殼牌 (SHEL) 2013 Q4 法說會逐字稿

Thank you very much for that and good afternoon, ladies and gentlemen.

We welcome to you here.

First of all, the disclaimer statement for you to internalize, although I guess most of you will be familiar with it.

So we confirmed our full-year results for 2013 today and Simon and I will run through that.

And I'll make some comments on where we want to take the Company in the future.

It's been just over six months now since I was selected to become Shell's CEO.

The hand over with Peter has gone well and it feels good to be here today to talk to you about the Company and our plans for the future.

So today's presentation is really about the results and the financial priorities for 2014.

Having a Management day here in London on the 13th of March.

There you will have the opportunity to sit down with me and the Executive Committee to discuss the longer term portfolio and the strategy in a little bit more depth.

Our ambitious growth driver recent years has yielded a step change in Shell's portfolio and option set with more growth to come.

But at the same time, we have lost momentum and we can sharpen up our performance in a number of areas.

So we are changing emphasis in order to improve our returns and cash flow performance.

I want to focus on an improved financial performance, enhancing capital efficiency and continued strong delivery of new projects.

And 2014 will be the year where we implement some changes as we moderate our spending and growth plans, increase our divestments and restructure some parts of the Company.

Going forward, I want Shell to be measured on our competitive performance.

And we are taking a timeout on complicated targets that were becoming hard to track.

We want to generate attractive returns for shareholders, and this means returns at the project level, typically the solid discount of cash flow basis and returns on the bottom line, return on capital employed earnings cash.

And that of course also drives Shell's dividends.

So let me recap on my thinking on strategy and performance and the priorities as I see them for Shell.

Firstly on HSSE.

The health safety of our people and our neighbors and our environmental performance remained the top priorities in Shell.

They're heading in the right direction over time, as you can see, but this is an area where the Company can never be satisfied and never be complacent.

I believe you have the right safety culture in the Company, and our track record is improving and competitive.

But we did regrettably have safety incidents in 2013.

So we will continue our safety drive, which is called goal zero, to further improve here.

Now turning to the strategy, let me say that shell's long-term strategy is sound.

Yes, we will make some changes in some areas, but overall I'm satisfied with most of the asset base, our project delivery credentials, Shell's people and our technology leadership position and many of our businesses demonstrate outstanding world-class operational and financial performance.

And integration and scale are key strengths of the Company.

But as our business model is based on significant investment levels, it is essential that we allocate capital efficiently, and this is going to be stronger focus for the Company going forward.

We haven't always made the right capital choices, and we need to react more quickly to changes and opportunities in the industry environment.

For all the parts that make up our business portfolio, be it existing assets or new projects, we need to scrutinize harder for whether they are sufficiently attractive and resilient.

Do they have the plans that are credible, plans that our competitive and plans that are affordable?

I think we can be more rigorous in our analysis sometimes.

Overall we managed through short-term volatility and we look for trough cycle growth in cash flow, competitive returns and growing the dividend.

And we need to be innovative and generally be leading edge to be competitive.

And this is a consistent and long-term approach for Shell.

This is how we create value and it also enables us to grow the dividend sustainably through the business cycle.

Now then turning to financial performance, first on cash flow.

We had a cash flow deficit in 2013.

And this resulted from a step up in capital spending in 2013 driven by the a higher pace of acquisitions and by slowdown in divestments.

And going forward, we need to realign our cash inflows and cash outflows to a surplus position, not necessarily on an annual basis, but I do see the size of cash deficit in 2013 as unusual and not something we will repeat likely.

And although our operating performance has been satisfactory overall, our earnings and cash flow have slipped in some areas.

There are several factors here.

For example, changes in the industry environment such as low refining margins, lower US gas prices and the security picture in Nigeria.

We can't influence that, and we are looking carefully at where we need to adjust our strategy and our exposures.

And on the Shell side, we have been hit with high levels of maintenance and exploration charges in 2013, which have reduced our results.

In exploration, frankly we had a mixed year with the drill bit and exploration charges to income were $5 billion pretax in 2013.

Now this does come with a higher level of exploration activity, but I don't like to see these dry holes, either.

So lots to work on.

But clearly, none of us at Shell are comfortable with these results.

So this chart here shows our competitive position on two very important metrics for Shell.

And I think the competitive picture is a good way to assess our performance.

Cash flow from operations reflects the quality of our investment choices, and of course, our operating performance.

You see our cash flow has moved into a much stronger competitive position from a low starting point.

But also the momentum has slowed in 2013, and we want to see more growth here.

Return on average capital employed is also an important metric for us and ROACE important for any capital intensive business on the long-term basis.

Plans to generate competitive returns have been firmly embedded in our strategy for some time, and our project flow will help here and should drive returns higher in the next two or three years.

Shell's returns are about average on a long-term basis, but we have slipped recently.

And there are many factors in that such as growth spending and the macro cycle, but I want to see us moving to a higher level of return on capital employed going forward.

Competitive performance on return on capital employed will be included in our Executives remuneration package from 2014 onwards.

So those are some comments on how I see the strategy and the competitive picture.

Now let me make some comments on the priorities that I see for Shell in 2014.

As I said, we have been following an ambitious growth strategy in the last few years.

We've achieved a lot, and there's more growth and cash flow and returns to come.

But as I also said, our momentum has slowed in 2013 and we need to improve here.

I believe our overall strategy remains robust but 2014 will be a year where we change emphasis.

Our financial performance can improve, and this means a more competitive picture on returns as well as growing our cash flow, which should drive, again, dividends over time.

Improving the profitability in our products and in North America upstream will be a particular priority for us.

Overall, we need to enhance our capital efficiency which will involve moderating the pace of growth investments, more asset sales and hard decisions on new options.

And of course, we must integrate the 2013 acquisitions and continue to deliver our project successfully.

Let me two-- let me highlight two areas of the Company that we are restructuring.

North American resources plays or shales which lost over $2 billion, excluding identified items in 2013, and global oil products where our returns at 4% in 2013 are simply too low.

Now Shell has a substantial capital employed in these two areas of the business, nearly $80 billion combined at end 2013.

And both have been impacted by weak industry conditions like the fall in the US gas prices, low refining margins, both triggered by oversupply, which should be or could be a permanent structural change.

And we are restructuring both of these portfolios with asset sales and potentially further impairments.

And we are going to be much more selective on growth opportunities here.

We'll give you more information all of this in our March Management day, and this is clearly going to be a focus for us in 2014 in what is going to be a multi year program to address these issues.

Shell has a rich opportunity set, which we have built up over the last few years, and this is frankly a good position to be in, but we are capital constrained.

Now we will go ahead with the most attractive investments on behalf of our shareholders, but we need to make hard choices on pre FID options and non-core assets.

Are these fundamentally attractive in terms of economics and growth potential?

And are these positions resilient to price volatility and other risks?

For example, we recently hold the design work on the large-scale gas to liquids project in Louisiana.

And we postponed FID on the Arrow energy project Australia.

We didn't like the economics and the inflation risks on these proposals.

We sold our Wheatstone energy stake in Australia which was simply too small to be material for Shell.

Shells focus on energy is to deliver Prelude, Elba and the non-operated Gorgon project, and of course to be capital efficient and progressing the next wave of LNG options like [Kabadi], Canada LNG, Browse and Arrow.

And we are not expecting any major FIDs in Asia Pacific LNG in 2014.

The selling (inaudible) assets in Nigeria and North American onshore, although prices have fallen in North America outside the sweet spots.

And we had divesting a series of refining and marketing positions in all products.

And there are more asset sales to come.

Overall, we're announcing a step up in asset sales, which should reach $15 billion for 2014 and 2015 combined.

These asset sales and a rigorous portfolio approach will add more focus and capital efficiency to the Company.

Now let me make some comments on capital allocation at Shell.

Our 2013 spending was $46 billion, and that included $8 billion of acquisitions.

