殼牌 (SHEL) 2019 Q1 法說會逐字稿

Welcome to the Royal Dutch Shell 2019 Q1 announcement.

There'll be a presentation followed by a Q&A session.

(Operator Instructions)

This call is being recorded.

I would like to introduce the first speaker, Ms. Jessica Uhl.

Please go ahead.

Thank you.

Ladies and gentlemen, good afternoon and welcome to Shell's First Quarter 2019 Results Call.

Before we start, let me pause on the disclaimer statement.

Shell delivered another strong set of results in the first quarter of 2019.

Building on the successes of 2018, in Q1 2019, we generated cash flow from operations excluding working capital movements of $12.1 billion and CCS earnings of $5.3 billion.

These results show the combined strength of our strategy, portfolio and operational performance.

We have reshaped Shell to deliver higher returns across our Upstream, Integrated Gas and Downstream businesses.

Today, I will present our Q1 results and then talk about portfolio highlights before providing more insight into our earnings and cash flow, including the impact of the new IFRS 16 accounting standard.

As I go through the results, please keep in mind they are presented on a post-IFRS 16 basis.

For Shell to deliver a world-class investment case, we need to generate leading, growing and resilient cash flows and returns and be disciplined with our cash allocation.

In the first quarter, we did just that.

Cash flow from operations excluding working capital movements were $12.1 billion, once again the highest in our sector.

This is at an average Brent price of $63 per barrel.

Our organic free cash flow for the quarter was $3.4 billion.

This includes a working capital impact of some $3.5 billion.

CCS earnings excluding identified items amounted to $5.3 billion, and ROACE reached 8.4%.

We are continuing to demonstrate progress towards ROACE of 10% by the end of 2020, even with the headwinds associated with IFRS 16.

For Q1 2019, our gearing is 26.5% post-IFRS 16 or 21.9% on an IAS 17 basis, in line with the expected change.

I will talk through this further later in the presentation.

Our capital investment in the quarter was $6.7 billion.

Our share buyback program is progressing with some $6.75 billion in shares purchased in the last 7 months.

And the next tranche of up to $2.75 billion begins today.

The share buyback program is executed under irrevocable contracts of approximately 3 months with a bank.

The contracts allow for some flexibility with respect to total volume of shares purchased and the time period over which they are purchased in order to achieve the best commercial terms.

Once the contract has commenced, we do not have the ability to alter the phasing or amount of shares purchased.

We continue to believe in our ability to complete $25 billion in share buybacks by the end of 2020, subject to further progress on debt reductions and oil price conditions.

In summary, a good quarter with very competitive performance from our Upstream, Integrated Gas and Downstream businesses.

This competitive performance can be seen when we look at our cash flow generation and returns on a 4-quarter rolling basis.

To deliver on our world-class investment case ambition, we have reshaped Shell.

Our leading cash generation and returns position reflects this -- the strategic and portfolio choices we have made.

And our focus on operational excellence, integration and our brand have made the most of these choices.

We are committed to maintaining our leading position in each of these metrics to continue delivering competitive returns and cash flow from operations.

And while it's a priority for us to deliver our results, how we run our business is also key to our strategy.

To sustainably deliver the world-class investment case, Shell has to be known as a company that performs and behaves in the right way to achieve its strategic ambitions.

Maintaining a strong societal license to operate is a key pillar of our strategy.

For us to do this, we need to demonstrate commitment to 3 core elements.

Firstly, no harm.

No harm to people and no harm to the environment.

The second element is to have good products.

We need to make and sell products that our customers want and need and we must be good product stewards.

The third and final element is to contribute to society in order to be a valued part of society.

This means supplying energy, providing employment, bringing investments and prosperity with our projects and more.

How we conduct our business needs to reflect our values and principles, with Shell seeking to contribute positively to key issues such as transparency, ethics and compliance, worker welfare and diversity and inclusion, among others.

As an example, we recently issued a report that provides transparency on climate-related positions of trade associations and the basis of our participation in these associations.

This is one of the steps we are taking to increase transparency and ensure alignment with our positions on key matters.

We believe by demonstrating commitment to these core elements: no harm; good products; and being a trusted company, we build and maintain trust, underpinning a strong societal license to operate.

Let us now go through some of our portfolio highlights.

In February, we announced the start of production at the Lula North deep water field in Brazil.

Production from Lula North is processed by the P-67 floating production and storage offloading vessel.

And this is in addition to the P-69 FPSO which started up in the fourth quarter of 2018.

Both facilities are ramping up towards peak production, and we expect another FPSO to come onstream in 2019.

This reinforces our position as a major producer of oil and gas in Brazil with total equity production this quarter of some 375,000 barrels of oil equivalent per day, the largest in the sector behind Petrobras.

Now moving to the Gulf of Mexico, another heartland for our deep water business.

We continue to make investments in both exploration and new projects to sustain this business for decades to come.

Supporting this future growth, Shell announced a significant discovery at the Blacktip prospect in the deep water U.S. Gulf of Mexico.

The Blacktip exploration well has encountered more than 400 feet or 122 meters of net oil pay.

Evaluation is ongoing to further delineate the discovery and define development options.

Shell also announced the divestment of Caesar-Tonga asset for a total consideration of $965 million.

This transaction reflects continued portfolio optimization, focusing on assets where we see the most value in the longer term.

We've also announced the divestment of a number of other assets.

For example, our refinery in Saudi Arabia and the interest in the Greater Sunrise fields.

The total of these unannounced divestments to date amounts to some $2 billion.

Another project that reached a key milestone is Prelude.

In the fourth quarter of 2018, we announced that we opened wells to supply gas to this facility.

We have produced the first condensate cargo, and we expect to ship our first cargo of LNG in Q2 this year.

As you can see, the Upstream and Integrated Gas businesses achieved important milestones in the first quarter.

The same holds true for Downstream.

In our retail business, for example, we made important progress on our strategy, building on our position in existing markets and increasing our presence in 5 growth markets: China, India, Mexico, Indonesia and Russia.

Progress is gathering pace and we are pleased to report that some 250 sites were opened in these growth markets across the last 2 quarters.

But to achieve our Downstream growth ambitions, we also need to enhance our existing market positions, and China is a great example of this.

We have seen growing demand for our premium fuel, V-Power, which is now being offered at over 900 service stations in China.

And we expect further demand for these types of products, allowing us to achieve greater margins.

Another example of Shell offering new solutions to our customers is our Nature-based solutions offering, where we are making it possible for our customers to drive carbon-neutral.

Starting in April, Shell customers in the Netherlands can use Nature-based carbon credits to compensate for the carbon associated with the use of fuels purchased from us.

This is done at no extra cost for customers who choose Shell V-Power, while those who fill up with regular Shell fuels can participate for an additional $0.01 per liter.

We plan to make similar opportunities available to customers in other countries, starting with the U.K. later this year.

We are further enhancing the customer experience with additional products and services.

With the Shell App, we can provide customers with multiple flexible solutions to meet their needs as part of our loyalty proposition.

In the U.K., for example, with the recent re-branding of First Utility to Shell Energy, we can now use our Shell Go+ loyalty program to provide Shell Energy customers an integrated set of offers at the service station and in their homes.

