殼牌 (SHEL) 2020 Q1 法說會逐字稿

Okay. Thank you very much, Jennifer. And ladies and gentlemen, welcome to Shell's First Quarter Results Call for 2020. Thank you so much for joining us from wherever you are around the world.

Before I begin, can I just hope you and your families and your friends and your colleagues are safe and well and that you are taking good care through these extraordinary times.

I will, of course, as usual, start by highlighting the famous statement that you can now see on your screens. But during these highly uncertain times and highly uncertain outlook that we are facing, can I also stress that it's even more important to read and understand what we are saying in this note? So please take time to read it, and you have a moment after this call.

In an environment like this, a strong company like Shell needs to stay resilient. It needs to stay prudent and act responsibly, and it needs to take decisive action to preserve the long-term health of the company, which is crucial for staff, customers, the communities we operate in, debt holders and, of course, our shareholders.

We are well positioned to maintain the resilience and the prospects and the performance of this company. This will mean focusing on 3 key areas. The first one is care, care for each other, for our colleagues, for our customers, for our communities. We must put health and safety first. The second is continuity. We must continue to serve our customers in every way we can possible. We must aim to provide them certainty. We need to ensure that our operations are delivering products that customers need to keep functioning. And finally, we are focusing on protecting the future health of our business. We must always generate and preserve cash, especially during these challenging times. We'll talk a little bit more about these 3 key areas a little later and how about Shell is responding, including how we have challenged all the levers within the framework to ensure we stay resilient.

And considering the risks of a prolonged period of economic uncertainty, including the weaker demand in our products, lower and the less stable commodity prices, we do not consider that maintaining current level of shareholder distributions is in the best interest of the company and its shareholders. With that said, Shell Board has decided to reduce the amount we pay as dividends to our shareholders, and we are announcing a resetting of our quarterly dividend to USD 0.16 per share. This aims to provide right balance of maintaining a strong balance sheet, protecting the value of our business and the level of shareholder returns that we offer. As I said, I will go into more detail on this later. But first, I want to talk to you about what we have achieved so far this year.

This quarter, Shell has delivered good earnings of $2.9 billion with strong and resilient business operations. Our cash flow from operations, excluding working capital movements, was around $7.4 billion. That was an average Brent price of $50 per barrel. As a result of big movements in price and volume, there was also a positive working capital impact of around $7.5 billion in this quarter as well. And Jessica will run through the financial performance for the quarter a little later on.

But we also announced a major new ambition earlier this month. At our Responsible Investment Annual Briefing, we announced our ambition for Shell to become a net-zero emissions energy business by 2050 or sooner, in step with society. That's a significant strengthening of our climate ambition. And later on, I will talk you through the key components of this ambition. But we cannot talk about long-term ambitions without considering the short-term circumstances. It is important to look at the macroeconomic and societal forces at work right now to understand what Shell can achieve today and what we can achieve tomorrow.

And as you can see on the charts on your screen now, the pressure on our industry has mounted, and the threats to economies around the world is real. One clear factor, and this is a threat to our industry and any industry that relies on our product, is the commodity price outlook. Today's volatile market is impacting our business now, and it will continue to impact our business in the quarters to come. Oil and gas prices have already moved sharply down this year as the COVID-19 pandemic has significantly reduced demand for crude and for gas and associated products. And at the same time, of course, supply from Saudi Arabia and Russia has increased, and this oversupply then has put further pressure on oil prices.

And when we look at our Integrated Gas business, the economic slowdown has reduced global LNG demand, a material demand drop compared to the projections earlier in the year. And similarly, the environment around refining and chemical margins remains challenging with demand for our products falling to levels where storage capacity is becoming a major issue. And the key to the profitability of our chemicals plants and refineries is their integrated value chain from their feedstocks to multiple products they produce. And the demand volatility of a particular product can, therefore, have broader impacts on the operational capability of the integrated value chain. Take as an example, a reduction in the demand for jet fuel at a refinery can actually impact the viability of the entire refinery.

Looking ahead, we expect significant price and margin volatility in the short and medium term, but we're also seeing recessionary trends in many of the markets and countries that we operate in. And this volatility presents a unique challenge for oil and gas producers with the need to balance the requirements for cash today, appropriate investment across the portfolio, generate cash tomorrow. And all this as we combine with ensuring that we have a strong balance sheet and continue building a business that will be there for the long term. We do not expect a recovery of oil prices or demand for our products in the medium term. Both will recover over time. And until that time, we, like other companies, will take the actions to ensure our business is robust through the current difficult macro environment and remains robust.

