殼牌 (SHEL) 2009 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Royal Dutch Shell quarter four results announcement call.

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

(Operator Instructions) I would now like to introduce our first speaker, Mr Peter Voser.

Please go ahead.

Yes, thank you, operator, and welcome to this Royal Dutch Shell Plc presentation.

Simon and I will take you through the results of petroleo developments for the fourth quarter and for the full year 2009.

After that we have plenty of time for your questions.

Take your time now to read the disclaimer.

So our industry is facing a challenging environment.

Weak energy demands and the lowest refining margins in some 20 years are having a major impact on Shell.

When I look at our results for 2009, we are seeing some benefits from the reorganization and new field start-ups last year, but we simply have to do better.

I will give you more details in a moment, but we have taken out $2 billion of costs in 2009 and we are planning to reduce costs again in 2010 by a further $1 billion.

We have restructured the Company and 5000 employees will leave Shell as a result of these changes.

New top management is now in place.

That's a 20% reduction in senior management positions.

They have been given tough performance targets, including a further staff reduction of at least 1000 employees.

Everybody is clear on what they have to deliver in 2010.

On of the main issues for our profitability is the weakness of industry refining margins.

We have taken actions in '09 to cut our costs and to reduce our exposure there.

We want to refocus on the most profitable downstream positions with the best growth potential.

We have decided to close a refinery in Canada and we have added our Gothenburg refinery to the list of positions under review, in total, some 15% of Shell's refining capacity.

These are important steps forwards to drive better production and cash generation in the Company in the future.

We have made a good start over the last year, but there is more to do.

Turning to the macro in more detail.

There has been a substantial downturn in industry margins in 2009 and the outlook for 2010 is rather uncertain.

You can see on the chart here a decline in upstream and downstream trackers from 2008 to 2009.

In the fourth quarter '09, oil prices increased from a year-ago levels, but refining margins and natural gas prices were sharply lower.

According to the International Energy Agency, '09 oil demands declined by 1.5%, or 1.3 million barrels per day in '09, which is the largest decline since '82.

OPEC quote, "our restrictions have been affective in supporting oil prices, but did leave 4 million or 5 million barrels per day of spare capacity as an overhang to the market".

Oil inventories remain at high levels and so the outlook for 2010 oil prices is uncertain and it's likely that OPEC will be managing against the downside for sometime here.

Let me turn to natural gas.

Gas demand in the EU declined by some 7% in '09 and by about 2% in the US.

At the same time, global energy capacity increased by some 20% in '09, or 44 million tonnes per year and it is expected to increase by another 14%, 14, this year.

All of this puts pressure on global gas prices.

The 2010 outlook is uncertain and very much linked to any recovery in economic activity.

While the refining side, some 2 million barrels per day of new refining capacity came online in '09, adding to a significant capacity overhang in the market.

This, combined with weak demand, rising oil prices and high inventories, has resulted in very weak refining margins in '09.

Let's be clear.

This is the toughest refining environment we have seen in some 20 years.

The refining industry is responding to all of this.

We saw 1 million barrels per day of capacity closures announced and an additional 0.5 million barrels per day idled.

However, it will take time for the refining system to rebalance with demand and the 2010 outlook for downstream is difficult.

So that's the picture.

And at Shell, we just get on and work with all of that.

Our self-help programs are on track and made a positive contribution to the '09 earnings.

So let me recap on our '09 self-help programs.

Things like the reorganization, cost savings programs, downstream divestments, and new production start-ups.

Midway through last year we launched the transition '09 program, which is the fundamentally new way of managing Shell.

I'm pleased to say the transition 2009 is now complete.

This is all about simpler structures.

It will enable more accountability and faster implementation of our strategy.

We have simplified the organization, especially upstream, and created a new project and technology division.

Projects and technology, and you can see some details on the slide, this is all about innovation and R&D, technology solutions and deployment, and project execution.

This organization can deliver fully integrated solutions by combining our proprietary technology and capabilities with third party products.

In the past, many of these activities were spread across the Shell group.

That has now changed.

Today, we have one organization with one executive, with single point accountability for it all.

This makes us more efficient, helps to reduce costs, and links upstream and downstream technologies closely together.

They are already seeing the benefits of this PNC outfit.

In '09, we renegotiated a 10% to 20% day rate reduction for North American land rigs and locked in deep water rig cover to the end of 2012 at day rates at least 10% lower than where we see major competitors.

Transition '09 is one of a series of costs and simplification initiatives on the way at Shell.

In '09, we announced that 5000 employees will leave Shell, mostly from management and nontechnical functions.

This change is combined with other initiatives and reduced underlying costs by over $2 billion in '09.

The pace has picked up here with around $1 billion of cost savings in the fourth quarter compared to $1 billion in the first nine months of the year.

As I've said before, these figures exclude things like exchange rate, identified items and noncash accounting impacts.

These simply aren't costs you can control.

Cost reduction and performance are now embedded in Shell and we will push this program forward in 2010 with more focus and clearly more urgency.

For 2010, I expect the further reduction of some 1000 staff and cost savings of at least $1 billion.

So now let me make some comments on downstream.

Shell's strength in downstream are all around our industry-leading brand, attractive products for customers, and operating performance.

But this is a business where we have historically invested not only large integrated positions in key markets, but also in smaller assets in a long list of countries.

So we are taking action here.

We are refocusing this rather large portfolio into the best downstream integrated position and make only selective growth investments.

We have been working on this for sometime and have sold some 13% of our refining capacity in the last five years, with total downstream disposals' proceeds of some $11 billion.

'09 has been a more difficult year for asset sales due to (inaudible) markets and low downstream margins.

Nevertheless, we have sold $1.2 billion of downstream assets in '09.

This was mostly marketing and in chemicals positions.

We have announced the closure up to 130,000 barrels per day Montreal East refinery, which we will converge into a products terminal.

There are also talks with counter-parties on divestments in New Zealand and Europe for some 15% of Shell's refining capacity.

So let's see where we go with that in 2010.

Now turning to the portfolio.

In '09 we are making real progress with new projects both upstream and downstream.

And I am pleased with the operating performance as we start up these complex projects.

So let me give you some examples.

In Russia, the Sakhalin II project reached its design capacity of some 400,000 barrels per day of oil and gas last October, ahead of the schedule we expected at the March start up.

And LNG deliveries from this project have exceeded expectations, with 81 cargos in '09.

In Norway the Ormen Lange feed reached its production plateau and has produced a peak of around 430,000 barrels per day.

And in Brazil, the deep water BC 10 feed has ramped up to its planned Phase I production of 60,000 barrels per day.

So this is really good progress in 2009.

So looking into the optimum outlook for 2010, we expect to start up to 100,000 barrels per day Perdido project in the deep water Gulf of Mexico in the next few months.

