殼牌 (SHEL) 2005 Q3 法說會逐字稿

Welcome to the Shell Q3 analyst conference call on October 27, 2005.

Throughout today's presentation all participants will be in a listen only mode.

After the presentation there will be an opportunity to ask questions. [OPERATOR INSTRUCTIONS].

I will now hand the conference over to David Lawrence, please go ahead.

Thank you.

Good afternoon and welcome to the analyst and investor teleconference for third quarter results for Royal Dutch Shell.

I'm David Lawrence, Executive VP Investor Relations and with me today is Peter Voser, Chief Financial Officer.

Before we begin I would like to refer you to the disclaimer in your charts.

Please take a moment to read.

Thanks.

We will begin with a short overview of our results followed by Q&A.

Now I would like to turn this over to Peter.

Thanks Dave and good afternoon or good morning to everyone.

We have all seen in these past few months a quite volatile period.

Extreme natural events and some powerful economic forces have impacted the energy sector and markets and the view of the business.

We keep a very watchful eye on such things and this is essential but let me be clear, we are in this business to create value not only in view of today and tomorrow's events but also in the longer term.

Next year, five years from now and 30 years out.

Let's go to the first chart which are the highlights of Q3.

We have had another very good quarter with strong performance across all our businesses.

We captured the benefit of high oil and gas prices and refining margins and then even after absorbing the impact of hurricanes in the US, we continued with our exploration success building our resource base.

Our growth in our industry leading LNG position continued at pace.

Production has commenced from Nigeria LNG, Train 4 in the fourth quarter and we are looking forward to the start of Train 5 in Nigeria and Qalhat energy in Oman.

The downstream continues to excel with high earnings and cash generation.

Again even with the challenge of the US hurricanes and also low retail margins.

The 2004 to 2006 divestment target of $12 billion to 15 billion has been achieved early with the successful divestment of Gasunie transportation assets, Basell and InterGen raising proceeds from divestment programs to date to $13.7 billion.

And we returned significant cash to our shareholders.

We are delivering on our strategy of more upstream and profitable downstream.

This means investing and focusing our resources in profitable growth opportunities mainly in the upstream.

We benefit from our integrated upstream, downstream business model with access to resources and markets.

This year we are investing 12 out of our $15 billion in the upstream in integrated gas, unconventionals and material oil.

We are building a tremendous resource base on our way to unlock 13 billion barrels of resources over the next five years.

In the downstream we focus on operational performance and competitive cost structure to generate cash and we invest where we see sustained growing markets.

And we emphasize getting the culture right in the company to deliver results with the right people with the right skills in place to get the job done.

Today we are announcing we have already recruited around 1,000 technical professionals so far this year.

In our day to day business and operations we focus on the fundamentals, project management, operational performance, our customers and technology.

And the unification of Royal Dutch Shell has helped to drive delivery across our company, we make things simple, increase accountability, speed up decision making.

The strategy is simply straightforward and focused, I don't spend a lot of time and words on this now.

We are focused on implementation and execution but as we have talked about before we will provide an update in 2006.

Let's move on to Chart 2.

Q3 operational performance is paying off, we are capturing the benefits of current high oil and gas prices and refining margins.

As you can see with our record CCS earnings of $7.4 billion for the quarter.

Up 68% over a year ago.

Basic earnings per share increased by 69%.

Our cash from operations, excluding working capital movements and taxes paid and accrued, grew to $10.5 billion for the quarter.

We brought in an additional $4.3 billion through divestment proceeds.

So we generated close to $15 billion cash in one quarter.

Along with our strong cash generation we declared second quarter dividends of EUR0.23 per share and we'll pay out almost $2 billion equivalent in dividends to our shareholders.

On top of this we bought back shares, nearly 1% of the shares of Royal Dutch Shell.

We invested in our portfolio of new projects and assets across the businesses, our capital spend year to date is now $10.2 billion excluding the minority interest in Sakhalin. $7.7 billion has been spent in the upstream and around $2.5 billion in the downstream and the other business segments.

We expect to spend around $15 billion this year in '05 in line with earlier guidance given.

Let me give you an update on the hurricanes which is the next chart.

Our people in the Gulf of Mexico have done an extraordinary job and under the most challenging conditions to restore our operations and facilities following hurricanes Katrina and Rita.

The map you see shows the path of the hurricanes Katrina and Rita and as you can see these storms passed directly over some of our assets.

In the upstream we have earlier announced that Shell has successfully restored its Shell Gulf of Mexico production, operated and non-operated to more than 200,000 barrels a day of the approximately 450,000 per day prior to hurricane Katrina.

We continue to make good progress on key assets including Ursa, Mensa and the Auger pipeline.

An additional 150,000 BOEs per day Shell share is expected to return to production during the fourth quarter of 2005.

Some 80,000 BOEs per day above earlier guidance.

The Mars platform was exposed as you can see on the map for several hours to sustained winds estimated to be in excess of 175 miles per hour.

This caused significant damage.