So what does it mean in practice? Earlier on, I talked about care, about continuity and preserving cash. And I said our immediate priority is care. Shell is supporting our teams whether they are now working from home or serving customers at retail sites or working at our operations. Of course, we are following the advice of local authorities wherever our teams are based. Our fuels are powering trucks and ships to continue delivering medical and food supplies. Our retail sites are staying open, keeping communities mobile and provide essential food and supplies.

We're also adapting production where possible to support efforts to hold the spread of the virus. So at our manufacturing plants at Pernis in the Netherlands and Sarnia in Canada, for example, Shell is diverting resources to make isopropyl alcohol, or IPA, as fast as we can. The IPA is a chemical ingredient that makes up about half the content of hand-sanitizing liquids. In the Netherlands here, we are making 2.5 million liters available free of charge for the health care sector here.

Safety has always been a priority for Shell. Care is necessary in responding to the challenge of COVID-19. In each country where we operate, we are responding based on the local need and the specific resources that we can deploy there.

The second action we are responding with is business continuity. We are continuing to operate. We are continuing to invest and produce wherever it makes sense. For example, we are still working to sanction projects, and we continue to strengthen our portfolio. Continuity brings certainty, and this is vital in such uncertain times.

One example of how we have kept things going is at our retail sites across the world, where our network of 45,000 sites globally performs an essential service for emergency services and customers that are in need of fuel and convenience retail offerings. We've been working very hard to remain open for business, and so far, only 140 retail sites of the 45,000 had to close.

And while our sites remain open, broad portfolio, our local innovation and the resourcefulness of our employees enables us to provide reliable and tailored products and services to all our customers. We rapidly expanded the stock range in our convenience retail outlets to meet new customer demands during the lockdowns. And actions included expanding the range into groceries, into daily essentials and even home delivery from our stores that are open 24 hours.

Third action with which we are responding is by preserving cash. In March, we laid out how we are responding to the current ongoing worldwide crisis through the pandemic. And we are taking action to reinforce the financial strength and resilience of our business so that we are well positioned now and for eventual economic recovery. We're doing everything we can in financial and operational terms to deliver sustainable cash flow. So we announced a series of initiatives that are expected to result in pretax contribution to our free cash flow of $8 billion to $9 billion.

Firstly, we will focus on the reduction of cash capital expenditure. And for the full year 2020, we will see a reduction to $20 billion or below compared with a plant level of around $25 billion. So far, we have made good progress in working to reduce cash capital expenditure. The approach there is to, of course, protect our assets, spending what is required on integrity, continue with the projects, which a final investment decision has already been taken, and focus on robust investments that will give us short-term return. So we have gone through a detailed project-by-project review in each of our businesses, and we, indeed, expect to achieve the $20 billion or lower cash CapEx spend this year. And some of the recent announcement that you may have seen are the result of those ongoing project reviews.

The second initiative is targeted at a reduction in underlying operating costs by $3 billion to $4 billion per annum over the next 12 months, and that's compared to 2019 levels. Also here, we're making good progress and, of course, are using this initiative to drive reviews in our contracts and review discretionary spend, look at our travel costs as well as cost-saving opportunities in certain parts of our business by significantly scaling back external recruitment.

Given the unprecedented and intense economic headwinds and the impacts these will have on results, Board and management have announced that no group performance bonuses will be paid to anyone in Shell for this financial year, and this is a very substantial measure that we do not take lightly, but it is appropriate to the conditions we see. And in addition, it will also support, of course, our overall drive to reduce costs.

Then turning to our business. The deferral of final investment decisions and exit from early-stage projects naturally reduces our operating costs. And since we do not have to invest further in feasibility expenditures, we will, of course, still look for opportunities to protect and generate further value where that then makes sense.

And finally, we are driving down our working capital, resulting in material reductions in the underlying working capital balance. All in all, we will adapt our financial framework wherever we need to and will make the changes where we will have to. With that in mind, it was announced in March that the Board of Royal Dutch Shell decided not to continue with the next tranche of our share buyback program but had followed the completion of the previous tranche of share buybacks, which has seen us buy back $15.75 billion of shares since 2018.

