殼牌 (SHEL) 2006 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Royal Dutch Shell Q3 results conference call on October 26, 2006. [OPERATOR INSTRUCTIONS].

I would now like to hand the conference over to Mr. Peter Voser.

Please go ahead, sir.

Thank you very much.

Good afternoon, everybody.

Welcome to the Royal Dutch Shell third quarter 2006 conference call.

I'm going to review the results and portfolio activities for the quarter, and then take your questions.

Firstly, please take a moment to read the disclaimer.

Let me summarize our position.

We are pleased with our third quarter results, with $6.9b of CCS earnings.

Industry-wide cost inflation is a fact today and we see that in our numbers.

However, our financials were underpinned by a strong operating performance, both upstream and downstream, and a good contribution from our integrated portfolio, spanning upstream production, manufacturing, marketing and trading.

Our strategy is unchanged and on track.

We have a strong portfolio of investment choices and we have an organic strategy to create long-term shareholder value.

We invest on the basis of long-term economic trends and oil prices.

That said, strong cash flow from today's high oil prices does give us the flexibility to expand our investment portfolio and, of course, to grow our returns to shareholders.

We see the technology as an important and differentiated business driver.

That's because industry projects are getting larger and more complex.

Technology is important for us and we are focusing more there.

We are investing for the future.

To give you an example, our largest projects alone are expected to give Shell over 600,000 barrels of oil equivalents per day early in the next decade, from long-life projects.

Many of our projects are not simply fields in the conventional sense.

They are huge, industrial complexes that will generate cash flow for decades to come and be important cornerstones for our company and our shareholders.

Turning to the results in more detail, I am pleased with our financial performance in Q3 '06.

Our CCS earnings for the quarter, as said, were $6.9b, which was an increase of 1% on an EPS basis compared to Q3 '05.

Our Q3 '05 figures included a gain of some $1.7b from the disposal of Gasunie pipeline assets in the Netherlands.

If you exclude the Gasunie divestment in Q3 '05, to look at the momentum of the business operations, the earnings per share increased 33% versus year-ago levels, and earnings, I think, were a record result for the Company.

Cash flow, excluding working capital movements and tax effects, were also strong, at $9.6b for the quarter.

Oil prices have been strong but let me highlight that it is our operating performance that is underpinning our results.

We continue to make steady progress there, both from production upstream, from refining availability and from our trading and marketing businesses.

As a result, our earnings have proven to be resilient in the face of rising industry costs and weakening refining margins.

Operating performance has been satisfactory all around.

Let me make some comments on the economic environment.

Oil prices increased versus year-ago levels and gas prices were also generally better, although U.S. gas prices were lower than Q3 '05.

Oil prices declined across the quarter but remain at relatively high levels.

Industry refining margins were lower in all regions compared to year-ago levels, with some offsets from marketing margins which also improved, assisted by the so-called parachute effect.

In Chemicals, industry cracker margins remained volatile but were up compared to the same quarter last year.

Earnings increased versus last-year levels in all business segments.

Upstream earnings included inflationary increases in operating costs, increased U.K. taxes, higher business development activities and the impact of rising average unit DD&A from our new projects.

Given these downward pressures, I am pleased with the progress of our upstream margins.

In Refining, we seem to be achieving good margin uplift relative to industry margins as a result of our balanced refinery configuration.

Refining utilization rates were around 82% this quarter compared to 78% a year ago, when there were disruptions from hurricanes.

The impact from downtime was relatively low, with planned downtime around 1.5% and unplanned downtime around 4.5%.

Chemicals profitability was satisfactory overall, although the U.S. business continues to operate on narrow margins, due to the strength of oil prices compared to U.S. gas prices.

Shell's U.S.

Chemicals operations take oil-based feedstocks rather than gas.

Operating rates in Chemicals were impacted by the beginning of a heavy maintenance program that will continue into Q4.

Oil and gas production was 3.25m barrels of oil equivalent per day, an increase of around 1% versus year-ago levels.

Overall, our production was boosted by new project startups in Nigeria, Malaysia, Brunei and Russia.

Additionally, we have restored production in the Gulf of Mexico, where we suffered from hurricane damage a year ago.

If we adjust our production numbers for hurricane impact, Nigeria's security issues and the PSE effects, production increased by around 3% versus the year-ago levels.

Turning to Nigeria, we are very happy with the performance of our LNG and deepwater businesses.

New projects are building up in these areas on schedule.

You will see that our Africa production is essentially flat, Q3 to Q3.

However, the situation in Western Nigeria remains difficult.

Some 185,000 barrels of oil equivalents per day were deferred as a result of the security situation there in Q3, with 177,000 barrels of oil equivalents per day shutting at the end of the quarter.

No firm date can be given for the restart of this production and safety is our top priority.

