殼牌 (SHEL) 2006 Q4 法說會逐字稿

Welcome. 2006 results strategy update (indiscernible) press conference this morning. Now we have the analyst part. How are we going to do it? I start off then each of the Executive Directors who run the businesses, they talk about the business strategy of their businesses. Then Peter concludes with the financial framework, and then we take your Q&A.

If I first go to '06, both operational and financial performance we increased our reserves. We took many decisions about big projects. We restarted Mars, the very large production platform in the Gulf of Mexico, running at higher rates than before. Deepwater Nigeria and LNG in Nigeria going well. In fact, the Deepwater performs better and ramped better than we expected. With onshore in the Delta we continue to have serious problems.

Growth in LNG in total we stabilized Sakhalin II project, and we're busy with the minority shareholders at Shell Canada, and we try to buy them out.

If I now give an update on the financial that was the highlights of '06. As you see, I'm sure [of that] because it was already all publicized this morning. We then highlight the strategic framework and update you there. The whole strategic framework is aimed to generate competitive returns. Competitive returns as a return of our operations on the projects that we do and competitive returns to our shareholders.

Competitive returns we will never do the expense of safety, or how we see and how we feel we should work at the environment, so a lot of attention for our environmental performance. And of course we should respect the neighbors of our operations.

What was the basic of this strategic framework? It is underpinned by the basic belief that there is growth in energy markets. Why is the growth in energy markets? Still many poor people in the world who would like to have electricity as well, or to drive a car. And simply that you get more persons in the world.

So growth in energy markets. We have a very simple strategy. I call it more upstream profitable downstream. Then of course we come back to that in all our presentations, what that means to more upstream profitable downstream. And then the priorities within that framework is about delivery and growth. I say it all the time in that sequence. I feel only good delivery gives you the earn -- then you earn the right to grow.

It is not only about the strategic framework, it is about the culture in the Company as well. And I have done a lot of the culture with my colleagues over the past two, three years, nearly three years now in the Company -- sorry, about culture. I'm very encouraged by that. And that encouragement is based on the people surveyed of our employees, filled in by 70,000 employees last year of the 100,000. And we can see that we have made very significant and more important progress about how the Company feels.

I'm not going to dwell about that, but this is a reality. We have the program which we call Enterprise First. This is not about T-shirts, but fairly much of what we expect from wearing T-shirts and you are there. No, no, it goes much deeper than that. It is how we see Shell professionals and our all other employees in the future.

If I look at the organization, then we have made changes there as well. We have now a real global organization, with relatively simple structures. Let me give you examples. We have sold a lot of our chemicals, with our base chemicals has all perhaps now integrated in this downstream. And that gives us a sustained competitive advantage.

Finance. All the 12,000 finance people we have in the world, they all report to our CFO. That helps us with capital allocation. It helps us, of course, with compliance. It can help in dealmaking, and it can help with speed.

In the upstream we have centralized our large project management. So our 70 large projects are very close to Malcolm. And as you can see how we drive our LNG portfolio, as Linda does on a very centralized way.

If you have a strategic framework, you know what to do. You have a simple organization structure, and you can make the decisions. And you make sure now that you have tools to win as well. And that is why I emphasize technology. Absolutely an important differentiator for the future. And to drive that over the past two years in the key disciplines, technical disciplines, we have approved in every discipline what we call a Chief Scientist. The Chief Scientist is preferably an internal Nobel Prize winner, as I have said. We have now appointed a Chief Technology Officer, reporting to Linda, for the whole Company as well. So to speed that how we drive technology.

And for the CO2, that we see that as an opportunity and not as a threat. So that we get all the right CO2 technologies and drive the business development there, we have a Mr. CO2 in our Company, again reporting to the Board.

If you look at executive committee, we have made -- they have very clear accountabilities now. And based on the simple structures really enables us to drive the Company faster, and we have stronger decision-making powers.

That all should help us. For instance, at the cost side of the Company we have then looked for additional synergies of about $0.5 billion each year through the medium-term. And then we have to make sure that with our ambitious investment program we have enough staff. Over the past year we recorded 6,000 persons of staff, of which 1,500 young graduates and 4,500 professional midcareer hires. And they came from 60 countries.

We then go to the next slide. Here you see on the long-term scale, 2006 on the left hand as representative for the downstream our refining capacity. The basic message is we keep our capital roughly employed in the downstream. And if you really look at the refineries then you say, well, that is more or less horizontal. I would like to point out that there you see the (indiscernible) that we bought their (indiscernible) refining capacity that was in the U.S. Of course, then we took our -- basically our Texaco title. And we saw the -- so we picked up a lot of refining capacity. And over the past two years in quite different market circumstances we sold refining capacity.

But what is hard to see is (indiscernible) going on as well, we shift our growth from the West to East on a global basis. Why? In the East are growth markets. That is why we built a large, protected complex integrated with our refinery in Singapore. It is not -- and of course at the same time, we're not afraid to invest let's say in the West. For instance, the expansion of the Port Arthur refinery in the States. And if we're going half a step it is because of 600,000 barrels per day refineries.

It is not only about new building and refining. We just announced that we sold, and Rob will go into that -- the Los Angeles refinery. We review our refining portfolio in France and some smaller ones. If you look at that that basically we have under consideration at this moment 9% of our refining capacity.

If I look at the upstream, the art is in the upstream to create growth. So it is to do more than your natural decline rates to get growth of the production, and of course, a profitable production over time. I think it is not the right way to look from quarter to quarter, or even from year to year. You have all kinds of short-term disturbances, as I just mentioned at Nigeria onshore. And in order to get that growth you have to realize we have to invest a lot of money. So three-quarters of our new investments they go in the upstream. And then I include the investments for LNG in that one as well.

What do we do? In fact, we do two things in the upstream. Where we have smaller isolated assets, we are not afraid to divest that if we can get good prices for it. But the major emphasis is of course in where we can have major big projects. We like to have high stakes in those big projects. And that is where we invest our money.

Short-term I have to take into account that we have, and that is a fact of life, that we have significant equity production in Nigeria shut in at this moment. And we have our Sakhalin project, it means half of our production. That is why I expect for the coming two to three years that our production growth will be 1 to 2%, and then only when we just go to the end of the decade. And by the end of the decade we expect that our LNG has grown by 50% compared to today. And Linda talks about the oil sands. And we will have grown by 60% compared to today. And we hope at the beginning of the next decade to start at a gas to liquids plant in [Kapi], so you see all those very wise investments. And that will help us then on the growth path for that turn from 2 to 3% per annum. So that is how we see it on the medium going to the longer term. Of course, our very large projects, they give that a very steady gas flow for a long period to come.

We now go to the next slide. We have very (indiscernible) I talk about projects. We have a very fascinating industry. But I realize as well now the industry, we may call it fascinating, but you have very important environmental considerations. Our industry has a lot of political aspects. Technology will play a key role in winning. And it is a very big industry, if I think about the dollars going around there.

Of course, my colleagues will go into that. But let me already say that I see very -- at this moment a lot of competition. In fact, tremendous competition for new oil and gas resources. Why is that? New players, and some of those players are really prepared to pay top dollars. So how can we then win as Shell in that fascinating industry with all those aspects and with the new players there? That is why we emphasize technology and integration.

What I tried to say about technology, it is not only to have technology for the upstream. If one thinks about heavy oil, sour gas, or attacking very complex gasifiers, it helps if you have a lot of know-how in the downstream as well, for instance, to clean up that sour gas.

A lot we see is that there are standard easy oil and gas -- there is the competition, the toughest. So there you expect the smallest margin. But where we can apply a lot of technology of integration, of project management, of specific finance prescriptions, there we expect that the margins will be better. That it is so essential to have that technology and experience and the people to have them in-house.

I should say this is not only about the upstream. If I look at the downstream, how to refine -- the refineries and the chemical contracts are excellent. It is very important if you got a [reliable], and you got your learnings fast, then even if the business environment is more difficult, you still can make decent cash there. And of course by having our network we can get the learnings from A to B very fast.

Then let me then turn to exploration. We see exploration as a key strength. Malcolm will go into that. But in my view we had good performances '05, good performance '06. Another example -- sorry, let me -- that of course exploration drives a lot of our conventional oil production. What do we do by conventional oil production or conventional gas production, which we make over into LNG? We also look at unconventionals. Now unconventials can be oil sands. It can be that we develop technology for even the next generation of more difficult oil to produce that. And better you like to call it an unconventional or gas to liquids as we build in Qatar. This is all the big projects where we think we can win, and brings to us technologies that we can repeat elsewhere.

I have some financial figures here for 2006. I would like to be relatively short on that because Peter comes back to it. But CCS earnings were $25.4 billion. The cash flow was nearly $40 billion. (indiscernible). Return to shareholders 16%, about half dividends, half buybacks. But Peter comes back to that.

If I look at the total portfolio, it is of course for us very important that we balance all the time, and that is how we as a team look at it, our capital, what we acquire, how we divest, and of course the payback to shareholders. That is exactly the framework that we try -- and we don't look at one item in isolation. For instance, we realize if you invest more on the one hand, then you have to divest more on the hand.

We strongly believe that organic CapEx, we have the experience there. We're good in that. And for all the projects we do, we make sure that they are still financially attractive, even if the oil and gas prices are lower than today. We think it is all about large projects. We have worked very hard on the commercial side over the past two years, so that is why we have now good opportunities. And in fact, we have to figure out how to invest our capital because we have more opportunities that we could do.

We have said as well this morning, we expect to divest this year. And here you see a financial framework coming back about $9 billion. $9 billion is made of $4 billion out of Sakhalin, and $5 billion out of other -- how do you call it -- divestments we have in mind.

I now go to projects. We have here you see on this slide, but if you look at all the major projects -- a major project is a project from $100 million or more. And 45 major projects under construction. In total we have in preparation, half of these are under business development, 140 projects. They are both upstream and downstream. And most of them are expected -- not 45 of course -- to be onstream by the end of the decade.

A good example of how fast it can go, I think is still in my view LNG in Nigeria. And the first two trains started up in 1999. We have now the six trains constructed and the seventh train is under its way.

Let's hope that we have a similar -- we find a similar model, for instance, for Sakhalin. We have two trains under construction. We have now Gazprom as a partner, and we closed an area of an agreement of mutual interest. Now there we can look at future LNG trains. It is not decided, but now there is the potential to do it.

I mentioned already that -- let me conclude that technology is for us a very important differentiator. And to say a bit more about that, this is not only technology in the classic areas of seismic and Deepwater or -- I don't know whether gas to liquids is already classic. But we pushed really our reserve [spensa]. Our reserve [spensa] was about 50% to $0.9 billion in 2006.

But we do more. And we tried to get one renewables, alternative energy off the ground on a large scale. But you can only do that if you have got it more attractive for the customers. The problem with renewables is that they are still too expensive, so we have to -- so research, research should help us to make better value propositions for the customers. Linda will talk about that.

Rob will talk, by the way, about biofuels where we have a similar problem. Biofuels it sounds very attractive, but not the present way how it is done this biofuels in (indiscernible). We have already, not only recently, for quite some years we have our eyes on CO2 and CO2 technologies. On the one hand, they have put the deck in the ground, and you use it for (indiscernible) recovery.

What I would like to say in this context as well, I wrote a short article to the FT last week because now the public has high expectations, what can we can do with CO2, it will only work if we can work together with governments for international frameworks. And then they only -- you start to make a jump into the CO2.

I come to the end of my introduction. What I have said so far is good results in my view. Strategy on track. We have the organization simplified. We have clear accountabilities. We make sure that we have enough people and professionals in-house to execute our ambitions. And as I said, the priorities on delivery, and if you have the delivery, we can grow the Company. And we make sure that our balance sheet stays intact to fund all our ambitions.