In the current environment, Shell's financial resilience is paramount if we are to continue to invest in our strategic priorities. We do not take these decisions about adjusting shareholder distributions lightly. I want to talk more about the dividend discussion or decision that we have announced today, set it in context, give you some detail.

As I have explained, we are taking decisive actions to improve our resilience in the shorter and the longer term, both in the underlying business and our financial performance. Our financial framework needs to remain robust. And at times like these, the levers within the framework also need to be reviewed to ensure the right balance, maintaining a strong balance sheet, protecting the value of our business and the level of shareholder returns that we can offer. For Shell, we currently need to preserve cash. We have to reinvest in our business, build a resilient company that has a path to offer even better return.

So to ensure the longer-term health of the business, we have 3 clear actions. First, to maintain a robust balance sheet that is resilient at times like these, we are working really hard to do this through the initiatives we have outlined. And in the medium term, whilst our gearing is likely to remain above 25%, principal focus continues to retain strong credit metric, which we believe the actions we are taking will allow us to do so.

Second, we have to spend the right amount of capital to protect the future value of our businesses, which are expected to deliver competitive returns in the future. And with this in mind, we believe recently revised spend is set at a level that achieves these objectives without eroding value.

And finally, shareholder distributions are a fundamental part of our financial framework, and we need to ensure we strike a balance between shorter-term shareholder distributions, longevity of these returns and the potential to grow these returns in the future. We have continued to test the resilience of our business in the context of a dynamically evolving macro outlook. And when considering the impact of the current macroeconomic climate on our organization, the risks for prolonged period of economic uncertainty, of weaker commodity prices, of higher volatility and a weaker demand in all our businesses, the Board does not consider that maintaining the current level of distributions is in the best interest of the company and its shareholders. So the Board has decided to reduce the amount we pay as dividend to our shareholders. We are announcing a resetting of our quarterly dividend to USD 0.16 per share. This decision has been taken after a very careful consideration of the risks to our financial stability, from the impact of the COVID-19 crisis, current commodity price, margin environment and the supply-demand imbalances that I outlined earlier. We believe that the reset level of dividend provides a platform for which the company can reinforce the balance sheet over time. We also continue to invest in our business and also pay a substantial and attractive dividend with the prospects of growth and additional returns when macroeconomic circumstances will allow. And although the absolute level of our dividend per share will now be lower, our cash priorities are unchanged.

As we move forward, the Board will continue to evaluate very closely the way we prioritize between retaining a strong balance sheet, investment in our business and increased cash distributions to our shareholders. But crucially, the dividend reduction does not change the prospects of this company, and it provides further stability in our financial framework, positioning us to succeed in a lower-for-longer commodity price environment and business uncertainty.

And while addressing, of course, the challenges and the global circumstances in the short term, which is important, we also need to keep an eye on the long term to address our long-term strategic ambitions. So earlier, I mentioned our new ambition for Shell to be a net-zero emissions energy business by 2050 or sooner, if that's possible. As the world tackles climate change, societal focus has been placed increasingly on limiting the global temperature rise to 1.5 degrees Celsius. And in order to achieve this aim, the world is likely to need to stop adding to the stock of greenhouse gases in the atmosphere, the state that we call net-zero emissions, by around 2060. The pace of change will, of course, vary from country to country, and those who can move faster must move faster. That is why we have welcomed the EU's and the U.K.'s ambition to reach net-zero emissions by 2050. We in Shell would also like to move faster.

In 2017, our ambition was to be in step with a society that was working towards a well below 2 degrees Celsius future. But now our society moves towards a 1.5 degrees Celsius future, Shell has set out its new ambition to become a net-zero emissions energy business by 2050 or sooner in step again with society.

And we intend to work towards this in 3 ways. Firstly, by seeking to be net zero on all emissions from the manufacturer of all our products by 2050 at the latest. This includes the emissions that are created by our own operations and also those associated with the energy we consume. So these are known as the Scope 1 and 2 emissions. But of course, the bulk of the emissions in our industry are customers' emissions when they use our products. That's known as Scope 3 emissions. And that's why Shell's second step towards being a net-zero emissions energy business is our enhanced Net Carbon Footprint ambition. Our long-term ambition here is to reduce the Net Carbon Footprint, in step with society, of the energy products that we sell by 65% by 2050, and that is instead of the previous 50%. And our interim medium-term ambition is now to reduce it by 30% by 2035. That's instead of 20%. To achieve this, we need to sell more products with a lower-carbon intensity, such as renewable power, biofuels and hydrogen. But yet society will continue to need some energy products that create emissions, and that's for the foreseeable future. So Shell will continue to sell such energy products, but it doesn't mean that we cannot be a net-zero emissions energy business because our customers themselves, they can and they need to take action on their emissions as well.

