殼牌 (SHEL) 2009 Q1 法說會逐字稿

Welcome to the Royal Dutch Shell Q1 results announcement call.

There will be a presentation followed by a Q&A session.

(Operator Instructions).

I would like to introduce our host speaker, Mr.

Peter Voser.

Thank you very much, operator.

Welcome to the Royal Dutch Shell first quarter '09 results presentation.

Good afternoon, everybody.

I will update you on the results, and then take your questions.

So first, let's move to the disclaimer and the cautionary statement.

Just take a moment to read it.

Firstly on the macroenvironment.

Macro conditions deteriorated further in the first quarter of '09, making a downturn across Q4, and all the track has continued to be under pressure so far in the second quarter.

This is a very difficult environment for the oil industry, and we need to be clear about that.

Oil prices fell from $97 a year ago, to $44 per barrel in Q1 2009.

This is a decline of $53, and it is a very significant change.

Natural gas and LNG prices also fell, with the usual two to three month LNG time lag to oil prices.

So we saw weaker demand for natural gas, oil products, and petrochemicals as the global economy deteriorated.

The pricing environment deteriorated steadily across the quarter.

Refining margins for example, were supported early in the quarter by industry downtime and winter demand, but declined significantly in all of the regions later in the quarter.

I am pleased with Shell's operating performance in this very difficult industry landscape.

Operating conditions overall remain tough so far in the second quarter, when the industry typically loses the demand support from Northern Hemisphere winter.

Alongside the tough Downstream environment, I would highlight that industrial gas demand is under particular pressure, and it impacts Shell as a major gas producer.

So that is the picture.

Strategy has not changed.

We have 1 million barrels per day of Upstream under construction, and 300,000 barrels per day of Downstream capacity under construction.

This will deliver growth early in the next decade to 2012, and the strategy is on track.

Now let me turn to Q1 '09 performance in more detail.

Excluding identified items, CCS earnings were $3 billion, and earnings per share decreased by 62% compared to Q1 '08.

The quarter was characterized by lower earnings in Upstream, mainly as a result of the sharp decline in energy prices.

Downstream earnings were also lower than the year ago levels, but remained resilient, despite weaker industry conditions, due to Shell's strong portfolio and operating performance.

Operating cash flow was some $7.6 billion, less than half of Q1 '08 levels.

We have announced a Q1 '09 dividend increase of 5% in US dollars versus Q1 '08, which is the level we preannounced last quarter.

So let me talk a little bit about your business performance in more detail.

Firstly on Upstream.

Upstream earnings decreased by 71% to 1.8 billion in Q1 '09.

The falling oil and gas prices was the main factor behind this decline in earnings.

We are making progress in reducing supplier costs, however, Upstream maintenance cost increases versus the year ago levels and Euro depreciation also increased, with the impact of new fees and amortization from '08 acquisition costs.

Exploration costs were also higher, predominantly due to the impact of new acreage purchases last year, which are amortized over a number of years.

Turning to Upstream volumes, Nigeria production fell some 90,000 barrels per day, versus the same quarter last year, due to security issues there.

The main item was downtime at the Soku gas processing plant, which came offline at the end of the fourth quarter.

This is supposed to make repairs to the pipelines, that have been damaged by significant illegal bunkering of condensate.

To leave these illegal taps in the pipelines would be a significant safety and environmental hazard, and we have taken action there.

So Soku was offline for all of the first quarter, with an impact of more than 60,000 BOEs per day versus Q1 '08.

There were additional security challenges in the quarter.

However, underlying production was similar levels to Q1 '08, excluding items like Nigeria security, divestments, PSE affects, and about 60,000 barrels per day of OPEC quota impact.

I think there is a reasonable performance in the context of the generally weak demand environment.

The driver behind this underlying performance was new production.

First quarter oil and gas production was boost by some 200,000 barrels per day versus a year ago levels, from new field start-ups made in Australia and Malaysia, and the ramp up of other fields around the world.

So this is all part of our strategy to rejuvenate the Upstream portfolio.

LNG sales volumes decreased by 13%, and volumes were supported by new production at the North West Shelf Train 5 and from Sakhalin late in the quarter.

However feed gas supplies for Nigeria LNG were impacted by downtime at Soku, as just explained, reducing LNG volumes by about 150,000 tons per month.

