殼牌 (SHEL) 2013 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'd like to introduce your host, Mr. Simon Henry.

Thank you, operator.

Ladies and gentlemen, a very warm welcome to you all.

Let me run you through our third-quarter results and portfolio development and then there will be plenty of time for your questions.

Firstly, the disclaimer statement.

Shell's underlying current cost of supplies, or CCS earnings, were $4.5 billion for the quarter and that's a 32% decrease in earnings per share from the third quarter of 2012.

Cash flow generated from operations was $10.4 billion and that's an increase of 10% year-over-year.

There were a number of negatives for us in the quarter.

We were impacted by weaker industry refining conditions globally.

Our industry is facing considerable headwinds from those low refining margins and we saw a continued challenges in the operating environment in Nigeria.

We have a strong project flow in place for 2014 and beyond.

We've started up a series of new oil and gas projects in the last few months -- in deep water in Brazil, in integrated gas in Australia, and in the longer-term plays such as Iraq.

These are all part of the project flow that will drive our cash flows in 2014 and well beyond, of course.

But that comes alongside what we expect will be a significant reduction in net spending next year, as we work through the series of the 2013 acquisitions and we increase the pace of divestments.

The Company has many new investment opportunities, and we are capital disciplined.

We will need to make some hard choices over the next few quarters between the best new investment opportunities from this emerging portfolio.

In that sense, this as much about what we choose not to do as what we choose to do.

Dividends are our main route to return cash to shareholders.

We distributed more than $11 billion of dividends in the last 12 months.

The Scrip Dividend uptake for the second quarter was 44% and we will be offering the Scrip again for the third-quarter 2013 dividend.

We use share buybacks through the cycle to offset the earnings-per-share dilution from that Scrip program.

So far this year, we have repurchased over $4 billion of shares -- in fact $4.3 billion as of last night -- and we are on track for up to $5 billion of buybacks in the calendar year 2013, underlining the commitment to the returns to shareholders.

Move on to details, starting with the macro.

If you look at this picture compared with the third quarter of 2012, Brent oil prices were some $1 per barrel higher than year-ago levels, but with narrower differentials between Brent and the North American market, as particularly WTI.

Our upstream realizations overall did decline slightly from the third quarter a year ago.

On the downstream side, the refining margins weakened in all regions, particularly the US and Europe.

You might remember that a year ago, margins were actually elevated by a number of industry capacity outages.

Our North America refining margins were hit by narrower WTI differentials, as well as by the maintenance activities in Canada -- planned maintenance.

The European margins were significantly reduced by poor demand, both in the regional and export markets.

And in Asia, refining margins are under pressure from new capacity coming online from the poor regional demand growth.

On the chemical side, we saw stronger margins in most product lines, with better industry conditions in the United States and Europe, both helped by competitor outages.

Turning now to earnings.

First the regular disclaimer.

Quarterly results are important, clearly, high or low, but they are only a 3-month snapshot of performance in what is a volatile industry and where we are implementing a long-term strategy that then both investment and performance criteria looks at a much longer wavelength than 3 months.

The third-quarter CCS earnings, excluding identified items, were $4.5 billion, with compared to last year lower contributions in both the upstream and the downstream.

In aggregate, macro and environment factors were a $1 billion net negative for us on the Q3-to-Q3 basis.

That includes the lower margins in refining but also a $200 million relative reduction from a double dividend payment in LNG in last year's results -- just the one payment this year.

We had $300 million earnings reduction year-on-year for Nigeria where the operating conditions continue to be challenging and uncertain.

The upstream portfolio growth was overall positive in these results, adding around $500 million year-on-year, particularly driven by Pearl Gas and Liquids project in Qatar, and that is despite an offset there from higher maintenance.

Depreciation and exploration charges increased significantly, with a net impact of $800 million year-on-year.

This is, at least in part, driven by growth, in tandem with the higher level of exploration spend with around $500 million difference year-on-year, of which $400 million relates to write-offs of unsuccessful drilling.

That includes dry holes in Australia, the Gulf of Mexico, French Guiana, and other regions.

The rest is primarily $90 million net cost increase for Alaska where we are expensing all the spend this year.

The remainder of the Q3-to-Q3 movement was a combination of factors, which included an increase in abandonment provisions, feasibility spend, maintenance programs, and overhead.

Turning now to operating performance.

The headline oil and gas production for the third quarter was 2.9 millions barrels of oil equivalent per day.

The deteriorating Nigeria operating environment resulted in some 65,000 barrels oil equivalent per day reduction and that is on the Q3-to-Q3 basis, but also removed new 280,000 tonnes of LNG from the quarter.

Excluding oil price, production share, and contract effects, the effect of the Nigeria environment, and divestments made in the last 12 months, the underlying oil and gas production actually increased by 1%, with LNG volumes increased by 4%.

The underlying production volumes are supported by the growth projects and the operating performance there overall was good.

There were offsets to that of some 60,000 barrel oil equivalent per day from maintenance activities, including downtime in the UK North Sea, where we are replacing the Sakhalin FPSO, and in the Gulf of Mexico, where the 30,000 BOE per day Auger field was shut down for maintenance.

We took advantage of that downtime opportunity at Auger to do some of the work on the future Cardamom tie back.

Auger should be back online in Q4, and the 50,000 barrel a day Cardamom discovery is scheduled to come onstream next year.

In the downstream, refinery and chemicals availability improved from year-ago levels and that benefited from lower planned and unplanned downtime.

Overall, a good performance.

Excluding accounting changes, the oil product sales volumes were broadly unchanged Q3-to-Q3, and the underlying chemicals volumes increased due to trading activity.

You see some indications on this particular slide about the fourth quarter.

We are expecting a heavy quarter for maintenance overall -- some 60,000 barrels oil equivalent per day in the upstream Q4-to-Q4 reduction.

That is in production in high-margin assets such as the UK and deep water in Nigeria and in Brunei.

They're will be planned maintenance in the Pearl Gas to Liquids during the fourth quarter.

And LNG volumes in general will be reduced by around 900,000 tonnes, that is around 17%, 18% of total, by maintenance programs in a number of facilities.

Exploration charges should remain relatively high in the fourth quarter and the operating environment in Nigeria remains challenging and uncertain.

Turning now to the portfolio.

We have added new opportunities during the quarter.

We started up new production and we are [going to announce] new asset sales -- all part of positioning the Company for profitable growth in the future.

You can see the details in this chart, according to the strategic themes.

We have new positions in deep water, two new final investment decisions of start-ups and asset sales.

