殼牌 (SHEL) 2005 Q4 法說會逐字稿

Thank you for coming.

Good afternoon to everybody here.

Good morning to people in New York.

Welcome to our analyst meeting and our teleconference for the 2005 fourth-quarter results and our full-year results.

I'm David Lawrence.

I'm the EVP of Investor Relations and with me today are Jeroen van der Veer, of course, our Chief Executive of Royal Dutch Shell; and Peter Voser, our Chief Financial Officer.

I'm also very pleased to introduce JJ Trainer who will be taking over my role in investor relations in March when I move back to EP to head up exploration.

On a personal note, I've greatly enjoyed the chance to work with all of you and I wish you all the best.

Before I move on, I'd like to have you read the disclaimer.

Thanks.

Now let me turn this over to Jeroen.

Thank you very much.

Thank you, David.

Good afternoon to everyone here and good morning to those in the U.S.

Our good performance in the fourth quarter gives us a solid platform to build on in 2006.

But looking back at 2005, we completed the promised unification.

We implemented our strategy of more upstream and profitable downstream, and we delivered record earnings and cash for the year.

These results reflect good operational performance across our business in the downstream, the improved operational performance and cost.

In the upstream, we met production expectations.

This was despite the hurricanes.

We grew our leading position in LNG with good prospects for sales volume growth in 2006.

We are continuing to grow our portfolio of integrated gas, materially oil projects, unconventional resource and new energy technologies.

Our ability to integrate upstream and downstream, our access to markets and our technologies are opening new opportunities.

And with exploration, a new business success, we are gaining new resources which will over time lead to proved reserves when we develop these resources.

In renewables, we provided today an update on our business activities and announced a number of new projects in biofuels, wind, hydrogen and solar.

For Good Oil this was in a separate press release compared to the quarterly announcement.

Our cash position and balance sheet are both very strong and we have committed to increased levels of investment of $19 billion in 2006.

We are focusing on delivery and on building for the future.

Let's turn to the 2005 highlights.

We achieved record earnings of nearly 23 billion, up 30% on the previous year.

We generated more than 35 billion operating cash.

Our capital investment was 15.6 billion reflecting our increased investment level in exploration, access to resources and progress on major projects.

We invested 12.8 billion in the upstream and 3.8 billion in the downstream at our business segments.

We are reshaping our portfolio.

Divestment proceeds of 6.6 billion in 2005 bring the total since 2004 to 14.3 billion.

This is at the high end of our target range for the period 2004, 2006 and completes the program and returned a record of over 17 billion to shareholders in 2005 through dividends, buybacks and purchase of shares.

Turning to the highlights of the fourth quarter.

CCS earnings were 5.4 billion for the quarter; earnings were up 14% compared to the fourth quarter of 2004 excluding net gains.

Basic CCS earnings per share were $0.82 for Royal Dutch Shell.

This reflected good performance in exploration and production, gas and power and Oil Products.

Cash from operations increased to 7.3 billion up 10%.

We announced fourth quarter dividends of EUR 0.23 per share for Royal Dutch and have declared annual dividends in 2005 equivalent to EUR 0.92 by Royal Dutch Shell share.

Looking at the business environment in the fourth quarter.

We continue to benefit from strong oil and gas prices and relative good downstream margins.

Brent crude averaged $57 per barrel nearly 30% up from a year ago.

And we hope gas hits a record of over $12 per million BTU average for the quarter.

Industry refining margins were much stronger for 2005 as a whole but they weakened considerably late in the fourth quarter with Rotterdam, Singapore and U.S.

West Coast margin lower than in the same quarter last year.

The overall wide to heavy margin differential for the fourth quarter was similar to the third quarter.

Relative to the third quarter 2005, the retail margins were down in Latin America but up in all other regions.

Strong consumer demand continues even with the higher prices and so far we see little evidence of the amount weakening in Europe and the U.S.

Though the overall growth rate slowed in 2005 from 2004, we expect growth in oil demand to continue.

I now turn it over to Peter for a more detailed review of the results in each of our businesses and a discussion of the financial framework.

Thanks, Jeroen, and good afternoon to everybody here and good morning to the U.S.

I will start with exploration and production with earnings of $3.6 billion for the quarter or 22% higher than a year ago.

Excluding net gains in each quarter earnings were up 36%.

Our performance helped us to capture the benefits of higher oil prices.

In the fourth quarter unit earnings were $10.59 a barrel, 49% higher than a year ago.

This excludes the impact of items such as tax credits and market to market charges.

For reference Brent was up 29% versus the same quarter a year ago.

Hydrocarbon production for the year averaged just over 3.5 million barrels a day in line with our guidance and despite the impact of the Americas.

So we absorbed that.

Our guidance for production going forward is unchanged.

