殼牌 (SHEL) 2011 Q3 法說會逐字稿

Welcome to the Royal Dutch Shell Q3 results announcement call.

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

(Operator Instructions).

I would like to introduce our host, Mr.

Simon Henry.

Please go ahead, sir.

Thank you very much, operator.

Welcome to Royal Dutch Shell third quarter 2011 results presentation.

I will take you through the results, and some of the portfolio developments in the quarter, and leave plenty of time for your questions.

First, the usual cautionary statement.

We continue to make good progress with our strategy, improving our competitive performance, delivering growth for our shareholders.

Third quarter underlying earnings was $7 billion.

Earnings per share increased by 40% from the third quarter of 2010.

We've $1.8 billion of divestments in the quarter.

We already passed our $5 billion asset sales target for the year, with more to come.

Our share buy back programme restarted in August, with $800 million done in the third quarter.

The underlying oil and gas production increased by 2%, and that's driven by the continued progress in Qatar in Canada.

And we matured new projects for medium term growth, with exploration success in French Guiana, Australia, and also launching new upstream development projects.

So we are making good progress against our target, to deliver a more competitive performance from Shell.

And let me give you a few more details, starting with the macro environment.

If you looked at the macro picture compared with the third quarter of 2010, oil and gas market prices have increased from year ago levels, and Henry Hub prices broadly similar.

The discounts of West Texas Intermediate, WTI to Brent, widened to $24.00 per barrel in the third quarter, and that compares with less than $1.00 a year ago.

Our natural gas realizations increased from the second quarter in 2011, whereas the oil realizations actually declined sequentially.

Industry refining margins diverged in the quarter, with improved margins in the US west coast, but declined in all the other regions.

In chemicals, industry margins increased from year ago levels, especially in the US, although we did see a decline in margins in Asia.

We saw sign of a slowdown in demand at the end of the quarter in several of our downstream businesses.

Turning now to earnings, overall.

The CCS earnings, current cost of supply, for the quarter including identified items were $7.2 billion.

Excluding those identified items, the CCS earnings was $7.0 billion, and earnings per share increased by 40%.

On a Q3 to Q3 basis, we saw higher earnings in both upstream and in downstream.

Cash flow from operations was $11.6 billion.

Our dividends in the quarter were $2.6 billion, of which $700 million was settled with new shares under the Script Dividend programme.

We're offering that Script Dividend again for the third quarter.

We reached out to the share buy back programme in August.

This was a time when financial markets were weak, and it's a good time to be buying back stock.

This buy back programme is part of the overall programme to offset the dilution from Script Dividend, which has totaled $3.2 billion, since we launched the Script a year ago.

So let me just talk a bit more about the business performance in a little bit more detail, firstly, the upstream.

Excluding identified items, upstream earnings were $5.4 billion in the third quarter, and that's an increase of 58%, versus the same quarter in 2010.

The earnings were driven by higher oil and gas prices, and also by a positive environment for LNG, liquified natural gas trading.

Our upstream earnings were similar to the previous quarter to second quarter 2011, despite the [$3.60] decline in the Brent price.

Natural gas and LNG were an important part of that good performance, where gas is priced primarily on lagging oil markers.

Shell's LNG business did very well in the quarter, with growth in a good marketing environment.

Our integrated gas earnings, which is essentially the LNG business, have more than doubled from year ago levels.

The headline oil and gas production for the third quarter was 3.0 million barrels of oil equivalent per day, and that's an increase of 2%, excluding the asset sales impacts.

The LNG sales volumes grew by 12%, Q3 to Q3, and that mainly reflects the successful ramp up in Qatargas 4.

Turning now to the downstream.

Excluding their identified items, the downstream earnings increased by 25% from year ago levels, and they reached $1.8 billion in the quarter.

Our oil products results were similar to the year ago, with higher numbers from chemicals.

The chemicals results were strong, lifted by higher margins in the US and in Europe, although weaker margins in Asia.

In all products, the results were firm in a difficult industry environment.

The earnings were similar to year ago levels, despite asset sales in the interim, and some unfavorable exchange rate movements in this quarter.

And chemicals availability, plant availability decreased, compared with the same quarter last year, due to maintenance.

Refinery availability though, increased from year ago better levels, and also compared with the second quarter of 2011 when we had actually, quite major turnaround programs.

At the end of the third quarter, there was a fire at our Bukom refinery in Singapore, and that did impact both refining and chemicals operations there.

We are now in the process of restarting our facilities, and we are looking into the causes of the incident in the first place.

We would expect to see around $150 million of net impact to the earnings for this incident, in the fourth quarter results.

And it will not be treated as an identified item.

Overall, we are expecting world-wide refinery availability -- and for the current quarter, and the fourth quarter to be broadly similar to the fourth quarter 2010 levels, although chemicals will be slightly lower.

So those are the overall earnings.

Turning to the cash flow.

Cash generation on a rolling basis, a rolling 12 month basis, was $53 billion.

That includes $11 billion of disposal proceeds.

And that's against an environment, with an average Brent oil price of $106.00 per barrel.

And both the upstream and downstream business segments generated surplus cash flow after investment.

And that gave us a free cash flow position, which combined with -- post the free cash flow position -- which combined with our capital spending, dividend and buy back programmes, has resulted in a decline in the balance sheet Gearing.

Gearing at the end of the quarter sat at 10.8%, and that compares with 12% at the end of the second quarter, and moving lower in the 0% to 30% expected range.

And, of course, you would expect this in the strong oil price conditions that we have been seeing.

Divestments of non-core assets is an important element to Shell's capital efficiency, also our portfolio enhancement programme.

We sold some $34 billion of assets now in the last 5 years.

That's a rollover in that period of around 20% of the total capital employed.

We completed $1.8 billion of asset sales in the third quarter.

These included the sale of the Stanlow refinery in the UK, and non-core upstream assets in the Americas.

We passed the target for $5 billion of asset sales that we set earlier this year.