On the divestment side, we have been granted regulatory approval to sell the Harburg refinery in Germany.

This is part of a 300,000 barrel a day exit program that is underway already in Germany and Australia in the refining portfolio, which is around 8% of the worldwide capacity.

3 months ago in the second quarter results, we announced strategic reviews of our Nigeria onshore and our North America shale resources portfolios.

We are now marketing assets from both of these areas, whereas I expect more to come.

Just ;et me highlight four new project start-ups.

In deep water Brazil, we commenced production in the second phase of the BC-10 development.

This should add 35,000 BOE per day -- 100%.

We recently launched the construction of Phase III development for BC-10 and that is for a further 28,000 barrels oil equivalent per day.

This is a highly successful development for the field overall.

In Australia, Woodside have started production at the North Rankin redevelopment project.

And that provides new gas supplies for the North West Shelf LNG Project.

In Iraq, we have restarted the Majnoon field and we are now focused on reaching the first commercial production target of 175,000 barrels a day.

That's the point at which we will start to recover cost.

In Kazakhstan, the North Caspian Operating Company commenced production at the Kashagan field in September.

The field is currently shut in, not producing, following the discovery of leaks on the gas pipeline.

Shell and KazMunaiGas, or KMG, who will ultimately be the joint venture operators of Kashagan, they are ready to manage production activities at Kashagan on behalf of the joint venture, as and when the facilities are ready for hand over.

Moving on, we have made a series of quite substantial start-ups in 2013, just covered.

But we have further large new projects coming on the way.

The five largest of these alone should add more than $4 billion to our CFFO, once we are fully ramped up, and that's not 2014, that is more likely 2015.

Kashagan is having a difficult start up, as I just mentioned, but I would have to refer you to the operators for any further questions on that.

In the deep water, commissioning is now underway at both Mars-B in the Gulf of Mexico, the Olympus platform, and Gumusut-Kakap in Malaysia, making good progress on both of those Shell-operated projects.

We're making good progress closing out the purchase of Repsol's LNG business and that will bring some 7.2 million tonnes per annum of LNG volumes into Shell's overall portfolio, representing long-term offtake agreements.

We expect -- still expect -- the acquisition to close by the end of this year.

Now looking further into the future, just let me highlight two exciting new oil plays for Shell -- firstly, in Canada, heavy oil, and secondly, deep water Brazil.

We have taken final investment decision, announced today, on the Carmon Creek development in the Peace River area in northern Alberta.

This will be a steam flood development, two phases, 40,000 barrels a day each.

The bitumen will be exported by pipeline to East Canada, already committed capacity, and from there, onwards to refineries for processing, for example, on the Gulf Coast in the US.

And in Brazil, very recently, we were very pleased that our bid with a consortium for a stake in the giant Libra field has been accepted.

This is a really exciting, large, world-scale, world-class opportunity where Shell can bring our deep water expertise into play.

We will pay a $1.4 billion signature bonus for this in the fourth quarter of 2013.

Let me update you on the financial framework.

Our business strategy is and remains to grow cash flow on a sustainable basis through the cycle at competitive returns.

We have clear targets for financial growth, cash generation -- these are underpinned by the capital investment, which in itself, reflects strict investment hurdles, all aimed at adding value for shareholders, and of course the balance sheet underpins the financial framework.

In the last 12 months, we have generated $47 billion of cash, including $3 billion from divestments.

And over the same period, the outflows for investment and acquisitions were $37 billion and then a further $12 billion on dividends and buybacks.

The gearing sat at 11.2% at the end of the third quarter.

That included some $4.4 billion of new borrowings, as we take advantage of low interest rates in the market here.

Of course, that's still towards the lower end of our expected range.

For 2013, we have announced some $10 billion of acquisitions -- already announced, so nothing new here.

They include the Repsol LNG business; the pre-emption rights from BC-10 in Brazil; the Petrobras share, which was for sale; the signature bonus for Libra, just mentioned; and the bulking up earlier in the year of the North Sea upstream positions.

That means that our net investment spending, we expect, assuming closure of all of the above, to be around $45 billion in 2013.

The final outcome will depend on the timing of closure.

This increase from the net $40 billion guidance that we gave 3 months ago is driven, fairly simply, it's by the new acquisitions, the close to $3 billion in Brazil, and by lower divestment proceeds than we expected this year, as we expect closure now to extend into 2014.

So divestment proceeds, somewhere between $1 billion to $2 billion.

The $2 billion of the 2013 acquisitions have are ready been booked, but the remainder, that is up to $8 billion, should come in the fourth quarter.

Overall, and I would like to stress this quite clearly, we are managing to a $130 billion net spending program 2012 through 2015.

That is a 4-year program in the $100 oil price scenario.

There are many moving parts in then intent and in that investment program.

Not just investments but asset sales, acquisitions, new final investment decisions.

We manage all of this on a multi-year basis -- not annual and certainly not 3 months.

2013 will clearly be a peak year for net investment as we work through those $10 billion of acquisitions and this year's lower rates of divestments.

The divestments will step up significantly in 2014, 2015.

We're not providing a split of 2014 and 2015 spending today or any of the moving parts -- something we might come back to next year.

But to help with the simple arithmetic, net investment last year, $30 billion; net investment this year, $45 billion; net investments over 4 years, $130 billion; is a pretty good indicator of significant divestment activity and capital choices to come.

We have built up substantial new options for the Company in the last few years and a much larger exploration portfolio.

We have reached critical mass maybe beyond 2015 and beyond investment options [at] now, so there will be decisions to make in the next few quarters on which options to take through to final investment decisions and which projects we drop or defer out beyond that period.

That particularly applies to our global integrated gas business.

We have a series, an embarrassment of riches, of high-quality opportunities for new LNG Gas to Liquids and then downstream Gas to Chemicals.

We can't do all of these.

Some of these potential projects are reaching critical planning milestones over the next few months and each project is potentially individually material.

So we are expecting to make choices in the near future -- part of capital discipline embedded in our Management process.

So moving on, just to summarize before the Q&A.

Underlying CCS earnings, $4.5 billion for the quarter.

Strong project flow, we believe the best in the industry, for 2014 and beyond.

We can see the transparency of what gets delivered now over the next 1 to 2 years.

We have already started up a series of new oil and gas projects in the last few months, none of which were on the big five list, but each of which is material.

And that has been in deep water and integrated gas and the longer-term plays like Iraq.

They are all part of a project flow that drives Shell's cash flow into 2014 and beyond.

It will come alongside a significant reduction in net investment spending next year, particularly helped by increased divestment.