To further meet the needs of customers while enabling a lower-carbon future, Shell Energy will now supply all of its household customers with electricity that comes from 100% renewable sources like wind, solar and biomass.

A recent survey indicated that 60% of British households want to power their homes with renewable electricity.

So this is about knowing our customers and providing low-carbon solutions today.

So as you can see, we are building on the solid foundations of our retail business to further integrate and grow.

We are taking these steps to build a competitive and sustainable business with attractive and resilient returns and with opportunities to scale-up once proven.

So in Q1, we saw new Upstream and Integrated Gas projects starting up.

We saw Downstream reaching new customers and existing customers in new ways.

And we saw New Energies growing.

We continue to invest in our portfolio to drive our strategy, market leadership and competitive returns.

This is also reflected in how we are further high-grading our refining portfolio.

In April, Shell announced the sale of its 50% interest in the SASREF refining joint venture to its partner, Saudi Aramco, for some $630 million, and we're expecting the transaction to complete later this year, subject to customary closing conditions.

This sale is aligned with our strategy of consolidating our footprint to focus on increasingly complex sites which offer greater flexibility, proximity to customers and integration with Shell's trading network.

The focus on high-grading our portfolio has improved our competitive position.

And by continually optimizing the core assets, we will further improve the competitiveness of these assets.

In Bukom, for example, we have installed 2 crude oil tanks at the refinery.

Once the final permits are approved, this will increase the site's total storage by around 1.3 million barrels of crude oil.

This strengthens Bukom's flexibility and enables supply and distribution optimization to secure the best-value crude for the refinery.

Again, another example of how Shell ensures it is optimizing its operations, unlocking the best value from the integrated value chain.

This also provides further opportunity as we implement the new marine fuel specifications aligned with the International Maritime Organization, IMO, 2020 targets.

And this project did not follow conventional construction practices, but instead used novel automated welding technology to help accelerate construction, another example of how we are doing more for less and using technology to our advantage.

And finally, we are using technology to further help us improve the safety of our people and support our continued drive for operating cost efficiencies.

These new tanks feature an automated cleaning system that will help improve the long-term integrity of the tanks and, importantly, reduces the need for employees to manually perform this task going forward.

This is safer and costs less.

Enhancing our refinery storage capacity and optimizing our blending capabilities is a key part of how we unlock value from our integrated Refining & Trading and Supply businesses.

Last year, we installed 2 new crude oil storage tanks with mixing capabilities at our Deer Park refinery on the U.S. Gulf Coast.

And we are also investing in additional storage capacity at our Scotford refinery in Canada and Geismar Chemical plant in Louisiana.

Both of these projects will use best practices and learnings from Bukom.

In summary, these are great examples of how we have looked to optimize assets at every step through construction to operations.

Now we've seen some of the elements Shell has delivered across the portfolio, let me turn to our financials.

On a post-IFRS 16 basis, our Q1 2019 CCS earnings excluding identified items amounted to $5.3 billion, which is 2% lower than in Q1 2018.

In our Integrated Gas business, total production was 12% lower compared with the first quarter 2018 mainly due to divestments and the transfer of the Salym asset into the Upstream segment.

LNG liquefaction volumes decreased by 2% compared with the first quarter 2018 mainly driven by higher maintenance activities and divestments, partly offset by increased feed gas availability.

Integrated Gas earnings excluding identified items were $2.6 billion or 5% higher than in the same quarter last year largely driven by higher realized LNG and gas prices and increased contributions from LNG portfolio optimization, partly offset by the impact of lower production and LNG sales volume.

Earnings excluding identified items in Upstream were approximately $1.7 billion or some $170 million higher than in Q1 2018.

This was driven by higher volumes mainly from the U.S. Gulf of Mexico and shales operations and reduced the operating expenses.

This more than offsets the impact of higher tax charges and lower realized oil prices.

First quarter Upstream production increased by 1% compared with the same quarter a year ago, mainly due to higher production from our North American assets and the transfer of the Salym asset from the Integrated Gas segment.

This was partly offset by the impact of divestments, fuel decline and lower production in the non-joint venture.

Excluding these portfolio impacts, production was up 2% over the same period.

In Downstream, CCS earnings, excluding identified items, in Q1 2019 were $1.8 billion.

Downstream benefited from higher contributions from crude oil and oil products trading, partly offset by lower refining, intermediates and base Chemicals margins.

In Corporate, we have seen the additional impact of IFRS 16 with the interest recognition residing in this segment.

This was consistent with the expected impact as a result of IFRS 16, as previously communicated.

Now let us review the cash flow.

Our Q1 2019 cash flow from operations, excluding working capital movements, amounted to $12.1 billion, which is $1.8 million higher than in Q1 2018.

This is against a backdrop of lower Chemicals and Refining margins and decreased realized oil prices.

It also includes the IFRS 16 impact on cash flow, as previously communicated in our call, of around $950 million.

In our Integrated Gas business, cash flow from operations in Q1 2019 was $4.2 billion and includes positive working capital movements in the quarter.

In our Upstream business, our cash flow from operations was $1.7 billion higher and includes a help from working capital.

In addition to the increased volumes in the quarter from the U.S. Gulf of Mexico, which are, as I've said before, the higher cash margin barrels, the Upstream cash flow from operations in Q1 2019 also include a cash tax payment of approximately $500 million relating to the agreement signed between Shell and the government of Oman in Q2 2018.

These payments will offset future tax payments from 2020 onwards.

In our Downstream business, our cash flow from operations is $3.7 billion lower in Q1 2019 when compared to Q1 2018 largely due to the impact of working capital resulting from the higher inventory price and volume movements.

In Q4 2018, we saw help to cash flow from working capital movements largely linked to the fall in oil prices and reduced inventory levels.

At that time, we flagged our expectation that this would partially reverse should prices increase.

And in Q1 2019, we observed the closing Brent price move up versus last quarter.

This change in price, in addition to our usual seasonal inventory movements, has contributed to an increase in working capital of some $3.5 billion from Q4 2018.

So now that we've seen the business drivers, it is worth briefly touching upon how this all rolls up for Shell on the summary financials at both a pre- and post-IFRS 16 level.

I'd first like to emphasize, implementing IFRS 16 does not change Shell's strategy or financial framework.

We still have the same financial discipline, the same focus on results and we are well on our way to become a world-class investment case.

Cash flow from operations excluding working capital movements was $12.1 billion, including an IFRS 16 impact of $800 million.

Our free cash flow for the quarter of $4 billion includes an IFRS 16 impact of approximately $1.1 billion.

This is a result of lease payments being reported under cash flow from financing and no longer under cash flow from operations and investing, therefore free cash flow.

This was as expected and was communicated in our IFRS 16 call.

Capital investment in the quarter was $6.7 billion.

This includes a $700 million impact due to IFRS 16 as it now includes the capitalization of operating leases in the period.

As highlighted in the IFRS 16 call, in order to improve the transparency of our capital expenditure and the cash implications of our financial framework, we're introducing a new metric, cash capital expenditure, as from Q1 2019.

In Q1 2019, our cash capital expenditure was $5.6 billion.