The necessary equipment and services have been secured fast and we now expect that the production from the Mars platform will resume in the second half of '06.

Upstream costs after tax, Shell share basis associated with the hurricane evacuation people displacement and repairs to assets and facilities is expected to be around 300 million prior to insurance recovery.

In the third quarter '05 costs after tax were 27 million and approximately 100 million after tax will be spent in the fourth quarter '05 with the remainder in '06.

In the downstream the Convent and Norco refineries were back online within two weeks of hurricanes Katrina and Rita.

The Deer Park refinery was out of operation for ten days after Rita and the Port Arthur refinery is expected to be back shortly.

Overall Shell lost refinery intake -- the lost refinery intake sorry was some 4.9 million barrels in the third quarter '05 and some 4.5 million barrels is expected to be lost in the fourth quarter '05.

Chemicals overall asset utilization was impacted by 7% in the third quarter with fourth quarter '05 impact estimated at some 2 to 3%.

Downstream costs, so that's a combination of chemicals and oil products after tax and prior to insurance recovery associated with the hurricanes, are approximately $20 million for Q3 and are expected to be around $30 million in the fourth quarter.

So all in all total upstream and downstream after tax expense to Shell for hurricane related items is expected to be around $350 million for '05 and '06.

Insurance recovery should be available for a significant portion of these costs although I have to say it is too early in the process to estimate how much that recovery will be.

Let's move on to Chart 4.

The impact of hurricanes Katrina and Rita compounded tightness of supply in general and was reflected in high oil and gas prices and refining margins, with US Gulf industry margins averaging $18 per barrel for the quarter.

Brent was up 48% versus a year ago when Henry Hub gas was up 74%.

The industry refining margins were up everywhere relative to the previous quarter and a year ago.

The outlook for refining margins may be strong in '06 if product demand growth continuous to outpace refinery capacitisation.

Actual levels will be strongly influenced by the pace of global economic growth particularly in the US and China and by product demand elasticity to continuing high oil prices.

Let me now give you a short insight into the businesses.

Start with EP.

EP earnings were almost $5 billion.

Gains of some $1.8 billion largely from the divestment of Gasunie in the Netherlands contributed to these earnings.

Our unit earnings in EP have improved every quarter for the last year and are keeping pace with the increase in oil and gas prices.

Unit earnings of $10.87 per barrel increased by 43% after sweeping out divestments and market to market gains comparing very favorably with increases in liquids and gas realizations.

We made some good progress with our portfolio and projects and other significant exploratory acreage in Alaska, Ireland and the North Sea.

Exploration success continued with Ubah 2 in Malaysia with successful well drills on this big cat prospect.

The overall exploration success rate was 72%.

Production of 2 million barrels of BOEs per day this quarter was impacted by hurricanes by some 160,000 barrels of oil equivalent a day and on a year on year basis by around 85,000 barrels of oil equivalent relating to operational issues in the North Sea.

Q3 year to date production is some 3.5 million barrels per day.

Production in Q4 will be affected by the timing of restarting production from these assets and likely by the relatively warm weather being experienced in Europe.

Taking these factors into account and absorbing the impact of higher prices on production sharing contracts, production in '05 is expected to be around 3.5 million BOEs per day.

Including the hurricane impact, our production guidance for 2006 is in the lower half of the 3.5 to 3.8 million BOEs per day range.

Our outlook for '09 of 3.8 to 4 million BOEs per day is unchanged.

We have a very strong slate of large scale long plateau life projects which will deliver volumes and cash for many years to come.

Along with E11 in Malaysia, we anticipate Bonga starting in the fourth quarter where we expect to reach some 200,000 BOEs per day in 2006.

Let me turn to GP gas and power.

Earnings increased 57% over a year ago with strong performance in the LNG business and marketing and trading.

Equity sales volumes were up 2% accounting for unscheduled downtime in Australia with [North West Shell T4] and Nigeria Trains 2 and 3.

Both are now booked back to full operation.

We continue to expand our portfolio with Nigeria Train 4 starting up in the fourth quarter and Train 5 is more than 90% complete.

Start up of Train 6 is on track for late '07 all in line with expectations.

And the Qalhat 3.7 million tons per annum LNG project in Oman is more than 95% complete and on schedule for a start up around year end '05.

Turning to downstream; industry refining margins were up everywhere except the Asia Pacific regions, especially strong in the US.

Retail margins faced considerable pressure as you can see, especially in the US with only Africa seeing an increase.

Realization reflected gasoline strengths over middle distillates due to the US shortage and its global effect on markets this quarter.

Turning to OP.

Third quarter earnings of 1.7 billion were up 200 million over last year driven by strong performance in refining trading and the business to business with lower earnings in retail driven by higher crude and refined product costs.

Unit earnings were highly competitive, $2.99 per barrel on a rolling four quarter basis, up 84% on the prior 12 month period.

Our refinery intake was down 2% versus a year ago, adjusting for a 5% decrease from divestments and approximately 1% due to the impact of the hurricanes.