In the Gulf of Mexico our hydrocarbon production at the end of 2005 was around 340,000 barrels of oil equivalent a day.

This is about three-quarters of the 450,000 barrels a day before Katrina.

The amount deferred because of storm damage in the quarter was 16 million barrels which was 2 million better than actually set and expected at the end of Q3.

The Mars platform is expected to start production by the middle of '06 with fuel production restored in the second half of the year.

Let me move to reserves.

Our reserve replacement ratio for the year including the contribution from oilsands is expected to be in the range of 70 to 80%.

Excluding oilsands, the reserves replacement ratio is expected to the 60% to 70%.

The range includes price and divestment effects of some 3 to 6%.

Our reserves replacement ratio is consistent with the phasing of the project in our pipeline and the execution of our development activities.

We remain reasonably confident of 100% average RRR over the period '04 to '08.

And we will finalize our reserves support with the publication of the annual report on 28 of April.

We added over 2 billion barrels of resources to our portfolio during the year.

Well over half of those resources were from exploration which remained coming from additions to our portfolio through new business development.

Our finding costs on a resource basis are in the lower part of our anticipated range of $1.00 to $2.00 a barrel.

Going into our exploration success in more detail.

We made important progress in developing our EP portfolio in the fourth quarter.

Another discovery on a Big Cat prospect in the Nigeria Deepwater brought the number of successful Big Cat wells in '05 to seven out of 12 drilled with three more Big Cat wells being drilled at the year end.

A total of 20 successful exploration and appraisal wells were drilled in the fourth quarter.

Over the year '05, 72% of our exploration and appraisal wells were successful, quite a good success rate.

We gained access to new resources.

An exploration corporation agreement was signed in the Ukraine, leases covering over 85,000 acres were acquired in western Canada with a focus on gas.

And more offshore exploration blocks were added in Brazil.

Turning to the development progress, we brought the major Bonga production development into production.

Startup is proceeding well and so far ramp up is ahead of target.

Wells and reservoir performance are encouraging.

Bonga is expected to ramp up production to over 200,000 barrels of oil per day in 2006.

The Bonga development and the discovery in and around the Bonga Main facility are likely to develop over one billion barrels of recoverable resources.

Commercial production began on schedule from Salym in Russia, a key asset in Western Siberia.

Ramp up will continue in '06 and beyond.

We added to our gas position in the U.S. by swapping our 17% interest in the Tahiti development for more than 100 million standard cubic feet per day of current gas production in South Texas.

The acquired assets have additional potential in an area where we have proven technology growth and operational strength.

Turning to gas and power.

Earnings for the quarter were $530 million.

This was 18% higher than a year ago excluding nonoperational items such as divestments and impairments in '04.

This reflected a strong contribution from LNG.

Marketing and trading conditions also remained favorable.

LNG -- sales volumes in the fourth quarter of 2.81 million tons were 2% up.

Full-year earnings were at 1.6 billion.

This was up 21% on the previous year if net gains and charges are excluded.

Equity sales volumes for the year were a record 10.65 million tons, up 5% reflecting the ramp up of the 4 Train in the Northwest Shell [faction] in Australia.

Next year we expect LNG sales to benefit from the recently completed expansions in Nigeria and Oman.

More to that in a second.

We continued to build our gas and power portfolio in the fourth quarter.

By the end of '05 our equity LNG capacity was 12.4 million tons per annum, an increase of 13% compared to '04.

The final investment position was taken for the major Qatargas 4 project in which we have a 30% interest.

This will 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 over a 25-year life of the project.

The project also includes a 7.8 million tons per annum leaky faction plant.

LNG deliveries are expected to begin around the end of the decade.

The gas from Qatar is expected to go to Elba Island on the East Coast of the United States where we have acquired additional import capacity enhancing our position in that important market.

Nigeria LNG Train 4 was completed in the fourth quarter and Train 5 was completed in January within our schedule and budget expectations.

Taking total capacity to over 17 million tons per annum the first cargo was already loaded and it's on its way to North America.

The 3.7 million tons per annum Qalhat LNG Plant in Oman began production during the quarter again within budget and ahead of schedule.

Let me turn to downstream first Oil Products.

Earnings for the quarter were 1.9 billion.

This was down from 2.3 billion a year ago which included net gains of almost 400 million.

Higher trading profits were offset by the impact of lower volumes on the one side, refining margins and marketing earnings on the other.

Over the year, Oil Products earned $7.5 billion, up 14% from 2004.

This reflected strong refining margins and excellent operational performance.

If net gains from divestments are excluded, earnings for the year increased actually by 17%.

For the year commercial fuels, aviation and marine earned more.

Our [B2B] and [LPG] and lubricants results were lower.