So therefore, thirdly, if Shell is to achieve its ambition of becoming a net-zero emissions energy business, we need to help our customers decarbonize. And this means working with our customers to address the emissions that are produced when they use the energy products they're buying from Shell. That effort includes working with broad coalitions of businesses with government and other parties on a sector-by-sector basis to identify and enable decarbonization pathways for each sector of the economy. That's how we intend to achieve our ambition in net-zero emissions energy business by 2050 or sooner.

Now it's, of course, easy to state an ambition, it's a whole lot harder to achieve it. And today, of course, Shell's business plans will not get us to where we want to be. So that means our business plans have to change over time as society and our customers also change over time. We are talking here about a fundamental shift for Shell over the next 30 years. We aim to give you an update on what this means in the second half of this year with some first steps being laid out.

I hope this highlights the magnitude of Shell's ambitions to be a core part of the future, a future that society wants and a future that society needs. This is why we are taking the action outlined here, why it is that we are balancing short-term needs with long-term goals, why we are responding with care, annuity and cash preservation.

Now I will hand over to Jessica who will run through the details of our quarterly financial performance further.

Thank you, Ben, and to everyone for joining the call today. I hope you and your families are all safe and well. Let me start with outlining Shell's financial performance in Q1.

Our Q1 2020 cash flow from operations, excluding working capital movements, was $7.4 billion. Under the current cost of supplies methodology, the cost of sales is adjusted to reflect the current cost of supply, the sales of our products. This is referred to as a cost of sales adjustment or COSA. COSA eliminates inventory holding gains when prices increase or losses when prices decrease that are included in the underlying FIFO margin due to a price fluctuation. When prices fall, CCS earnings are higher than FIFO earnings, which does not translate into higher CFFO, excluding working capital.

In the first quarter of 2020, Brent was at an average price of $50 per barrel, and our organic free cash flow was $10.3 billion. Earnings amounted to $2.9 billion, and our return on average capital employed on a CCS earnings basis, excluding identified items, 6.1%.

At the end of Q1 2020, our gearing was reduced to 28.9%. Our cash capital expenditure in the quarter was $5 billion, which is in line with our path towards an expected $20 billion total spend for 2020.

Now let us look at our Q1 earnings in more detail. Shell had a strong first quarter from an operational and cash flow standpoint with the COVID-19 impacts not being significant until March. This supported our first quarter earnings, which, on a CCS basis and excluding identified item, were $2.9 billion. This decrease relative to Q1 2019 was due to lower prices and margin while the COVID-19 pandemic started to impact global demand during the latter half of Q1.

In our Integrated Gas business, total production was 12% higher compared with the first quarter of 2019. This was a result of lower maintenance activities, in addition to new fields ramping up in Trinidad and Tobago and Australia and compared with the first quarter 2019. LNG liquefaction volumes increased by around 2% compared with the first quarter 2019, mainly as a result of lower maintenance in Q1 2020, partly offset by lower feed gas availability.

Integrated Gas earnings were $2.1 billion, down by around $400 million, reflecting lower realized LNG, oil and gas prices as well as lower contributions from trading and optimization and higher depreciation with several projects ramping up.

In Upstream, earnings were some $290 million. This is around $1.4 billion lower than in Q1 last year. This largely reflects lower realized oil and gas prices and lower volumes. First quarter Upstream production was 5% lower than in the same quarter a year ago mainly due to divestments, field decline and lower production in the NAM joint venture. It was partly offset by field ramp-ups in the Santos Basin, Gulf of Mexico and Permian. Our Upstream assets have delivered strong operational performance this quarter. Excluding portfolio impacts, production was broadly in line with the same quarter a year ago.

In Oil Products, earnings were $1.4 billion in the first quarter, in line with Q1 2019. This reflected weaker realized refining margins and lower contributions from trading and optimization, partly offset by higher marketing results and lower operating costs.