Unplanned downtime was 8.9% strongly impacted by hurricane impact in the US and the Pernis refinery shutdown.

Marketing volumes were down about 4% versus a year ago with 2% from divestments.

Next chart, oil products generated more than 4.3 billion cash, including divestments and excluding very significant working capital in Q3 '05.

After adjusting for working capital and capital investments, the cash surplus for the quarter was $0.6 billion.

Year to date, oil products have generated more than 12.2 billion in cash, including divestments with a cash surplus of over $5.1 billion.

Turning to chemicals; chemicals delivered strong earnings and cash in Q3 in the face of lower margins, lower operating rates and lower sales volumes primarily driven by hurricane downtime and supply constraints.

Chemical earnings were 321 million, stripping out charges of 184 million mainly related to completion of the Basell divestment and legal charges.

Earnings were down 12% on third quarter of 2004.

Chemicals also generated significant cash; cash from operations excluding working capital was 0.5 billion and the successful sale of Basell was completed with net proceeds to Shell of over $1 billion, highly competitive with recent market transactions.

Let's focus on cash for the total company.

Our cash position remains strong; in total we have generated 3.3 billion excess cash from operations in the quarter.

Gearing for RDS including other commitments such as operating leases and retirement benefits totaling some 10 billion and net of our cash holding minus operational cash requirements is 9.7%, down from 13% at the end of the second quarter.

This is significantly below the 20 to 25% range due to excellent cash generation and delivery one year ahead to schedule of our divestment program.

Let's turn to the RD's divestments.

We have made excellent progress here in our divestment program and with the completion of the sales of Basell, Gasunie transportation assets and InterGen, have achieved our divestment target of 12 to 15 billion for the period '04, '06 more than a year ahead of schedule.

Including third quarter proceeds of 4.3 billion we have banked over 13.7 billion in the program today.

The global LPG review and sales process is on schedule.

Now let me close with looking ahead and then go to Q&As.

To summarize our outlook in going forward; we expect to have more than 75% of our Gulf of Mexico production back online during the fourth quarter.

Our total after tax expense related to this year's Gulf of Mexico hurricanes in our upstream and downstream business is expected to be around $350 million, split between '05 and '06.

Absorbing the impact of hurricanes Denis, Emily, Katrina and Rita, we expect production to be around 3.5 million BOEs per day for the year.

Including hurricane impact, our production guidance for '06 is in the lower half of the 3.5 to 3.8 million BOEs per day range.

Our outlook for 2009 remains unchanged between 3.8 and 4 million BOEs.

Our capital investment guidance for '05 remains at around 15 billion.

We will provide an update for '06 after completion of our planning cycle and review by the Board of Directors.

We expect to return around 5 billion to shareholders via share buybacks in '05 with any incremental consideration paid to obtain the outstanding 1.5% minority in Royal Dutch to be additional to this amount.

Combining the buybacks with the dividend payout we confirm that we expect to return a total of more than 15 billion to our shareholders in '05.

We are aware of the challenges and the opportunities and taking them on this great commitment and new momentum.

The year has been good to RDS so far and we focus on delivering the future.

I now turn back to Dave.

Thank you Peter.

We now move into our Q&A.

Please state your name and affiliation and I would ask again that in fairness to all callers, you limit yourself to two questions.

Thanks.

Operator if we could have the first question please?

Thank you. [OPERATOR INSTRUCTIONS].

The first question comes from Mr Tim Whittaker.

Please state your company name followed by your question.

Yes, hello guys Tim Whittaker at Lehman Brothers.

Firstly a question about what's been happening in Sakhalin and Russia in general.

Could you say how your negotiations are going with Gasprom on Sakhalin?

And also, since you last reported you’ve been excluded from Stockman process, could you give your thoughts on that and whether you think it has any linkage to the cost overruns on Sakhalin?

And secondly, turning to the US downstream, could you explain the reasons behind removing the 850,000 barrels a day of US product sales from your volume number, and is it your view now that your figures are on a similar basis to your competitors, and maybe that was the reason for the change?

Okay thanks Tim.

On the first one, I think you're referring to the swap discussion Sakhalin and -- on Sakhalin and swap over is with Gasprom.

As we have said previously, we have signed an MOU and we have started the discussion with Gasprom on the swap and that goes according to plan.

So nothing to report new there.

On the Sakhalin side, in this gigantic project of 9.6 tons for an LNG plant and also for roughly 4 billion BOEs of resources, we are in more of less half way through in terms of spending and progress, we have submitted our cost estimates to the Russian authorities and we are just running the normal process, and we are in the process of going through to build the biggest foreign investment, or finish the biggest foreign investment in Russia in Sakhalin which allows us actually to export oil and gas into the Asia Pacific and the US markets.

So an extremely important project for us.

On the second question which is the downstream one, we now classify certain volumes as trading rather than marketing and therefore we net volume effect given to assist you in unit earnings in that sense.

So yes, I think to certain competitors I would assume we are more comparable now, but it highly depends on what trading business each company actually has.