We make capital allocation decisions on a global basis.

We invest in the best projects.

We take a full value chain approach; we're not barrel-obsessed.

And we are looking to redesign or exit from positions that just don't meet those return materiality or strategic focus thresholds.

We have distributed more than $11 billion of dividends in the last 12 months.

And we are on track for up to $5 billion of buybacks in 2013.

All of the above underlining our commitment to shareholder returns.

But before we go for your questions, let me just share with you that the fourth-quarter results will be on the 30th of January, 2014, and Ben van Beurden, who will be our Chief Executive by then, from the 1st of January -- he will have been on seat for 4 weeks and he will lead that with me on that date.

There will also be a separate event, Management day for shareholders, on the 13th of March, 2014, and that's where you should expect to hear the latest thinking on strategy and overall delivery in a bit more detail.

So with that, could I move to your questions?

(Caller Instructions)

Thank you, operator.

(Operator Instructions)

Alejandro Demichelis from Exane.

Good afternoon, Simon.

Alejandro Demichelis from Exane BNP Paribas.

Couple of questions here.

The first one is you mentioned the lower net investment into year.

Maybe you can give us some kind of indication of how we should be thinking about the growth CapEx, or the organic CapEx into next year?

And then the second question is maybe can give us a bit of an update in terms of what is the is ultimate cost of Carmon Creek, now that you have the FID there?

Thanks, Alejandro.

I will complete the arithmetic.

The next couple of years, there is $55 billion of net investment remaining.

Our current organic spending this year is around $46 billion, because we have [10] of acquisitions and 1 of divestment.

So $36 billion -- so it's $45 billion of net, but $36 billion of organic.

That organic investment is going into attractive competitive projects.

It is not going to go down rapidly because that would be the best way to destroy value in our portfolio.

We are able to finance that level of investment and the growth in the dividend as we deliver the cash flow growth.

There is no spin or one-off or headline attempt here.

This is sustainable investment activity through cycle in pursuit of long-term strategic intent.

The organic level of CapEx -- a lot of next year is already committed.

We will be looking obviously for opportunities either to effectively look for [new] partner and investment that is ongoing or to -- where we bring new projects in such as the Carmon Creek, look to offset that with the divestment program.

So I can't be more specific than that because it will, to a certain extent, depend on actual transactions, some of which are only in early stages of development.

At Carmon Creek, just say a couple words about that.

It is a project that will produce for decades; it's a multi-billion barrel resource.

The first two phases, we announced today.

There are further phases potentially available to take advantage of the resource.

It is one of the longest-lasting potential resources in the Shell Group.

It will produce 80,000 barrels a day for many decades.

It is a breakeven price, well below the bottom of our range of testing for investment capability.

And in practice, the upfront investment in facilities last for many years but the drilling continues for many years beyond that.

So even if I was predisposed to give an individual figure for a single investment, I would not, because the drilling takes place for the best part of 20-odd years.

But the breakeven price, in terms of generating returns for the shareholders, is below $70.

This is an attractive investment that ranks well in our overall portfolio of opportunities.

It is also good timing in terms of taking the investment decision -- in terms of the management and the supply chain.

Hopefully that helps, Alejandro.

Move on to the next question.

Hootan Yazhari from Bank of America.

Hi there, Simon.

Two questions if I may.

Starting with how you're thinking about your aggressive divestment program and 2014 and 2015.

It would be great if you could give us some color around the sorts of assets that you are looking for inclusion in the divestment program, whether it be producing assets; whether it be upstream, downstream; whether you would look to sell down some of your integrated gas portfolio; or is it just too early to say?

Second question I had was regarding the North American portfolio.

Obviously, in the second quarter, you took some write-downs after an extensive geological assessment of your assets in North America.

I just wanted to see going into the end of the year whether that process would continue or whether you have substantially finished that?

And whether the valuation of your US portfolio could be impacted by any repricing of assumptions that you have on US natural gas?

Thank you.

Hootan, thank you very much for that.

Two important questions.

The divestment program, give you a couple of specifics, and then the general intent.

The specifics are clear -- Nigeria and the onshore shale portfolio that we talked about in Q2, they will happen.

The general intent in divestments always -- and this is ongoing program, we'll just we slightly more aggressive as we go forward -- is mature, mid-life or late-life assets in the upstream are always potential divestiture candidates because other people have a different approach.

They [know how] to generate value and may be better owners than Shell.

So that is always formed part of our sales.

The other type of asset in the upstream is at the other end of the maturity curve.

It is exploration or early development type assets, where we have de-risked; we've created an opportunity, created value; and either it is not strategically or economically attractive for us to develop it and better for somebody else, or where we can bring in partners, such as we did, for example, on the Prelude Floating LNG project.

So that type of asset -- or those two types of assets in the upstream -- will form the bulk of the activity.

In the downstream, there are clearly opportunities to come.

We know you know because we have talked before, the total capital employed in the downstream business is quite significant, it's around a third of the total, and the return on that business remains below where it needs to be.

And we know where some of the challenges are and we've already -- [two] I mentioned -- the Germany and Australia.

There will be potential further activities in the downstream, based on the assessment of the long-term credibility of achieving a competitive position, both in returns or growth.

So it will come from across the portfolio, is the basic answer.

North America -- it wasn't the total North America portfolio, I think the question is really about shale and the unconventional gas and liquids-rich.

The process continues.

The process is exploration and appraisal rather than continuing looking for impairment.

The reason that there were impairments in the second quarter is that exploration activities did not lead toward a potential development in the assets that were impaired.

We have $25 billion still on the balance sheet, some of that remains exploration.

It's less than half, but it is still a significant potential number.

The exploration appraisal continues -- third quarter, maybe even fourth quarter.

It's still too early to tell.

The rest of the portfolio is either being developed or we see a clear path to development.

We're producing 320,000 barrels a day.

Expect that to go down a bit from divestments and up as we focus our investment on the better opportunities.

So here is a huge portfolio, it's great resource.

It will be very valuable for Shell over time.

It's not something we change around overnight.

And as for the second quarter, I cannot and will not rule out any future impairments.

But they are of the nature of an exploration write-off.

They just happen to be, in accounting senses, defined as impairments.

Hopefully that's clear.

Move on to next question, please.

Theepan Jothilingam from Nomura.

Hi, Simon.

Two quick questions please.

Firstly, just on Iraq and Majnoon, could you just talk about the speed of the ramp-up there and what level of investment Shell has already put into that project?

Then just secondly, in terms of the downstream, you highlighted very much the weakness in refining.