And later in the second half, the Canadian Oil Sands will add 100,000 barrels per day of capacity.

And at the end of 2010, we expect to finish major construction at our two large projects in Qatar, Pearl GTL and Qatargas 4 LNG, with production ramp-up soon after.

Looking into the medium-term, we are making good progress with new projects.

In Australia, we have taken the final investment decision on the 15 million tonnes per year Gorgon LNG project and launched a front engineering and design study for a innovative floating LNG scheme at Prelude.

In Iraq, we have signed development agreements on the Majnoon field, which will be operated by us, by Shell, and West Qurna, which will be operated by ExxonMobil.

Majnoon is one of the largest undeveloped oil fields in the world, with estimates of some 38 billion barrels of resources in place.

Now the Antrin increased its production from currently some 45,000 barrels of oil per day to a production plateau of 1.8 million barrels per day.

So overall, good progress on delivering new projects and new investment options for the future.

Now finally, before I hand over to Simon on the results, let me update you on exploration in '09.

Spending was around $3.3 billion on exploration in '09 and I expect a similar amount in 2010.

We made good progress, with exploration and appraisal in '09, with 10 notable new finds and further operating success.

Now we are starting all of these results and will update you on the resource additions during the strategy presentation in March, as we have done in previous years.

We had particular success in North America tight gas in the western continent at Groundbirch play and the United States in the Haynesville play.

We have also added new acreage positions in '09.

Some of this acreage builds on our strong positions in our core basins, where there are proven higher carbon systems like Australia and the United States.

But we have also stepped up a bit '09.

Some of the new acreage, for example in Guiana, is in frontier basins, where the terms are attractive relative to the upside potential.

So again, good progress on portfolio and with that, I pass you to Simon on the results.

Thank you, Peter.

Good afternoon, good morning, wherever you may be.

I'll follow with a few comments on the macro environment for the fourth quarter, just building on what Peter has said.

The sign is a little complex, with the oil and gas on the left, chemicals on the right, the refining margins in the middle.

But if you look at the picture in Q4 2009 compared to the fourth quarter 2008, we had a pretty unusual situation for the upstream in Q4.

The oil prices were quite a bit higher than year-ago levels, around $20 a barrel higher, but most natural gas market prices and our gas realizations were down, quite significantly down compared to the fourth quarter of 2008.

So the upstream earnings in the fourth quarter, a mix of positive effects on the oil side and negative impacts on the gas.

The refining margins were under pressure for the quarter and were significantly lower than year-ago levels.

You can see the particular weakness in Asia and Europe, that's the red and the green bars, with Asia in negative territory for both the last two quarters.

This is a relative disadvantage for Shell in the quarter.

The chemicals environment remains challenging overall, though you can see some regional signs of a recovery here.

Turning to the earnings in the fourth quarter.

The headline earnings for the quarter included identified items of $1.6 billion, for example, restructuring charges, asset impairment, and some other one-off effects.

Excluding the identified items, the current cost of supplies earnings were $2.8 billion and earnings per share decreased by about 30% compared to Q4 of 2008.

The quarter was characterized by lower earnings in both upstream and downstream, largely a result of the lower natural gas prices and the lower industry refining margins I just referred to, but did benefit from the cost programs that Peter has discussed.

The cash flow from operations was a relatively healthy $5.7 billion for the quarter.

Now let me just talk about business performance in a bit more detail.

First, on the upstream.

Upstream earnings decreased by 15% to $2.8 billion in the fourth quarter of 2009, although the oil price increase from '08 levels.

This is more than offset by the results of the lower natural gas prices and the generally weak environment in the natural gas market and in trading.

In addition, much of Shell's natural gas and LNG portfolio has price realizations that are lagged to spot oil prices, typically on a four to six-month time lag and that means that in Q4 '08 you are essentially looking at $100 plus per barrel environment driving gas prices compared to what essentially is a $60 per barrel oil price driving the gas environment in Q4 2009.

In the quarter, relative to the previous quarter, Q3 2009, we did see some increase in the light gas realizations, what you would expect the recovery to trail behind the headline oil prices.

Turning to volumes.

The full year oil and gas production declined by 3% and there are several factors behind that.

And many of these we regard as uncontrollable, because you can plan for the outcomes but you can't actually influence things like OPEC quotas, the gas demand, and weather patterns.

But what is important here is that in 2009, the impact to production ramp-up and new fields at some 200,000 barrels a day was greater than the natural decline in the portfolio at some 150,000 barrels a day.

LNG volumes increased by 3% for the year, but 18% in Q4 and that reflects Sakhalinn coming onstream.

And this is despite the security challenges that we face in Nigeria that has clearly reduced Nigerian exports and the generally weak demand for gas in oil markets around the world.

So the underlying production, operational reliability, and performance was very robust here in 2009.

Turning to the downstream.

The downstream earnings declined to a loss of $0.4 billion in the fourth quarter 2009 versus a profit a year ago of $1 billion.

The earnings from oil products declined quite significantly from year-ago levels, with chemicals actually showing an increase, as we saw earlier.

Some of the markets were showing signs of recovery.

The industry refining margins were under pressure in all regions in the quarter, but for Shell over 60% of our refining capacity sit in Asia and Europe.

That's the highest percentage in the global refining peer group.

You can see from the earlier charts, these are the areas where the industry margins were by far the weakest during the quarter.

Our Q4 to Q4 refinery intake, the volumes going through the refineries, fell by some 4% as a result of weak demand in the markets, but also some choices to cut runs for economic reasons.

Our marketing portfolio remains resilient across the cycle, not just the past quarter but the past two years as prices have gone up and down.

But the earnings in Q4 declined significantly from both the fourth quarter of 2008 and in the third quarter of 2009.

The steadily increasing oil price in the quarter, combined with the weak demand, squeezes margins in both refining and marketing.

And that's a very different picture to the fourth quarter in 2008, when oil prices fell by around $55 per barrel in the quarter itself and that does lead to some parachute effects, which helps downstream marketing margins in such a scenario.

Chemicals earning of $200 million in Q4 2009.

They were similar to third quarter levels.

The environment does remain difficult, but with some positive trends in Asia.

So those are the results, the earnings.

And turning to the cash flow on the balance sheet.

Looking at the cash position over the last 12 months, upstream and downstream cash inflows and outflows have been broadly balanced.

However, we've been running a deficit at the group level in 2009, as cash flow is essentially half as cash flow generated from operations, half from the 2008 levels, including the $5 billion deduction from operating cash flow to reflect the pension fund contribution that we made largely in the second quarter.

This has meant an increase in the debt and the Gearing and we've used the balance sheet to maintain the investment program for the medium-term and to maintain the dividend.

Gearing at the end of the year was 15.5%.

