL principally in the Gulf of Mexico, California (AERA), South Texas and Wyoming (Pinedale). The majority of SEPCo’s 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 2007, SEPCo acquired exploration interests in acreage located in offshore Alaska, Utah, New Mexico and Louisiana, where current and future exploration activities are being pursued. Also in 2007, SEPCo acquired additional exploration interests in the Gulf of Mexico through its successful participation in lease sales 204 & 205, and made two notable discoveries, Vicksburg and West Tonga, in the Gulf of Mexico.

SEPCo planned exploratory drilling in Alaska’s Beaufort Sea in 2007 and achieved agreement to protect subsistence whaling, important to the native culture. However, a court challenge to permitting agency authority prevented drilling.

In 2007, Shell successfully acquired seismic in the Beaufort and Chukchi Seas and is proceeding with exploration plans for 2008, subject to a favourable ruling from the court. In early 2008, Shell was announced as the apparent high bidder on 275 of the 302 blocks on which it bid in the Chukchi Sea Lease Sale 193. The formal awarding of the blocks is pending completion of the US Minerals Management Service standard bid review process.

In the Gulf of Mexico, SEPCo progressed development of the Perdido Regional host project, where it holds a 35% interest. Moored in approximately 8,000 feet of water, this will be the deepest spar production facility in the world. Perdido well pre-drilling began in mid 2007 with first production expected around the end of the decade. SEPCo also began production from the Deimos subsea development through the Mars platform in mid-2007.

32 Royal Dutch Shell plc

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.

SEPCo holds three leases awarded 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.

In 2007, SEPCo divested exploratory acreage and minor producing properties in the Fort Worth Basin and Wilcox Trend, both in Texas, and the Arkoma Basin in Arkansas, as well as its interests in several mature Gulf of Mexico platforms.

OTHER WESTERN HEMISPHERE

Argentina Shell Compania Argentina de Petroleo (CAPSA, Shell interest 100%) holds a 22.5% interest in the Acambuco concession.

Brazil Shell Brasil Ltda (Shell 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’s portfolio also includes interests in 10 offshore exploration blocks (3 operated by Shell) in Brazilian core basins of Campos, Santos and Espirito Santo. Shell interest in these blocks ranges from 20% to 100%.

In 2007, Shell continued to work on the development of the BC-10 fields, Ostra, Argonauta and Abalone, located in the offshore Campos Basin. The first phase development project, which is operated by Shell (50% interest), includes 9 production wells and one gas injection well tied back to an FPSO moored in around 5,800 feet. First oil from BC-10 Phase 1 is expected around the turn of the decade.

Shell is also the operator of two heavy oil fields in block BS-4, in the Santos Basin, where potential development concepts are being assessed.

Through Pecten Brazil Exploration Co. (Shell interest 100%), Shell 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 (Shell interest 100%) is a producer of natural gas, NGL, bitumen, synthetic crude and sulphur.

The majority of Shell Canada’s 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 world’s 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 2007, Shell Canada’s unconventional gas development efforts progressed in west-central Alberta and east-central British Columbia through continued land acquisition, its drilling programme, and investment in infrastructure facilitating new production. Shell has exploration rights on an approximately 800,000 acre tenure in northwest British Columbia where it looks to continue a coal bed methane test well program. Shell also has a non-operating 20% interest in an early stage deep-water exploration asset, off the east coast of Newfoundland and is a co-venturer in the Mackenzie Gas Pipeline proposal in northern Canada.

Shell is also the largest landholder offshore West Coast, which remains under a government 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 Canada produces heavy oil through cold (primary) production and thermal (enhanced) recovery in the Peace River area of Alberta. In 2007, Shell Canada started up a steam assisted gravity drainage project (Phase 1) near Cold Lake, Alberta. Shell Canada also holds a 20% non-operated interest in the Ells River in-situ bitumen project about 20 kilometres west of Ft. McKay.

Shell Canada holds 19 land parcels in Northern Alberta (approximately 290,000 acres) where it is evaluating heavy oil resources for potential development.

Late in 2007, the Alberta government announced a new royalty framework. Details of the provisions are to be clarified by the government in 2008, with implementation scheduled for January 1, 2009.

Colombia Shell Exploration and Production Company and the Colombian national oil company, Ecopetrol, signed an exploration farm-in agreement in 2007 under which Shell becomes a co-venturer (Shell interest 50%) in the Ecopetrol-operated Caño Sur Block in the Llanos Basin of Colombia.

Venezuela Shell Exploration and Production Investments B.V. (Shell interest 100%) holds a 40% interest in a joint venture with the state oil company, Petroleos de Venezuela (PDVSA), to develop and produce the Urdaneta West Field in Lake Maracaibo. The joint venture, which took effect in 2006, is called Petroregional Del Lago, S.A. (PERLA) and replaced the previous operating services agreement.

Royal Dutch Shell plc 33

OPERATING AND FINANCIAL REVIEW

Gas & Power

HIGHLIGHTS

•		Segment earnings up 6%.
•		Liquefied natural gas (LNG) sales volume up 9%.
•		Record LNG volumes, high plant reliability and strong pricing delivered robust LNG operational earnings.
•		Nigeria LNG Train 6 declared ready for start up in December 2007.
•		Five LNG trains under construction at year end in ventures located in Russia, Qatar and Australia.
•		Progress on development of major new LNG projects such as Gorgon in Australia.
•		Divestment of the remaining common units in Enterprise Products Partners LP in the USA.


EARNINGS^[A]	$ million
	2007			2006			2005
Revenue (including intersegment sales)		17,038			17,338			15,872
Purchases (including change in inventories)		(12,870	)		(12,778	)		(13,114	)
Depreciation		(315	)		(284	)		(372	)
Operating expenses		(3,466	)		(3,083	)		(2,251	)
Share of profit of equity-accounted investments		1,852			1,509			1,007
Other income/(expense)		739			230			221
Taxation		(197	)		(299	)		15
Segment earnings from continuing operations		2,781			2,633			1,378
Income/(loss) from discontinued operations		—			—			—
Segment earnings		2,781			2,633			1,378


[A]		As from 2007, the Gas & Power earnings include earnings generated by the wind and solar businesses, which were previously reported as part of Other industry segments. For comparison purposes, the 2006 and 2005 earnings have been reclassified accordingly, resulting in a reduction of $17 million in 2006 and $195 million in 2005.


COUNTRIES IN WHICH GAS & POWER HAS OPERATIONS
Europe	Africa	Middle East,	Asia Pacific	USA
Denmark	Ghana	Russia, CIS^[A]	Australia
Germany	Libya	Egypt	Brunei	Canada
Greece	Nigeria	Iran	China
Hungary		Oman	India	Other Western
Italy		Qatar	Japan	Hemisphere
The Netherlands		Russia	Malaysia	Bolivia
Norway		United Arab	Singapore	Brazil
Spain		Emirates	South Korea	Mexico
Turkey
UK
Ukraine


[A]		Commonwealth of Independent States.

34 Royal Dutch Shell plc

OVERVIEW

Gas & Power is part of the upstream business, which also includes Exploration & Production. Gas & Power liquefies and transports natural gas and develops natural gas markets and related infrastructure. With our joint venture partners, we continue to deliver LNG into the Asia-Pacific, European and North American markets, mainly through long-term contracts to utility companies. Through our European and North American marketing organisations, we supplied some of this LNG – in addition to local Shell and third-party gas production – to a broad range of customers, including industrial and commercial customers and distribution companies.

We continued to grow our position as one of the world’s largest LNG producers during 2007. We have interests in operational gas liquefaction ventures in five different countries. LNG sales are expected to grow in the coming years following the completion of five new LNG trains currently under construction. We expanded our gas marketing and trading business through entering new countries in Europe and an acquisition in North America. We are growing the world’s largest gas to liquids (GTL) business by constructing a major new plant in Qatar to add to our operating venture in Bintulu, Malaysia. Our coal conversion business expanded with the issuing of four new coal gasification licences and the start up of five coal gasification plants in China using our licensed technology. Our wind energy business also continues to develop.

Gas & Power has operations in 33 countries around the world and employed on average 3,000 people during 2007. In 2007, revenue was $17.0 billion with segment earnings of $2.8 billion. The overall growth in the business is reflected in our earnings, the delivery of record LNG sales volumes and higher capital investment. LNG currently generates the majority of Gas & Power earnings and this is expected to continue. Therefore, LNG sales volumes is deemed to be the most important performance indicator for Gas & Power.

EARNINGS 2007 COMPARED TO 2006 AND 2005

Segment earnings in 2007 were $2,781 million, a 6% increase over 2006. The earnings in 2007 included net gains of $275 million, mainly related to the sale of common units in Enterprise Products Partners LP. Excluding these items, earnings decreased by 5% from 2006. The earnings decrease was mainly due to lower earnings from marketing and trading activities as result of less favourable overall trading conditions in both Europe and North America. It was partly offset by higher earnings from record LNG sales volumes, as well as strong LNG and GTL prices reflecting high crude oil and natural gas prices.

Segment earnings in 2006 were $2,633 million, 91% higher than in 2005, mainly due to higher LNG sales volumes, LNG and GTL 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. Results in 2005 included net charges of $84 million, mainly related to asset divestments and impairment; excluding these items earnings in 2006 increased by 80% over 2005.

LNG sales volumes in 2007 of 13.18 million tonnes were a record, an increase of 9% from 2006 (12.12 million tonnes). The volume increase was mainly driven by increased gas supply to the Nigeria LNG venture (Shell interest 26%). This was complemented by high liquefaction plant

reliability across all the operational liquefaction plants in which Shell has an interest.

LNG sales volumes in 2006 were up 14% from 2005 driven mainly by the start-up of the fourth and fifth train at Nigeria LNG (Shell interest 26%), and Qalhat LNG in Oman (Shell indirect interest 11%).