And finally, our gearing increased, as mentioned earlier, from 21.9% to 26.5%, in line with our expected increase as a result of the accounting change.

We now recognize operating lease liabilities on the balance sheet, resulting in higher debt and capital employed and, therefore, increasing the quoted gearing percentage.

And while our gearing might fluctuate from quarter-to-quarter, the underlying trend on gearing is moving in the right direction, and we're progressing towards our 20% target on a pre-IFRS 16 basis or 25% on a post-IFRS 16 basis.

Let me summarize.

Q1 was another good quarter for Shell across all of our businesses.

Our delivery reflects the strength of our strategy, portfolio and operational performance.

Capital and operating expense discipline remains key to achieving competitive returns.

We continue to focus on consistent delivery and performance in the short term.

And we are confident in meeting our 2020 outlook.

We are also building our business to generate profitable and resilient cash flows into the 2020s.

And all of this is built with continued disciplined management of our financial framework.

I look forward to providing more details on our strategy and post-2020 outlook at our Management Day event in June.

With that, let's go for your questions, please.

(Operator Instructions)

(Operator Instructions) We will now take our first question from Oswald Clint of Bernstein.

Yes.

My first question is just about cost trends.

If I look at your underlying production and manufacturing costs, I think they were just $0.5 billion year-over-year.

Obviously, a lot of moving parts.

But looks like $0.3 billion of that in the Upstream and $0.2 billion in the Downstream.

And I just wanted to check if that's right and if you could specifically talk about what's happening in the Upstream to, kind of, take out that much cost year-over-year.

Is it just mix effects from divestments?

Or is there some actual progress with cost reduction there?

And then second of my -- my second question was just stepping back and thinking about this growing premium, I guess, for assets or for M&A, especially within the unconventional spacing inside North America.

And also, aligned with your previous comments that you would like to deepen your position there, could you, perhaps, just put those 2 -- those statements together and talk about your appetite today for continued bolt-on deals in North American unconventionals?

And I guess, perhaps, just if possible, just finish that answer with, if there were deals in the future, what sort of ballpark magnitude are we talking about?

Are we talking about $5 billion or $10 billion or $50 billion-type deals, please?

Great.

Thank you, Oswald, for the 2 questions.

Starting off on the cost question.

A couple of things are at play right now.

The first one is, IFRS 16 had a positive effect on our operational expenses, some $400 million in the quarter.

And in the slides we've provided, on Slide 23, you'll see a reconciliation of all of the IFRS 16 impacts, and you can have some further detail there.

There's also a positive effect of FX as well.

But I would also like to emphasize that our focus on operational expense efficiencies and simplification of the company is ongoing.

And we have initiatives in all of our businesses that are impacting our refining business, are impacting our Upstream business.

So we continue to have significant ambition to increase availability of our assets, which certainly affects unit cost but simply to run our assets that much more efficiently.

So there's ongoing focus throughout the company in our assets in the corporate office to simplify and reduce costs.

But there's a number of things in play for the quarter that's contributing to that reduction year-on-year.

In terms of the shales business and appetite for M&A, I'll start off by just saying we're very pleased with the performance of our shales business and the portfolio that we have today.

We're generating some 370,000 barrels a day from that business.

That's a 13% increase year-on-year.

So we've been growing that business steadily.

If you look at just the Permian position that we have, and we think we've got some of the best acreage.

In the Permian currently, our production is up from 70-plus percent over the year, and we see a significant growth opportunity with our existing position in the Permian but also in Canada and in Argentina as well.

And last year, we took some investment decisions to support growth across all of those assets.

So we have growth capacity in our existing position.

And in that sense, we're not desperate.

We don't need to find new shale exposure for that business nor for supporting Shell's wider cash flow growth going into the 2020s.

That being said, we've been clear that we like the business.

We've transformed the way we run that business, and we now consider ourselves to be one of the top operators certainly in the Permian, and we've got benchmark data to prove that from an operating-cost perspective and from a well-cost perspective.

So we have confidence in our capability in the space and our ability to create value.

So that gives us more interest and appetite to get further exposure in the shales business.

But of course, anything that we do will need to be value accretive.

So we'll be very strict on the criteria that would make it across the finish line in terms of us actually taking on an acquisition.

In terms of scale and scope, very difficult to say, but we're clear on our financial framework and our commitment to the financial framework.

And, importantly, the -- our free cash flow targets at the end of 2020, our gearing targets.

So whatever we do needs to fit within our financial framework, which we believe is the right thing for the company and for our shareholders, ultimately.

We will now take our next question from Lydia Rainforth of Barclays.

Two questions if I could.

The first one, Jessica, just around the outlook for the renewables business.

And I think some of the comments being made by the rest of [the organization] that's out wanting to be the world's largest power company.

I was just wondering if you could clarify what exactly you understand by that or what you think that statement means.

And then secondly, could you just talk around the Integrated Gas business a little bit more?

Obviously, it was a good result in business and just in the context of what have been some low prices.

I guess could you give couple of examples of some of the optimization opportunities that still exist?

Great.

Thank you, Lydia.

So in terms of our power ambition, we are -- we believe the energy system will transform and will shift to power increasingly over the coming decades.

And we aspire to lead and thrive in that energy transition and are positioning ourselves for that future.

We're not pursuing scale for scale's sake, much as the conversation we've been having over the last couple of years for the Upstream business that it's value over volume.

We have absolutely the same philosophy and strategy with our renewables and our New Energies business, and that is the foundation for all of our activities.

We have belief in terms of how we can create value and how we can competitively differentiate through an integrated offering.

I spoke about a bit of that in the presentation.

That's what's underpinning our belief, but we're going to prove that.

And we're going to prove that we can make competitive and attractive returns before scaling up.

And if we do that, we think we have the opportunity to be certainly leading in the sector, but it's going to be driven by value considerations above all else.

In terms of the IG results, the business continues to perform very strongly.

I know I've hedged a bit on some of the quarters saying, this isn't necessarily the sustainable levels, and then each quarter, we keep generating, I believe, very impressive cash from the business.

I think the fundamentals of the business are strong, and that's what you're seeing coming through.

There -- if you looked at the results that we achieved in the quarter, it's essentially based on our structural position that we have with our contracts.

There is some trading optimization that happens, that's part and parcel of our business.

But it really is trading around the asset positions that we have versus any kind of speculative positions.

It's really driven by the strength of the portfolio, the contractual natures that we have.

I'll point out that we have significant oil exposure in our contracts.

Most of our contracts are long term.

The majority of those are oil linked.

A portion of those is linked to J.K., K minus 3, so you're not seeing the full impact of the price reduction coming through.

So we have that benefit in the quarter.

But even taking that into consideration, just the underlying performance of that business, the increased supply we've been able to achieve and utilization we've been able to achieve, so operational excellence has also played a part, continues to make this a pretty sustained level of high cash and, hopefully, achieving a new normal with that business.

We will now take our next question from Thomas Adolff of Crédit Suisse.

Two questions for me as well, please.

Firstly, these results provide confidence in meeting your 2020 target, you say in the release.

Once you adjust for different macros, would you say operationally things are progressing better than expected or largely in line with your expectations, your budget?

And secondly, in regards to your LNG portfolio, how do you feel about your pre-FID hopper?