Could you just confirm that you had a typical quarter in terms of marketing and trading profitability?

In the past, you've talked about $800 million to $1.1 billion of earnings coming from those businesses?

Thank you.

Thanks, Theepan.

Iraq, Majnoon, remember this was essentially a greenfield development, unlike the first wave of Iraq developments, such as West Qurna or Zubair.

So it's built on some old facilities but essentially it is greenfield.

We took the brownfield down and we are now bringing the greenfield facilities up.

The new facilities, we are running well above the first commercial production target of 175,000.

That we are running today well over 10% above that.

However, we have to sustain that on our bridge for 90 days out of 120.

So to meet that original requirement, we need to sustain the performance level.

Looking good at the moment with a bit of a fair wind behind us.

Because it's not simple operations, we should get there by the end of the year, which then enables us to get cost recovery.

While we don't give individual investments, it is of a small number of billions and it will take us 2 to 3 years of production to recover the full amount once we start to get to recovery.

That will put it in a better situation in the country overall.

Refining weakness, certainly weak, my IR colleagues always advise me that we no longer give the same breakdown as the business model is changing and evolving.

But the marketing performance overall is a combination of lower volumes but higher unit margins.

Growing in the areas we want to grow, such as Turkey, Russia, China, Brazil, and then demand challenges in some of the developed markets in Western Europe and North America.

And that overall, the marketing performance was pretty positive in what is a challenging environment.

But there is quite a shift away from developed markets towards developing markets going on underneath the results.

Trading outcome was pretty much a standard level.

So the simple answer is yes, it was in the range we used to talk about.

The issue in this particular quarter was basically driven by manufacturing.

Great, thank you, Simon.

Thanks, Theepan.

Move on to the next question.

Jason Gammel from Macquarie.

Thanks very much.

Simon, I want to come back to the North American portfolio.

I am trying to put my arms around what we should think about in terms of the rate of return on the liquids-rich shale venture here.

And I believe you spent about $10 billion on essentially unproved property acquisitions in the US over the last 3 years.

We would expect to see proceeds coming in from the property sales that you have talked about in our Niobrara, Mississippi Lime, et cetera.

But can you really talk about where you think you have staked out core positions in liquids-rich shales?

Is the Permian an area that you think is scalable and economic, and are there any others that you find scalable and economic outside of the Marcellus and the Duverney?

Thanks, Jason.

The portfolio question is easier than the rate of return.

The portfolio is the scalable positions, the Marcellus and the Groundbirch in the gas; potentially the Haynesville, which is already fairly material, it is just at the higher end of the cost curve, in Louisiana, on the liquids-rich.

Yes, Permian.

For us, most likely, no Eagle Ford.

That is one of the assets that is for sale.

And again, West Canada, in general, in more than one area.

Those of the areas we would expect to scale up in North America.

We are drilling in the Vaca Muerta in Argentina, which looks good.

Early days, but we are two rigs down there.

And of course in the rest of the world, in China, Ukraine, we are drilling.

In Russia, there is some activity through our joint venture, Salym Petroleum.

So there are plenty of basins around the world that offer opportunity, but for now it's West Canada and Permian that are the main liquids-rich development, with Argentina probably the next one.

I can't comment on rate of return because that will depend on the decisions to be taken.

But they will need to meet our overall criteria, which is considerably above cost of capital returns.

Okay, next question.

Jon Rigby from UBS.

Thanks, hi Simon.

Yes, couple of questions.

The first one, the -- if my mathematics are correct -- the implications from the numbers you gave is that the disposal program over the next 2 years is going to be of the order of $15 billion to $20 billion.

And I think you've talked about some of that coming from operating assets.

I'm just wondering how that squares with your operating cash flow target, where you look like you are behind a little bit against where I would expect run rate be, to make it, and any disposals out of operating assets are clearly going to put you further behind.

So I just wondered how you square those two objectives off over the next couple of years?

The second question is the Scrip.

Where people, for the industry as a whole, get concerned is around assurances on capital discipline.

Of course, one of the methods of giving some sort of assurance around that is the availability of a buyback.

Has there been any discussion or does the Board appreciate that the Scrip dividend itself actually blocks you out from doing a traditional share buyback, if I understand it correctly?

And has there been some sort of [abandoning] the Scrip just to give yourself the availability of doing a traditional share buyback rather than just an anti-dilution share buy-back?

Thanks, John.

$15 billion to $20 billion, I can't confirm, but the arithmetic is not far off, although you're a bit on the high side, but it is something we will come back to as we progress.

Really it's about progressing the divestment transactions.

There is some flexibility over 2 years of course on the investment program as well, where we would expect to be particularly choiceful, to stay within the bounds of the financial framework.

And yes, clearly, if we divest more and it happens to be particularly cash generative, it will have an impact.

Probably worth noting that on the 4 year's cash generation overall, there is not only behind us some challenges on the operational performance, such as Nigeria, or the operational downtime we have had in the UK and the Gulf.

But looking forward, Nigeria doesn't get any better, we are doing slower investment in the shale and we are -- the divestments are likely to have an impact.

And the refining macro and the gas price in North America both considerably worse than we might initially have hoped for.

Bearing that in mind, and leaving specific numbers aside, we have to balance the books.

We have to finance the investment, which gets to your second question really.

We need the flexibility, both on the balance sheet and in our investment, divestment choices, that enable us to maintain a robust financial position, where we do not have to make, we are not forced to make, potentially value-destroying choices around that investment program.

The Scrip is an important part of that and we fully understand, the Board fully understands, the impact on dilution.

Having started the Scrip, 3, 3-plus years ago, and the aim, remember, was to give us roughly plus or minus $10 flexibility on the cash breakeven price in any given year, which is roughly what it is giving us, the $3 billion or so of Scrip.

It is widely supported by shareholders -- 30% or so of shareholders take it up -- and to stop it, potentially, would be unpopular with all shareholders as well.

So what we have been doing is the buybacks are higher than the Scrip.

I think I mentioned before, we think our maximum buyback in any given calendar year is about $6 billion.

If we do $5 billion this year, we're about $4 billion behind on a cumulative basis.

We look to do that dilution offset through cycle rather than in any given year.

The Board is acutely aware of the dilution impact.

But also aware that the important thing, because the numbers are a bit bigger, is to manage the net investment levels, and to most importantly of all in the short term, to deliver the cash flow growth.

So we have to keep all of those balls in the air and use all of the tools in the toolbox, with the aim being, through cycle sustainable cash flow growth.

So yes we sell things we will lose a little bit, but it will be replaced by other choices that we do make.