Now bolt-on acquisitions will remain part of our strategy, although I expect less activity on deals in 2014.

And including the acquisitions we have already announced, our total capital spending in 2014 should be some $37 billion, 20% lower than last year.

Organic investment for 2014 which excludes acquisition, is expected to be around $35 billion, or 8% lower than 2013.

And this marks a new emphasis in Shell to moderate our growth ambitions and to improve our free cash flow and returns.

As you know, we are making investment choices on a global thematic basis, and you can see here the main categories.

Each of these strategic themes has distinctive technology drivers, partnerships, financials and markets.

So we have the engines business of downstream and upstream, our mature businesses, and they provide strong free cash flow for our dividends and growth themes, $7 billion free cash flow in 2013.

The growth priorities, deep water and integrated gas are where Shell has leadership positions in the industry.

And in integrated gas, we have a very rich funnel of development opportunities.

Maybe a little too much.

And this is an area where we have been trimming our portfolio more recently.

And at the same time, we are building on our deep water funnel new exploration and deals like Libra in Brazil.

The longer term category covers potentially very large positions for Shell in the future but where we need to be careful not to over invest at too early a stage.

And this includes politically complex place like Iraq, Kazakhstan, Nigeria and also sensitive environments like the Arctic and oil sands.

So we've put resources plays in this long-term category as well.

I believe we got a little ahead of ourselves in some of these longer term plays, and I want to moderate our investment base here.

So running through all of this, I want to make sure we are applying rigorous capital efficiency.

And this means investing in the projects that generate the best returns and cash flows and getting out of plays that frankly we can't add value for our shareholders.

Now let me make a comment on Alaska.

There we have been in a multi year exploration program in the Beaufort and Chukchi Sea.

So we took a pause in 2013 to prepare for the next drilling season.

We've added additional people, our resources to the venture, we updated our plans with what we have learned from 2012 and we have been working closely with the US Department of the Interior and other US Government agencies.

However, we're frustrated by the recent decision by the Ninth Circuit Court of Appeals in what is a six-year-old lawsuit against the government.

So the obstacles introduced by that decision makes it impossible to justify the commitment on cost, equipment and people needed to safely drill in Alaska this year.

We will have to wait for the courts and the US administration to solve this legal issue.

And given all of this, we will not drill in Alaska in 2014, and we're reviewing our options here.

Now turning to projects.

We started up seven large projects in 2013 that have some 180,000 barrels of oil equivalent a day potential when they are fully on stream.

And we have four major startups in 2014.

Three of these are deep-water fields operated by Shell.

And at Mars-B, which is a 100,000 barrels of oil equivalent a day tension leg platform, we are expecting start up of early production very shortly.

And the fourth one, of course this year, is the Repsol LNG acquisition, and we are busy integrating that into our LNG portfolio.

So substantial portfolio additions coming online in 2014.

Our strategy is designed to deliver through cycle growth and cash flow and competitive returns.

Shell has returned $12 billion to shareholders in dividends and buybacks in 2013.

You can see the dividend track record on the slides spending many years of commitment to progressive shareholder returns.

And we expect to increase the dividend again in 2014, reflecting our confidence in Shell's long-term strategy.

And we expect to continue with the share buybacks this year to offset dilution from scrip dividends.

And with that, let me turn over to Simon to recap on the 2013 results.

And many thanks, Ben.

Welcome, everybody.

It's great to see so many here today, I hope that means an upturn in interest in this sector.

As Ben said, we had a busy year in 2013, so let me just summarize some of the highlights.

Current cost of supply earnings, CCS, excluding the identified items, $19 billion.

Details shortly.

We had some substantial new field startups such as Iraq onshore Majnoon and gas and in the deep water in Brazil.

We announced a series of acquisitions $10 billion in total adding assets in areas where we already have leadership positions, deep water and LNG.

At the same time, we have been reviewing our portfolio.

We've had asset sales, we have canceled projects.

All part of the drive to improve the overall capital efficiency across the portfolio within the Company.

Now, we did announce early our 2013 results earlier this month, and nothing has changed in number terms since that announcement.

With that, let me summarize some of the messages for you.

Full-year earnings as noted, excluding identified items $19 billion.

Earnings per share decreased 23% from 2012, and there were lower earnings in both the upstream and the downstream.

Cash flow generated from operations was $40 billion for the year.

We announced a $0.45 per share dividend per quarter for the fourth quarter, 5% higher than a year ago.

Buybacks that we used to offset dilution from the scrip totaled $5 billion at the end of 2013, which was at the upper end of the guidance for the year.

Buried in today's results announcement was the expectations for the SEC reserves.

Final volumes reported in the 2013 annual report we expect additions of 1.6 billion barrels oil equivalent, that's a headline replacement ratio of 131%.

So this chart shows the step down of all the factors that has underpinned the reduction in earnings for the full year and the fourth quarter.

In aggregate, the macro picture oil and gas price, downstream margins, Nigeria's securities impact, they were negative for us for the full year and also for the fourth quarter.

The volume and mix effects within the upstream production were a positive for earnings in the full year.

However, in the fourth quarter, we did see a significant falloff in volumes and that had a large negative impact on the results of around $300 million quarter on quarter.

Overall, we saw uplift from the growth projects, but that was more than offset by around $500 million negative from the higher maintenance asset replacement cost compared with the fourth quarter.

And they were actually reducing the high value oil and gas volumes in regions such as the Gulf of Mexico from the Auger platform, Nigeria deep-water Bonga.

And in the North Sea, we had LNG sales volumes down as noted in the third quarter call, (inaudible) Australia.

Our exploration charges increased, they rose in the year from $3.1 billion a year ago to $5.3 billion in 2013.

And those charges built up in the second half of the year.

You saw them impacting Q3, Q4.

So the net impact was around $1.4 billion in the fourth quarter alone, and that compared to the previous year was around $500 million of change in the after-tax income.

Now this was clearly driven by the high level of exploration well write offs quarter on quarter, particularly in French Guiana where we effectively took several wells at once.

And also in the resource of the shale plays globally.

Unfortunately, in both cases, very limited tax shield against those losses, increasing the Q on Q impact.

Lastly, the fourth quarter 2013 results also included $170 million Q4 to Q4 impact from FX movement basically a weak Australian dollar and the impact on the deferred tax liability.

And just as background, that was one of the items coming through it in the last minute that made the difference to the decision to announce the earnings early.

Moving on, operational performance.

Headline oil and gas production for the fourth quarter, 3.3 million barrels of oil equivalent per day and that's an underlying decrease 3%.

But that 3% excludes the Nigerian impact and divestments.

Now volumes were supported by the growth from the liquids rich shales in North America from Iraq and ramp ups elsewhere.

However, this was more than offset by the field decline, and the 95,000 barrels of oil equivalent per day of maintenance impact, which is higher than we had indicated three months ago.

Our LNG sales volume maintenance activity is down 10% quarter four to quarter four.

And the downstream, the availability of the kit was similar to previous quarters.

The underlying sales volumes were lower, and chemicals sales volumes were fairly similar to the fourth quarter 2012.

Now you see some pointers for 2014 on the slide, and I guess I should say listen carefully.

Let me just highlight.

The upstream we are expecting continued impacts from Nigeria operating environment.

In the fourth quarter it was $54 million of income, 40,000 barrels oil equivalent per day of production versus the 2012 quarter.

In Abu Dhabi, the ADCO license expires this month it will reduce the production as of now by 155,000 barrels a day or by around 4% of production.

It is a low margin contract, so the financial impact will be considerably less than that.

Any of you've traveled from the Netherlands today will be well aware that the Dutch Government has announced a gas production curtailment for the NAM joint venture in the north of the Netherlands in which we hold 30%.

The impact in the first quarter year on year against 2013 will be 60,000 barrels a day equivalent.

And that's partly because it was so cold a year ago, we had a very high production there a year ago.