You've recently exited Baltic LNG, and you still don't have an agreement on the gas supply for Schiehallion Train 3. While in Indonesia, Abadi is still many, many years away before you can consider FID.

This really leaves you with Nigeria, which is a great project, but I'm not so sure about Lake Charles.

Some of your peers have deeper options so -- yet have fewer contract expiries over the medium term.

Thank you, Thomas.

Indeed, we have confidence in our ability to achieve the ambitions that we've set for 2020 and really pleased with how the company has progressed over the last couple of years.

And we said a couple of years ago, we're going to reshape Shell.

I think a huge portion of that reshaping has occurred.

And I think focusing on the strategic choices we've made, the portfolio choices we've made are really underpinning the high level of cash that you're seeing coming through, particularly in our Upstream and IG business.

Repositioning our Upstream business to be more oriented towards the Gulf of Mexico and Brazil, the acquisition of BG and the bringing together of the 2 LNG portfolios and the LNG capability and the leadership, Steve Hill and our -- running our LNG trading business, all of those things have come into play in terms of generating the levels of cash that you've seen consistently coming from the company over the last couple of years.

And continued discipline on the capital side and continued discipline on the operational expense side, all of that is contributing to the results that you're seeing.

I wouldn't say that these are better during expected.

I'd say they're in line.

And I believe there's more to come and there's certainly more to come from a projects perspective.

We still have Prelude to come up on stream and Appomattox, those are significant assets for us.

And we should have some $3 billion to $5 billion of an incremental CFFO coming through over the next 12 to 18 months as we bring those projects and other projects on stream.

So I'd say a very good quarter but in line with expectations.

In terms of the LNG hopper, overall we're pleased with our portfolio.

Of course, we took the LNG Canada decision last year, so that's part of the next generation of equity supply for us.

We do have a number of other projects, as you said, in the hopper.

These things can feel relatively hot or cold depending on the moment in time.

We did make important progress on Lake Charles in 2018.

We've got NLNG, as you said.

We've got Indonesia, Tanzania.

Further opportunities in Australia as well.

So there's a number of things to keep us busy.

So I'm confident in terms of our ability to continue to grow that business and grow the portfolio in line with market, as we've done in the past.

We will now take our next question from Christyan Malek of JPMorgan.

Congratulations on another strong quarter.

Two questions, if I may.

First, coming back to M&A, I mean, there's always plenty you can deploy additional capital towards, whether it'd be more shale barrels or Brazil transfer of rights.

With the backdrop of M&A in the U.S., I want to ask from a portfolio perspective, why M&A is even on your radar and particularly in shale when you've got a portfolio that gives us -- arguably sustained cash flows over the medium term?

Deep water has gained the strength.

So why are you even having this conversation around M&A?

You've done BG, shouldn't that be it in terms of consolidating going forward?

And secondly, over the past 12 months, has anything changed in the IG business or the structure or the way you manage trading and optimize volumes?

And as part of a broader question, which is, what are the lessons learned from last year's performance that drove some of that volatility in quarterly cash flow?

Great.

Thank you, Christyan.

I think it's entirely a fair point that you're making on -- with respect to M&A and North America, and that's why I framed my response to just keep in mind the strength of the business that we have today, the strength of the portfolio that we have today and the level of cash generation that we have currently as well as what we'll be delivering over the coming years.

And against that context, we don't need to do M&A, and I think that is important to keep in mind.

That being said, we're always -- every day of the year, someone in the company is probably taking a look at an opportunity because that's simply the business that we're in.

And we need to look at how do we further refine, shape our portfolio to make sure we've got the most competitive portfolio.

And against that backdrop, should an opportunity come forward that looks like it presents a better opportunity than our current suite of assets, is in line with our strategy or where we think we can somehow extract incremental value or differentiated value from the assets, then of course, we're going to take a look at it.

And it's really in that context.

I would also add, as I mentioned as well, the increased confidence we have in our capability in this business and believe there is more running room for us.

And again, we got a -- we think we can potentially create differentiated value in the space based on what we're seeing with our -- particularly with our Permian operations.

For IG, I -- it's an interesting question, structural change.

I can't point to any structural change specifically in terms of our contract structures or the way we're running the business.

It's more or less kind of the same organizational and business model, if you will, that we've had in place over the last couple of years.

And with Steve running it, I think perhaps it's the continued optimization and perhaps the virtuous circle that we're able to achieve, given the nature of our portfolio and the nature of the capabilities that we have.

And our ability to consistently optimize and extract more value per tonne sold continues to be shown in our results.

And -- so I can't point, Christyan, to anything that's fundamentally different or necessarily what we've learned.

I mean I think on the margining side, hopefully, we're providing the right level of transparency that's still flowing through our numbers.

But somehow, it's become less prevalent.

But in terms of how we're running the business and structuring the business, the fundamentals are the same, and I think the strength of that business and the strength of the portfolio that we have is essentially what's coming through.

We will now take our question from Biraj Borkhataria of RBC.

I've got one follow-up on Thomas' question.

Regarding your 2020 free cash flow targets, it looked, as you mentioned, on the whole you're on track.

Could you talk about any small areas or any particular areas which aren't -- currently not performing to your expectations or according to that plan?

And then second question is on your Permian acreage.

Does the potential takeout of Anadarko and change of control there mean anything for your plans?

I know you have the JV with them.

So does that mean you have to slow down activity at all?

Or any impact there?

Great.

Thank you, Biraj.

So in terms of our 2020 outlook -- and I think throughout the presentation and in some of my responses, I've already expressed confidence.

And again, what gives me that confidence, hopefully, comes through in the materials we have provided today and certainly in the rolling 4-quarter cash flow from operations chart excluding working capital, where you can see just the consistent growth we've been able to achieve over the last couple of years.

We said we would do that, and we said we would bring more projects on stream.

We said we would take costs out of the system.

We said we would be more capital efficient.

All of those things have happened, and they're happening consistently.

So we certainly have confidence in our performance.

And hopefully, the market will have confidence in our performance.

And it's based on that knowledge.

And looking forward and seeing what else is on the horizon in terms of what can drive further cash generation, I've spoken a bit about that as well.

We've got a couple of big projects, Prelude and Appomattox.

But also, our Downstream business, which I mentioned, which is humming along very well.

You see the marketing results for the quarter, some $1 billion in earnings.

That's in line what it was in fourth quarter.

And I'd highlight these are 2 totally different price environments, and I think that's a good way of thinking about the strength of our marketing business to generate those earnings in 2 very different price environments.

So all of that, the strength of our delivery today, gives us confidence going forward.

Now, of course, there's the macro environment, if the price changes dramatically that would obviously be, potentially, disruptive in terms of our outlook.

And we have to stay focused on delivery.

There can be no, kind of, getting too comfortable in the organization around our delivery, whether it'd be bringing our projects on stream to driving costs out, to ensuring the highest availability of our assets.

We need to maintain what we're currently doing and, as I mentioned earlier, potentially even extend what we're doing further to make our cash generation either more robust and resilient or even grow it further.

So I think what we have under our control, I have confidence in.

It's always -- it's the macro that may interrupt things.