Excluding this impact, LNG volumes were broadly similar to year ago levels, with an upward trend in capacity, as new trains in Australia and Russia ramp up.

Again the underlying performance is strong.

Let's turn to Downstream.

Downstream earnings declined by 16%, to $1.2 billion, versus year ago levels.

This decline was due to lower refining earnings, partially offset by an increase in marketing including trading.

Refining margins were higher in the Far East and the US West Coast, but lower in Shell's main refining centers in Europe and the Gulf Coast.

Shell's refinery intake fell by 7% as a result of soft demand, and refining was at breakeven levels, compared to a profit of some $100 million a year ago.

Marketing earnings increased versus year ago levels, with support from trading and business-to-business activities, offsetting weaker results in other areas.

We managed to keep marketing margins relatively stable versus the year ago levels, although volumes were lower.

Chemicals had a weak quarter, with lower demands and pressure on margins.

Both refining and chemicals availability in Q2 '09 are expected to be around 93%.

Those are the results.

Now let me turn to cash flow and balance sheet.

Looking at the cash position over the last 12 months, Upstream and Downstream segments have both generated cash flows in excess of capital spending levels.

At the group level, the cash inflow is well-balanced against outflow for organic capital spending and payouts to shareholders.

We have been in an upcycle in the last few years, and in that environment cash flow from operations has been large enough to cover organic capital spending and dividends.

We have used the balance sheet for acquisitions, such as Duvernay, and to Shell Canada minorities.

Overall we have kept a competitive balance sheet structure, and Gearing is now sitting at around 7%, which is low in our industry.

So now we are in a downcycle, and as we have said previously, we are using the balance sheet to finance the capital spending program in the downcycle, so that level as previously said, will increase in '09.

Now let me turn to pensions.

The sharp decline in world markets at the end of '08 has left pension deficits for many companies, and Shell is not immune from that.

Accounting for this can create known cash movements in the P&L, in addition to the normal cost of pensions, for example, a return of plan assets that is higher than expected, can result in profit and loss gains but a lower return, as was the case in '08, and can result in P&L charges.

So the total estimated post tax charged for our defined benefit pensions in '09 will be $1.3 billion.

This includes the $0.2 billion inflationary adjustment in the US, identified separately in the first quarter results.

So the balance of about $1.1 billion post tax is spread evenly across the quarters, and impacted the first quarter results.

These charges are allocated to each of the business segments.

Turning to cash flow impact, we normally do make cash contributions to pension funds, and in 2008 the figure was $1.6 billion.

For '09, we expect to make total cash contributions of around $5 billion.

This increased level of contribution is driven by regulatory and other legal requirements.

We expect the cash contribution of about $3.5 billion in the second quarter to cash flow.

Balance sheet Gearing was around 7% at the end of the first quarter, and guidance for Gearing long-term averaged 20 to 30% is unchanged.

So let me summarize the results, and then I will take your questions.

So we had a tough industry landscape in the first quarter.

Energy prices and demand remain under pressure, and Nigeria security is clearly a challenge.

Having said that, we have delivered in the first quarter underpaced by the operating performance.

At Shell, we are taking a prudent approach to the economic downturn, and we have maintained our investments in new Upstream and Downstream capacity, and on our cost discipline and focus.

We have 1 million barrels per day of Upstream under construction, and 300,000 barrels per day of Downstream capacity under construction.

This will deliver growth early in next decade to 2012, and we have a further set of opportunities that can support growth to 2020.

We have the financial flexibility to manage the downcycle, and I think Shell is well-positioned for an economic recovery.

Now this is my last presentation to you as the CFO.

I step down from this role tomorrow, ahead of becoming Chief Executive in July.

Simon Henry, who some of you may know, will be taking over as CFO from me.

Simon has been working as the CFO in the Exploration and Production area for the last few years, and Simon will take you through the results for the second quarter.

Now that is the future, let's go back to today, and let me take your questions.

Please limit yourself to one or two questions each, so that everyone has the opportunity to ask a questions.

So with that, over to the operator.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions).

Your first question comes from Michele Della Vigna, please go ahead.

Hi Peter, it is Michele here.

I have one question.

You referred to the good level of trading profits in the quarter.