Okay.

And when you answered the first you didn’t mention Stockman.

Could you say whether you think there's been any impact of the cost overruns on Sakhalin and you're being excluded from that?

Or maybe you have another reason you could explain?

The Stockman process was a selection process where many companies, international oil companies, many State owned companies are participating; we have worked diligently with Gasprom on this one, we were not selected at the end of the day, and we continue, as you have just heard from [inaudible] Sakhalin point of view we have a strong relationship with Gasprom.

So I can only expect that Sakhalin has not played a major role there.

We were not selected; we are concentrating on delivering Salym and Sakhalin at this stage and as I have already said, Sakhalin is the biggest investment in Russia -- foreign investment in Russia at this stage.

Okay, thank you.

Thank you, the next question comes from Mr Jonathan Wright.

Please state your company name followed by your question.

Hi it's Jon Wright from Citigroup, good afternoon.

A couple of questions, first of all on your cash balances, pretty much $16 billion of cash on the balance sheet.

The last time we saw you approach these levels was ahead of an acquisition spree the earlier part of this decade.

I just wondered whether, first of all, you were happy with the extent of those cash balances and secondly, what thoughts you have in terms of their use going forward?

Because it seems in this environment that they're only going to increase.

The second question was to do with product sales.

You highlighted I think, 2% reduction excluding the disposal effect.

I wondered whether you're seeing any switching from some of your premium product sales around the world, whether that’s a feature of that lower product sales number?

Yes, thanks Jon.

On the first one, I think I said many time, I don’t get too worried if I have too much cash in that sense.

Maybe just explain how I look at this.

Clearly, we have a financial framework which is driven by a competitive dividend, it's driven by organic growth ie CapEx and you have seen this year we have added a number of new projects which we are working on in order to take FID.

You also know that we are working on Pearl and we are working on other big projects where we are going to take FIDs in the future.

So our organic growth pipeline is ready, is there to develop and that is our key focus.

I have said I will need a few years' time before we get it to a balance sheet situation where I've got the gearing of 20 to 25% given the high oil price scenario.

What is surplus to all of this will be used, either to strengthen our organic growth pipeline further, could be an acquisition, could be extra dividend, or could be further buybacks in that sense.

Let me relatively clear on the acquisition side.

We have outlined our strategy on organic growth strategy with our pipelines as I just explained.

There are always bolt on acquisitions which are the smaller ones between zero and 5 to $10 billion which makes sense even in higher price environments, because you have got infrastructure advantages, you have got strategic advantages, and we always will do them as part of our portfolio optimization.

Anything bigger, oil price assumptions, market multiples paid at this stage, so prices paid, are looking unattractive for us, at least to us, at the moment.

We still review them, we are still on the ball, but at this stage we are concentrating on implementing our more upstream, profitable downstream strategy.

That’s great, and sorry, the product sales, are you seeing any switching there?

Yes, coming to this one, 2% reduction excluding divestments is correct.

I can report that our differentiating strategy is clearly still working, even on the high oil price scenarios.

We see the pick up there, we see the demand for these products, so we are continuing with that strategy and we are pleased with the success there.

We see a certain demand weakness across the world in various countries, which we are watching at this stage, so I think you get the 2% are across various products, could be on the gasoline, could be on the gas oil side.

So it's not specifically on the high end product ranges which you have as differentiated fuels.

So the message here is, strategy works, we are pleased with the success even under the high oil price scenario, but we see some weakening of demand in certain geographies.

Great, thank you.

Thank you, the next question comes from Nicki Decker.

Please state your company name followed by your question.

Good afternoon Peter, Nicki Decker from Bear Stearns.

If I understand what you said on hurricane related costs, they're 350 million anticipated total, could you just outline for insurance program and potential recoveries?

Yes, thanks Nicky.

As I have said, significant amounts of the 350 million we expect to be covered by insurance.

It is a little bit early to say exactly how that works, but you can, if you listen to my words that I say, significant, you can clearly see that we are covered by insurance.

We have obviously certain amounts which we are covering ourselves, but they are not the majority of these amounts, and that’s why I'm saying significant.

So we will have to wait a few months in order to see exactly what the amounts are going to be.

And I would like to be very clear as well, we don’t have business interruption insurance in that sense, so we are talking about costs here.

Thank you Peter.

And secondly, Malaysia.

It appears that you're accumulating significant possible resources there. can you talk about potential development, timeline particularly in Block G?

I think, yes indeed we had good success with our exploration strategy and other strategies which we have progressed like E11 in Malaysia.

I think it's too early to give you a timeline on that one because we are still in the appraisal phase of a few of these things.

Once we have more appraisal dates then we will be forthcoming on what we have seen and how we are going to develop that.

Let me just say Malaysia is a very key country for us in our plans going forward and we are very pleased with the recent success there and we are looking forward to developing these things over time in the next few years.

I will be more forthcoming when we have further insight.

Thank you.

Thank you.

The next question comes from Mr Neil McMahon, please state your company name followed by your question.