Slightly complicated and we went into the Scrip thinking but hopefully that gives something of a feel for the way we are thinking about it.

And can I certainly confirm, John, that the Board is acutely aware of these issues, as [I came into] the discussion yesterday on exactly this.

Next question.

Rahim Karim from Barclays.

Good afternoon, Simon.

Bit of a follow-on actually from the last question.

If I take consensus cash flow estimates for the next couple of years, that's about $90 billion of cash flow, at least.

You talked about net investment of $55 billion over that same period of time.

Your balance sheet is in a pretty strong position already.

I'm trying to understand the priorities of the use of that cash.

It only really seems like it can go back to shareholders.

You are limiting yourself in terms of the amount that you can buy back on a net basis here.

It only points to a higher dividend.

So I was wondering if that's the right way of thinking of it or if I am missing something?

I wouldn't comment on the CFFO estimates other than to say that we need to shoot for that or beyond to meet our own growth targets.

So fair comment on the arithmetic.

Let's get half way there first, Rahim, before we have the discussion particularly on the Scrip.

But the aim, clearly, is to deliver free cash flow through cycle.

And if you just -- for the sake of argument, the cycle is the 4 years that we've talked about.

And we get there, then yes, there will be free cash flow and we will have the luxury of choice.

We are not there yet at the moment.

On one of the slides, the financial framework slide, you will see.

I've said before, my job is to keep the red line above the bars, over the period, and right now in the last 12 months, the red line is dropping; the free cash flow is turning negative because of the high level of buybacks; and we are looking at a fourth quarter where we may have somewhere above $6 billion of cash going out on acquisitions.

So need to balance all of those factors and think through.

So hopefully in 12 months time, you can ask me the same question, Rahim, We will have divestments behind us; we'll have the proof points on the growth; and the discussion of the Board will be precisely what to do with that excess cash.

At the moment, it is about the confidence in delivery and the choices that we make to ensure that we remain in charge of the choices, irrespective of what happens in the macro environment.

And recognizing the clear and legitimate interest of the shareholders and the rating agencies for that matter.

Thanks, Rahim.

We will come back to that subject, I'm sure, in the future.

Next question.

Michele Della Vigna from Goldman Sachs.

Hi and thank you for taking my questions.

I was wondering, given your exposure to Gulf of Mexico refining and the [widening] of the LLS spread, how much light crude your refiners can take there?

And also on your onshore US assets that you are putting on sale, I was wondering how much money, in terms of organic CapEx you're spending there this year?

Thanks, Michele.

The Gulf of Mexico refining, we are not set up to process light sweet crude.

Our refineries are designed and configured for heavy sour; in fact, they are designed to process just about everything up to old tires.

Unfortunately that is not the feedstock that is most attractive at the moment.

We can take some and we're looking to maximize what we can take, but that is not the basis of design.

We are reasonably well-positioned in our Canadian refineries, which is where we actually have had planned maintenance downtime in Scotford over the past month or two, and that -- Scotford should be back up again in the near future, which is well-placed.

Particularly on the WCS spread.

It will take longer-term adjustments if we were to change the nature of the Gulf Coast refining, which you may recall also, is all in joint ventures, either with the Saudis or with Pemex.

On the LRS assets or, perhaps more generally, our total activity has reduced quite significantly.

The end of last year, we were at 40 rigs onshore and we are 24 now.

Some of our drilling has been done by joint venture partners in both the Permian and the Haynesville.

And we are effectively taking that activity level down.

The assets that are for sale, basically is Kansas and the Rockies, I don't think we are drilling at all.

Eagle Ford, there are a couple of rigs active, that need to be active still, to hold the production and meet commitments on the acreage.

But basically it is on the minimum care and maintenance activity overall.

The balance of the 24 rigs that are drilling, two-thirds of them are on LRS acreage.

Some of it, development in the Permian; the rest is rapid appraisal in Canada; and we would expect -- we have about 40 wells awaiting hook-up in the fourth quarter, maybe more as the are drilling the quarter.

So would expect to see the gas declines that we are clearing seeing, because we are not drilling, offset by LRS production coming in over the next 3, 6 months.

Moving on.

Next question.

Lucas Herrmann from Deutsche Bank.

Simon, afternoon.

Thanks very much for the time and thanks for the opportunity.

And thanks for fronting things.

I am really struggling to understand Shell's capital allocation over the last 5 years.

And to listen to what you have to say about choices.

When I look at what has happened in your Americas business, Simon, you have invested broadly $60 billion of capital.

You've watched return on capital go from north of 20% in 2007 to negative at the present time.

You've invested understandably for growth, but you are now retrenching -- or it certainly very much seems that way -- and narrowing.

And you've told us today that you are going to invest significantly in bitumen assets in Canada, which typically one -- the experience around bitumen has not been particularly favorable.

On the other hand, you've got an integrated gas business, where you have grown your invested capital by, broadly, $24 billion.

You've driven your returns from 12% to 23%.

You've driven your profit from $3 billion, $4 billion to $10 million.

You've got clear competitive advantage.

It's a market that is moving in your direction.

Everything that you have in that business suggests it is going the right way for you and the decisions on Repsol are absolutely the right ones to take.

And then I listen to you talk about hard choices, and it's the integrated gas opportunities that you indicate you are selling down.

I appreciate you can't take everything but the allocation of capital here over the last 5 years is in many respects beyond belief.

What I really struggle with is the extent to which, in terms of decisions, Simon, you are pushing to a region which has been -- where if anything you do need to redress, you do need to reconsider, and you do need to try and decapitalize, in order to accelerate an improvement in cash flow and return?

That is question one.

Or that's observation one and question one.

Question two is just downstream, I really struggle looking at the numbers to understand where the major issues are in the manufacturing business.

Are they, as you have just perhaps alluded to, essentially the Gulf Coast, it is the wrong -- they're positioned for the wrong feedstock; they are going to remain disadvantaged for as long as the WTI, Brent, et cetera, disconnect remains in place or until you can start feeding crude to that market.

Or are there issues elsewhere in the portfolio?

But sitting on this desk it is [nigh on] impossible to get a sense of exactly what is going on in that business and why the results are as disappointing consistently as they have been?

Thanks, Lucas.

I will take them backwards.

Partly because the first was perhaps more a statement of belief than a question, but I will maybe address it anyway.

The downstream -- where the major issues?

If you look at the capital employed around the world, we're in the US, we're Europe, as we have less capital in Asia-Pacific.

The Asia-Pacific assets are primarily in [Bookham] and Singapore.