I was wondering if you could actually quantify versus Q4, or versus what you consider to be a normal quarter, in terms of trading profitability and where we stood in Q1?

Thanks.

Okay.

Thanks for the question.

On trading, as you all know, we do our trading actually, and structured alongside or around our physical assets which we have, either on the Upstream sides, but predominantly around the refineries, and our supply and distribution envelopes, and optimizing our storage capacity which we have across the world.

Quite significantly, these volumes end up in some shape or form in our refinery stream, or in our marketing stream.

So from that point of view, I think it is embedded in all the results of our oil products, chemicals, and the other side also, the GP business.

Now Q1 has clearly a contango market, which we have actually taken advantage of, and we have used some working capital actually to drive trading during the Q1, and to a certain extent also in Q2.

Given the fact that this is all embedded in our normal earnings, I am not going to strip it out.

I go as far as Q1, it was certainly higher than Q4, but it will, and also higher action than Q1 last year.

So we had a certain benefit of it, but I consider it as part of our value chain, where we make money with our physical assets across the trading and the marketing angle of our business.

I will not split out the absolute amounts, because we have never done that, and we are not going to do it.

We had in the previous quarters, as we talked about some EITF adjustments, or trading market-to-market adjustments.

I can report to you that these were not significant in the first quarter this year, and also not significant in the last year's quarter.

Last year, it was a slight help.

This time it was a slight minus effect in it.

But all-in-all, we were happy with the B2B results and trading during Q1.

Thanks for the question.

The next one.

Thank you.

Your next question comes from Theepan Jothilingam, please go ahead.

Hi Peter.

Two questions, firstly, I think you talked about a fall in industrial gas demand.

I was just wondering if you could quantify what Shell is seeing, or saw in Q1, and is likely to see through the course of the rest of this year?

Secondly, I wanted to get an idea in terms of depreciation.

I understand that depreciation is going up at Shell, but I wanted to get a feel for how depreciation moved up in Q1, relative to Q4, particularly in the Upstream?

Thank you.

Okay.

Thanks for the question.

I take a little bit more time on the gas side, so bear with me on this one.

The Shell Oil gas production is about 50/50 Q1 '09, which is not out of line with peers.

On the gas prices, they do vary by regions, but were most exposed in places where gas prices are linked to oil and oil products.

For example, in Asia Pacific, LNG, continental Europe.

So we are less exposed to spot gas than our peers.

Let me just remind you that the LNG is mostly sold on long-term take or pay.

So we typically have a 90% kind of long-term [coal track], but they can vary in that, by let's say, less than 10%, so you have a minimum and a maximum offtake.

So what we have seen so far is that the lower offtake for LNG has started in Q1, and we expect that to continue actually throughout 2009, which could reduce headline volumes in Shell, but also in the market.

Also the underlying LNG capacity trend is up, because we have, for example, in Shell the ramp ups of North West Shell T5 and Sakhalin.

So LNG customers take less gas, there is a [snow] cone effect on offstream gas production.

Especially in Asia Pacific, and this will reduce headline volumes.

Switching to Europe, where we have large gas positions in the North Sea and the Netherlands, we are seeing the impact of lower industrial gas demand.

We expect this again to continue in '09.

Q1 European gas volumes were fairly robust.

There were colder than normal temperatures, so a heating demand.

This was especially in January and December.

While uncertainty in the Russian supply also strained the supply and demand balance.

So however, end users demand in certain markets was severely affected by the recession, Spain and Italy, for example.

We expect that to continue.

I think in North America, gas is sold or bought by weak contracts, and again, we are seeing the impact of the weaker demand, which is really a price effect rather than a volume effect.

Overall, the year-over-year impact of weak industrial gas demand could be around 50,000 BOEs per day, although this is hard to predict at this stage.

I think the second question was on the Upstream [URH] DD&A?

Yes, that would be great.

I think we see it as trading up, you are seeing in '07 it is 10.7, and in '08, it is $11.

This is mainly because of our new capital heavy assets which we have.

I can also give you the US, because that may come up later in the questions as well.

There we have quite clearly an impact by our lease amortization.

There the trend is as follows.

It was in Q1, it was $0.65 per BOE under this $1.06 per BOE in Q1 '09.

I think that is it.