In Chemicals, earnings were $148 million in the first quarter, down from around $450 million in the same quarter last year, reflecting lower base and intermediate chemicals margins.

In the Corporate segment, our underlying earnings, excluding identified items, reflected unfavorable exchange rate movements compared with Q1 2019.

Now that we've covered our earnings, let me turn to cash flow. Cash flow from operations in Q1 2020 was $14.9 billion, positive impact of some $7.5 billion from working capital movements. This is partially offset by the COSA effect, reflecting inventory holding losses that I explained earlier.

In addition, working capital was impacted by around $2 billion net outflow in accounts payable and accounts receivable movements. Our cash flow from operations, excluding working capital movements, amounted to $7.4 billion. This is $4.7 billion lower than Q1 last year as inventory remeasurements were offset by higher payables.

In our Integrated Gas business, cash flow from operations in Q1 2020 was approximately $4 billion, around $200 million lower than in Q1 2019. In Upstream, our cash flow from operations was $5.6 billion, around $300 million higher than in the same quarter a year ago, partly due to working capital movements in Q1 2020. In our Oil Products business, our cash flow from operations was around $4.9 billion, nearly $5.5 billion higher than in Q1 2019 and, as mentioned, was driven largely by working capital movements. In our Chemicals business, our cash flow from operations was negative at around $178 million, around some $160 million lower than in Q1 2019.

Let me now talk further about how we are taking decisive actions to improve our resilience in the shorter and longer term. As Ben mentioned earlier, we announced a series of initiatives that are expected to result in a pretax contribution to our free cash flow of $8 billion to $9 billion. It is important to note, this is the outcome of a first round of reviews across our businesses, the first set of actions. And depending on how long any form of recovery may take in this volatile and dynamic environment, we will continue to review our position and plan further actions, if needed, both operating and capital costs.

In any action we take, we must protect our people and our assets. When we consider our CapEx decision framework, our first priority is to protect our people and assets, spending what is required on asset integrity. We then look to defer, reduce or stop spend using near- and long-term criteria to materially reduce near-term spend while minimizing the potential value impact and remaining committed to our long-term ambitions.

Examples of choices we have made include, for instance, in March, we announced that we would not proceed with the Lake Charles LNG project in Louisiana in the United States. In Australia, Shell and its joint venture partners decided to delay a final investment decision on the Crux gas field project planned for this year. For our Whale deepwater project in the Gulf of Mexico, we, along with our partners, are deferring our final investment decision. And finally, for our Shales business in the U.S., we are reducing our rig count.

These are only a few of the actions we've taken, and we will continue to work our portfolio to find ways of optimizing our spend, minimize value impacts while maintaining options should conditions improve. Our approach to reducing operating costs reflects near-term immediate measures as well as longer-term structural changes.

Again, we must, first and foremost, support our staff and society to manage during the pandemic. This includes providing stable employment in the near term as well as providing a wide-ranging set of supplies and resources to governments and local communities. At the same time, we are reducing discretionary spend across the company, including reducing third-party spend, minimizing external recruitment and rebasing our growth activities.

With all of these actions, we are seeking to balance the current reality with our responsibilities to a diverse set of stakeholders and our long-term strategic ambitions. In our assets and businesses, we are driving streamlining initiatives at a faster pace, reducing feasex and new business development spend in line with our reduced CapEx profile and working with our supply chain to realize material savings today.

We are also accelerating digital and improvement initiatives to capture value and manage risk in our dynamic environment. Shifting our product profile at our refineries and in our retail stations to meet the current needs of our customers as well as using data faster to understand counterparty risks are some of the ways we are strengthening our business.

In the medium term, we will work more structural initiatives to deliver a more efficient and effective organizational model for the future. In the current environment, Shell's financial resilience is paramount if we are to continue to invest in our strategic priorities. We are taking immediate steps to ensure the financial strength and resilience of our company to manage through this challenging period with the ambition to emerge stronger. That is why we're taking the steps we've outlined today, effectively pulling all levers that touch our cash sources and uses, preserve the short term as well as the longevity of our cash flows.

We need to manage value and risk in the near and long term and importantly, position ourselves to lead in the low-carbon future. We are protecting some of our spend across all of our business, including power, continue to provide lower-carbon energy products and solutions today while building profitable lower-carbon energy business models for the future.