Our production guidance for this year is unchanged.

For this year, we have assumed no restart of these Nigeria barrels in our 3.4m barrels of oil equivalents per day forecast, which was based on a $50 oil price.

The guidance for '07 and '09 that we presented in May of this year is also unchanged.

But those forecasts did assume that we would resume both production operations and trading activities in this difficult area.

Finally, on production, we will not be shy to sell upstream assets, on-stream or undeveloped if we think that we can generate better long-term shareholder value by doing that than aiming for precise production targets.

LNG sales volumes increased 19%, which is a very strong performance and a third quarter record.

This was driven by new capacity in Nigeria.

This volume growth in LNG has come at a time when the industry LNG prices are firm and are reflecting higher oil prices and diversion opportunities.

This means we use our industry-leading supply portfolio, shipping and regas facilities to optimize the delivery of cargoes around the world.

We and our joint venture partners continue to deliver LNG into Japan, Korea, Taiwan, India, a number of European countries and the U.S.

We have also commenced delivery of LNG into China and into Mexico, where we delivered the first ever LNG cargo at our newly commissioned Altamira regas terminal.

We are clearly on track to grow our LNG capacity by average 14% per year for the period '04 through to '09.

Our cash margins, which you can see on this chart, continue to be strong and seem to be competitive within our sector.

Our unit earnings performance in the quarter was strong.

Upstream unit earnings were approximately $15.7 per barrel of oil equivalents in Q3 '06, an increase of 26% versus year-ago levels, excluding identified items.

That compares to a 13% increase in Brent oil prices.

Oil products unit earnings were $3.12 per barrel, a 4% increase versus year-ago levels.

Now, let me update you on the portfolio development in the quarter.

As you know, Royal Dutch Shell has made a proposal to offer to buy out the minorities of Shell Canada for CAD40 per share.

There is nothing to add at this stage from the conference call that we held earlier this week.

Let me give you a short update on Sakhalin II in Russia.

We have had helpful meetings with various Russian ministers recently.

We hope to be able to resolve any issues and misunderstandings through discussions.

We see the environmental and economic issues.

For both, we see pathways forward.

This huge project is now more than 80% complete and on track for the first LNG in '08.

Our previous estimates for capital spending on the project are unchanged.

Discussions continue with the relevant bodies regarding the cost overruns and how to include Gazprom into project.

On the subject of environment, the project has faced an unprecedented scrutiny and operates with a high level of transparency.

We have already had some 200 audits this year alone.

The Company has identified in recent audits, as pointed out, a number of non-compliances with permits by pipeline contractors.

Sakhalin Energy is treating the resolution of these and any other issues as a top priority.

Elsewhere in our portfolio we have taken the final investment decision on the development of new resources in the deepwater Gulf of Mexico.

The Perdido development will tap into a cluster of fields in the Western part of the deepwater gulf.

This is a frontier area in deep water and with complex geology.

The Perdido development will be operated by Shell.

So let me conclude on cash flow.

We continue with our policy of balanced use of our surplus cash flows.

I am pleased with our progress to create a more efficient balance sheet structure.

Just over $1b of proceeds were realized from divestments year to date, predominantly in downstream.

Capital spending plans for around $19b of organic spending in '06 are on track and '06 will include an additional $3b spent on portfolio opportunities, as communicated earlier in the year.

We will expect to conclude our proposal to Shell Canada's minorities in '07, with an offer price of some CAN7.7b.

Clearly there are still cost pressures in the industry and we have seen competitor CapEx estimates rising.

As I told you with our Q2 results, we see a number of projects, including partner-operated projects, where costs are considerably challenged and this could impact the pace of our final investment decision.

We have continued with share buybacks this quarter with some $2.8b of shares bought for cancellation.

That, combined with announced dividends, takes the total returns to shareholders so far this year to over $13b.

In the first three quarters of the year, we are close to matching the total for 2005, excepting the one-off impacts of minorities and dividend phasing from our unification last year.

Gearing stood at 13.4% at the end of the quarter.

I am satisfied with the commitments which we are demonstrating to invest in our businesses and to return cash to our shareholders.

With that, let me now take your questions.

Back to the Operator.

[OPERATOR INSTRUCTIONS].

The first question comes from Mr. Tim Whittaker.

Please state your name, company name, followed by your question.

Hello, Peter.

It's Tim Whittaker from Lehman Brothers.

I've got a question about decline rates and a question about demand for products.

I see on your slide you've shown what you think the decline rate is since last year.

Could you confirm what that is in percentage terms?

And could you also say how you expect decline rates to evolve in future quarters, particularly given that you've got new projects which seem to me to have longer, flatter production lives?

And secondly, in the downstream, I notice your market volumes were down, year-on-year, after divestments.

Would you say that reflects the underlying trend in demand that you've seen?