Thank you.

Next question.

Your next question comes from Mr.

Peter Hutton.

Please go ahead.

Just one question and it is on the Downstream, the product sales volumes which you are showing is down about 9%.

Can you just comment on that one?

Down not only year-on-year but also against the fourth quarter.

Could you give a flavor as to whether that is representative of that level of underlying pullback in the market, or whether there were some Shell specific issues there?

Okay, I think if you go to the numbers, would you get a 12% decrease, but this is trading on marketing volumes.

If you go straight to the marketing sales volumes, you will go 6% lower, and if you actually clean up for divestments, and this is mainly related to our French business which we divested last year, you will get a decrease of 3% in our marketing sales volumes.

That is the way we look at it when we adjust kind of the global situation.

Now the main declines, and I would say that's continuing to show up in the US and in Europe.

And volumes weren't actually down in all the businesses across the marketing businesses, and I think this again, it will continue into let's say, the near future certainly.

We have got demand pressure still.

Thank you.

Next question.

Your next question comes from Irene Himona.

Please go ahead.

Hello, Peter.

I had a question on CapEx.

I was wondering if you were maintaining the guidance for $32 billion?

The Q1 run rate appears to be a bit below that.

Would you expect to spend less in the end, because perhaps costs will turn out to be lower, or because some of the partners may have funding constraints?

Thank you.

Yes, thank you.

No, we do not change our guidance at this stage.

We stay to 31, 32.

Yes indeed, the run rate was a little bit lower, but always Q1 is lower.

We see obviously that we are getting, we are having success on the cost side, I am sure we will come back to that theme a little bit later.

I think we actually built in some FX, and some deflation rates, and we will, for the time being go ahead with our activities for '09.

I think we will then have to charge out 2010, look at how costs have changed and how many activities which we want to do, but for the time being, we maintain the $31 billion to $32 billion of net spending.

And that you know we have not assumed any direct [facilities], then also the CapEx spending at this stage

Thank you.

Your next question comes from Mr.

Mark Iannotti.

Please go ahead, sir.

Yes, good afternoon, gentlemen.

Quick question on Gearing actually, I think Gearing has fallen to 6.6 from 7.5% at the end of the year, but I also noticed that this quarter you have admitted your note, which calculates Gearing including your off balance sheet commitments, like leases and underfunded retirement benefits.

You have said in the past that this definition, which includes these obligations, is much closer to values by the rating agencies.

Can you tell us why you have taken it out this quarter, and maybe help us with some of the numbers we need to do that calculation, or even better, tell us how you see Gearing on this basis, relative to the 23% at year end?

And if you can indulge me, maybe tell me, what do you think will be the Gearing level in this basis, that the rating agencies will start considering your current rating?

Okay.

Thanks, Mark.

It is obvious the second question, that is a rating agency question, so I can't answer that one.

Let me be clear on the Gearing numbers.

We actually introduced all of this back in the March presentation, in the strategy presentation, where I gave you both numbers.

We have clearly reported since then on the Gearing ratio, like our competitors do.

So let me just take you through some numbers here.

We had as you say 6.6 at the end of March, actually the way we calculate the run at the end of 2008, it was 5.9%, so we had a slight increase.

If you include all of the off balance sheet stuff, we had 23.1, as reported at the end of 2008, and that is 23.7 now.

It is more or less the same increase.

Now we have clearly adopted here to the way the equity investors look at the Gearing, like our major peers do, and present their numbers, but I am not holding back to give you the other numbers.

There is one thing which you need to take into account.

There are, for example, the underfunded retirement benefit obligations, or the pension deficits, which amounted to $8.3 billion at the end of the year.

We only update that once a year.

So whenever we calculate these things, we use the end December '08 number, and that is why we are not publishing it every quarter again, because obviously that number would change as well.

But our rough estimates are here, and that would be the 23.7%.

Now I have said we will be in the low 20s, on the normal Gearing, as we have published it now, for this year, if macro conditions as we had them in Q4 2008.

We will actually go through 2009, and you can more or less expect, including off balance sheet side, to be in the very low 30s.

So you have more or less a difference of some 7 or 8% between the two ratios by the end of this year.

I hope this answers your questions.

Great, thanks.

Next question.

Your next question comes from Paul Spedding.