Unit earnings were [$2.92] per barrel on a rolling four quarter basis up 23% on the prior twelve-month period.

These are likely to be highly competitive.

Unplanned refining down time of 6.6%, 4.1% excluding the impact of the hurricanes.

Overall Shell Oil Products lost some 3.3 million barrels of refinery intake from the hurricanes in the fourth quarter.

This was better than our initial estimate of 4.5 million barrels and a demonstration of our operational resilience.

Marketing we're down about 4% from a year ago, around 1% of this was from divestments.

And we continue to focus on differentiated fuels and have launched 16 new repower products, gasoline and diesel, across the world in 2005.

Strong cash delivery continues in Oil Products with over $12 billion cash generated in the year as well as almost $1.7 billion from our successful divestment program.

After adjusting for working capital and capital investments, the cash surplus for the year was $9 billion.

Let me turn to chemicals.

The Nanhai petrochemical complex, a world's great facility costing 4.3 billion in Guangdong China was completed on time and within budget.

Startup is underway.

The complex will produce 2.3 million tons per annum of petrochemicals for the expanding market in China.

For the year, chemicals have strong cash generation from operations of over $2 billion and earnings of close to $1 billion.

We exclude legal charges in [Basel] related items earnings of 1.5 billion was a record since the business was restructured in '98.

Sales volumes excluding product trading were in line with '04.

Turning to the quarter we had 46 million chemicals earnings in the quarter if you exclude the legal charges in the U.S.

This compares to earnings in the third quarter of just over 500 million excluding similar charges on the legal side to successful divestments of Basel.

With supply shortages and tight markets in the wake of the hurricanes, sales prices increased.

However, our prime cracker on the gold Coast in the U.S. was only available at 78% of capacity and limited our ability to realize these margins.

Higher fixed costs in Q4 and tax items both in Q3 and Q4 reduced earnings by some $150 million and trading results were some 14 million lower.

Looking back and we talked about that in the third quarter, our third-quarter earnings benefited from a significant inventory downturn or draw down in a period of rising prices.

As we indicated then, there was a favorable impact from the estimated effect of changing prices of some 100 to $200 million in Q3.

We also indicated the potential for this to reverse in the next quarter.

This (technical difficulty) happened with a negative impact of some $50 million in Q4 as a result of the higher cost of sales reflecting production inputs valued on a FIFO basis, not LIFO as our competitors.

Now from the first quarter in '06 we will also report earnings for chemicals on an estimated CCS basis as we do for Oil Products.

This will to some extent deal with the volatility we have just seen although market movements will of course remain.

Our strategy in chemicals focus on base chemicals, first-line derivatives and selective investments and growing markets.

Toward this we divested Basel early in '05.

In the fourth quarter, we exited the ethylene cracker in France and are consolidating operations in Europe with the announced closure of the Carrington Plant in the UK.

Let me turn to cash or the financial framework.

As you know, the focus on cash is the key driver in our operational excellence seen in the Shell group.

I'm glad to say that strong operational performance accompanied by high oil and gas prices and margins remains continued good cash generation in the fourth quarter.

Well adjusted cash flow for the quarter was $7.7 billion.

If you look at the year starting with cash in, net adjusted cash flow of 36.4 billion up 24% from last year; divestment proceeds added another 6.6 billion which resulted in an overall cash generation of some $43 billion in the year.

On the cash outside, we further invested in capital for our project into our substantial pipeline of projects and increased to $15.6 billion in spending.

Dividends payment in the year amounted to $10.6 billion.

We repurchased $5 billion worth of shares and bought out the remainder of the Royal Dutch minority shares for $1.7 billion.

And we repaid $1.4 billion of debt.

An outflow in working capital of some $5.5 billion resulted in an increase in cash of some $2.5 billion for the year.

At the end of the year gearing including operating leases and retirement benefits stood at 12%.

Cash and cash equivalents at 11.7 reflecting the buy out of the Royal Dutch minority share to share buybacks and reduction in debt.

As we discussed in December, our capital investment guidance for '06 is around 19 billion excluding the Sakhalin minority share as it was in '05.

We always exclude that.

Swaps and acquisitions will be considered in the context of overall market conditions and their value -- their shareholder value.

Our share buyback plans will be reviewed periodically in the light of market conditions and the capital requirements of the Company.

We currently expect to return up to $5 billion to shareholders by our buybacks in '06.

In line with the financial framework, the target for gearing over time -- we target for gearing overtime to be in the 20 to 25% range and that remains unchanged.

This includes other commitments as I said such as operating leases, contingent liabilities and retirement benefits and operating cash requirements.

So now let me hand back to Jeroen for a short summary.

Thank you, Peter.

Let me summarize, 2005 has been a year of substantial change and improvement for our Company.

Our strategy of more upstream and profitable downstream is paying off.