There are further asset sales in the works, for example, downstream business in Africa, and the gas pipelines in Norway.

These should complete across the end of this year, or -- earlier in 2012.

Asset sales will continue, part of the overall strategy.

However, the pace will probably slow down from here, after what has been a active period in the last couple of years.

Before we close, let me update you on progress with the growth portfolio in the quarter.

We have more than 20 new project startups planned for 2011 to 2014, the 4 year period.

And those projects will deliver some 800,000 barrels of oil equivalent per day of new production.

These are the new projects which underpin our cash flow production growth targets.

In Canada, the Athabasca Oil Sands Project, the first expansion has ramped up, and it should now stabilize at this plateau rate in the near future.

In Qatar, our Pearl Gas-to-Liquid, it's a similar story.

Train 1 has now pretty much ramped up, and we are working to reach sustained plateau rates.

Train 2 should start up, as planned before the end of this year.

The 2 growth projects in Qatar, that's Qatargas 4 and GTL, and the Athabasca mine expansion in Canada, they added some 190,000 barrels of oil equivalent per day for Shell in the third quarter.

And that compares with the total expected peak production from the 3 projects of some 400,000 barrels of oil equivalent per day.

Still some way to go, of course, there.

These start ups reflect some of Shell's unique strengths in the energy industry today, innovative technology, integration across value chains, and creating long life returns for our shareholders.

And we also made progress with maturing new projects, for medium term growth delivery during the quarter.

In Australia, the Arrow -- Arrow coal bed methane LNG project entered detail design, what we call FEED, for an 8 million tonne per annum, 2 train LNG project.

Arrow has made an offer to acquire Bow Energy in Australia, with further gas resources in this play that could increase the size of the LNG trains by more than 10%.

Elsewhere, we announced 2 final investment decisions on 2 non-operated developments, [to plant] Phase 2 development to the UK, and the Wheatstone LNG project in Australia.

Together, these 2 projects are expected to add around 40,000 barrels of oil equivalent per day for Shell of that peak production level.

We've also gone ahead with an innovative LNG scheme in Canada, called the Green Corridor.

That will take offshore gas production into small scale LNG.

And that LNG will be used for fuel in the trucking industry on long distance routes.

On the exploration side, we had good progress in our frontier exploration portfolio.

We had new acreage positions onshore in the Americas, and in the Ukraine, and offshore in New Zealand and in Tanzania.

And in our actual operations, we had a gas discovery offshore Australia, and the Zaedyus oil discovery in French Guiana.

So, good progress on the growth portfolio.

So just let me summarize, before we go for your questions.

Our performance in the quarter underlines, we are delivering on our strategy.

Third quarter underlying earnings $7 billion, earnings per share up 40%.

Delivered higher year-on-year earnings, in both upstream and downstream businesses.

We've already passed our $5 billion asset sales targets in the year, and there is more to come.

We reached out to share buy backs in the quarter, all part of the capital discipline in the Company.

The new projects, they are coming on stream as planned, and we are maturing new investments for the medium term growth.

We are making good progress against our targets, to deliver a more competitive performance from Shell.

So with that, I would like to move to take your questions.

Please, could we have -- keep yourselves just to 1 or 2, so that everybody has the opportunity to ask a question.

And many thanks for that.

Operator, please could you now poll for questions?

Thank you.

Thank you.

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

(Operator Instructions).

For the first question comes from [Teplan Justalingram] from Nomura International.

Please go ahead with your question.

Simon, two questions, please.

Firstly, just could you talk a little bit more about start up costs, particularly for Qatar?

How you think they could possibly drop off?

I'm trying to sort of get a feeling for the ramp up in cash flow over the next 12 to 18 months, please.

Secondly, just on the portfolio, I guess the Woodside lock-up at end next month, if you could remind us what your position on Woodside is, and how you see that going forward?

That would be great.

Thank you.

Hi, Teplan.

The start up costs at Qatar, as oil sands -- basically the start up costs already now behind us in oil sands.

And in Qatar, LNG up and running.

Now there is still some costs, particularly associated with the start up and ramp up of Train 2 and the GTL ahead of us.

It's really only -- of order of a few hundred million dollars still to go.

Difficult to separate out what has happened in the past from the future.

But overall there will be a net reduction as we go in to next year, but it's only a few hundred million dollars, and that is pretax as well.

I think, fair to say that we are -- now cash flow is (inaudible) income positive in Qatar overall, which is good to see.

And we should -- somewhere between $500 million and $1 billion, on both income and cash generation in Qatar in the year as a whole, so building up nicely there.

Woodside, yes, you are correct.

The 12 month lock-up period comes to an end in November.

What we said about this, is still pretty much the case.

The reason for selling down in the first place was, having developed a multiplicity of projects over which we had more direct influence and direct access to cash flows, such as Gorgon, Prelude, and the Arrow, Woodside became less of a strategics necessity or asset in the portfolio.

And that -- it was probably the right thing to do to monetize for right value for the shareholders.

Now we are not really in a hurry to do anything, and we can take our time.

But essentially, we would like to over time, recycle the value back in to other parts of the portfolio.

It does form part of the overall capital discipline process in the Company.

But there is no particular urge to act quickly.

Great, thank you.

Next question, please.

Thank you.

And the next question comes from Kim Fustier from Credit Suisse.

Please go ahead with your question.

Hi.

Good afternoon, Simon.

Hi, Kim.

Two questions if I may.

First on Alaska, I think the US EPA has recently issued clean air permits.

Could you just comment on where you stand at the drilling process?

And beyond the clean air permits, are there any other milestones we needs to watch out for?

Secondly, on the downstream, I think we saw a visible contribution from Raizen in you downstream earnings can you talk about the earnings power you expect from that JV in the medium term, the associated CapEx requirements?

Thank you.

Thanks, Kim.

Alaska, yes, it was good to see that the clean air permits were issued, we're now in the permitting sense, further than we have been before.

You could say we are in unchartered territory.

