殼牌 (SHEL) 2007 Q3 法說會逐字稿

Welcome to the Royal Dutch Shell Q3 results announcements call. There will be a presentation followed by a Q&A session. (OPERATOR INSTRUCTIONS). Please remember that this is a live broadcast, so please try to reduce background noise as much as possible.

I would like to introduce our host speaker, Mr. Peter Voser.

Thank you very much, operator. Good afternoon. Welcome to the Royal Dutch Shell third-quarter of 2007 conference call. I'm going to review the results and portfolio activities for the quarter and then take your questions. Firstly, please take a moment to read the disclaimer.

As we said in July, our main objective here at Shell is to generate competitive returns, and we aim to deliver value in a way that includes good safety and environmental performance. We are delivering on our strategy to refocus and renew our portfolio. That means divesting non-strategic assets both upstream and downstream and redeploying capital to growth regions by making disciplined capital choices.

We have brought new fields onstream and new projects have been launched. The asset sales we have completed so far this year total some $7.7 billion against the plan for $9 billion this year. And we continue to rejuvenate our portfolio by developing new long-lived growth projects that will generate cash flow for decades to come. Our strategy is on track, and we are laying strong foundations for our future. Now let's turn to the results.

Third-quarter results, we delivered $6.4 billion of CCS earnings. These competitive results come through a good operating performance from Shell, and they come despite weaker industry conditions downstream and continued cost challenges sector-wide.

Our Q3 earnings included onetime items adding up to $265 million. These one-offs include essentially non-cash pension charges for realignment of our global remuneration, tax rate changes, and marked-to-market effects. When you exclude identified items, our CCS earnings per share declined by 11% compared to Q3 '06.

Cash flow was $9.8 billion for the quarter. That's an increase of 3% from Q3 '06. We are confirming the dividend for Q3 2007 at $0.36 per share, an increase of 14% versus a year ago levels. Gearing, including off balance sheet items was at 12.1% at the end of the quarter. Share buybacks for Q3 were at $1.5 billion, bringing the nine months total for buybacks to $2.8 billion. Announced dividends and buybacks combined for the first nine months of 2007 were $9.5 billion.

Before I go to the details of our results, I would like to make a few comments on the economic environment. Oil prices increased from levels a year ago, whereas global gas prices remained relatively stable, and U.S. gas prices declined. Oil prices increased at the end of the quarter and they remain at the unusually high levels.

Industry refining margins fell in the U.S. West Coast compared to a year ago levels and were slightly up in the U.S. Gulf Coast. In the Eastern Hemisphere, industry refining margins rose, and Europe was essentially unchanged. Margins declined in all the regions compared to the second quarter of '07.

For Shell, Q3 margins were eroded by narrower light/heavy crude and product differentials, which do impact the more complex refining players. Retail margins decreased in the U.S. compared to the same quarter last year and they increased slightly in other regions.

Turning to chemicals, industry margins declined in the U.S. and remained relatively stable in Europe compared to last year's levels. Asian margin, however, fell markedly. So far in the fourth quarter, downstream margins overall are under pressure as you would expect with such high oil prices.

Let me now talk about business performance in more detail. First, on upstream. Excluding one-off items, upstream earnings declined versus a year-ago levels. Earnings were impacted by lower production volumes, partially reflecting our sale of the stake in Sakhalin to Gazprom. They were also influenced by a decline in high margin oil production, higher exploration expense, impact from increases in estimated asset retirement obligations, as well as industry-wide pressures on cost from taxes.

Upstream cash margins remained strong at around $23.20 a barrel of oil equivalent compared to $24.60 a year ago. Oil and gas production declined by 4%. Oil production including Oil Sands fell by 9%. Various tract production increased by 6%. Our dilution of Sakhalin to Gazprom combined with the deconsolidation effect removed some 40,000 barrels of oil equivalent per day in Q3 '07, so that underlying volumes declined by some 2%.

During the quarter, we saw first production from Deimos in the Gulf of Mexico Mars Basin and from Ormen Lange in Norway. Overall, we are on track for a production at around 3.3 million barrels of oil equivalent per day for '07, as we have indicated previously.

Turning to energy, equity sales volumes were 12% higher than the same quarter a year ago, driven in particular by increased feed gas supplies in Nigeria. As I indicated in Q2, the next tranche of new LNG capacity will impact our growth rate across 2008.

Gas and power, marketing and trading conditions were less favorable as mild weather conditions impacted storage plays in both Europe and North America. So far in the fourth quarter, the marketing and trading environment for gas and power has been similar to Q3 '07.

You will recall that we intend to publish the financials from Oil Sands as a separate business segment from Q4 '07 onwards. I'm keen to make sure that investors have good transparency on our activities. To give you an indication, Oil Sands earnings were some $180 million in Q3 2007 compared to $225 million a year ago. We will give you more historical data on an IFRS basis before the fourth-quarter results.