Malcolm, over to you.

Good afternoon, ladies and gentlemen. I've got three major messages for you today. First, the EP strategy is unchanged and we're on track. Second, we delivered strong results in 2006. And third, we've got a great portfolio of opportunities that are founded on our key strengths in technology, integration through the value chain, and global scale.

You saw our end of year figures this morning. And it was a good year for us. Full year production was just under 3.5 million barrels a day. That is ahead of the 3.4 million barrels a day guidance we gave after Q2.

New Fields more than offset the decline in our base production. And our up signs increased, and I'm especially proud of the way we brought back on Mars and the Gulf of Mexico facilities after the hurricanes in '05.

Excluding Nigeria security issues and hurricane damage, our underlying production increased by 2% from 2005 to 2006. We had good results in both reserves and resource additions. And we took several key project investment decisions.

Most importantly, we performed well in earnings. You can see here that in 2006 upstream unit cash flows increased by 21%, which compares to 19% increase in Brent crude prices.

We showed this slide before. The EP strategy we pursued consistently for the last three years is essentially unchanged. We're using our strong portfolio to build for the future. The bottom right shows our key performance focus areas.

Top right, we said we would drive the portfolio towards higher priced and volume upside, and that is exactly what we have been doing. And note our continued emphasis on growing unconventionals, and on technology as a key differentiator in getting access to good upstream opportunities, then delivering more value from them. And this is central to the strategy we're talking about.

This strategy, which we set out in 2004, really anticipated where we saw the upstream sector headed. As Jeroen said, competition for the easy barrels has never been so intense. And you all know that the new competitors, the IOCs face. So we see NOCs with very different returns targets doing government to government builds, and niche independents going global. And actually upstream service contractors sometimes offering increasingly integrated offerings.

The one illustration of that is that exploration signature bonuses typically increased 2 to (technical difficulty) over the last four years. I think in Shell we saw this coming, and that is why we shifted direction early. Moving on really from the crowded battleground for the easy barrels to leadership in technology plays as a route to privileged access and better terms in the major untapped resources that you see in the top half of the pie chart shown here.

Our view on what it takes to win in this industry is simple. It is technology, integration and scale. We focus and leverage all three. On technology we have tripled since 2002 the R&D budget in E&P, and we shifted its focus to the subsurface and to unconventiionals. Technology, like subsoil imaging and seabed logging. That is what drives our leading exploration performance.

We're increasing recovery from existing fields with new subsurface imaging, with EOR, with smart field management. Just in Brunei last year, we added 25,000 barrels a day from 5 smart snake wells. They tapped 11 pockets of oil. And in the process we set a record for production in the country for 25 years.

Megaprojects, such as in LNG and GTL and Deepwater and oil sands, can only be executed by a very few IOCs. That ability to integrate right through the value chain and across all the disciplines is what we find the host governments and national oil companies want from us, to unlock their difficult hydrocarbons.

Whether it is extra heavy oil in the Americans, ultra Deepwater in Brazil, sour gas in the Middle East, or tight gas in China, scale allows us to leverage our know-how globally. We learned from underbalanced drilling pilots in the North Sea in the late '90s to become the world's largest user by a factor of 3. We have over 530 underbalanced drilled wells, which give a three to fivefold production increase in tight gas reservoirs.

If you use it properly, scale gets you better value from suppliers. At 2006 costs for Deepwater rigs was some 30% below the market average, which is a $300 million annual savings. So a sustainable competitive advantage for us lies with technology, scale and integration. I think we can go still further in all three areas. So I would like to show you what we've achieved in just one region.

In 2002 we had upstream producing positions in just four Middle Eastern countries, plus a project underway in Iran. And the industry wisdom is that the Middle East is the hardest region for IOCs to gain new access. So just look at our track record in the last four years. We have reentered [Gassa] and have two massive projects in construction. We have extended by 40 years our concession in Oman, which produces 90% of the country's crude. In Kazakhstan we have Kashagan in construction. And last year we added more exploration success and significant new acreage.

We have a potential new LNG projects under development in Iran and in Libya. We have won new expiration acreage in Egypt, Syria, Algeria and Saudi Arabia, and we're negotiating further based on already agreed MOUs in four more key countries in the region.

The bottom line being that we expect to double production in this region in the next decade, with scope for further growth. But to sum up, in this changing EP world we are clear on our strategy, and we think that we know what it takes to out-compete, and that we've got it.

The first essential is delivering production where we beat market expectations and are our own target, but for the Nigerian security shutdowns. Deepwater Nigeria really delivered in 2006. Bonga in that area along produced 50% above plan. And the growth potential in Deepwater Nigeria is particularly exciting. We've now got six significant discoveries awaiting appraisal and development. And several of them have new hub potential. Salym in Russia has seen a steep production ramp up, and is setting new drilling records, and in fact just this week hit 70,000 barrels a day.

In U.S. our Pinedale operation is building tight gas output with a decade plus of further production growth ahead of it. So in fact we have taken major investment decisions to expand Pinedale operations and to prolong South Texas production. And we will have 15 rigs drilling on shore for gas in the U.S. this year.

Great operations are not limited to these examples. Our 50 or so largest operated assets collectively improved up times by some 2% in 2006 over 2005. And our 80 land rigs in the U.S., Oman and Russia are also outperforming. Where benchmarked we had costs 15 to 30% below competitors in similar basins.

You have seen that 2006 was a strong year in reserves and resource additions. Expect organic additions from SEC-proved reserve and provable mining reserves to be around 2 billion boe. On that basis our Reserves Replacement Ratio for 2006 will be around 150%. Over two years it will be more than 100%.

Discovered resource additions from exploration and new business development, they show even stronger performance, with well over 2 billion barrels added for the second consecutive year. Over the two-year period, we have added more than twice as many resources as we produced.

Our project portfolio is robust and growing. Our target remains of course in the long term to add at least one barrel of resources and reserves for every barrel that we produce.

So our exploration strategy is key to this, and it is unchanged. And of course it is delivering good results. We focus on basins with proven hydrocarbon systems, and we have room for growth. In 2005/6 we have added major positions in five focus spaces. That is entries in Libya, in Algeria, in Ukraine, in North American gas, and in Alaska. We have also expanded six major focus areas, as well as acreage, in a number of additional countries.

Exploration discovered resources in well over 1 billion barrels with the drill bit in 2006, with unit finding costs between $1 and $2 a barrel. Over the two years we drilled 28 big cat wells to target depth, of which 13 were big cat discoveries. That is a success rate of 46%, which is significantly better than 25 to 30% that we expect. And in 2006 alone we drilled in total about 100 exploration and appraisal wells with over a 50% success rate.

On top of this, from exploration of course comes new business development. We acquired BlackRock, significant unconventional resources in Canada. New offshore cash positions in Australia. And we increased our equity in BC-10, the heavy oil development in Deepwater Brazil. So exploration plus business development together delivered 2006 additions of well over $2 billion recoverable conventional resources, plus significant unconventional scope.

We also focus of course on turning exploration into production. From 1999 to 2006 we added some 12 billion barrels of equity -- barrels from discovered resource volume. This sustained exploration record comes with an increasing proportion of larger discoveries. Around 10 of the 12 billion barrels is in discoveries that are on a 100% basis over 30 to 40 million barrels. And the remaining 2 billion barrels are basically near field potential, which can be quickly tied in to existing assets.

Overall some 75% of this 12 billion barrels of discoveries will come on stream, or will have moved into construction, before 2010. So we think that is a very good record for monetizing exploration, which is of course key to follow-up the exploration success.

So this, combined with what is benchmarked as leading exploration performance, is basically why we're happy to continue to back the explorers with one of the biggest exploration budgets in the industry at around $2 billion again in 2007.

I'm going to turn now from exploration to production. And the key variable in our outlook is Nigeria, which I regularly visit and where the situation in the Western Delta is clearly serious, as we have about 180,000 barrels a day shut in there to date. We have also sustained major damage to our facilities, which we have not accessed for the year, so it remains difficult to predict when these fields will come back on stream.

All drilling and construction is suspended in the area, which further reduces the future production. And the declining contractor capacity that is available in the region means that restitution and new growth will take even longer. Nevertheless, I do remain much encouraged by the commitment of President Obasanjo and his government to resolve the issues. But we have to take a more pessimistic view of the outlook on volumes from onshore Nigeria in the next few years. And in fact for 2007, we expect production there to be some 250,000 barrels a day below what we planned a year ago. So that is the 180,000 that is shut in, plus the growth that has been slowed by the delays in getting access. So are looking at 2007 for the group I now expect the production to be in the range 3.3 to 3.5 million barrels a day.

I think we've got to put the current Delta challenges also into context. We have been in Nigeria for 70 years. We have been through lots of ups and downs, and to date we do account for 40% of the country's production. Deepwater is an extremely good story, as I said earlier. And the LNG business is strong as Jeroen mentioned, with scope still for both expansions and new plants. So despite the immense challenges, I remain very excited by our position there. It is position that frankly others would love to have.

Let's now turn to our global project portfolio. You can see in blue the large amounts of resources now under design or construction for startup by the end of the decade. And in red you see the options we have for the future. In 2006 we started the execution of another nine major projects as shown here. Projects that are dominated by long life positions and by unconventionals and technology plays. We have already opened up almost half the 20 million barrel resources that we targeted by the end of the decade, and we're on track with the remainder.

This chart demonstrates where we're doing this, with projects under construction right across the world. And you will note that the change on the right hand side, the change in portfolio balance is pretty gradual over time, with continued emphasis on all the elements of our production mix.

As we maintain that balance, we look to refresh the portfolio, especially by growing new legacy positions and sustaining the best of our heartlands. Of course, we're going to reduce our stake in Sakhalin II. But as Jeroen said, the new partnership with Gazprom will stabilize the venture, and will give it a good basis for long-term growth into a major LNG hub.

We also want to sell down some existing positions where we can't add much further value. That will leave us a more focused portfolio, simpler and cheaper to manage. It frees up funds and people to focus on the more attractive assets with long-term potential. The extent of actual sales will of course depend on getting full value.

So that leads me to production. I now expect production growth from 2007 to be modest to the end of the decade, maybe 1 or 2% a year, with a growth rate largely depending on the Nigerian situation and the extent of divestments.

Looking further ahead, we're investing to underpin the group's production with an extremely stable base of new, long life assets. Adding in fact to the long life positions that we already have to date. As I said in May, these new projects on average generate unit cash flows that are stronger than those of our portfolio to date. In the end of the decade our growth should accelerate as these new projects come on stream.

Our resource base has the potential to support 2 to 3% per annum average growth. And so we see that 2% to 3% is a sensible long-term framework. As always, there will be periods when it will be higher when new projects come on stream. There will be periods when it might be lower, as we sell assets and so forth. The main point being, economic value will be the driver of our priorities, and that will drive project and portfolio decision-making.

As I said at the start, our future depends on leveraging technology, integration and scale. And Deepwater is a great example of this approach. Shell was the industry Deepwater pioneer, and we continue this with two important ultra Deepwater projects, BC-10 offshore Brazil and Perdido in the Gulf of Mexico. Both final investment decisions in 2006, and both should deliver first oil around the turn of the decade. Both projects incorporate a lot of design innovations which mitigate rising supply costs. And also recoverable volumes are expected to increase by 10 to 20% as a result. Perdido in 8,000 foot water will be the deepest [spar] production facility in the world, and will become an integrated hub for fields in the region. We see it as a key milestone in the commercialization of heavy oil offshore Brazil.

It will also be the first field development globally that will be based on subsea oil and gas separation, and subsea pumping. And with around 1.5 billion barrels of oil in place, BC-10 has great potential for upside in recovery factors and produceable volumes over time.