This is seen in our growing pipeline of projects, our exploration success, our ability to access new resources, our downstream competitiveness and our strong cash generation.

We are improving our operational and project performance.

In 2005, we delivered lower unplanned downtime and costs in the downstream, met our volume target in the upstream and continued to grow our unit earnings.

The aim is to achieve top quartile operational performance across our business.

We restored production and refining capacity after the U.S. hurricanes faster and at lower costs than many have expected.

And we are working flat out to bring the Mars platform back on line earlier than we originally anticipated.

We are focusing on project delivery.

In 2005 we delivered key long-term projects including, I give you some examples, in Nigeria, LNG, Trains 4 and 5 and Bonga.

In China, Nanhai Petrochemicals.

In Oman, Qalhat LNG.

In Russia, commercial production from Salym and in Malaysia, new gas supplies.

We have identified where we need to improve and establish the necessary resources, training and accountability to achieve better project performance.

We achieved our divestment target reaching the high-end of our range ahead of schedule.

And we exceeded our target of returning cash to shareholders.

We have our feet firmly planted on the ground focusing on delivering now and on building for the future.

We will provide an update on our progress and implementing our strategy of more upstream and profitable downstream next month in March.

Let us now move to your questions and our answers.

Please state your name and affiliations and to be fair to all, please limit yourself to two questions.

Thank you.

Let's have the first question.

And I think David is going to be the traffic agent.

David?

Let's start right here, Jason.

Jason Kenny from ING.

Two questions as allowed hopefully.

You mentioned you completed your 2004, 2006 divestment program ahead of schedule.

Could you guide us on a potential figure for the 2006, 2008 period and maybe suggest where across the business some fat could still be trimmed?

The second question, there's a number of press headlines recently saying that you're not averse to acquisitions in the 8 to $10 billion range.

Could you guide us A, where you think you need to strengthen your portfolio?

And B, whether you would prefer to use cash or the headroom that gearing is currently providing?

Peter?

I'll start with the first one.

I wouldn't consider that our divestment program is actually trimming fat.

I think it is part of a strategic portfolio theme of actually in the downstream for example to move our portfolio to the East, getting out of those areas where we'd don't have critical mass or where we long-term don't see the profitability requirements we want.

So, yes, we achieved early.

We achieved actually more than what we originally said.

Now what we are saying going forward is you will get into a normal portfolio mode in that sense so we will look at swaps, acquisitions, divestments, what have you?

And we have said that normally you turn around roughly 2% of your capital employed on an annual basis.

So we are not looking at a program.

We're getting back to a normal mode which should include an optimization of your portfolio on a constant basis.

On the acquisition side, let me just be very clear on how we are running the financial framework and how we are running our strategy.

Quite clearly we are pursuing an organic growth strategy which is driven by more upstream and profitable downstream.

We have highlighted clearly that we are prepared to actually spend capital expenditure in order to actually develop our very full pipeline of projects; hence we have increased from 15.6 now the actual to $19 billion our capital expenditure.

And that was only driven by [25% per billion] by cost increases, the rest was driven by actually new projects and other things.

So that is the clear drive which we have.

On top of that we are returning through dividends which is increasing by inflation money to the shareholders.

We have clearly said we are looking for further opportunities on the organic growth side so more projects.

And we have said we are looking at opportunities going forward.

And we always said this could include more organic growth through projects around the world.

It could be swaps.

It could also be if they are generating the right shareholder value against your organic growth portfolio, it could also be smaller acquisitions, etc.

The fourth one is clearly to run a balance sheet which is in over time in the 20 to 25 gearing range and we have said we will run that in such a way that we can keep the flexibility to further organic growth and also give clearly the money back to shareholders in the form of buybacks or whatever.

We have quite clearly potential to gear up the Company further and I think every normal CFO and normal CEO on board whenever we do something on the organic growth side or even on an acquisitions side, we will look at shareholder value we generate and then decide what to do.

But we have that capacity quite clearly.

Neil Perry from Morgan Stanley.

You said that the cash flow strategy was the most important part of your strategy at Shell.

And yet you are now planning on returning $5 billion to shareholders through buybacks.

Last year you degeared and you returned 17 billion.

If you returned 5 billion and you just grow your dividend by inflation, on any rational view of oil and gas markets or refining margins this year, you will continue to degear and yet you said your key target is to regear to 20 to 25%.

Can you kind of square that circle if you like in containing the view that you won't grow the $10 billion in terms of acquisition?

And my second question is related to it.

Why when you are generating more cash than ever are you cutting the distribution to shareholders?

I'll start with the second one.

I don't think we have cut the dividends to our shareholders.

Because we had a special year in '05 because we went from semiannual to quarterly and I said that from the beginning there is one tranch more in 2005.

