殼牌 (SHEL) 2007 Q1 法說會逐字稿

Welcome to the Shell analyst conference call on the 3rd of May, 2007.

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

After the presentation, there will be an opportunity to ask questions.

(Operator Instructions) I will now hand the conference over to Mr.

Peter Voser, Chief Financial Officer.

Please go ahead, sir.

Thanks, Operator.

Good afternoon, everybody, welcome to the RDS first quarter '07 conference call.

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

Let's go to the disclaimer statement, just take a moment to read it, please.

As we said in our strategy meeting in February, our main objective here at Shell is to generate competitive returns, returns on our operations as well as returns to our shareholders and the aim to deliver value in ways that include good safety and environmental performances.

We look at business development through a global rather than a regional filter, and we put great emphasis on technology and integration.

We have a different offering than most of our competitors on complex reservoirs and heavy, or sour oil and gas.

We also have strong project management skills.

We are one of the few companies in the industry that really understands integration, and we have a global network of marketing outlets for oil, oil products, and for gas.

Against that strategic background, I would now like to focus on the first quarter of 2007, where we have had another set of competitive results.

The strong numbers are driven by another good operating performance, and we achieved these results despite factors such as plant downtime and warm weather impact.

We continue to refocus our portfolio.

That means divesting non-strategic assets and redeploying capital to growth regions by making disciplined capital choices.

The asset base we have announced so far this year totals some $6 billion.

We have delivered on two large and complex transactions.

Of course, I am talking about Shell Canada on the one side and Sakhalin II on the other.

Those fields consolidate our position in two major growth [ops] and bolster our strategy of developing new, long-life projects.

All of this shows that our strategy is on track and that we are laying the foundations for future growth.

Turning to our first quarter results in more detail, we delivered $6.9 billion of CCS earnings.

We continue to focus on operational performance.

Downstream momentum was strong, chemical earnings were boosted by growth in China, and energy volumes increased by 10%.

We did see impacts to our production upstream, and we carried out a major maintenance program in our refineries.

But, as most of you know, these are normal effects for our company and our financials were strong.

Our Q1 earnings included one-time items adding up to $0.4 billion.

These one-offs mainly reflect the ongoing restructuring of the portfolio.

In the corporate segment, we recorded a $404 million gain for equity disposals in our group insurance business.

In the business segment, we have net one-time charges of $33 million, which include things like gas, market-to-market effect, impairments, and disposal gains.

When you exclude identified items, our CCS earnings per share increased by 13% compared to Q1 '06.

Also, cash flow was strong at $9.7 billion for the quarter.

Again, that's an increase of 6% from Q1 2006.

We are confirming the dividends for Q1 '07 at $0.36, U.S.

cents, per share, an increase of 14% versus the year-ago levels.

For the first time, we are setting the dividend in U.S.

dollars.

Share buybacks for Q1 were $0.5 billion.

Let me just make a few comments on the economic environment.

Compared to the first quarter '06, oil and gas prices decreased slightly versus levels a year ago.

Oil prices increased across the quarter, and they remain at relatively high levels overall.

Industry refining margins were higher in all regions compared to year-ago levels.

Singapore, the U.S.

West Coast, and Europe all saw notably stronger margins, but margins remained essentially unchanged in the U.S.

Gulf Coast.

Refining margins have remained strong into the second quarter.

Regional margins were also up versus a year ago.

We saw strong margins in January and weaker margins in February and March.

As a result of the increase in oil prices, retail margins have weakened into the second quarter.

In chemicals, U.S.

industry ethane cracker margins declined from a very high level a year ago, while EU, the European industry naptha margins improved from those a year ago.

European cracker margins have weakened in the second quarter whereas U.S.

margins have improved.

Finally, the U.S.

dollar has weakened significantly into the second quarter, and that could impact our earnings including a U.S.

dollar increase from our euro cost base.

Let me now talk about the businesses, especially their performance, in more detail.

Excluding one-time items, upstream earnings declined slightly, but they remain at relatively high levels.

Upstream margins were strong and around $13 BOEs, and that's similar to levels we produced in Q1 '06 when oil prices were higher.

Those margins have been boosted by LNG growth, the profitability from new projects -- for example, (inaudible) Royal and by a fall-off in production from low margin fees in Nigeria.

Oil and gas production was around 3.5 million BOEs today compared to 3.7 million a year ago.

We are seeing swings in our production of 100,000 to 200,000 barrels per day in recent years.

For us, that's just a normal business environment we operate in.

LNG sales volumes increased by 10% versus year-ago levels, including new feeds, gas supplies in Nigeria.