Enhanced oil recovery is another key technology play for us, targeting recovery increases of typically 10 to 30% through advanced technologies. We've increased R&D spend on the year around by 10 times since 2004, as we see multiple benefits in both mature and new provinces.

This includes game changing approaches, using novel solvents and chemical EOR. Our ARA JV in California is a leader in thermal PLR, demonstrated over decades with a well base of now over 15,000 wells. We expect to increase the recovery factor to almost 80% in the Belridge field, using high-density steam injection.

If I look at Oman, in just the last 18 months we have taken FID on major projects on each of the four main EOR technologies. That is [missable] gas flood, steam assisted gravity drainage. We've got steam flood there, and we are now going ahead with a polymer assisted water flood project. So all the main technologies just in Oman. And we also have a handful of promising CO2 injection projects under study around the world.

Technology integration and scale are also key to our portfolio of unconventionals. We have made real progress in GTL, in oil sands, and in-situ conversion. The final investment decision on the Pearl GTL project last year and construction is well underway to deliver 1.6 Bcf a day of gas from the offshore facilities to the onshore processing.

In Athabasca we gave the go-ahead for the first oil sands expansion, raising production by 100,000 barrels a day, with more such expansions to come. And in-situ conversion is progressing well in R&D, as well as in building resource positions that I think will be very important in the next decade.

In summary, our strategy is unchanged and it is on track. We focus on delivery and growth. In 2006 we increased underlying production by 2%. And major projects are on track. 2006 exploration was very successful, and reserves replacement was over 150%. We continue to build a very strong portfolio of assets which have long life and low decline rates. And our long-term competitiveness is founded on technology leadership.

And now Linda.

Good afternoon. I'm going to start with our natural gas business today. And I will outline recent performance, our global LNG and marketing capabilities, the status of key projects. Then a bit of an update on gas to liquids, and some of our activities in coal technology.

During 2006 we saw significant progress in the execution of our integrated gas strategy. With LNG we had the production ramp up from three new trains in Nigeria and in Oman. We had the first ever LNG cargoes delivered into Mexico and China, in both cases from Shell projects. We had good progress with the five new trains that are under construction, all on track for completion before or around the end of the decade. We now have eight new trains of LNG in the final engineering and design phase.

LNG sales for the year, as you have seen, were strong at 14% year-on-year. And then in addition to LNG, we began construction, as Jeroen and Malcolm have mentioned, on the Pearl gas to liquids project in Qatar.

As you have already seen, Gas & Power earnings in 2006 reached almost $2.7 billion. This is up 68% over 2005. This is driven by LNG volume and price growth, and also I must say a very strong performance in our marketing and trading organizations in North America and in Europe and across our global LNG portfolio.

ROACE, or return on average capital employed, was better than 19%, even with a very high rate of investments in the business. Increasingly we are seeing the benefits of scale, portfolio flexibility, and global market presence reflected in the bottom line at the Gas & Power business.

Our strategy in Gas & Power is about leveraging leading capabilities across our global portfolio. This enables us to match customer and supplier needs, creating value throughout the chain and giving us a competitive advantage. Amongst the international oil companies, we're the world's third-largest natural gas producer. Our LNG portfolio is the largest and most geographically diverse. And we have scale and expertise in shipping, storage and marketing and trading. We also have leading technology, enabling excellence in opportunities and growth opportunities for the future.

But first a bit of a focus on our LNG business. The key to success is the ability to deliver major projects, and this actually starts with project design. Our LNG designs cover a wide range of applications, and they also have the lowest CO2 emissions of all LNG designs in the industry.

Then comes delivery, and in the last seven years we have successfully delivered 11 new trains of LNG. Looking ahead, we're investing in R&D to lower the unit cost, improve operating efficiency, and reduce CO2 emissions from our LNG plants even further.

We're also proud of our operational performance. In 2006 our LNG joint ventures delivered average reliability of 98%. This we believe is first quartile performance when compared to plants around the world. And through efficiency improvements and debottlenecking, our plants produced on average 117% of their original design capacity.

In LNG shipping we provide support to about 30% of the world's fleet, helping to deliver more than 9,000 cargoes safely over the last forty years. Having access to our own shipping enables us to assist our joint ventures and also customers, and realize opportunities for optimization. We currently have six ships of our own. And importantly we also have access to additional short-term shipping through an arrangement with Golar, providing us greater flexibility without tying up capital unnecessarily.

These capabilities underpin the growth then we see in our outlook for Shell's equity LNG capacity. Counting only projects already under construction, we essentially doubled our capacity during the period shown. With the planned dilution of Sakhalin to Gazprom, and also the expected completion of the Qatargas IV project around the end of the decade, we have forecasted growth rate of about 11% per annum from 2006 to 2010. This pace of growth should enable us to maintain our lead over the competition.

Let me demonstrate how by giving you some updates on just a few of the projects. In Nigeria we had good operational performance in 2006, including in our new trains 4 and 5. Train 6 construction, as Jeroen said, continues according to plan, expecting completion around the end of this year. Once on stream the capacity of the LNG complex will be 22 million tons per annum, making it the third-largest LNG complex in the world.

The outlook in Nigeria is for further growth over time, with the possibility of additional expansion at NLNG, and also a possible new greenfield project, Olokola. And both of these projects progressed through the feed phase during 2006, and they are in feed at this time.

Turning to Sakhalin, and adding just a bit to Malcolm's comments, essentially all of the LNG from the two train initial project is now committed to customers in Asia-Pacific and North America. Our agreement importantly with Gazprom is that these existing contracts will be honored.

I was in Japan and Korea just a few weeks ago -- sorry -- a few days ago. It feels like weeks -- and met the key Sakhalin II customers. Actually they had two perspectives on it. First, they viewed the announcement with satisfaction, because they realized it increases our ability to focus on the important goal of first LNG by the end of 2008.

Secondly, they are pleased with the AMI, the joint exploration agreement that was part of all of the protocols that were signed with Gazprom, because they see this as increasing the likelihood of Sakhalin LNG expansions, and then eventually more gas for the markets in the Far East from Sakhalin Island.

The most recent Shell LNG project to enter construction is Qatargas IV. This is just one of six large trains currently under construction at the Ras Laffan industrial complex. It is quite impressive when you consider that the capacity of these six trains alone is equivalent to about 30% of last year's global LNG production. So quite a bit of activity, as you can imagine, at Ras Laffan.

Construction progress is good, financing and commercial agreements are moving forward. And in addition we have recently been appointed the shipping service provider to the entire Qatargas fleet of at least 27 new LNG carriers.

In Australia, Northwest Shelf train 5 is on schedule for completion in late 2008. And we see an expanding set of longer-term opportunities. This includes the Gorgon where we continue to work with our partners to progress the project, taking into account the environmental permit conditions, cost challenges, and also I would say on the positive side, the real strengthening we see in Asia-Pacific LNG markets.

There's also progress in Woodside with their Pluto LNG project. And longer-term they have a greenfield opportunity in the [Brourd] Basin. And we see possible opportunities from our own exploration program as well.

As a result of these projects and others, the outlook for longer-term growth in LNG is positive. Beyond projects and operations under construction, we have a portfolio that should enable us to double again our LNG capacity in the coming years. Our long-term goal is to maintain or grow our market share in a sector that is forecast to grow about 10% per annum for the foreseeable future.

Now just a few comments from the perspective of the markets. Currently about 60% our world LNG is purchased by customers in the Asia-Pacific. Their demand will continue to grow as this region, more than any other, have limited alternatives for natural gas supplies. Our roots in LNG and Shell are actually in the Asia-Pacific. We are the region's leading supplier, with long-standing relationships with the world's largest LNG buyer, such as Tokyo Gas, Tokyo Electric and KOGAS, the Korean gas company. And without a doubt LNG demand in this market has turned around from the low of five years ago.

We also see strengthening in emerging markets, which improved in India, where increasingly customers are willing to compete internationally for natural gas supplies. And illustrates the value of our access through [Hapira].

Our global portfolio presents us with the opportunity then for optimization. This is enabled through the combination of gas from exploration and production and from LNG, through LNG shipping and rig application capacity access, access to pipelines and natural gas storage, strong customer/supplier relationships, and keen insight into the markets.

Value can be created in many ways. For example, by diverting LNG to customers in the northeast Asian winter, or the North America summer, or to India, and that still is the original market with spot cargoes or pipeline gas from our upstream operations. We saw many examples of this in 2006. And as our direct LNG marketing grows over the coming years, we will further increase our ability to assist customers and create value throughout the portfolio.

Our capability to do this, however, is only as good as our presence in the market and our understanding of the markets. Europe, the world's second-largest natural gas market and growing LNG importer, is key to this. We have a leading supply position and the broadest marketing presence in the euro zone. Now active in 16 countries, including in Turkey and the Ukraine, nearly twice as many as our international competitors. This combination allows us to take the route to market that provides the best return for our upstream gas and our LNG volumes. And we saw increasing benefits from this in 2006.

In North America Shell has an unmatched position in meeting the needs of energy customers. We are a significant producer of natural gas in the U.S. and in Canada. We have strategic LNG import access on both the East and West Coasts. And we're the third-largest natural gas marketer through [Coral], which had a great 2006.

We expect to grow our North American gas supply in the coming years, in particular through LNG imports. And this should enable continued growth in Continental marketing and trading, as well as an additional value for our LNG business.

Turning out to other areas, and first a few words about gas to liquids. Another strong performance from our plant in Malaysia in 2006, with reliability at greater than 99%. We have learned a great deal at Bintulu, using it to test new catalysts and gain operating experience in this new sector. We are now building on this with Pearl TTR in Qatar which, which be 10 times larger than our Bintulu plant. We are also expanding our global GTL marketing capabilities, and Rob will say more about this in his presentation.

LGTL construction began in the third quarter of last year. To date we have awarded $10 billion of contracts, including all of the main EPC elements. Once on stream, the project will produce about 120,000 barrels per day of natural gas liquids and ethane, and 140,000 barrels per day of gas to liquids products. These products include more than 1 million tons of base oil, 2 million tons of gas oil, and 1 million tons of naphtha each year. An exciting new project for the Company, enabling diversification of Qatari natural gas resources, new volumes for our upstream, and valuable new products for the downstream.

We also have the technology to convert coal into synthesis gas. This gas can be used as a chemical feedstock or for power, where it lowers CO2 emissions by 15% as compared to conventional coal powered generation. And it also facilitates the capture and sequestration of CO2. The technology has been licensed to 15 projects in China, capturing the lion's share of that growing market. Five of these have come on stream in just the last 6 months, including our own Dongting joint venture with Sinopec.

We issued the first new license for coal gasification in Europe in 2006. And were named supplier to the ZeroGen power project in Australia. The demand for the technology is strong, and we continue to evaluate a number of possible options for the future.

In 2006 Gas & Power have seen further progress with the execution of our strategy, a strategy that has remained unchanged. We continue to build on a successful track record of major project delivery, leading technology, strong financial performance, and profitable growth. And I believe we have an exciting portfolio for the future.

Now I would just like to take a couple of minutes to talk about the other parts of my portfolio at Shell, technology, CO2 and renewables. Discovery increased our investment in technology across Shell over the past several years, recognizing that this is one area that can differentiate us in a very, very competitive sector. Examples where Shell has driven growth through technology, include Deepwater, tight gas, LNG, and differentiated fuels. Our investment takes the form of traditional R&D, or research and development, as well as early technology applications, such as through demonstration projects and pilots. It has led to a strong position in intellectual property amongst our major competitors.