Hi it's Neil McMahon with Sanford Bernstein.

Two questions and the first is basically, I think you're one of the most political hot topics in Ireland at the minute with the Corrib field and I was wanting an update on this as it does seem to be going quite significantly off the rails in terms of getting this gas project on plan and on time.

It looks like it's slipped significantly further due to the political disruptions surrounding that particular field.

Secondly still on the upstream, you said you've had exploration success of 72%, that sounds very good indeed however could you give us any indication whatsoever of how many of the exploration successes would be fully called or fully classified as big cats, therefore I think your definition is more than 100 million barrels net to Shell?

Thanks.

Okay thanks.

I'll start with the second one.

Yes indeed a big cat definition is 100 million BOEs to Shell.

We drilled nine this year, we were successful in six so above 70% success rate was the whole exploration program.

On the big cats we are as you can calculate six out of nine gives you two thirds in that sense.

So a very, I can't say a good start to the year, but a very continuous good performance during this year.

On Ireland we have -- as you have seen in the press, and I'm not going to cover all of this, this is still an important project to us.

It is too early to say exactly on how everything will impact on our overall project schedule.

We are currently reviewing the impact of all the events which we have seen and we will quite clearly not do as much work now in the fourth quarter as earlier was anticipated so let us work through the whole impact of these things and we will come back.

But it's -- as I said, it's too early to say how exactly that will impact it.

Just something based on a previous question also, are you planning to change the way you report your chemical earnings to be more in line with others like Exxon Mobil who do it more on a LIFO basis.

It's just interesting that your margins this quarter looked actually pretty high yet everybody else's margins looked like they've crumbled because they seem to account for it slightly different, I'm just wondering about your thoughts on that?

Yes thanks for the question.

Yes indeed we had a FIFO effect this quarter quite clearly and I have no problems to share the number there, I think we are talking about anything between 100 and 200 million.

Some of that will come back over time, some of it in Q4, some of it later, it depends a little bit how you build back.

We are actively looking into that in the sense of changing in a similar way like we report the oil product side on a CCS basis.

So I think I can rest assure you that we are changing to be more in line.

Let me finish the year and then come back most probably in the fourth quarter earnings release to give you a better timing on when exactly we are implementing that, but it's clearly on the priority list.

Great, thanks very much.

Okay.

Thank you.

The next question comes from Mr. Gordon Gray, please state your company name followed by your question.

Gordon Gray of JP Morgan.

A couple of questions.

Firstly I wonder if you could comment on cash neutrality and how much that's changed from your previous estimate of $25 a barrel given the strength of the downstream?

And secondly, is the Board open to a change in dividend policy from its long standing just growing dividends ahead of inflation?

Thanks.

Thanks Gordon.

On the first one, clearly taking into account and neutralising the higher divestment money or cash which we received this year, so we are taking a normal year which is normally 2 to 3% capital employed type of divestment, which is in the order of $2 billion or 3 billion.

If you neutralise that and take the full earnings impact of downstream we have clearly performed in the last few quarters significantly below the 25 when we were actually below $20 in that sense.

So quite clearly downstream and that's as I've pointed out the various cash numbers there, that is clearly a much better picture than what we had included in our strategy presentation back in September, so we are very pleased with that.

The second one, as I've outlined my four legs of the dividend policy of the financial framework which includes the normal dividend policy which we have at the moment but also clearly leaves open that any cash surplus can be used for organic growth, acquisitions, extra dividends or further share buyback.

I think the Board is open to consider these areas and this is debated and discussed on a regular basis.

As you can imagine, whatever gives the best return to our shareholders we will opt for in the future.

So the answer would be yes but you'll have to take it in the context of the financial framework.

Great thank you.

The next question comes from Mr Mark Ianotti please state your company name followed by your question.

Yes it's Mark Ianotti from Merrill Lynch, hi guys.

Jeroen made some comments this morning at the press conference about potential investment in the Motiva refinery system in the US, can you possibly put a little bit of flesh around those bones and maybe make some comments on size, cost, timing, maybe even if there's anywhere else in the portfolio of refining assets you see could benefit from some upgrading and expansion?

And also in terms of your CapEx, will any downstream investment you potentially planned to make -- be incorporated in the revised guidance you intend to give us at the end of the year/beginning of next year?

Yes thanks Mark.

On the Motiva side, Motiva announced and everybody on the call most probably knows it's a joint venture with the Saudi Aramco site, announced that we were all looking in our refinery portfolio in the US for upgrading debottlenecking opportunities.

So that's ongoing work, it's too early to say timing wise Mark and barrel wise.

If I remember the press release correctly what we said is we will inform once we have gone through the study.

The study is ongoing, it's fully being worked at the moment so we'll revert back on that as soon as we have the result.

In general on the portfolio side quite clearly the US is the focus at the moment but quite clearly the Far East is also very much in our view.

If I talk about downstream in general you know the Nanhai project which is just coming onstream now in the fourth quarter which is clearly within budget and within the time which we had this one planned.