In terms of Permian and the change in -- potential change in ownership of the Anadarko position, at the moment we're not seeing anything, and I can't -- I don't see a likely negative impact.

I mean there could be some minor disruption as people change -- as things change hands.

But these things happen quite frequently in the U.S. shales business.

It's a kind of matter of course.

And it's in everyone's interest, for the most part, to work well together, to make -- maximize value for all companies involved.

That's what we've been doing with Anadarko, and we'll do it with whoever owns those assets going forward.

We will now take our next question from Roger Read of Wells Fargo.

I would like to follow up, if possible, on what's going on in the Chemicals segment?

You're at least the second company to reference some issues there on the margin front.

Just, kind of, curious what your expectations are over the next several quarters at a minimum and maybe into 2020 in terms of what's going on in supply and demand there.

And then the other question I had was on the balance sheet side.

I know the change is due to the IFRS regulations.

But I was curious, given that the company is generating better cash flow, you've got your other goals set out on the share repo side and a pretty healthy cash balance, what you would want to do with debt here?

And if that's a better question for June, that's fine by me.

Okay.

Thank you, Roger, and good morning to you.

In terms of the Chemicals segment, clearly the macro environment affected our results, as is true across the sector.

Margins across the board were much lower than they were a year ago, and that's a combination of supply and demand factors.

So new supply coming on stream and softer demand, particularly in Asia, coming through, and that coming through in our results.

I still think, relatively speaking, we did okay, but it was against a very, very difficult backdrop.

Very difficult for me to predict how these things will move.

These things don't necessarily correct themselves quarter-on-quarter.

But for us, the main point around our Chemicals business and why we continue to invest in the business is, we think the long-term fundamentals remain very strong with demand expected to exceed GDP for the coming decade.

It's -- huge growth is on the horizon, and we really play to the long term and not so much quarter-on-quarter.

We expect these kinds of dynamics to happen, as we're currently seeing in this quarter.

That could continue for a couple of quarters, but that's not going to shift our current view that the long-term prospects around this industry are very attractive to us.

And we think we can generate attractive returns through the cycle.

On the balance sheet side, we're clear in terms of our current ambitions through 2020.

We believe in having a robust and resilient balance sheet to weather volatility and, through time, create some flexibility for us.

And we would -- we have been clear that we would like to get back to a balance sheet and gearing levels that were pre-BG, and that's at and around the 20% level or below.

And we've been working towards the 20% and making very good progress over the last couple of years.

That remains our ambition through the end of 2020.

In terms of the overall financial framework, we'll go into greater detail in terms of how we're thinking about our balance sheet and allocation of cash in greater detail as we look into the 2020s at our Management Day presentation in June.

Thank you.

We will now take our next question from Jason Gammel of Jefferies.

I wanted to ask 2 on the Downstream, if I could, please, 1 short term and 1 more strategic.

First of all, the Pernis refinery and Moerdijk chemical facility had some industrial action.

I just wondered if you could update us on the status of that and whether it's going to have any effect on 2Q volumes.

And then second, more on the strategic side.

You made reference to wanting to really drive the footprint into trading hubs and integrated facilities with Chemicals in the Downstream business.

Do you think you're essentially now at that point?

Or should we expect to see further divestitures in the Downstream business?

Thank you, Jason.

With respect to Pernis and Moerdijk, the industrial actions have been resolved and stopped.

So that's no longer an issue for those assets, and I would not anticipate any impact on 2Q volumes associated with any of those activities.

So hopefully, that's fairly straightforward.

In terms of concentration around the trading hubs, indeed there -- integration takes its form in different ways.

Sometimes, it's physical integration where we have our Chemicals assets and our Refining assets and perhaps our storage assets all co-located and that creating value through integration from that perspective.

And then there's integration with our trading activities as well, which also allows us to maximize value in terms of what goes into our refineries and chemical plants and what comes out and how we bring those to market.

And that's what we're pursuing, both types of integration in terms of creating distinct value in the value chains that we participate in.

In terms of our portfolio for our Downstream assets and Refining, I'd say we're always managing our tail and always managing to ensure that our portfolio is optimized, whether it's our Upstream or Downstream business.

So I wouldn't rule out other things happening in our Downstream business, but I wouldn't say that we're -- I wouldn't want to signal anything specific at this point in time.

But it's part of our normal portfolio management that we do.

We will now take our next question from Jason Kenney of Santander.

Just going to build on some of the earlier questions around Integrated Gas, if I can.

I think you've had 5 quarters now over $2.5 billion a quarter of earnings.

So I'm just wondering if this is the new norm and whether I should be looking at, say, around $10 billion earnings for IG this year?

And that's assuming a liquefaction in an 8 million to 9 million tonne per quarter or 36 million tonne per annum kind of business.

And then looking ahead, if I were to think of expansion the -- towards 45 million tonnes per annum over the next couple of years, do you think earnings moves proportionally up on that basis?

Or are you still expecting improved margins over the next couple of years so that you take the volume increase and you get a better margin?

And then, my second question, just going on the gearing.

I think you've mentioned the 20% line of sight on a pre-IFRS 16 basis.

Should I be thinking of that as 25% on a post-IFRS basis?

Is that the kind of the clarification we need?

Thank you, Jason.

And maybe last question first.

Yes, so 20% is equivalent to 25%, and I mentioned that in the speech as well.

And it's in some of the slide materials where we provide a bit more detail.

But that's the right way to talk about it.

And again, in Management Day we'll walk through all of the implications of IFRS 16 because it touches so many of our metrics.

But for this year, it's -- we're providing information, both on an IAS 17 basis and IFRS 16 basis, to help people navigate between those 2 different worlds.

In substance, we're not changing anything.

So it's just the metrics need to change because the accounting has changed.

On IG, it's a fair challenge.

And perhaps, in some ways we've been a bit sheepish ourselves.

We've done some divestments over the last year.

We've seen some unique weather events in the last year.

And those elements felt less repeatable, and that's part of some of the hedging, no pun intended, that I've provided in the prior quarter calls around our results and not simply just to think this is the new normal.

I think it is getting a little bit challenging to keep repeating that.

But there is a certain amount of the -- obviously, the price environment, the market dynamics have a meaningful impact on our results.

We've continued to manage those well.

But I certainly wouldn't -- we don't give guidance in terms of full year numbers on earnings, and I wouldn't want to do that.

But I would say that we should have confidence certainly in the underlying performance of the business.

I'd like to think we're getting to the new normal.

But again, we are subject to the marketplace, and I wouldn't want to be too strong in terms of signaling this level going forward.

In terms of contemplating growth and how that plays out, indeed we do want to grow this business.

We want to grow in step with the growth of the business in terms of -- kind of, we're roughly around 20% of the sector today.

That role that we play or that position that we have allows us to do, as I've mentioned, a lot of optimization and create differentiated value.

We'll look to continue and extend that going forward.

But in terms of the nature of what those return profiles look like, will they be less or more?

I think I would look to, kind of, how we're currently producing and currently generating cash as a good baseline.

But our ambition is never sloppy.

And as I indicated earlier, we have ongoing cost initiatives, simplification initiatives, digitizational -- digitization initiatives across the company where, frankly, we're trying to improve the margins in all of our businesses.