And we will return to the normal full quarter so technically speaking yes, you got one more but over time that will be the same.

And we will stick to the four quarters.

We have given a policy which is clear and dividends which is increasing with inflation.

And it is also clear when you look at the yield of the dividends, that it is quite a competitive yield.

That is where we are going forward.

So I would not call that a cutting because we made very clear when we switched in '05 it's going to be a special year in that sense.

On your first question, it is quite clear that we are on an organic growth strategy and we want to succeed on that one.

So cash flow is an important target but by no means is it the only important target.

So you kind of portrayed it as the key target.

I think cash is always a key target.

We have quite clearly an organic growth strategy and we are on the move to increase our production and you know the numbers by 2009 and 2014, you know the additional projects which we are taking in.

And together at the executive committee with your own, we are driving for further organic growth and for that I think I'm running a financial framework which yes at the first look you may say for 2005 or early part of 2006 it looks -- or even '06 at the total it looks conservative.

But I'm looking at shareholder value I can achieve through my organic growth strategy versus keeping going into acquisitions or swaps or going into buybacks.

And that is how we are optimizing it.

That is why we have said buybacks are actually market-driven, they are economy driven.

One has to look at these things on a permanent basis.

I have given you an outlook for 2006 as it stands at the moment.

If the world keeps with high prices and the volatility and we keep going as we are going in this economy, quite clearly we will optimize our financial framework further growing through either through growth or through shareholder return.

Colin Smith was from Dresdner.

In the report about reserve replacement you appear to indicate that additional the major reserve additions to your '04 to '08 100% target are likely to occur towards the back end of the period.

Just a point of clarification.

Can you just confirm that that essentially is intended to indicate that 2006 might be a relatively quiet year for reserve additions as well?

And can you identify the five key projects whose reserved booking will make the most difference to hitting your 100% '04, '08 target?

Okay.

A few things.

Confirmation first.

Yes, it is back-end loaded.

We said that from the beginning.

As some of our major projects like Sakhalin, Kashagan, but also [Orman Longley] and certain other FIEs which we are taking over the next one, two, three years, for example Qatar and other projects are all back-end loaded in that sense.

I'm not going to give you an '06 target at this stage.

We are still finalizing our reserves at this stage.

But I can confirm it is back-end loaded and these are the kind of bigger projects we are looking at.

We're also looking at big projects as you know in Nigeria and quite clearly we are doing others in Australia, for example, Gorgon, etc.

So all of these projects will over time actually contribute to proved reserves.

I would also like to stress here clearly that we are optimizing the total resources which we have.

So for us approved reserves barrel by all means is not worth more or less than an unconventional barrel, an oilsands barrel or some other unconventional.

So our decisions for investments are going to be driven by that rather than just by the Triple R. That is why we give you two figures as well.

We give you the including oilsands and we give you the other one.

And quite clearly we are -- as part of our strategy in the upstream we are driving into the unconventional piece and that is where we are spending money.

That is where we are optimizing our resource base.

I just want to make that absolutely clear.

We do not actually kind of look differently at approved reserves barrel or another unconventional or an oilsand barrel.

They are all attractive and have to be developed.

Can we take one over the wire, Jeroen?

We will take one over the phone please.

Robert Kessler.

Hi, it's Simmons & Company.

Thank you.

I would like to see if you could update us a little more specifically with regard to your exploration program?

Looking at your performance and guidance as it stands now and comparing that to your September 2004 analyst meeting, it seems you’re drilling fewer Big Cats and you’re spending more on exploration.

With your budget going from about 1.5 billion at the time to 2 billion today.

I'm wondering what the biggest limiting factors are in your Big Cat program, where you felt short on your drilling expectations?

And then going forward with regard to rig availability, to what degree that is a limiting factor looking at spending on non-drilling components such as acreage acquisitions and seismic and how that looks to be the case going forward as well?

Thank you.

You are right that in 2004 -- in the strategy meeting 1.5 years ago we were at the 1.5 level billion exploration per annum and then in two steps we have vaulted now to 2 billion.

The major part of that is increased aspirations or to say compared to inflation but there is a certain inflation part of that as well.

The reason that we increased it is that because thanks to acreage we could secure, so basically we had more opportunity to go for higher exploration.

And you'll see that in the quantification of our Big Cat as well.

We drilled last year 15 and as Peter said, seven out of 12 successful, three still to evaluate.

And this year we will go from between 15 and 20 Big Cats and again, we have the opportunity to do that.

And of course we like that because long term and it can be from years out, this is very good news for our Company because after exploration you find of course you hope to develop their projects.

And we were really satisfied in general by the deal flow we had for new acreage last year.

About your rig availability is indeed off the 2 billion of exploration, a lot is for rigs but new acreage if we acquire that will come from that budget as well.