There have also been production ramp-ups in Nigeria, Malaysia, and China.

Oil production was essentially unchanged, although gas production declined from a year ago.

As we saw in Q4 '06, warm weather has reduced both our gas uptake and our trading opportunities.

If you adjust for this, year-on-year impact on gas demands, then the total group production was broadly flat compared to Q1 '06.

Let me turn to Nigeria.

Overall, our Africa volumes have performed well.

They increased by 3.6% q-on-q.

However, as you know, we continue to face challenges in Nigeria.

I would like to spend a minute updating you on the situation in the rest of Niger Delta, which has been affected by security problems.

There has recently been some improvement in the security situation, although the Delta does remain a very difficult operating environment.

We have begun visits to assess damage to facilities and to determine the environmental impact of spills.

We see considerably damage to our facilities there.

At the end of Q1 '07, we had 188 BOEs per day showing across less than Nigeria.

Since then, since early April, we have restarted less than 10,000 BOEs per day.

We do hope to offload oil from the [Forcava] storage facility shortly, but restoring production operations safely will take time.

Overall, in production so far in Q2, we continue to see the impact of warm weather and downtime in Nigeria.

We are also seeing increasing impact from OPEC quotas.

So, going forward, we have guidance for production in '07 of 3.3 million to 3.5 million BOEs per day.

After the weather impact in Q1, I would say we're moving towards the (inaudible) of that range.

A restart in Nigeria, if it comes in '07, could move the numbers up in the range.

Let's turn to downstream.

Downstream earnings increased significantly.

I would like to highlight a strong year-on-year contribution from the new petrochemicals complex at Nanhai in China, which was in a startup mode during Q1 in '06.

In refining, availability was 85.3%, lower than the levels of 89.9% a year ago with a major maintenance program on the way.

This is all around operational excellence, and you will recall that some two-thirds of our downstream capex goes into asset integrity investments.

We estimated around 60% of the '07 plant downtime has come during the first quarter of the year.

Plant downtime for Q2 '07 should be at similar levels to Q2 '06, where you might recall that our refining availability was 90.7%.

Now on the picture in the slide, you can see the Deer Park refinery on the Gulf Coast.

In Q1 2007, 55% of Deer Park's capacity was shut down for maintenance inspection and plant improvements, including the changeout of the coke drum, as you can see on the slide.

As you can see, this is a very complex operation.

In fact, it was the largest turnaround undertaken by any of Shell's manufacturing facilities with a peak staffing level of 3,800 on the contract workers per day at the site.

The facilities involved have run for six years since the last turnaround in '01.

The complex maintenance is performed to give us another round of high plant reliability in the future.

From the portfolio side, we have continued to make progress with our portfolio.

We are focusing on long-life growth on the upstream, and growth markets on the downstream side.

On the slide you can see the major highlights.

At Shell, we are focused on capital discipline and capital efficiency.

We have delivered on two major transactions that we launched in '06.

In Russia we have concluded the negotiations to farm out part of our stake in Sakhalin II to Gazprom, and we have received $4.1 billion in payment.

We have also agreed with the Russian government both an environment action plan and an amended development project.

Additional agreements were also signed with the Russian government, addressing the economic balance of the project.

Sakhalin is on track for first LNG in '08, and the project recently completed the last of all of its sensitive river crossings as planned.

The LNG side has now worked 18 -- one-eight -- million man hours without a single lost time injury.

This is a record for a Shell associated green tree construction site.

Turning to Shell in Canada -- or Shell Canada.

We are in the final stages of this transaction and the purchase price of some U.S.$7 billion.

Integration of the company into our global business model has begun, and our emphasis is on a simple management structure and the integration of the unconventional businesses on an international scale.

Also during the first part of '07, we continue to refocus the downstream by selling noncore businesses and making selected growth acquisitions.

This has included disposals in the U.S.

and Europe and retail growth project in Ukraine and Malaysia.

We continue to review the downstream portfolio in both France and Puerto Rico.

Overall, we expect disposal proceeds of over $6 billion in '07 from these we have already announced, and we are on track to deliver the $9 billion of disposals we planned for the year that we introduced at the strategy presentation.

Let me turn to the balance sheet -- gearing was 14.6% at the end of the quarter.

I think it will be useful to make a few comments on the accounting treatment of the major transactions.

Firstly, on Shell Canada, the end Q1 balance sheet reflects the full purchase price for Shell Canada.

As we described to you when we announced this offer, it will be accounted as a transaction between shareholders of a single company.