So in that sense there's certainly more ambition, but that's -- that needs to be developed and brought to the bottom line before we fully bake it in.

We will now take our question from Martijn Rats of Morgan Stanley.

A couple of weeks ago, I read the Energy Transition Report that you published, and I thought it was very interesting.

And there was one -- particularly one thing, sort of, that I spotted.

In that report, you published a cost curve, and there are 2 interesting things about that cost curve.

If you look really just all the way towards the left, the first block that you plot there is North America light tight oil.

In fact, you plot North America light tight oil in that cost curve left of OPEC.

And at the same time, if you look at deep water, it's all the way to the right in that cost curve.

And in that block, there are almost no deep water projects, with breakevens lower than $80 a barrel.

And actually, to an extent, sort of, this cost curve surprised me a little bit.

It's -- do you -- is this truly how you see it, i.e., do you truly see North America light tight oil now, on average, being more cost competitive than OPEC?

And also, do you -- is it really true that in your estimation, very few deep water projects, on a full cycle basis, have breakevens less than $80 a barrel?

And also, if this truly is how you see it, then you have to invest more in shale and less in deepwater, right?

Martijn, thank you for the question and thank you for reading the report.

I think that came out about a year ago.

So unfortunately, I don't have that kind of weld in the top of my mind in terms of which chart you're looking at.

And we can come back to you with more detail, but I'll make a few comments on some of the points that you've raised.

In terms of breakeven prices and the way that we're looking at our business, we're achieving breakeven prices in both our shales business and our deep water business of below $40 a barrel.

And -- so this is why we are interested in both of those businesses.

We find them both attractive.

They have different characteristics.

We bring different capabilities to bear.

We find them complementary in a lot of ways.

But both of those businesses for us, we think, generate some of the most competitive barrels in the sector, and that's what's driving our continued investment in the deep water business, our focus on the shales business and potential future investment in the shales business, subject to the caveats that I gave earlier in the call.

But Martijn, we can come back to you a bit more specifically on that chart and make sure that we're all seeing and understanding things in the same way.

We will now take our next question from Irene Himona of SocGen.

I had 2 questions, please.

Firstly, back to Integrated Gas and thinking about the time lags and the potential impact of the lower spot LNG prices we have seen so far this year.

You both buy and sell material volumes in the spot market.

Is it feasible you could continue to surprise positively on LNG earnings, helped by your improved optimization and perhaps despite the weaker pricing environment?

And my second question is on working capital.

You have said before that you actively manage working capital.

Now we have seen some extreme movements in Shell's working capital, particularly in the last couple of quarters.

Assuming no major price changes, is it possible to provide some indication of what your working capital might do over the full year 2019, please?

Thank you, Irene.

So in terms of the relationship of the LNG spot market to Integrated Gas' result, I think that was the essence of your question, most of our business and our cash generation is related to our contracted portfolio.

So we have spot activity, as you said.

We buy some on the spot market and we sell on the spot market.

That's somewhere between 10%, 20% depending on the [moment in time].

So it's -- the vast majority of what we're buying and selling is within contractual arrangements.

Now we can optimize within that contract structure and that's part of what our trading capability does in terms of how the molecules actually flow and then can you create value simply from optimizing within that portfolio.

But indeed, stepping in and out of the spot market to buy or sell also creates further opportunity for us to create value and we certainly do that and that does contribute to the performance that you see in the quarter and in prior quarters, but it's not the driving force behind the underlying cash generation of this business.

It is an optimization lever that we're working with.

And of course, that is subject to the market conditions.

And this is where it's difficult.

If there's not a lot of volatility.

If, yes, there's not a lot of demand in the spot market, et cetera, those market conditions that we don't have control over may make more or less opportunity be available from spot transactions.

So I think there is a capacity to provide upside to our numbers, as you indicated, but that's really difficult to fully bake in because it is subject to whatever is happening in -- from a market perspective.

In terms of working capital, we do actively manage it, and the movements we've seen for the last 2 quarters have been largely price driven.

So certainly, in the fourth quarter and in the first quarter, the majority of the change was simply the change in price.

That being said, there are also volume implications as well in both of those quarters.

But the majority of it -- certainly this quarter, some 2/3 of it was simply price related.

Working capital is important for us.

It is a resource we use to make money.

We -- in our trading business, we can use inventory as part of the positions we take, and we require at least a 15% return on that resource.

So we do -- we actively manage it, and we actively make money off of it.

That's part of how we manage it.

Difficult and not really possible for me to give you guidance because it is also a function -- well, some of it is potentially competitively sensitive.

But also, again, it's a function of the market and how the market is playing out.

We'll make -- we'll have implications in terms of the amount of working capital we're willing to use to support growing the business.

I've mentioned that the flux in the market, Downstream particularly with IMO, and the shift in demand and the uncertainty that, that's going to create over the next couple of years could potentially be an opportunity for us from a working-capital perspective.

But we'll have to see how the market unfolds.

We will now take our next question from Jon Rigby of UBS.

Two.

One is that you -- you did actually reference this, but I just wanted to go into a bit deeper, is that -- what were -- a decent set of numbers in 4Q had one area that I was a little disappointed in, was that your marketing business didn't seem to get a pickup from the fall in oil prices that we saw.

But conversely, the marketing business was extraordinarily robust it seems to me, in the first quarter with the oil prices rising.

If you look historically, it's been much more volatile.

And I just wondered whether there's something going on, whether through the process of portfolio management, through the changes in the business that have been taking place or whatever, that something has been happening within that marketing business that makes it more regularized even as prices are volatile, first question.

And the second is that, you're not going to like this, but in the last 4 or 5 years, obviously you've not increased the dividend.

And I understand the reasons why.

I mean one would argue probably that the payout was too high back in '13 and '14 and you've effectively been growing the business into the dividend over the last 3 or 4, 5 years or so, post-BG.

But the problem with that is that the signaling device is very useful that comes from the Board of Directors who can see underneath the hood, so to speak, of the business, is that they can signal positive progress, which I think you're indicating you're very comfortable with.

They can see positive progress underlying.

So I just wondered whether -- notwithstanding the fact that you, obviously, want to be cautious about long-term payout commitments, whether you can see an argument starting to reflect some of that progress within the dividend over the, sort of, short to medium term.

Great.

Thank you, Jon.

So a good question on the marketing business and what's driving the consistency of these earnings in very different price environments.

There's a few things at play.

I'd say the first is we've really built up our capability in the organization in terms of how we manage pricing in all of our markets.

So we've become increasingly sophisticated in how we manage pricing and pricing exposure, which I think has helped and is driving better consistency and less volatility.

We've, of course, also diversified our product offerings.

More V-Power, which is higher margin; nonfuel retail, an important piece and the product offerings that we're offering, particularly in Europe, making an increasing contribution to our bottom line.

And then, the diversity of our business around the world and the different geographies which have different dynamics that also lead to a more consistent performance in the business.

So I think all of those things are in play that are contributing to this outcome.

And again, part of the reason why we're focusing on our marketing business and our marketing capability is our confidence in the delivery we've been able to achieve and the consistency we're able to achieve.