We would certainly look in the big demand market in the Far East like China, like India, like others for further opportunities on an integrated chain operation which includes the refineries.

I think looking at the Middle East where there is a lot of activities ongoing, one has to be close to all of these things and you know it's a different kind of refinery but we are obviously looking at the Pearl project which is a GTL project which is the gas to the market in that sense delivering very advanced products for these high demand markets etc, so that's clearly where we're also focusing.

So the downstream CapEx quite clearly will be included in the opportunities in 2006 and then also in later years.

More profitable downstream doesn't mean a shrinking downstream, more profitable means you are shifting your assets and your sustained development and performance expectations into the demand market and that's clearly a west to east shift with the US being obviously the exception as we are -- want to be very strong in the US as well.

So there is quite a bit coming there and we will build that all into our CapEx forecast.

Thank you.

Thank you, the next question comes from Mr Mark Gilman, please state your company name followed by your question.

The Benchmark Company, Peter good afternoon.

I have two questions.

First, I wonder if you could just spend a minute giving us the rationale for the two recent acquisition of minority interests in refining ventures.

First the Tupras in Turkey and then also an even smaller minority interest recently announced in Arabian Oil.

Secondly, could you update us on the extent to which the minority partners in Sakhalin are current with respect to their cash contributions and the funding of the project?

Our examinations of financials suggest that that might not be the case.

Thanks very much.

Thanks Mark and good afternoon.

The Turkey one is a very small one obviously we participated there, we look at Turkey as a very important market and we try to grow in Turkey quite clearly on the marketing side.

So this is a very small piece which we have acquired here which has a lot to do with supply and distribution optimization for us.

And I wouldn’t give too much weight on this one if you look at this.

On the second one, you have me slightly puzzled, we have to come back on this one because I don’t know which one you actually mean there.

Maybe you can give some further insights there.

On the Sakhalin, the answer is yes, they're up to speed and are current in terms of their contributions etc, etc.

So that’s not an issue at this stage.

Peter, what I was referring to, is I believe you acquired an 8% minority interest in Arabian Oil, announced very recently.

That’s what I was referring to.

Okay, Mark I have to come back because I need the details first.

So we give you a call.

Okay.

And in Tupras, $800 million, while it's not huge, I believe that was what your commitment there was to that acquisition.

I guess I don’t regard it as trivial either.

That number is completely wrong.

The commitment we have is very, very small.

That 800 million I cannot confirm in that sense.

It is very, very small.

I think you will not see that on any scale in our capital expenditure.

Okay, thank you Peter.

Okay.

The next question comes from Mr [Joseph Tovey].

Please state your company name followed by your question.

The company name is [Tovey and Company].

Good afternoon.

I had two questions if I might.

First question relates to Sakhalin.

According to what I was reading, the cost of -- anticipated cost increase was in the order of $10 billion.

According to what I was reading at least in one of the publications, the basic reason for such increased cost was that there was a pod of whales that needed to be gotten around, and I was reading that the pod was around 100 whales, which means a cost of something in the order of $100 million per whale.

Is something wrong with the statistics or with the information that has been published?

That was one question.

Second question had to do with the company's pension plan position.

Apparently you are under less pressure or restrictions from what I can gather than some of the US based companies.

Is that correct, or am I misreading some of the pension fund costs?

Thank you.

Yes, thanks.

The first one is completely wrong from a statistic point of view.

Yes indeed, we have agreed to certainly to change the route of the pipeline slightly.

That in the overall scheme of the increase a very small item.

So that’s not a very significant one and I would certainly not express that in numbers of whales.

So it's really small, that’s not the issue.

Clearly Sakhalin is a frontier project;

Sakhalin is very important for us, it gives us the market access into Asia, gives us market access into the Asia Pacific.

We are concentrating on that project now and focusing on the implementation in order to get this up to production as fast as possible.

On the pension side, I'm not 100% sure from where you are coming from, so let me just give you a few details here.

Our pension situation is very solid and actually very strong.

We are certainly, when you look at our published information in terms of yields and discount rates, they're actually much lower than what we are taking into our calculations than the US for example on the net asset returns, we are much lower.

So much more conservative in that sense.

So I think we have a much more robust situation if you compare it to some of the US competitors who do forecast actually some net asset returns which are at least 1 or 2 or 3% higher than what we have.

So from that point of view I have the comfort on our position and it's very, very strong because we are running rather conservative assumptions in our pension plans.

Thank you, that was precisely my question was, why are you so robust compared with your competitors given the lesser degree of coverage one would expect, given your more conservative assumptions?

I think we are, if you take the long term, we have an investment philosophy which is most probably not as aggressive as some of the American companies.

I can't give you a competitor analysis, I haven't studied that.

But in general, I know we run lower equity ratios for example, so less equity, more bonds.

We have different products which we are using etc, so overall actually we are less exposed to certain downturns or upturns in that sense, and we have run that for many, many years.

We also manage actually quite a large amount of our assets in house, so have got quite an extensive in house asset management group which are managing the billions of dollars which we have, and we have had very good results so far.