That's a bit below where we'd previously projected.

That was due to a lower level, slightly lower level of actual pension contributions and net capital spending was lower than planned, as well as the fact that the cash flow remained resilient through the year.

The Gearing is well below the 30% ceiling that we see as acceptable, so we're watching this very closely, but so far, so good.

Now let me turn to investments.

At the beginning of the year we gave you guidance for 2009 net capital spending of $31 billion to $32 billion and we delivered at the end of year below this level.

For 2010 let me reconfirm prior guidance for net spending of some $28 billion.

This figure includes our latest view on likely spending for 2010 in Iraq, which of course is an additional activity that was not foreseen when we first talked about the $28 billion.

Now we typically have $2 billion to $3 billion of asset sales in any given year.

We did achieve that in 2009.

For 2010 we do have some divestments to do and some are already in progress that you will be aware of, although the market is pretty tough and whether we are able to deliver them or not will depend a bit on the market situation.

So we'll update you on likely proceeds as we go through the year.

You will have seen that we signed on Monday an MOU for a biofuels and downstream joint venture in Brazil, which over time could include a cash payment of $1.6 billion.

This figure is not included in the $0.20 guidance here and we'll update you on that once the joint venture agreement is held, is actually signed.

So those are the numbers and, Peter, I'll hand back to you just to summarize before we move into Q&A.

Yes, great, thanks, Simon.

Before we go into your questions, let me summarize.

We are facing challenging market conditions, especially downstream and natural gas, despite the headline increases in oil prices and the outlook for 2010 remains difficult.

I am pleased with the operating performance in '09, despite this environment.

We are taking a prudent approach to the downturn.

Our cost programs are on track, $2 billion of cost reduction in '09, a further $1 billion in plan for 2010 with additional staff reductions.

We have the financial flexibility to continue with our investment program and at the same time, we are keeping an eye on the medium-term, launching selected new projects and finding new bios with exploration in '09.

So by delivering on our strategy, we are bridging the Company and our shareholders into a period of production and cash flow growth in 2011 and 2012.

So with that, let's take your questions.

Before that, let me remind you that we are having a strategy update for financial markets on the 16th of March, 2010, so we may well defer some of your longer term questions until then.

Please, give everybody a chance and therefore limit yourself to one or two questions each so that we really can go around.

With that, operator, please ask for questions.

(Operator Instructions) And the first question is from Mark Bloomfield from Citi.

Please go ahead with your question.

Good afternoon, gentlemen.

Yes, two questions on the downstream environment, please.

First, I wondered if you could give us a sense of the quantum of the presumably negative trading result and marketing profitability in the quarter and why the current conditions point to that being repeated in the first quarter and perhaps beyond.

And secondly, I wondered if you could give us a sense of the impact in margin compression on this marketing result for the quarter and whether there are any initial signs heading into Q1 that that's perhaps easing and indeed whether that's a realistic assumption to make over the next six months or so.

Thanks.

I gave that to Simon.

Thank you, Peter.

The (inaudible) products earnings in the fourth quarter overall was a loss of $600 million.

That reflects a loss of $900 million in manufacturing and a profit of $300 million in marketing and trading.

Over the past two years that's significantly below the lowest level of earnings that we've recorded in marketing and trading, which is around $800 million per quarter.

So that's a more normal minimum earnings in that activity.

So you can see how that in Q4 circumstances were not easy.

Having said that, we maintained both market share and in fact increased market share in some important markets during the period.

The -- some of the factors in Q4 were pretty much one-off.

And the trading environment was very flat.

There was not a lot of volatility and to a large extent, traders were closing any positions established earlier in the year.

So Q4 did have less opportunity to earn.

We don't see those conditions as pertaining to the future, although clearly demand will have some impact, but things should recover in the market environment.

I think that may cover the second question as well.

Was the margin compression in the refining is driven by different factors.

That's basically oversupply against the net demand, bearing in mind that overall demand fell by about 1.3 million barrels a day, we believe, in 2009 against 2008 and roughly 2 million barrels a day of new refining capacity came onstream in Asia-Pacific and in the Middle East.

So that situation may well pertain and that's the major driver, the factors for marketing and trading were more a one-off in Q4.

Thanks.

Operator, next question?

Thank you.

The next question is from Alejandro Demichelis from Merrill Lynch.

Please go ahead.

Yes, good afternoon, gentlemen.

Alejandro Demichelis from Merrill Lynch.

Two questions if I may.

The first one is on your cost saving target of at least $1 billion.

It does look a bit like versus what you have achieved in '09.

Maybe you can provide us some indication of what are the elements that you are seeing driving that $1 billion and if there is any kind of room for improvement on that.

The second question is coming about your downstream portfolio.

That's 15% that you have up for sale is there a kind of a deadline for that or would you be prepared to close down those refineries if you cannot find a buyer for them?

Okay.

Alejandro, thank you very much for the question.

Let me start with the first one.

First, I have to say I'm very pleased how the Company reacted and you have seen we have $1 billion additional in Q4 of underlying cost savings.

So the message has arrived that we are driving urgencies in the system and now they are getting on with it.

Now, this will go into 2010.

I've set very tough targets on the revenue, on the profit, and on the cost side.

We will get on, we will start to deliver.

I'm happy that we have got these targets now out there.

I think you have great visibility of what we are doing.

If it's more than $1 billion we will take it, we will just go on and deliver now.

The 15% and the deadline.

Portfolio management for us is very important.

As I said in my introduction as well, they are looking at that.

We are clearly very determined to make that work.

But let me also be very clear that value is important when you are selling.

So we are not just selling for the sake of selling, so we will have a close look at the value.

If we can't get the value, we may actually take the time or as we have done in the case of Montreal where there is another alternative of using it at the time, we may also go for that.

So I keep these options open for the time being, but clearly we want to reduce the capacity on refining and that will happen either through selling or through maybe going for terminals or complete closures.

I would like to follow-up on your first answer.

Maybe you can give us some indication of exactly what are measures that you are going to be taking to achieve that $1 billion that you are talking about.

The measures have been taken.

They are now rolling.

We have 5000 staff who we reduced down in 2009.

Now these financial impact actually come in 2010, mainly because they are either now out or they are going out in the first quarter.

Now, by getting staff out, you immediately reduce also activities.

Those activities will also come in 2010.

Other things which we are doing is clearly simplifying our processes, our Management Systems, et cetera.

These will again allow us to take costs out from an underlying continuous improvement perspective.

Then we will certainly also work on the further reductions coming from contracting and procurement.

Why's there I have to say the market is a little bit more flat but still there are efficiency gains to get it to be achieved there.

Okay, that's great.

Thank you.

Thank you.

Next question?

Thank you.

The next question is from Irene Himona from Exane BNP Paribas, please go ahead.