Our total equity is reduced by the purchase price, and there is no significant change in capital employed.

Turning to Sakhalin -- this will be a Q2 event in our accounts.

As I said a minute ago, we have received U.S.$4.1 billion from Gazprom.

From Q2 we will go from a fully consolidated position, 100%, to an equity accounted position to 27.5%.

That will reduce our total cap and employees by some $7 billion.

If you look at those two transactions together and assume that both aren't completed in Q1, then to give you some guidance, our gearing would basically be unchanged at 14.5%.

So, overall, I feel comfortable with the balance sheet after these deals.

So let me recap -- I think we have delivered another good set of results this quarter driven by our operating performance.

We have delivered on two large and, I have to say, complex transactions this year, which are all around stabilizing our growth positions in two major resources place.

Our strategy is on track -- operation low, excellence, capital discipline, comparative cash flow.

With that, let me stop here and go for your questions -- back to the operator.

Thank you, sir.

(Operator Instructions) Lucy Haskins.

Good afternoon, Lucy Haskins, Lehman Brothers.

Congratulations on a good set of figures.

I wanted to ask about the chemicals contribution the fourth quarter.

It seems a very strong line, particularly relative to the fourth quarter of last year.

Could you actually break down what the Nanhai contribution actually was, because Nanhai was fully effective in the 4Q numbers?

Okay, we are not breaking out the detailed numbers in that sense, but let me just take you through.

Compared to Q1 last year, where we were still in startup mode, quite clearly, there the contribution this quarter to last year's same quarter is more significant.

Compared to the fourth quarter it is smaller, because, quite clearly, the fourth quarter '06 Nanhai was also quite -- already significantly contributing and was running well.

But we have seen, quite clearly, that margins across the world, except to a certain part of the U.S.

have been very strong in chemicals, in general, and the demand in the East, which helps, obviously, Nanhai and specifically when you produce at capacity rates of 98%, has actually contributed significantly.

So we are pleased with the results so far.

So, effectively, if the margins were to remain flat, I mean, you said that came under a little bit of pressure in those events in 2Q, but you would expect this first quarter performance to be sustainable?

What I said, actually, is in the early part of my introduction that we have seen some weakening going into the second quarter of some European margins, but it actually has improved further.

I think the East, so far, so good.

So it is a margin game at the end of the day, and we have very good operational results from utilization and capacity availability point of view.

So this is a business which is performing very well, and if the world market does allow us, we will obviously capture the benefits.

Edward Westlake.

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

Yes, good afternoon, it's Ed Westlake, Credit Suisse.

Firstly, just on the tax rate -- the tax rate obviously fell in the quarter.

You've mentioned some of the upstream margin effects and obviously the mix effects with upstream and downstream, but could you give us a rough guidance for tax for this year, assuming current conditions continue.

And then, secondly, if current conditions continue, your cash position looks pretty strong.

Could you give us an updated guidance in terms of your buybacks?

Thanks very much.

Let me take you a little bit through the tax.

I will take a little bit longer just to run you through there, and the tax rate, as you say, was 35% in Q1 '07.

This is in the range we have seen over the last two years, but it is low in the range -- in the lower part of the range.

Let's also be clear that in Q1 '07 versus Q1 '06, we have had the benefit of low output from high tax files in Nigeria.

Gross in lower tax downstream businesses and the impact of corporate positions, which are low tax.

So no specific tax guidance, going forward, from our side, which is line with our peer group.

Each business has a typical tax rate, which are fairly stable, going forward, and the mix will drive the profit-and-loss tax rate impact.

Within each business, the startup or shoving of project with lowest impact margins.

For example, if and when Nigeria onshore comes back, EP tax rates will rise.

I cannot give you guidance there.

You know the issues around Nigeria.

As you go, actually, to our 20-F, and you look at a typical tax rate per business, they give a good indication.

So, typically, in EP we are in 51% to 53% range.

The OP probably somewhere in the 22% to 25% range.

Chemicals is slightly lower so can be below the 20s or around 20.

Now, corporate is a very difficult one to forecast, so I don't like to give any indications there because that really depends on how certain parts of corporate come together.

Therefore, shareholder costs there, we have interest costs there, we have our holding structures, which we manage, our insurance business there.

So I think that's more difficult.

So I think, with that, this should give you a good feel on how the tax actually comes through in our results.

On the cash position, indeed, I am please with the first order, again, in terms of cash performance, which was 6% up again.

The financial framework, in that sense, has not changed.

We have our priorities around the competitive dividend and organic growth, which is driven by our net capex, which, this year, is 20% to 23%, and if current market conditions allow it, then we would obviously look at buybacks as well.