And we have been working to a timetable, in terms of approval and various permits.

And we're pretty much keeping to the timetable that would enable drilling up to 3 wells next year.

That would -- could not begin before July.

To do that, we need rigs available, plus all of the associated activities which include over 30 support vessels of one kind or another.

That is all in the process of being put in place, so logistically we are getting ready.

And subject to getting ultimate approval, we will be ready to drill from July next year.

The one thing that is bit out of our control is, that there are already, and no doubt there will continue to be, one or two legal challenges, including in the 9th Circuit where we have been before.

And we are not obviously in control, other than the fact, we must prepare as professionally, and as well as possible, in terms of meeting all the requirements to drill.

So everything in terms of the permitting process is on track to drill next year.

It's what you need to -- and we need to look closely at, is the various legal processes.

And they are not under the control of the regulator.

And our Raizen, just to remind -- a reminder for those who don't know, Raizen became effectively operational in April this year, so second quarter of operation -- is $12 billion joint venture with Cosan, a Brazilian company, 50/50.

The world's largest sugar to ethanol producer, and also the owner and operator, just under 4,500 retail gas stations in Brazil, a fast growing market, over 20% market share in the country.

In the third quarter, we did see a positive earnings contribution, around just under $200 million, which is good to see.

And we expect generally, to get a positive earnings contribution from Raizen.

It's operating in the market, we know well in the downstream.

And at the moment, sugar and ethanol prices are both reasonably attractive.

Both of them, happen to be a little bit volatile there, so we expect volatility in earnings coming from Raizen.

But so far, so good, up and running, great growth prospects.

CapEx, the growth prospects, we acknowledge, we are the biggest, but we're only 8% to the market in Brazil today.

So great opportunity to grow there.

The -- you may recall, the way we structured the transaction, we inject $1.6 billion of cash in to the joint venture.

That essentially, is already covered by our CapEx, we have not injected it all yet, so this year's CapEx.

That CapEx from Shell injected into the venture will form, the funding for Raizen's own CapEx within the joint venture.

So certainly, for the next 2 to 3 years, we don't expect to see any further Shell CapEx going in.

Obviously, the longer you go out, the more it depends on 2 things, One is, what level of growth they achieve.

And secondly, the dividend stream that kind of, we see coming out of the Company.

So far, so good.

(Inaudible).

Many thanks.

So we'll move to the next question, thanks.

Thank you.

The next question comes from Martijn rats from Morgan Stanley.

Please go ahead with your question.

Good afternoon.

I wanted to ask 2 questions.

First of all, can I ask you, can you update us on your thoughts on the dividends, particularly with the cash flow so strong and the balance sheet de-gearing, and also, from an operational perspective.

Quite a bit of derisking going on lately with several project start ups.

And secondly, I wanted to ask you about the underspend in terms of CapEx this year, which seems to be coming in a little bit below, what you were talking about earlier in the year?

And whether this has meaningful impact on production and earnings power of the firm sort of next year, next year and into the year thereafter?

Or whether this is just a timing issue, and the impact will overall be [negligible] for the next couple of years.

Okay.

Thanks, Martijn.

The dividend -- the cash flow has been strong, the gearing is at 10.8%.

We are targeting, as I'm sure you are aware, positive free cash flow next year, above [$60], assuming that we have a net capital investment of $25 billion to $27 billion.

What I said previously is that, really we need to get back to that structural positive free cash flow position from delivering the major projects, before we look to grow the dividend.

We are on track to get there.

And we will likely practice, to start the year with the stronger balance sheet than we previously expected.

And really that's a decision, and the communication for next year.

I have to say though, we have to look at dividend, capital investment or net capital investment, and the position of the balance sheet together, because the 3 are linked.

We, clearly, are in a much stronger position once the new projects come on stream, and are fully up and generating cash.

That's no real change from previous statements, by the way.

CapEx under spend for the year-to-date, we've actually spent in a growth sense, total sense, in 9 months, just over $20 billion.

We have always said, we will spend between $25 billion to $30 billion, typically it's more likely to be closer to $30 billion, offset by divestment.

Now net capital investment, I -- (inaudible) divestments, obviously quite low, because we effectively spending a bit slower on the cap, on the organic investment, and we're divesting a bit more quickly.

So our net capital investment of $14 billion year-to-date does indicate we are most likely to undershoot the 25 net, it most likely will be in the low 20s.

We do expect the organic growth investment to increase in the fourth quarter.

It's been increasing quarter by quarter all year, as we've seen the impact of the big projects rolling off in the early part of the year.

The new projects, for example, Prelude and Gorgon kicking in, and some of the other investments decisions we've taken in this year, so our actual organic investment is back up at a level of around 8 per quarter anyway.

So I would expect to get to 28, 29 gross for this year, and most likely investing at that same kind of level next year.

Then, the next investment will be 6, 7, 8 divestments depending this year, on how many we essentially conclude before the year-end.

We do expect the total level of divestments to come off of a bit, as I said in the speech, so back more towards the 2 to 3 a year average level.

All right.

But given the situation in the Gulf of Mexico earlier in the year, I think you didn't spend as much as you were planning in the Gulf.

And also with low gas prices in the United States, has [halted] your investments in (inaudible) gas projects in the United States would be less.

And obviously, if you spend less now, you will produce less later.

I mean, I was wondering what the impact would be of that?

I mean, it seems pretty much a US question, actually now that I think about it.

It's true.

We would have liked to have spent more on both, in practice because we knew pretty much what the Gulf situation was.

We didn't actually plan to spend more, we would like to have to spend more.

So our plans for next year, did recognize that we are 50,000 barrel a day short of Gulf production this year, due to the [Macondo] incident, and we will be quite short next year as well.

Exactly how much, depends on what the original assumptions you made.

So it's less than we would like, let's just put it that way.

On the gas side, there is quite a bit of back end of the year production, so by the end of the year, our production will be around about where we projected on the gas, but the average for the year is effectively has come out as a lower level, because of the phasing of the spend.