And in general I would like to say that we have covered in the second half of last year quite good our need for rigs in the coming period.

So we have a pretty good coverage this year and we feel good about that because then we know that we can execute our program.

We will take one from the floor.

Neil McMahon with Sanford Bernstein.

Two questions, the first one is really on the Big Cat program again.

Maybe it's directed more to David as well given your new role.

I think it's fair to say that typically in terms of an exploration program you drill the best prospects first.

So when you're going into a program which has an increase based on last year in terms of the number of wells drilled, I'm sort of interested where you're going to be drilling those wells around the world?

I'm sure you've got a pretty good idea of where the 15 to 20 are going to be.

Just maybe give an outlook as to do you still see the new wells being drilled as falling under your definition of 100 million barrels net to Shell?

The second question is I think one of the biggest things to look for on your balance sheet going forward is the buildup in capital which is growing pretty fast with your major projects coming out in the '08 to 2010 timeframe.

However, that is effectively controlled by the way you can control projects in your project delivery.

As for investors and analysts, maybe you can give us a few milestones in terms of how we should monitor your success here and actually keeping things on schedule given the fact that most of these big projects are still two or three years away?

I think Dave has extensively started to do the exploration map so I will give the first one to him.

Thank you Peter, and thanks for my first question for the exploration role.

As you know we had a considerable success last year.

We found 2 billion barrels of resources, well over half of that came from exploration.

We were very focused on what we call our major selected basins, our focused basins, there, the deepwater basins that you know about in the Gulf of Mexico, Deepwater offshore Brazil, offshore Africa, Malaysia.

We're active in the Arctic and also in the Atlantic margins.

And I would expect that we would continue our focus because that is where we've done our significant regional studies which I think has really enhanced the success rate that we've seen this past year.

And I'm confident will continue to see.

In terms of the looking at the Big Cats, again, we will drill as I think Jeroen said, 15 Big Cats.

These remain the 100 million barrel Shell share and we expect to continue with that program.

You see David has started already.

He said 15 Big Cats -- I said the start is between 15 and 20.

On the capital I would say two, three things here.

The first one is quite clearly when we come back to you in March we will give you more flavor around where projects are and how we are driving that over the next few years.

So you can expect to have more information.

I think the way we can actually look at it is we have clearly communicated that we are going to unlock 13 billion barrels of resources after 2009 through the projects which we are actually driving over the next few years.

And these are quite clearly projects which we will communicate in March and you will see how we are actually starting to unlock those 13 billion.

You will quite clearly also remember that we said we are going to take a five-year to actually take another 5 billion barrels of resources for the next decade.

Now as you have heard in '05 we already took quite a number of new projects which we are developing toward feed and then FID at the moment.

Again there we will keep you up to date when we are reaching these dates like we have reached Qatargas 4 for example in December, etc.

So we will keep you on a permanent basis there.

And then I think as Jeroen many times also communicated, we have strengthened the whole project side of the house quite a bit and I've stressed various times that we have implemented Nanhai.

We have done the Nigeria Train 4 and 5.

We have done Oman on time within budget or even earlier in that sense.

Bonga has been delayed, but once we said we will deliver in the [first] quarter, it was done.

So we have strengthened our project economy.

We have strengthened our processes.

We have strengthened our controls around the project management.

So we are actually going to develop that further and through that we will be ready to communicate with you or the sell side but also with the shareholders and analysts and the investors side on a regular basis.

So we will give you more in March but it is quite clearly you will see our other [PCM] projects coming on stream.

'06 we have targets a project in New Zealand to come on stream and their other one is in Nigeria which is ERA.

I have already said you can actually watch us in ramping up Bonga, ramping up Salym which we will keep you up to date throughout the year.

Thank you.

Peter, let's take one over the phone.

Bert van Hoogenhuyze.

Gentlemen, two smaller questions.

First, Nanhai will you reach break even?

Will the startup go as planned?

Secondly, we haven't heard a lot about Saudi Arabia.

You are busy there it seems about 2.5 year together with Total in exploring for gas.

I saw nevertheless that Sinopec has started drilling instead of Shell started drilling.

Can you give us some infill on that development?

And finally, small question the effective entitlements in the fourth quarter on the production?

Let me start with the first two and then Peter will do your third question which I couldn't understand.

The effective entitlements of PNCs on the production volumes?

Nanhai.

Nanhai, that was an example of a project on schedule, on time and on budget.

We are starting up at this very moment all this is a project for decades to run.

Roughly all the developments are resulting on the capital side but if you look forward as we are expected during when we make investment decision.

Your second question about the exploration of gas in Rub al-Khali that is called the Empty Quarters in Saudi Arabia, Empty Quarters for the light oil is the name if you are a [birth] to the territory.