So that has certainly contributed to a rather robust situation on the pension side.

Thank you very much.

The next question comes from Mr Jon Rigby.

Please state your company name followed by your question.

Yes it's Jon Rigby from UBS.

It appears to me that, correct me if I'm wrong is, the tax rate looks very, very low this quarter which looks particularly odd with E&P contributing such a large amount, even after the exceptional, or the unusual items going through.

Can you explain why that is, whether it's likely to be consistent going forward?

And where actually the major differences are quarter on quarter on the tax rate among the segmental items?

Thanks.

Okay, Jon, thanks.

I think I will give you three reasons actually.

One is clearly that significant divestments with profits and they do attract a different tax rate or no tax rate in certain areas.

So from that point of view, that rise the tax rate quite differently this quarter, and I'm talking about some of the bigger ones like Gasunie etc.

The second one is clearly the downstream earnings do normally attract a lower tax rate and the better they function in downstream, the better the impact is on the tax rate.

And I think the third one is an IFRS accounting change which you may still be, at least mentally, a little bit more on the US GAAP.

Actually for the equity account to companies the tax is actually now netted off in the equity accounts result rather than in the tax rate.

So depending on how much income you get out of your equity account to companies, the tax rate can vary quite a bit.

We still maintain our 41 to 43% going forward with the slight change or correction on the equity account to companies.

I think you said at Q2 it was 41 to 45 didn’t you?

No, I was pretty clear with 41, 43 actually.

And -- but even if you correct the zero tax on the disposal items, I think you only just come right into the bottom of that.

It is a record quarter for oil prices this quarter.

So it does look unusually low.

Is that -- or am I missing something?

Yes, obviously the mix plays a role from where the earnings are coming from.

And the equity account to companies had a good impact as well.

So I think I have to give you the two.

Your calculation is right, we are at the low end, that’s quite clear, or even below the low end.

But the 41 to 43 is the more medium term outlook and that’s why I keep that one at this stage.

Okay, thank you.

Thank you, the next question comes from Mr David Klein.

Please state your company name followed by your question.

Hi it's David Klein from Exane BNP Paribas.

Two questions.

Firstly, you’ve reduced your production guidance for 2006; can you say whether that’s entirely attributable to the hurricane effects or whether there's something else going on there?

And the second question;

I think you mentioned that you’ve submitted your revised cost estimates on Sakhalin to the Russian authorities.

Can you say when, in the normal course of events, you would get an official reaction from them to your revised submission?

I start with the second one.

You have heard it correctly, David, we have submitted it.

Timing which will be worked, but to give you an exact timing, that’s too difficult at this stage because obviously driven by certain procedures etc.

So I would not like to give any expectations out on that one at this stage.

Regarding the guidance for '06;

I think I would push back on the words you used that we have downgraded or revised downwards our guidance.

We always said we are between 3.5 and 3.8 million BOEs per day.

That’s still the same.

We said earlier that we are in the upper half.

Now with the hurricane impact coming in, and also seeing some higher prices which through the production sharing contracts will have an effect on your total barrels you can actually produce, we just felt it is more likely that we will end up in the lower half and be better actually be transparent on this one.

Otherwise I cannot give you any other hints towards a change on this one.

So we see it has an impact from the hurricane, and to a certain extent from prices.

Thank you.

The next question comes from Mr Neil Perry.

Please state your company name followed by your question.

Hi it's Neil Perry from Morgan Stanley.

Peter, I just want to ask about disposals and cash.

Now you’ve completed disposals up to your target, can we expect the disposal program to go back to the old run rate of 2, $2.5 billion per annum, or have you identified a whole load of stuff in the process that will keep the disposal proceeds annually above that level for a few years?

And secondly, on the cash return, or uses of cash, you identify CapEx acquisitions, dividends and share buybacks which is basically giving you an awful lot of latitude to do whatever you want to do next year.

If you're taking about 20% gearing, or minimum 20% gearing, by when do you want to get there and if we can assume you're not looking at big acquisitions, to what extent can we assume that it is CapEx and then buyback over the next couple of years that will get us to that 20%.

Yes, okay.

On the first one, I think the way I describe it now is actually we go back and I would give guidance in the sense of 2 to 3% on our capital employed.

I think that’s the normal way, the way we want to run the portfolio optimization.

So I would not like to enter into discussion at this stage until we have more or less because we are still turning our portfolio around.

We will certainly look in an active way, at swaps, at divestments etc.

So we'll see what the next few years will bring us.

I said clearly on the gearing side, I will need a few years' time depending obviously on the high -- the oil price in general, if it's higher or lower, before I get to the exact gearing.

I think, let me just be very clear; we, as a management team and as a Board, we are looking to develop further the long term value of this company.

And as long as we have got significant good projects coming on, and we had Qatar, we had Nigeria, we had the entry into Libya and I could go on with a few more, which are all new, so we are really looking at growing further our pipeline long term.

And that will need certain cash.