The average impact for the year is likely, we estimate, to be around 20,000 barrels of oil equivalent across this year versus 2013.

We are expecting around 50,000 barrels a day of maintenance impacts versus Q1 last year in the high margin plays, it's still North Sea, a little bit in the Gulf, and that's about half of the maintenance impact that we've seen in the previous quarter.

Exploration charges will be higher Q1 2014 versus Q1 2013.

Upstream depreciation charges will also increase in 2014, the underlying DD&A $15 billion last year.

There will be some step up this year on top of the $15 billion related to the Repsol acquisition (inaudible) and expecting maybe around $1.2 billion step up from the Majnoon project operating in 2014 assuming current oil prices, or around $100 whole price.

That effect was also visible in the fourth quarter by the way and is driven by Majnoon's rapid cost recovery model which results in a pretty limited earnings impact from the project, but good cash flow because it was essential to recover the cash directly against that appreciation charge.

And it should take less than two years to recover the total investment made for the first commercial production in Majnoon on these terms.

Lastly on the outlook, the finery availability is expected to be lower than 1 year ago due to the higher turnaround activity this quarter.

Now I say that all against the fact I think we delivered over $7 billion of earnings a year ago in the first quarter.

So turning to cash flow.

The cash generation 12-month rolling basis, $42 billion.

That includes just under $2 billion of [divestment] proceeds.

Average Brent price $109 per barrel.

And bottom left-hand chart, red line, free cash flow has declined in recent quarters.

We were aware of this, it's as we move through that phase of higher acquisitions, $10 billion effectively of which $2 billion still to be recognized, and lower asset sales than we typically deliver.

That position will improve significantly in 2014 absent further acquisitions, of course, as the pace of asset sales increase.

We will see new cash flow growth from those projects we've talk about, that Ben mentioned.

So acquisitions, divestments, they're all distorting this free cash flow picture, there's short-term effects.

The dividend increase that we're expecting for the first quarter 2014 paid in June that reflects the confidence that we have in this growth in this free cash flow over time and of course in the cash from ops.

The share buybacks in 2014 will continue.

In fact, $372 million as per last night, January to date, will continue to offset the dilution from the scrip.

So a few comments on the financial framework, I'm sure there's some interest out there.

The framework requires cash from operations to finance both the growing dividend and the capital investment required to continue to grow the Company through the business cycle, we can't just count CapEx.

Cash from operations 2012, 2013 was $87 billion.

You can see on this chart, the red line is the cash generation, the yellow the net investment, the blue the cash paid back to shareholders.

Now the total CFFO increased $23 billion, or 35% compared to the previous two years.

It has been growing.

Ben noted strongly competitive position over the past three, four years.

However, looking at these two years, performance against the targets that we previously set, a series of factors, they have combined to reduce the momentum.

¶ Now the macro effects, higher or brighter et cetera, they were broadly neutral for as over the last two years compared to original expectation despite the high headline Brent price.

Nigeria security, outside our control, impacted the bottom line by around $1 billion.

Our own operational performance has fallen short of initial plans, including up time from facilities that are on stream and from new startups.

And in aggregate, over the two years have delivered around $5 billion less than we had expected.

The issues include inter alia project delays in Iraq, Kazakhstan, the down time in the North Sea we've spoken about quarterly, the start up of the Motiva refinery in Port Arthur, and the additional costs incurred in Alaska in 2013.

We will improve here.

Ben has summarized exactly what our priorities are.

But at the same time, we made some strategic choices which have in aggregate reduced the cash generation by around $2 billion in this period compared to previous plans.

And the cumulative effect of the choices made will increase as we go forward.

And they include the acquisitions and divestments and the much reduced drilling activity for North American gas.

Remember, we had a $5 expectation two years ago.

So overall, we expect further underlying CFFO growth over the next two years.

We need to deliver that, driven by the start ups and the four new projects that Ben outlined this year, deep-water and Repsol LNG.

From a net capital and spending side, the yellow line, 2012 and 2013 the net spending reached $74 billion, driven by the higher rate of acquisitions and the lower divestments.

We expect the net capital spending to fall significantly in 2014 as the asset sales accelerate, you've seen a couple come through already and the organic spending slows down.

(Audio difficulty) stimulation of it.

And we take proactive decisions as we go along, in line with strategic intent, to add value for shareholders.

We drive value in the long term.

We don't chase proxy targets in the short term.

Our financial framework is straightforward and has not changed here.

We use the growth in the CFFO, cash from ops, to fund capital spending in the past across the cycle.

We keep a conservative balance sheet.

We take on debt in the down cycle or when the Company is in a capital investment stage.

And we know that there's no precise formula for the right level of debt, we keep it below 30%, preferably below 20%, we're okay.

We use the cash after servicing debt to fund the competitive dividend, and after that, to invest in the future growth.

We know we operate in a volatile world, incoming cash various, plus or minus $10 billion a year based on energy prices.

So the scrip and the balance sheet, they provide the flexibility to manage that risk without jeopardizing either the dividend or effectively potentially damaging value by short-term swings in and out of the capital investment program.

If we get into a surplus cash position, the first priority is buybacks to offset the scrip.

We've been doing that last year, we're continuing now.

If we get to the more substantial free cash flow position, not there today, then we do have the option to further increase buybacks.

But that is a decision for the future.

A few words on the portfolio.

It was a busy year.

Working from left to right on this chart, it explains how we fill our development funnel within the strategic themes and how we bring new oil and gas on stream.

And we made some strategic acquisitions during the year.

We announced divestment, redesign of certain positions or opportunities where we were not meeting our own strict investment criteria.

Explorers have four good discoveries and appraisals successes with the drill bit and we're assessing the potential from those finds.

We'll update you on that, the overall progress, at a later stage.

Good year on investment decisions, we took final decision on nine new projects, the largest of which was the 80,000-barrel a day Carmon Creek project heavy oil in Canada.

We started up seven new developments which should add some 180,000-barrel of oil equivalent per day at peak production potential.

Now this includes some large Shell operated projects such as Majnoon in Iraq and the second phase of the BC-10 deep water development in Brazil.

Now the largest acquisition we made last year, in fact for some years, was the purchase of Repsol's LNG portfolio.

Now these assets fill a supply gap in our LNG portfolio, and that's a geographic gap in the West Atlantic and the East Pacific.

We bought 4.2 million tonnes per annum of equity LNG capacity, 7.2 million tonnes per annum of sales volume.

That compares with a market of around 250 million tonnes per annum in our current share of around 23 million, 24 million tonnes per annum.

So significant growth.

We can add value to this portfolio supplying already contracted customers from a more diversified supply base, e.g., shorter shipping routes, optimizing gas quality.

And by combining the Repsol supply positions with our own global trade and business.

Remember we made $9 billion last year and the year before in our integrated gas business.

So this acquisition is cash flow accretive for our shareholders to date.

It's only got very minor ongoing CapEx requirements, expected less that $50 million a year.

And we've said before and we still believe this, potential for up to $1 billion of CFFO per year back to Shell.

So we're very pleased with the transaction, traders particularly, and I think it's a great addition to our portfolio.

So turn capital spending, where's that money going?

So we drive investment and our innovation technology along a series of distinct and hopefully familiar strategic themes.

And we implement hard capital ceilings to create the choices within the Company.

Now total spending last year, $46 billion.

That's included $8 million reported on acquisitions, including BC-10 preemption under the Repsol deal.

And they were closing across the year end, so you see some of the accounting coming into this year.

So this year, our total spending is expected to fall to around $37 billion, 20% reduction.

And within these figures, the organic spending should decline by around $3 billion, 8%, to around $35 billion.

The actual final outcome will be driven by the timing and the structure of some of the divestments that we expect to make.

On an organic basis, excluding acquisitions, just break down the CapEx, the downstream spending similar to last year around $6 billion.

The mature upstream engine CapEx also around $6 billion.

That's a reduction from the $8 billion last year.