We did buybacks in January, which was 500 million, and I have said it clearly in the past, I still prefer to invest in long-term shareholder value through projects rather than into short-term buybacks.

Having said all of this, I think you can expect that we will be shortly begin buybacks again in the market.

Neil Perry.

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

Peter, it's Neil Perry from Morgan Stanley.

Could you just a little bit more about the corporate and other number, because that's a very big swing factor, and you guidance has been minus 200 million a year.

Is it still minus 200 a year, given you haven't been anywhere near that for some time?

Secondly, just how was the close here that number?

How repeatable is any of that?

Or is this just some one-off blip in the insurance segment?

I'm not talking about the 400 million you identified.

I'm talking about the 400 million that you clean up to.

Let me take you through corporate here as well.

Let me first highlight what is in it.

You mentioned already the special license, I'm not tackling that one.

But, in general, what we have in corporate is interest income and interest expense, and that includes also capitalized interest.

We have currently exchanged gains and losses, which are really coming out of the whole financing of the group, not just at the top company but across the world.

The third one, which is kind of an [others] box, which has in it tax of holding structures, it has our corporate headquarter costs, it has the Shell insurance companies, which are naturally charged out to the businesses, but if you don't have actually claims, then you get a more positive effect.

And then the tax impact on all of these things.

Now, we are looking at good results on the quarter, and we obviously always working to reduce cost as well.

If you exclude gains and disposals, we have a positive, roughly, 400 million effect.

Within that, we are seeing positive numbers on the insurance due to the lack of claims.

Now, that is, quite clearly, something, which can change from Q-to-Q and hence to give you a full cost on this one is rather difficult.

We have also seen an increased impact from capitalized interest, which has averaged, roughly, around the 50 million over the last few quarters.

These factors are more than offset in the corporate costs that we carry in the segment, which are typically between 100 to 200 million per quarter.

So expect to see, when going forward, actually, that the capitalized interest from Q2 will actually change.

Sakhalin is going to be deconsolidated, hence we go from 100% consolidated to only 27.5%.

Now, this change could be around $100 million between Q1 and Q2.

Now, going forward, this is obviously hard to model for many of you, I understand that.

Let me just give you a framework here.

We expect these numbers per quarter, we expect zero, in general, with a range of plus or minus 150 million per quarter.

But this excludes, actually, foreign exchange impact, because that is, obviously, even more difficult to forecast.

So I repeat what I gave as a going forward -- expect zero with a range of plus/minus 150 per quarter, which is made up by all the elements I have said already and is excluding foreign exchange impact.

Neil McMahon.

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

Hi, it's Neil McMahon with Sanford Bernstein.

Just a few questions, really, on -- first on LNG.

Can you just let us know what sort of LNG contract structures you're getting in Asia at the minute?

Obviously, it's contributing to your good gas and power results, but just maybe a bit of guidance for the sort of terms you're getting for volumes that are going to come in towards the end of the decade and beyond?

And, secondly, how far advanced are you in terms of your refinery sales in France and what sort of interest level are you getting there?

Thanks.

I think the first one, on energy, I think it's most probably clear to you that I can't give you commercial insights.

I think what I can do is actually to give you an insight, which helps you when you look at the results, which is typically we are leaving some spot sales around, then we contract out, and that can be between 10% and 15%.

The rest we sell normally long-term contract.

Most of our contract, actually, in the Asia Pacific area are actually what we call JCC-driven from a pricing point [refusal].

That means Japanese group pricing rather than anything else, and I think that should be helpful for you when you look at our results.

We are pleased with our possibilities we also have on cargo diversions.

We are obviously using India and some of the Asian countries where we are when prices are giving off the benefit you are diverting cargo into those areas, and that has contributed over the last few quarters to the earnings as well.

I think on the France one, I mean, we are in the middle of the negotiation, I can't give you any comment, but I think we are satisfied with the interest, and we are satisfied with the negotiations, so far, when looking at the total review of the portfolio.

We will continue that and let you know when we are through.

I cannot go further on that one.

Irene Himona.

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

Irene Himona, Exane BNB Piper.

I had firstly a question on the cash tax rate in the quarter.

It seemed unusually low.

It was about half your B&L tax.

In the previous quarter, the cash tax was twice as high as the B&L tax, so I was wondering if there was any guidance at all in that?

My second question concerns Sakhalin.

There have been various press reports suggesting some agreement for the group to pay a special annual dividend to the Russian government.

I was wondering if there is anything you can add to that?