Quite clearly that’s embedded in our financial framework.

I've said my things about acquisitions; they may be attractive in a certain area to get us new oil material, or mature oil more, it will get us some unconventionals, give us more access in exploration etc.

So we will use it for that.

Bigger acquisitions we don't see at this stage.

So then we get to the point that we have further projects in the pipeline, or we acquire them, otherwise we will look at dividends and at buybacks.

So to give you a number at this stage, I'm just not going to do as I want to see how successful we are on the organic growth side, because we want to generate enough value for the shareholders through investing into the business.

And if that is not possible, then we will certainly make sure that the shareholders get their money back.

Thank you.

[OPERATOR INSTRUCTIONS] the next question comes from Mr Edward Westlake.

Please state your company name followed by your question.

Yes, hi, it's Ed Westlake of CSFB.

Just some follow up questions.

You mentioned LPG, can you just give us an update on where you are in that process and potentially some timing on the disposal?

And then on the resources; you’ve talked of six big cats plus other exploration success.

Do you have a rough figure for your resources adds year to date?

Thank you.

Thank you Edward.

On the LPG side, as I have said in earlier calls to information memorandum is out; we have prequalified bidders, we are working with those, they are from both sides of the equation, the equity buyers, but also the trade buyers.

We are in the normal process going forward now; we're working towards, let's say, a conclusion of this in the next 6 to 12 months, so it can clearly slip into 2006, and we are pursuing this in our normal way.

On the resource side, yes, confirm six out of nine.

I think we give our update once a year in that sense, and that’s in the first quarter.

It is too early to give you an insight in all of this, so I have to postpone this answer actually to later in the first quarter next year where we'll give you an fuller update on the reserves replacement ratio and some other information out of the exploration field once they are confirmed.

Thank you.

Okay, let's go for another two questions.

Thank you.

The next question comes from Mr [Paul Andresen].

Please state your company name followed by your question.

Yes, hello, this is [Paul Andresen] of Fortis Bank.

Your field declines look somewhat steeper compared to previous quarters at some 5% now against 3 to 4% in Q1 and Q2.

Can you comment on the causes and what we should expect of this going forward?

Yes.

On the field decline, indeed they are somewhat higher, but I think you cannot take one quarter as the rule.

We have always given the guidelines that we are looking on the long term, few years' average basis at the 6 to 8% decline rate, and I think that’s what you should take into account during the next few quarters etc.

And I think I'll leave it at that.

Okay, thank you.

The next question comes from Mr [Neil Morton].

Please state your company name followed by your question.

Good afternoon, it's [Neil Morton from Man Group].

The statement today refers to strong trading results in both oil products and downstream gas and power.

I wondered if you could perhaps give us the swing either versus Q3 last year or Q2 this year?

Thanks.

Okay.

Let me start with GP.

GP clearly we are harvesting out of our leading global LNG position.

Quite clearly the price environment and as well as the volume environment is confirming our strategy and is delivering the results.

That was this quarter somewhat complimented by good trading results as well and marketing results.

On the OP side, I look at the results as rather strong results.

It was a difficult quarter, as we said already, with let's say some pressure on the marketing side, but still profitable in our case.

On the refinery side, yes high margins, but also quite clearly we had a lower refinery intake of somewhat around the percent.

If you look at the utilization of our refineries actually that was down 5% because the markets just didn’t allow actually to run our refineries in the normal way.

So that gave us clearly an impact on the bottom line.

So hence the results which we produced are actually, on this scenario, actually even better.

So the operational excellence which we are driving very hard under the old product side by actually moving costs by optimizing costs, by running our kits much stronger, by having a differentiated fuel strategy, is actually giving us the right result.

Even on the circumstances where the market actually, or the situation in the market doesn’t allow us to run everything on an optimized basis.

So from that point of view, a very satisfactory quarter.

Yes, thanks.

I was wondering if you could perhaps quantify the strong trading impact either quarter on quarter or year on year?

No, trading was obviously very strong, but we are not breaking out the trading results.

Quite clearly the volatility in the market gives you normally an interesting trading environment, so we were very happy with the trading results.

But I'm not going to break them up.

Well perhaps not rather an absolute figure, is it possible just to give a delta?

No.

We are not breaking it out, so I leave it at that.

Thanks very much.

Okay.

Good, thanks for calling in.

I would like to conclude the call.

It's quite clearly a very good quarter for us on all the strategic levers we have delivered.

We have come in already with a divestment program which has been finalized now, or achieved let us say.

We have got the EP earnings again increased, we have managed the hurricane impact in a very efficient and dedicated way, and we have an LNG business which is increasing, volume is increasing and is taking full advantage of the higher prices.

And we have a chemicals business which is just performing at the right time by optimizing their utilization of the plants which they have and managing costs very tightly.

So all in all, a very positive quarter, we have also positive message back to the shareholders with the dividends and the buybacks we are doing, so we are busy implementing the strategy and I hope to talk to you again in February, when we come out with the year end results.

Thank you very much.