The growth priorities.

Deep-water, integrated gas, both allocated $6 billion each this year.

That's a reduction in the deep-water by it level and integrated gas.

The resources or the shale spending will be reduced across the Americas and the global portfolio, coming down from $6 billion to around $5 billion, of which $4 billion is in the Americas, that's a $1 billion reduction there.

And on the future resources, developments such as Carmon Creek, will drive a slight increase in spending to around $6 million, an increase from last year.

So basically, it's 5 times 6 and a 5, a very fair, equitable allocation across the different strategic opportunities.

Embedded within those numbers is the exploration spending, capitalized and expensed, and that was around $7 billion in 2013, will be similar in 2014.

There's a 60/40 split between conventional, mostly deep-water and mostly drilling, and shale plays, which will continue to be mostly drilling.

So with that, hopefully that was helpful, let me hand you back to Ben to close out.

Okay, thanks, Simon.

So let me sum up then.

Our strategy overall remains robust, for 2014 will be a year where we are changing emphasis.

Or financial performance can improve here and this means a more competitive picture on returns as well as on cash flow.

And over the medium term, addressing underperforming areas of the business more robustly.

We need to further improve our capital efficiency, there are some hard choices to be made here.

More asset sales, $15 billion in 2014 and $15 billion combined.

And moderating the pace of growth investment after a strong growth driver in recent years.

We need to continue to work hard on project delivery with a series of important startups in 2014, especially in deep-water.

So our strategy is designed to deliver through cycle growth and cash flow and competitive returns, and Shell's dividend track record underscores our commitment to shareholders.

So with that, let's go to Q&A.

And let me remind me that -- remind you that we're having a Management day in London here on the 13th of March, and that's an opportunity also to get into a bit more depth on portfolio strategy.

So I request that we just have one or two questions each so that everyone has an opportunity to answer or to ask questions.

Who wants to go first?

There is a microphone coming.

Michael Levine from Goldman.

Thank you for the presentation.

I had two questions, if I may.

The first one is, in terms of the change to Management incentives, you've highlighted introduction of ROACE there.

I was wondering if there are any other changes in terms of how those -- or the drivers of those incentives?

And then the second one is in terms of sharpening up the portfolio, clearly some of these will be about repositioning for the longer term, selling, shutting down perhaps some assets.

But I was wondering if there is also a group of low hanging fruit in terms of utilization and up time that could have a positive impact over the next couple of years?

Okay, good.

Thank you very much.

Let me just have a go at the returns.

And the second question, and Simon can fill it out a bit further.

The introduction of return average capital employed and long-term incentives is basically the main change.

So there's no further big things in our remuneration structure and incentive structure.

In terms of low hanging fruit, yes, I think over the years we have been focusing very much on operational excellence.

I think we made a lot of progress in many areas.

Doesn't mean that everything is done, but certainly across the portfolio we have seen areas improve or we've seen areas of improvement virtually across the board.

There will be areas where it basically has run out of steam and then you have to ask yourself the question, really, is this asset still resilient?

Is it actually able to get to a better performance position?

And if you can't than it's probably more a portfolio discussion than the utilization of performance improvement discussion.

But we've made progress.

Simon, you may want to go a little bit deeper on the details there.

Yes, thanks, Ben.

We've -- you have to look at the businesses is a granular fashion to say can you squeeze more out from low hanging fruit.

And one of the things Ben did when running Downstream was look to restructure along with fields value chain, bearing in mind we sell 6 million barrels, we find 3 million, and we don't really process our own crude.

And to make more of the ability to add value through that chain by changing some of the accountabilities and the way we deal with the flow of molecules.

So no investment, better accountability, sharper accountability.

And that's beginning to play through.

And another example on the Upstream side.

Our production availability and reliability in the mature assets is below where it should be.

We know where it should be.

And typically it's mature in the late life assets where there are challenges.

So there's a big for the part 12, 15 months push on running the maintenance programs, the well reservoir, monitoring and that feeds back into the way we just manage day to day.

Quite a different approach on the platform.

That has improved already from a relatively low level in some cases, it has to be said, the availability and reliability of production.

So that work is ongoing.

It hasn't yet flowed through to the bottom line, but I could quote another 10.

And actually between the press conference and this conference today, I went back to the day job a call on exactly this.

So there is an awful lot going on, and it has very high level attention, and Ben is driving that personally in the organization.

Thanks.

Hi, it's Martin [Ratson] Morgan Stanley.

I wanted to ask you two questions.

First of all, the math is relatively simple, but there were [$35 billion] CapEx program and a $12 billion dividend you need to generate $47 billion in operating cash flow.

Over the last four quarters, stripping out working capital, we've seen operating cash flow of $37 Billion.

So there's a $10 billion swing in blight and I was wondering if you could give a little more granularity on how that $10 billion improvement is going to be achieved?

Because listening to the presentation, there seems to be a lot going on, but exactly where that is going to fit, that'd be much appreciated.

And the other thing I wanted to bring up is the $0.02 increase in the dividend.

Because it's relatively early on in your tenure right in the first month.

Over the five-year period of the tenure of your predecessor, we only got a $0.03 dividend increase.

So in five years $0.03, one month $0.02.

I know this is a gross over simplification, but it is quite the remarkable uptick.

And I was wondering if this reflects a structural -- a different thinking about the dividend.

I just wanted to ask you about that.

Okay.

Let me take the second one first and maybe Simon can have a go at the first one.

No I think -- I don't think the math is quite as simple as you just put out here with dividend growth and tenures.

It -- of course the dividends story is a longer term story.

And there's basically two considerations to looking at the dividend.

One is how much cash have we generated and basically how much is it -- is there now to payout?

And also how much confidence do we have in the future going forward?

And if you look at it from these two angles, you basically come to the conclusion that $0.02 is about right.

And so we basically are returning what it is that we have earned before, and we are showing very clearly that this is a dividend growth that is affordable and that we want to signal with it.

On the other simple math that you had, it -- yes to say that we need to grow our cash flow growth.

I talked about losing momentum a little bit.

If you looked at that CFFO curve, we need to pick that back up.

And yes there is a very strong program that Simon and I are working on to drive a stronger bottom-line orientation to make sure that the projects are value accretive, quickly start up easily, but maybe some more things that you can say about that performance management approach, Simon.

Yes, thanks.

Could be a parsimonious CFFO looking forward on the dividend, of course, with a slightly more optimistic belief in the delivery.

All right, where is the CFFO growth coming from?

I've made a few comments.

The two points I just made are a big driver.

The biggest short fall actually in net terms against what we previously expected is in oil products, it's not the Upstream, it's oil products.

And that's what Ben was really working hard on and we still hope to see significant better performance from that oil products business.

Then it comes in the Upstream to a combination of factors.

It is essentially reliability of production in the mature assets, it's getting the new projects up, ramped up on stream.

I mentioned Iraq.

You will see quite a boost of CFFO from Iraq, if not a big earnings boost.

And we will see, we are pretty close to hooking up the Mars-B platform and we are already benefiting from Repsol.

Cardamom and Gumusut start later in the year.

But we will get the ramp-up in Brazil, plus the coming back of production in North sea and the Gulf that will make a difference.

The biggest single performance factor in the Upstream I think is fairly clear, it was the convention -- unconventional business in North America where I would expect cost reductions in the first instance and growth of volume in the second instance in the right basins to slowly improve the performance there in cash terms.

The earnings turnaround is equally impacted by the depreciation and the exploration charge, which has been high.

It will stay reasonably high depending on exploration success as we go forward.

So the cash flow and the earnings are slightly different drivers, although some are common.

But there's no silver bullet, and we are working on all of these on a regular basis.

Now I think it's fair to say that more of my diary will be focused on this internally looking at that performance than it has been in previous years.

And we'll be going somewhat lower in the organization in granular fashion to have that discussion with the individuals responsible for assets, from the P&L in the particular geography and for the big projects that have been basically developed through towards production.