So likelihood is, if both cases, it doesn't make the target in 2012 any easier, but were built in to projections that we've made.

And just to be clear, overall, assuming we get up to speed in those areas, we are going to be back up at the top end of the range of that CapEx spend next year.

And that's my expectation.

All right.

Thanks very much.

Thanks.

Move to the next question?

Thank you.

The next question comes from John Rigby from UBS.

Please go ahead with your question.

Yes, thank you.

Hi, Simon.

I got just a couple of questions, picking up on a couple of the questions that have been asked already.

The first is on the Gulf.

I mean, would it make sense, and do you have the capacity to actually run at a faster rate than maybe you would have done historically to bring, I'm guessing production importantly because that's MPV, on stream quicker through the latter half of this year and into next year, and get those high value barrels on?

The second question is just on the structure of your cash flow, I guess one could observe that a significant portion of the cash flow, or an usually high portion of the cash flow in 2012, 2013, 2014, is going to be effectively cost oil, cost gas, if you want, from some of the big projects you've got on.

Does that influence your decision about how you use that cash, because some of it is essentially structurally capital, rather than ongoing revenue coming back in?

I mean, in terms of dividends, share buy backs, balance sheet management, et cetera?

Thanks.

Thanks, John.

The Gulf of Mexico, can we run faster?

Well, yes, we got 5 floating rigs, and we are just operating 1 platform rig at the moment, so 6 drilling activities.

And we could ramp up a couple of more rigs, were we to have the permits in place.

We have done pretty well, in terms of returning to activity on a competitive basis.

We have been fortunately, to have more permits in place earlier than others.

Having said that, the average time to get a permit is currently running over 200 days.

It used to run something like 50 to 60 days.

And while we are doing better than that 200, we need to keep moving on a significant number of permits to be able to keep just the 5 rigs busy, let alone more than that.

And we have the opportunity.

We got development drilling to do around the Perdido, and Mars, Cardamom, as well as the exploration discoveries that we are following up around Appomattox.

So could go faster, would like to go faster.

Constraint is not us, it's can we work your way quickly enough through the permitting process, which is becoming reasonably well-established now, and good constructive process.

It's just taking a bit more time.

Cash flow structure, 2012, 2014, we have not that many PSCs coming on.

The only one really is the Pearl GTL, obviously a big one.

I think you kinds of seen from some of the charts we've produced recently, that the cost recovery does not -- I should say, our cash generation doesn't add with the cost recovery.

We have pretty strong underlying cash flow generation post full cost recovery period, that's 7 or 8 years at $70, obviously, it's a shorter period if the price were to be higher.

No, we don't think of the cash flow coming in any different terms, as to what we should do with it.

Cash is essentially fungible -- we have strong cash flows, well beyond the end of full cost recovery in Pearl, and same is true on most of our other PSC activities.

Total PSC activity is just over 20% of production.

Definitely will have gone up from just under 20% of production by the time Pearl is up and fully running, so I think it's about 23, 23% next year.

And so we don't think differently, and we have plenty of other sources of cash flow that will be generating growth in that period.

Well, that helps.

Thanks.

Next question.

Thank you.

The next question comes from Irene Himona from SG.

Please go ahead with your question.

Hello, Simon.

Hi, Irene.

So two questions, please.

So first, you resumed the share buy back in the quarter, aiming to neutralize the dilutive effect of the Script, so the Script is not actually saving any cash.

And I struggled to understand, why you are still offering the Script as an alternative?

And my second question was on production.

If there is any guidance, you can provide short-term, so for Q4, in terms of what you expect coming back from maintenance from the Gulf of Mexico recovery, and also your new projects?

Thank you.

Thanks, Irene.

I guess, probably a little explanation on the Script is helpful.

This was not a tactical move to generate short term cash, or reduce outgoing.

It was a strategic long-term move to offer the Script programme to shareholders at their option.

So it's not being forced upon shareholders.

Hopefully, it -- some shareholders find it valuable.

And in fact, roughly 30% on average, or it has been some quarterly (inaudible) have done so, $3.2 billion worth over the past 4 quarters.

And so for us, what it does is create more cash flow flexibility through cycle.

Our industry is a constant battle between volatile revenues, and relatively constant or difficult to vary in the short term, cash outflows such as investments and dividends.

So we need to commit to be able -- or have a balance sheet structure and a financing that enabled us to commit to long-term investments.

The Script gave us just a more flexibility in doing that, and it is equivalent to $10 a barrel reduction in the breakeven price.

That's the way, it's actually worked out in practice.

We also said, we aim to buy back through cycle, in a way that's offset the dilution.

And in practice, we liked to do that at a price below what we issued the Script at, which is what we have done.

So that's -- there was an element of opportunity, if the markets weak, buy back, while the cash flow is strong.

That doesn't mean we will continue that necessarily, it's not a bad place to be with low gearing, strong cash availability and liquidity, in a period of what might be some macro uncertainty over the next 12, 18 months.

And production guidance, for Q4 anyway, and can't really give precise guidance though, although you do pick up a couple of important points.

Gas oil ramp up, we have potentially, some (inaudible) come just from Train 1 ramp up.

Train 2 isn't likely to have much impact.

It's more likely to come in towards the end of the quarter.

And Qatar and Athabasca, Qatargas 4 and Athabasca may add a little bit of volume in the quarter, but not too much more there in the fourth quarter.

We did have some maintenance shutdowns in both the North Sea and in the Gulf of Mexico, particularly, in the Gulf in the Na Kika Holstein, which is not operated by us.

So hopefully, that will come back.

There is a bit of upside.

But the main factor for the fourth quarter production, as always is the weather in Europe.

And fundamentally, our gas production is tied quite closely to the temperature.

And so far it, not been particularly cold.

It was a relatively cold quarter last year I think, so that's the main factor outside of control.

So hopefully, that helps gives you some indication of things to watch for.

Thank you.

Can we move to the next question, please?

Thank you.