Good afternoon, gentlemen.

I have three short questions.

Firstly, you mentioned that the $28 billion CapEx guidance for this year now includes Iraq.

Could you just clarify how much Iraqi spending will be?

Secondly, could you remind us if we look at the income statement for 2009, what was the pension charge included in the P&L?

And if you could update us on the position of the pension fund at the end of the year.

And thirdly, in the fourth quarter you had $255 million of interest and investment income in the corporate item.

That compares with an average of only about $75 million a quarter in the first three quarters.

Is there any particular reason or is there any guidance for that particular line?

Thank you.

Yes, thanks, Irene, for the three questions.

In the past I would have had to answer this one.

This time I can pass it on to Simon.

Thank you very much, Peter.

Thank you, Irene, for the questions.

The first one, relatively simple.

The amount we actually spent this year in Iraq will depend upon the pace of progress, but if we make progress as we currently hope to, it is going to be a order of a few hundred million, sort of $400 million, $500 million maximum for this year.

And we'll talk a bit more in March when we see hopefully the timing at which we'll be able to get operations started with boots on the ground.

Pension fund, I better give an overview there because there are quite a few numbers flying around, so it always helps to put things in context.

The actual funding of an actuarial basis at the end of 2008 showed a deficit of $8.8 billion, that deficit at the end of '09 is reduced.

It will be just over $3 billion.

That in part reflects the cash that we injected during the year, the $5 billion, but also you would appreciate that changes in discount rate, inflation factors, the going to assumptions for liabilities, and the improvement in the equities markets have also played a big factor.

So both assets and liabilities increases, but the deficit is just over $3 billion, which actually is pretty close to the level of unfunded scheme.

The funded schemes are basically funded.

That covers the actuarial evaluation.

The cash that we injected at the end of the year was $5.2 billion, of which $1.6 billion is what we might regard as a normal contribution that we will make again in 2010, the remaining $3.6 billion is in essence the one-off correction that was required, injected in the second quarter to cover the deficit at the end of 2008, particularly in the Netherlands.

Your actual question, I think, was about on the P&L impact.

In 2009, the total P&L impact after tax was $1.1 billion.

That compared to the credit in 2008 of $0.6 billion.

So the year on year impact, post tax, was effectively a reduction in earnings of $1.7 billion.

Looking forward into 2010, we'll be slightly better, as it will be about $0.9 billion we will project.

So that is about $50 million a quarter better in terms of impact on the bottom-line, but it is a net charge.

And just to be clear, all of those figures given from the P&L statement are noncash.

The cash injection is likely to be around $1.6 billion phased through the year.

Hopefully that covers all the questions you might get on pension and you will manage to take them down.

And the last question on the investment income I think I'll, I can leave the IR guys to come back to you on that one, Irene, if that's okay.

Okay, thank you.

Next question?

Thank you.

The next question is from Jon Rigby from UBS.

Please go ahead.

Yes, hi.

Thanks for taking the question, two actually.

The first is just on Oil Sands.

I just wanted to know when you looked at your position in Canada at the end of the year, given that, I think you were quite, being quite public deferring some of those projects, whether they were close to requiring impairments (inaudible) through the Shell Canada and BlackRock transactions, you've invested quite a lot of money into that area.

The second is just, and I am sure you look at this, if you look at the way that your earnings have traveled, particularly, I think, in the second half of 2009, they have underperformed your peers and yet your footprint is not overly different to perhaps your largest three or four competitors.

And I just wondered whether there's any observations you could provide that would give us some kind of comfort about why that was taking place and whether that was likely to be recovered as part of the sort of cyclical element of the market or whether there was something structural going on that perhaps that existed in '07 and '08, which is not going to come back for the foreseeable future.

Thanks.

Thanks, Jon.

I think I leave the impairment question, then, to Simon, but just in general on oil sands it is -- actually I have been quite public, that is correct, but this is not a change to the position which we have taken already 12 months ago, where we said quite clearly we will finish our expansion which we are doing.

We are further improving our operating kind of performance, first with what we have today and then added the 100,000 barrels expansion.

Then we go into the next phase, having two mines where we now have the possibility and the lower capital intensity to actually bring some additional barrels in and then at the same time, we've watched the cost curve and will then decide on how we are going after the next few expansions, because even actually bringing a few projects in in order to bring in a few ten thousand barrels here and there, that has a limits.

At one stage you can no longer go on with that.

You need then to get into another expansion.

But we have got the flexibility there, the (inaudible) will not walk away, they are ours, so we can take the time.

Now then all the impairment and the cost situation I leave to Simon, but I go quickly into the footprint discussion, the why or the results you actually call it.

I think -- let us start with refining.

I do disagree with the fact that you think we have pretty much the same kind of portfolio.

We have 64% of our refineries are in Europe and in Asia.

If you look at our competitors, for example, in the UK, that's just above 40.

Now, the weakest margins were in those two areas over the last few months.

Quite clearly, that are significantly contributed to that and then so that is one.

I think also in terms of cash, in terms of LNG, we are the global leader in LNG.

We have an enormous portfolio there and we are driving that.

That is second to none, quite clearly, and therefore the earnings stream coming out of that compared to the past, let's say '08, clearly was different and had an impact on that.

European gas market has performed in a different way.

Again, we are slightly different to our competitors.

So I think the portfolio element quite clearly had a lot to do.

Simon already explained the marketing side of it, which normally for us is a very resilient one, but we just had the lowest point on the marketing side in Q4 '09 and that will come up again.

So the underlying earnings stream, the delay factor which we have from the LNG side of four to six, even up to nine months on the oil price kind of link, this will -- has quite clearly given us the more negative kind of earnings flow.

But the way I look at it is we are most probably at the lowest point in Q4 and now we are going into the 2010 where some of these things will reverse.

Now I'll give it back to Simon on oil sands.

Thanks, Peter.

I'll just cover the costs and potential for impairment.

As you look at the different assets we actually have mining, the balance sheet is essentially the investment in the initial project and the investment to date in the expansion project, and that was sanctioned in 2006.

So although there will be some cost pressures, it's still a profitable project and of course the initial project has been very profitable and therefore, there is no likely impairment on the Oil Sands Mining, certainly not in the current oil price scenario.

The costs of operation, actually, are coming down.

We've got new leadership on the seat there who are bringing the unit costs down in a fairly consistent way over the past year or so.

The profitability there is, in fact, improving.

You mentioned BlackRock.

We -- that was an acquisition made by Shell Canada three years ago, three or four years ago now.

We did recognize some impairment on BlackRock assets in the fourth quarter, around $900 million, if I remember -- third quarter, sorry.

Third quarter 2009, around $900 million, if I remember correctly.

And that was effectively reflect of goodwill on the original acquisition of BlackRock.