There'll be a different conversation.

Thanks, Simon.

John?

Jon Rigby from UBS.

Two question.

First on the Upstream, as I understood it, there was a strategic overlay on the M&A work that you've done over the last five or six years, which has been to shift the focus of the business towards the OECD from the non-OECD, I think that was an idea that you had.

Is that work now done?

I say that because it would appear from the profitability particularly in North America and the comments you made around Arrow that some of those acquisitions have, not to put too fine a point on it, failed.

So I'm interested to think -- to see what you're thinking prospectively about the shift of portfolio.

And the second question is a question I think I've asked about three or four times over the last couple of years.

So I'll ask it again because it looks like there's a change year.

I've asked about the performance of oil products, and your predecessor I think has said it on a number of occasions that it was performance, not portfolio.

But it looks to me that you are indicating it's at least a bit portfolio from the restructuring announcements or indications that you're saying.

So could you talk, particularly with your background, about what in a bit more detail about what you're thinking about where oil product goes from here?

Yes, okay.

Yes, I think in terms of balancing the portfolio in terms of risk, yes we have to take a view on how you spread attractiveness and risks.

And you have indeed seen a shift certainly with the significant focus on North American shales investing into OECD.

I think what we have to do there is to make sure that the portfolio that we have now is high graded to the right properties that we can add value to, simply because we have integrated opportunities, gas to energy, or we happen to sit on very strong acreage positions with good sweet spots in it.

Or in general we have quite a good leverage cost wise and also decision process wise to get some of these assets into good productive profitable use.

In areas where we can't do that, we will basically have to find another solution for it and some of that will basically be portfolio, again selling it.

So you will see a high grading process in those areas where we have a lot of opportunities.

And quite a bit indeed, rightly so as you said, in OECD.

You've seen also some of that of course in Australia with Wheatstone.

And that process will continue.

Now on oil products, yes absolutely there's both.

Let me give you the philosophy that I think I alluded to in the speech and Simon picked up just said now as well.

It's very simple in my mind.

Our businesses is roughly made up of 150 performance units.

You look at each and every one of them.

You ask yourself the question, is this piece of business sufficiently attractive and resilient to belong in our portfolio?

And if it isn't, then it doesn't belong in there.

If you look at effectiveness and resilience, we basically look at how does this business doing, what sort of plans do we have for it?

And first of all the plans and the performance, if we capture them is it competitive, is it good enough, good enough in terms of what the others apparently can do in this type of business and good enough in the light of the rest of our portfolio, question number one.

Question number two, you have to ask yourself are these plans at what I'm seeing, is it actually credible?

And in quite a few cases, you have to also go back and look and say well listen, the track record here tells me that the forward plan is at least dubious.

So examining credibility will be incredibly important.

And then you have to ask yourself the question also, is it affordable?

So can I actually dedicate the capital to it which you will no doubt need because every business needs maintenance and after all so capital, as well.

By maintenance, I mean financial maintenance.

And if the answer to all these questions is no, then this business doesn't belong in our portfolio.

So there is a performance element to it.

If you have a business that isn't there yet but you think you can turn it around.

But again, if the plans are not competitive enough, not credible enough or it simply cost too much, than it's not a performance issue, than it's a portfolio issue.

That doesn't just apply to oil products.

It certainly also applies to shales.

As a matter of fact, it applies to the entire portfolio.

But the focus will be very much on oil products and on the unconventionals to get that piece right.

This is the way we started it in oil products when I was Downstream Director for nine months, and basically this is what I've done in Chemicals.

So I know it works.

Lydia Rainford from Barclays.

Two questions, if I could, on the capital allocation process.

In terms of the divestment number $15 billion, why is that the right number and could it be more than that?

And then the second one is, you talked about enhancing capital efficiency and talked a little bit about how you could do it.

But could you elaborate on that?

Is it a case of changing the hurdle rate, if you make that higher and how that process actually works?

Thank you.

Is $15 billion the right number?

Well you never know what the right number is, of course, but look at it in a slightly broader perspective.

We have over $200 billion of capital employed.

You look at what you need to do to keep that portfolio healthy.

There's always assets in there that run out of steam, that lose their attractiveness and their resilience, basically because of the resource extractive nature of our business or the competitive pressures that are there.

And than at some point in time the economic reality dictates that you are better off investing it.

So if you look at the average number, $7.5 billion on average in a year compared to the $200 billion plus is actually a sensible number.

Can it be higher?

Yes, I'm sure it can be.

But we don't have to have it packed at a precise number.

Basically, it's just a matter of looking at detail that we have, see how much we can shift sensibly, in the right market conditions.

And looking at detail that we have working with the [mantra] that I just espoused, $15 billion is doable.

And can it be more?

Who knows?

Your second question allocation of capital.

It -- yes there's a number of considerations that come into play.

So the first one is actually how much can you afford?

If that's really, I wouldn't say an upper limit, but that's very clearly something you have to bear in mind.

And the second question you have to bear in mind is, do I actually have sufficiently attractive opportunities to basically fill up what I can't afford?

And sometimes there's a tension between the two.

Now the tension that we currently have is that we have way over more opportunities than we can afford.

That's actually a tension I quite like, compared to the other way around.

So what sort of hurdle rates come from it?

Yes it's basically what it is that we can fill up.

And if we believe we'll indeed have strong and resilient and highly predictable cash flow growth going forward.

Now there isn't a mathematical number to that.

It may well be different for different portfolios.

So in some assets where you have high risk, take Nigeria, Kazakhstan, the Arctic, you basically look at much higher hurdle rates to justify taking the exposure.

If it is a much more long-term privileged position, than you take a different view on it.

If I could build on that that some of this is also a bit psychology and the impact that you have on the organization as a leader.

And one of the things we have been doing direct related is not changing hurdle rates, but changing the level of maturity at which the discussion is held.

Rather than waiting until somebody comes with a [cooked] project.

Three recent discussions, Ben and myself, much earlier in the project funnel, big project opportunities creating a different conversation earlier in the maturity.

And we were doing this last year as well.

So you saw the outcome in the gas to liquids in the states.

I won't name any of the others, but ensuring you get much better definition, understanding the risk, value drivers, front end loading on the design.

You get the right people in the room early enough to taking away some of the risk before you take a decision to go ahead.

That not only drives better decisions later on, it stops you spending money doing stuff that will never see the light of day.

And once that is into the organization, than it can make a difference.

Absolutely.

Afternoon, Theepan from Nomura.

Two questions, please.

Pulling up on capital application, could you talk about your decision to spend $7 billion in exploration this year?

I'm trying to circle against your comments that Shell is resource rich.

How much flexibility or choice did you have in that $7 billion?

And then secondly, Simon, thank you for your comments on depreciation.

I was wondering, when you look at the delta year on year last year in terms of cost, tax, other line, there was a $2.4 billion negative impact.

I'm wondering going into 2014, what change do you expect in terms of cash costs at Shell?

Thank you.

Okay, exploration question first.

You need $7 billion.

That's a step up, not from last year but a step up that we have done a few years ago.

You have to bear in mind the things that we explore for quite often result either in a deep-water project an integrated cash project.

Quite often the whole maturation project between an actual discovery and bringing something on stream could be as long as a decade.

So you can't just say well, I like my project portfolio for next year, but maybe not for the year [further out], so let's explore a little bit more.

You have to take a much longer term view.

And what we wanted to do is to step of the exploration portfolio, fill it out a little bit more, so that we have more options in the funnel earlier on in the maturation curve.

Now that step up will give us more opportunities, of course it will also give us more dry holes.

You have to be careful that we indeed make sure that we have a high success rate or we lower our risk profile there.

And then with a bigger opportunity set, you basically have more options.

So you can [high grade] a little bit more.

Goes back to the capital discipline question, where you basically say if I have five choices and I can only execute two, I'll pick the best two.