Our belief is that hydrocarbons will remain the major source of world energy for many years to come. As a result, our investment in technology is largely focused on improving recovery and lowering the cost of producing these resources. Some examples are shown on the chart. But these and many others are outlined in our recently published Shell Technology Report. This report covers technologies important to our future, including enhanced oil recovery, tight gas, next generation gas to liquids, in situ recovery of oil sands and oil shales. And copies I think were available in the package of material that were on your seats, or that you received when you came in today. And the report is also available on the Web, and we encourage you to take a look.

We're also investing in technology to lower the CO2 impact of what we do. This includes energy efficiency, reducing flaring, and improving designs for next generation LNG and gas to liquids. And we're an industry leader in CO2 emissions credit trading.

We're also exploring potential projects to capture and use or sequester CO2. Examples include a study to use CO2 from power generation in Norway for offshore enhanced oil recovery, delivering CO2 from the Pernis refinery to vegetable greenhouses in the Netherlands, and exploring the possibility of near zero CO2 emissions power from coal in Australia. Details of these projects are included in the handouts, and we encourage you to take a look.

Finally then renewables. Our aim, as Jeroen has said, is to have at least one material alternative energy business in the future. And we focus on the most promising technologies to deliver clean and competitively priced energy for customers, and also attractive returns for our shareholders.

We are already a leading wind electricity producer, with a focus on the U.S. and Europe. In solar we are exploring thin-film technology, and in hydrogen we are involved in demonstration projects and technology development. But perhaps most promising are the opportunities we see in biofuels. And Rob will say a few words about that. And I will turn it over to him now.

Good afternoon everybody. We're talking about strong earnings, and the delivery continues. The downstream had another strong performance in 2006. And actually it made $8.1 billion compared to $8.3 billion in the year before.

That sort of reminds me of a story that was running in the newspapers in town a couple of months ago that was calling the downstream the Cinderella business. I think there would be a lot of princes in town that would go around with glass shoes to find Cinderella with an $8 billion a year income. So it is a great business in terms of cash generation, and we're very proud of it.

Our products have delivered 12 consecutive quarters of earnings in excess of $1 billion now, due to good operational performance, and this year very good, strong lubricants results. Our trading, as I will show you, continues to do very well. Chemicals also a very solid contribution. Good market conditions, particularly in Europe and in Asia. Then I will say some more about that, a very successful startup in commercialization of our Nanhai plant in China.

An industry leader in terms of earnings. The competition remains intense in this regard. And after holding the number one position for about six consecutive quarters, Exxon moved into first-place. But certainly in 2005, and we expect also in 2006, we would still have the first position in terms of unit cash generation. We don't like being number two. And we're working very hard on the efficiencies in our business in order to get back to number one position in unit earnings.

We can go to the environment. It is a very challenging environment from a number of perspectives. A significant investment industrywide. It increased refining capacity, which very quickly leads to oversupply and lower margins, increased government regulations, tougher fuel specifications, and support for bio fuels. There's an increasing demand from -- and demand to an extent from consumers as well. They are certainly looking in this higher crude scenario for lower prices, higher performance of the fuels and lower emissions.

We at Shell are very well-positioned to meet these challenges. We have a diverse and very well-balanced portfolio, which will continue to strengthen and shift to the higher growth markets in the East. We lead the industry with a very strong brand. We will continue to deliver further operational excellence benefits. And we are a leader in bio fuels development with a very strong technical leverage.

I referred to industry refining capacity. We have shown you this last year as well. The increase of capacity, especially East of Suez is starting to happen. And the gap -- for a long time the gap has been narrowing between demand and production in the world, but we are now looking at entering the next cycle, which probably will build capacity in advance of demand.

Given our forecast of additional refining capacity, we expect the industry to remain cyclical in the long run. This means lower refining margins in the medium-term in aligning the critical importance of a diverse portfolio and operational excellence. We simply have to make the margin erosion up by operating better.

A portfolio across the world. We really have a global spread in manufacturing assets, about $4 million a day. And that is refining capacity and about 60 million tons of ethylene across the world. Over the last years, and you have seen recently also some indications, we have taken significant steps to reshape our manufacturing portfolio.

You look at the right hand side, Shell increased the size of its manufacturing portfolio significantly in 2001 by the acquisition of Texaco India. That was were refining margins were on a low point. And actually we are now rationalizing some of it, again at a fairly high margin environment, and you can imagine the value creation that does for us. Still, if you look at the dots across the world, the blue dots, capacity below 100,000 barrels a day, you still have quite a few refineries that don't have a critical size going forward, and we have to deal with one way or the other.

Our strategy is on track. If I look at our achievement in 2006, the [cash remains] in the earnings, as I said, $8.1 billion. And our lubricants and bitumen acquisitions. We talk about moving the business from West to East. The lubricants deal makes Shell the largest IOC marketing lubricants in China. And the bitumen acquisition in China more than doubles the size of our business in the country.

Turkey, another fast-growing economy. We were able to do a retail joint venture with Turkgas. We doubled the size of our network to 1,200 sites. And most of those sites about 6 months into the process have been converted to Shell site, and thus showing tremendous uplift in volume.

Anaheim, as I mentioned before, on time, on budget and full commercialization. $1.4 billion in disposals. And that brings our disposals since 2003 up to $9 billion across the business.

Let's talk about these disposals a bit more in detail. They are not strategic assets. And they are giving us a chance to redeploy capital, either in the upstream or the downstream, across the business. You have no doubt have heard our announcements a few days ago that we have signed an agreement to sell Los Angeles refinery and retail sites, 260 of them, and the supply agreements in and around Los Angeles and San Diego to the [Sorro] Corporation.

Currently we're also reviewing our portfolio in France and Puerto Rico, and considering the sale of our business in the Dominican Republic. We will maintain strong positions in the heartland markets, and seize new opportunities in the fast-growing markets in the world.

On the next page, you see where our investments go. More upstream profitable downstream means very disciplined growth investments and investments in asset integrity. The asset integrity themes are process safety, facility siting, and consent decree in the U.S. Our asset master plan is focused on process safety and reliability of the manufacturing assets, as well as on the longer-term growth.

Significant investments in facility siting continues in order to proactively ensure compliance with internal Shell standards, industry standards, and inventory requirements for the facilities at the manufacturing sites.

We also continue to make investments in environmental protection to meet both the internal standards and the external standards, and the external standards that are being asked by regulatory processes.

We now look ahead for the period from 2007 to 2009, the average asset integrity and care and maintain spend is projected to be at about 55% of our total capital outlay. The shift is primarily due to the fact that we are going to build this cracker in Singapore. Excluding this project, the average percentage of downstream CapEx for asset integrity and care and maintain would continue to be at 65%, which it has been historically. So a lot of money is being invested in maintaining our facilities in a very good operating mode.

There is a growth part, of course, to our business. The strategic investments are aimed at increasing scale. Without installations of scale and complexity, it is very difficult to compete these days. And certainly if you believe that refining margins are about to go down, you need to increase the efficiency of your system. So the CapEx is focused on long-term winning assets, announcing oil and chemical synergies, and focusing growth investments on strategically important markets.

(technical difficulty) you have heard some of them about the world scale chemical cracker in Singapore. Expanding our Port Arthur refinery from 335,000 barrels to 610,000 barrels, which would make it the biggest refinery in the U.S. And the examples that I mentioned before on the recent moves in bitumen acquisition in China.

Also, we're looking at refining expansions in China. I have already mentioned this oil and refinery deal. And I've also mentioned the assets that we're looking at in France. So that is a total program as to how we manage our portfolio and assets.

I would like to show you something that I am very proud of. This is the Nanhai petrochemical complex, which was a long negotiation and a good period of construction. It has been successfully commercialized and is now operating at world-class performance levels, a tremendous achievement in the first year of operation. Safety performance has been excellent, driven by high management attention to compliance with systems and procedures, and particular focus on process safety. The operating rate has continued to ramp up throughout the year, and achieved at near capacity rate in quarter four. Sales volumes were as were expected, and a positive financial contribution from the first quarter of operations at startup.

Operating rates in the fourth quarter were 98%, which is quite unusual for a big complex like this. And utilization rates for the year were at 85% following the startup. This was against a plan of 80%. Other than that, in chemicals we are looking at our existing portfolio and we're strengthening our hardline base. We are investing selectively across the piece. And our strategy here includes in our base countries of the Americas and Europe, it is reducing costs in an intelligent way and improving reliability.

In Asia-Pacific and the Middle East we're focusing on advantage feedstock projects and exploiting oil chemical synergies. World scale petrochemical complex (indiscernible) exploration and production and gas and power project is also being studied.

If you look at Singapore, it is chemicals in Singapore, the expansion really enforces an important hub into the fast-growing Eastern market. It adds about 800,000 tons of ethylene, 750,000 tons of monoethylene glycol. And modifications and additions to the [Bokon] plant. Actually, a lot of the economics of this deal are enshrined in the oil chemical interface. Also it is important to say here this project has the full support of the Singapore government. And actually without them we wouldn't have been able to make this work.

And in marketing. We say we want to move East. China is one of the key strategic markets. And you know about most of the stuff that we're doing out there, the Yangsoo retail, about 300 sites running in China. The acquisition of 25% of Tongye makes Shell the leading IOC in lubricants in China. It is the third-largest marketshare after the NICs. And then the bitumen deal with Coke, that is about 20% of the total global bitumen production.

Turkey, I mentioned the 1,200 sites. In India, we are first international oil company that actually has retail sites on the ground. We're doing very well and growing fast. And Indonesia, the same story, first international oil company in the ground. The throughputs through stations that we haven't seen elsewhere in the world that brings our unit costs down to a level that is very exciting going forward.

I need to talk to you a bit about the brand, because in presentations like this that gets often lost. The Shell brand is a key asset for us to win against the competition. It was the only brand that actually improved in customer satisfaction between 2005 in 2006. It was a leader in brand preference, with 18% preference across the world. And that is basically important for us. And especially the factors that make up this brand preference, things like technological leadership, innovations, fuel quality are just confirming the kind of positioning that we're after.

There was a strong brand image due to a couple of reasons. First of all, it is a very powerful logo. It has the biggest retail network in the world. It has very successful global advertising. And our association with Ferrari and the Formula One sponsorship has helped a lot.

(indiscernible), again we are the global brand leader with 16% marketshare now. Independent research shows that the Shell brand such as Helix, Remula and ROTELLA are the number one choice of both passenger car and heavy-duty engine consumers. In a recent survey more than 4,000 customers in 11 markets in the lubricants business, Shell comes in on top for customer satisfaction.

And we talked about [budgets] in this business that get very competitive and how we need to deal with that. Operational excellence is the only way to get at that, and it is ingrained in the way we do business. In refining operational excellence focuses on the team and cost leadership, maximizing reliability and availability, looking at margin uplifts, energy conservation and supply optimization. This program, and we talked to you about this last year, has already delivered over half of the expected benefits. In marketing, our operational excellence program focuses again on cost leadership, shared services, price management, and network efficiency.

[Then over to] refining considerable progress has been made. One example of a Rheinland refinery in Germany close to Cologne, we have reduced the unplanned downtime from 3.4% in 2004 to top class at 1.6% in 2006 through what we call business improvement programs. It is due to the integration of the former (indiscernible) refinery and nearby Shell facilities, performance delivery through people and processes, and concentration on essentially initiatives. And you have to realize that the first quarter performance in our [Solomon] system sets the unplanned downtime at 4%. So this plant is really doing very, very well.

And there's also operational excellence in the back office, and Peter will say some more about that. You can read the type of things that we're doing and where are coming from on the slide. But an important driver to maintain leadership in the industry is by simplifying and standardizing the way we do business. We come from a world where we were operating in 140 different countries in not much of a coordinated way.

You see some of the operational excellence initiatives, especially in the back office and in the administrative areas. As a result of these initiatives, we focus more taking time of care of customers and less on managing our internal systems. We have already started to see the benefits of this approach, and we also see there is much more to be had.