LNG volumes to India, utilising the Hazira regasification terminal completed in 2005 (Shell interest 74%), increased in 2007. More LNG volumes were delivered into Mexico in 2007, following the commissioning of the Altamira LNG regasification terminal in 2006 (Shell interest 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 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 8-10% per annum for the next few years with growth in all major markets.

We anticipate LNG prices in Asia Pacific to remain strong in the foreseeable future due to strong demand from traditional markets such as Japan and Korea and growing demand from the emerging markets in China and India. Concerns over the cost, security and environmental impact of conventional energy supply will continue to increase interest in alternative sources of energy, including clean coal and wind.

Our strategy remains unchanged. We seek to build our position as one of the world’s 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.

CAPITAL INVESTMENT AND PORTFOLIO ACTIONS

Capital investment in 2007 of $3.5 billion was 50% higher than the $2.4 billion of capital investment in 2006. The capital investment increase from 2006 is mainly due to higher spending on the Qatar Pearl GTL project following the final investment decision in July 2006. Investment also continued on LNG plants including Nigeria LNG Train 6, North West Shelf Train 5, Sakhalin II Trains 1 and 2 and Qatargas 4, as well as the 164 MW Mount Storm Phase I wind energy project in the USA.

In Australia, Woodside Petroleum Ltd (Shell interest 34%) formally launched the development of the Pluto I LNG project in North West Australia. State and Federal environmental approvals were granted for the Pluto I LNG project in October 2007.

In April 2007, Shell and its partners completed the divestment to OAO Gazprom of 50% of their interest plus one share in Sakhalin Energy Investment Company Ltd (SEIC) in Russia (see Summary of results, page 17).

In the USA, as part of a long-term structured exit strategy, we concluded the sale of Shell’s participation in Enterprise Products Partners LP.

Also in the USA, the final investment decision was taken in the fourth quarter on the 100 MW expansion of the Mount Storm wind project in the USA (Shell interest 50%).

In Europe, Shell and ExxonMobil agreed to sell their joint interest in the German gas transportation business of BEB to N.V. Nederlandse Gasunie. Completion of the sale is expected in 2008.

In November 2007, Shell entered into an agreement for the sale of an LNG vessel. The sale was completed in early 2008.

During the year, Shell completed the divestment of its rural solar businesses in India and Sri Lanka.

Capital investment in 2006 of $2.4 billion, including the minority interest share of capital investment in the Sakhalin II project of $400 million, was 42% higher than the $1.7 billion of capital investment in 2005. There was no major divestment activity in 2006. In 2005, Shell sold its interest in InterGen, a power generation joint venture operating in several countries.

NEW BUSINESS DEVELOPMENT

In Australia, the North West Shelf venture (Shell direct and indirect interest 22%) completed the renewal of long-term LNG purchase commitments with eight Japanese customers, totalling 4.3 million tonnes per annum (100%) over 6 to 8 years as from 2009.

Shell and Petrochina concluded a binding heads of agreement for the supply of 1 million tonnes per annum of LNG for 20 years from the Gorgon project in North West Australia (Shell interest 25%), conditional on a final investment decision being taken by the Gorgon joint venture partners. The Gorgon project received federal environmental approval during the year.

In Qatar, Shell and Qatar Petroleum announced the formation of Qatar Liquefied Gas Company Limited (4), a joint venture between Qatar Petroleum (70%) and Shell (30%), which signed a sale and purchase agreement with Shell as the buyer of the LNG volumes (up to 7.8 mtpa) produced by the joint venture. An agreement was also signed with Qatargas Transport Company Limited (Nakilat), in which Shell was appointed as the shipping and maritime services provider for Nakilat’s fleet of at least 25 newly built liquefied natural gas carriers.

Shell and Gazprom signed an agreement under which Gazprom will supply 250 million cubic metres of natural gas per annum from 2007 until 2021 to Shell in Turkey. The agreement follows a gas contract release tender organised by Botas, the Turkish natural gas and pipeline company, that formed part of the gas market liberalisation process in Turkey.

In Russia, final contracts were signed with further customers for LNG supply from the Sakhalin II project (Shell interest 27.5%). Total firm sales over the plateau period amount to 9.4 million tonnes per annum, representing 98% of the nameplate capacity of the plant.

In the USA, Shell entered into an agreement with the owner of the Elba Island LNG regasification terminal for 45% of the capacity rights to a terminal expansion and required pipeline offtake linking the terminal with the existing main gas pipeline.

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OPERATING AND FINANCIAL REVIEW GAS & POWER

The engineering design of the rejuvenation of the Marsa Al Brega LNG plant is complete and construction work is expected to start in 2008 under the management of a subsidiary of the National Oil Corporation of the Great Socialist People’s Libyan Arab Jamahiriya.

The Dongting coal gasification plant at Yueyang, China, owned by a joint venture (Shell interest 50%) with China Petroleum and Chemical Corporation (Sinopec), began commercial operations in May, 2007. The plant provides synthesis gas to Sinopec downstream business units. A further four coal gasification projects in China using Shell coal gasification licensed technology also started operations during the year.

In the UK, Shell signed a licence agreement with Powerfuel plc, which entitles Powerfuel to use Shell coal gasification technology in its proposed 900 MW integrated gasification combined cycle coal fired power station in South Yorkshire. In the USA, Shell entered into a licence agreement with Baard Energy LLC, giving it the right to use Shell’s proprietary coal gasification technology in Baard’s proposed coal-to-liquid fuel (CTL) project in Ohio.

In Vietnam, a licence agreement was signed with Vietnam National Chemical Corporation for the use of the Shell coal gasification technology at the Ninh Binh fertilizer plant, south of Hanoi.

RESEARCH AND DEVELOPMENT

The focus of Gas & Power 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 in the area of LNG processing, safety, environmental impact, transport and storage. Shell is further developing its 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 area. In support of its clean coal energy business, Gas & Power continued to develop its coal and biomass gasification technologies and explore additional synthesis gas (syngas) conversion technologies with an emphasis on reducing capital costs, increasing scale, feedstock use and 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 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 those involving LNG, are carried out by equity-accounted investments.

Shell Trading markets and trades natural gas and electricity in support of Gas & Power’s business. Shell Global Solutions provides business and operational consultancy, technical services, research and development and catalysts to the LNG, GTL and coal gasification businesses of Gas & Power as well as, in some cases, to third parties.

SHELL INTEREST, DIRECT AND INDIRECT, IN LNG LIQUEFACTION PLANT
CAPACITY (At December 31, 2007)


	Shell interest,		100% capacity million
	direct and indirect (%)		tonnes per annum^[A]
Australia North West Shelf	Karratha	22		11.9
Brunei LNG	Lumut	25		7.2
Malaysia LNG (Dua and Tiga)	Bintulu	15		14.6	^[B]
Nigeria LNG	Bonny	26		21.6
Oman LNG	Sur	30		7.1
Qalhat (Oman) LNG	Sur	11		3.7

[A]		As reported by the operator.
[B]		Our interests in the Dua and Tiga plants are due to expire in 2015 and 2023 respectively.

CAPACITY UNDER CONSTRUCTION (At December 31, 2007)


	Shell interest,			100% capacity million
	direct and indirect (%)			tonnes per annum^[A]
Australia NWS Train 5	Karratha	22			4.4
Sakhalin II Train 1&2	Sakhalin Island	27.5			9.6
Qatargas IV	Ras Laffan	30			7.8
Australia Pluto I	Karratha	31	^[B]		4.3

[A]		As reported by the operator.
[B]		Based on 90% Woodside shareholding in the Pluto I plant.

SHELL SHARE OF LNG SALES VOLUME (million tonnes)


	2007		2006		2005		2004		2003
Australia		2.6		2.6		2.6		2.0		1.8
Brunei		1.9		1.9		1.7		1.8		1.8
Malaysia		2.3		2.1		2.0		1.9		1.5
Nigeria		4.2		3.3		2.3		2.4		2.1
Oman		2.2		2.2		2.1		2.1		2.1

Total		13.2		12.1		10.7		10.2		9.3

36 Royal Dutch Shell plc

LNG REGASIFICATION TERMINAL CAPACITY (At December 31, 2007)

100% capacity (million tonnes per annum)

Shell capacity rights

Capacity right

Project name

Location

(million tonnes per annum)

period

Status

Start-up date

Huelva

Huelva, Spain

0.2

^[A]

2001-2008

In operation

1988

Cartagena

Cartagena, Spain

0.0

^[A]

2002-2034

In operation

1989

Barcelona

Barcelona, Spain

0.9

^[A]

2005-2020

In operation

1969

Hazira

Gujarat, India

1.5

from 2005

In operation

2005

Altamira

Altamira, Mexico

3.3

from 2006

In operation

2006

Cove Point

Lusby, MD, USA

1.8

2003-2023

In operation

2003

Elba Island

Elba Island, GA, USA

2.8

2006-2036

^[B]

In operation

2006

Elba Expansion

Elba Island, GA, USA

4.5

2010-2035

In construction

2010

Costa Azul

Baja California, Mexico

3.8

2008-2028

In construction

2008

[A]		Capacity rights as at end 2007, which will change over capacity right period.
[B]		Capacity leased to third party until 2010.


LNG GAS CARRIERS (At December 31)^[A]
	number of ships																thousand cubic metres
Contract	2007			2006			2005		2004		2003		2007		2006		2005		2004		2003


Owned/demise-hire (LNG)		6	^[A]		6			6		6		5		797		797		797		797		662
Time-Charter (LNG)^[C]		5	^[B]		4	^[B]		1		1		—		849		573		145		145		—

Total		11			10			7		7		5		1,646		1,370		942		942		662

[A]		One of these ships with a capacity of 139,000 cubic metres was held for sale at the end of 2007.
[B]		Three of these were on flexible charter based on market demand.
[C]		Excludes LNG ships owned or chartered by LNG joint ventures.