Now let me turn to downstream. Earnings decreased from year-ago levels with lower Oil Products earnings and Chemicals broadly unchanged. Refining earnings were impacted by weaker industry conditions and narrower light/heavy differentials and declines versus a year-ago level.

Marketing earnings were broadly unchanged from a year-ago level. Also, trading results were lower as a result of fewer market opportunities and reduced volatility.

Shell's refining availability remained relatively stable at around 93% compared to 94% in the third quarter '06 despite hurricane impacts on the Gulf Coast. Availability for Q4 '07 is expected to be at slightly lower levels than Q3. This will include a three to four-month partial shutdown program at Bukom in Singapore, where we are bringing forward in '08 planned turnarounds to this quarter.

In Chemicals, results were broadly unchanged from Q3 '06 and remain robust overall, although the trading impact was weaker than a year-ago levels. Chemicals availability increased to 94% and were some 6 percentage points higher in Q3 2006, which was impacted by heavy turnaround activities. Chemicals availability for Q4 '07 is expected to be the same level as Q3 '07 and higher than Q4 '06, which was impacted by heavy turnarounds.

Now let's turn to the portfolio. We continued to rejuvenate our portfolio in the third quarter, focusing on capital discipline and capital efficiency. We have made more progress in Q3 towards our goal of shedding non-core and under-performing assets and to concentrate on areas with the greatest growth potential.

A few examples. In France, we have made progress with the disposal of three Shell refineries with a total of some 300,000 barrels per day capacity. We expect these transactions to close in '08. In Austria, we have announced the sale of our 25% equity holding in Austrian oil and gas producer, RAG. In Norway, we entered into an agreement with E.ON to sell our 28% equity interest in the undeveloped Skarv and Idun fields. And in Australia, we have entered a strategic transaction with Petronas, which will decrease our position in Evans Shoal gas to 25%. And we continue to make progress in building up Shell's activities in Russia, with strategic agreements signed with Rosneft and for heavy oil with Tatneft.

Let's go to LNG. We saw two important FIDs during the third quarter. One in the United States, Motiva, which is our Shell Saudi Aramco joint venture, took FID on an expansion of the Port Arthur refinery, and I will say more about that in a moment.

In Australia, Woodside, where Shell has a 34% stake, Woodside took FID on the Pluto LNG project. This is, I believe, the first (inaudible) FID in LNG this year and brings the number of LNG trains under construction for Shell to six. In total, Shell has over 13 million tonnes per year of LNG capacity onstream today and a further 8 million tonnes per year under construction.

Turning to Port Arthur, I'm very pleased with the final investment decision to expand the refinery in Port Arthur with our Motiva partner, Saudi Aramco. At Shell, we believe that the refining industry remains a cyclical one. Our strategy remains to concentrate on large complex manufacturing sites positioned in the best growth markets.

As you know, we have put up some 9% of our global refining capacity for sale this year. Exiting from non-core positions is part of our strategy. However, on the other side, we do look to make selective growth investments in downstream. The scale and market positions that Port Arthur offers is a very good fit with that selective growth strategy.

The expansion will be more than double the capacity of Port Arthur, which is already a highly sophisticated refinery, to some 600,000 barrels per day, making it the largest refinery in the United States. The expansion will enhance the refinery's operating capability, enabling it to process a wide range of heavy sour and high acid crudes. These crudes come from Saudi Arabia, Canada, South America, and some domestic sources.

So to recap, I think we have delivered another good set of results this quarter, driven by operating performance. We have made good progress with the portfolio. Major projects are going well. Our disposal program adds more focus to the Company. Our strategy is on track -- operational excellence, competitive cash flow and capital discipline. With that let me stop; and we go for questions back to the operator.

(OPERATOR INSTRUCTIONS). Theepan Jothilingam, Morgan Stanley.

Good afternoon, Peter. Just a couple of questions, please. Just firstly, you've been very active on the disposal program this year. And you've indicated around $9 billion for the full year. I just wanted to sort of talk about opportunities going forward, what sort of run rate you expected.

As a follow-up question, just in terms of your cash cycle, even taking into account proceeds and sort of disposals, I wondered if you saw the opportunity to accelerate cash return to shareholders into the fourth quarter.

Secondly, just in terms of some of the announcements around Russia, you've announced strategic partnerships with Rosneft and also Tatneft. I was wondering particularly on the latter in terms of the heavy oil program, whether you could give me a bit more color, particularly on timing and opportunities and in terms of volumes. Thank you.

Yes, thanks and good afternoon. On the disposal side, I think as a guideline of going forward, we always use 3% to 4% of our capital employed as a kind of an annual portfolio management program, so divestment program. And I think I don't see any reason to change that in that sense.