Supporting our resilience and capacity to manage volatility is Shell's strong liquidity position, with some $22 billion in revolving credit facilities. Together with cash and cash equivalents of some $20 billion at the end of Q1 2020, we have liquidity of over $40 billion, clear strength in the current environment. We are also able to access the debt capital markets at competitive rates as demonstrated by our recent debt issuances in both U.S. dollars and euros.

A prudent approach to our financial framework remains a priority. Although we expect our gearing levels to remain elevated above 25% in this current environment, Shell seeks to maintain strong financial credit metrics and ensure it has a resilient balance sheet to manage volatility through the cycle. With the interventions we are making, capital allocation and cash costs, we will continue to work towards AA credit metrics through the cycle.

With material disruptions impacting our people, assets and communities, our near-term focus is on care, continuity and cash. And while we do this, we must also maintain our focus on the longer-term ambitions that we have as a company, thrive in the energy transition, increase shareholder distributions and maintain a strong balance sheet. Today, stability, resilience and prudent management of our capital are key to delivering our strategy and achieving our purpose.

Now let me hand back over to Ben.

Thanks, Jessica.

Certainly, this combination of extraordinary events has somewhat impacted our Q1 earnings. Given the current dynamic, we expect this to impact much more severely through the second quarter. But we are in a strong position to respond to this crisis by demonstrating resilience, by responding thoughtfully and swiftly, we will get through this together. Please do stay safe, stay healthy, look after each other. Thank you very much.

Let's now go for questions. (Operator Instructions)

Jennifer, who can we give the first question to?

(Operator Instructions) And we'll go first to Oswald Clint with Bernstein.

Obvious one around the dividend, please, Ben, if I could. I remember back in 2016, I asked you around your 10% dividend yield and you said take advantage of it when the gearing levels were actually pretty similar. So I just want to get a little bit more color here on what's really changed here. It feels like a complete 180 from your scenario team or something that's happened here. And really, if you could outline what scenario you're actually running to get to $0.16 a share being sustainable from here. And perhaps realistically, do you really see a path for dividend per share growth from this level? That's the first one.

And then secondly on the retail marketing business, you spoke around it being quite resilient, which is certainly impressive. But I just wonder if you could talk around the margin management side of that, the changed product offerings which helped offset the demand reduction. But primarily, do you think any of that can still show up in the second quarter when you're painting a pretty bleak picture for product demand?

Thank you very much, Oswald. And yes, on your first question -- actually, both questions are really good. Of course, a lot has changed since then. Indeed, the dividend yield was high then. It was high also, of course, yesterday. It -- what has changed in terms of how we look at the future? I don't have to tell you, of course, what has changed in the world. I think what has changed is that -- in our mind, is we are looking at 2 real big problems. One is that, of course, everything has become much more challenging macro-wise, and we know it's going to get worse before it gets better. The biggest challenge I find, Oswald, is this crisis of uncertainty that we have. That's what we are in. And let's be very clear, it's not just the oil price. That's just one aspect.

What will happen to demand? Demand will come down massively in -- well, first of all, in March, but also this quarter. If you look at the IEA reports, the reduction in demand that has been predicted just for April is going to be 29 million barrels a day, and we don't know what May will bring. So there's a lot of challenge coming from that.

The margins in Downstream, refining margins, who knows where that will go, who knows actually where the viability of our assets will go. In many cases, we have seen people having to shut in simply because they do not have the logistics, inbound or outbound, to continue to operate. So it is that level of uncertainty that you cannot model with scenarios. Of course, we can work our way through it on a day-by-day basis in our trading teams and supply teams and logistics teams and our operational people in markets, et cetera, can do amazing things. You cannot just say, "Right, I know what's happening here. We've done it before. Let's make a scenario for it and then we will financially model where we will get to." That actually was the key thing that we have been grappling with and everybody is grappling on.

And the only sensible thing to do, Oswald, in my mind, when these things happen to you is to take very early, very decisive action, take the countermeasures that are needed to protect financial resilience because that's what it will ultimately come down to. Do we have the financial resilience to see out this unprecedented crisis of uncertainty? That's why we did the CapEx and the OpEx moves. That gave us $89 billion. But then the Board also unanimously felt that it is prudent to reduce the dividend, to reset it going forward at a level that is roughly the same as what we have in terms of countermeasures we take inside.