And I somehow deal with the others and monetize them in another way.

So it's basically creating more options for the longer run, basically having more to choose from.

Thanks, simple answer there's too many choices.

There's a lot we could choose from I guess in the (inaudible).

DD&A up but the cost tax other line.

The costs were slightly higher in 2013 than 2012, actually bang on plan, not as well as the CapEx relative to what we were planning to do given the choices we made during the year.

There's no cost ahead of control, runaway cost issue at all despite the headlines.

It's managed to a budget.

The question is, is the budget too high.

Particularly in the two areas we've talked about, the (inaudible) being three, the unconventionals and the Downstream, the costs must come down because both of them in are in cost driven environment, essentially a commodity business.

And you have to get your costs down.

So we might expect the cost to come down in those areas from the things that we're doing.

Tax.

Clearly in 2013, quite a few of the charges had no tax cover, and that's exploration driven, therefore there's some tax, some change in the effective tax rate.

But that was also driven by negative results in low tax jurisdictions like the US.

And then it works its way out as a higher effective tax rate.

So you have less production or losses in the low tax regimes, that's was driving that particular line.

The other tends to be a combination of increased decommissioning restoration provisions, that sort of thing, that doesn't necessarily fall easily into different categories, some of which have tax implications.

So again there's no single bullet, it's a large, complex portfolio.

Each of these factors worked in that direction.

Some of them will and are being targeted to move back in a positive direction over the coming years.

Thank you, it's Colin Smith from VTB Capital.

On the exploration again, you mentioned that you're expecting a $7 billion charge, I think it was, against income for this year.

And in the context of that being a very high number that steps up, can you provide a little bit more visibility on how you think that that might develop perspectively?

And also splitting between the cash and the non-cash component within that.

And the other question was Majnoon, your Middle East production stepped up quite sharply in the fourth quarter and you've alluded to it or touched on it a couple of times, Simon.

And I wondered if you could talk through with us how you actually see that coming through the volumes, the P&L, and the cash flow?

Thank you.

I'll start back with Majnoon, 60,000 barrels a day at the same oil price, we're producing over 200,000 there but it's not all our share.

So it should stay like that for better part of 1.5 years until we fully cost recover then our share drops down.

The earnings is in the tens of millions, the cash flow is in the hundreds of millions.

Overall, we got a couple of billion to recover, and that will take us best part of two years overall.

But it's going very well at the moment.

Our other Iraqi adventures are also effectively either cash neutral or positive at the moment.

And exploration $7 billion, is actually investment, it's not all to the P&L.

It's typically about $1 billion or so (inaudible) and seismic and that does go straight to the P&L.

Almost I guess over $5 billion in drilling, that only goes to P&L if it's unsuccessful.

And it's primarily deep-water and shale.

That's where it's going.

Quite a lot at the deep-water, the offshore, is frontier basins and we're drilling in Benin and Albania, and we'll be back in Brazil.

So there's quite a lot that remains risky and will come through to the bottom line in a relatively short period of time.

Some we hope will work.

Thank you, it's Irene (inaudible).

I had two questions, my first one is on production.

You highlighted the large new startups this year.

But then on the other side, Simon, you mentioned the negatives in terms of the Holland, Abu Dhabi, Nigeria, and of course disposals.

So net/net, is there some guidance you can give us as to what your top line may do this year?

And my second question concerns the targeting framework.

Obviously you're signaling a move away from targeting explicitly cash flow from operations and a shift to capital efficiency, return on capital.

Clearly the 7.9% you made last year was weak.

Are you prepared to give us a sense of where you think Shell's return should be through this cycle?

So what is the performance gap, if you like, that you want to close?

Thank you.

Okay, let me start and Simon will fill it out a little bit more.

So first of all, no production targets.

And you indeed mentioned some elements then, which exactly highlights also the whole downside of targets on production.

So you cannot mix these barrels.

The Abu Dhabi barrels are relatively low margin, (inaudible) is a different story.

And you have -- if you have a company or if you have the beginning of a process that basically wants to chase production for production say because we have a target here and this project is a strategic because it adds so many barrels, you're basically in the wrong game.

The game here that we are in here is a financial game.

So if you want to take strategic views on investments, if you want to take a view on whether you will go ahead with something, you basically look at if it's intrinsic fundamental profitability and its resilience.

And that's the only way I want to look at our portfolio.

So that's why we stripped our targets some time ago.

And on production, that is, and that's basically how I want to keep it.

In a way the cash flow story is not too dissimilar, although it's a slightly different story.

As Simon said, this was getting a little bit of a synthetic game.

We has a number of things going on.

The macro conditions being different than what we thought that would be in 2011 when this target was put together.

Of course some performance issues, as well, and as a result of these two, you make different choices.

And at some point in time it becomes incredibly hard to distinguish one from the other.

And rather than to just say, well let's continue updating this, by tempting footnotes and qualifications and other synthetic things, the better thing is just say no, judge us on performance.

So we want to have a growing cash flow, sure.

We want to do it efficiently, so expect us to also have a better return on capital employed.

And you will basically see that going up.

Now of course you want to ask, will it be a target then on capital employed, return on capital employed.

And also there it would be the wrong thing to set an absolute target at.

So first of all, different businesses.

Basically have different return characteristics simply because you expect or demand different returns from it.

Secondly, the macro won't make the returns go up and down for basically all measures.

So again we want to be competitive when it comes to returns.

And that's basically also how we will have defined return metric in our long-term incentive scheme.

So it's basically to see how did we do against others?

Basically do we go up or down in the ranking in terms of returns.

Another thing drives the right behavior in the Company, focuses on the right things.

Chasing an absolute number would basically in many cases drive the wrong economic outcome.

Nothing to add.

(Inaudible) Following up on that ROACE framework, in terms of how you see Shell today and your portfolio and so on, where do you think you can be versus your peer group?

Can you actually get to the top of that league, of those four or five companies that you mentioned before?

So the first question.

Second question, I think you did mention credibility in your internal flow of information on targets and so on.

So the question is, is there a different way that the information flows into the top management here and can you provide us those frameworks?

The first one.

There are some fundamental accounting differences between the US measures and the European ones.

So simply by way of looking at LIFO, FIFO counting treatment of certain elements on the balance sheet and in the P&L makes it different, structurally different.

Can't correct for that.

And basically what we decided is to not do that and basically say let's look at our growth and return and the growth of return in others and basically we see that moves.

Very vertically and very simple, it's basically how do you move in relation to others rather than what is your absolute level.

The next one on credibility, well let me qualify that a little bit, clarify it a little bit.

It's not so much that the information flow is not there, I think it's just having a more thorough and honest examination of what is going on.

We are a Company that is full of engineers and explorers who typically tend to be very optimistic, can all be done.

And sometimes optimism can get to a stage where it actually is not very productive anymore.

So having a very cold hard examination of, are these plans truly 50/50, what are the downsides here, what if this happens, is this -- how does this compare with how it has been in the past.

And therefore stripping out some of the optimism but also stripping out some of the sandbags that may sometimes be lying around.

That requires more closer examination.

That's exactly what Simon and I will be doing.

Would we insist other leadership members do, very close examination, but our plans are not only competitive but indeed they're also believable, credible.

So I don't think it's an information flow issue, it is a tougher appraisal.

Jason Kenney from Santander.

So two questions, if I may.

Going back to the improvements in returns, and I appreciate that it's difficult to compare to your US peers, but are you able to give us a timeframe in which you could expect to get back to your own long-term historic level of delivery in terms of ROACE, and even if you're expecting to be back at that average level that you have delivered and it's possible to have delivered this decade or is it early next decade?

I mean this is you versus you, this is not you versus everybody else.

And I don't want to sound too skeptical here, but it's easy to grow something if you're at the low point in your delivery at that particular metric.

So why should it be something that you are using for remuneration testing and other things?