On the cash return, fourth quarter, I think in general, you know how we are optimizing our cash returns to shareholders. So there is a long-term piece, which is quite clearly driven by the competitive dividends increasing with at least inflation. We've done more the last two years, 9% and 14%.

And our organic growth picture, maintaining a balance sheet, which is undoubtedly at the moment at the lower end of gearing range where I would like to be, but with $80, $85 a barrel, it's a little bit more difficult to get to the 25, but we are on the way.

And hence we are optimizing that on a constant basis; and we will let you know when we are at the end of the fourth quarter how the dividend and the rest will look like. So I'm not going to make forecasts, but I think we have proven over the last two, three years that we are very determined to optimize the shareholder value in the short and in the long term.

On Tatneft, I think it's a little bit early days on this one to give you timing. I think this is a good way of demonstrating that we are using our technical capabilities, which are building up in other parts of the world and we recognized in the markets. I'm talking about Canada and the U.S. and other countries, and we are now bringing that into Russia as well.

So it will be -- it's a big resource. At the end of the day it will have to be competitive in terms of profitability and economics against the rest of the world, like Canada, for example, and we will then see how we take that forward. So it's too early to give you more insight into the timing. Let us work the MOU a little bit more and then we'll come back on that. Next question, please.

Jon Rigby, UBS.

It's a question about Athabasca, actually. I wonder whether you could just discuss whether you or members of the Shell Group have been in discussion with the Alberta authorities about the proposed changes to some of the royalty regime. Also, whether, clearly we don't know what the final decision will be, whether there is a chance that you would change your investment behavior depending on what the decision is.

And also, just with respect to AOSP itself, are there any grandfathering issues with AOSP that might mean that it is not exposed to the changes in quite the way that maybe new projects are? Thanks.

Yes, thanks. Good afternoon, Jon. Yes, you have seen the panel recommendation. You most probably have seen at least or heard of the speech of the premier last night from Alberta, where he announced the press conference for later today, so we will see that later today what's coming out.

We are part of the industry, and the industry had talks with the government, but it is an industry talk in that sense, and we will see what's coming out.

I think from a general point of view, as we are managing our resources and our projects against hurdle rates, we are ranking our global portfolio. These projects will have to be competitive internally against other projects and maybe we will see which one takes it through.

The grandfathering, as well, I would say is part of the wider discussion with the government and is clearly pursued through the industry as well. So I think this goes into the same category -- too early to say. We will wait until the government expresses their views and then comment on it.

Now in general when we have talked about that before, it is clear if we are aiming to invest a significant part of our money and projects into areas where in the longer run, so in a 30, 40 years period, you can expect some fiscal stability. We have seen a few countries changing as the oil prices come from 20 to 90 (inaudible) more or less, so we take a long-term view on these things as you know.

And some countries have learned it the hard way that by changing taxes too aggressively, that project FIDs will start to slip and projects will be done somewhere else. So I think that all of this will be taken into account by the government, but also will be taken into account [when we run] projects.

Thank you.

Nickie Decker, Bear Stearns.

A couple questions, please. First of all, on upstream production, if you are maintaining your guidance of 3.3 to 3.5 million barrels a day, that would imply a pretty good bump up sequentially in production. So wondering if you could highlight some of the sources of that growth.

And secondly, Peter, my question would pertain to downstream returns. Given the portfolio activity in refining, how might we look at return on capital employed for refining going forward?

Thanks, Nickie, and good afternoon. I think you are slightly breaking up on the first question, but I think you went after the production for 2007 and the fourth quarter. Is that correct?

That's right.

Okay. We have said we will be around the 3.3 million barrels. I think I also would like to remind you that Q4 '06 included some 103,000 barrels of oil equivalents for a resolution of a contract issue for the full year, the full '07, taken in the fourth quarter last year.

So you need to neutralize for this one, and then I think you will get closer to what a normal quarter for us will be. So from that point of view, 3.3 million neutralized Q4 '06 for the 103,000; and then do your calculations there again.

Refining, I think we do not give obviously returns out on our capital employed just for this business. We do, normally, on an annual basis, give you the earnings split between marketing and refining. So we intend to do the same again for the 2007 in January when we come out with the results.

I think we are looking at a cyclical business, and we have to be very clear on this. This is a five to seven-year cycle type of business. We have enjoyed a few years of very high margins, but when you take a position like we are doing on Port Arthur or the roughly 300,000 barrels which we have sold, we look at the cyclicality quite clearly; we take that into account.

But the more important thing is actually to look at the complexity of a refinery, how does it link into our demand structure around the refinery? How does the overall supply envelope for the country look or the region look? And this drives the investments much more.

Or in the case of Port Arthur, clearly, you need to look at the full value chain, starting even up in the Oil Sands; and then look at Port Arthur upgrading capabilities, make sure that demand like markets like the U.S. being close to the market with the upgrade.