The next question comes from Robert Kessler from Tudor Pickering Holt and Company.

Please go ahead with your question.

Good day, Simon.

Hi, Robert.

It looks like to me that you've got at least 4 options in front of you for exploiting the BTU discrepancy in North America, between crude or liquids or refined products on the one side, and natural gas on the other.

And you've got what seems to a brewing potential for liquids-rich shale transactions with you and everybody else, which might speak to the potential price point or lack of attractiveness there, depending on the base, and I understand you want to be quiet about that.

You've got western Canada export of LNG potential, which you clearly have done in the past outside of North America, northeast ethane cracker, and then now a US Gulf coast based GTL plant.

Can you rank those options for me?

And as it relates to the GTL plant, it seems as though might be pretty capital intensive option?

I know that you've done well with Pearl.

But is the cost of construction not perhaps higher on the US Gulf coast versus Qatar?

And even though the shale gas keeps seeming to get better as a feed stock it seems tough to meet the bar set by the North field in Qatar, from a cost of supply stand point.

Any thoughts on that?

Thanks, Robert.

You've done your home work.

Unfortunately, you missed one.

There's the Canadian Green Corridor, the gas to LNG, effectively strength --

But this is the biggest one of all, I guess?

(Multiple Speakers).

-- into liquids transport.

So priority is a question of two things, one, overall economic and strategic attractiveness, and secondly, the time scale of doability.

Clearly, that one is doable more quickly, and therefore, the liquids-rich shale gas falls in that category as well.

And, yes, we are active, although so far, minimal impact on results.

So those are the top 2 in the short-term direct access to the -- effectively the liquids pricing in the North American market.

The other 3, the export of LNG from British Columbia to Asia.

Ethane -- potential ethane cracker in Pennsylvania, potential gas-to-liquids on the Gulf Coast, are all viable options economically, but none of them are going to happen in the short-term, they are all capital intensive.

And the most progress is essentially, the LNG export where we are looking at land, pipeline, and production together with 3 Asian partners, PetroChina and Japanese and Korean partners, and still early stages.

But there is generally a agreement in place, and looking to put together the full value chain.

Clearly attractive, to take $4.00 gas to Asia, where the price in the last quarter was around $15.00, so quite an arbitrage to support the investment.

The other 2, the ethane cracker and the US Gulf gas-to-liquids, it is a question of 2 things, one is the cost of development.

And secondly, for how long do we think that the gas-to-liquids price differential will be sustained at the suitable level.

At $4.00 gas and $100.00 oil, roughly, well, $110.00 oil today price, both are economic.

And whether we would go ahead immediately, will actually depend on very much, on where we think we can get the cost of both projects down to, because we would like to be robust, against a environment rather less attractive than $4.00 gas and $100 oil.

So we need to get more -- more confident that we can get the economics to the point, where it justifies what in both cases, all 3 cases, will be a multi-billion dollars investment for a 20, 30, 40 year investment horizon.

What would be the earliest possible date, you would see GTL products on the US Gulf coast?

I think -- you say the Qatar project took 5 years construction, 2006 was the investment decision, might do it more quickly in the US.

But we would need to go through the FEED process as well, so 18 months you can add to that, 12, 18 months.

And we are not yet to the point, where we go to FEED.

Well, we are doing some design work, potential design work, and we've identified a couple of possible sites.

You are at least 6, 7 years away, even if we took a decision tomorrow.

Understood.

Thanks very much.

Thanks.

Next question.

The next question comes from Jason Gammel from Macquarie.

Please go ahead with your question.

Well, thank you.

Simon, I had a couple of questions about the trading environment in 3Q, and it's sustainability.

First of all, your downstream numbers looked, handily beat the consensus.

And that's actually been a fairly consistent pattern with your peer group.

I was wondering if the large drop in crude prices over the course of the quarter, which obviously have subsequently rebounded, led to any out-sized trading profits, that would of shown up in the downstream trading business?

And then secondarily, the LNG trading environment was obviously strong in 3Q.

Spot prices in Asia appear actually to be on the incline.

Would you expect that the LNG trading environment gets better for you?

Thanks, Jason.

Good questions.

But volatility in the downstream, always will help the trading activity.

Having said that, structurally, think of our portfolio, our refining cover for marketing sales is reducing, as we divest down our portfolio of refineries.

Our trading and supply activity, that is essentially the way we join upstream crude molecules through to the customer, is becoming more important, and more structurally contributive to the value chain.

And therefore, our trading activity and the profits associated with it, helped grow steadily over the previous years.

This is not the Wall Street trading activity.

We have a need to move crude, through to products, to our customers.

And therefore it's becoming much less meaningful over time to look at refining, trading, marketing, as a separate parts of a value chain.

They are not independent.

Though trading had a good contribution in the quarter, it not necessarily was not driven just by crude price volatility, it's driven by all market opportunities between crude and customer.

And LNG trading, it was a good quarter, very much so.

We actually had 26 cargo diversions, and that's nearly double where we were a year ago.

Partly that's driven by Asian demand, and partly it's driven because we today, have access to more LNG on our own account to do that type of activity.

Fundamentally, we are moving cargoes that were maybe initially planned for North America, into high volume markets.

Europe, we're -- average realized gas prices about $9.00, Asia around $15.00 for the quarter.

So generally, a good quarter of opportunity and demand for short-term delivery, following the Fukushima accident earlier this year, and some of the choices in European energy policy has been quite good.

But you need to look at both downstream and upstream trading as substantive, sustainable and very important strategic value levers for Shell.

They are not opportunistic, and they're not short-term.

Great.

I appreciate those comments.

Can we move to the next question?

Thank you.

The next question comes from Lucas Herrmann from Deutsche Bank.

Please go ahead with your question.

Thanks very much.

Afternoon, Simon.

Hi, Lucas.

A couple if I might.

Firstly, can you just help me out with some numbers.

I'm trying to understand what's happened to America's profit this quarter.