I mentioned trading in the beginning of our presentation. Trading has had an excellent year. The drivers of the increased earning in trading are increased levels of absolute price volatility, allowing trading to capitalize on the embedded optionality in the portfolio. It is the growth in the business, volumes, trading locations, and products traded. Increased integration of the downstream and E&P, capturing more value at the interfaces. And a good example of that is that since chemicals and all products came together our trading organization is actually also trading chemicals with tremendous success.

Also there is increasing experience and competences of our staff, and the best practice of a real, global trading network. Expertise on trading and shipping helps the portfolio is very important. Long-term relationships in this business is also the key to what we're doing.

And Linda referred to some of the leading edge stuff that we're doing in fuels. We're providing high-quality cost competitive fuels. On our [main grid] we set the Guinness world record for around the world fuel economy. These seem like symbolical exercises, but they are very important for the stature of our brand in the outside world.

Premium fuels in over 40 countries, for example, Shell V-Power Diesel. Shell V-Power Diesel is an advanced formulation with a GTL component in it already today. And is on sale in 4,000 stations in Europe. The car that you actually see here, and saw on Linda's slide, is a diesel car -- the first-ever diesel car that won Le Mans. [Audicho] Shell is their partner. And in the blend was a mixture of Shell diesel and GPL. We're a leader in gas to liquids development. A big plant in Qatar and a decade of experience in running our plant in Bintulu.

GTL base oils, which we have -- we don't talk a lot about -- but basically is also a piece of our GPL manufacturing site in Qatar. GPL base oils make a step change in the ability to actually prefabricate future lubricants and cleaner lubricants for engines. GTL base oil production from Pearl will deliver over 1 million tons per year, which is extremely significant. GTL fuel (indiscernible) is extremely also attractive to the automotive manufacturers, as it enables them to develop engines that are really directed towards the future and focus on lower emissions.

This is probably the first time that you have seen this slide in the presentation of an oil company that has a sunflower and a bunch of wheat in it. But basically this is the direction that this industry is going to take if we want it or not. Shell is leading the way in the biofuels today and for the future. We believe that we are already a leader in this area, because we are a large distributor of these fuels today.

But the new biofuels technologies look at better supply security, greater CO2 reduction, noncompete with the food chain. And I said it this morning already in the press conference, the increased demand on corn and palm oil and sugar is going to drive those prices up, and they will start to compete with the food chain. And already we see the prices of tortillas in Mexico double. So we're going to have a big -- hear a big political debate as to what the future for these fuels are going to be.

That is why we focus on what we call second generation technologies, and that is the Iogen technology, which is basically an enzyme technology that converts cellulose into ethanol. And the Korean expertise where we use the GPL knowledge to actually gasified organic waste and turn that into the same diesel that comes out of the GTL process. The big first big demo plant of that hopefully will be starting up by the end of the year. We believe that these positions in the long-term will give us a future competitive advantage.

The organization is the leader thus in any margin environments. And operating financial and competitive performance would demonstrate that we have a strong track record of delivery. The operational excellence remains central to everything that we're doing. And we always continue to put safety at the forefront.

We will continue to reshape our portfolio. We continue to leverage the Shell brand, maintaining our customer focus, and delivering those leading edge technologies. And in summary, we're confident that we can continue to be the leader in the downstream.

With that, over to Peter.

Good afternoon everybody. Obviously everything needs cash and generates cash. So what I'm going to do is to talk about the financial strategy of the Company, a little bit the first quarter and the 2006 results, then on the financial framework going forward.

But first we update you on the overall financial strategy. The main priority to make sure that we can fund a sustained, organic spending program, and maintain at the same time our competitive payout. We are in good shape today. And I want to keep it that way in the future as well.

I think, ladies and gentlemen, this is an exciting time for Shell. We're investing in multibillion dollar projects that can take more than five years to build, and will then generate cash flows for decades. Of course, you need to take a long view on that on cost trends, prices, and risks with those types of investments.

So I put a lot of emphasis on global ranking, on global portfolio approach. I think that is an advantage of being a global CFO, and you have heard that quite a few people around the world are helping me on this one. This is all about choices at the end of the day.

You will have seen some large numbers talked about the Company in recent months. I mentioned buyback, dividends, Sakhalin, Shell Canada, CapEx, and so on. Let me tell you that these are all joined positions and part of an overall chief strategy to create long-term shareholder value for our shareholders.

We are not going to be shy to invest in such large projects and large numbers, nor are we shy to sell assets, delay projects, nor on the flip side invest in large stakes in large assets. Overall, I do see maintaining our investment levels as a major priority as we rebuild our upstream business for the future.

A strong operating performance is needed from today's businesses to create competitive cash flows. We will also be adding to cash flow generation from asset sales. And I expect the pace of asset sales to pick up again in '07 after a rather lower year in 2006.

But turning to the fourth quarter results, CCS earnings were around $6 billion, and CCS earnings per share increased by 14% from a year ago. Cash flow, up 19% Q-on-Q, and 11% from '05 to '06.

Our dividend increased 9% in 2006 to EUR0.25 per share, and combined with share buybacks, returns to shareholders was some $16 billion, or an increase of 5% versus '05, excluding the special minority buyout in '05.

Fourth quarter '06 upstream earnings increased by 5% from Q4 levels. As Malcolm said, this was driven by a 2% increase in underlying production volumes, high oil prices, and partially offset by a decrease in U.S. gas prices increasing operating costs.

Turning to downstream, downstream earnings declined slightly versus a year ago, with weaker refining margins outside the U.S. West Coast -- so everything, Gulf, Europe and Asia was weaker -- to some extent offset by a recovery in chemicals earnings, but also strong lubricants earnings in B2B business.

In chemicals we saw the positive impact of industry margins and the contribution from our new capacity at Nanhai, as mentioned by Rob. In marketing, headline product volumes declined by some 3%, but increased actually slightly excluding the impact of asset sales. We did benefit from a positive impact for other industries and corporate in Q4, largely due to positive currency exchange movements.

Earnings from the corporate segment can vary substantially, largely due to movements in exchange rates or differences in financing costs. Our guidance of the charge is between 0 and 100 million per quarter, and that remains unchanged from the past.

On the tax side, effective tax rate, our guidance was and will be 41 to 43%. It is also unchanged. I think overall if I look at Q4, these were good results, and that also applies for the whole year.

As you ask now, we have seen -- sorry, starting again. We have seen a protocol to [farm] our 27.5% stake in Sakhalin II to Gazprom. I expect that transaction to close in 2007. The accounting impact of that deal would be to move Sakhalin from a consolidated company to an associated to our accounts. We expect to receive $4.1 billion of cash.

We have shown you in our results today in the quarterly press release, how Sakhalin reserves are consolidated at the end of '06. We will have to wait for the Shell Canada '06 annual report to see the final reserves numbers there, by taking Shell Canada through an estimated number of Sakhalin together, we estimate that the combined impact on the reserve side will be a reduction in net reserves of around 100 million barrels. So around 1% of our 2006 net reserves. These are those reserves which really matter to us because these are actually generating our cash flow. This change will most likely come in 2007 in (indiscernible) which we will issue in '08 in March.

Cash generation has been very strong at the business level, as well as for the group. Both upstream and downstream are generating cash flow greater than their capital spend requirements. Disposals in '06 were some 1.7 million. And you can see how we are recycling this capital. Most of the disposal in '06 were from downstream. Most of the acquisition spends were actually in upstream.

In '06 we returned roughly $16 billion to shareholders, split more or less half and half in buybacks and dividends. Royal Dutch Shell has had a long, and still has, a long held policy of growing dividends, at least in line with inflation. And that basic policy is not going to change.

Buybacks will also continue as per our previous guidance, although I have to say, and I've never made a secret out of that, it is my preference to invest in assets and return cash to shareholders by dividends rather than by buybacks. I really question if the buybacks at the end of the day do impact the share price, judging from the feedback I've received from many shareholders and investors.

What we are announcing today on dividends is that we will be calculating and declaring our dividend in U.S. dollars from '07, rather than in euros. The reason for this change is very simple. Our earnings and costs are overwhelming in dollars, and we think it is correct therefore to return cash to shareholders in the same currency as the one that we're dealing with in our business. I also think this is pretty much in line with our major competitors.

Because of this change, we have taken the step of indicating that the dividend for Q1 '07, which will be $0.36 per share, which is an increase of some 14% compared to the same quarter in '06. You may ask why have you changed -- why you were already announcing?

Firstly, because we recognize that some of our shareholders may need to anticipate this change in currency policy, our preannouncement of the Q1 dividend does create some space for that. And secondly and more importantly from my side, you will have seen that this is a significant step up in the dividend as well. This is a clear signal from our side -- from the Board and the management that we have confidence in the outcome of the large investments we're making today for the next few years and decades.

Let me update you on the balance sheet as well. We do include off balance sheet items in our gearing estimates, which is in line with the assessment carried out by the credit rating agencies. They are always the same on the equity side. Therefore I would encourage you actually -- I mean the equity analysts in the audience -- to get in touch with their colleagues on the [bet] side to look at that and vice versa. Because really we do think this is the best way to look at your gearing target. Our gearing has increased over the quarter, and is at the year-end at 15%.

As you know, we are expecting some large runoff cash movements in '07 as a result of the farm out of Sakhalin on the one side, and the Shell Canada minority buyout on the other side. If you adjust only for those two, with the end gearing rate of '06, then we will get around to 19% on and off balance sheet gearing with these two transactions in.

Let me turn to the portfolio. You will see on the chart that we have a large number of projects on the table. We have around 140 major projects in the business development and design stage. From an accounting perspective, these PFID projects do create extra costs through our profit and loss. And that of course is the cost of this portfolio approach. You see that in some of our costs, in EP for example. I'm pleased with the way that we continue to generate a large range of options for investments in the Company. Though in short, I'm very pleased with the development of the overall portfolio strategy.

How does our spending profile look going forward? We have shown you a set of major new projects that we're building ever the next several years, predominately in the upstream and also downstream. In many cases they are world scale integrated projects with LNG and GTL facilities for gas, upgrades for oil sands, and new regional production helps in these waters.

You can see from the chart that some 80% of our spending is in upstream, and that upstream spending includes these integrated facilities, as mentioned. Against our competitors, we have a higher rating of this type of long live investments, and we are pleased with that. These projects have long reserve lives, they have stable production profiles, and will be a good foundation for new growth in the next decade and the long-term cash generation.

Let me also say that some 30% of our capital spending is into the base portfolio. This covers incremental investments to offset decline in our current production upstream, and of course maintenance and safety across the Company, as demonstrated by Rob, for example. But we have ongoing commitments there, and you can see the size of it.

This chart is about the cost of major projects. You will see the range of average development costs for our investment portfolio today. We have included all of the upstream costs on this chart. So for example, oil sands upgrade and GTL investments are included. The costs that we are seeing, of course reflect the operating environment, so that Deepwater development are inherently more expensive than onshore activities, and so forth. The overall pattern though is an investment cost average of $6 per boe, on a post FID resource position, and over 10 billion boe, which is an attractive proposition for the group and for shareholders, and comes from having a wide portfolio to choose from.

The chart shows costs for post FID projects, which are on construction contracts that are in some cases more attractive than if you retender today, because of the inflation we are seeing in the markets. Looking at the price structure that we are seeing today for projects where we have not taken FID yet, we are seeing prices that are as much as 30% higher than the average, as we're showing you here. Which would be to add roughly $2 to $3 per boe on average.

The final impact, of course, depends on which projects we choose and when. And of course as before, we might choose to delay certain projects or sell down if the returns do not look attractive to us. Many of these newer projects are partner operated, so I look to them to be as rigorous on cost control as we are.