The second question, a couple of hopefully not too detailed, and I appreciate you got your strategy presentation in March, but in the forward cash flow delivery, are we going to see contributions from assets like Sakhalin train 3 and the Qatar petrochemical possibility?

Are they still involved in your 5, 10-year outlook on this delivery process?

Okay, thanks very much, Jason.

Yes, it's -- let me not be very precise about what will happen to returns in which year.

The whole idea was that we basically promised competitive performance going forward.

And you will have to judge us on our ability to deliver that.

So there's two areas in our business very clearly where we are underperforming, and I mentioned them.

Look at oil products globally a return of 4%.

Frankly I see no reason why that shouldn't be a whole lot better.

I see no reason why that shouldn't be at least double.

So if-- when I started the Chemicals business was the same story, we had a 7% return over the cycle.

We are doing 15% now.

Chemicals is a different story.

I think there is a little bit more economic robustness there that perhaps you would have in oil products.

But 4%, I think we can do a whole lot better.

And you will see us moving forward, how quickly that will go will depend on a number of other factors.

So I don't want to basically end up making a prediction on macro, a prediction how others move.

What I will promise you, a very strong focus on this.

And come and inspect and examine on how we are doing quarter by quarter by quarter, and just see what it is that we bring out to the market.

The other one, the two projects that you mentioned.

Yes, they are opportunities that we are pursuing.

So the Qatar petrochemicals project, we're in the middle of feed.

Sakhalin train 3 you've seen the announcement, so we basically decided to get into Gazprom, to get into the next step.

Again, when there is a next milestone to announce, we will announce that.

But they are definitely the sort of opportunities that you want to have in our funnel.

And talking to the point that Simon made earlier, this is all about being very clear early on in the development of these opportunities, do we like them, are they fundamentally robust and do we think we can get them to have (inaudible) and still be very robust.

And for these two, basically the outlook is yes and that's why we are committing funds to get into feed on them.

Okay, thanks very much.

Thank you, (inaudible).

Two questions.

In your presentation you talked about maybe slowing down in heavy oil.

Can you give an explanation there?

Secondly, last year you clearly made a shift in Browse to floating LNG from onshore LNG you're selling out of Wheatstone.

Can we expect more divestments in onshore LNG?

I can't remember having said if you were slowing down heavy oil, but we said we would take a very hard look at long-term opportunities.

Heavy oil is one of them, of course, it sits in that bucket of opportunities that are longer term, and they are longer term because they are more complex.

For whatever reason, they are more risky.

Or we understand -- we don't quite understand yet how we're going to make it work, but they do have fundamental potential and attractiveness.

Now the view that we take, we need to balance that particular bucket against the two other buckets, which is basically cash now, how do I keep that healthy.

And cash tomorrow, how hard can I step on the gas for both integrated gas in deep-water.

And it's basically rebalancing these three categories.

I think in the -- if you look at what we have in that high risk, high complex longer term category, I think you have to ask yourself the question, is that too much, how much to I want to do right now, do I want to pay some of that into the future?

And indeed have you (inaudible) into that category but actually it was one of the investment decisions that we took in that field Carmon Creek.

The next one, yes, we will have to balance that in terms of how that fits into that overall balancing picture.

Your next question.

Actually can be quite short on it.

And I'm sure Simon will have something to say on floating energy versus onshore energy.

But basically we're not commenting on anything that we might do portfolio wise.

You will have to see what happens there.

What I did say in my speech, though, LNG very important.

Very rich opportunity set, so there's plenty to pick from and plenty to monetize.

Thanks, comment the earlier question about OECD which reminds me in this question.

Canada, Australia, United States, top three countries is half the CapEx.

So it's not a switch away from OECD at all, part of that is heavy oil.

LNG is about [6 billion] it's all in Australia at the moment with a little bit in the US on Elba Island.

But the next phase of LNG, there are four main opportunities, Browse, Abadi, a potential floating -- opportunity in Indonesia, Arrow, LNG in Australia and Canadian LNG British Colombia.

We can't do all four at once.

So that's part that we're looking at the moment, which of those goes forward and in what order.

Maybe we will do all four, but maybe not all at the same time.

Floating LNG is basically a competitive advantage for us.

Prelude looks a great project, Abadi most likely the first stage is a floater and Browse we've gone from the on shore to the off shore and Woodside is the operator there.

So we're not at liberty to say much further than that.

But the partners all agree the priority at the moment is to look to create a floating option that is attractive to all of those that we're investing.

Now those four that I mentioned, they are all huge resources, huge gas resources.

The question is cost to develop and quality of the market that you will then service.

But LNG, GTLE business made $9 billion last year earnings and the year before.

So this is pretty good business, sustainable, and we've got (inaudible) on their way through as well.

So this is the core of Shell in the 2020s and for a lot longer than that, the nature, the assets that we're developing.

Thanks very much, it's (inaudible) from Deutsche.

Two questions if I might.

One is a bridge for you Simon, and the other is more conceptual for you Ben and the Board.

The bridge was you very kindly took us from what profit was last year to what profit is this year.

I wonder whether you'd be kind enough to give us a better indication of what happened to cash flow expectation at the start of last year relative to what you delivered?

So simplistically, my perception would be that Shell anticipated somewhere $45 billion, north of $45 billion of operated cash from operations, pre working capital last year you delivered $37.5 billion.

Please explain the delta, Simon, I struggle to get there.

The second question and more conceptual, Ben is fantastic job, congratulations.

I wondered to what extent you walk into that job and you say my God this is a complex organization.

You're running the better part of 7 to 8 different business models across unconventional gas, LNG, mining, conventional oil, marketing, refining, et cetera.

It's an awful lot.

It's an awful lot for you and indeed, it's an awful lot for a Board to get their head around and really understand it if they really believe that they're going to be able to maximize value per shareholders out of all of them.

So the question is the usual one unfortunately, which is how regular or to what extent do you and the Board actually talk about A, the proposition to shareholders, which in essence is steading and calm, dividend through cycle?

But B, whether actually the integrated model that you are running is really the best way now of delivering value to shareholders?

Because value isn't just the income stream.

Okay, let me take the second one first and then Simon --

Give you time to think.

No, I know you didn't think a lot about -- So it is -- sure, it's a complex business.

And you're quite right, it's a diversified business, there's different business models going on, different considerations.

It's not ike walking into this and saying, well, I hadn't quite appreciated the complexity of this Company.

I've been in this Company for 30 years.

I work in the Upstream, the Downstream, and if you want to see a complex business, try Chemicals for a change.

It is really quite complex.

But -- so I think I feel reasonably about equipped to understand how the different things work having been exposed to quite a bit of it.

But philosophically then, so do I believe in the integrated business model?

Absolutely.

So let me be very clear, there is no idea what so ever to redefine the Company.

But let me also say that the integrated business model has been redefined in itself where previously we talked about the integrated oil companies as companies that refine their own production and then sell it in their own retail outlets.

That sort of integration, I don't believe in any more, that's gone.

But the integration where I can say, if I take offshore gas in Qatar, and I can actually get that into premium lubricants in North America, and I can capture a huge value arbitrage and I can do it with technology, but it's hard to distinguish whether it's Upstream or Downstream, that is actually quite valuable.

If I look at oil sands and we can integrate it all the way into our North American markets and capture the value wherever it goes, and I can tell you it goes up and down the value chain an awful lot, that I think is valuable integration that gives you robustness.

If you look at our existing asset base and then you superimpose on it the capability to trade around it, and therefore add extrinsic value to our operations, that's hugely important, hugely valuable.

If you look at new value change from Upstream into Chemicals, where we can do things that basically next to us, there's only one other company that I know that can do this.

They're actually one of very few players with the proposition to major resource holders to bring value to their resource, to get access to it that nobody else can.

That's very valuable integration.

So if you look at integration in that way, I'd say this is a core strength.

The last thing we should do is give that up because this is a distinguishing strength.