That market is significantly challenged with negative processing margins to date -- so it's been negative to zero for quite some time.

It's only through ability to add value right through the chain that it makes any sense running the refineries at all.

And turning that situation around is going to be -- is going to take some choices around which markets and how we load the units.

The Australian refineries are already in the process of either closure or sale.

In Europe, there are two major complexes -- in Rotterdam and in Germany.

Rotterdam is doing considerably better in its operational performance.

It is struggling at the moment in the sense of export to the US is no longer an open opportunity, partly because of the changed nature in the US on feedstock.

The Rhineland refinery in Germany is more challenged, but I mentioned earlier, a change in the business model, the way we manage these blocks of capital and the flow of value from customer backwards through to crude sourcing into the refineries.

We're fundamentally changing the way we manage that.

As a result of that imbalance, of producing 1.6 million barrels a day, refining 3 million, but selling 6 million to our customers.

That balance has changed quite substantially but we are doing a bit of catch-up in terms of the business model and [can't bill] is just managing the margin.

So I wouldn't say the European major blocks are at risk but we have to prove to ourselves, first, let alone yourselves, that we can make good returns there.

The US is currently a tale of two stories, really.

The Motiva joint venture has had quite some significant operational challenges.

It is also configured for feedstock, as I've just stated.

The other refineries, in Deer Park, which is also Gulf Coast -- but on the west coast and in Canada -- have generally performed well both operationally and better financially overall.

There may be other blocks of -- I wouldn't call it dead capital, but not necessarily entirely productive capital around the downstream but it is the large pieces of [kit] that I've just talk through that are major contributors.

We have over $20 billion of working capital in downstream, which depending on your accounting convention, isn't there in all our competitors.

So hopefully that helps on the downstream.

On the capital allocation, I can neither confirm nor deny the figures that you've stated.

However, the American business, you have [seen] there's huge exploration activity, as well.

So that has been part of the allocation.

And some of that is to Alaska.

That allocation to Alaska will be -- it's a bit of a binary outcome; there is either big oil there or there isn't.

It's the nature of the business that there is risk and hopefully we will see that in the not-too-distant future, whether that was money well spent or not.

I talked you about the shale gas.

The shale gas, we have created a large portfolio.

It is losing money at the moment.

Still losing money.

In earnings terms, it's slightly cash positive.

It needs to become rather more cash positive and reach earnings positive, based on the strategic moves we are taking.

And that is one thing, in fact both the things we've just talked about -- both the downstream and the shale business and where we are heading on exploration.

Those are things that we will definitely cover as Ben comes on seat.

The rest of the business, the oil family is performing well and reliability improving.

It's profitable; it's cash generative.

The challenge there is the debottlenecking and the ensuring that the ongoing maintenance CapEx does not get too close to the cash generation from the asset.

So the debottlenecking, et cetera, will grow that business over time.

Carmon Creek is an in situ heavy oil play.

It is not stranded because we have the access of the bitumen to the east coast.

In fact, it's most likely to be a fully integrated play with the solvent required to move the bitumen coming from our own liquids-rich activities.

And Carmon Creek is essentially a gas to oil arbitrage because there is very significant gas going into the project, which will go into effectively CHP schemes to produce the steam and export electricity.

So we are creating a core piece of energy infrastructure that will make money for many, many years to come.

It's also the major player in, in situ; it's our only major player in, in situ.

But it's an asset we have worked for many years.

As a stand-alone material piece of business that could double from the initial 80,000 barrels a day, it's very much worth having in the portfolio.

It is wrong to look at the Americas only through one lens.

I didn't talk about Brazil, but that has the separate potential, if anybody will wish to go there.

And move on to the next question.

Martijn Rats from Morgan Stanley.

Good afternoon.

I will leave at one question.

I just wanted ask, during the quarter, there as been some newspaper coverage of a large GTL facility in Louisiana, and I was wondering if you could comment on where we stand with that project?

And at the same time and [that] also includes the chemical cracker [rim], which I believe is scheduled for Pennsylvania and the project for LNG exports.

On those three types of investments, what do you expect in terms of FIDs over the next couple of quarters?

The next couple of quarters, none, because none of them are anywhere close to FID.

But I will give a broader answer that, Martijn, thanks.

Those three opportunities are all large-scale investment.

LNG Canada would be the LNG, I think, that you mean.

They are all approaching what we call the concept selection phase before we go into the final -- the engineering design --front-end engineering feed stage before the final investment decision.

We're already doing some of that detail design in LNG Canada but we're not there yet necessarily on the other two.

When I talked about choices in the integrated gas portfolio in the funnel, and deciding which one do we take forward, that's precisely what I was referring to.

We cannot afford to take all three together at once and even if we could, I'm not sure we have the engineers and the project managers to do so.

So we will need to make choices, which go forward.

At the same time, just on North America overall, we are investing in the Elba Island export facility, which is small, modular, rapid, and highly profitable.

The gas to transport schemes go ahead -- there are three of those -- also small and modular.

A bit more risk on the profitability, on those projects, as we're looking to create a new market.

But all of those, and as I mentioned, Carmon Creek, are in effect, players on gas price -- a low gas price, high oil price, arbitrage opportunity.

So quite significant value potential for Shell.

We don't have to do all of these at once; we will not do all of these at the same time.

Hopefully that helps.

Move on to the next question.

Fred Lucas from JPMorgan.

Thank you, good afternoon, Simon.

Just one question.

Is Shell's strategy immune to the share price?

Thanks, Fred.

To the point as always.

No, but the share price reflects what we feel are sometimes short-term trends, whereas if we are really to deliver value for our shareholders, we have to a longer than that.

And I'm going to wind the clock back.

I know I've done it before.

But I've seen all of the research and the analysis as to why the returns were higher 10 years ago than they are today with higher oil prices.

And the answer is simple.

5 years' focus on returns led to a no-growth activity and the next -- the last 5 years has seen everybody have to bump up investments to get back to the point where they afford to grow the dividend.

So 10 years ago the returns were overstated.

I would say now they are understated because everybody is carrying a greater than normally expected weight of not-yet-productive capital on their balance sheet.

The actual return you should achieve from this industry is somewhere in between.

Our aim -- we deliver the cash flow growth, we will get our returns back into what we would see as a competitive position.

It will get there earlier than others because we started earlier.

We need a belief that our best way of generating cash flow is a relatively consistent level of investment activity.

The actual cost of it may go up and down because it's not necessarily directly related to the activity but through cycle investment and through cycle growth.