So these are very important elements for our calculations when we look at the margins. We also take a view on the overall supply/demand balance and envelopes in the certain regions, as I said.

So I think from that point of view, that's how we look at our return expectations in the long run and the medium term, so we do not look just on the next few years. And other items like I have explained have a real important input here. Next question, please.

Neil McMahon, Sanford Bernstein.

Good afternoon, Peter. I've got a few questions. I'll just queue them all up. The first is really on Sakhalin. I know you were starting to commission the LNG facility. Could you give us a bit more color on the timing through 2008 with some of the first significant deliveries there? And maybe some comments around talks of a third train of LNG at that facility.

Secondly, could you go through maybe the amount of trading activity that caused Chemicals to be weak? What sort of value should we be putting on that that you would have thought was abnormal for the quarter and where prices actually started to improve?

And third, just on oil demand, if you can see any implications globally of any turndown in oil demand at the minute. Thanks.

Okay. Could you just maybe repeat your second question because I had a problem to hear it.

The second question was on, just on Chemicals. The numbers looked a bit weak and you suggested that that may have been due to some trading activity. Maybe if you could put a number on that, what a normalized Chemicals earnings would have been in the third quarter without that trading activity.

Yes, okay. Thank you. On Sakhalin, as we said, we have imported an LNG cargo in order to start commissioning. I think you need to look at the whole project. And I think on the startup and the completion we are looking still at the second half of 2008, as we have said. So you have to imagine this as being various startups across the whole production chain, so these will take time. So I think the major impact from the production coming onstream will be in '09.

Regarding the third train, as part of the dilution of Sakhalin to Gazprom, we signed an AMI with Gazprom to develop further business opportunities into Sakhalin Island area. And as part of that, we are looking into the third train and we're doing some work there to see how we can actually use gas which is available in the neighborhood in order to fill a third train. Too early to say where this goes, but we are working on it.

I'll take your third question first, which is the oil demand. It's an interesting question because if we look at our numbers, and look at our marketing numbers, so marketing volume numbers, if you exclude what we have divested, actually our numbers went up by 2.2% Q on Q this time.

And it was really driven by the big markets where we have gone in over the last few years maybe, some relatively recent, so I'm talking about Brazil, India, Indonesia, Turkey, Malaysia. That's where we have seen quite significant growth coming through.

They are focused in the world where demand certainly is weaker. I think the U.S. will be one of those countries where we have to watch it more and more carefully. Europe is another strong growth country there, but for us overall, it was a very positive quarter.

I think on the Chemicals, yes, we did say trading was weaker. It's very difficult to give you a generalized number because it really depends on the market volatility and the possibilities you have there.

I think the one which I would like to add there as well is our performance in the U.S. in Chemicals is very dependent on the oil price because we have got our -- we are using liquids to actually produce our chemicals, feedstock, etc.

And obviously prices have gone sharply up in the third quarter and that also has slowed our margins somewhat down, maybe comparing it to other players who are more gas stream rather than oil driven.

So I think you need to see this as a whole package; and in that sense trading was weaker. But I think the impact is a rather smaller impact compared to some other stuff. Thank you. Next question.

Edward Westlake, Credit Suisse.

If I could just come back to this issue of CapEx and disposals, I've seen on the tape some discussion of 22 to $23 billion ballpark CapEx in the medium term. I presume that is a net number. If you could maybe talk about headline CapEx and disposals within that.

And then secondly, around the SEC reserve replacement, obviously it's early. But you have talked about choices in terms of the key projects and Gorgon and OKLNG I understand are delaying. So in terms of your general expectation for the '04, '08 sort of reserve replacement target.

Yes, okay, thanks and good afternoon. Let me take you through the CapEx guidance starting with '07. '07 we are on track for 22 to $23 billion of net spending, made up of 24, $25 billion of organic and $2 billion of net acquisition disposals.

At the end of Q3, organic spending was about $18.1 billion, acquisitions some $7.1 billion and disposals some $7.7 billion, as I have mentioned. So the net spending comes to something like $17.5 billion.

For next year, we don't have any specific guidance for you on that and you will get this next year. But what we have said so far -- and that's what I meant this morning as well; I think it was in Reuters afterwards -- is that the net spending will be relatively stable in '08 and later.

Now, let me also just take here as you are talking CapEx a little bit the inflation side. The market is seeing some inflation at this stage, which is around 20%. Now for us internally here, we see inflation of about 10%. This has been achieved through global contracting and procurement, reading the markets right, taking the rigs earlier, etc. etc.

We are also seeing an effect of the weaker dollar, which obviously pushes up our CapEx as well. So I think it's a good indication for you on the organic trends.