And the final amounts that we or activities that we have is in Shell assets that were in Peace River where we have a small operating production and not much investment and in exploration acreage in the Grosmont Play, which was for future technology and at the moment there is no intent or need to look at impairments of those assets.

We do a full impairment review at the end of Q3 of all assets any year, every year, anyway, so there is no real changes in that area in Q4.

Okay, that's very clear.

Thank you.

You got a next question, please?

Thank you.

The next question is from Iain Reid from Macquarie.

Please go ahead.

Hi, Peter.

Two questions, please.

One on gas prices and the other one on Nigeria.

You are obviously a large seller of gas on a long-term contract basis linked to oil and there's been some chat about the customers trying to move the oil price linkage much closer to where spot prices are.

Are you seeing that sort of impetus coming from some of your major buyers?

And if so, what sort of effect do you think that might have on your position?

And secondly, on Nigeria, you've sold a few assets recently there.

Is this the beginning of some sort of exit strategy given the fact the government there seems to want to try to move some of the licenses held by the majors in, say, independent hands?

Okay.

Thank you for the questions, Iain.

I gave a kind of a very quick strategic view on gas and then I leave the prices to Simon and I take the Nigeria question.

For us, the long-term view which we have on gas growth hasn't changed.

We see that the fossil fuel, which will actually grow.

We have our investments in that and we are driving that quite clearly for our long-term value generation.

So that has not changed by, let's say, the more difficult few quarters of which we've now had in terms of demands drives.

So we keep our long-term view.

On the pricing and the various regions, I will leave that to Simon.

On the Nigeria thing, quite clearly Nigeria has its challenges.

We talked a lot about security.

We talked a lot about the petroleum build, the funding issues, et cetera.

We made great progress, I have to say, in 2009 on the funding.

We could give our input into the petroleum industry build.

We are not yet completely satisfied.

We are working on that.

Security situation improved, but worse now again in January.

I've made it very clear that a) Shell is not depending on the Nigeria growth to achieve its growth targets over the next decade.

There are resources.

We are happy to develop them if the funding and the situation is right, but it is part of our portfolio optimization like any other country or any other assets.

What we have done now is we passed on the few licenses to, among others, a Nigerian Company.

We see this strategically quite important and we having to tell (inaudible) local companies operating alongside the IOCs.

So I think Nigeria has potential.

It's part of our portfolio thinking and we will capture value in whatever way we want to capture value.

And back to Simon on the gas prices.

Thanks, Peter.

There are two quite different and separate markets, I think, behind the question.

Firstly, Asia, which is essentially an LNG market.

A long-term contract market as well.

(inaudible) our total volumes are in 5% has been sold on a spot basis over the past six months or so, so 95% contract.

And within that contract basis, well over 80% is oil price linked.

We are currently in various negotiations, both on renewal of expiring contracts and on new long-term contracts basically for those starting within the middle of the next decade.

All of those negotiations and discussions reflect an oil price linkage and that's how we would expect the market to continue for sometime yet.

In Europe, our typical portfolio is about 60% contract, 40% spot.

There is, however, quite a bit of demand flexibility within the contracts, where uptake (inaudible) customers can switch their volume between quarters.

And contract years also typically start in October, so that flexibility is greatest in the fourth quarter to switch from spot to their term basis or the other way around.

And of course they exercise that option in the first -- in the last quarter and to the maximum extent they could.

So rather the mid 60/40 contract and therefore (inaudible), typically it was 40/60 our share in the fourth quarter of 2009.

Clearly those volumes have to come back to the contract prices as opposed to the spot to make the annual percentage back up to the contracts that are in place.

There is talk, of course, that the customers renegotiating and there are some negotiations ongoing.

But of course we do remember that 18 months ago the headlines were not about spot prices, they were about security of supply and need to be a little bit careful what you wish for if you want to invest in spot gas prices in a market that looking forward is neither long nor deep and therefore we do expect a quite significant amount of the market to remain oil price linked for some time to come.

Simon, just one quick follow-up.

Can you remind us how much of your Casakan full volumes are on oil price linked long-term contracts versus spot?

At the moment, everything we've said is heading to Asia, so it's long-term oil prices.

Okay, thanks.

There was some that was headed the other direction, but it's basically over half was targeted at China and there are ongoing negotiations to take the majority of the (inaudible).

Thanks very much.

Thank you.

Next question?

Thank you.

The next question is from Mark Gilman of Benchmark.

These go ahead.

Simon and Peter, good afternoon.

Just a couple of things, if I could.

There's been a lot of talk I've seen in the trades regarding the ultimate recoverable resource at Ormen Lange raising some questions as to whether or not it's as robust as originally envisioned.

I was hoping perhaps you might comment on that.

Secondly, regarding your 2010 capital program, do your numbers include the $800 million participation in the Woodside equity offering?

Thirdly, and more specifically, can you give me a clean fourth quarter DD&A number?

Obviously the 3748 number includes impairments.

Thanks much, guys.

Thanks, Mark.

I think I give the second and the third one to Simon and I'll take at the end Ormen Lange.

The clean Q4 DD&A is not a number that we are actually sharing.

The second question was -- the Woodside $800 million and there are two tranches to this, Mark, the $400 million was effectively committed last year, $400 million will be committed this year because the retail tranche is the second.

So $400 million was in 2009 CapEx.

$400 million will be in 2010 CapEx and our initial aim is to look at that within -- with the $10 billion to $28 billion.

But we'll update that as we go through the year.

And on the first one, Mark, on Ormen Lange, I think what I can say there is a recent appraisal well in the northern part of the field.

There was one in '08, one in '09 have been disappointing and I've reduced the upside total resource case on the oil field.

Now this will most probably up implications for the development plans for the northern part of the field, but it will only impact the back end of the production profile.

What is important also, reserves booked on a SEC basis are not expect to be impacted.

Good.

Next question, please?

Thank you.

The next question is from Lucy Haskins from Barclays Capital.

Please go ahead.

Good afternoon, Peter and Simon.

Could I ask a couple of questions.

The first is what the sort of cost savings were in 2009 including 4 X movements.

I guess that is a sign -- just give us all your questions then we run through them.

Okay, fine.

And the second issue, Simon, you talked about fairly healthy cash generation in the sort of fourth quarter, but I think excluding working capital movements it was about 4.4, so it was down about 3.3 on a like-for-like basis in the third quarter.

Could you explain what the moving parts were there, please?

Do you have another one, Lucy?

No, there are two.

One was cost savings and the other one was on the working capital, so I give both to Simon.

Thanks, Peter.

Because we had $1.5 billion benefit overall for the year in FX, it was -- actually went the other way in Q4, as you can probably calculate.

And we also in our total costs that you can see in the face of the supplementary data, the additional costs were severance and the pension demand I mentioned earlier, which pretax pensions plus severance is over $4 billion.