I mean I would have anticipated, given the improvement at AOSP, that your profits would move north.

And also, that you are not carrying any idle rig costs any longer, or the idle rig costs were modest.

And yet, relative to Q2, your profits are about $400 million down.

And similarly, just looking at the profit breakdown post exceptionals from other areas, which includes Qatar and includes Pearl.

Despite production being flat to up, the profit numbers also made no headway.

So perhaps there is -- if you can give me some insight and color on those figures would be helpful.

And then, I'll ask you a further one after that, if I might.

Let's see how long the first one takes, Lucas.

UA profits relatively, temporally, had some down time in oil sand.

The bitumen realized price in some weeks was in the $50s, opposed to what you might have expected closer to WTI.

And we had a lot of down time in the Gulf of Mexico, mainly BP-operated assets in the Na Kika, Holstein, we did have some shut in time, plant shut-in time in Mars and [Olga].

Now and --so some temporary effects on the oily or liquid-type activities.

So as the upgrade is fully up and running, the bitumen discount should negate that or no?

Some of that shows through, in the downstream though, Lucas.

Okay.

So the upgrade in margin, so the upstream is taking some of your power and pain from the low bitumen price.

All right.

Can you just explain what you meant by others, because I'm not quite sure.

I'm sorry, so I'm looking international.

Yes.

I am looking at the other category for upstream.

So you got Europe, Asia Pacific and other.

Yes.

And other includes Middle East, includes Qatar.

Profits have actually declined, despite if anything production being up overall for the region or the international -- or the other region.

I guess my expectation would be, as the benefits of Pearl start to come through, that you would actually start to see this quarter some improvement in profitability there.

Well, the profitability is not picking up strongly yet in Qatar.

It's only a -- it's a couple of hundred million in the quarter.

It's slightly better than it was -- of course, now Pearl is on, but although it was on (inaudible) in Q2 as well.

And so Simon, when you say a couple of hundred million, that's for LNG and GTL?

It' is.

It's for both.

Okay.

In the quarter.

It was more like break even, in the early quarter.

The profitability in other, say, does include Africa and Nigeria, I think was slightly down as well.

Nothing structural there in terms of longer term implications.

And in Russia, which can be -- in fact, it was probably about the same, thinking of Russia.

So there is nothing to -- nothing substantive behind that.

Okay.

Thank you.

And then just on the downstream, I take it that the rise in profit is being taken in the marketing supply business.

Yes.

On which basis, the $500 million or so improvement in refining.

How much of that is coming through from cost?

How much of that is about availability, because margin hasn't really moved anywhere?

Well, the industry margins may not have moved, but our ability to take advantage of them was better in the quarter.

And particularly, the Canadian refineries including the [Sonya] in Toronto.

Right.

We're able to take some advantage, so there is a bit of advantage there, $150 million, $200 million, depending on which way you calculate, right.

And so refining has an improvement, with help there, plus some of the differentials in Europe worked in our favor.

So we are a heavy diesel, relative to the market, diesel producer.

And that's basically what helped, plus the availability was up to much better level, than the non-availability on a unplanned basis was down, to the more acceptable level.

So it was one of our better quarters, in terms of operational performance.

That's basically it.

Okay.

Thank you very much.

Thanks.

Next question.

Thank you.

The next question comes from Ian Ried from Jefferies & Company.

Please go ahead with your question.

Good afternoon, Simon.

Good afternoon, Ian.

Firstly, is it possible that you could tell us 800,000 barrels a day of production, you're bringing on between 2011 and 2014, how the cash margins of that, compare with the existing cash margins of your base business?

And secondly, another topic on exploration CapEx and well drilling, could you tell us what you are thinking, you are going be spending and drilling this year, in terms of numbers of wells?

And how that compares to what you are expecting to do next year?

Thanks, Ian.

It's difficult to be too quantitative on the first question, the unit cash margins, because it depends on what price is used.

The one thing we have said is --

Say $100.00

-- on average, it's better.

That's what drives, for example, our 11% production increase between 9 and 12, 2009 and 2012, driving 50% more cash flow.

It's fundamentally, because the unit cash flow of the new production is better than old.

And the underlying driver, the typically -- fairly clear, a lot of the new production is big iron, it's large capital investment that go forward, low operating spend, operating cost spend, and quite limited future capital requirements, and projects such as GTL, and the LNG or [Orman Langar], or the oil sands.

So the fundamental nature and shape of the portfolio has changed.

They're all sized -- probably realized as well, they are in basically lower, more stable fiscal environments, and fiscal environments which have less of (inaudible) higher oil and gas prices.

So those were strategic choices which we are now seeing playing through in today's margins, and all play through increasingly up to 2014.

The exploration spend this year, likely to -- excluding new acreage acquisition which we have been doing quite a bit of -- it's in sort of in the $3.5 billion range.

I'm not sure how many wells -- difficult again to quantify, because we have a lot of exploration wells onshore -- maybe somewhere between $3 million and $10 million a pop.

But a significant number offshore, rather more each, more like a 150 each.

I don't have a breakdown with me.

But we are expecting to continue at, at least that level.

In fact, the new acreage we have taken on, very, very attractive, should help give us more of an opportunity going forward.

What I would say, is we actually are in the middle of some more, beginning of some exciting activity at the moment, where we are completing the site tracking in French Guiana.

We are -- we just [signed] on to PetroBras opportunity in Tanzania, 50% there.

We are drilling Appomattox, an appraisal well in the Gulf of Mexico.

We just spudded BMS-54, which is the 80% Shell block in the pre-salt in Brazil.

And we are -- hopefully getting enough position to drill in Alaska.

We are drilling in China onshore, and there is lot of onshore activity in North America.

So it's quite an exciting time.

And if anything, we will be looking to increase the level of activity next year.

Just one quick one on Guiana, if I could.

When do you expect to complete the side track.

You need to talk to the operator on that one, Ian.

Okay.

All right.

I'll ask my MP mate.

(Laughter).

Thanks, next question.