Disposals we typically see, as I said already, 3% to 4% of capital employed for the year, and we have roughly 125 of capital at this stage. So if you take all these numbers I think and use it with what we have said on the net spending going forward being relatively stable, that gives you a good insight on how we are moving our CapEx.

Good. The second question was around SEC. Now, you are quite right. It's early. Second, I think it's also fair to say that we look at this in a slightly different way. As you know, it's an outcome for us. We are looking at trends in the three to five-year time horizon; and hence, we will be updating on that next year, then again when we get into '08 and have finished the work.

Just a few comments on, which I have said earlier on, we booked quite a bit of Pearl last year but we haven't booked everything. We have not booked anything yet on the Qatargas 4 LNG project. Gorgon is obviously out from out there, for to take FID. But dates, etc., you need to talk to Chevron on that one. So there's quite a bit of things still going to come, but they will come most probably lumpy and hence, we are going forward three to five years, let's say sequence.

The other one which I would like to remind everybody on the call with dilution of Sakhalin and the buyout of minority, we will see that reflected in our net reserves. And we have already said that the impact of that is roughly minus 100 million barrels if you take the two together on the net basis. The gross reporting will be slightly different, but we will take you through that again at the end of January when we come out with the financial results for 2007. Next question, please.

Robert Kessler, Simmons.

Your corporate segment results were again quite robust at $413 million. I know it's volatile, but it was several times your normal guidance. And I'm wondering if you could delineate between the various influencing factors, the insurance income, foreign exchange, interest earned and the like.

Yes. Okay. Let me try to do that. Good afternoon. Let me tackle both corporate and minorities because those were obviously different. I saw some differences in the forecast as well.

So starting with corporate, it's interest income and expense. We have -- the first one in, so this is typically interest; this is internal loans and this is capitalized interest, what we have.

The second item which we have is currency exchange gains and losses. This is on group financing but tends to be very small, so this is not a big item, as we are financing normally in those currencies which are reporting currencies to avoid currency exchange gains and losses.

Then we have the categories of others, which includes really three major items, which is corporate costs. I'll come back to that. It's the Shell insurance companies, which charge out to the business premiums. And then if there are no claims, etc., you get the effect obviously in corporate. And then the tax impact from financing.

So what we saw in Q3 was a positive impact from capitalized interest and interest income because you also have seen interest rates going up, so that comes through. We have seen a limited number of claims against group insurance; hence we generated profit and we saw positive elements of tax credits.

Now, coming back to corporate costs, there is normally embedded costs of $800 million to $1 billion per year in corporate for central functions. Now, obviously, there can be also positive impacts such as tax credits or intergroup financing, insurance premium, etc.

Now recently, these trends have been positive, which obviously is a good thing. I take money and profit in whatever segment it is. So I'm not changing the guidance for corporate, but I am giving you the details so that you more or less know where the effects are coming from and you can do some estimations.

But we are still keeping our guidance, which is zero to plus/minus $150 million in corporate, excluding the FX. But I already said FX is a rather smallish number. So that's on corporate.

On minorities, I think the main factor is clear. It's Shell Canada. And Sakhalin obviously have an issue, they reduced that; they are out. Major other minorities as you may know them, it's Shell Gabon; it's a refining company in Malaysia. The same in the Philippines. It's the Pernis refinery here. And it's the Middle Distillates, so the SMDS in Malaysia as well. So these are the typical minority companies. That's it.

Peter, any chance you can give us a more precise number on net interest earned and on the positive tax items for the quarter?

No, I am not going further than what is in the press release. So I think if I'm not mistaken -- but I'll check that in a minute -- we actually give there some net interest income and expense numbers, so you actually will see it there.

If you give me a second then I will give you the page here. Next question, please. It's page 12. You have got corporate actually splitted up into interest and investment income and expense, currency exchange gains and losses, and then others, so it's listed there. Next question, please.

Irene Himona, Exane BNP Paribas.

Good afternoon, Peter. A question on the Port Arthur FID. Is this already included in your CapEx guidance for a relatively stable net of 22 to $23 billion?

And my second question concerns depreciation in the quarter. We saw quite a decline in the upstream charge. Is there any specific reason for that and can you perhaps give us some guidance for the full year? Thank you.

Thank you very much. Good afternoon. I start with the second one. It is indeed, the number looks a little bit down even with the lower production. But there are some onetime impacts in the Q3 numbers for EP and we have actually mentioned them. So we had the Sakhalin deconsolidation. We had obviously also reversal, an impairment reversal, so we have highlighted both of them.

Now we don't give precise guidance for Q4, but I would say that the underlying trend of unit DD&A is rising due to new fields coming into the production profile. So that would be my guidance for you to go forward.