GTL PLANTS (At December 31, 2007)


	Location	Shell interest %			100% capacity (bbl/day)		Status

Malaysia	Bintulu		72	%		14,700	In operation
Pearl Train 1	Qatar		100	%		70,000	In construction
Pearl Train 2	Qatar		100	%		70,000	In construction

COAL GASIFICATION ASSETS (At December 31, 2007)

100% capacity

Location

Shell interest %

(tonnes/day)

China

Yueyang

2,000

WIND POWER GENERATION CAPACITY (At December 31, 2007)


Project name	Location	Capacity (MW)		Shell interest (%)			Status
Cabazon Pass	California, USA		41		50	%	In operation
Whitewater Hill	California, USA		62		50	%	In operation
Rock River	Wyoming, USA		50		50	%	In operation
Top of Iowa	Iowa, USA		80		50	%	In operation
White Deer	Texas, USA		80		50	%	In operation
Colorado Green	Colorado, USA		162		50	%	In operation
Brazos	Texas, USA		160		50	%	In operation
Harburg	Harburg, Germany		4		100	%	In operation
La Muela	La Muela, Spain		99		40	%	In operation
NoordzeeWind	Egmond aan Zee, Netherlands		108		50	%	In operation
Mount Storm Phase I	West Virginia, USA		164		50	%	In construction
Mount Storm Phase II	West Virginia, USA		100		50	%	In construction

Royal Dutch Shell plc 37

OPERATING AND FINANCIAL REVIEW GAS & POWER

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, Hungary, 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 Shell holds 50% interest, is a major producer of gas in Germany and also one of the country’s gas transmission companies. Through BEB, Shell has indirect minority shareholdings in gas transmission, storage and distribution companies in Germany. In November 2007, Shell and ExxonMobil agreed to sell their joint interest in the gas transportation business of BEB to N.V. Nederlandse Gasunie. The sale is expected to be completed in 2008.

Shell holds a 50% interest in Avancis GmbH, a joint venture with Saint Gobain, for the manufacture of CIS thin-film technology solar panels. A small-scale production facility is under construction and is expected to be completed around the end of 2008.

Greece A Shell company holds a 24% interest in Attiki Gas Supply Company S.A., a local gas distribution company supplying residential, commercial and small industrial customers. 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.

Hungary In July 2007, Shell announced the expansion of its activities into natural gas marketing. Following the successful conclusion of a recent license application process, Shell has concluded its first gas sale and purchase agreements with suppliers and industrial customers.

Italy Work continues on developing 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.

Offshore Windpark Egmond aan Zee in the Netherlands has 36 turbines with an overall capacity of 108 MW. It is a 50:50 joint venture between Shell and Nuon.

Spain Shell has contractual interests in three regasification terminals, a 40% interest in a 99 MW operational wind park, La Muela, and a long-term contractual arrangement to supply gas and sell power from a 754 MW power generation plant.

UK Shell licensed its coal gasification technology to Powerfuel Plc in April 2007 for the proposed 900 MW integrated gasification combined cycle power station in Hatfield, South Yorkshire.

AFRICA

Algeria Shell declined to bid for the integrated Tinrhert GTL project in 2007. Co-operation continues between Shell and Sonatrach under a memorandum of understanding signed in February 2006, covering multiple business initiatives, both in Algeria and internationally.

Libya In May 2005, Shell and National Oil Corporation of the Great Socialist People’s 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 Libya’s major oil and gas producing Sirte Basin. Seismic data acquisition and analysis is now complete and exploration drilling is planned to start in 2008. The engineering design of the rejuvenation of the Marsa Al Brega LNG plant is also complete and construction is expected to start in 2008 under the management of an NOC subsidiary. Options to expand Marsa Al Brega and possibly build a new LNG plant are features of the agreement.

Nigeria Shell has a 26% interest in Nigeria LNG Ltd (NLNG), which had an LNG capacity at year-end 2007 of 21.6 million tonnes per annum (100%), including the recently completed train 6, which increased capacity by 4 million tonnes per annum (100%). Train 6 is expected to ramp up to full production over time as increased gas supply to the plant is made available. NLNG is also progressing development for a possible seventh LNG train. NLNG currently has operational control of 23 LNG vessels.

In March 2007, Shell signed a shareholders agreement with the Nigerian National Petroleum Corporation (NNPC) and other partners for the joint development of the Olokola LNG project in Nigeria (Shell interest 19.5%, previously 18.5%). This project, which may ultimately include up to four LNG trains, is currently in the front-end engineering and design phase.

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 partners are nearing completion of construction of the Afam VI power plant in the Niger Delta (Shell interest 30%).

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 continued during 2007. The parties will not reach a final decision on whether to proceed with the

38 Royal Dutch Shell plc

project until the remaining significant commercial and engineering work is complete.

Oman Shell has a 30% interest in Oman LNG L.L.C. (Oman LNG). This company has an annual capacity of 7.1 million tonnes per annum. Most 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 37% 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 production of some 1.6 billion cubic feet per day of wellhead gas from Qatar’s 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 Qatar’s North Field, a single LNG train yielding around 7.8 million tonnes per annum 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 On April 18, 2007, Gazprom, Shell, Mitsui and Mitsubishi completed the sale and purchase agreement to transfer shares in Sakhalin Energy Investment Company Ltd. (SEIC). Gazprom acquired a 50% interest plus one share, while Shell retains a 27.5% interest, with Mitsui and Mitsubishi holding a 12.5% and 10% interest respectively (see Summary of results, page 17). This project includes a two train LNG plant with a total capacity of 9.6 million tonnes per annum.

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 which develops and produces the gas fields of the North West Shelf (NWS). Current capacity (100%) of the LNG plant at year-end 2007 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. First cargoes of LNG from Train 5 are anticipated by the end of 2008. 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 the NWS under a long-term contract.

Through its shareholding in Woodside, Shell has an indirect 31% interest in the Pluto LNG project located in the Carnarvon Basin in Western Australia. Woodside formally launched the Pluto project in

November 2007; when on-stream, production throughput is forecasted to be 4.3 million tonnes per annum (100%).

Shell has a 25% interest in the Gorgon joint venture that is considering development of an LNG plant on Barrow Island off Western Australia, to be supplied with natural gas from the offshore Gorgon and Jansz fields.

Shell is also involved in several other exploration licences in the Browse and Carnarvon Basin and in the Timor Sea, which include opportunities for LNG export. In July 2007, the Prelude gas discovery in Shell’s wholly-owned WA-371P permit in the Browse Basin was announced.

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 by 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 The 50:50 joint venture with China Petroleum and Chemical Corporation (Sinopec) at Yueyang, which represents Shell’s first investment in a coal gasification plant, began commercial operations in May 2007. The plant supplies synthesis gas to Sinopec downstream business units.

An additional coal gasification licence was sold in October 2007, bringing the total number of Shell licences sold in China to 16. There are now five projects in China, which have started up in 2007 (including the Shell Yueyang joint venture plant) using Shell coal gasification technology.

We participate in Hangzhou Natural Gas Company Limited (Shell interest 39%), a joint venture with the Hangzhou Gas Group and Hong Kong China Gas, which supplies natural gas to industrial and commercial customers in Hangzhou, China.

India Shell holds a 74% interest in three legal entities that own assets at 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 sell regasified LNG to customers in Gujarat and northwest India.

In November 2007, Shell completed the sale of its rural solar business in India to Environ Energy Global.

Malaysia Shell holds 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 (100%), and the Dua plant is currently undergoing a minor expansion. Our interests in the Dua and Tiga plants are due to expire in 2015 and 2023, respectively.

Located adjacent 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 some three million cubic metres per day of natural gas into high-quality middle distillates and other speciality products using Shell-developed technology. It supplies a wide range of liquid and wax products to markets around the world.

Royal Dutch Shell plc 39

OPERATING AND FINANCIAL REVIEW GAS & POWER

USA AND CANADA

During 2007, the Gas & Power business portfolio in North America included a 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 and interests in wind energy projects.

The scope of the business continues to increase, encompassing existing LNG import capacity rights at the Cove Point and Elba Island regasification terminals as well as the continued evaluation of various options to expand LNG import capabilities. During the year Shell entered into an agreement with the owner of Elba Island regasification terminal for 45% of the capacity rights to a terminal expansion and pipeline offtake linking the terminal with an existing main gas pipeline.

Shell Energy North America (USA), L.P. (formerly Coral Energy Holding L.P.) and certain of its subsidiaries (all 100% Shell subsidiaries) acquired substantially all the operating assets of Avista Energy Inc, an energy marketing and trading subsidiary of Avista Corporation. The acquisition enhances Shell’s gas and power marketing presence in the Pacific Northwest and Western Canada.

During 2007, Shell completed the sale of its investments in Enterprise Products Partners LP.

In September 2007, Shell licensed its coal gasification technology to Baard Energy LLC for the coal gasification portion of Baard’s proposed coal-to-liquid fuel (CTL) project located in Columbiana County, Ohio. This was the first Shell coal gasification licence sold in North America.

The wind energy business in the USA continues to grow. In early 2007, construction on the 164 MW Mount Storm wind project in West Virginia (Shell interest 50%) was initiated with completion expected in 2008. In addition, an investment decision was made late 2007 to begin the construction of a 100 MW expansion of Mount Storm.

OTHER WESTERN HEMISPHERE

Bolivia Shell has a 25% interest in Transredes Transporte De Hidrocarburos S.A. (Transredes), an oil and gas pipeline company that owns over 3,500 miles of pipeline network. Shell 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 continues discussions 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 an 18% interest 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 a 50% interest 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 a 50% interest in an LNG regasification terminal at Altamira, Tamaulipas, on Mexico’s Gulf coast. The facility started commercial operations in September 2006, and has a 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 the state power company, CFE. Shell also holds capacity rights (3.75 million tonnes per annum) to the Costa Azul LNG import terminal under construction in Baja California on Mexico’s west coast.