And, finally, a question on gas and power.

You refer in the statement to the weaker marketing and trading environment in the quarter.

Could you perhaps expand a little bit on the drivers behind that and give us some guidance for the year?

Thank you.

Okay, thank you.

I'll start with the last one.

I think this was driven by some of the circumstances around the demand and the weather.

It was clear that both in the U.S.

and in Europe, the typical trading environment, which has storage, let's say, trading possibilities were less, given the overall macro environment and the weather.

So, from that point, we had different impacts in Q1 compared to last year.

Now, I've said already the warm weather has continued into Q2 -- that is as far as I can go in terms of forecasting the macro environment around the gas in Europe and in the West.

We will see the rest coming later on.

On Sakhalin, what we have said is the following -- we have signed these agreements with on the one side, Gazprom, on the other side with the Russian authorities.

Our key objective was to stabilize the project, which we have done so.

The other key objective was actually to list the contract, the PSA, intact, which we have achieved in some side agreements but not material to our bottom line with the Russian Federation.

We have signed some agreements, which gives them a certain access to earlier revenues oil price, which is an oil price link.

You should remember that these contracts were signed some 10, 12 years ago when we had completely different oil prices, and that is actually quite usual.

That's not unusual in other areas as well when you have such dramatic shifts.

They are not material, as I have said, and they do apply to all the shareholders -- new and old shareholders.

The second one, which was very important, I mentioned that, just, again, we have actually agreed the cost budget, and therefore also the cost recovery mechanism, which is in the PSA.

All in all, we have said it's a few hundred million a year and not material.

The cash tax rate, I think I will mentioned three things.

Two things, actually -- first you are comparing it to Q4.

Q4 has traditionally higher tax payment, or cash tax rate, because we are normally paying a significant amount in Germany, which just falls due before the year-end, which typically, during the year, actually comes only in the first days of the month after the cold trend, so that explains that difference.

And then the other effects, we quite clearly have had, when you look at the cash ones, are actually related to Nigeria and the UK.

But the main one compared to Q4 I would say is Germany.

Mark Iannotti.

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

Hi, it's Mark at Merrill Lynch.

Good afternoon, Peter.

I'm not surprised that there's no change to your capex guidance of first quarter, but can you maybe make some general comments on how you're seeing the contracting environment in the first few months of the year?

Thanks, Mark, and good afternoon as well.

Yes, indeed, there is no change on the guidance.

It's 22 billion to 23 billion on the next basis with the growth numbers and the disposals confirmed as well.

I think the goal in line is what we said in February in the strategy presentations, and that the market remains, let's say, host market, in that sense, but, so far so good.

We are staying within our budget, so nothing special to report, which has really changed since the February strategy presentation.

David Klein.

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

This is David Klein from ABN Amro.

Two things -- in your opening remarks, you said the show was one of the few companies in the sector that really understands integration.

I wonder if you could just expand a little bit on that?

Secondly, just in terms of your cost savings objective of $500 million per annum, can you just give us an update on that and say whether you're on schedule to achieve that in 2007 so far?

I start with the first one.

I think there are two remarks to the integrated comment.

I think there is a strategic remark here.

When you look at the LNG, the TTL, and the oil drums business, that's where our integrated approach, working across the whole value chain from the upstream side to the wheels, in that sense, the product is in the tank.

We are driving that integrated approach in a considerable way, and in periods when you have falling oil prices, for example, and so your upstream margins are -- or your upstream total earnings are coming down, we, many times, see actually quite an interesting offset on the downstream side -- all products and chemicals.

So that's how we're are driving it from a strategic point of view, and typically this quarter is an excellent kind of example -- how, despite the fact that we had actually a major turnaround program in oil products, which has a margin, or a bottom line impact, of 250 million, if you compare that to last year, we still maintained a good profitability.

We have chemicals doing very well, and LNG, and on the upstream side, we had margins at the same level.

Obviously, given the lower production we had some lower earnings.

But having all the facts together on an integrated basis, we are still outperforming quite a bit market consensus but also outperforming some of our peers.

On the synergies, thanks for the question.

We are on track to achieve these things.

There are many initiatives which we have across all the businesses being at the functions or the businesses.

We are driving our offshoring program, the simplification of our ERP strategies and implementations across the downstream, we are centralizing our customer service centers on a global basis, et cetera, et cetera.

So a lot in flux, a lot of moving, a lot being implemented, and the visibility is very high on these potential savings, and we are on track.

Jon Rigby.

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

Hi, Peter, this is Jon Rigby from UBS.

I have two questions, pretty much clarifications.