And would it -- is it possible that you are able to detect changes in demand, given the big swings in prices that we've seen?

Okay.

Thanks, Tim.

On the decline rates, we had a guidance of 6 to 8% and I will not -- at this stage, I will not change that.

That's how we see it also for the, let's say, for the foreseeable future.

I think from a long-term perspective, but here I'm not talking the next few quarters, quite clearly our strategy is aiming at long-life projects where we have significant upfront investments into infrastructure and the resources, and hence will, in a certain way, de-risk future capital spending because the decline rate in those areas are rather, let's say, low or are more or less zero.

And around 2.3m barrels a day of our production target in '09 or then in 10, 2010, is actually already then going to come out of such production.

So I see the long-term trend really positive in the short term 6 to 8.

On the volume side, I think you have got a few effects there.

We cannot detect, actually, a demand destruction at this stage.

We have deliberately sold out, because of our portfolio focus, of certain areas of our businesses like Latin America, Spain, Portugal, in Oil Products, as you know, and in order to actually focus on the other areas where we see long-term potential.

And we also have made, and that's also coming through in our volume, clearly some choices not to participate in certain businesses or in certain areas of the geography, because margins were just, let's say, not attractive enough for us.

So the main reason for the decline, actually, on our volume side, is really our choices in terms of divesting not to enter into commercial liens.

I could not confirm that we see the changes in the demand pattern in certain bigger countries at this stage.

Okay, thank you.

The next question comes from Mr. Neil Perry.

Please state your name, company name, followed by your question.

Hi.

It's Neil Perry from Morgan Stanley.

I've got a couple of questions.

One is the downstream result was particularly strong.

Can you break out, maybe in percentage terms, or just give us an indication of what the split was between the refining and marketing, because I suspect the marketing was quite a substantial improvement?

And then, secondly, the biggest delta in terms of the production increase in oil seems to have come from the Middle East, Russia and the CIS.

Can you give us any clear indication of what's going on in there?

Is there an Oman effect in there or is that just Russian volumes that are ramping up?

Okay.

Thanks, Neil.

On the downstream one, let me just give you a few background informations there.

In '05 that was the last time we split it out, the marketing and the refining, the marketing trading on the one side and the refining, where we said $2b to $3b out of our profit on an annual basis is marketing and trading driven.

And we would still stick to that also for '06 and going forward.

We have clearly seen a positive effect on the marketing side in the quarter, which I would call the parachute effect, which clearly, as an integrated company, obviously we can drive that much better than a pure refinery player or -- and other integrated companies.

So there was an effect in that but, as I have said earlier on, we have now, for two years, concentrated on our portfolio, so we have divested certain things.

We have concentrated for two years also to look at our commercial, our LBG, our bitumen business, and we have taken some tough choices there not to participate in certain areas.

And that's showing quite clearly some results, like also the cost drive in downstream, the operational excellence drive Rob Routs is putting in there is showing results.

On the trading side, I think if I look at the earnings, then quite clearly the earnings trend, Q1, Q2 and Q3, as highlighted in our press release, they had a contribution.

But the earnings trend is more or less the same, so that's something we see as an underlying performance on the trading side as well.

So I think that's all on marketing and trading, please, some parachute effect in it.

I would not call it an enormous, let's say, contributor in that sense but it's helped a little bit.

The second one, can you just repeat that question, sorry?

It was -- the second one was just on, in the upstream, there's quite a big move in the oil in the unit you call Russia, CIS and the Middle East, and I wondered if you could just break it down a bit.

I'm just wondering if there's an Oman impact or whether this is all Russia, or what exactly is driving it?

Oman is -- some of it is a bit of it.

Otherwise, in that area, really, Russia, as I have said, we had Salym obviously ramping up.

That was the positive one.

But otherwise, we don't have a big trend there, so --

Okay, thank you.

The next question comes from Mr. Mark Iannotti.

Please state your name, company name, followed by your question.

Yes.

It's Mark at Merrill Lynch.

Can I ask a couple of questions, please?

In the gas and product division, can you maybe help us a little bit with some guidance to try and help forecast this division, particularly with reference to LNG and LNG trading profits?

Can you maybe give us an idea of how many cargoes you're processing in a quarter and how many of these can be diverted to premium markets?

And also can I ask a question on your other and corporate segment?

There was a key delta certainly for me in the quarter.

The previous guidance had been $100m charge for a typical quarter.

Just looking at the model, it looks like you haven't actually been in negative territory, only one time in the last five quarters.

Is that -$100m guidance still valid or can you update us on it please?

That's fine, Mark.

Thanks.

I will tackle the two questions.

Indeed, LNG had a very good quarter, but I think that's just a continuation of previous quarters as well.

Volume has increased by 19%, as we have seen, and prices obviously were strong as well.