So essentially we had $4 billion up there, $1.5 billion down with FX, couple of billion dollars down from our own savings and a couple of other one-offs make up the difference.

So it's actually the third quarter was much more representative of the operational performance.

In terms of the costs, no.

The fourth quarter, the underlying cost was more representative of the trend that we see.

In terms of the movement in working capital and the cash flow implications, and there are one or two one-off movements in the working capital and underlying payments, particularly for tax that are Q4 specific.

Though from our perspective the cash flow, while clearly impacted by what we talk about in the downstream, was relatively healthy in the upstream and that was the basis of my comment that I made earlier.

Thank you.

Next question, please?

Thank you.

The next question is from Colin Smith from ICAP.

Please go ahead.

Afternoon, it's Colin from ICAP.

Your volume just a little light to me in Q4 and looking at the breakdown, Europe and other Americas looked particularly weak.

And I wondered if there's anything in particular going on there or any other comment you might have to make about that.

So you were fading out in the beginning.

Sorry.

I thought your volumes looked a little light in the fourth quarter, I'm just looking at the breakdown, it looks as though European oil and other Americas gas were particularly weak in the quarter and I just wondered if there was anything in particular going on there that you can comment on.

Yes, I give that to Simon.

Thanks.

The European oil we had a couple of operational issues.

One of them is Nonskahalia had a tanker drive into it, I believe, so that was down for all the partners and clearly (inaudible) were also down for operational reasons and clearly coming out of a shutdown.

The other Americas gas, that's primarily Canada, where I don't think -- there is not a big movement there, I don't think, is primarily driven by some shutdowns, I think, in the Canadian foothills and we also got higher royalties that make a difference on the actual net gas production that Shell receives.

Those are the primary drivers.

I think the other thing that we need to reflect is that despite what you might think if you live in Europe and the northeastern states, Q4 was actually quite warm relative to previous years and history.

Q1, of course, has been cold.

And that temperature is one of the biggest factors driving our production in any short-term quarter across the winter season.

Q4 was definitely demand down for pure weather-related reasons.

Thank you.

Thank you.

Next question, please?

Thank you, the next question is from Michele Della Vigna from Goldman Sachs.

Please go ahead.

Hi, it's Michele Della Vigna here.

Two questions for Simon, if I may.

Could you tell us what you expect for depreciation in 2010?

And also, what kind of oil price would you expect, would you need to balance, would you need to reach that cash neutrality in 2010?

Okay.

Indeed as you said, Michele, good afternoon and I give to Simon.

Thank you, Peter.

The unit DD&A is on an upwards trend.

As we're bringing on production we typically have a higher, higher unit cost.

It is difficult to give you a specific forecast, it's probably going to be somewhere $14 billion , $15 billion to be honest.

But that will impact, obviously, the cash flow calculation as well.

The oil price to balance the books, we've always taken a view and maintained the view that that in any given year is not really a relevant piece of information and not that important in terms of a strategic financial management.

However, we would note that in 2009 we did increase the Gearing quite substantively in a year when the oil price averaged about 60.

But the gas price and the refining margins were substantially below where you might expect in a mid-cycle kind of environment.

As we go into 2010, we -- our plan is to spend a bit less.

We said $28 billion both of the what initially started (inaudible, audio difficulties) 2009 and we will benefit from, for example, the new production that comes on in relatively attractive activities such as Brazil and Gulf of Mexico.

That together with whatever view you or I choose to take on the refining margins will determine the answer to what the oil price is that actually arithmetically breaks even.

Strategically, our aim is to stay with the Gearing comfortably below the 30% maximum that we talk about in policy terms and we believe that with oil prices where they are and some recovery in the gas price and the refining margins, that we will be moving towards breakeven, particularly as we get towards the end of the year and we see the cash generation from the new projects either coming onstream or within close reach.

As we go into 2011, we expect that the dynamics overall to change, as our cash generation improves and we'll see where gas and refining margins go.

But those driven by a lot of factors and oil price is only one of them is the best answer I can

Thanks, Simon.

Next question?

Thank you.

The next question is from Robert Kessler from Simmons & Co.

Please go ahead.

Good afternoon, gentlemen.

Just a quick one for me.

I was wondering if you might be able to add some specificity to your Perdido start-up guidance.

You said the next few months and I believe an MMS is official is quoted as saying end of February was line of sight for startup there.

Are you just being a little bit more conservative or is there something else that needs to be taken into consideration on the start-up timing?

Yes, I take that.

Thanks for the question.

We have stopped to give precise kind of dates.

If you go back to the strategy presentation last year, we said actually in 2010 we said it's early in 2010, which means the first few months and that's exactly what I'm repeating.

It's working very well.

It's going the right way.

We are in the final phases, so nothing to report which would at this stage enormously concern me there.

Thanks, Peter.

And then should we expect ramp-up within the first, call it, six to nine months or somewhat longer than that?

We'll see how it is, but typically I was very pleased so far with how the guys in there on the technology side and (inaudible) have done the ramp-up of the new project.

So I'm positive that they will do their best job and do it as fast as possible.

Okay.

Thank you very much.

Next question?

The next question is from Joseph Tovey from Tovey & Co., please go ahead.

This is Joe Tovey, good afternoon, gentlemen.

Three rather brief questions, I think.

First question is in respect of the shutdown of refineries, I believe that that's an indication that the Company believes that there is a long-term oversupply of capacity of refining, particularly in the Atlantic basin.

Do you have a number that you care to share as to what you believe the extent of this oversupply of capacity is?

And also as to what the sources are, whether it's the government actions in terms of requiring different types of fuel, fuel components, or as to whether there are additional factors?

Second question relates to the natural gas.

The increase in the natural gas supply from what are called unconventional sources in the United States and apparently it's spreading into Europe.

Apparently it's going to be having some impact, presumably also on the demand for LNG into those markets.

To what extent, if any, has that impacted upon your plans to the extent you care to discuss it?

Has it also had an impact upon capital requirements for things like LNG, tankers, and that sort of thing?

Third item relates to the financial side.

Have you -- perhaps I missed or misunderstood the response to one of the questions.

Have you built in or do you choose to layout a number as to the approximate cost in terms of additional payments into the pension fund or whatever for the reduction in staff?

And are those all in the 19 -- pardon me, in the 2009 number or are those part of them going to be seen in subsequent years?

Okay, Joe, thanks for the three questions.

I'll take the first one and Simon will take the second and third.

On the shutdown long-term, I think the way we have talked about is clearly, as I said in the opening, we want to reduce our capacity by 15%.

This is on a global basis.

We have been always very clear that the European refining market is actually something which we look at from a capacity point of view, but also from a linkage point of view to our marketing business.