Thank you.

And the next question comes from Mark Gilman from Benchmark Company.

Please go ahead with your question.

Simon, good afternoon.

Hi, mark.

Two questions, if I could.

Could you be fairly specific, in terms of what the volume contribution both liquids and gas of Pearl was in the third quarter?

Just over 70,000 barrels a day.

Equivalence?

Yes.

Could you split that, please?

No.

(Laughter).

Seriously.

It's the -- what I can tell you is ratio of liquids to gas is higher now than it will be as we ramp up.

It -- the (inaudible) works out particularly liquid-rich, in the lower ramp up phase.

Good idea to call IR later on that one.

I think.

Sorry, Mark.

Okay.

Other question.

I was particularly surprised by the strength of the chemicals earnings in the quarter.

It seemed to have defied, particularly versus the preceding quarter, the second quarter, the trend in margins.

And also, a specific reference to the contribution of equity interest.

Could you put some color on the chemicals number?

670 in the quarter, the best ever quarterly result.

They, clearly are benefiting structurally, because it's are not necessarily top of the chemical cycle at the moment.

They are benefiting structurally from that switch we talked about earlier in terms of in terms of gas feed stock in the US.

We are continuing to do a little bit here and a little bit there, in terms of investment and work around work, to ensure we are maximizing that opportunity in the US, which we are definitely benefiting from today in the manufacturing side.

Still seeing reasonable margins in the market there.

And our equity chemicals, includes activities in the Middle East and then China.

They are both well-positioned for the markets.

Remember we are not a broad spread of particular, of petrochemicals products.

We are relatively specific, things like MEG, the polyols, and those are markets where we have good position, and did well in the third quarter.

I have to say, we're -- our chemicals guys have been through so many product cycles.

They have been telling us for about 2 years now that this bubble will burst.

But it's continued with a pretty robust performance against a volatile environment, and not that easy macro position.

So maybe they just have done well in restructuring for a more robust positioning through cycle.

We are very pleased with what they have been able to deliver.

Okay.

If I could sneak in one other quick one.

A comment on your average LNG realizations, say versus the second or the year ago?

I mean, I know they are up.

But can you put some color on that?

Definitely up, against a year ago.

And up against the second quarter overall, on the grain, but there is a lagged oil price in here, so we benefited from the rise of the oil price earlier in the year.

And slightly offsetting that is quite a few of the diversions been going in to Europe.

Now that's obviously, better than sending them to North America, but on average, is less good than into Asia.

Those are the trends, but it's up in both cases.

Okay, because I will move onto the next question, please.

Operator.

Operator?

Thank you, sir.

The next question comes from Oswald Clint from Sanford Bernstein.

Please go ahead with your question.

Thank you very much.

Simon, just a question on Arrow and down in Australia, I'm wondering if you're also looking at potentially, some tight sand that are down below the coal seams, across your joint venture there, your acreage?

And then secondly, just be interested if you could elaborate on one of your earlier comments on the demands slow down you are seeing across our businesses,?

I presume it is in the [downstream], can you say more on which product or which geography?

Thank you.

Sure.

Thanks, Oswald.

Arrow, we -- basically have 2 CBM or CSG coal seam gas positions.

There's one in the Surat Basin, it's close to Brisbane.

And one in the Bowen Basin, which we've just added to with the acquisition of Bow.

In both cases, our prime focus is on the There is some in the area, but that's not our prime focus.

And demand slow down, difficult to separate this one out, as to what is actually structural, and what can be due to weather effects or other effects, but it does look like there is a slow down in North America, in Europe, something around 2%, in the retail business is primarily where we see this.

Our commercial sales, were actually quite strong for things like aviation and marine.

On chemicals, does seem to be, at least in the markets that we've seen, some slow down in demand, although we maintained our positions reasonably well in, in Asia Pacific.

That can be exacerbated a bit by the fact, that there's new supplies coming on line as well.

So, sometimes difficult to separate the two.

Chemical demand, which is a -- often a precursor of further macro economic movement, was reasonably healthy in the US.

So quite a mixed picture overall.

But demand for liquid products in developed markets, a few liquid fuels products is by and large down, a bit.

Okay.

That covers, covers the pitch.

Okay.

And I'll take the next question, please, operator.

Thank you, the next question comes from Alejandro Dimechelis from Merrill Lynch.

Please go ahead with your question.

Quick question, just clarify an earlier comment you made.

When you are talking about deceleration of the disposal programme, are you talking going back to the guidance that you gave us in February, of around $3 billion per year?

Or is it going to be lower than that?

In divestments, we always expected to be doing $2 billion or $3 billion a year.

It's just normal business, turning over assets, late life or other wise.

So that is the kind of level.

It may not decelerate (inaudible) immediately And we started this year, without too many more aspirations beyond that, but we have accelerated, and we effectively been a bit more successful.

So it's just part of the normal business at the 2 to 3 level.

Having said that, if you look back over the last 6 or 7 years, the average is somewhere between $6 billion or $7 billion.

So I mentioned $34 billion in 5 years in the speech.

If you add a couple years on, we are well over 40.

And then somewhere around $45 billion, I think, that we've sold in that period, as part of normal business and capital discipline within the Company.

Okay.

That's great, thank you.

Thanks.

Can we go to the next question please?

Thank you.

The next question comes from Jeff Dietert from Simmons.

Please go ahead with your question.

It's Jeff Dietert with Simmons & Company.

A couple on the downstream.

Could you provide an update on Motiva Port Arthur expansion, how far along in construction?

When you expect initial ramp up to start, and complete the full ramp up?

And then secondly, you talked about the Singapore refinery restarting in the fourth quarter.

Will that will be back to normal operations this quarter, or will there be some lingering issues there?

Thanks, Jeff.

Port Arthur is 90% complete, in terms of construction.

We are already working on some of the units, and to -- to warm them up and bring them in.

But effectively it won't have any impact on production until early next year.