And, yes, we did -- we are taking full advantage of our global portfolio and our global capabilities in terms of LNG supply positions, but also shipping and regas terminals.

We've had a few cargoes.

I'm not going into the details how many cargoes out of how many other cargoes, but that has had a contribution as well.

So I think, in LNG, the three pieces actually contributed whilst volume and price are clearly the two main drivers.

I would say that LNG is somewhere in the 80% category of the total GP result, to give you another indication.

But we also had good marketing and trading results, where we have benefited as well, but that makes our profit a 20%.

And we also -- looking at our global trading position in LNG, I think, as we have said also in our strategy presentation, more and more it's this global, let's say, development of LNG with the three key areas, North American, Atlantic Basin, Europe and then also the Far East, Asia Pacific.

We can see that actually the diversion of cargo is optimizing the trading value of LNG will have a heavier -- or will be a more important part of the LNG business going forward, and we are very well placed on that.

Thank you.

On the corporate one, let me just take you through there.

Corporate is always a difficult one, as you know.

But as you say, there are seven quarters -- quarter results have been up to plus or minus $102m.

Just to remind everybody, we have in there obviously interest, shareholder costs, insurance, but also currency gains and losses and taxes.

Now, in interest, shareholder costs and insurance, that's where we are anywhere up to $100m normally charge a quarter.

So that's the guidance I can give and that's not going to change.

On the currency side and the corporate tax side, this is difficult to guide you forward and we will have to do that on a quarter by quarter basis.

So we have -- over the last year, we have seen improvements in net interest income, as you know, and we have also seen an improvement in charges within that interest income.

And you may remember that the elimination of [Bavel] and of Interchain had an effect there.

So I think the net interest income line is easier to now look through it and is more positive.

The costs side between 0 and 100, and then you have two fluctuations which is the tax movements and the currency, and that's a difficult one to give you any guidance.

But the 0 to 100 is still okay from a cost point of view.

Thanks.

The next question comes from Miss Irene Himona.

Please state your name, company name, followed by your question.

Good afternoon.

It's Irene Himona at BNP Paribas.

A question firstly on the cash flow.

I see that you released about $560m of cash from working capital.

This is a very large swing, both year-on-year and quarter-on-quarter.

I wonder if you could care to comment on the key drivers and whether in Q4 some of this may reverse?

And then, secondly, is there any guidance you can actually give us in terms of the unit DD&A, which is clearly moving up on the upstream?

Thank you.

Okay.

On the first one, I think that's a function of the oil and gas price, obviously, like a year ago the quarter had a significant increase on the working capital, which was [slighter].

And this quarter was different, hence you had some relief, but actually not that much of a relief as the real fall of the Group price came actually towards the end of the quarter or early in October.

So this is difficult to forecast.

I think you will have to watch the oil and gas price to feel on how that will develop.

On the DD&A, I think I will not give you guidance in terms of percentages.

But I think what we have said, that with our reserves revision bookings in the past, and also our strategy that we go actually towards more frontier areas in our investments, we obviously are facing in the shorter term higher DD&A ones, which longer term I think will be different once we can actually recognize more reserves under SEC rules in these frontier areas like Sakhalin, like Kashagan, like others, and that will have then an impact.

So I think you're looking at two time windows here, the next two years and then most of it, then the next five to seven years are going to be different.

Thank you.

The next question comes from Mr. Mark Gilman.

Please state your name, company name, followed by your question.

Hi.

It's Mark Gilman from the Benchmark Company.

Peter, good afternoon, I had a couple of things.

With respect to the Perdido development, could you give us some idea of what resource base is being developed by the project and any initial thoughts on development cost?

Hi, Mark, thanks.

I'm not going to be very friendly now to you, but I think the resource base and also, as you know, project costs, we are not commenting on project by project.

So I think, for the resource, we have to wait a little bit before we come out with this one.

And on the project costs, it's part of our CapEx guidance on an annual basis and it's meeting all our criteria -- profitability criteria at the various oil prices.

I think I have to leave it at that, otherwise I'll get into detailed disclosure here.

Let me try another one, if I could.

I'm having trouble reconciling your comment that year-over-year production would have been up 3% if we exclude the effects of production-sharing contracts, hurricanes and Nigeria.

The 3% would be about 100,000 a day.

You indicated that the Nigerian deferrals were about 185 equivalent in the quarter.

Can you help me reconcile that math?

I can help but, before doing that, I'll give you the big picture.

I would suggest you just call one of our IR guys and we are more than happy to give you the details there.

We had a very good quarter, as you know, in terms of new production coming online and that's what's the significant contributor.

Nigeria, I've given you the numbers, which were around 185,000.

The hurricanes we have given you last year, which are around 160, so these work against each other.