LNG SUPPLY AND SHIPPING

Three operations, Shell Western LNG (SWLNG), Shell Eastern LNG (SELNG) and Shell North American LNG (SNALNG) (all 100% Shell subsidiaries), aim to secure LNG supplies for downstream natural gas markets. 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 of 12) which have been acquired, leased or chartered by Shell Tankers Singapore Limited, Shell Tankers (UK) Ltd, Shell Bermuda (Overseas) Ltd., and SWLNG.

Opportunities to optimise the composition of the LNG shipping fleet and ensure continued access to efficient and, quality shipping tonnage are reviewed on a periodic basis. By year-end, one vessel was being held for sale as a result of the latest fleet review. The sale was completed in early 2008.

40 Royal Dutch Shell plc

Oil Sands

HIGHLIGHTS

•		Segment earnings of $582 million.

•		Filed regulatory permits to increase production to 462,000 (Shell share) barrels per day.

•		Filed regulatory permits to increase upgrading capacity to 574,000 (Shell share) barrels per day.

•		Completed integration of Shell Canada’s oil sands activities into Shell’s downstream business.


EARNINGS^[A]	$ million
	2007			2006			2005
Revenue (including intersegment sales)		2,854			2,499			2,464
Purchases (including change in inventories)		(1,010	)		(830	)		(623	)
Depreciation		(166	)		(172	)		(179	)
Operating expenses		(967	)		(722	)		(664	)
Share of profit of equity-accounted investments		–			–			–
Other income/(expense)		(5	)		(1	)		10
Taxation		(124	)		(123	)		(347	)

Segment earnings from continuing operations		582			651			661
Income/(loss) from discontinued operations		–			–			–

Segment earnings		582			651			661


[A]		As from 2007, the Oil Sands earnings are disclosed separately. Previously these were reported as part of Exploration & Production earnings. For comparison purposes, 2006 and 2005 earnings were reclassified accordingly.

OVERVIEW

The Oil Sands business in Canada, with an average of 1,000 employees in 2007, is part of Shell’s downstream organisation and produces synthetic crude oils for use as refinery feedstocks.

The current operation has two process steps: extraction of bitumen from the oil sands at the Muskeg River Mine in north-eastern Alberta, followed by upgrading the bitumen to synthetic crude oil at the Scotford Upgrader near Edmonton, Alberta. A significant portion of the output of the Scotford Upgrader is sold to the nearby Shell Scotford Refinery, as well as to the Shell Sarnia Refinery in Ontario. The balance of the synthetic crude is sold to the general marketplace.

The main performance indicator for the Oil Sands business is production. Careful monitoring of production numbers allows us to track the profitability and reliability of the segment, helping to provide strong returns for Shell.

EARNINGS 2007 COMPARED TO 2006 AND 2005

Segment earnings in 2007 were $582 million compared to $651 million in 2006 and 2005 earnings of $661 million. The decrease in 2007 from 2006 was largely due to an unplanned shutdown in September and a fire in November at the Scotford Upgrader as well as higher operating and maintenance costs and increased royalty expense. Gains from a Canadian tax rate change were $94 million in 2007, down from $120 million in 2006. Segment earnings in 2006 slightly decreased from 2005 due to the first scheduled turnaround at the Muskeg River Mine and Scotford Upgrader offset by increased oil prices and a favourable tax adjustment. Earnings in 2005 included a non-operational gain of $65 million related to a prior period insurance settlement.

Shell’s share of mined oil sands net production for 2007 averaged 81,000 barrels per day compared with 82,000 barrels per day in 2006 and 95,000 barrels per day in 2005. Net production represents total production after the deduction of royalty obligations to the Alberta government. The average realised oil price for 2007 was $61.97 a barrel compared to $53.93 a barrel in 2006 and $47.67 a barrel in 2005.

OUTLOOK AND STRATEGY

The business environment for Oil Sands continued to be intense in 2007, dominated by the rapid growth of multiple major projects and rising capital and operating costs. Despite high oil prices, a stronger Canadian dollar and widening domestic light/heavy differentials – driven by increased heavy oil production – have created substantial market risk for Canadian bitumen producers. The Alberta Provincial Government has announced its intention to introduce legislation, effective 2009, that would change the Alberta royalty system. The proposed royalty system would introduce a graduated scale dependent on oil prices. As with the current system, two scales would be used: a lower version for projects that have not recovered their capital costs, and an increased version once payout has occurred. As currently proposed, the rates would slide from 1% to 9% of gross revenue and 25% to 40% on net profits interest respectively, reaching the maximum for both versions when oil is priced at Canadian $120 per barrel or higher.

Royal Dutch Shell plc 41

OPERATING AND FINANCIAL REVIEW OIL SANDS

The extent of greenhouse gas legislation in Canada as a whole remains uncertain. However, the current Alberta Provincial Government has introduced, and the federal government intends to introduce, legislation that requires reductions in allowable emissions of CO₂ in relation to oil sands’ production. Reductions in allowable emissions could impact current production and future expansions.

Looking ahead to 2008, we expect that the business environment will include increasing cost pressures and increased competition for skilled workers. This is despite an expected softening of industry growth plans due to the rising costs and the impact of the proposed changes to the Alberta royalty system if introduced. While overall production levels and human resource requirements are expected to grow throughout 2008, it is not expected to be at the pace anticipated at this time last year.

Our strategy is to be the leading oil sands operator in the industry by continuing to focus on operational and project execution excellence, and leveraging Shell’s extensive, high quality land positions to drive profitable growth. This will be accomplished by continuing to build on the capabilities and experience of Shell staff, and by managing growth within the overarching principles of HSSE and sustainable development.

CAPITAL INVESTMENT AND PORTFOLIO ACTIONS

Capital investment was $1.9 billion in 2007, up from $0.9 billion in 2006. Our main investments centred on the first expansion phase (Expansion 1) of the Athabasca Oil Sands Project (AOSP). Other investments were made on projects designed to increase the efficiencies of base operations.

Expansion 1, a fully integrated 100,000 barrels per day (60,000 b/d Shell share) expansion of oil sands mining and upgrading facilities, is well under way.

Construction was completed on the new Albian Village, a state-of-the-art facility built to house 2,500 Expansion 1 workers at the mine site. A new airstrip at the site was also completed to provide for the efficient and safe transport of our labour force to the mine.

Front-end definition work has progressed on AOSP Expansions 2 and 3. However, Shell and the AOSP joint owners have not made any final investment decisions on these expansions.

Shell acquired the Shell Canada minority interest which resulted in the full integration of the Oil Sands business into its downstream business.

RESEARCH AND DEVELOPMENT

The key objective of our research and development (R&D) in oil sands is to improve technologies to reduce costs, and to lower related emissions of CO₂ and the use of fresh water. This aims to help improve the economics of existing operations, make lower-grade ores economically viable for the business and provide a basis for sustainable growth.

BUSINESS AND PROPERTY

The existing Oil Sands mining interest is held through a joint venture (Shell interest 60%) with Chevron and Marathon Oil each having a 20% interest. Shell has substantial oil sands lease holdings in the Athabasca

42 Royal Dutch Shell plc

region of northern Alberta covering over 1,330 square kilometres that have the potential for recovery by surface mining. Initial commercial development of these leases started in 1999. This initial stage of development, the Muskeg River Mine, is located on the western part of Oil Sands Lease No. 7277080T13 (Lease 13).

Shell originally acquired the mineral rights to Lease 13 (7277080T13) in 1956. The Lease 13 resource has since been thoroughly characterised in association with a variety of development studies; however mining area developments with Muskeg River represent the first commercial operation on the lease. With the start of commercial mine operations on the western portion of Lease 13, the whole of Lease 13 covering 240 square kilometres is characterised as having “continued producing” status and the right to access the bitumen resource on the lease has been extended indefinitely so long as production is continuing. After the establishment of the AOSP joint venture in 1999, Lease 13 was formally transferred to Albian Sands Energy Inc. to be held in trust for the AOSP joint venture participants.

Lease 13 is situated immediately east of the Athabasca River Valley. Most of the lease comprises gently undulating terrain that ranges in elevation from 330 metres above sea level in the south-east to 284 metres in the west. The McMurray Formation is the contiguous geological unit containing the bitumen hydrocarbon resource. The McMurray Formation was laid down in a marine shoreline setting and is composed, generally, of a sequence of sediments that get finer in an upward direction – from pebbles five millimetres in diameter, through sand, to silt and mud 0.06 millimetres in diameter and finer. When the McMurray Formation contains bitumen in a sand-sized sediment coarser than approximately 0.12 millimetres, this is characterised as oil sands. The McMurray Formation is present at varying depths beneath the ground over much of northern Alberta. Over 3,400 square kilometres of land has been classified by the Energy Resources Conservation Board (ERCB) as surface minable. Within this area, the McMurray Formation is near surface and can be excavated economically with existing mining equipment. The Devonian limestone that lies beneath the McMurray Formation is within 20 metres to 150 metres of the surface.

The AOSP’s surface minable development is in north-eastern Alberta approximately 75 kilometres north of the city of Fort McMurray and is readily accessible by public roads. Both mining areas (Muskeg River currently in operation and Jackpine which is under construction) have integrated oil sands mining and mineral processing facilities. The oil sands ore is open-pit mined, using a truck and shovel operation, and the mined ore is processed in on-site bitumen extraction and clean-up facilities to yield a bitumen product. Power and steam for the operations is provided from an on-site co-generation facility, which is owned and operated by an independent power company, in combination with boiler facilities owned by the joint venture. The bitumen is transported by pipeline for upgrading at the Scotford Upgrader, located in the Edmonton area of central Alberta. Scotford’s upgrading process adds hydrogen to the bitumen, breaking up the large hydrocarbon molecules. This process produces a wide range of synthetic crude oils which are suitable feedstock for refineries, which will process them into refined products like gasoline. The Scotford Upgrader began operations in late 2002 and has a design capacity rate of 155,000 b/d (93,000 b/d Shell share).