Please go ahead.

Good afternoon.

Quick question on gas demand, I am not sure it is possible to answer it, but I was curious as to whether you felt that some of the destruction of demand in both the fourth and the first quarter was caused by buyers going to the bottom end of the take or pay volumes, assuming that gas prices would be significantly lower in the second and the third quarter in Europe because of oil price linkage?

Yes, thanks for the question.

I cannot guess why they did it, but quite clearly it was the case as you describe it.

And I leave it at that at this stage.

Thank you.

Your next question comes from Jon Rigby.

Please go ahead.

Yes, thank you.

Two questions can you just elaborate further on the comments you made on the business-to-business performance?

If you look at your chemicals business, the comments you made on natural gas and industrial demand, and the refining business, it would suggest that you are being impacted by a global recession and manufacturing recession, and it seems to me, it is a business-to-business one, which you make high margins would be impacted by that.

So I am a bit puzzled how 1Q business-to-business could be so strong, if you can explain to me that?

Secondly on the US Upstream, take a point amount of depreciation charges, et cetera, and obviously it has moved into loss.

Can you just elaborate further on whether that is a structural issue now, or whether there is is a remedial action you can do to bring down the breakeven in your US operations in the Upstream?

Okay.

Thanks, Jon.

Let's start on the B2B, indeed in chemicals we saw demand slow down 20 to 21%, and you have heard that actually the volumes on the marketing side were less effected, and actually B2B even less effected.

So let me remind you, what is in the B2B.

That is our Marine business, our fuels business, commercial fuels business, our LPG business, our Aviation business, our bitumen businesses.

So we maintained very well our margins there.

So we didn't actually go for the big volume market share increase there.

That tells us, obviously, financially, from a margin point of view, more and more what we are seeing in those businesses are actually the differentiation strategy, which we have where we use the products and bring in our technologies, for example, on the bitumen side, but also on the marine side, and the brands has helped us quite significantly in the first quarter, but also in 2008.

You remember the marketing business started to be rather strong already in 2008, and this is quite clearly a continuation of it.

So the volume effect was not as big.

Right.

But if you look at the data on airlines and marine transport, et cetera, I am just puzzled that you can maintain such strong margins in such weak industrial, in such weak industrial conditions?

I can see that.

Let's take aviation.

I think I reported out last year, actually, that in various quarters we had actually shrinkage on the volume side in aviation, because we saw this coming, and we have purified our volume quite a bit already, in order to actually take advantage where we can.

And we entered into contracts which do actually meet our expectations.

So we noted that, and we have now taken quite clearly some benefit.

Now I think to be fair, there is also a certain amount early in the quarter, which I would call a parachute effect, which still actually affected the first quarter, which helped a little bit early on in the quarter, but otherwise, it is across all of the businesses.

It is just better performance than we had a year ago in that sense.

Okay.

Thanks.

Now on the US EP, I think I would describe it in such a way that the US EP business is fundamentally in growth mode, and you should not compare the earnings there with other competitors, who are more mature and already harvesting gain in the US.

We have built up the exploration position significantly in the last few years in the US, Gulf of Mexico, et cetera, and that quite clearly has resulted in a buildup of noncash charges, but the acreage now is being amortized.

Typically these are 10 to 15 year leases, and we amortizing it in such a way.

What it does for the total group, it impacts your earnings, and hence your arches.

So I look at this like a higher proportion of capital under construction, or capital for future projects in the US.

Now if I look at the earnings, we went from $1.5 billion last year to, let's say more or less breakeven.

Out of that, $1.2 billion is pure price effect, because we are in a high price environment where you get the upside.

If I look at the cash, we made $1 billion of cash, in the EP US, and that is how I look at the business which is in growth mode.

Can they actually generate cash, and can they therefore pay their CapEx, et cetera?

And from that point, that works very well.

Now like in all areas in Shell, we are scrutinizing them on the OpEx side, and we are working on our suppliers and we have programs, top quartile programs, and obviously on the work and we are clearly going after our costs.

So yes, we do short term, medium term measures there, but fundamentally, we are not going to change the strategy going forward.

On a cash basis, this is an acceptable outcome, which we have there, and I am okay with the developments.

Okay.

Thank you.

Next question.