Now what about the $0.16? I think the level that we got to -- and I realize this is a very, very significant reduction. That was a very tough decision to make. And it's even tougher, of course, to face it on a day like this. But it will be a level that, in our mind, going forward, in a very wide range of potential and very uncertain future is affordable, but it's also meaningful, Oswald. It's also, therefore, a level which I hope we can start building back from, first of all, building balance sheet strength, but also building back with further shareholder distributions going forward. I'm sure there will be more questions on that, but let me leave it at that point in time for the dividend.

The impact on March was about 15% in terms of volumes. So that is not insignificant. But of course, it is something that we can also have countermeasures for. Good margin management, new operating models, all sorts of innovations that we have brought all over the world that are appropriate for the markets in which we operate. And we were able to offset 15% volume drop. If we're going to have a 50% volume drop in April, I'm not so sure about it anymore. And of course, we never know what the future brings. But we have an amazing set of marketeers, we have some very resilient and creative people in the company, and I'm sure they will find all sorts of ways to find offsets and ways and means to make money out of a very changed environment.

Thanks very much for that first question. Jennifer, can I have the next one, please?

We'll go next to Thomas Adolff with Credit Suisse.

Two questions from me as well, please. And the first one going back to the dividend. Is it fair to assume even prior to COVID-19 that you internally debated a potential dividend cut? We know that you kind of wanted to get down to $12 billion over time and there was no money for buybacks. And obviously with this uncertainty we have today, the cut ended up being bigger. And once that uncertainty is gone, whenever that is, is that $12 billion still a valid number or will buybacks play a bigger role going forward and you prefer to keep the fixed distribution lower?

And then secondly, now with the dividend being reset and obviously you talked about wanting to strengthen your balance sheet, but does that also provide you a bit more flexibility and be more opportunistic on the M&A front?

Okay. I'll take the first one, Jessica, if you take the next one.

It's -- very good questions, Thomas. And let me be very clear. Of course, after the BG combination, we were looking at an annual dividend bill of $16 billion. That's a lot of money. And the view indeed was, could we bring that back to something more like $12 billion in an orderly fashion, i.e., by buying back shares, namely the shares that we had to issue on -- in the lead in and on the back of the BG acquisition and also the shares associated with the BG acquisition? So that's why we started with a $25 billion buyback program. And of course, the view was to continue that over time to continuously reduce the headline dividend, but at the same time, of course, being able to then grow the dividend per share.

And if you look at the numbers at [MD '17], I'm sure you'll remember, we said, we think by 2020 we will be producing somewhere between $28 billion and $33 billion of organic free cash flow. I can tell you one thing. We won't be doing anywhere near $28 billion or higher organic free cash flow in 2020 now. But if you look back at the last 12 months, we have actually done $27 billion. And that was at an average oil price of $61 Brent. And that was, of course, with downstream market conditions that were below average.

So if you were just to correct for Brent and bring it to $65, which was the reference price on which we made the premise, we would have made, in the last 12 months, $29.5 billion of organic free cash flow. Throw in another $5 billion to $6 billion of divestments and you are in the sort of low to mid-30s. So that is a free cash flow level from which you can pay the dividend, you can actually do your debt servicing, you can retire some debt and you can buy back shares over time to get yourself to the dividend level that you wanted. That was Plan A. And we would have executed Plan A had this crisis not come along. But that's water under the bridge. The crisis has come along and we are now facing a different future. And therefore, we have to take different measures.

At this point in time, to be perfectly honest, Thomas, the focus is very much on what do we need to do, how do we deal with the uncertainty. Hence, what are the countermeasures we have to take? Clear on that today, we are now entering into a new financial frame. So you can argue, we have more flexibility, yes, and we need to use that flexibility wisely. And over time, of course, that flexibility, yes, will need to result in more payouts to shareholders. How we will do that? I think at this point in time, it's probably premature to start talking about it. But then I would love to have a little bit more line of sight about what is going to happen next. Frankly speaking, I don't have that at this point in time. And anybody who does, please give me a call.

Jessica?

Thomas, with respect to your second question and does the reset provide more flexibility, I believe all the actions we're taking are in the spirit of providing more flexibility to the company, more resilience to the company. And that from a CapEx reduction perspective, the OpEx reduction and the move we've made today on the dividend are all in that spirit, is to ensure we've got, first of all, the financial resilience to manage the high degree of uncertainty that Ben has spoken to and provide flexibility depending on how things work out and how things unfold in terms of the pace and duration of the pending recession.