We are not going to stop-start, no matter where the apparent pressures may come from because that destroys the value.

We leave the stop-start for those who maybe do need to do it.

We are already back in a more sustainable level with choices.

The acquisitions, they are significant this year.

The divestments will offset the acquisitions.

We will grow the dividends, we will do the buybacks to through cycle offset dilution.

And we will invest at a level where we get both the cash flow growth to sustain this for a considerable time to come and also do it [on] competitive returns.

And that's what we need to do.

And unfortunately, if we read the headlines and made choices on 20, 30-year investments, I don't think will be in anybody's interests that we came up with that outcome.

Of course the share price matters.

Apart from anything else, there are quite a few people in the Company who own shares.

It impacts hugely the motivation of people in the Company -- how good they feel about what they do when they come to work every day.

And in word it affects my job security.

So Fred, the answer is yes.

Next question.

Peter Hutton from RBC.

Afternoon Simon.

Can I just concentrate a little more on the details -- very useful helicopter view.

But on exploration write-offs, saw a huge jump in the third quarter on record levels -- about [$950 million], looking at the math.

That's up [$750 million] on a year ago.

Can you just talk us through some of the larger moving on that.

How much is that related to liquids-rich shales?

And also how much of that was the Palta well in Australia?

What proportion of that?

And are there any implications on Shell's willingness to be a 100% holder on major exploration wells in the future?

And the second area is you said Alaska drilling is essentially a binary option.

They're will be big oil there or there won't and we will find out.

Can you confirm that you are planning to drill in the summer window in 2014?

Thanks very much.

Thanks, Peter.

Exploration, we did actually give an indication this will be higher for Q3.

It ended up being slightly higher than even we expected.

The Palta well was around a couple of hundred million.

We also had write-offs in -- one in the Gulf of Mexico, in Qatar, in Norway and Kazakhstan -- that's not in the Kashagan concession, it's elsewhere -- in French Guiana, and we also had some of the shale gas development in the JQ activity in China.

Interestingly there was nothing really in LRS in this particular quarter.

So more exploration is a good idea to build the portfolio.

Unfortunately, it was a particularly unsuccessful 6 months, really, because not all those wells were actually drilled in the third quarter.

Does it impact our willingness to go 100%?

Depends on the nature of the opportunity.

But, let me just say Libra is a buy-in, most likely at less than $1 dollar a barrel to a massive world-scale opportunity.

We don't have to go find more oil, we have to explore and appraise further that particular opportunity.

So over the next 4 years of exploration appraisal process in Libra, that is almost certain to back out exploration opportunities that are already in the portfolio elsewhere, because it's of a higher probably and a greater certainty of development.

Therefore our willingness to go forward with high shares may well have been impacted a bit by success in Libra.

One might also argue your first point -- if we are not being as successful as we thought, we have to understand why not.

And that may also impact.

Alaska, the current intent is to submit the exploration plan for 2014 and beyond in the next few weeks.

That will focus on the Chukchi, which is by far the bigger opportunity, partly because we have taken on a third rig effectively to replace the Kulluk in the short-term opportunities and in the Beaufort Sea, it is very shallow, and only the Kulluk can actually operate properly there.

It's quite likely we will not continue the repair on the Kulluk, which may mean a write-off, few hundred million, in the fourth quarter.

It would be an identified item, of course.

So we have the two rigs.

We need to go through -- and the intent clearly is toward drill in 2014, but first of all, we have to ensure that all our own equipment, all 25 or so vessels that need to be in the theater are ready and permitted to operate and we'll be sure about that some time in the first quarter.

And then we need the exploration plan and all the associated permits in place before we start to drill.

And the clear focus is on the Chukchi, the Burger prospect.

And just to close the loop strategically, Libra, Carmon Creek, and Alaska are all multi-billion barrel prospects.

Just the Burger prospect alone matches our potential share in Libra or higher.

In fact, Alaska is the biggest of those three.

So it is the most attractive asset, and I've said before and I will say it for repetition purposes, the money we've spent on Alaska so far will still be money will spent if those wells come in -- the first wells in the Chukchi -- if they come in on the pre-drill prognosis.

It is high risk, but sometimes in our industry that's what we need to take.

Hopefully that gives you some feel for both the results Q3, where we actually think, this is one of the main reasons why we were below the expectations of those of you on the call, with higher exploration expense in the quarter.

We'll move on to next question please.

Jason Kenney from Santander.

Hi, Simon, just going to Libra while you're on the subject.

Can you confirm if Petrobras is paying its only share of the signature bonus in cash alongside your Q4 payments, which I think is going to be $1.4 billion, for you net?

And then when would you expect first material spends on those [20] or so floating production system -- I'm assuming beyond 2015?

So it won't be in your 2015 cash flow assumptions?

And then the second question, what is the chance that you're actually going to drop that CFFO target at next year's strategy day?

Thanks, Jason.

Petrobras, sorry you'll have to Petrobras whether they pay; we certainly do pay but there's a little bit of FX exposure, because it go to the payments in [rise], but we expect it to be around $1.4 billion.

The basic deal on Libra, is it's a 4-year exploration appraisal process.

We're committed to drill some wells, shoot some seismic, and prepare a development plant.

So for the next few years, on our accounts, it's actually next year probably be $100 million.

Thereafter it's a couple hundred million a year during that process, at the end of which, I'll be able to answer to the question about what rate do we develop.

It is [a] going to be many FPSOs, many wells, an investment probably over 20-plus years.

On the CFFO targets, the targets themselves have not changed.

We'll give you an update obviously -- a fuller update -- in January, when we do the fourth quarter.

I mentioned, there have been headwinds to date in operational performance.

And going forward, there are some headwinds.

Just to recap -- Nigeria; obviously, Kashagan, not being up and running doesn't help; lower investment in the shales; the refining margins; all of these things will make that more challenging and therefore the need to ensure that the net investment doesn't get ahead of ourselves and our need to balance the books and keep that shareholder return protected and enhanced will be paramount in those choices.

But I can't say anymore at the moment.

It's not something we reassess on a monthly or quarterly basis.

Thanks Jason.

Move on.

Next question.

Neill Morton from Investec.

Good afternoon, Simon.

I had a couple of questions.

The first is, potentially at the risk of raking over old ground, but I hear what you're saying in terms of net CapEx, and tough choices, and the $55 billion number over the next couple of years.

But is it not the case for a Company of Shell's size and with the scale of its portfolio, in any one year, there are always likely to be options -- unexpected options appearing -- whether it's a signature bonus, a compelling preemption, opportunity, or an acquisition.