As Jeroen has told you, we do expect the pace and scale of asset sales to accelerate in '07. That means recycling of underperforming capital, or capital tied up in noncore assets, and reinvesting those dollars in more attractive projects. It also brings the benefits of a more focused portfolio approach.

We've also decided to retain large stakes in our major projects to create the best scale for the future. This of course does increase our organic capital spending. Net capital spending in '06, including the acquisitions we made, were some $21 billion. For '07 we see net capital spending at some 22 to 23. We are investing in major new profit centers for the future, and funding that to some extent through disposals. Net capital spending I think is the right way to think about our spending program since it captures all the elements of these important choices.

Our capital investment is driven by growth project as spending builds up in the construction phase and as we launch entirely new projects. For example, following the FID in mid '06, Pearl and the oil sands project spending is obviously setting up as construction begins.

Looking at our CapEx over recent years, our organic spending is growing in steps of around $4 billion to $5 billion. We will not give you precise guidance on spending and disposal levels for '08 at this stage. But what you can clearly see from the chart is that I have been managing, together with my colleagues, to [snake] CapEx level in the low 20s. And that is a reasonable basis for a Company of our size and balance sheet capacity to go forward.

Capital spending and capital not in-service will remain at these relatively high levels this decade. You can see from the chart an estimate of how the capital employed will shift in the business as a result of this spending program.

Let me come to another issue, which is risk management. As a CFO I see it a very important part of my role as maintaining the appropriate risk balance of the Company, or in the Company. We look to maintain and grow steady cash flows for shareholders, so our portfolio choices are all about balancing the different types of fiscal regimes, and balancing political and technical risk, and of course project scale. You can see that the overall risk balance doesn't change much over this timeframe. However, we should be clear that by investing in the size of projects, that we are -- those specific project risks are higher than in the recent past, but we are comfortable with that.

Rob also already mentioned it. We're focusing and continuing to focus on costs and synergies. And cost efficiency is really embedded in our businesses at the practical and operating level. Downstream for example we continue to find ways to enhance margins to investing in incremental equipment, energy efficiency, supply chain and support. We're also finding tremendous potential for synergies through the introduction of common standards, globalized standards, accounting system, etc., which has become possible with the creation of unified Royal Dutch Shell Company and the creation of global business functions.

Over the next few years, we see potential for cost savings and operating synergies from around the business to add around $0.5 billion each year on a pretax basis. And we continue to look for more of these kinds of benefits in our organizations.

Let me conclude by talking about where I see the major changes in the group from a financial perspective. We have established a real performance culture, and you can see that coming through in our financial results in '05 and '06. Capital discipline is embedded in the Company. We go for the best projects. We have a balance sheet that can take on world scale investments. And we have a very strong commitment to shareholder returns.

For me, the important change in shareholders is that we have a portfolio to choose from, rather than being boxed into decisions that we might not want to make. I think that these choices are a sign of a company that is on track with its strategy. With that, back to Jeroen.

We're nearly there. Quite a long presentations with a lot of information. Although I think, you can see it on the slide, rather than go through it, let me tell what I think are the key messages.

The '06 performance was robust. I think we made progress with our portfolio. We continue in '07 with the focus driving synergies. We are not afraid to do asset sales. And we have an impressive investment program ahead of us.

When I step a bit back and look out what we have done over the past years. And then I come to -- yes, that slide. I think in 2004 we have our very difficult year. I was called to the job. I realized that we have really significant challenges.

Upstream we have -- it was not in good order. When we tried to correct that we had the meantime the business environment was becoming much more competitive. But I think we have made a lot of progress there. Downstream, most of that in better shape, but that is not a reason to stand still. As Rob has presented, I have to shift from West to East, and we're quite busy with this whole refinery portfolio.

At the same time we have to realize that the costs, especially for our industry are rising, so we have to find an answer. I realize as well, and even before 2002, (indiscernible) that CO2 will play a major role in our industry in the future, and we better turn that into an opportunity.

What have we done? What are we still -- so that is partly what we have done. What we have further to tackle? I think I see that not on a very complicated way. We have a strong -- if I make up the balance now, we have a strong portfolio. And we have shown good profitability to our shareholders. Now it is all about how to create -- and Malcolm came to that, and Linda as well -- how to create this new legacy assets. This finding big projects in which we have a high stake. This is our gas to liquids or the Pearl project, (indiscernible), and even Sakhalin we have still 27.5% of this largest project in the world.

Then in the downstream, I have already said that how do you build competitive -- sustainable, competitive advantage? We feel very good how we have integrated the base chemicals, which we still have into our refineries. That gives as a good opportunity to the future. And we are determined to stay strong marketers. I think how we expand to Turkey, how we go into the -- those retail stations into China, Indonesia and India.

So how can we win in the future? Our industry, especially at the upstream side, will be more competitive, and downstream it was already always competitive. Winning is for me to have to stay ahead in technology. It is that we make sure where you can make more ramp than the standard barrels. (indiscernible) that is unconventional resources, this whole big cat philosophy as I was explained. This going for the large and complex projects that other people come to. And of course to make sure that before you start, you had good commercial terms. And you can keep them all the time.

It is also how we look at CO2. I prefer to see it as an opportunity. That means that we have to develop more technology about it and how we integrate it in our projects.

As I said at the beginning, we have really very hard -- worked very hard at the commercial side -- side of our Company. We have more good opportunities to invest into. And for those opportunities we don't need $60 oil prices or the price of gas prices to make them possible. It is not only about creating those opportunities, at the same time the [bolt-on] players and relative simple organizational structure, very clear about accountability. We have a lot of professional staff recruited. We were ahead of the competition with that. And I think that will all help us to have speed in decision-making. We didn't talk too much about standardized systems, which we not only apply, let's say for the financial side, that is how our operating systems, how we standardize that back offices into our systems. But have helped results with the speed in decision-making, have compliance, and a straightforward Company.

Let me say at the end, and we will continue this high investment. I think Peter talked very clearly how we see that. Because we think we can be very good in organic growth. And we're convinced that makes good returns to our shareholders. And last, but not least, that gave us the confidence, as Peter said, to increase our dividend when we go to the dollars and then the 14%.

Let's go over -- it was already a long session -- let's go over to your questions. And I invite my colleagues to come up to the platform here.

Now we start over there at that side, and then we work a bit around. Go ahead.

Neil Perry, Morgan Stanley. You have told us your production is flattish out to the end of the decade. Costs are rising very rapidly. You told us refining margins are going to fall. Why do you chose now to rate the dividend, having maintained a dividend policy for 20 odd years, and give it a step change? Particularly because, if you stick in your $25 billion of organic CapEx, and about $8.5 billion of dividend, you're talking about $33 billion odd, which is more than you generated in cash flow last year, if you go after the working capital (inaudible).

We have a clear philosophy of staying very competitive on the dividend payout. We want to share at the same time we're investing for the future with our shareholders the payout. We have set our policies at least in line with inflation. That will not change. We have done this step up this year. We have -- last year we had a mixture of, let's say, buybacks and dividend. We have last year increased 9%, just to remind you as well. So it is 9% last year, it is 14% this year.

We have confidence in our earnings cash flow or cash flow generation in the future years. And we look at actually the profitability of the projects which we are realizing now. Malcolm has said that he sees that actually generating more than what we have today. So we're taking it through the cycle, look at all of our performance at our balance sheet flexibility. And from that point of view we have the confidence we have the -- we're convinced that this increase in dividends, of maintaining our of off inflation, or at least inflation policy in the longer-term, will give the right yields to our shareholders.

We're carefully balancing both, but it is really the outlook of our portfolio which generates the confidence that we will have here earnings flow in the future, not just over the next two years, but a long-term earnings flow.

Mark Iannotti, Merrill Lynch. A couple of questions. First of all, one for Malcolm. Malcolm, you gave a very upbeat presentation on the E&P business. Clearly good reserve replacement, exploration success. When we go back to last May's presentation, you gave some pretty definitive targets on E&P volume growth in the medium and the long-term, 3.84 2009, and aspiration of 4.5 plus for 2014.

Those targets appear to have been abandoned, and despite very upbeat comments you're making, and the fact that you're increasing CapEx significantly. Obviously for '07, we know it is Nigeria. Sakhalin has an impact longer-term. Can you just walk us through exactly where the production has gone versus May last year?

And a question for Peter. I must say as an analyst, I think it is quite complicated this new net CapEx idea. Can you just explain how it works? Let's say two months down the lane you see an opportunity to buy something. Are you telling us now you've got the discretion to [cull] organic CapEx near the 22. Or if you don't get the price you want for the disposals, can you then open the taps and increase organic CapEx more? You seem to be claiming that is linked. But I just understand. Do you have that much flexibility in your organic CapEx on an annual basis to link all that together?

If I take your first question, let's start with this year. And that is pretty clear. We said -- in my talk we're down to 50,000 barrels a day in terms of our outlook for this year from Nigeria, relative to what we thought a year ago. That is from what is already shut in and from the slower growth of projects that are just not happening and drilling that is not happening.

It is Nigeria that now goes forward to 2009 that is one of the key contributors to the outlook for 2009. Because clearly the assumptions and the constraints around the rate of growth there are quite significant, not only in terms of security, but also in terms of funding and contractor capacity.

On top of that, as I indicated, we got Sakhalin impact of dilution. And [RBR] expected production in 2009. And then the other factor, just to take you through the mechanics, will be what we've assumed around the divestments.

It is about, I think, proper portfolio focus on those opportunities, those assets where we see long-term growth prospects for the future. This where we want to put our people. That is where we want to focus our money. So in the mature, getting towards end of field life positions, or the isolated assets, those are the ones that we're likely to divest when the time is right, and when we get more value. That is basically is simply it. If you look at the rest of it, there is not much difference as we look out to 2009.

That is why we come back then and say, so 1 to 2% growth over that timeframe until the end of the decade. Beyond that, I think we have laid out the framework pretty clearly, 2 to 3% long-term. I think that is because we view the importance in the world of increasing costs of making the right choices around value on the projects that we want to do. Not being driven by a very specific production target, because we see the outlook of projects changes significantly from what you see five years ahead of taking the final investment decision, to when you get there in terms of costs, in terms of government, rent, taxation policies and whatever.

We've got a resource base that can support that 2 to 3%. That is the long-term framework. We think we are in a good position to be able to make choices, which is indeed why I've got an upbeat presentation. And we are delivering.

I don't think it is that complicated as you do actually paint it. Because at the end of the day, you're managing the spend level, and that is the next -- has to be the next spend level, because that is what you manage from a cash point of view, from a balance sheet strategy point of view, according to priorities. We have always been very clear that our priorities are shareholder return. So it is dividend, it is organic growth, maybe supplemented by some inorganic growth, by portfolio management, and potentially, if a market environment is successful, with some buyback.

I said quite clearly you have to make tough choices when you actually drive that forward. So you may actually increase your divestments if you see better investment opportunities somewhere else. You may actually drive your organic CapEx a little bit harder when you see that these choices are there. I think that is something a management does actually manage on a permanent basis, month by month, quarter by quarter, year by year. How do you want to grow? How fast do you want to grow? How you want to apply your dollar? And what can your balance sheet in the long-term actually sustain, whilst at the same time you're optimizing the returns of your portfolio and the returns to your shareholders.

I don't think I will go into a potential hypothetical acquisition for this discussion. We will have that if something like that comes up. But that is the way I think every CFO and every management will manage their long-term portfolio decisions. And we are just making that very transparent.

Ed Westlake, Credit Suisse. First question -- well, actually, two questions for Malcolm, if I may. The first one, obviously you talked about cash flow per barrel going up. It would be nice if you could just tell us the number, that would be great.