The Muskeg River Mine received its primary regulatory approvals in 1999. An application to amend this approval was submitted to the ERCB and Alberta Environment (AENV) in April 2005. This amendment increased dry bitumen production to 270,000 b/d (162,000 b/d Shell share) and included the addition of minable bitumen resources on Shell’s Oil Sands Lease 90 (7280880T90) and Oil Sands Lease AT30 (7280090AT30.) Lease AT30 was acquired from Syncrude through a commercial swap arrangement. The application provided significant background detail on the geology, mine planning features and a development scheme for the expansion of processing facilities and mine production levels at the Muskeg River Mine. The application formed the basis of the approval from the ERCB for the expanded Muskeg River Mine in December 2006.

The first expansion, as agreed by Shell and the other joint venture participants in 2006, is proceeding with mining and the associated bitumen extraction processing plant at the Jackpine Mine with a capacity of 100,000 b/d (60,000 b/d Shell share) linked to expanded bitumen froth treatment facilities at the Muskeg River Mine facility. This was done with a view to (i) provide increased operational flexibility with two mining pits, (ii) take advantage of installed infrastructure at the Muskeg River Mine, and (iii) reduce execution risk by spreading the construction work forces over two construction sites. Full commercial production is scheduled for late 2010. The Jackpine mining area development, with a production capacity of 200,000 b/d, (120,000 b/d Shell share), was approved under a separate regulatory approval in 2004. Future growth plans will consider additional production from Muskeg River and expanded processing facilities and production at the Jackpine site, all under existing regulatory approvals.

Shell also holds a number of other minable oil sands leases in the Athabasca region with expiry dates ranging from 2008 to 2020, all of which may be extended by completing a minimum level of development prior to their expiry. There are no current, and no known previous, commercial operations on any of these lease holdings. The Muskeg River Mine and Jackpine Mine with the adjacent and acquired minable oil sands leases, represent a multi-billion dollar investment for Shell.

RESERVES

Details of Shell subsidiaries’ estimated net proven and probable minable oil sands reserves are summarised in the following table and are set out under the heading “Supplementary Information – Oil sands (unaudited)” on page 170. Minable oil sands reserves cannot be measured exactly since estimation of reserves involves subjective judgement. Estimates remain subject to revision. Proven and probable minable oil sands reserves are net of any quantities that are to be taken by others as royalties in kind.

Shell has significant interests in proven minable oil sands reserves in Canada associated with the Athabasca Oil Sands Project. Shell views these reserves and their development as an integral part of the company’s total downstream operations. However, since SEC regulations define these reserves as mining-related and not part of conventional oil and gas reserves, they are presented separately to the conventional oil and gas reserves.

The Muskeg River Mine development on Lease 13 was designed to access proven and probable reserves from Lease 13 west of the Muskeg River. At the average design production level of 155,000 b/d, 1.7 billion barrels of bitumen were initially estimated to be recoverable over the project life. The ultimate pit limits, mine- plans, and remaining reserve estimates are updated annually to incorporate the results from the development drilling programmes and the actual performance of the processing facilities. The reserve estimates are based on the results from over 1,840 drill holes completed since inception.

The Jackpine mining development on Lease 13 was designed to access proven and probable reserves of 1.3 billion barrels from Lease 13 east of Jackpine Creek at the average design production level of 100,000 b/d. The ultimate pit limits and mine plans were determined from the detailed mining and tailings development studies for the project. This includes the results from over 990 drill holes completed during the initial exploration drilling programmes and the more recent development drilling programmes over the last five years.

To provide continuity of disclosure to the investor as well as to continue to provide SEC Industry Guide 7 disclosures, both proven and proven plus probable minable oil sands reserves are being provided for 2007. The opening balance for 2007 for net proven minable oil sands reserves was 1,134 million barrels, including a minority interest of 250 million barrels. Acquisition of the minority shareholder interest by Shell occurred in 2007. Net proven and probable minable oil sands reserves were 1,473 million barrels at December 31, 2007, a net addition of 27 million barrels compared to 2006 (before taking account of production of 29 million barrels). The minable oil sands reserves are not included in the standardised measure of discounted cash flows for conventional oil and gas reserves presented on pages 168 to 169.


MINED OIL SANDS NET PRODUCTION^[A]	thousand barrels/day
	2007		2006		2005
Athabasca Oil Sands Project		81		82		95


[A]		Volumes represent Shell’s share of production (60%) net of royalty payments.


PROVEN AND PROBABLE MINABLE OIL SANDS RESERVES
(At December 31)	million barrels
	2007		2006		2005
Shell subsidiaries
Net proven reserves^[A]		1,111		1,134		746
Net probable reserves^[B]		362		341		119

Net proven and probable reserves		1,473		1,475		865


[A]		Proven minable oil sands reserves are computed from dimensions revealed in drill holes and the bitumen grades are computed from the results of detailed sampling. The sites for inspection, sampling, and measurement are spaced so closely and the geological character is so well defined that size, shape, depth, and bitumen content of the reserves are well established.

[B]		Probable minable oil sands reserves are computed from information similar to that used for proven reserves, however, the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. Although the degree of assurance is less than that for proven reserves, it is sufficient to assume continuity between points of observation.

Royal Dutch Shell plc 43

OPERATING AND FINANCIAL REVIEW

Oil Products

HIGHLIGHTS

•		Segment earnings of $10.4 billion.
•		Final investment decision taken to proceed with the 325,000 barrels per day expansion of the Motiva Port Arthur Refinery in the USA.
•		Acquisition of Shell Canada minority interest.
•		Retail growth in Ukraine, Malaysia and Scandinavia.
•		Completion of the sale of the Los Angeles refinery and 250 service stations in the USA.
•		Progress on the sale of three French refineries.
•		Launch of Shell Sulphur Solutions.
•		Creation of a new Future Fuels and CO₂ business unit.


EARNINGS	$ million
	2007			2006			2005
Revenue (including intersegment sales)		286,072			251,309			253,853
Purchases (including change in inventories)		(252,763	)		(222,962	)		(223,482	)
Depreciation		(2,440	)		(2,580	)		(2,622	)
Operating expenses		(19,551	)		(18,389	)		(16,141	)
Share of profit of equity-accounted investments		2,221			1,712			1,713
Other income/(expense)		13			7			69
Taxation		(3,113	)		(1,972	)		(3,408	)

Segment earnings from continuing operations		10,439			7,125			9,982
Income/(loss) from discontinued operations		–			–			–

Segment earnings		10,439			7,125			9,982


COUNTRIES IN WHICH OIL PRODUCTS HAS OPERATIONS
Europe	Africa	Sudan	Laos	Mexico
Austria	Algeria	Swaziland	Malaysia	Nicaragua
Belgium	Benin	Tanzania	New Zealand	Panama
Bulgaria	Botswana	Togo	Pakistan	Peru
Croatia	Burkina Faso	Tunisia	Philippines	Surinam
Czech Republic	Cape Verde	Uganda	Singapore	Venezuela
Denmark	Islands	Zimbabwe	South Korea
Finland	Cote d’Ivoire		Sri Lanka	The Caribbean
France	Djibouti	Middle East,	Taiwan	Dominican
Germany	Egypt	Russia, CIS^[A]	Thailand	Republic
Gibraltar	Ethiopia	Iran	Vietnam	French Antilles &
Greece	Gabon	Oman		Guiana
Hungary	The Gambia	Russia	USA	Jamaica
Ireland	Ghana	Saudi Arabia		Puerto Rico
Italy	Guinea	Ukraine	Canada	Trinidad &
Luxembourg	Kenya	United Arab		Tobago
The Netherlands	Lesotho	Emirates	Latin America
Norway	Madagascar		Argentina
Poland	Mali	Asia Pacific	Bolivia
Portugal	Mauritius	Australia	Brazil
Slovakia	Morocco	Brunei	Chile
Slovenia	Mozambique	China (including	Colombia
Spain	Namibia	Hong Kong)	Costa Rica
Sweden	Nigeria	Guam	Ecuador
Switzerland	La Réunion	India	El Salvador
Turkey	Senegal	Indonesia	Guatemala
UK	South Africa	Japan	Honduras


[A]		Commonwealth of Independent States.

44 Royal Dutch Shell plc

OVERVIEW

Oil Products is part of Shell’s downstream organisation and is made up of a number of different businesses. Collectively these turn crude oil, and synthetic crude from our Oil Sands operation, into a range of refined products, which they move and market around the world for domestic, industrial and transport use. These include gasoline, diesel, heating oil, aviation fuel, marine fuel, lubricants and bitumen.

Our Manufacturing business includes Refining and Supply; Trading provides feedstock optimisation; and Marketing includes our Retail, Business to Business (B2B) and Lubricants businesses. In 2007, a Future Fuels and CO₂ business unit was created in Oil Products to accelerate the development of fuels of the future and co-ordinate our company-wide work on the management of CO₂emissions.

Oil Products has a presence in more than 100 countries and territories and employed on average 63,000 people in 2007. We generated in 2007 $286 billion of revenue and earnings of $10.4 billion.

One key way of monitoring the reliability of our refining system is to measure controllable unplanned downtime, the percentage of manufacturing capacity that is lost due to unplanned events. Unplanned events are unexpected shutdowns or slowdowns that were not due to economic decision-making and were not due to abnormal events outside the control of the location (e.g. hurricane). This measure supports manufacturing’s strategy of excellence in the following areas:

•		process safety;

•		personal safety;

•		environment;

•		product quality; and

•		costs and margin maximisation.