Your next question comes from Mark Gilman.

Please go ahead, sir.

Peter, good afternoon.

A couple of things, if I could.

Could you clarify the time lag implicit in your LNG price contracts?

I believe we discussed this previously, and my strong recollection is, that we talked about six to nine months, yet I thought I heard you say two to three months in your prepared remarks.

Secondly, could you update us a bit on the gas supply situation for Train 6 in Nigeria?

I noticed, I believe, some progress with respect to Gbaran and Ubie moving ahead.

Third and finally, could you comment on the Port Arthur upgrading and expansion project has been slowed down?

Thanks.

Okay.

Thanks, Mark, for the question.

I can't recall the six to eight months, or six to nine months.

What we typically see in our contracts, I said two to three months, and there are some where you have maybe four months, but that is a typical time lag you have on the LNG side.

On the Nigerian one, or the Train 6 in [Gbaran-Ubie] sets up, I think I am not going to repeat all what I said on Soku, et cetera, which is impacting it quite clearly.

We have said that Train 6 will ramp up over time.

At this time, it is not just '09, it goes into '10.

We actually are kind of building and constructing new projects, and you mentioned the right one there, which is Gbaran-Ubie, which is an important one, it is also one where we signed some funding agreements with Nigeria, with NNPC, in order to make sure that this project actually goes through.

So as expected, Train 6 is underutilized, and that will actually be resourceful for quite a while.

I think you need to think about '10 and '11, before these things come on stream.

Port Arthur, I think I have got two comments.

One is I think we are roughly on as predicted for a 2012 start-up, as we said in March.

I wouldn't say we have slowed it down, or whatever, but we are retailoring some contracts, that is indeed correct.

That is probably is what you have heard, in order to actually bring some of the costs down, and take advantage of what is happening in the markets, but I would not call it slowed down in that sense, compared to what we said in March.

Okay.

Thanks, Peter.

Thanks, Mark.

The next question comes from Kim Fustier, please go ahead.

Good afternoon.

My name is Kim Fustier from JPMorgan.

When I tried to back out your implied Upstream costs per barrel, it appeared to be roughly flat year-on-year, or maybe slightly up.

I know you have not given quantified guidance on cost-cutting targets.

Do you expect unit costs to decline later this year?

Could you talk more about the steps you are taking to reduce costs?

Thank you.

Your statement is correct on the volume, if you exclude then quite clearly, we had a good production quota, is what I explained, and I would confirm the slightly up in that sense.

I think on the cost side, let me just tell you a little bit more what we are doing.

So we are looking at our cost space, and we think with all of what we have started, we should be actually improving our cost position over time, with some billion dollars.

Now how do we get there?

The first one is quite clearly, we are looking at those projects, which we think are not competitive from the new projects, from a kind of cost CapEx point of view, and we are postponing and delaying them, so that we can actually tend to them later on.

We have our top quartile program across all of the businesses and across all of the functions of the program which already works now for two years, where we are optimizing our structures, and are bringing our assets and organizations off the top quartile, and hence take costs out.

The third one is we are working with our suppliers, and this is now based on the experience and facts from the first quarter, where we have actually started to renegotiate, our negotiate contracts.

And just remember that normally these contracts do run for two to three years.

So we are talking mainly about projects, which are contracts which still have the '05 and '06 prices in it.

And against that in quite a number of key areas, we have achieved reductions of 15 to 20%.

So for example, in wells services and in rigs, we [maintain] 30% against integrated service contracts, between 10 and 15%.

And we will continue to do that.

Now these savings will not come in one quarter.

They will come over time.

They will be built into our operating expenditures and future CapEx spending, and hence, we are very pleased, or I am very pleased with the progress there.

So all of this should actually allow us to be absolutely clear, to save or optimize our costs going forward, and that should allow us to actually save several billions of dollars.

That is great.

Thank you.

Okay.

Next question.

Your next question comes from Neil McMahon.

Please go ahead.

Thanks, two questions.

First is on Oil Sands, this is the second consecutive quarter of negative earnings in the Oil Sands division.

Any update on the breakeven costs, or is there anything special within these numbers, both in the fourth quarter or the first quarter, that may mislead you, when you are trying to calculate that?

It looks like it is in the high 40s, when you look at this data.