The PHA, the price effects, etc., are around our guidance which we have given, which is 20,000 to 40,000 depending on the oil price this quarter.

It was at the lower end of that.

So I think that gives you the numbers but I'm more than happy to give you all the details.

Just call IR.

Okay.

If I could, just one more.

With respect to the E11 project in Malaysia, I'm interested in whether or not this project will essentially replace volumes and maintain volumes that are feedstock, [Bintulu] and the LNG plant, or whether there is actual growth associated with E11?

Yes, there is actually growth related to that project, with all the details about Bintulu feeding, etc., I think, Mark, we'll give you a call or I'll tackle it when I see you next week in New York.

Okay.

Finally, one more.

How much spot LNG sales are you running in the third quarter?

I've said before, and we don't give the details of the volume, and it looks like not your day today but we will not comment on that.

But as I have said, we have had a number of diversions, but in total, I can tell you, compared to the total what we do, this is actually not a big volume at this stage and it is supposed to increase over the years to come.

Well, Peter, thanks a lot.

I look forward to seeing you next week.

Yes, okay, cheers.

The next question comes from Mr. Colin Smith.

Please state your name, company name, followed by your question.

Afternoon, gentlemen.

It's Colin Smith from Dresdner Kleinwort.

Peter, it was just on Sakhalin.

I wonder if you could give us a bit more clarification about the program of events from here.

Do you expect PSE and Gazprom discussions to be resolved at the same time?

Are they still sequential?

And do you expect that the PSE will continue and make you have to convert tax and royalty?

I think we have signed a contract -- yes, thanks Colin anyway.

We have signed a contract and we are intending to fulfill that contract.

And I think you have seen quite a number of comments from the Russian authorities which are pointing towards a similar direction.

I'm not going to speculate on the timing of those things.

I think what I will tell you is actually we're working on those things.

So it's on the Gazprom deal, which has its origin in the MOU which we signed last year, on a swap.

And at the same time, we are following due process on the cost overrun side, which we have submitted our documentation to the Russian authorities.

They have, or are still doing, some audits on that and we will just conclude those whenever we can.

But I cannot speculate if that is going to be on the same time or not.

Thank you.

The next question comes from Mr. Neil McMahon.

Please state your name, company name, followed by your question.

Hi.

It's Neil McMahon with Sanford Bernstein.

Maybe I should get my mind-reading powers honed up a bit before I ask these questions but, just turning back to LNG, you mentioned in the release something to do with trading and storage.

And maybe without giving me any volumes or prices, you could just tell me if you have been storing some of the LNG volume and selling it forward in the quarter to get winter prices?

That's the first question.

Yes.

Gas storage did play a role in Europe and in North America, that's correct.

But that's the storage piece of it.

Trading, I will not comment on that but it's a normal business behavior that you play the storage game for the winter to come, so you stock up in these quarters.

Second question is with regard to exploration.

Now, do you have any exploration guidance to give?

It seems like, unlike others, who are taking big increases in their exploration write-offs, as you would expect from unsuccessful wells and higher drilling costs, you don't seem to be -- or your exploration write-off hasn't gone up that much.

Does this indicate reasonably good exploration activity and are you satisfied with that?

We will update you in Q4 on the details of this.

As we have said, we will not give during the year all the comments on big cats' success rate.

I think I can only say we are pleased with the progress so far.

In terms of feasibility, expenses, etc., we are quite clearly aggressive on that as well, so I will not say we are slowing down there.

So we are developing as much as we can.

We are also building -- still building in the acreage space, so we are taking acreage in, in order to actually build on our exploration program over the next few years.

So, so far, so good.

This year, pleased, building acreage, pleased with so far the outcome of the exploration side.

And we are, in my opinion, aggressive on the feasibility side and pumping it.

Just a last question, on -- just on really your philosophy on the dividends.

There seems to be a fair amount of cash still sitting on the balance sheet.

You've got plenty of debt.

Now, obviously you've got the Shell Canada buyout if that goes through.

But, in terms of dividend guidance, it seems to be -- it seems to me, at least, that you have got a prime chance here to really jump ahead of other major oil companies in terms of your dividend activity.

Any views on that going forward, in terms of how you see your dividend growth rates versus buybacks in the future?

Okay.

Let me just maybe take a wider shot at this by giving you a few points around the way I manage the balance sheet and end up with the dividends or it's in the middle.

First of all, oil prices and refining margins are higher compared to long-run averages, so as well as industry cost.

That's kind of the macro picture.

The investment wavelength of our Company has changed.

So we're expecting a higher percentage of production to come from non-conventionals in the middle of the next decade compared to today, which is around 5%; we go to 10 to 5%.

Conventionals will also be clearly developed and driven forward.

So our capital on the construction is clearly going to grow in the way we are actually spending our money.

So a key thing for us is actually, going forward, is to build our organic growth strategy.