There are multiplicity of units here -- we running -- we went from 325,000 barrels a day to around 650,000 barrels a day, with full upgrading capabilities.

So it's a very large activity.

So we are warming up the utilities, at the moment.

The start up is in -- during the first half of 2012.

So we are on track for our expectations there, but limited impact, if any on 2011.

Should start to see contributions from Q1 onward, 2012.

In Bukom, we are bringing the units back up.

And we are not fully back up yet, but by the end of December we really ought to be back up, to a full throughput.

And the -- what we are -- you may recall the fire was actually in a pump [path] -- a blending unit.

So it wasn't a process unit.

We have workarounds in place, but to get back to full capacity, we do need to replace some of that capability.

And it just takes time, and we need to do it properly, but it's not large process scale units that we are working on.

So we should be back up, really by the end of the year there.

So hopefully that covers it.

And the $150 million I talked about in earnings impact, addresses all of that downside.

Okay.

Thank you.

And we got one more question at the moment, I believe.

Thank you.

The final question comes from Jason Kenny from Santander.

Please go ahead with your question.

Hi, Simon.

Hi, Jason.

Hopefully, the best for last.

So if the markets stay weak, does Shell buy back more shares of the Script, or at least should cover in price?

And secondly, on the Tanzania farm-in, when does that well complete?

And can you say anything, in terms of target size, even in the kind of elephant or big cat, type of terminology?

And then just following up on the Motiva question earlier, could you give me an idea of the incremental cash flow that you are expecting once you get to full operational capacity there?

Thanks, Jason.

If the markets stay weak, we will continue the buy back programme most likely, unless the oil price starts to fall as well.

However, catching up with the Script, will take sometime.

We are limited to, for technical reasons, to effectively, beach us, for the moment.

And that limits the trading amount, that we can actually do in a day, to 20 -- no more than 25% of the traded volume of the London market.

So at the rate the script is being issued, we almost have to go at that rate, to offset it, in any given quarter.

Therefore, it's a bit of a moot question, as to whether we go beyond the dilution, if the markets remain weak.

Good question to ask in a year's time maybe, if we actually got to the catch-up point.

(Laughter).

I'll remember that.

Tanzania farm-in.

I'm quite excited about it.

It could be a good prospects, it's as you probably are aware, gasey, gasey place, it's gas that we would be looking for.

Can't give details on the target size.

Hopefully, we will know more by the time of the next quarterly call.

We are not the operators.

I can't really give any details on timing.

But we are very pleased to join PetroBras, good operator there, and look forward to the outcome.

We also have some other blocks in Tanzania, that we've held for some years now, and they are actually in an area of interest in Zanzibar and Tanzania.

So we, where hopefully, we can unlock those, and we've got quite interesting prospects overall in the region.

Motiva cash flow uplift -- a bit -- how long it will be to say, what refining margin do you assume on the Gulf Coast.

It's clearly, full upgrading capacities.

It will be in the top end of the yield and capability and delivery -- it can process just about any crude -- by the time it's up and running And it's an extra 275,000 barrels a day of full upgrading capacity.

So you probably do the sums yourself, on what you think the refining capability, or refining margins are going to be, on the basis that this is a highly effective unit.

I will have to say that as a joint venture, the cash flow is actually the dividend coming in to Motiva, so it needs to be an assumption of dividends coming out.

But by and large, it will be similar to the earnings.

And hopefully that covers it.

We do actually have one more question now, please operator.

Yes.

The final question comes from Lucy Haskins from Barclays capital.

Please go ahead with your question.

Good afternoon, Simon.

Hi, Lucy.

Hi.

Could -- you said that in the past, that once Qatargas floor in some detail, if both fully ramped up, you might expect $4 billion contribution in a $70 world.

How might that change in a $100 world?

And the second question was to see, if you can give a guesstimate on where your Gulf volumes might be in 2012.

Qatar at $100?

I can't really give you a figure there.

That is partly confidential, but clearly, better than 4.

The -- back to the earlier question, clearly the $100, we're going to recover the cost in more like 4 plus or minus years, rather than the 7 or 8 it would take at $70.

And but -- it's actually, it works like a standard production sharing contract, even though technically, it is a revenue sharing contract, so upside is pretty good.

I will say that, certainly for the next few years, the 400,000 barrels as day that we are expecting to produce in Pearl in Qatargas 4 and Athabasca oil sands, that oil -- that was stated, obviously originally at $70 production entitlement in the first few years, it doesn't change materially at $100.

If that helps.

And -- sorry, I didn't know you had a question, so second question, Lucy?

And sorry, that was -- do -- could you give a guesstimate, in terms of what you might see in Gulf volumes in 2012.

The gulf has declined around 220,000 to 230,000 barrels a day at the moment.

We would hope, to see those now up to 70,000 barrels a day.

And hopefully rising, as we are drilling those development wells.

We would hope to pick up at some point during the year.

Not clear exactly when.

You need to talk to the operator to see the [Tongas] should come on line, and with quite a bit of drilling -- and to help sustain production over [Olga] and Mars still to come.

So we should reverse the decline we seen post Macondo, difficult say at this point, exactly by how much.

That's the best can I do for you, Lucy, I'm afraid.

Thanks.

Hopefully that helps.

Okay.

I think we are actually done for the day, no more questions.

So thank you very much to all of you, both for your questions, and for joining and listening today.

If you do have any further questions, please feel free to call the Investor Relations team.

And we've set up a new online Q&A site on the IR website, where you can ask questions direct on the web.

You also, I trust, will now be using our IR application on your iPads.

And hopefully, this is all helpful, and improving your understanding of the strategy in the performance of Shell.

So I hope you find all of this useful.

We like to be innovative.

The fourth quarter results will be released on the 2nd February, 2012.

Pleased to say, Peter and myself, will be available to talk to you then.

And I very much look forward to that.

Thank you for listening.

Ladies and gentlemen, this concludes today's Royal Dutch Shell Q3 results announcement call.

Thank you for your participation, and you may now disconnect.