First is, your comments on the balance sheet.

I was just struggling to follow cash ins and cash outs.

Can I assume, from the comments you made about the capitalization, that you did consolidate some debt from the Sakhalin venture, which kind of equals out the cash out for Shell Canada, cash in from Gazprom, et cetera, and just could you walk me through those numbers?

The second is just on -- going back to the tax rate, and I apologize, is that if you look at the shape of your earnings over the three final quarters of 2006, when Nigeria was down.

I think the average tax rate was about 40%, and the mix effect, actually, is more in favor of the downstream than the upstream.

So I would have thought the mix effect and also the Nigeria effect is no more different in the first quarter or probably even points to a higher tax rate in the first quarter, and it would have done over the last three quarters of '06.

So I just wonder whether you're able to point to what is mix effect and what is one-time or unusual items in the tax rate that we can expect not to be repeated in the future?

Okay, I think, Jon, I'll take the second one first.

I think there is -- the one thing which you need to take into account is also corporate tax, which obviously when you look at the group -- corporate tax, you look at group.

That has an impact, and as I have said, the corporate tax rate is rather low, already low normally, so that's one.

The other one, I think, even if I compare Q1 and Q4 where we had some increases in terms of production, we had it in those areas, which actually gave us a different tax profile on the upstream side.

So I'm happy to give you more details, and [Jerque] or J.J.

can do that later on.

We can take you through that, so we had some changes there as well.

Then the other thing -- what was your -- second one was --

I'm trying to do the sums on the debt in and debt, cash in and cash out, because I think you commented that after all things settled down, the balance sheet, after all the events, would look pretty much like the balance sheet does right now, and I was just trying to understand whether there was some de-consolidation of debt from Sakhalin as a balancing number?

Is that right?

No, I wouldn't say it's a de-consolidation in Sakhalin, because that was pretty much financed on an equity basis in that sense.

So I think, broadly, it is neutral.

We will give, obviously, once we have accounting for the full picture of Sakhalin in the second quarter.

We can give you all the details.

But we have 4.1 billion coming in.

We have, so far, roughly, in the account, as you have seen, we have accounted for lower cash of 3.18 because of the Canada is another 3.1 or so to come in the second quarter.

So if you mix all of that together and assume no change through the Canada one, and your capital employed, and the reduction, which I mentioned on Sakhalin, that should actually then net out.

But I'm more than happy to give you the details and either J.J.

or Jerque will give you a call there to give you all the details.

Colin Smith.

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

It's Colin Smith from Dresdner Kleinwort.

Back to tax again, I'm afraid.

Thirty-five percent is the lowest quarterly tax rate you've had this quarter and lower than any quarter in 2004, when you were much more weighted to the low tax oil products than you are right now.

So it does seem extraordinary that this is just a product mix type of idea, and, if it is, can you just come back again on what you think perhaps longer-term movements might be, although I appreciate -- I think you said that you weren't going to give formal tax guidance anymore.

But this is a very big swing.

If you are indicating there's a structural decline in your tax rate, I'd be very interested, also, how you achieved it.

I think, again, you need to take into account corporate.

But let me also take -- this is a little more detailed now, but also you need to think a little bit about gas and power as well, because, quite clearly, when we have gas and power earnings, many of these earnings are actually coming through joint ventures and, typically, when you have equity accounts, and you're actually not showing that tax in tax.

So that has an impact as well.

So it's not just the downstream which changes the mix, it is also where, actually, the income is coming from on the GP side.

So, for example, when we have a sizable additional dividend payment in a quarter, then typically you would see that.

Now, I would argue, if you look at a full year, these things will actually level themselves out, so you will have maybe a lower tax rate in one quarter, then you don't have a dividend payment, and you may not have the same corporate items in the next quarter.

And if you take the year-to-date of that, most probably you will be ending up in a historically natural kind of split.

So I didn't mention the GP before when I went through it.

That's the only one which I can answer, which also explains some of the movement in the first quarter.

The other thing I can also tell you, quite clearly, when I look at the tax computation, when I look at the whole tax balances this quarter, in the first quarter, there is nothing funny, there are no specials in a big way in there, which will actually take the tax rate into a certain direction.

So I think these are the effects, which we had, we had the production mix geographically, more (inaudible) in earnings, the GP ones, which were higher out of JVs.

We had also, which we should not forget, we had substantially higher U.S.

earnings coming in this -- on the EP side, for example, this quarter, because you remember in Q1 '06, we had the hurricane effect still there, which was mainly, obviously, entirely U.S.

production.

Now they are back now onstream.