So the question is in that 4-year net investment target, is there included in that an implicit bucket for these types of unexpected opportunities that arise and almost are too good to turn down?

And then my second question is just one of communication.

You've clearly been trying to give the market a greater guidance in recent quarters, and the market has been unsuccessful in following that.

It was way too pessimistic in Q1 and it's been too optimistic over the past couple of quarters.

Clearly, you guys collect consensus from analysts.

But I was just wondering was the procedure is, once you realize that your numbers are significantly at variance with consensus.

Whether you actually do consider putting out a comment with regards to either a profit warning or numbers being significantly ahead of forecasts?

Thank you.

Thanks, Neill.

It's a good question -- the first one -- around the overall net investment level.

There is an implicit allowance of acquisitions versus divestments across the 4-year period.

Buses and trains don't always come one every hour, so the preemption opportunity in BC-10, the opportunity for Libra, the Repsol asset -- yes, they were almost too good to miss.

So we got on those buses.

There is therefore not much of an explicit bucket left for the next 2 years and opportunities will still come through.

I would have to say we would not ignore new opportunities going forward, but the bar to get through to be attractive relative to other options has gone up.

It 's a higher because two reasons.

One, we've got some great options in the portfolio now, partly from acquisitions, and partly of the need to ensure we stay within the financial framework.

So there is no explicit bucket going forward, but we're not out of the market for 2 years the opportunities that do come along.

Guidance -- well, two things really.

Yes, I give guidance in this call.

That's the last guidance you will get for Q4.

The guidance I just gave was relatively negative in terms of the level of maintenance both in LNG and GTL and the fact refining margins are not in a good place.

We give no further guidance and that is one of the reasons that estimate are presumably diverting from expectations.

Go back to Q1 -- we were miles ahead of the market's estimates.

Our view is and will remain, we've given you the guidance.

There will be updates during a quarter on anything that's relevant, such as issues in Nigeria, which is a perennial.

You see the gas prices yourselves and it's highly unlikely that we would ever make a profit warning ahead of a results, just because market estimates are not where they are.

Warnings are only against statements we've made, not statements made by analysts or anybody else who happens to guess at what our earnings might.

To be -- both of the last quarters were not that different from the guidance that I've given in the previous quarter.

I've just acknowledged that our exploration write-offs were higher, but not in the bigger scheme, really big issue.

So we have no intent to give different type of guidance and we are not really able to do so in terms of basic disclosure rules.

I know that doesn't help you and we'll try and give you as much guidance as we can in this calls and help you to understand the relationship between events and ultimate financial outcome in the short term.

But I would encourage all of you to look through the 3 month and think more about strategic delivery.

And we accept where we need to demonstrate what needs to be done in terms of growth and returns in that context.

I have a couple of questions left, I believe.

Robert Kessler from Tudor, Pickering, Holt & Co.

Hi, Simon.

I appreciate your stamina on this very long call.

A couple of downstream questions for me.

One is you mentioned some spots across the globe, and I appreciate the overview -- where things are challenged -- Singapore, for example; you split up Europe into different pieces.

Can you quantify any economic run cuts, where you're running below optimum utilization simply because of economic reasons, not operational reasons?

Robert, not directly.

It was difficult to hear, actually, but question on economic run cuts in the downstream, I think.

We've got -- some of our facilities don't run full -- flat out -- partly because of the economics, but they are not recent economic run cuts, in fact, quite the opposite.

And the major shortfalls of being in the Gulf Coast area and in Europe, where the -- basically, demand in Europe has not necessarily matched the capacity available.

And in North America, it's more about the matching of feedstocks to the refinery configuration.

But we actually saw a marked improvement as a result of some of the organization and accountability changes we have made on the full utilization of the European refineries.

Hopefully that covers.

And that is likely to continue by the way, the utilization improvement.

Next question.

Derek Jun from Salient Partners.

Hi.

Thank you.

Just going back to the exploration well write-off, how does this compare to last quarter, and could you quantify exactly how much was written off?

$950 million was written off and it was a couple hundred million higher than last quarter, which shouldn't be taken as an indication of four times $950 million.

So it was a particularly high quarter.

We'd expect still a reasonably high level in the fourth quarter but not at that kind of level.

So our ongoing exploration expense is running -- which includes seismic and other activities -- is probably running for $4 billion, at the moment.

One last question.

Stephen Simko from Morningstar Research.

Hi.

Good afternoon Simon.

I'll ask just one question and that would just be, I don't think you have given an update on unconventional production in North America in a little while, at least in explicit detail as you have maybe a few quarters ago.

I was wondering -- I know obviously there is going to be a lot of movement in the portfolio over the -- let's call it next few quarters -- but with the spending plans that you have today and the portfolio you have today, can you give some sort of -- can you give any color around where volume levels will be given the planned spending that you have?

So not saying necessarily if you kept putting money into different plays that you are planning to invest.

But as a matter of just, with the acreage that you have today and the spending that you are planning today for the next 12, 18 months, where are volumes going to be going, both liquid rich and/or dry gas?

Thanks.

Thanks, Steve.

The production in the third quarter is about 320,000 -- which, 55,000 or so of which was from liquids-rich areas.

That was about 340,000 at the beginning of the year, so we've been running down the gas, basically, and replacing it with liquids, but not quite at the same rate.

Going forward, the 55,000 will go down by something around 25,000, as and when we are able to sell the Eagle Ford asset.

Give or take.

But will go up as we invest in Permian and West Canada.

The gas is likely to decline for a bit because we are not drilling really at replacement rate and we are reducing our investment there pretty much to the lowest level that is appropriate to staying in the major basins.

So I can't give a number because I don't actually have a number but those are the trends.

And that -- perhaps, the more important thing from the financials is getting the cost base right on both the operating cost and the capital cost of drilling those wells, driving it down so that everything we are drilling is okay at $4.

And the prices that we're seeing realized in the NGLs and the condensate.

So that is where the focus is really.

It's not a production thing, it is a financial-outcome-driven strategy.

And hopefully that -- some day, we will be able to return to you with more positive news over the next few quarters.

Well, thank you very much for the questions.

I appreciate it is a really busy day for many of you with multiple companies reporting.

So thank you for spending the time with us.

As I mentioned earlier, the fourth-quarter results will be released on Thursday, the 30th of January, 2014.

Hopefully there won't be five others reporting on the same day.

And Ben and I will be happy to talk to you all then.

I look forward to that and thank you for joining.

Take care.

Thank you.

This concludes the conference call.

Thank you for participating.

You may now disconnect.