And we started drilling there in the middle of this year.

We are not slow but we are working very much remote area as you can already hear from the name, (indiscernible) their acreage.

And again, we are on track compared to our own planning.

And your third question is for Peter.

If I don't have it completely wrong I think it is 33,000 barrels a day.

So it is rather minor?

Yes, it is a minor one.

That is correct.

Thank you.

We will take one form from the floor.

Mark?

Mark Iannotti, Merrill Lynch.

Peter, one for you.

Given industry cost inflation and phasing of your projects toward the end of the decade, how confident are you that 19 billion represents the CapEx.

What is sustainable CapEx to the end of the decade for you?

And do you see risks to the upside to that number being increased in due course?

Thanks, Mark.

Quite clearly when we have said the 19 excluding the minority in Sakhalin, we said that the increase is driven by projects and roughly 25% of inflationary pressure.

And going forward, we can see that we will go off to further opportunities on the one side but we also have said it is difficult to forecast at this stage how actually the costs will develop over the next few years.

We are of the opinion at this stage that we will see a flattening out in 2006 certainly in great parts of the world.

There might be in the Middle East some question marks if that is a flattening out already.

To your own set, for '06 we have to -- the rigs actually are 100% in and I can rest assure you that '07 and '08 is pretty close actually to being fully committed already.

So we have actually locked in sizable kind of contract in many areas in order to actually not to be further exposed.

We never said that the 19 is the peak because we made it actually quite clearly -- you have to see this number in terms of what other opportunities we are going to develop.

And I go back to one of my earlier explanations that organic growth for us project funnel is extremely important.

We want to drive that further.

So that's how I see the CapEx at this stage.

So we are doing everything in order to keep the costs quite a bit under control.

Thank you, Peter.

We will take one over the phone, please.

Nikki Decker.

Good afternoon, gentlemen, Nikki Decker at Bear Stearns.

Just some specific questions if I could.

On your 2004, 2008 reserve replacement target, does this include Canadian oilsands?

And what F&B costs are you targeting during this time period?

And regarding 2005's reserve adds, what portion of those adds are attributable to acquisitions?

On the first one as I already said we give you both numbers because we find it very important that you actually see that we are not just driving the SEC proven reserve from barrels -- that we are actually looking at the total portfolio when we take investment decisions including [con] conventionals and also in that part the oilsands.

To be absolutely clear the RRR 100% was actually the earlier guidance and that still is correct is actually based on proven reserves according to SEC guidelines.

So in that sense it excludes the oilsands.

That is why we give you both numbers.

In terms of F&D costs, we never give F&D costs.

We give you the F costs that I have given already which is between $1.00 and $2.00.

And we have had 2005 was a good year we were closer to the lower end of the range in terms of F. We also say operational costs in that sense we forecasted that it will go up by $1.00 in 2005.

We can confirm it has gone it by $1.00 but in that $1.00 it has also absorbed the higher hurricane costs for example.

And I said already we don't see that completely flattening out in 2006.

And we have brought in all of our total supply management cost savings, the new organizational structures savings are obviously showing some fruits there.

On the acquisitions, on the RRR, the guidance we have given has not changed.

We always said we are looking at RRR which includes swaps, which includes minor acquisitions, minor things as well and not large acquisitions quite clearly.

We will not at this stage disclose the add, the barrels which are allocated to acquisitions but I can tell you it's a very minor number.

Thank you, Peter.

Question here?

[David Klein], ABN Amro.

A couple of questions on the Sakhalin 2.

Mr. Voser, I think you indicated last autumn that Royal Dutch Shell had submitted its revised cost estimates to the Russian authorities.

I wonder if you can give us any indication as to the feedback that you've got at this stage concerned with those revised cost estimates?

And secondly, can you just update us on the talks with Gasprom about the swap at Sakhalin 2?

Yes, Jeroen takes both of them.

The discussions with Gasprom, 50% swap for Sakhalin, 25% for a Siberian Fields, (indiscernible), as they were scheduled to date to start at the end of the year, last year.

And that is what happened.

We always said that we expect our discussions to take place many months, that is what we still expect.

So this is a long way to say it all happened on track.

Regarding the costs, we had to submit the costs to the Russian authorities.

Again, the costs were higher with the submission date.

They have been taking place.

The authorities we expect they will study them to ask clarification questions and as before that will take many months as well.

So that is the only thing that we can say.

So, no white smoke out of that process how to say.

Thank you, Jeroen.

Let's take one over the phone and then we will take one more from the floor, please.

Mark Gilman.

The Benchmark Company.

Good afternoon, gentlemen.

Two specific questions if I could.

First, Jeroen or Peter, can you give us an idea where we stand in terms of total project expenditures on Sakhalin on either the with or without minority basis as of the end of '05?