And we think our strategy in the business model and the levers we're pulling will allow us to create even more value from this business going into the 2020s.

We'll talk about that more at Management Day in June as well.

In terms of the dividend increase question, I get it.

And what I would say is a couple of things.

First of all, again, this will be an important part of the engagement that we'll have at Management Day in June.

We recognize this is a really important part of the story for investors to have a sense of what we're thinking and how -- and our strategy with respect to shareholder distributions going into the 2020s.

So I'd say that's going to be a core piece of that engagement.

What I'd share now is a couple of things.

Hopefully, everyone has seen our commitment to increasing shareholder distributions, turning off the script, starting the share buyback program and then the sheer volume of shareholder distributions that we've been able to achieve, again, highest -- are highest in the sector.

And, of course, we increased our share buyback from $2.5 billion to $2.75 billion in terms of the mandate this quarter, which is another signal in terms of confidence in our underlying cash generation and our commitment to the overall program.

So the commitment to shareholder distributions and increasing shareholder distributions, I hope, is clear.

I would also say that through time, to deliver on the world-class investment case and achieve #1 total shareholder return, increasing dividends and ensuring dividend per share increases through time, needs to be a part of that story.

And so I recognize that needs to be a part of it.

Today, where we sit, we're the largest dividend payer in the world.

We've got clear commitments on the share buybacks.

Our dividend yield is around 6%.

All of those things, I think, point to the right strategy today, which is focusing on the share buybacks.

But at some point in time, increasing share -- dividends per share will need to be a part of the story.

Our next question is from Lucas Herrmann of Deutsche Bank.

One straightforward question and one more a view, maybe a little more conceptual.

The straightforward, it's just on Gulf of Mexico production this quarter relative to a year ago.

Could you just give us an indication what the absolute numbers were?

The second is, there's been a lot of debate around Shell on growth capital investment and reserves and reserve replacement ratios, et cetera, in terms of years.

I don't really want to get into that debate.

But I do want to think a little bit more about or get some commentary from you, Jessica, on bookings.

The observation, very simply, is this, if I look back at -- or if I look at your reserve bookings 2017 and look at the assets that you sold or the resources that you sold to Chrysaor, you sold from memory about 120,000 barrels a day of North Sea production, and you de-consolidated just under 90 million barrels of reserves, which would imply 90 -- 120,000 a day is broadly 45 million -- 40 million, 45 million barrels or so a year of production.

It implies that the reserve life is around 2 years.

Chrysaor indicated they bought 350 million barrels a day of 2P reserves.

Clearly, the 2 numbers, 1P, 2P, it's their interpretation, but a long way apart.

The reason for the question is, it's not the absolute number.

It's more conceptual to what -- I think you're a company that's very conservative around bookings.

But the point to which conservatism around bookings actually starts to play on shareholder value and to play on perception of a company, which need not necessarily be fair.

And I just wondered why it is that Shell should appear to be so conservative at times around the booking of resource if that interpretation of U.K. numbers, and I could use other examples, is appropriate.

So if you base in essence on the booking policies you adopt and whether actually they end up being value and shareholder destructive through giving a false impression of the resilience and the resource depth of your company.

Great.

Thank you, Lucas.

Too long.

Sorry, Jessica.

No.

That's good.

So in terms of Gulf of Mexico, the quiz question on production levels, the numbers that I had, but my team is giving me the exact numbers, the numbers I had is the Gulf of Mexico has gone from -- sorry, that's the deep water business in total.

That was 400 to 883.

Usually all of North America, though, not just Gulf of Mexico.

So Gulf -- let us come back to you on the quiz question because I've got various numbers here.

Gulf of Mexico, some 370,000 barrels a day today.

And we'll come back to you in terms of what the growth has been over the last couple of years.

I don't have that at my fingertips.

In terms of reserves bookings and our philosophy, there's a couple of points to make there.

The first one is we're really trying to get as much focus on the cash generation of the company as possible because that is such a strong indication of the value characteristics of the assets and the portfolio that we have.

And once again, shifting from low-value barrels potentially in the Middle East to barrels in Brazil and Gulf of Mexico, you can get exponentially more value from those positions.

And we have made a very conscious strategic and portfolio choice over the last couple of years to reposition our portfolio in those higher-value positions of the Upstream sector.

So that's the first thing.

And so in that sense, the reserves and production numbers are secondary to what is the right value choice and how do you maximize the most cash and the most value from a given dollar of capital or given dollar of OpEx that you need to spend.

And that's really what's driven the portfolio choices.

And I'm hoping that as you see this cash grow in our Upstream business, some 45% over the last year, and again, there are some pieces of that also coming through in our IG business as well because we've got gas production in IG.

Again, I'm hoping that as this growth is coming through, people say, okay, well, perhaps the 1P reserves are relatively low, but my goodness, year-on-year, the company keeps growing their cash flows and their Upstream IG business.

And that, again, is a reflection of our value-over-volume philosophy.

Conservative or not, we like to do things appropriately.

That's what we need to do.

We need to follow the law, and we need to follow the SEC rules.

And that's what we do.

And I think it would be potentially and possibly inappropriate if we were overly conservative.

What we're supposed to do is accurately represent the reserves as following the regulations and the guidelines.

It may be that our perspective on certain assumptions and things like that are relatively more conservative.

That's possible.

I think the only way we can really win this discussion, though, Lucas, is to get people confident in our portfolio, get people confident in the cash generation, have people spend a bit of time understanding the SEC rules relative to the nature of our company.

And on what basis should you be anticipating cash flow growth.

And this is where the proved undeveloped resource methodology for the SEC doesn't fit well with our Brazil, Gulf of Mexico and Integrated Gas businesses.

And we've got some materials on that.

We've been spending a lot of time with investors and analysts to get to increase that knowledge and that understanding so people have confidence in what we're doing as a company strategically and to help them better understand what the cash is going to look like going into the 2020s, where I have confidence that we'll continue to grow the cash flow of our business based on the portfolio that we have and the access to resources that we have today.

We will now take our next question from Alastair Syme of Citi.

Coming back to the comments you made on acquisitions a while ago.

You said anything will have to sit within your financial framework.

So I just wanted to confirm what you meant by that.

Does it mean what you said in the past that the $30 billion CapEx ceiling includes gross acquisitions, it's not net of any disposals?

Is that the right way to think about it?

My follow-up.

In your introductory remarks, you pointed out Shell's cash flow is the highest in the peer group, but it's also true that your ratio of CapEx -- and I'm referring here to the total capital investment on the ratio of CapEx to cash flows are somewhere the lowest in the sector.

One explanation could be that your dollars go a lot further than peers, but that's not really borne out on the return of capital.

So how do you think that we should interpret the spending ratio?

Great.

Thank you, Alastair.

Indeed, I want to reiterate our commitment to the financial framework as we've laid it out and looking at achieving the cash flow levels, the gearing levels, importantly, that we've laid out by the end of 2020.

And anything we would do needs to fit within our overall financial framework.

Anything that we do needs to have the right value characteristics.

And we would not go gently into any significant transaction without ensuring we're doing the right thing from a financial framework perspective and also from a value perspective.