The priorities on the balance sheet are clearly dividends.

And debt is on the one side.

But then maintaining the CapEx that I've just described through the business cycle and returning cash surplus to the shareholders.

On the dividend we have the policy in euro declaration with increasing at least inflation.

We have increased it by 9%.

So that's more than inflation this year.

We take these decisions on a quarter-by-quarter basis.

We will maintain our policy of at least inflation.

But obviously, as I just have outlined to you, the balance sheet has the function of generating, let's say, shareholder returns at the same time in the short term but also in the long term.

And I will balance those things on a permanent basis.

So that's the way I look at the balance sheet.

I am pleased with the development.

If Shell Canada goes through, I'm around 19% in terms of gearing.

And we are developing our growth story through CapEx.

And I think we are paying a very competitive dividend and we are returning cash also through buybacks.

And that's the four legs I will optimize going forward.

Okay.

Thank you.

The next question comes from Mr. Jon Rigby.

Please state your name, company name, followed by your question.

Yes.

Hello.

It's Jon Rigby from UBS.

Two questions, just to follow up on that distribution and balance sheet management question.

I think you indicated at the conference call on Monday, and you just confirmed again, that your net debt or your gearing ratio would come towards your target after the Shell Canada.

But can I confirm that, given that your net debt wasn't really rising prior to the announcement of that deal, that, all things equal, taking into account whatever you want to do with CapEx, that you will keep buying back shares at roughly the same rate as you have been this year?

Clearly the net debt level would not concern you.

The second is just to go back to the gas and power number.

Looks to me that sequentially volumes are up about 4% in LNG.

Prices actually sequentially look to me flat.

Can I then infer from that that the, once adjusting for that small differential quarter to quarter, that the difference in non-U.S. gas and power income is your LNG trading?

Okay.

Thank you.

On the first question, I reiterate what I said on Monday.

But you added one thing which I didn't say on Monday.

So this is not an 'either' or 'nor' question, this is an 'and' and 'and' question, as I just explained.

So it is not, on the one side, doing an acquisition or a buyout of minority and, on the other side, no buyback.

So this is an 'and' and 'and' question.

But I didn't say at what level because the level will actually depend on our growth portfolio.

It will depend on the market conditions.

And I started the macro conditions description by saying we are in high oil prices at the moment and the oil prices will determine on our way forward, obviously.

So yes, you have the yes on that side.

It's not an 'either' and a 'nor', it's an 'and' and 'and', but levels will depend on market conditions.

I think I cannot follow and would not agree to your analysis on the LNG side.

As I said earlier, the volumes have increased substantially, which is 19% Q on Q. And the prices actually have increased as well quite significantly.

We have had a very good earnings and price realization, both on the EP and the GP and hence the LNG side.

And then we have also had the trading side.

But the trading, in that sense, was not that different to the previous quarters, Q1 and Q2.

So, from that point of view, the earnings trend is continuing.

And, as I said, it's rising because we have more opportunities.

But I would not say that that is the prime driver of the LNG result.

Just to come back to you on that, are you saying that the data I have -- you're saying that in the release sequentially the volumes are up 0.1m tons.

The data I have suggests that Far East CIF LNG prices are basically flat sequentially, yet your net income in wells there is up a good amount.

I don't understand where the differential between those two quarters comes in.

I think we're getting into territories where I would have to go into prices and contracts in all the areas.

I think I do it this way, Jon, I'll look at it and then I will get back to you if I can help you a little bit more.

But as a conclusion I can just say to you I will not follow your logic that the main driver of the results was a trading driver, because that's just not what it was.

But I will help you to better understand the other one without going into details of contracts and of prices.

A lot depends actually how your pricing formula works on the LNG side.

Okay.

Thank you.

The next question comes from Mr. Edward Westlake.

Please state your name, company name, followed by your question.

Yes.

Good afternoon.

It's Edward Westlake at Credit Suisse.

Just maybe a comment about inflation, rig coverage and your latest thoughts there.

I guess at the strategy presentation you were hoping things might have -- or were hoping to cool down a little bit in 2008.

We've started to see some of your competitors book rigs out at that level at fairly healthy levels.

So just wondering how covered you are on rigs in '08 and what your latest thoughts are in terms of CapEx inflation in light of your statement about CapEx for next year.

Okay.

Thank you, Edward.

On the rig side, we started last year to cover ourselves for the year '06, '07 and '08 in a pretty aggressive way because we saw the supply/demand of rigs actually tightening quite a bit during this period.

So we actually covered clearly '06 and '07 practically 100% and we are close to that in '08 as well.

So, from that point of view, we went very early into the market.

And we see a clear competitive benefit here by having gone in so early, given the tightness of the rig market which we see at the moment and the prices which are paid.

In general, in inflation, I think I have said the challenge is still there.