It's a refining market, which is rather kind of low in smaller refining businesses.

We are with our strategy going into the long-term scalable complex bigger refineries and hence we want to actually reduce our capacity from that point of view.

I think you should not read into it that this is about capital expenditures for new fuel standards, diesel standards in Europe.

I think we have done a lot of that in the past, so that is not a driver.

The driver is to size the marketing markets against it and actually the resilience in downturns in the cycle where you just need bigger beasts to run the rather endless smaller ones.

So that would be my answer to number one and then the LNG and the pension question over to Simon.

Thanks, Peter.

The impact on conventional gas supplies in Europe, tight gas or shale gas, yes, there's a lot of talk about potential from Europe, but as of today there's very little actually activity or production.

In fact, those who have tried it have so far come up with it being a bit more difficult than they might think.

Yes, there may be some impact in terms of production over time, but we don't see it as being a major impact relative to the other sources of gas, such as LNG and pour through the pipelines from Russia and North Africa.

The financial side, the payments to the pension fund I talked about both the cash and the charges.

In all cases, they reflect the changes in the number of staff who are impacted.

So there was a part of the severance charge in the Q4 account did reflect an adjustment on pensions to reflect the people who'll be leaving, but the go-forward charge, the $1.6 billion of cash and the 0.9 charge to the P&L both reflect the numbers of people who will be leaving.

Thank you.

Next question?

Thank you.

The next question is from Peter -- from NCB.

Please go ahead.

Good afternoon.

It is a clarification on the statements on the cost savings.

I think you said earlier, you said $1 billion in the first nine months of last year, an additional $1 billion in the fourth quarter.

Two questions.

Was that additional $1billion in the fourth quarter discreet in the fourth quarter or it's an annual run rate?

And also, could you provide a rough split of the separation of those savings between the upstream, the downstream and core product?

Okay, thanks for the question.

If I understand you correctly, (inaudible) that the $1 billion was to the effect in the fourth quarter.

And the second one is is was predominately actually in the functions on the downstream and not in upstream yet.

Thank you, Next question.

Thank you.

The next question is from Neil McMahon from Sanford Bernstein, please go ahead.

Hi, I will throw a few together because you may not answer some of them.

First of all, you haven't really given any indication of reserves and yet pretty much everybody else of your peers has talked about reserves to some degree.

Can you give us any indication of those, maybe I missed them somewhere.

Secondly, it looks like there's a continuing debate about the reason why the Woodside investment is still within the portfolio.

I don't think you probably plan to have to spend $0.8 billion on more of their shares during the year.

Can you give us some idea what you're feeling towards this investment going forward and has it sort of served its time as an investment.

And lastly, just on the downstream, some of the smaller European players and refining have been talking about an upturn in terms of demand so far in 2010, though to me that looks like cold weather related rather than a sustainable change in demand.

Could you from your bigger just the 30,000 meter view could you give us a view on what's happening with demand in downstream, particularly in Europe?

Thanks.

Yes, thanks, Neil.

On the reserve side this is really for March.

We have to poll the (inaudible) and the way we do it here is actually we get out (inaudible) around (inaudible) and that's where we will publish the reserves and those are the resources which we have added from exploration.

Now that's one.

The second one, Woodside, we have always said Woodside for us looks like a LNG play, where we typically have 30%, 40% in an LNG play.

So that's the way I look at Woodside.

The reason they (inaudible), let me just be clear, I am absolutely not keen to get diluted, but I am also absolutely not keen that we have got an investment profile in the Company where shareholders have to finance.

I think that's something which, as a shareholder you don't like and I don't like, so we will watch this closely how it goes forward.

So far we have been okay with the portfolio they are running there.

On the downstream side, I think I am in the camp of this is more weather related, cold weather related and actually on the line consumption coming up.

Personally, I'm still very concerned that unemployment in Europe and in the United States was still rising.

Consumer demand, therefore, will not get too far ahead of itself and this will have an impact apart from the high stocks, which we have on the refining side.

So I think 2010 looks pretty, pretty difficult for me still and I haven't seen these underlying trends.

Thanks.

Thanks, Neal.

Next question, please.

Thank you.

It's from Paul Andriessen from Fortis Bank Midland, please go ahead.

Good afternoon, gentlemen.

First question about production.

I think your statement earlier today was that you expect flat production.

Could you perhaps discuss your biggest contributors to new production plus ramp-up on a year on year comparison?

And the second question, can you elaborate a bit on the potential of your recent Brazilian deal?

Okay.

Thanks, Paul.

On the first one, 2009 production was 3.1 million barrels per day with positive impact from new production startups more than offsetting fee decline.

That's what you heard earlier, but it had make a (inaudible) impact from IGO OPEC quotes are restrictions and the weak natural gas demand environment.

For 2010, we are start up at Perdido the first half of the year followed by Oil Sands mine startup and the year on year growth (inaudible) BC 10 are still ramping up.

For 2010, there are several external factors, like Nigeria, the demand picture, which make a precise forecast rather difficult.

If you assume a similar environment to 2009, which was much worse than '08, then we would expect 2010 production to be broadly similar to '09, with growth coming in 2011.

So we will have to see how these uncertainties play out, but for me the important thing is actually now we are delivering quite clearly more new barrels than we have decline.

I think your second question was around the deal in Brazil, the biofuels deal.

Yes, yes.

Great opportunity, very pleased with the deal.

We need to obviously bring it to the finishing line.

It is the entry for Shell into the low carbon world, the cheapest solution for ethanol.

It is the best way for us actually to make sure that our second generation biofuels efforts we can link that to first or these will give a boost to that as well.

We are combining two great downstream businesses in Brazil together.

So this is well positioned, a well positioned deal.

It will also allow us in the medium, longer term to use our trading activities to export ethanol the world will need biofuels and from that point to feel really pleased to have called together west coast on to now go through the next steps.

They have best technologies on the first generation, we bring knowledge on downstream in second generation.

So I'm very pleased with the deal.

Okay.

Thank you.

Next question, please?

Thank you.

The next question is from David Klein from RBS.

Please go ahead.

Good afternoon.

On Iraq, could you just talk around the strategic logic of investments with such low remuneration fees.

And can you say what you hope to be doing at Majnoon during the course of this year?

Okay, thank you.

Well let me cover Iraq.

So first of all I very pleased to back in Iraq with interest in both fields, Majnoon and (inaudible).

This is a really unique opportunity in the oil industry, given the barrels in place there.

And its some of the largest undeveloped fields.

For Shell this is really all about applying our operating skills and the technology.

We see the deal as adding value in its own right, but also it is a foot in the door into one of the most important oil and countries in the world.

Now there are some counter risks, the contract has been designed to pay back the IOC investment as quickly as possible to limit our financial exposure to Iraq and to generate the early growth for Iraq, which the government wants.