From a cash flow versus CapEx, I think what we've demonstrated over the last couple of years, if you look at our CapEx level and you look at the cash flow growth that we've achieved, I think there's a very strong case that we've materially increased our capital efficiency and have, perhaps, the most competitive capital efficiency in the sector.

And from a ROACE perspective, we've been improving that quarter on -- quarter in, quarter out.

And this quarter, we're at the top of the ROACE chart.

So I think we are demonstrating a competitive -- leading returns at this point as a company, and the level of cash flow that we've increased against our capital profile, I think, is a good proof point that we are getting more for our dollar and continue to grow our cash flow significantly with the current CapEx range that we have in place.

Thank you.

Can I just come back on the first answer?

So you referenced achieving cash flow levels and gearing levels.

I think in response to this question in the past, you've referenced the CapEx ceiling.

Is that not the right way to think about it any longer?

The capital ceiling has been -- is important for us.

The $25 billion to $30 billion range has been important for us.

We have indicated this includes inorganic spend as well.

This has been an important part of driving capital discipline in the company, and it is an important measure for us in terms of how we're managing investment and it's part of managing our financial framework.

We will now take our next question from Henry Tarr of Berenberg.

Just 2 quick ones.

One, an update on Prelude, we're still waiting, I guess, for the first cargo of LNG.

You suggested it's going to be in 2Q.

But how is that project coming on?

And then secondly, South America delivered pretty strong results in Q1.

A strong turnaround against Q4.

I guess you have the FPSOs ramping up in Brazil.

But just from a pure, sort of, volume perspective, it wasn't a huge increase Q-on-Q.

But is that the key driver?

Or is there something else also happening in Brazil to improve profitability Upstream?

Great.

Thank you, Henry.

Prelude, we are actively starting up the assets.

Our priority is to ensure a safe and robust startup process.

It's been really important for us to not put pressure on the team because safety is paramount.

And of course, this is a large, sophisticated asset that we hope will generate significant cash for the coming decades.

And so a day or a week or even a month here or there at this moment in time is not really what we're focusing on but ensuring that each step of the process, we bring the right expertise and professionalism to play to ensure that we start that asset up.

And we're hoping to have our first LNG cargo in the second quarter.

We're really in the middle of the startup.

I think there's -- the normal challenges of any startup of an asset of this size and, again, what we're trying to do is just really manage it at the right pace and not create any pressure from a time perspective because I think startup is imminent and, again, it's more about doing it appropriately rather than quickly.

For South America, the main driver is continued ramp-up of assets in Brazil.

So there's nothing other -- mysterious going on or other structural change in the business to point to.

It's simply the performance of our South America business primarily driven by our Brazil deep water operations.

Thank you.

We will now take our next question from Jason Gabelman of Cowen.

I wanted to ask the capital framework question relative to M&A in a bit of a different way.

I appreciate you have that $30 billion ceiling.

But within that, kind of, $25 billion to $30 billion framework, does that contemplate an acquisition funded by cash?

Would it be cash and debt being taken in?

Or would it also potentially include some sort of equity that would be issued for M&A?

I mean asked another way, does that $30 billion CapEx ceiling account for the entire enterprise value of a potential acquisition?

Jason, thank you for the question.

And I appreciate the heightened level of interest of potential acquisitions in the shale space given all the activity.

At this point in time, I really don't want to signal anything with respect to appetite nor potential structures.

Anything would be speculative and not necessarily helpful.

If anything arises at the right moment in time, we will let you know.

I think that the important thing is to signal that we -- as I said, we're committed to our financial framework, we've got the right portfolio today, we don't need to do M&A.

If we do it, it will be value accretive and it will be within the context of our financial framework.

Thank you.

All right.

Let me then shift to the Downstream segment.

Topic that hasn't been touched upon is, the Russian pipeline contamination.

I'm just wondering if you see increased feedstock costs into your Germany plants.

And any outlook on when the issue there is expected to be resolved?

Sorry, I was just trying to make sure I understood the question, Jason.

And on Russian matters, I'm -- as an American, I'm recused from engaging some contemplating reserves.

A simple question -- a response I can give.

And I -- in general, it's probably best for me not to provide any responses in relation to Russia.

So I'll have the IR team get back to you.

We will now take our next question from Michele Della Vigna of Goldman Sachs.

It's Michele, and congratulations on a strong quarter.

A quick question from me.

In Nigeria, we're now over 2 months after the presidential elections, I was wondering if you see things moving there and if we could expect an FID on Bonga South West or NLNG this year?

Thank you, Michele.

I'd say overall in Nigeria, our business is progressing well.

There's always a certain amount of challenge with any of our business and our business in Nigeria in particular.

But we've worked through a number of those.

There's important extensions for licenses that happened at the end of last year, and we're continuing to put -- we've put a number of funding structures in place in the last year to stabilize the relationship with the government and the way funding was happening for the assets.

So overall, the trend has been in the right direction with the business.

And as you say, things do settle down post the election, which is helpful.

The projects you referenced are being actively managed and are important parts of our funnel both NLNG and Bonga South West.

But at this moment in time, I would not want to signal in terms of expected FID timing.

So they're important parts of our portfolio.

They're being worked.

But I can't provide any indication of when a potential FID may occur.

We will now take our last question from Christopher Kuplent of Bank of America.

I'll try and be quick.

Just on Q1.

And I think you tried to give us a little bit of an indication earlier.

But just wanted to see whether you can go into more detail on the rationale behind increasing that share buyback tranche to 2.75.

Is it a reaction to the fact that the 2.5 maximum in the last tranche wasn't fully utilized?

Or is it, as you seem to indicate, simply a signaling of increased confidence in your overall financial framework?

That would be question #1.

And question #2 is, firstly, just quickly looking for confirmation.

We've got the detail in Q1 of additional derivatives margining at cash outflows.

You mentioned the amount of tax payments.

Is there anything that is, you would call, a nonrecurring positive that has actually lowered cash tax payments elsewhere?

Any additional items that we should consider here as nonrecurring in the cash flow statement would be great.

Great.

Thank you, Chris, for that.

On your last question, no.

So -- because I put that list together myself, and I had more upside rather than downside.

Again, I'm not trying to signal things here, but you've touched on the things that would be potentially a positive implication.

But from a -- upside rather, in terms of positive one-off that's material, nothing comes to mind to signal to you.

In terms of the share buyback, I'd say it's both.

So it's, one, trying to make sure we maintain the right level of buybacks and to get to that full $25 billion by the end of 2020.

But of course, we only do that when we have confidence in our underlying cash flow.

So it's a reflection also of the strength of our delivery in Q1 and our confidence of delivery going forward.

Unfortunately, that is all the time we have for today's questions, and I will now hand back the call to Jessica Uhl.

Great.

Thank you, everyone, for your questions and for joining the call today.

A few reminders.

Our Annual General Meeting is on the 21st of May 2019.

I look forward to talking to you along with Ben and the rest of the Executive Committee further at our Management Day in 2019 on the 4th of June in London and on the 5th of June in New York.

The second quarter results is scheduled to be announced on the 1st of August 2019, and Ben and I will talk to you all then.

Thanks very much, and have a good day.

Ladies and gentlemen, this concludes the call.

Thank you for your participation.

You may now disconnect.