I think you see slowly a shift happening between in the early part of the cost pressure you have commodity prices rising.

What we are seeing now, it is more coming into the EPC world, where the services are rising in terms of prices as well.

So I think you see a shift.

So we haven't seen the cool down at this stage and it's difficult to forecast.

But, given where the oil prices are, I think there's a certain feeling that the costs will be with us for a while.

In terms of CapEx, let me be very clear, it's $19b plus organic growth acquisitions of roughly $3b which we have done already this year is the 2006 guidance.

We have plenty too for next year.

That's -- we leave that at guidance.

We will update again when we next talk to you -- to the market, which is in February, early February.

We have seen competitors going up or you have seen competitors going up.

You have also seen that some of the projects of competitors have had cost rises.

So we are watching the situation.

We have also made it very clear we will not be shy of postponing projects.

And we also -- and I have said that in my introductory words, we will not be actually shying away of actually monetizing projects if we think they are better monetized than actually constructed, if they are in that phase or even actually selling barrels which are already on the production.

So I think it's the shareholder value, short, middle and long-term, which we are optimizing and not the absolute spend of CapEx.

Thank you.

The next question comes from Mr. Daniel Barcelo.

Please state your name, company name, followed by your question.

Yes, good morning.

This is Dan Barcelo from Banc of America.

Question and a little bit of a focus on the U.S.

Gulf of Mexico and deep water in general.

Historically Shell has had really a leadership position deep water.

But as the portfolio goes forward, it seems to be crowded out a bit by LNG or non-conventionals.

I just wanted to know if you could talk more broadly about the Perdido regional development.

Is this a renewed push to grow that area or are you more comfortable with deep water being a smaller percentage of the portfolio?

And I guess the question really is because, given your existing infrastructure positions in the U.S. or West Africa and your technological advantage, I would have thought that would have grown a little bit quicker.

Thank you.

Okay.

Thank you.

I think global deep water is clearly for Shell a clear driver and U.S.

Gulf is part of that.

It's a hard [land] for us.

We have just, as you've seen, announced today Perdido.

I think you have seen how we got Mars back.

You have seen on how we are developing there.

You can see how much CapEx we are spending in that part of the world.

So we are really looking at that.

And yes, indeed, it has to rank against other opportunities which we have on a worldwide basis.

But if you take a geographical mix, if you take the maturity of fiscal regimes, some of the geological and technology, let's say, challenges which we have here, the U.S.

Gulf is a key area for us and we will develop that.

So I think it would be wrong to say that we are slowing that down or we don't want to develop that as fast as other areas.

And we are really going after these things and want to develop it.

On the Perdido, I think it's -- as you know, it's a tough geology.

We will develop that.

It's going to go for a few years and we will see by the turn of the decade where we are on that one.

But otherwise deep water across the globe is benefiting a lot from the Gulf and our experience there.

Thank you.

The next question comes from Miss [Lucy Haskin].

Please state your name, company name, followed by your question.

Congratulations for the figures, guys.

I just wanted to check a point when you were talking about the CapEx for next year, Peter.

I think I may have heard -- misheard, because I heard 22b.

First, thanks for the congratulations.

As I have said, we are pleased.

It's good to have such a good operational performance and we just keep working.

No, it's 21 for next year.

That's what we have said.

And we have said it's around.

So we always -- you can never actually have a point landing on those things.

But we say around 21 and that cyclically could be plus/minus 5%.

Thanks.

The next question comes from Mr. Jonathan Wright.

Please state your name, company name, followed by your question.

Good afternoon.

It's Jon Wright from Citigroup.

Just a question regarding Nigeria.

You mentioned in the release statement that the restricted Nigerian access is impacting drilling and progress on new projects.

I wondered if you could perhaps give us some indication of which projects are being impacted and to what extent.

Also in your earlier comments you alluded to possible FID delays on new projects.

Perhaps you could be a little bit more specific there in terms of what projects you might see at risk.

Okay.

On the first one, I think on the Nigeria portfolio, we are distinguishing three things.

You have energy on the one side, then you have offshore and you have onshore.

So when we are talking about the security issues and the drilling, then we are talking about onshore.

Now, in the onshore piece, quite clearly we more or less lost a drilling season or a drilling year '06.

And if we can't get back in there for a while, then that will start to affect, obviously, '07.

And we have had projects in these areas.

I wouldn't call them these elephant big projects.

But it's the sum of the smaller projects which will deliver -- or would deliver some barrels.

So I don't want to give you the list of the projects.

But you can imagine that not going into the Delta region there, where we have the problems which, again, is not the full region as we are still producing onshore as well.

In that area we clearly can see some problems if we can't get in.

On the delay question, I think we have given you one example.

I think there was one or two quarters ago with Mars South, which we delayed because of rig availability and other issues.