Now, Port Arthur, as you know, it's a joint venture, it's 50-50. It's equity accounted, so, therefore, that's where you will see the CapEx number. It only comes through if actually Motiva would be financed through shareholder loans, that would then be seen as CapEx. As we have got significant cash generation in Motiva, I would more or less see no need to actually fund Motiva and you will not see that CapEx in our numbers.

Thank you.

Mark Gilman, Benchmark Company.

I had a couple things. First, I notice what appears to me to be some hesitancy as to the successful conclusion of the French refinery sales as well as a bit of a delay in the timetable. Am I reading the tea leaves correctly that this is not a fait accompli at this point? And I also have a follow-up.

No, you are not reading it correctly. We are just in the normal process so we announced that we have signed an agreement subject to finalizing the deal. We are -- and also not finalizing the deal in the sense of actually having consultation to do with unions, employee bonus with the state, etc., and that takes time. You are in France so it will take a little bit of time.

So this is a normal process. It's going well and we just can't see it actually finishing in 2007, which we said actually early on, these things do drag on. So no hiccups, no big hurdles, etc.

Okay. If I could, just two quick others. I believe you've also indicated an intent to divest essentially all of your remaining U.S. retail station facilities, Company owned. How many stations are involved in that?

I wouldn't go as far as you said. I think we're changing the operating model in the U.S., which will move us somewhat more to a wholesale model and as part of that, yes, there will be some sales, but I don't have the number actually with me. I need to check if we have given it or not. If we have done so, then we will get back to you.

Okay. And finally, there's been some recent conversations and talk in the press regarding changes in fiscal terms in Nigeria with some specific reference to going from the standard MOU for the onshore, near off-shore to a PSC type format, with associated questions regarding reserve bookings and the like. Could you provide some color on exactly what changes are being contemplated here?

I can't give you too much because we have not officially seen or heard anything from the Nigerian government, so it's a lot of talks and I think we have seen the same as you. So it's too difficult and too soon for us to make a comment.

Now maybe let me just take you through the various regimes which we have so that at least you are well prepared when these go forward. As you know, we have several parts in the portfolio in Nigeria and with different activities and fiscal regimes.

So on the one side we have the joint venture, which is onshore, which is SPDC, which is semi-fixed margins, $2 to $3 a barrel, and we are producing currently about 216,000 barrels a day.

Then we have the deepwater, which is roughly 175,000 barrels a day, which is in our other company in Nigeria. There we are really Bongo operating, then we have Erha with Exxon. And this is typically on PSC, which is typically around 5% of our total production.

So as a sum, Nigeria is important for us, but we have got an overall worldwide well-balanced portfolio, even in Nigeria well-balanced. So we will have to see and wait what tax changes might come and what that will do to encourage investment on the other side in the country.

As you know, I pointed out last time there are some funding issues; so we will certainly talk with the government when these things come out on how we can actually accelerate maybe growth by having the right contractual arrangements and the right funding arrangements.

Bert van Hoogenhuyze, De Vries Co.

This is Bert from De Vries. A few questions. First, you already expanded the bid on the minority and you mentioned a number of items there. But I understood that after the bid for Shell Canada, minorities would go down to something like $50 million a quarter. Can you give us a sort of a guidance, what sort of figure we have to expect in the coming quarters?

The other one is on Saudi Arabia gas venture. I understand you had a few wells there, but not very telling so far. Can you give us some color on the activities over there?

Thank you. The minority, obviously, we have not given guidance in that sense because as you have seen with the companies I mentioned, some are downstreams, some are upstreams. They have different profiles in terms of their earnings capacity. So it would be very difficult to give you a precise forecast there. We need to do that every quarter and see what earnings come in.

Because we have got on the one side, GTL. On the other side we have normal refineries. So I think we have not given as low as $50 miliion as you said and we will need to calculate that every quarter.

Now on the Saudi Arabia, yes, we are doing some seismic and some activities there. We have decided and have announced that as well that we do second and fourth-quarter updates on any exploration activities in the group. So you have to bear with us until the end of January when we update on the financial results. There we will give you -- either there or in the strategy update in March -- further insights into our activities, which will include Saudi Arabia.

Thank you and a final follow-up question, on your decommissioning cost. How much have you provided for the time being? Or should we also expect that by the year end?

That is also something which comes in the year end because typically you can take that out of our 20-F. So you'll have to wait for that, all the news 2006.

Great, thank you.

Mark Iannotti, Merrill Lynch.

Most of my questions have been answered but I'll ask one quick one. Can you maybe just explain the basis for the Alaskan exploration write-off this quarter, why it just wasn't expensed as a normal ongoing item?

Thanks, Mark, and good afternoon. Because this is very different, this is actually related to our Alaska drilling, which has had some legal problems but actually not the legal problems associated to us. It was actually against the permitting agencies in the U.S.; and hence, we decided that this is not a normal write-off. This is triggered by some court actions and hence, we treated it as a special one.