Reliable operations support all of these.

EARNINGS 2007 COMPARED TO 2006 AND 2005

Segment earnings in 2007 were $10,439 million, 47% higher than 2006 and 5% higher than 2005. Segment earnings benefited from the impact of increasing crude prices on our inventory by $3,488 million in 2007, $98 million in 2006 and $2,450 million in 2005.

After taking into account the impact of increasing crude prices on our inventory, earnings from our Manufacturing business were lower than 2006 largely due to lower realised refining margins, in the second half of the year, reflecting unplanned downtime in certain refinery conversion units, in particular the Pulau Bukom refinery in Singapore and the narrowing of the light-heavy oil price differentials. Refining earnings were adversely impacted by higher unplanned downtime of 5.7% (controllable unplanned downtime 5.4%) compared to 4.9% in 2006. In Marketing, earnings improved and were mainly driven by higher marketing margins in Retail and finished Lubricants. B2B earnings improved reflecting increased Aviation sales and strong Marine margins, partly offset by lower margins for Commercial Fuels, LPG and Bitumen. In Trading, earnings were below those of 2006 with results adversely affected by less favourable market conditions, particularly in the second half of the year as the markets shifted into backwardation (forward prices lower than current spot prices).

In 2006, Refining earnings were lower than 2005, reflecting weaker refining margins. Marketing earnings in 2006 were higher than 2005, mainly due to higher earnings in Lubricants offsetting lower earnings in Retail and B2B. Relative to 2005, Trading earnings increased in 2006 as a result of capitalising on our global downstream portfolio positions and attractive trading conditions, stemming from high price volatility and market structure.

Earnings in 2007 included net gains of $327 million. Gains from divestments, including the non-operational benefit of the Los Angeles refinery sale and tax rate changes in Germany and Canada were partially offset by a number of legal and environmental provisions.

In 2006, earnings 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 2007, revenue increased $34,763 million from 2006 reflecting higher average crude prices in 2007.

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).

Gross margin (calculated as revenue less purchases) in 2007 increased $4,962 million from 2006 reflecting stronger retail margins and the positive impact of price on inventory, partially offset by lower realised refining margins.

In 2006, the gross margin declined $2,024 million from 2005 levels. Refining margins in Europe and Asia Pacific were down while refining margins in the USA increased.

Depreciation in 2007 declined $140 million compared to 2006, mainly due to divestments.

Depreciation was $42 million lower in 2006 than 2005 mainly due to divestments, partly offset by the impact of foreign exchange translation.

Operating expenses, which include divestment gains, increased in 2007 compared to 2006. The increase reflected increased refinery maintenance costs, higher trading expenses, increased energy related costs and the effect of a weaker US dollar on non-dollar denominated operating expenses, partly offset by slightly higher gains from divestments.

Operating expenses, which include divestment gains, increased in 2006 compared to 2005. 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 US dollar on non-dollar denominated operating expenses.

Refinery processing intake in 2007 declined some 2% from 2006. Excluding the Los Angeles refinery divestment, intake was marginally down as a result of major turnarounds and unplanned outages.

In 2006, refining processing intake declined 3% from 2005, the result of lower utilisation rates particularly in Europe and Asia Pacific, reflecting major turnarounds at our Pernis and Pulau Bukom refineries.

Total product sales volumes in 2007 were 2% higher than 2006. Excluding the impact of divestments, marketing volumes were 1% higher than 2006, mainly reflecting higher retail sales.

In 2006, total product sales volumes were 8% lower than 2005, with 6% 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.

OUTLOOK AND STRATEGY

Industry refining margins remained strong in 2007, particularly in the USA, amid robust global product demand growth. In the absence of any major disruptions, refining margins are expected to trend lower in 2008 than 2007 with new conversion capacities expected to come 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 remain a global leader in the downstream business. To support this aim our strategy is to:

•		Ensure continued asset integrity and operational safety;

•		Continue reshaping our portfolio by investing selectively in key markets and divesting non-strategic assets;

•		Enhance focus on delivering operational excellence and being a cost leader in the downstream businesses;

•		Reinforce our leading global brand position across the downstream businesses by focusing on initiatives such as differentiated fuels and second-generation biofuels;

•		Continue to maximise the value of our integrated hydrocarbon supply chain by working towards a tighter integration of the Oil Products and Chemicals businesses;

•		Discipline our capital spending; and

•		Continue to develop our people.

CAPITAL INVESTMENT AND PORTFOLIO ACTIONS

Capital investment was $3.9 billion in 2007 of which $1.7 billion was Refining, $2 billion was Marketing and $0.2 billion was new equity and loans in equity-accounted investments. This compared to $3.5 billion in 2006 of which $1.4 billion was Refining, $1.9 billion was Marketing and $0.1 billion was new equity and loans in equity-accounted investments. Our main investments were in our Refining and Retail businesses. This included spending on manufacturing asset maintenance, fuel specification, environmental compliance and upgrading and growing the retail network, including acquisitions in Malaysia and the Ukraine. During the period 2005-2007, around 65% of our capital expenditure was allocated to asset integrity and care and maintenance projects.

Royal Dutch Shell plc 45

OPERATING AND FINANCIAL REVIEW OIL PRODUCTS

We continued to focus on divesting non-strategic assets and redeploying capital to strategic growth regions.

In the USA, Shell completed the sale to Tesoro Corporation of the Los Angeles Refinery, Wilmington Products Terminal and around 250 retail sites and supply agreements in and around Los Angeles and San Diego. Also in the USA, Shell announced, through Motiva Enterprises (Shell interest 50%), the final investment decision to proceed with a 325,000 barrels per day capacity expansion at the Motiva Port Arthur Refinery.

Shell completed the sale of its liquefied petroleum gas (LPG) businesses in Bulgaria, the Czech Republic, Germany, Spain, Switzerland, Romania and the USA.

In France, Shell has signed a sale and purchase agreement for the sale of its Berre-l’Etang refinery site complex and associated infrastructure and businesses. A price of $700 million (including the Chemicals-related activities and business) has been agreed, with completion expected during the first half of 2008. Also in France, we received an offer for the sale of the Petit Couronne and Reichstett Vendenheim refineries. Completion of the sale, with a price of some $875 million, is expected during the first half of 2008.

We announced in 2006 that we are reviewing our portfolio in the Dominican Republic where we have a 50% interest in the 31,000 barrels per day Refidosma refinery and storage terminal, as well as a network of retail sites. We have reached agreement for a third party to acquire the Shell-owned shares in Refidomsa, but the government of the Dominican Republic has indicated that it plans to exercise its right to acquire the Shell-owned shares. Negotiation of definitive agreements is under way.

We acquired the Shell Canada minority interest which resulted in the full integration of the Canadian Oil Products business to the downstream organisation. This provides significant opportunity to further strengthen the application of refinery expertise, operational excellence as well as integrating and leveraging North American assets and infrastructure.

In the Ukraine, Shell and OJSC Alliance Group formed a joint venture to operate 150 Shell branded retail sites (Shell interest 51%). Operations began in the third quarter of 2007.

We acquired 100% of shares in Conoco Jet (Malaysia) Sdn Bhd, a wholly-owned subsidiary of ConocoPhillips, comprising 44 ProJet-branded retail service stations and 14 vacant land sites in the key growth markets of Malaysia.

In Scandinavia, Shell signed an agreement in the third quarter of 2007 that will result in the re-branding of 269 service stations across Norway, Sweden and Denmark.

46 Royal Dutch Shell plc

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 the advancement of process technologies that provide a competitive advantage.

For the fuels business, top-tier differentiated fuels have been launched in more than 45 countries. Improvements in engine performance, fuel economy and environmental performance are key drivers in the development of new products, while opportunities to reduce costs are pursued in current formulations. Product stewardship, especially in areas of health and the environment, continues to be given high priority in all areas.

Additional R&D investments continue to be made to secure breakthrough options in sustainable energy and mobility. Shell has partnerships with leading companies to develop second-generation biofuels from non-food sources, such as straw and wood residue, including Iogen Corporation of Canada, and CHOREN Industries of Germany. These activities were strengthened in 2007 as we established a five-year research partnership with Codexis in the USA, a firm specialising in enzyme technology. Shell also announced construction of a pilot facility in Hawaii to grow marine algae and produce vegetable oil for conversion into biofuel. Shell and HR Biopetroleum have formed a joint venture company called Cellena to develop this project.

The desire to conserve energy, protect the environment and meet customer and equipment manufacturer requirements continues to drive new technology development in our lubricants business. Key themes are the development of lubricants for improved energy efficiency, reduced maintenance and longer equipment life. Formulation technologies that ensure compatibility with new emissions-after-treatment systems and the increasing use of biofuels are both important parts of the programme. We are also developing lubricant formulations that build on the superior properties of gas to liquids (GTL) base oils when these become available around the end of the decade. Shell GTL base oils will allow the blending of low viscosity, low volatility formulations with superior hydrocarbon composition that will assist car and truck manufacturers in accessing durable energy efficient lubricants, assisting emissions control and engine and gear box durability.

In September 2007, we created a sulphur business to look at innovative ways to use sulphur which is removed during the processing of oil and gas.

In refinery process research, we seek to achieve the highest standards of reliability and process safety, supply chain optimisation, cost reduction and feedstock flexibility. We also seek continuous improvement in energy efficiency and the reduction in CO₂emissions. Facilitation of CO₂ capture and sequestration from selected process streams is an important consideration in the design of new facilities.