So they are typically not high tax compared to some of the others.

So if you take all of that into account, you get to this tax rate, and there is nothing very special in it.

But you would anticipate that's on average across this year, you'd be back if you put it to some kind of historical normal average?

Yes, I think if you take a large -- a longer period in that sense, I think I would agree that you are getting back -- I mean -- we are obviously optimizing our tax rate on a constant basis, but I think, as I have said already to the various business taxes, they are quite stable when you adjust for some of the unusuals, like we have said -- high tax spells in Nigeria are coming through at this stage, et cetera.

But, otherwise, I think what you are driving at, have you done anything structurally which completely changes the tax rate, and I would say no, we are optimizing it but nothing in such a big way.

[Bert Van Hugenaus].

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

This is Bert Van Hugenaus from [Devries].

If I am correct, I heard you say you [garnishment] prediction this year was 3.3 to 3.5 million barrels a day.

As I remember, a range of 3.5 to 3.7.

Is this mainly caused by the warm winter in Europe, also in view of the fact that now it seems that comparing with last year, you have some 180,000 barrels shut in in Nigeria, whereas I remember you saying the beginning of February, it would come to probably 250,000?

Okay, a few points in one question here.

Let me tackle the last one.

The difference between the 180 and the 250 is the following -- the 180 at the moment, that's the current production shut in at the end of March.

The 250, which you have heard in February, that was actually the difference against what we have shown a year earlier in our strategy presentation because there you had to take what was shut in by then to 190,000 barrels.

You had to add what we actually lost in terms of growth potential, because we couldn't go back into the Delta to develop certain fees, and that was roughly 60,000, 70,000 barrels, so that explains that difference.

The 3.5 to 3.7, that's a very old number, but we have given as the guidance for 2007 is 3.3 to 3.5.

What I have clarified today is actually given the impact we had in Q1, which is the better-related, lower-demand made in Europe, which we have seen.

We are now guiding towards the lower end of that range and have said if any Nigerian balance will come back in 2007, and the timing there is uncertain, then we could move up in that range towards the 3.5 million barrels.

Great, and one follow-up, if I may.

You said after Shell, kind of the in Sakhalin, the gearing will be in the same range as right now as at the end of the quarter, 14.5%.

Is this difference from the 19% you mentioned at the beginning of February?

How is it explained?

When we mentioned the 19 at the beginning of February, that was -- or, actually, we mentioned it already when we announced the deal with Shell Canada, that was only taking into account Shell Canada.

That was not taking into account the offset, which we get because we are receiving cash from the Sakhalin deal.

So that was only looking at gearing at that time plus Canada and not of Sakhalin.

Jason Kenney.

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

Good afternoon, Jason Kenney from ING.

Just on gas realizations ex USA, is there a take or pay gain in here?

Because volumes were down, and yet you were obviously paid handsomely for the gas.

And, if there was, will we see a similar kind of contribution for Q2 despite the warm weather and presumably lower volumes?

Secondly, on share buybacks -- I think I misheard your comment, but if you said that you were looking to restart the program, near term, if you were going to do that, do you see a repeat of the $8 billion of share buyback that we saw in 2006, or should we be significantly below that number for 2007?

Okay, I think on the first question, I think I come back to you, because I'm not entirely sure what you are driving there, so let me give you a call afterward.

On the second one, I've made it very clear that we, or I, do not see the benefit of large-scale buyback, so whilst I see the possibilities if market circumstances do allow it and the financial flexibility in the cash flow, so from that point of view, I think that gives you the answer where we're remaining at, over the next few months, because I am not going to give you a number, but I think, out of that, you can understand where we will be.

I will get back to you on that question.

Lucas Herrmann.

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

Lucas at Deutsche.

Two simple questions for you -- but, first, you got me a little confused in terms of gas and power and what's treated as an associate and what's treated as dividend income.

My assumption is being that where you've got interest and liquefaction plants they're typically equity accounted rather than dividend accounted, so perhaps you can give me some indication on which are and which aren't.

And the second, very simply, is minority interests, you know, what happens to that line?

Clearly, the minority in Canada is gone.

The minority in Sakhalin goes, how sharp will the fall in the minority charge be?

Can you give some indication of the level of profit that's removed, on minority that's removed, as a consequence of your two transactions?

Thanks.

I think on the first one there is a list in the 20-F, if I'm not mistaken, so instead of me going through all of them, I suggest you have a look there.

I will indicate to you where it is exactly so then you can see exactly how that is actually done.

I think, on the second question, if I understood you correctly, you were after the minority profit and loss impact, is that correct?