But costs in terms of OpEx are going up. So presumably it must be to do with the tax rates or realizations. Can you just talk us -- maybe some talking points to what we should expect. And by when would you expect the cash flow per barrel to start changing? That is the first question.

Then the second question, obviously you're spending more money, which is good. We want you to make a positive return on that money. But one area which personally I have a concern is around the oil sands, and the type of oil price you think you need to generate a positive return spread there. And how much of an improvement do you think technology can make over what timeframe?

On the first question, what we are saying is that the portfolio of assets that we're investing in is going to generate at any given time a better cash barrel than the portfolio of assets we have today. I'm not going to give any forecast of the outcome, of the precise numbers. It is all about essentially the quality of the assets we are going into, and also the places where we are choosing to invest in terms of the physical structures. We're looking for high margin, high upside, and as I said long-term growth opportunities.

You mentioned challenges to OpEx, and that is a major focus. One of the advantages of being a global business now -- we used to run as independent countries, if you go back three or four years. We think they're still a lot of leverage to do what Rob has already done in the downstream business, which is more from global standardization and leveraging our global scale in a way we buy from contractors, we drop by goods and services. And I gave you the rigs example. I think there is more of that we can do.

You asked about oil sands. And the simple answer is we have already indicated in the past that we evaluate our oil sands projects. We look to get an oil price into the 30s to evaluate our oil sands project. But we think that they are very robust as you look forward, because we're talking about projects which will have decades -- many decades of plateau productions. This is an absolutely enormous resource base.

One of the things you see as you develop the operations is not so much technology, but process efficiencies in the whole mining operation, and the whole integrated operation through the upgrader. It is a bit like Linda showed with her debottlenecking and capacity increase of LNG plants over time. The longer you're at this business the better you get at it.

And I will just nail one thing, which is the expansions are really I think very valuable in that respect. We're doing the first expansion now, but it should be the first of several. The resource base can support really quite a few expansions. We're talking in terms of three or four taking us to 0.5 million barrels a day by the middle of the next decade. But it could go on beyond that.

Gordon Gray, JP Morgan. A couple of questions for Robert, if I could. You showed us that chart on the improvements in unplanned downtime at Rheinland. I wonder if you can give us a little bit more quantification of the amount of improvement, both on a global scale and particularly in the U.S. on the unplanned downtime figure.

And secondly, a difficult one to quantify, but you had a roughly doubling of the contribution from the trading side. A lot of that is obviously due to market volatility. I was wondering if you can give us a feel for what is structural improvements within the group, and what is simply market improvements. A very tough one, I know, but any (indiscernible) you can give us.

First of all, the downtime story. I showed you a very good example for Rheinland. You had also, to be completely open, some issues at other plants across our system. But if you look at the underlying downtime, unplanned downtime we are first quartile across the system.

We had a number of cases where we had prolonged turnarounds, because it gets difficult in some areas of the world to get qualified labor, to get the job done in a quality way and in a shorter period. We're working to improve that. More to be had in that arena, both on the refining side and on the chemical side. And that can only improve the contribution of refineries to the system. It will have to, if you believe that the margins are going to decrease, actually our efficiency in that regard we will have to do even better.

On the trading side, we don't -- historically, we have never given you any numbers, and only shown you a trend. But I think it is organization that has developed it skills tremendously over the years. And what we are seeing now is across crude oil trading, products trading, chemicals, power, gas, natural gas trading, that we now have people in place that have extensive knowledge as to how to do this.

We have a global system that basically trades 24 7 across the world. We have a tremendous flow of oil ourselves. But if you will get what we're trading these days -- we have shown you before that we refine about 4 million barrels a day, but that we trade at more than double of that. And that volume is increasing, which also contributes to the bottom line.

We're also getting more smart to turnaround our facilities, for instance, in refining. We have told you in the past that certainly in crude oil blending we had a trading opportunity, that we're starting to see more opportunities in product planning as well. As we learn the business more and more and combine our assets with actually our trading facilities, we get this tremendous advantage. Very different than the bankers who don't have that physical flow to look at, and don't have the advantage to move forward on.

(technical difficulty).

Small addition. If you think about the business environment, where one hand you have OPEC, and on the other hand you have very small spare capacity in our industry. And then a lot of political tensions. And maybe the full activity in our industry may be structural. Next question.

Neil McMahon, Sanford Bernstein. Three questions. I will go with the strategy in upstream and the downstream one, just to cover the bases. First of all, just looking at it from an upstream side, there seemed to be a big glaring hole from cash again in the 2009 to 2011 bar you had for production. It seemed to pick up quite nicely after 2011. Are you indicating that this is a project that may not even start up until 2011?

On the strategy side, given your position in the Northwest Shelf and the growing volumes that are going to be coming out with Gorgon, etc., what is your position on Woodside? Would you sell your interest there since you are the majority shareholder? It would be interesting to find out what the situation is, given Woodside's problems with Mauritania and other things.

Lastly, on refining, with the recent deal with Tesoro, there seems to be a bit of a divergence of opinion as to how you value refining assets at Tesoro. And various followers seem to feel they've got it for a bit of a steal. You probably on the other hand probably don't feel you are a charity organization. Maybe you could go into how you look at valuing refining assets, especially with more coming up on the block.

Malcolm starts, then Linda, then Rob.

I wouldn't try and dissect the graphics too precisely, but there is production in there in the '09, '11 period from Kashagan. We expect it to be onstream in that period. I can't be precise how much volume we expect from it, but I think the key thing is ask the operator, ENI. But what I will say is as consortium, we are all involved in that project. We're all much involved. We are all very focused on it. And in fact, increasingly we've got experts from all of the companies very much involved in bringing the project to a landing. It is a huge -- it is another one of these huge legacy assets, massive resources in place. Yes, technical challenges, but it will be for decades producing a really strong cash flow and production.

I will take the Australian Woodside question. I will just start with Australia. You saw in my chart that we see a lot of potential in Australia as a region for us for many, many years to come, because of its large natural gas resources, and I think relative to other areas, relatively unexplored actually. And also its vicinity to the key LNG markets, in particular Japan and Korea.

So we like Australia. We're increasing our own investment in Australia. And then we also have the exposure to it through Woodside. And the majority, the vast bulk of Woodside's investment is in Australia. We like the prospects there. And they have a high stake in those prospects. We have 34% plus or minus of Woodside, and so it gives us a reasonable stake in their opportunities in Australia. And so for that reason we're happy with the asset.

Thanks for giving me a chance to clarify that Los Angeles situation. It was an old ex Texaco refinery. We acquired it with the acquisition of Texaco. And I must say at a fairly low price. If anybody got a steal, it was probably us at a time.

And secondly, on your remark of giving stuff away, I hope that I have shown you guys that by pulling LTG off the market that we were prepared to pull deals off the market if they wouldn't contribute value to what we're doing.

It is obvious that L.A. -- I'm happy that Bruce Smith is happy with the deal, and I'm happy that the market is happy with the deal. From our side we have, as you clearly saw in our strategy, we have limited capital for the downstream. And the Los Angeles refinery is going to take a lot of capital. Tesoro was talking about $1 billion that was needed to bring that plant up to where it needs to be. I would rather invest that in growth markets than on the West Coast of the U.S. You know, with the Martinez San Francisco refinery, and they are going to be completely balanced.

Paul Spedding, HSBC. Peter, you made a comment about buybacks. You made the comment that this market environment is favorable. I just wonder if you could explain what you meant by that. And secondly, in the past you have occasionally given us an indication on the assumption of current refining margins, what sort of oil price balances your capital cycle -- your cash cycle. I wonder if you might be able to do that again for us.

Can you just repeat your first question? Can you put the mike very closely please.

Sorry. You made the comment about buybacks. That you said that you would undertake buybacks if the market environment was favorable. I'm just curious as to what you meant by that phrase.

I think the market environment has obviously a function then of oil prices and gas price, but it also has a function of cost development, project development on the organic growth side. We will take all of that now with organic growth purchase pipeline. It could also be in that organic growth opportunities we have, plus our dividend policy into account, look at the overall oil price and gas price outlook, and then we decide what we do with our funds in that sense. And buybacks could play a role in that or could not play role in that. It depends it on all these circumstances.

I think we have demonstrated the last two years, if we see it fits then we will do it. We have not grown as big as some others have grown. As I have said, we believe in long-term value generation through project, rather than actually through buybacks. And I think that policy will not change.

Questions from the telephone?

[Phil Whittaker]. (OPERATOR INSTRUCTIONS).

Tim Whittaker, Lehman Brothers. My first question is also around buybacks. Peter, you seem to be deemphasizing them while lifting the dividend. What does this suggests that your buybacks will be lower than in the past?

Secondly, I had a question around your decline rates. You're investing a lot of capital to deliver very little growth. I wonder if you could explain what is happening in your underlying portfolio, and what are your assumptions about decline rates in that portfolio over the coming years?

I suggest the answer -- you get an answer from those persons who understood the question, because they are difficult to (multiple speakers).

It is difficult to hear you, but I think what you said on the buyback side, is it going to be less or more than in the past, if I understood you correctly. I think I will not allowed to answer that, as you most probably have (indiscernible) anyway. Because as I said this is a forward-looking statement on market environment and our other possibilities, and we will see that later on. For me the message to the shareholders is quite clear. We have a very strong dividend philosophy and policy, and that is what we're driving, apart from our organic growth strategy.

And the second one was about decline rates, but I hand that over to --.

I think it was about (inaudible) capital and growth. And I think you asked about underlying decline rates in the upstream. Was that the question?

Yes, Malcolm, that's correct. What decline assumptions do you have underpinning your growth in CapEx spending?

(indiscernible) There's no change in the sort of guidance that we give on decline rates, which is typically in the 3 to 6% per annum, but taking into account the normal sort of infill activity. What I would say there is there is always a big range. I'm not so sure how helpful that is, but that is the average. You see it every quarter in the results.

I think other comment on capital intensity is that we are -- you saw in the slide Peter showed the distribution of the capital intensity across the resources. You can see it is very competitive at around $6 a barrel. But we are investing in some large resources with very long lives. So we're putting a lot of money in to create positions that will generate cash for decades. I think that is what particularly marks the set of opportunities that we are taking at the moment.

[Paul Carolli], [Acts Investment Managers]. I have three questions, if I may, and I'm all on CapEx. Probably all for Peter. The first one, it has been mentioned that the organic capital spending for 2006 has been about $20 billion, and for 2007 would be about $24 billion, $25 billion. Is it possible to add a bit of color on what does cause this $5 billion growth in 2007? In particular how much has been cost of inflation? How much existing project CapEx ex inflation? And how much completely new projects?

The second question, and if I may, is when you say in the slide, spending will be relatively stable in 2008 and 2010, stable with respect to what label? It will be with respect to the organic CapEx or the net capital spending? Because depending on the amount of divestments, of course there can be quite different scenarios there.

Finally, since there has been this growth in CapEx, the assumption that you don't hold price in the capital budget in decision for better CapEx has changed at all or it remains the same?

As to the first one, as your 20 to 24, 25, I think I give you let's say three reasons or three points. The first one is we have roughly 30 projects more in that CapEx number than we used to have. I would say that we are looking at a cost increase market-driven, which is around 10% in that number. And then also I think by taking obviously -- looking ahead on our projects which are coming into (indiscernible) later on, we have taken a deliberate decision clearly to stay with bigger stakes in our project. And that drives also a higher and organic CapEx in the future. So I think these are the three ones which has contributed to the increase. It is new growth, it is inflation, but also larger stakes.

It is clearly that when I talked about looking forward, I was talking about the next CapEx number staying relatively stable over the next few years. Obviously, I have to say this, and that is what we don't give precise guidance, a lot will depend in what is happening in the market on both sides. What do you get in terms of cost increases, and on the other side, what values are paid for divestments, for example.