Secondly, with respect to the reserve adds that you did book in 2005, can you provide some color or clarification as to the major components of those additions?

Sakhalin is 60%, Mark.

Hi.

Good afternoon anyway.

It's 60% from a spending point of view.

On the RRR, we will provide you the usual split when we come out with the final report in early April.

I think we are still giving range as we are just finalizing the work.

So I think it's a little bit premature to go into detail but you will get the normal geographical split and all the other information like revisions, etc., when we come out in early April.

Given the lack of the answer to that can I try one more?

Can you give me some idea of the rationale underlying the Tahiti swap for what seemed to be natural gas oriented acreage and production?

In West Texas, on the receiving part which we get from Total, the combined is our infrastructure and we have a very good track record in West Texas to drill.

We have to drill many holes in order to produce.

And on the other hand as you know, at the Tahiti site, Total was already in it.

So it works for both basically using synergies or capabilities that we have.

So it was all about making money.

Thank you, Jeroen.

We’ll take one, Charles.

Peter, just the last question on squaring that cash circle.

We haven't talked really about the dividend.

You talked about your long-term aspiration of meeting inflation.

But it's quite clear that we're in a different environment than we were maybe 18 months ago.

Could you tell us how you're going to approach setting the dividend this year and what sort out discretion you feel you have to grow that dividend?

I think I would answer in that sense we have not announced at this stage a change in our policy.

So the policy remains in place until we announce the change.

I think the drive of the Board and the drive of the executive committee is clearly to pay a competitive dividend and that is how we analyze the dividend.

We will quite clearly analyze the competitive situation etc.

If I look at the yields which many industries including the oil and gas industries are paying at this stage I still see us coming out at the top.

I think I will as usual all the time look at this.

But I'm still quite confident that we have got the right policy in place.

Thank you, Peter.

We will now close with the one final question from the telephone, please.

Tim Whittaker.

Gentlemen, it's Tim Whittaker at Lehman Brothers.

Firstly I'd like to ask about global demand trends.

In your statement you said that there's little evidence of demand weakening in Europe and the U.S. but you're marketed sales in the quarter seemed to be down by about 3% excluding divestments.

Maybe you could give your view on what is happening in demand?

Is it losing in other parts of the world or are you losing market share that's taking your sales down?

And secondly a more specific question, you're in discussions and I understand closely agreeing a contract with Noble Drilling for a deepwater semi submersible rig which would make you be paying at least current day rates out to 2013 after the reconstruction period.

I wondered what it was that gave you visibility in the drilling rig market that far out in the future and what is your view on the long-term evolution of the drilling rig market?

First on the global demand trends, is that I saw little evidence and I saw it in the European and U.S. markets and that is what we see.

What we don't know is what higher prices will do with a certain time delay.

Or to say it differently, the little evidence is probably that people don't still drive similar distances or the same distances.

But both will be the secondary effect when they replace their existing car.

Will they buy a car where you get more miles per gallon?

And the jury is a bit out.

Of course we followed your story about SUV sales etc.

So that is a bit early.

That is why we sounded as positive as we sound.

Last but not least in the demand figures, we have -- especially in the U.S. -- you have quite some disturbances by the hurricane figures.

For some weeks there was probably limited driving in Louisiana and Texas.

So it is not that easy to read.

And also on the other side is you have economic growth.

You have more people with cars so that one would expect an increase in fuel sales.

You spotted well that in our quarterly sales revenue that was minus 1%.

When I look to Peter as well, is I don't think that has to do with preeminent marketing sales.

I think it has more to do with how we have to count for all kind of trading volumes according to our accounting guidelines.

So your conclusion that that correlates to market share as far as I am aware is not correct.

And then the Noble deepwater I don't know the precise story there.

Maybe Peter can help you.

Let me add to the first one, I think in the U.S. what you clearly are seeing on the demand side that October quite a bit into November it was actually a little bit sluggish.

But what we have seen towards the year and obviously the volumes have already increased again.

So your 3% you mentioned on the (indiscernible) side, I think is not something you will see on a continuous basis as we see some coming back with all the caveats Jeroen has set around it.

Jeroen also mentioned is on the purely dollar revenue side we had a slight reduction between the third quarter and the fourth quarter.

That was driven by trading rather than by normal branded sales.

On the long-term issue you said I can rest assure you that we don't have actually a better crystal ball than you may have up to 2013.

I'm not going to give you all the details of contractual negotiations etc., but you normally do these things where you have actually (indiscernible) closes or you can actually renegotiate prices, etc.

So without going into the details all of this, I think there is nobody here who can look out so far.

Thank you, Peter.

Thank you, Jeroen.

And thank you all very much for joining us today.

Thank you.

Thank you for your questions, thank you in New York.