Yes, the headline margins are low compared to other parts of the world and there is limited oil price upside.

But the way I look at this, however, is from an IOC perspective, these are unique fields and the terms will provide attractive IRRs and the cash flows for shareholders.

In the next couple of months, what we are doing at the moment, contracting (inaudible), there are two steps to take there.

I signed (inaudible) a few weeks ago, but there is one more.

We are mobilizing at the moment our people.

We named them already.

The next one is actually we are tendering, we are looking with the contractors and actually I think we are the first ones to actually have done this.

We are going in.

We are selecting the development plans, et cetera, et cetera.

So this is all the work which we are doing this year or in the next couple of months in order to have a smooth startup.

Simon already talked about the amount involved already.

Thank you.

Thank you.

We have the last 15 minutes we take shorter questions and give you -- we'll try also shorter answers in order to cover everybody.

So go ahead with the next question.

Which is from Bert van Hoogenhuyze from Dresdner, please go ahead.

Hi, Peter.

Hi, Simon.

Short question about your shale gas position in the US.

Can you give some -- shed some light on the acreage or your prediction targets, etcetera.

Thanks, Bert, for the question.

I think we are in five place, two are in Canada, which is the deep basin and Groundbirch.

Then we are in three in the States, which is Pinedale, south Texas and Haynesville.

We have got the deep basin, Pinedale and south texas already operational.

The others are actually kind of in development phase.

We will take you through production targets.

We will take you through the technologies, et cetera, we are using in the March presentation.

(inaudible) cost is (inaudible) too much, but these are the basins which we are operating and I am pleased with the progress there.

But, on the 16th you get more.

Great, thank you very much.

Next question, please.

The next question is from Jason Kenney from ING, please go ahead.

Hi, there.

I was looking for a breakdown of the $28 billion CapEx by division, if possible.

And secondly, on the asset impairments in the downstream, I wondered if they were related to the refineries that are now up for sale.

I give both assignment.

Thanks, Jason.

Asset impairment the Q4 items they do reflect the items that were Montreal, primarily, rather than selling at the conversion to the terminal.

The UK and the German refineries are under review anyway.

The breakdown of the CapEx by division typically and strategically has been one-quarter downstream, three-quarters upstream.

That's what, pretty much what we would expect in 2010.

The (inaudible) spend in Singapore does come off the big cracker after the first quarter.

And quite a lot of the upstream expenditure you will see going into the Americas, certainly a much higher proportion than the current production, because that is the growth region.

Yes, thanks, Simon.

Next question.

Is from Paul Spedding from HSBC, please go ahead,

Afternoon, gentlemen.

Quick question on the production guidance you have given in the past, 2011, 2012, which if my ruler is working works out at about 3.3 million barrels a day.

I was wondering whether you might be able to give a little bit of a hint as to the phasing of that in terms of the timing as to when the key projects are coming through.

Paul, thanks for the question, but I think this is really about our March presentation when we give you more clarity on our (inaudible) goes forward.

So I would like to ask you to be with us until March.

I have given you 2010, the rest will come.

Next question please.

Next question is from Theepan Jothilingam from Morgan Stanley, please go ahead.

Yes, hi, good afternoon, gentlemen.

Just a question on CapEx, actually.

Just coming back to the 2010 CapEx number.

Can you talk about what flexibility you have got built into that $28 billion.

And then sort of just a follow-up on -- Peter, I know you have been talking about sort of convention and unconventional resource basis recently.

I was just wondering whether you could put that in the context of whether you see capital intensity for Shell sort of peaking out in 2010 or not.

Thank you.

Yes, thanks for the questions, Thee.

I think the topic belong to Simon, I take the conventional, unconventional.

I had you under the wrong name.

On the second question, the conventional, unconventional.

I think, again, we will talk a lot about that in March, but let me just be very clear that the unconventional site -- so we are actually looking at, let's say, Shell as, from time to time, as an unconventional company.

But let me just be clear, we have a very low percentage of unconventional production, as you know, quick clearly from my earlier talks.

I don't consider (inaudible) as a unconventional, it is pretty much a refinery under gas upstream.

So from that point of view, I think we are still a very, call it very much conventional.

But I have -- I would like to say that we said that before, that the capital, the CapEx quite clearly will depend on how fast we want to grow and that is really what we are going talk about in March.

So I defer that answer to March.

But on the first over to Simon.

Thanks, Peter.

Theepan, the CapEx flexibility within the $28 billion is pretty limited, given that the big projects, which is Gatel, Canada,Casakan, and now Gorgon, of course, do absorb quick a significant amount and therefore the only flexibility at the margin is typically in that North American gas program just (inaudible) shale gas where we do have a bit of up and down flexibility and separately in the exploration program where there can be choices made.

But we believe it is in our interest to continue at the reasonably high level around the $3 billion.

Thank you.

Next question.

Thank you, The next question, I apologize for the delay, is from Sandrine Cauvin.

Thank you, I apologize, just one moment.

The line seems to have disconnected.

I do apologize.

No problems, take the next one, operator.

Now these are the last two now.

Thank you.

The last one is Christine Tiscareno.

Please go ahead.

Good afternoon, thank you very much.

I just wanted to find out if we have natural gas prices depressed for the next two to three years and that obviously will effect LNG prices, what LNG projects would you delay or cancel.

How would that change your strategy or is that something that we talk about March.

We will certainly talk about -- thanks for the question, Christine, certainly talk about the long-term gas market et cetera on the project in March, but let's just be clear, we are investing for the longer term here for the next 20, 30 years and therefore we look at the long-term positioning of the gas and that, I have said earlier on, this remains positive.

That's where we see the growth, so clearly LNG will be key in our thinking going forward.

The rest done in March.

Thank you.

Thank you, Christine.

Next and last question.

Thank you.

The final question is a follow-up question from Mark Gilman of Benchmark Company.

Please go ahead.

Peter, a real quick one.

It was my understanding that BC 10 was to plateau at 100,000 a day.

I wasn't aware that there was any phase I at 60, if I heard the prior comment correctly.

Could you clarify that for me, please.

That is correct, we call it phase I 60 and now we are continuing to ramp-up until capacity is 100,000.

So that is right.

We just -- we have broken down the ramp-up in phases and that is how we are looking at it.

So no change to the (inaudible) of it, just on the way up.

Thank you, Peter.

And just as additional information, Mark, the two, the next two wells are coming the next two months.

Good, okay.

Thank you, very much, for all the questions and for joining us today.

As I said 16th of March is the strategy update and both Simon and I look forward to talking to you by March 16th.

Thank you very much and we close the call.

Thank you and this does conclude the Royal Dutch Shell quarter four results announcement call.

Thank you for your participation and you may now disconnect.