BUSINESS AND PROPERTY

MANUFACTURING

Refining

Our global refining portfolio includes interests in more than 40 refineries worldwide. We have the capability of processing more than four million barrels of crude oil per day. Our presence is truly global, with some 45% of our refining capacity in Europe, 25% in North America, 25% in Asia Pacific, and 5% in Latin America and Africa. Our refineries make a wide range of products including gasoline, diesel, heating oil, aviation fuel, lubricants and bitumen. These products are moved by Supply and Distribution to our downstream partners in Retail, Lubricants and B2B to fulfil Shell customer needs. Refining also works closely with Supply and Distribution, Trading and Shell Global Solutions to maximise earnings from our manufacturing assets. As is the case with all of Shell’s businesses, safety is our top priority. Since 2004, we have improved safety standards at our facilities and brought tailored sustainable development programmes to our sites. These set out the vision, strategy and implementation plan to enable us to meet our commitment to be a good neighbour.

Supply and Distribution

Supply and Distribution (S&D) delivers feedstocks to Shell refineries and finished products to Shell’s downstream marketing businesses and customers worldwide. S&D plays a large role in Shell’s hydrocarbon supply chain strategies and drives cross-business integration to maximise value and margin. It has more than 300 distribution facilities, 3,000 storage tanks and 9,000 kilometres of pipeline in some 70 countries. Its global fleet of some 7,000 Shell owned or contracted trucks travels more than 1.7 million kilometres every day and makes a delivery somewhere in the world every six seconds.

MARKETING

Retail

Shell’s branded fuel retail network is the world’s largest with around 46,000 service stations in 90 countries. With more than 100 years of experience in developing the technology and service needed, Shell is a leading provider of innovative and new fuels. We sell differentiated fuels in more than 45 countries made with special formulations designed to clean engines and improve performance under the Shell V-Power brand. And our Fuel Economy formula for gasoline and diesel is now available in 18 countries. In June 2007, a race version of Shell V-Power Diesel with GTL Fuel powered an Audi R10 TDI to victory for the second year running in the 24 Hour Le Mans race. In its 2007 global customer tracker survey, Shell was ranked number one globally as the preferred brand of service station.

Lubricants

Shell Lubricants is the global leader in branded lubricants and the largest marketer of lubricants with 12% of the global lubricants market in volume terms^[A]. Our products are available in around 120 countries and comprise some of the biggest selling lubricants brands in both global and individual markets, including Shell Helix, Pennzoil, Shell Rotella, Shell Rimula, Quaker State and Tongyi in China. These lubricants are used across the transport sector in passenger cars, lorries, coaches, aircraft and ships. Shell Lubricants also delivers lubrication solutions to the manufacturing, metalworking, food processing, mining, power generation and agriculture industries. Through the Jiffy Lube fast lube network, Shell Lubricants provides oil change and service to some




[A]		Source Kline “Competitive Intelligence from the Global Lubricants Industry, 2006-2016”.

27 million customers in North America and is building a presence in China. Customers recognise the commitment of Shell Lubricants to service quality and technology: the business has received a number of awards from customers such as Bosch and Autozone.

Business to Business (B2B)

B2B sells fuels and special products to a broad range of commercial customers and comprises six separate businesses:

Shell Aviation

Shell Aviation is a leader in the marketing of aviation fuels and lubricants, and in the operation of airport fuelling. It supplies 900 airports in some 70 countries refuelling a plane every 12 seconds. Shell retained top spot in the Armbrust Award for the World’s Best Jet Fuel Marketer for 2007.

Shell Marine Products

Shell Marine Products is an integrated supply chain provider supplying fuels, lubricants and related technical services to the shipping industry. We supply a range of fuels to power diesel engines and gas turbine vessels. Our range of around 100 different types of lubricants is formulated to provide optimum protection and performance in the toughest operating environments. Our business serves more than 20,000 customer vessels annually, ranging from large ocean-going vessels to small fishing boats. We can supply our products through our global network of around 730 ports, in more than 70 countries.

Shell Gas (LPG)

LPG is a clean-burning, efficient, portable and convenient fuel that has numerous domestic, commercial and industrial uses, including cooking, heating and transport. We supply LPG, in both handy cylinders and bulk tanks, to millions of customers across five continents. Our users range from hotel operators to aerosol manufacturers and from poultry breeders to rural householders without access to the electricity grid.

Commercial Fuels

Commercial Fuels provides high-quality heating, transport and industrial fuels worldwide. The bulk fuels business plays a key role in our integrated supply chain. The Commercial Road Transport (CRT) business provides fuels and services to transporters around the world through a network of well-located sites with payment through card systems, with more than 500,000 fuel cards in operation. Commercial Fuels deals with 35% of Shell fuels sold around the world.

Shell Bitumen

Shell Bitumen is a global market leader in terms of volume. Every day it supplies around 14,000 metric tonnes of bitumen – equivalent to 500 kilometres of road – to 1,600 customers, through 250 applications, in 30 countries. Shell Bitumen continues to grow in key markets, most notably in the pavement solutions and airport sectors. In early 2007, it opened its first specialities plant in India.

Shell Sulphur Solutions

Shell Sulphur Solutions, launched in September 2007, brings together Shell’s global sulphur expertise and experience. As well as being responsible for the sale and marketing of elemental sulphur, it also develops and delivers sulphur products and applications that provide innovative uses for sulphur. Shell Sulphur Solutions current products are

Royal Dutch Shell plc 47

OPERATING AND FINANCIAL REVIEW OIL PRODUCTS

SEAM™ Asphalt Modifier, technologies for the manufacture of Sulphur Enhanced Fertiliser and Sulphur Concrete.

Future Fuels and CO₂

Future Fuels and CO₂ is responsible for accelerating the technical and commercial development of biofuels, X-to-liquid fuels (synthetic fuels made from gas and potentially biomass that are cleaner burning than conventional fuel) and hydrogen. It is also responsible for leading energy conservation and CO₂ management activities across Shell.

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. Shell Trading’s main locations include Houston, London, Dubai, Rotterdam and Singapore. Shell’s trading and shipping activities primarily occur in support of Shell’s business activities, in particular Oil Products, Gas & Power and Chemicals. Shell Trading trades about 15 million barrels of crude oil equivalent per day.

SHELL GLOBAL SOLUTIONS

Shell Global Solutions provides business and operational consultancy, technical services and research and development expertise to Shell companies and the energy and processing industries worldwide, supporting primarily the Oil Products, Gas & Power and Chemicals businesses of Shell. It has a network of offices around the world, with main commercial centres in the USA, Europe and Asia Pacific. It also develops catalytic solutions and manufactures catalysts for sale to other Shell companies or third parties for use in refineries, chemical plants and GTL plants. It has a number of manufacturing facilities in the USA, Belgium, Canada and Germany.

48 Royal Dutch Shell plc

REFINING


COST OF CRUDE OIL PROCESSED OR CONSUMED		$ per barrel
Cost of crude oil processed or consumed (including upstream margin on crude supplied by
Shell and equity-accounted investment exploration and production companies)	2007			2006		2005		2004		2003^[A]
Total		71.83			60.46		48.24		37.22		26.75


OPERABLE CRUDE OIL DISTILLATION CAPACITY ^[B]		thousand barrels/calendar day ^[C]
	2007			2006		2005		2004		2003
Europe		1,815			1,823		1,822		1,835		1,808
Other Eastern Hemisphere		953			927		899		1,050		1,072
USA		835			893		893		964		1,014
Other Western Hemisphere		350			348		350		350		361

Total		3,953			3,991		3,964		4,199		4,255


CRUDE OIL PROCESSED ^[D]		thousand barrels daily ^[C]
	2007			2006		2005		2004		2003
Europe		1,644			1,641		1,701		1,688		1,712
Other Eastern Hemisphere		765			751		802		943		916
USA		789			874		855		951		974
Other Western Hemisphere		299			303		315		319		323

Total		3,497			3,569		3,673		3,901		3,925

Shell share of equity-accounted investments		392			417		455		451		515


REFINERY PROCESSING INTAKE ^[E]			thousand barrels daily ^[C]
	2007			2006		2005		2004		2003
Crude oil		3,496			3,617		3,722		3,946		3,949
Feedstocks		283			245		259		216		218

		3,779			3,862		3,981		4,162		4,167

Europe		1,731			1,732		1,804		1,770		1,776
Other Eastern Hemisphere		811			808		849		962		956
USA		879			956		953		1,055		1,079
Other Western Hemisphere		358			366		375		375		356

Total		3,779			3,862		3,981		4,162		4,167


REFINERY PROCESSING INTAKE		million tonnes per year
	2007			2006		2005		2004		2003
Metric equivalent		185			189		195		204		204


REFINERY PROCESSING OUTTURN ^[F]		thousand barrels daily ^[C]
	2007			2006		2005		2004		2003
Gasolines		1,363			1,444		1,492		1,542		1,575
Kerosenes		366			368		382		424		418
Gas/Diesel oils		1,190			1,215		1,256		1,297		1,312
Fuel oil		348			346		391		414		378
Other		593			597		567		557		550

Total		3,860			3,970		4,088		4,234		4,233


[A]		Cost figures for 2003 are provided on a US GAAP basis.

[B]		Shell 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]		Including natural gas liquids; includes processing for others and excludes processing by others.

[E]		Including crude oil and natural gas liquids plus feedstocks processed in crude oil distillation units and in secondary conversion units.

[F]		Excluding “own use” and products acquired for blending purposes.