And secondly, looking at the Nigerian LNG situation, which have you gone over already, I appreciate, but is there a risk that during the summer you don't see any material increase on LNG leaving Nigeria, going both to Europe, the US, and Mexico?

Thanks.

Okay.

Thanks for the question.

Let me start on Oil Sands.

I think so far we have given you the '08 numbers, and they have been cash costwise, the whole year was on average 38, of which roughly $6 were energy costs.

And the Q4, for example, we have given us a $55 breakeven cost.

Now what we have in those cash costs is also some development costs for future debottlenecking, or other projects.

We normally update this only once a year.

Because you have so many issues going back and forwards, and we are running cost programs.

So I think I prefer to do that later.

But we are working like in all of the other areas, on the costs can be as very general at mean costs.

But it also can be costs on the operations which we are really trying to optimize there.

I think I would just like to add, we take a very long-term view on these things, and to have a short-term volatility on the price, even if it lasts for a few quarters, or years, we will not actually change our strategy in that sense.

So from that point of view, no uptake, but quite clearly, I would not see Q1 to be very different than what I told you in 2008.

These are all US dollars, and they are using last year's exchange rates.

It is quite clearly the exchange rate moves differently earlier in the first quarter, between the Canadian and the US dollars, but I do normally not take that into account.

I look at kind of constant exchange rates, because FX gains may go and come.

Okay?

And just repeat quickly, your second question because I didn't capture everything?

Sure.

It is really just looking at the LNG outlook from Nigeria over the summer months, obviously with destinations going to Europe, US, and Mexico.

Just to get a good sense what incremental volumes, relative to the very low volumes so far this year because of the disruptions, are we likely to see over the summer, or is this really that is going to ramp back up properly at the end of Q3 into Q4?

I am just trying to quantify how the LNG output from the plants this year?

Yes, thanks.

That is a difficult one to answer.

This really hangs together with the start-up of Soku as well, and I would rather defer because of security reasons not to talk too much about when that could happen, et cetera, because the situation is just too delicate for that.

I think I go as far as we are working on the start-up, and I will report back in the second, actually Simon, I need to change now.

Simon will report back on this in the second, when we talk about the second quarter, but for security reasons, I really have to restrict the information.

Thanks for the question, and the next, please.

Your next question comes from Neil Morton.

Please go ahead.

Thank you.

Good afternoon.

Just two quick follow-up financial questions.

I mean, your peers are now sort of disclosing cost-cutting targets, to give us a feel for how they are benefiting from the changing cost environment.

Are there any figures outside of the division landing numbers, that you can give us to perhaps give us to track how you are doing, in terms of your cost performance going forward?

And just secondly, a quick question on the pension contribution.

Where would that appear in the cash flow statement, as a separate line, or included in other lines, so to speak?

Thank you.

Okay.

Thank you.

Yes, to your first question, I prefer to deliver, I have gone as far as the current management team wants to go, of giving you several billion which we are aiming at.

We will report on a kind of constant basis on how we are achieving this.

I think it is important to understand that there are clearly targets in place, and we are aiming at going, or we are actually going at it in a very fast way.

These cost savings will come over time, and we will see when these contracts actually really start to come in, and we will update you on this one.

But we are talking about big numbers here.

That is on the first question.

On the second one, this will be a part of the cash flow from operations, and it will be in the line 'Others,' but we will quite clearly help you to understand that, and we will quote the numbers.

Thanks.

Just as a quick follow-up.

On the P&L, if you looked at the selling, distribution and admin expenses line year-on-year, does that give us a reasonable guidance as to how you are doing?

I would say, you have to be careful there because Q1 has quite a bit of FX effects, and as I said before, the business will not get relief on these effects foreign exchange effects, and some other effects.

So I think it is a little bit early to expect that this all hits in the first quarter.

It takes a little bit longer.

So I think I would not take that as kind of a guideline.

Okay.

Thank you.

Thanks.

Next question.

Your next question comes from Lucy Haskins, please go ahead.

Hi.

Can I just ask what level of deflation and FX you have already included, in terms of your CapEx guidance this year at $31 to $32 billion, and could I also ask whether your sensitivities to margin movements have changed, relative to your previous guidance?

No.

We haven't changed our guidance.