Yes, I mean, the minority in Shell Canada is disappearing, so that's clearly $120 million, $150 million worth of savings per quarter if there were a reduction in the minority there.

But the Sakhalin minority is also disappearing, so what I'm asking, Peter, is, in effect, what should one be looking at at the minority charge, going forward, typically?

I think the impact is going to be less than 100 million out of what you just described.

Sorry, 100 million over and above the Canada or 100 million in total relative to the first quarter?

No, it's actually a reduced minority profit and loss compared to what we have today.

And if you have problems on the 20-F, get back to us here.

Stefan Foucoult.

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

General.

About the question on E&P, compared to Q4 '06, E&P earning for Q1 '07 looks almost flat.

These points old price and production being down, which suggested a drop in earnings versus Q4.

In the U.S., earnings increased by almost 20% compared to Q4.

I was wondering if you could perhaps provide a bit more information on that?

Thank you.

Okay, again, Q4, I think what you need to take into account is -- I look at (inaudible) in total, so you get an effect on LNG, volume, and a little bit pricing.

The other one is you also get effect from deep water Nigeria, still ramping up, [Arafeet], for example, and you also get an impact from the U.S.

where our performance was actually better as far as I remember in Q1 compared to Q4.

So I think these are the major elements in the comparison Q1 against Q4.

The final question comes from the line of Mr.

Neil Morton.

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

It's Neil Morton from Mann Financial.

I have one accounting question and one operational question.

On the accounting, in fact, in the cash flow statement, I've noticed that over the past few quarters the dividends you are receiving from your affiliates almost matches the Shell share of the earnings, and that implies that the payout ratios are approaching 100% of earnings.

Is there an explanation for this, and do you see that being sustainable, going forward?

And just, secondly, operationally, there seems to have been sort of mixed results in the Saudi gas program.

Can you confirm recent press reports that your first well in the ending quarter was dry, and outline the future activity there, please.

Okay, on the second one, we normally update on an annual basis on our exploration achievements and programs, et cetera, so I will not answer detailed questions at this stage.

We will confirm that later on.

I think to give you any guidance on the payout ratio is rather difficult, from a policy point of view, but you are always depending, obviously, on your partners as well.

We always aim for a sound and high payout ratio, but these things do move quarter-to-quarter, and you get fluctuations quarter-to-quarter.

So I would not say that you can expect that all quarters will be a one-to-one effect.

That will certainly have some volatility but, in the longer run, if you take a very long period, you are, obviously, trying to optimize the payout ratio in a high way, and that's what we normally do.

So I don't have a more detailed answer on this one, because it really depends on the flow of a few quarters not just on one.

But, clearly, policy is high dividends payout ratio if we can achieve that with our partners.

The final question comes from the line of Mr.

Mark Gilman.

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

Mark Gilman, the Benchmark Company.

Two operational questions, if I could.

First, North Sea Liquids production in the quarter a lot weaker than I thought.

Give me a rough idea what the maintenance-related downtime impact regarding that figure was.

Secondly, of the refining downtime in the first quarter, what percentage of it was associated with unplanned activity?

Okay, I can take the second one first.

I think we have moved on in terms of how we look at our refineries, so we are looking at the total utilization, which is available for us for production rather than actually starting to spread these things out, because with heavy turnaround programs, that is much more what we are looking for.

So I am afraid I am not going to break that any more out, so we will report on an ongoing basis, the total utilization which we have.

On your first one, if I take Europe, in a general sense, on the oil side we had lower production due to some operational issues and operated fields in the UK and some operational issues and non-operative fees in the UK, Norway, and Denmark.

And then we had on the other side this was adding to that were field declines in the UK and Norway.

On the gas side, we have lower demand in The Netherlands, which was, obviously, weather-related, and we had a few issues, operational issues, at operative fields in the UK, and we had slightly higher field decline in the UK and Germany.

So these were all effects in Europe, so these were mainly operational issues rather than pure maintenance issues.

Thanks, Peter.

Thank you very much for calling in.

I think, as a recap, I think we have to level another good set of results this quarter driven by operating performance, so good competitive results.

We have delivered on Sakhalin and on Canada, and our strategy is on track.

Operational excellence, which we call delivery mode, capital discipline, which is part of our long-term growth scenario, and competitive cash flow in the short term to allow us actually to satisfy shareholder and investor returns but, at the same time, also grow the company.

Please with the quarter, hope to talk to you again in the second quarter.

Cheers, bye.

This concludes the Royal Dutch Shell analyst conference call.

Thank you for participating.