On the oil price, I think we haven't changed in the way we explained that to all of our shareholders in that sense. We do not take one price for -- let me take a project division which goes over 30 years. We look at price ranges. We look at how they behave in certain political and financial, tax fiscal environment. We look at all those scenarios, which has actually protected us at the downside, but also make sure, as Malcolm explained, that we actually go for those projects which have quite a bit of upside as well. For the 12 months operational plan, quite clearly you take them, one, oil price because that is really your short-term cash flow management. But that is less important for the shareholders because that is not where we base our project assumptions on.

Colin Smith, Dresdner Kleinwort. A few questions. First of all, on the heavy oil project, could you just say a little bit more about what you're planning to do with heavy oil in terms of upgrading and refining through this expansion and future ones, and also that is in the CapEx number?

Secondly, on the Sakhalin deal, could you provide a bit more color about exactly what has been agreed with Gazprom covering, for example, things like when does Gazprom's liability to CapEx start? Has the government accepted whatever the number is for the CapEx budget now, or is any part of that -- if any part of that is excluded, is Gazprom also excluded from it? What happens with the environmental liability and all of those kinds of issues that remain opaque that make a bit of the difference to the value of that deal?

(indiscernible) refining side. The CapEx part of it.

It was in terms of what are you planning to do -- you didn't touch I think on exactly what you're planning to do with upgrading and refining of heavy oil from Canada.

First of all, the Port Arthur expansion is completely geared towards very heavy oil, hygienic acid oil. We can run the -- what what we call the worse part of the oil through that expansion when it is done. That is a major addition to our upgrading facilities.

The oil sands picture in Canada, of course, we're building more upgrading facilities in Scotford in our next expansion. And I can't say anything about it, because I'm the Chairman of Shell Canada, but I'm sure that the group sees some synergies between the bitumen production and other upgrading facilities in North America. Jeroen van der Veer?

So there were three parts to the Sakhalin question. The first one was about when they start paying their way. Obviously, we have it in the outline agreement before Christmas really, we have mapped out aspects like that. But we are now in the process of finalizing the negotiations and aiming to get everything formally closed.

On the second point about the government acceptance of the full budget, I am not going to comment further other than what we said at a time, which was it is our expectation that the full development budget will be approved by the Sakhalin Energy Supervisory Board, which includes government representation.

And on the third point, which was around -- essentially around liabilities. Well, Gazprom I think we have said are going to enter as though they have been a partner on ground floor terms. And that is the basis. We're not making any further details of the arrangements public. I think what Jeroen said at a time, it is an acceptable outcome. And what we have indicated is we are pleased to have a strong stake in a project which has a very strong Russian partner, and strong support for a stable position for the project going forward with every opportunity for expansion, which I think is very important.

I first go now to the telephone, and then I come back to the middle (indiscernible).

Bruce Lanni. (technical difficulty)

Okay. So let's [find] what is going on there. I go back to -- sorry, first to the back (indiscernible).

Jon Wright, Citigroup. You showed on the slide that your capital not in service was about 20%. I wondered if you could give -- given the amount of CapEx and the long-term nature of that CapEx, do you have an idea of how that trends over the next few years? And also what that means for your competitiveness of return?

It stays pretty stable around that number actually. I think you would expect that obviously to stay at those levels with the kind of organic growth and the kind of CapEx infrastructure projects which we are driving. So up from CapEx heavy in order to actually what I call normally derisk the CapEx flow later on, because it is whilst the resource is facing long-term stable production, etc. So I think it is around the 20% for the rest of this decade. I think actually competitive-wise that is something which is in the ballpark of most competitors.

Irene Himona, Exane BNP Paribas. Two questions if I may. First of all, is it possible to clarify the 106% reserve replacement that we had this year? Roughly how much was the (indiscernible) reserves, which I understand the SEC has taken a positive view towards?

And my second question to Linda, LNG. It seems to us as outsiders that one of the areas where competition has definitely heated up is LNG by virtue of the very fast growth of that space. Apart from scale and track record, what is it that you are actually doing differently in that business to cope with that enhanced competition?

We're not giving further guidance on the split of the reserve base and how -- GTL was an important contributor, but there was lots of other contributors. It was a big one this year, but it not -- we're not going further than that.

On the LNG, you're exactly right. It is very, very competitive. So it has gone from a sector, I think as recent as five or six years ago, where very few people were interested in it, to now a time when every company wants to have an LNG project, if not more than one. So it has really heated up. As a result of I think availability of technology and more markets becoming comfortable with LNG as a gas supply source.

What do you do to maintain the lead? I think first we had some great assets already in the portfolio that have expansion capability, so we are leveraging that. Then I think you can look at the examples of our recent new entries. Qatargas IV is one.

How did we get into Qatar for an LNG project, which was not a homeland for us? I think the Qatari saw us bring a number of things to the table, expertise in LNG, so we could bring operating expertise, our ability to debottleneck plants. Shipping, you can see that we signed this agreement now to provide shipping services to not just the ships for the Shell project, but that all of Qatargas new projects, which involve other major international oil companies as partners. There is definitely shipping expertise.

Then access to new markets for them. So they saw some of the regasification opportunities we had come, our relationship with customers, and thought we could add value in that way.

I think Libya is another example. It doesn't have an LNG -- a new LNG plant there yet. But the deal that was negotiated was access to exploration acreage in return for using Shell's expertise to rejuvenate their existing LNG project. And in return then we have an opportunity to build a new LNG plant should we find sufficient gas resources [under tenent]. I think it is a whole combination of technology, our track record, our safety track record in LNG, operating experience, as well as the commercial skills we bring.

We go now to the last round of questions. I start with you.

Jason Kenney, ING. Three short questions if possible. Firstly for Rob. Oil products tax effects were quite positive in the Q4 period. And I would just wondering if that was the U.S. side of the business, or outside of the U.S.?

Secondly, for Malcolm. I think in May last year you hinted that your rig capacity was subject to negotiation for the early part of the next decade. And you were hoping that rig prices would relax, and you would be able to complete your rig demands and requirements later in the decade. Do you still see that as being the case?

And thirdly maybe for Peter. I was very interested in your country risk analysis, diversifying political risk to ensure stability of earnings, if I interpret it correctly. I just wondered if you had extended that analysis to a fiscal risk analysis or expropriation, that kind of analysis?

On the tax side, there have been of course a number of changes in tax regimes in several countries. What you're seeing is the net balance of that. But certainly in the Netherlands you had seen a change in corporate taxes and that result.

On the rig coverage. Coverage through '09 into '10, '11 and beyond, but we have got full coverage through to '09 and less coverage beyond, for exactly the reason I indicated last year. We have taken some additional coverage, but not that much. And where we have it is on good rates.

Actually, I indicated that the coverage we had last year was 30% below the market rates, and that basically is the case going forward through '08, '09. We think where very well placed for the competitiveness of our Deepwater rigs because we secured them early and for long-term contracts. 2010, '11, '12, we have got some coverage, but we do see that is still a lot of new builds coming onto the market, and we're just taking additional positions as we think is appropriate and watching closely.

On the risk and fiscal side, that is obviously a little bit more difficult one because, for example, what do you do with the UK? Is that an high risk fiscal country or not. Let me put that into the low risk side, still even that they have changed their rate. If I look at that and take maybe the expropriation or the [Southern] backdated fiscal changes as a key measure, then I would say actually the graph is pretty representative also for the fiscal side. So we're still, given our drive into the North America, for example, given our presence in some other key countries with rather stable fiscal regimes, I think it is pretty similar there. For both -- for the '07 modeling which I show, but also for the [late three years out also].

Two questions. One for Rob and one for Malcolm, I think. Rob, I noticed on your charts of refineries you differentiated between refineries above 100,000 barrels a day and below 100,000 barrels a day. Do we infer anything from that as to how you see the future portfolio of Shell's refineries, certainly in the Western Hemisphere?

The second one for Malcolm. I feel ever since I was a small boy, you have been stocking (indiscernible), but yet I noticed it disappeared off the arrangement that you had with Gazprom, when you did the Sakhalin transaction. I wondered whether that features in your future aspirations, or does it come in under the [red band] maybe as a political risk analysis that you had now presented to us, which I too, like Jason, are very intrigued by.

First of all, I think we're doing very pretty good with the kit we have. After all, if you look our unit earnings and unit cash, we're doing extremely well. But there is still -- and thinking about the future and again anticipating if margins will come down, you have to continue to drive efficiency one way or the other.

If I look at our refining system and I compare that to some of our competitors that typically we are lower in size, and we are lower or equal in complexity. Every move we're making right now is geared to improve that. You'll see us investing into world scale facilities and do less with the smaller refinery environment. While keeping our eye closely on what the balance of supply and demand is. We cannot walk away from facilities where actually your commercial businesses need that kind of supply. There's a number of decisions, a number of ingredients in making that decision to get out of the refining system or not.

I think your question was about Zapolyarnoye. Basically when we came to the deal, we decided to go for something that would be quick to resolve, and give us a good footing going forward. And that was much quicker to resolve and get it to a situation where we are now.

I think also in our minds was much more about the opportunity set that we have. So we weren't desperate to do this as a swap. When it came back that we would rather do it as a cash deal we were quite happy, because we've got lots of opportunities around the world, lots of growth projects around the world.

And I just think -- I just want to underpin that with a couple of points. One is, you asked several questions about proved reserves. The important measure that we look at as well as proved reserves is are we adding resources to our portfolio, because it is getting resources into production that it is important. And the more than 200% for each of the last two years, additions from our exploration and business development, is hugely important. That is providing the funnel for us to choose from. And we've got a great set of LNG opportunities and a great set of Deepwater opportunities and others around the world. We weren't desperate that this had to be a swap. And went it came to a cash deal, that is what we went for.

That doesn't mean that we are not going -- you then asked me is it because it is in the too much risk area. I think we've got a stable arrangement going forward with Sakhalin. We've got a good and extremely successful project in Solomon with Western Siberia demonstrating our ability to operate in a company that is 95% Russian. And has really demonstrated how you can outperform in that basin. We will look at other opportunities, because Russia is a very large resource holding.

I go to the last question.

Lucas Herrmann, Deutsche. One brief question for Linda. And just you have a wealth of opportunity in LNG. Fantastic legacy portfolio. If I look forward at the next phase it up increasingly requires investing in large projects -- Olokola, Gorgon, etc., at a time when the industry is clearly very hot, and where cost pressures are intense. No FIDs were taken [and administered] at all in 2006. How difficult is it for you at the moment to actually take the investment decision on a new LNG project, and where does that leave us on Gorgon and on Nigeria?

I wouldn't say it is difficult to take the decision, because we make decisions all the time about large projects. And I think we're pretty good at assessing the pluses and minuses and risks when we get to that point.

I think the challenge no doubt has been around the cost environment, the demand on contractors, who are all very, very busy right now. So creating a competitive environment for contractors to bid to actually build the project is important in order to help control your costs. So it is taking time now that the contractors are so busy.

The environmental permit conditions just came through, for example, on Gorgon, which we find acceptable actually -- all of the three partners, that requires a little bit of thinking. The other thing we are thinking about is the strength of the Asia-Pacific market at Gorgon. And did we get the size right when we first looked at -- when we had the original concept for the project some years ago.

So taking all of the new things into account in the business environment just takes a little bit of time. And for us it is more important that we get the project right than we FID it, sooner rather than later. I think you see us as very measured and careful going forward in a bit challenging business environment. Even with that though we still see growth of 11% per annum over the next few years with the projects we have already under construction.

Thank you for coming. Thank you for your questions. The next time you fuel up, do it preferably with V-Power. Thank you.