It is in, but Lucy, I am not going to tell you what it is exactly, because I know where we don't go in terms of the discussion, so we will have to explain each time how this works.

I think we are not known for being too aggressive on these things, so let us work the year, and it is also various FX rates change, FX rate actually which influenced this.

So it is the Canadian dollar versus US dollar, it is the Euro, it is also some other currencies.

So I think I will report back on a constant basis on how we are doing.

So it is operators on our own.

Maybe the other one is on the oil price sensitivity, that is maybe helpful for you as well.

We have a range of roughly 180 million to $220 million annually per dollar on the oil price sensitivities.

Obviously, this is not a straight line relationship, due to tax structures, and different absolute prices.

For Q1 '08 to Q1 '09, we were at upper end of that range.

And note that the US barrels have above average sensitivities to the oil price changes.

At least that gives you some feeling on how we look at this.

Thanks.

Thanks.

Your next question comes from Bert van Hoogenhuyze.

Please go ahead, sir.

Yes, good afternoon, two questions.

First on the exploration here, and you explained that the higher exploration charge is connected with amortization in new fields.

What is your sort of target in view of the need to increase exploration efforts for this year or next year, also with respect to lower drilling costs and lower service costs?

The second question is Oil Sands CapEx is still pretty high.

I suppose this is the Phase II of the current projects.

How are we going forward with this?

Is this almost finished, at least this year?

Okay.

Thanks, Bert for the question.

I will start with the second one.

We have said that the start-up is in '10 for the Oil Sands.

So we are not yet there, but it is north of 50% complete, as far as I remember.

So there is still one year of CapEx to come.

I think you will get some FX movements on that one most probably, but otherwise, costs are pretty much, kind of have been tendered or fixed.

So I would say that is most probably going through without too much of savings for '09, and then '10.

Longer term, as we have said, we are looking carefully at the next phases.

As for today, we will consider a debottlenecking of the two mines, which we will have after this expansion as the most next logical step, it is less capital intensive, it is more in kind of quantity and duration, and one can do more with that, before taking on the next expansion.

But it will also depend on the cooling down of the price, the cost pricing environment within the Alberta region, or within the Fort McMurray Oil Sand region.

So we will see that later on.

On the first one, exploration, we have got a program, which is roughly $3 billion for 2009.

This is a slight increase versus 2008.

I think that is the best way I can describe, on how we are moving our growth strategy forward.

We still see exploration as the best and cheapest way to find barrels, and develop these barrels.

Okay.

Thank you very much.

Next question.

Next question comes from Jason Kenney.

Please go ahead.

Hi there.

Just a minor point.

In the Q4 results, you were confident enough to preannounce the Q1 dividend.

I was just wondering if there was any reason why you are not preannouncing the Q2 dividend?

I think I probably have the answer but --?

(laughter).

Thank you for the question.

Sorry for smiling, but you more or less gave the answer at the end.

Typically what we do is we announce Q1, and we have a kind of historical track record that we keep the dividend the same for the year.

So I think out of this, without obviously having finally decided it at the Board level, I think that is the way I would look at it from an investor point of view.

Next question, please.

Next question is from Mark Bloomfield.

Please go ahead, sir.

Good afternoon, gentlemen.

The contribution from associates in the E&P division in this quarter has fallen pretty sharply, about 60% quarter-on-quarter.

I presume that is not just a first order impact from the macro environment.

I was just wondering if you could provide some color around that result please?

I missed the beginning, was that EP?

Yes, in the EP division.

It is predominantly obviously price driven, and some of the other effects which we have already talked, which is around the DD&A, and some higher maintenance costs which we had.

Then we had the effect obviously of the OPEC quota, and the Nigerian outages, which together were 150,000 barrels a quarter.

So I think that is it.

But operationally, from a production point of view, I think we are happy with the quarter, and I think actually the reduction is pretty much in-line with what you have seen in the market as well.

Okay.

I think there are no more questions.

Let me thank you for calling in.

I, as usual, enjoyed also my last conference call as the CFO.

That doesn't mean I won't be back as the CEO.

Thanks for all of the questions.

Simon will be with you in Q2.

Have a good day.

Bye.

That concludes the Royal Dutch Shell Q1 results conference call.

That you for participating.

You may now disconnect.