At the same time, though you can not say listen, integration is so important, I need to Downstream for it.

I take it that it's $70 billion, it doesn't do a lot on return.

You cannot have that.

It needs to stand on its own legs, and it can stand on its own legs.

Chemical piece is sorted out.

We have some great pieces in that oil products portfolio that are very strong.

And we just need to be very granular, very disciplined to sort out the rest.

So then you have a very strong core business in the Downstream that can actually play a larger part in the integrated Company.

Integration being different from what it used to be in the 50s.

Thanks, Ben.

You forgot trading and bi-fuels, I think -- because I was trying to think.

(Inaudible)

Probably deep-water too.

I'll bridge from Ben's response because it is related.

There's no single factor impacting a gap against where we might have hoped to be.

And one of the issues, yes, we do talk to the Board including yesterday and over dinner on Monday, both cases about precisely the level of complexity that is manageable and that can be effectively executed.

It is a real issue and a potential constraints on the group's portfolio, and that's what we're looking to get to grips with.

But that leads into cash generation.

There's a lot of small things, not that small, billion dollar things, but added up they make a difference.

So I'm not going to give what was the target, it wasn't a significant increase on 2013, that was always going to -- on 2012, that was always going to come through in 2014, 2015 anyway.

But Nigeria.

Late delivery on Kazakhstan and slightly late on Majnoon.

These are big cash generators, both of those.

I mentioned that Downstream is $1 billion plus there, and some of that is Motiva made profit in the fourth quarter.

Difficult challenge but it's coming through.

And ultimately we saw more downtime in the high-value, big margin generating areas precisely as I described the fourth quarter, and that's really the issue.

Some of those turnarounds were slightly longer than we expected.

Though not -- nothing is crucial, critical.

I said in the third quarter, everything we needed to do strategically, big milestones, to deliver to cash flow growth, is in play, on track for delivery in the four year period.

The only thing that's changed since that discussion, I'm afraid, is Kazakhstan cash again.

Basically it's big, but it's not fatal to the Shell story and the strategy and the delivery of that cash flow growth.

So it's many things, and the real question is where you started it, it's about complexity around what can we effectively manage.

Simon, what is the assumption on cash again this (inaudible).

When do our Italian friends report, I can't answer, they're the operators.

(Inaudible)

I'm legally not allowed to tell you.

I think we have time for two more questions.

So why don't we take that one first.

Thank you.

Peter Hutton from RBC.

You highlighted the need specifically to improve the profitability in Upstream Americas and oil products.

We've not talked (inaudible) what the process is and how you're tackling what is an imperative but also an opportunity to improve profitability in Upstream Americas.

And the second one, which is partially linked to that one, in Alaska with no drilling in 2014, can you give an indication of what the underlying costs will still be in there, if there are any?

Are there any cost savings?

What to do with it, the two rigs that you were going to deploy, one to drill and one to hang around.

What happens on there, is it an opportunity or is it a sunk cost?

Thank you.

Thanks.

Let me get a go -- have a go at the UA profitability first.

Say a few things about Alaska just to be clear and then I'm sure there quite a few things Simon if you want to add to it as well.

So look at Upstream Americas.

I think we've said quite a few times, it is actually quite a number of different businesses in there.

That's a -- be very clear, we have a very successful, highly cash generative profitable deep-water business with some startups later in the year, one of which is imminent.

So therefore, the story on deep-water will be a good story for 2014.

You have the heavy oil business, some of which is integrated into our Downstream business, which is again, a pretty good story.

It -- I think we can say with great confidence and pride that we have leading cost performance.

When it comes to heavy oil, we have great integration forward, which actually protects us in terms of net backs to the mines.

So then also heavy oil, I think a pretty solid business.

So the piece that we need to focus on is the unconventionals, the resource plays, the shales.

And indeed you're right, we will be talking about that in a bit more detail in March on the Management day.

But the philosophy that we have behind is pretty straightforward.

So first of all, if you want to win in this business, you have to be an efficient and effective operator.

Meaning to stay that you have to have a cost structure that is efficient.

You have to have an operating model that allows very nimble integrated decision-making between the exploration piece, the development piece and the execution piece.

Lots of things to be told there, I may not go into any detail.

But we have pretty good programs on cost takeout and management and business models around that.

Now, once you have done that, then also have to say well, how much superior return can I make in that business really?

So you pick out bits and pieces of the business where we can really integrate it into higher value outlets rather than just pipeline gas and getting Henry Hub exposure.

Or you have to say listen this is such an attractive opportunity, my resource position is so good, that actually the underlying resources gives me a privilege return, a strong return.

Every thing else is basically an opportunity to high grade away from.

And the details on how we will do that and the focus that we will have on that, I'm afraid you'll have to wait for March when also Marvin will be here to talk about it.

On Alaska, I think I said it in the speech, it's also very clear in the press release, so the decision on Alaska is a very recent one.

We have been working for years to understand how we developed this very complex resource.

Complex in terms of its logistics, complex in terms of the conditions that we face there, weather conditions, but also of course, long technical risks that we seek, we now have on top of it legal issues.

And basically, at some point in time you have to say listen this complexity that we have here, which is creating a lot of cost, added with the uncertainty that we have, see doesn't justify at this point in time going ahead.

So the decision was very clear in my mind.

We have to pause this for 2014 and see what we're doing.

Financial treatment, do you want to say something about that, Simon?

A couple of quick words, $2.7 billion on the balance sheet at the end of the year.

Far too soon to say what we do with that.

And there are commitments for this year clearly, the rigs and the fleet, the [Armada] that's -- and that's over hundreds of millions.

We do not know if we can you reuse those two rigs elsewhere, that's precisely what we're looking at the moment.

And the rest of the commitments we'll be taking a very close look at.

So we're leaving today without any explicit targets from the Company.

I think you've said that your goal is to improve your ROACE and that you target to be better than your peer group.

I'm wondering if we're going to get any more explicit targets in your strategy day in March?

And also it's great to give us the target of we can have a better ROACE than our peers if you're talking to people who are only investing in a pool of integrated oil and gas companies.

But in reality the market is struggling to understand whether or not this industry is an attractive one.

So I'm wondering if you can give us any guidance around that today or in March?

So let me be clear, there will not be a target framework revealed in March.

So for the reasons that I mentioned.

So we want to be -- basically be measured in the market against our peers, are we competitive, yes or no.

I think the investment case for our Company, I think it's very clearly there.

So there are two things that are peculiar for our industry.

First of all, our industry, the individual asset that we have are because of the extractive nature always in decline.

If you look at the Downstream part of our industry, it is continuously under pressure competitively, you continuously have to in that sense innovate and renew.

But on the other hand, if you look at the fundamentals of how the world is playing out, population growth, prosperity growth, innovation in materials, it's inevitable that there will be a very significant growth in energy, very significant growth in material needs and petrochemicals.

Now basically, the game that we need to play is how do we get access to that growth in addition to making sure that we always profitably offset the decline that is always there.

I think fundamentally, we have the best set of tools, the best set of people, have a great set of options to do that.

And then of course, it's a matter of how do you face this?

How do you get this right that you invest confidently and fast enough to indeed capture that fundamental growth prospect that is available and don't get ahead of yourself?

And therefore the target will remain to basically add value to cash flow growth, but don't get ahead of ourselves and don't do it so fast that basically we are suppressing returns or in a way that basically is not efficient.

Now, I'm not going to put a target framework around it and say listen this is economically how you should measure us.

I'm afraid this is your work to figure out whether we are doing this competitively or not.

But we'll show you what we are doing, how we are doing it, and we will give you insight on how we will address areas that are fundamentally weak and how we see the options set going forward.

And I hope and trust that we'll ready to be self-evident that we're on the right track there.

Thanks for that.

So thanks very much for the Q&A.

Great.

Remember, March 13, back in London.

We have some drinks outside, so I hope you will stick around.

Thanks.

Thank you.