Otherwise I would say it's just a multitude of smaller projects which we are pushing out.

From a timing point of view, some of them may not even make the cut at one stage, or have no major cost.

So we are pushing things a little bit further.

Some of the PFID work is delayed.

So we are watching the situation.

We are watching the, let's say, the contract availability, the rig availability, overall the prices, the bid regimes, etc., we are just watching that and pushing it out.

But I couldn't give you two or three big projects because it's the sum which is of smaller projects which, at the end of the day, is what is driving it.

We also -- I think I leave it at that.

Okay.

Thank you.

The next question comes from Miss Nikki Decker.

Please state your name, company name, followed by your question.

Nikki Decker, Bear Stearns.

Good afternoon, Peter.

A lot's been covered already.

Just maybe a couple of specific things.

First of all, in the downstream, you talk about higher refinery utilization, yet the throughput volumes appear to be essentially flat.

So maybe you could help me understand that.

And secondly, in chemicals, could you talk about the impact to earnings of the maintenance activity and talk about projected impact in the fourth quarter?

Thanks.

Okay.

I'll start with the second one.

We have a heavy turnaround program which started in Q3 and that will go well into October, so the early part of Q4.

That's, I think, as far as I can go.

I will not give you the percentages, etc.

Can you just repeat your first question because I couldn't hear that?

Sure, Peter.

The refinery utilization rate has risen quite substantially year over year, yet the throughput volumes through your refineries appear essentially flat.

Indeed, they are roughly flat.

We have -- that also obviously quite clearly depends a little bit on the shutdowns.

I need to come back to that.

I don't have the answer in my head at the moment.

So, sorry for that and we will come back.

Thank you.

The next question comes from Mr. [Stefan Souko].

Please state your name, company name, followed by your question.

Good afternoon.

This is Stefan Souko from Societe Generale.

I would have two questions, please.

The first one, the [DNT] clean margin barrels seems to have gone up compared to Q2, besides increased current tax in North Sea.

Could you perhaps provide some further information on the possible reasons for this and, perhaps more importantly, if it is sustainable?

And the second question is would you have any, perhaps, update on guidance around buyback for 2006?

Thanks.

Okay.

The second one, I'm afraid, is going to be no.

The policy's clear.

We optimize the four legs of the financial framework and we'll buy back and you will have to -- you will see what we do on a day-in-day-out basis.

I think, on the first one, clearly it's a geographical mix.

It's the ramp up of the new fields.

It's, for example, Mars coming back faster and at higher levels compared to the second quarter last year, but also compared to the second quarter.

We had significant ramp ups in our projects offshore in Nigeria, Bonga and there [inaudible] impacted.

And also quite clearly we had new startups coming in Malaysia but also in New Zealand which is Pohokura.

So we had all these ones coming on.

They should be quite sustainable as they are now ramping up and -- or getting towards their full production.

So we are very pleased with the operational performance there and the startups and we look forward to the next quarters.

Thank you.

Okay.

Now, operator, we go for the last question.

The last question comes from Mr. Jason Kenney.

Please state your name, company name, followed by your question.

Hi there.

It's Jason from ING.

Just following up on a few earlier questions.

Is there a risk for the reservoirs in Nigeria?

And could you ever get back to the 2005 output levels in the Delta?

Second one on FID delays.

Is there a firming of the timing for Pearl GTL?

Thirdly, is there any indication of the potential impact for Saudi gas?

And finally, if I may, I know it's a bit too much, but do you see Shell with a new stake in Kazak Caspian acreage before the year end?

The last one goes too much into the speculation and I can't give an indication, so I will not go in there.

On the Pearl GTL, which was your second one, Pearl we took FID in July, as you know, and we have published that.

We are pleased with the progress so far and we will go at full speed ahead there.

We have clearly made it clear that we are happy with the outlook for Pearl and we will develop that in accordance with our schedule which we also have communicated around that in Q2 or in end of July.

On Nigeria, I think, as I have said, we will watch safety.

We will go in and establish, I would say, from a reservoir point of view, assuming that we can go back in there and develop and all of this, I do not see a major change to what we communicated beforehand.

You will get more information when we come out with the 20-F [inaudible] in March, most probably next year.

Then we had, I think, Saudi gas.

I would say that's too early to comment on.

We will get back to that once we have more results there.

And I think I have covered all of your questions.

Thanks very much.

Good.

That's the end of this call.

Thank you very much for calling in.

As I have said, I think we had a good operational quarter.

We are pleased with the progress which we are making from an operational performance.

We just keep working and delivering.

And we are building the long-term strategy of the Company at the same time.

Thank you very much and speak to you again at the next quarter end.

Bye.

Ladies and gentlemen, this concludes the conference call.

Thank you for participating.

You may now disconnect.