So what's exactly happening again?

We received some permits or we were in the process of receiving the permits. And some groups have been in a Californian court, actually, started the legal case against the permitting agency of the U.S. government to stop the drilling. And these court hearings and decisions are still outstanding and during that time we can't actually drill.

So this is not a case against Shell. It is between a group of people against the United States government. And we are just in the middle, like the very famous ham in the sandwich.

Okay.

Joseph Tovey, Tovey & Co.

This is Joe Tovey; thank you for taking the call. I have at least two questions. In the reading of your current materials, very little seems to be showing up recently about the (technical difficulty) technology and further developments, etc. Is that because the economics there have changed radically and therefore it no longer pays? Or is there something else additional to it?

You were just breaking up when you mentioned which technology. Can you just repeat it?

I'm sorry. I'm sorry. In your recent reports, I've seen relatively little about gas to liquids technology and further developments and plants being built utilizing it. Is that because you (technical difficulty) change and it's not viable under current economics? Or is there something further to that?

Second question relates to the capital outlay that is anticipated with respect to refining. I believe that just as we have cyclicality and commodity prices with respect to oil, it also has that with respect to construction costs and so forth. Is there any anticipation that projects are going to be put off to take advantage of probable cyclical -- down -- reduction in prices, which as we come to the other side of this particular cycle?

Okay. Good. On the first question, as you know, we are operating one plant already, which is Bintulu now for 12 years, producing 14,000 barrels with a utilization of 98%, 99% very successfully.

We are building the GTL plant in Qatar, which is a two-train plant, which is under construction at this stage. What we said is we want -- which is a factor 5 to 1, so it's two 70,000 barrel trains versus the 14 we are running. We want to construct this first, operate it, and then look forward to the next expansion.

So this is a cautious way typically like we do it. We start, we build, we operate and then we expand. There is a possibility to look at expansion of those two trains in Qatar or then move to other areas where gas is available relatively close to some demand centers, in that sense. So economics still very attractive.

You know the costs, what we have said, it's 3 billion barrels of gas average $4 to $6 development costs, so this project is one of our key projects and no reasons to believe that this cannot be done somewhere else; but we want first to deliver this one.

On the refinery side, let me give you a few numbers first and then give you an answer. So there is roughly 22% of additional refining capacity coming onstream east of Suez, so over the next two or three years. So these are projects in India, these are projects in the United Emirates, etc. We have got two ongoing big projects now with Motiva, Port Arthur and one in Singapore. We just finished a petrochemicals plant in Nanhai, so there is very active.

Now costs have come up, as you rightly say. There is a lot of capacity coming now onstream. So we will see how the market reacts in terms of further new projects; if it will slow down because of capacity reasons, slow down because of cost reasons. I think you hear a lot of that in the market that certain precautionary measures are being taken. So we will see how that goes and how the refinery cycle works out.

I leave it at that as general. We have said we are interested in refining capacity in China. We will see how that develops.

Thank you.

Colin Smith, Dresdner Kleinwort.

My question was just to see if you could provide some color on what you think you had got with the Gulf of Mexico lease sale 205.

And can you also just clarify two technical points? One, the accounting treatment, as in, will that be written off as a lease acquisition or if you capitalize it? And secondly, does it come within the $2 billion for exploration and appraisal expenditure that you've indicated was the budget for 2007? Thank you.

Thanks, Colin. The color I can give you on the first one is we were the highest bidder in more than 30 of the bids, so we are very pleased with it. We have still to wait for the allocation of it, so I can't give you any more color in that sense. So we will give that update quite clearly when we update on exploration in most probably somewhere either in January or in March.

I think we see this as an acquisition cost rather than as a CapEx cost, so that it is in the net, but it is clearly not in the $2 billion exploration budget. And then, I think -- what was the other question? There was one more.

It was, will it be written off through the P&L or do you capitalize it?

No, I think -- I am a little bit out of text now, but I don't think we would write it off, so it's capitalized. If that is not true, then if my accounting gurus tell me something else I will get back to you.

Okay, thank you.

Neill Morton, MF Global.

Good afternoon, just a couple of questions left. Just firstly on pensions, I think you've spoken in the past about making quarterly payments of around $400 million. There have been some recent press articles mentioning that your scheme is now fully funded, talking about pension holidays. I wondered if you would give us any guidance about modeling that going forward.

And just secondly going back to the Tatneft deal on bitumen, you mentioned at the Q2 stage you thought that the Oil Sands projects required $30 plus to meet your hurdle rates. I wondered if you could give us a comparable figure for bitumen. Thank you.

Thanks. The answer to the second one is no, I can't, so I can only give you the ones which we have given for Oil Sands at this stage. We will see later on if, once we have developed something, we can give you further insights there. So sorry, this is too early.