Royal Dutch Shell plc 49

OPERATING AND FINANCIAL REVIEW OIL PRODUCTS


OIL SALES^[A]								thousand barrels per day
Product volumes	2007		2006		2005		2004		2003
Europe
Gasolines		501		563		569		576		616
Kerosines		205		207		223		220		194
Gas/Diesel oils		834		859		920		934		936
Fuel oil		178		153		196		179		184
Other products		168		191		185		203		207

Total		1,886		1,973		2,093		2,112		2,137

Other Eastern Hemisphere^[B][C]
Gasolines		368		356		318		337		315
Kerosines		168		167		174		168		166
Gas/Diesel oils		455		450		470		511		489
Fuel oil		141		140		151		168		180
Other products		151		114		119		136		138

Total		1,283		1,227		1,232		1,320		1,288

USA^[D]
Gasolines		851		845		1,068		1,372		1,343
Kerosines		166		168		236		258		212
Gas/Diesel oils		257		232		368		430		430
Fuel oil		39		51		107		209		189
Other products		174		175		234		247		218

Total		1,487		1,471		2,013		2,516		2,392

Other Western Hemisphere
Gasolines		260		247		263		293		296
Kerosines		71		71		74		73		72
Gas/Diesel oils		242		237		251		249		243
Fuel oil		63		65		77		85		86
Other products		36		37		43		44		52

Total		672		657		708		744		749

Export sales^[E]
Gasolines		198		195		186		182		193
Kerosines		146		136		104		114		154
Gas/Diesel oils		507		328		287		274		213
Fuel oil		283		338		313		208		181
Other products		163		160		121		130		138

Total		1,297		1,157		1,011		908		879

Total product sales^[D]
Gasolines		2,178		2,206		2,404		2,760		2,763
Kerosines		756		749		811		833		798
Gas/Diesel oils		2,295		2,106		2,296		2,398		2,311
Fuel oil		704		747		844		849		820
Other products		692		677		702		760		753

Total		6,625		6,485		7,057		7,600		7,445


[A]		Sales figures exclude deliveries to other companies under reciprocal sale and purchase arrangements, which are in the nature of exchanges. Sales of condensate and natural gas liquids are included.
[B]		Since 1966, a Shell entity has a 25% interest in Pars Oil Company, a joint venture that blends and markets lubricants. Pars Oil Company owns 51% in Pars and Shell Company (PASH), which markets and distributes Shell branded lubricants in Iran. A Shell entity also has a 49% in PASH.
[C]		Shell 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 Sudan’s 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. Shell does not hold any oil or gas reserves in Sudan.
[D]		Certain contracts are held for trading purposes and reported net rather than gross with effect from Q3 2005. The effect in 2007 is a reduction in oil product sales of approximately 805 thousand b/d, 844 thousand b/d in 2006 and 424 thousand b/d in 2005.
[E]		Export sales as a percentage of total oil sales amounts to 19.6% in 2007, 17.8% in 2006, 14.3% in 2005, 11.9% in 2004 and 11.8% in 2003.

50 Royal Dutch Shell plc


SALES BY PRODUCT AS PERCENTAGE OF TOTAL PRODUCT SALES									%
	2007		2006		2005		2004		2003
Gasolines		32.9		34.0		34.1		36.3		37.1
Kerosines		11.4		11.6		11.5		10.9		10.7
Gas/Diesel oils		34.7		32.5		32.5		31.6		31.1
Fuel oil		10.6		11.5		12.0		11.2		11.0
Other products		10.4		10.4		9.9		10.0		10.1

Total		100.0		100.0		100.0		100.0		100.0


TOTAL OIL SALES VOLUMES^[A]							thousand barrels per day
Oil products by geographical area	2007		2006		2005		2004		2003
Europe
Germany		667		732		771		772		785
France		266		280		268		275		283
UK and Republic of Ireland		250		252		323		311		313
The Netherlands		187		183		199		191		180
Others		516		526		532		563		576

Total		1,886		1,973		2,093		2,112		2,137

Other Eastern Hemisphere
Australia		242		221		222		215		190
Others		1,041		1,006		1,010		1,105		1,098

Total		1,283		1,227		1,232		1,320		1,288

USA^[A]		1,487		1,471		2,013		2,516		2,392

Other Western Hemisphere
Canada		288		288		300		287		276
Brazil		197		180		179		170		168
Others		187		189		229		287		305

Total		672		657		708		744		749

Export sales		1,297		1,157		1,011		908		879

Total oil products^[A]		6,625		6,485		7,057		7,600		7,445


[A]		Certain contracts are held for trading purposes and reported net rather than gross with effect from Q3 2005. The effect in 2007 is a reduction in oil product sales of approximately 805 thousand b/d, in 2006 844 thousand b/d and in 2005 424 thousand b/d.

Royal Dutch Shell plc 51

OPERATING AND FINANCIAL REVIEW OIL PRODUCTS


REVENUE							$ million
	2007		2006		2005		2004		2003^[A]
by product
Gasolines		75,387		65,910		62,189		55,594		44,830
Kerosines		26,060		23,485		21,775		16,308		10,826
Gas/Diesel oils		80,458		68,899		63,357		48,304		35,344
Fuel oil		14,972		13,948		13,218		9,688		8,424
Other products		23,160		20,182		17,505		15,279		13,834

Total oil products		220,037		192,424		178,044		145,173		113,258

by geographical area^[B]
Europe		65,697		60,755		55,968		44,010		35,618
Other Eastern Hemisphere		43,986		37,869		31,705		25,725		19,957
USA		49,598		44,370		49,574		46,500		34,533
Other Western Hemisphere		23,679		21,465		19,957		15,116		12,751
Export sales^[B]		37,077		27,965		20,840		13,822		10,399

Total oil products		220,037		192,424		178,044		145,173		113,258


[A]		Figures for 2003 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
	2007		2006		2005		2004		2003^[A]
by product
Gasolines		94.81		81.85		70.88		55.03		44.46
Kerosines		94.44		85.97		73.52		53.52		37.18
Gas/Diesel oils		96.04		89.61		75.61		55.04		41.90
Fuel oil		58.29		51.20		42.91		31.17		28.14
Other products		91.51		81.64		68.29		54.95		50.30

Total oil products		90.97		81.30		69.12		52.19		41.68

by geographical area
Europe		95.42		84.36		73.21		56.93		45.67
Other Eastern Hemisphere		93.91		84.55		70.52		53.30		42.45
USA		91.35		82.65		67.48		50.48		39.56
Other Western Hemisphere		96.60		89.47		77.28		55.51		46.64
Export sales		78.25		66.25		56.48		41.57		32.41

Total oil products		90.97		81.30		69.12		52.19		41.68


[A]		Figures for 2003 are provided on a US GAAP basis.

52 Royal Dutch Shell plc

SHIPPING

During 2007, shipping portfolio changes included the redelivery from demise charter of three medium-range product tankers (25,000 to 45,000 dwt). One general purpose product tanker (10,000 to 25,000 dwt) was converted from demise charter to time charter. Three new building US “Jones Act” large range product tankers (45,000 to 160,000 dwt) were contracted on time charter for delivery in 2009

and 2010. Two liquefied petroleum gas (LPG) carriers (82,250 and 73,800 cubic metres) were contracted on time charter and one LPG carrier (82,500 cubic metres) redelivered from time charter. These changes together with other new charters, charter renewals and redeliveries from time charter are summarised in the table below. In addition, at the end of 2007 three panamax size sulphur vessels were on consecutive voyage charter.


OIL TANKERS^[A] (At December 31)
	number of ships										million deadweight tonnes
	2007		2006		2005		2004		2003		2007		2006		2005		2004		2003
Owned/demise-hired
VLCCs (very large crude carriers over 160,000 dwt)		–		–		4		5		7		–		–		1.2		1.5		2.1
Large range (45,000 to 160,000 dwt)		8		11		13		11		13		0.7		0.9		0.8		0.7		0.9
Medium range (25,000 to 45,000 dwt)		5		5		5		5		5		0.2		0.2		0.2		0.2		0.2
General purpose (10,000 to 25,000 dwt)/ Specialist		4		5		5		2		3		0.1		0.1		0.1		0.1		0.1

Total		17		21		27		23		28		1.0		1.2		2.3		2.5		3.3

Time-chartered^[B][C]
VLCCs (very large crude carriers over 160,000 dwt)^[D]		7		7		1		1		1		2.1		2.1		0.3		0.3		0.3
Large range (45,000 to 160,000 dwt)		31		22		18		19		15		2.6		1.9		1.6		1.7		1.3
Medium range (25,000 to 45,000 dwt)		14		14		14		8		13		0.5		0.5		0.5		0.3		0.5
General purpose (10,000 to 25,000 dwt)/ Specialist		25		24		13		12		10		0.4		0.4		0.3		0.2		0.2

Total		77		67		46		40		39		5.6		4.9		2.7		2.5		2.3

Total oil tankers		94		88		73		63		67		6.6		6.1		5.0		5.0		5.6

Owned/demise-hired under construction or on order^[E]		1		1		1		3		–		0.1		–		0.1		0.3		–


LPG GAS CARRIERS^[A][F] (At December 31)
	number of ships										thousand cubic metres
	2007		2006		2005		2004		2003		2007		2006		2005		2004		2003
Owned/demise-hired (LPG)		–		–		–		1		1		–		–		–		60		59
Time-chartered (LPG)		3		2		2		2		2		212		166		136		136		136

Total		3		2		2		3		3		212		166		136		196		195


[A]		Oil tankers, ocean going articulated tug barges and gas carriers of 10,000 dwt and above which are owned/chartered by subsidiaries where the 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 subsidiaries.

[E]		Owned/demise hired new building contracts not in service but due for delivery post December 31, 2007.

[F]		LNG shipping is covered under the Gas & Power Operating and Financial Review.

Royal Dutch Shell plc 53

OPERATING AND FINANCIAL REVIEW

Chemicals

HIGHLIGHTS

•		Strong financial performance with segment earnings of $2.1 billion.

•		Full year of operations at the Nanhai petrochemical complex with high operating rate.

•		Construction on schedule of the new world-scale ethylene cracker and mono-ethylene glycol (MEG) plant in Singapore.