On the pension, yes, you are right in saying that we have well-managed pension funds. We have a surplus of $7.2 billion at the end of last year. And I would say at this stage, that '07, at least our internal numbers -- we normally only give it out at the year end when it is audited -- but our internal estimates actually do suggest that we have further improved on the surplus.

Now, the aggregate level of contributions to group-sponsored pension schemes is based on actuarial advice, which we normally do in the fourth quarter. And this is always done in each country.

So the only way I can do it is actually using the 2006 one because it's too early for '07; and we had approximately $1.3 billion pretax there. Now the trend is for progressively lower contributions, but realization will be depending obviously on the actuarial assumptions, for example, on future investment per market performance and changes to discount rates.

So we will need to do these tests every fourth quarter as we normally do and then we can give you more color on this one. So this is from a timing point of view, not the right time.

Okay. Wait till next year then. Thank you.

Fadel Gheit, Oppenheimer.

Peter, just looking at your unit profit and it looks like unit profits is not keeping up with the higher oil price. Any reason why?

Thanks for the question. I think if I start at the top and I look at my price realization, I think we're doing well; so we're capturing that.

But as you go further down, quite clearly -- and we talked around in this call already -- there are three elements which are coming in. We see OpEx increase; and you have seen over the last two, three years, we had increases of more than $1 per year per barrel. We see the DD&A increase as already described, not in the third quarter, but trend-wise upwards.

And then you have quite clearly a foreign exchange element in it. We are European based in many areas, as you know, and the dollar has weakened. So that gives you higher pressure on the costs. I think that's what I can offer as an explanation.

But you don't see -- because Q on Q, the price realization was about $3 to $4; but the unit profit only increased by less than $1. So I don't expect that unit costs have increased significantly quarter over quarter, or did it?

No, I have already given indications on how I see cost increases, cost inflation around 10%. FX, I have already mentioned. So I think we're looking at averages here. I would have to go back into the very detailed calculations to see if there was anything special. But on the average basis we haven't seen anything special.

Next question, please, and that's the last one.

David Klein, ABN AMRO.

Just a couple of final questions. Firstly, on Nigeria, can you give us some thoughts on latest developments on the volume side and how you expect things to evolve in the coming months?

And secondly, on the CapEx inflation, you mentioned industry-wide about 20% into 2008; you are mitigating that to around 10%, I think you said. I wonder if you could just give us -- I know you gave some color on how you are managing to achieve that, but could you expand on that in any way?

Yes, okay. Thanks for the question, David. On Nigeria, I think you're mainly interested on the onshore side. I think in general we have come back in in certain areas and we do that in a safe way, when we can go back in, assess the damage and repair it, and bring production back onstream.

So we have seen some improvements there but it is a very slow improvement, so it is difficult to already say that we are back at certain stage with the production. Now we are producing roughly 216, which is an average for Q3, thousand barrels a day. We have about 189, 190 an average [of in], which brings you to the total production for SPDC, which is anywhere between 380,000 and 400,000 under normal circumstances. These are Shell shares in that sense.

So it's difficult to say how fast it comes back. We are working on it. We're getting support from the government and the delta states, but the situation is still critical in some areas. You have heard about kidnapping over the weekend, which ended okay. On Monday they were released, but it is not an easy environment still at this stage. So we will see how fast we can get back.

That on Nigeria.

On inflation, the 10%, I think apart from managing finance I would also have contracting and procurement, and I used some examples out of this one. Quite clearly, if I take what we have done on the rigs, which I have used them a few times, we went into the rig market in 2005, we analyzed the demand. We saw a crunch coming, an increase in rates, so we committed in '05 up to 2009 most of our rig requirements, and through that, we are still paying at this stage 2005 rates rather than 2007 rates, and that is a big change.

We are also, for example, working on various programs across the Company. We have a target of getting into first quartile benchmarked performance, competitive performance. This applies to businesses and it also applies to functions. Out of that program, since been working on that since 2005, there is $0.5 billion of annual savings which are coming into our numbers.

We have other areas where we are using our global purchasing powers. We have, for example set up a China sourcing center, where we are actually sourcing goods out of China for the rest of the group, which gives you significant savings.

So these are just a few examples on how we are optimizing our organizational structures throughout outsourcing, offshoring, through streamlining our organization. But on the other side, we're also using our global purchasing power.

Many thanks for that.

Okay. That was the last question. Let me close by giving a short update on the next event.

Let me invite you for the 17th of March 2008. That's where we will be giving you an update on petroleum strategy. Before that on the 31st of January, we will give you the fourth-quarter results and we will be simply covering in that call our 2007 financials, which will be a shared one between Jeroen and myself. And then we will have the March update.

Thank you very much for calling in, and I hope to see you soon and speak to you soon again. Good bye.