M&A activity is not a priority for the moment. And just to emphasize, which perhaps does not need to -- not necessarily need to be said to everyone, but just the scale and scope of the issues at play that are affecting the company today cannot be overstated. So the health issues that are affecting the world globally, the economic implications of that, of COVID-19, the knock-on effects from a commodity price perspective, has some of the most dramatic impacts on the company in recent history. That's all affecting us today and we're uncertain about how that will affect us for the coming years, but we're expecting more of a U to L-shaped recovery, certainly a V or a short and sharp recovery.

With all of that in mind, our priority is really about how do we ensure we have the financial resilience and the flexibility [to] manage and be on the front foot of all of the challenges that the company is facing, and that's what all of these actions are meant to serve.

Thanks, Jessica.

Jennifer, who would be next in line?

We'll go next to Lydia Rainforth with Barclays.

Questions, if I could. The first one just double-check. In terms of the dividend decision, you're talking about it being uncertainty. Was it linked in any way to the announcement of accelerating the low-carbon ambitions from net zero from a couple of weeks ago?

And then the second question is, given the uncertainty and the outlook that you painted, does that change how you allocate capital between the businesses? So effectively, should we think about seeing a step-up in the energy transition spending versus the Upstream and the Downstream from here?

Thanks, Lydia. Really good questions and I'm sure on the minds of many. So is the dividend discussion in any way, shape or form related to the net-zero emissions statement that we made. Well, yes and no. We didn't, of course, reset the dividend because we had to for these reasons. We reset the dividend because we face a period of unprecedented uncertainty, and we have to have the company in a resilient mode financially being through that period.

And of course, at the same time, we also want to have resiliency and the flexibility to still flex our strategic muscle, so to speak, in areas where we have to. Had we not reset the dividend and had we resorted to just more CapEx and OpEx cuts to somehow keep this going and continue to borrow money to do so, which I think would be highly irresponsible, we would have had zero room to maneuver until we were at the brink and then we had to maneuver nevertheless.

So yes, right now, we can be a little bit more thoughtful in how we are going to deal with capital going forward. So yes, indeed, we can protect some investments that we think are important. That's not just the new energy investment. They are an investment piece. But indeed, we will, of course, look at where our investments much more positioning us for the future than what they have been doing in the past.

To just give you an idea, the $5 billion, the first cut that we made, about 45% of the -- of that saving, if you like, or reduction will come from Upstream. And that's predominantly conventional oil and gas and shales. About 30% will come from Downstream and 1/4 will come from Integrated Gas and new energy. So you can see a little bit where we are placing the priorities.

But make no mistake, we will scrutinize every investment, including new energy investments, with the same vigor as we would scrutinize any other investment, also the ones in, say, deepwater or even refining.

On CapEx allocation, Jessica?

Ben, I think you've actually given a good indication of the direction of travel. So Ben just laid out the nature of the capital choices that we're making in 2020. And yes, we want to be in line with our strategy and minimize the impact from a value perspective and also be sensitive to our desire to thrive through the energy transition, have all of those elements at play.

There's also just tactical and practical decisions. Things were for logistics reasons or partner reasons, it's more appropriate to defer that spend. That's also coming into play. And so there's these other criteria that have also been used that I think are more tactical in nature, but I wouldn't overrate it in terms of the allocation of capital in 2020. There's some major strategic change happening with the choices being made.

That being said, we are looking to ensure that we can meet our ambitions from a net-zero emissions standpoint and position our portfolio for the energy transition. And we're ensuring by the choices that we're making to have the capital and flexibility to do so.

Thanks very much.

Jennifer, who's next?

We'll go next to Christyan Malek with JPMorgan.

And first of all, I hope you and your families are also keeping safe and the management team would manage to stay healthy through this trying period with oil markets. Against this challenging backdrop, to be the first of the supermajors to take a historic decision on the dividend couldn't have been easy, and I admire the courage and wisdom to do so ahead of your peers. But maybe just take a break from the dividend as the first question. How do you model the industry supply response to the current oil price? And what are the positive corollaries that applies to future oil outlook as the world transitions to sort of new demand-supply equilibrium?

Then my second question is with regards to dividend cut. Clearly, you had more discretionary cash flow, around $10 billion for next year. And I appreciate it's lost already, but I'm not entirely clear what you plan to do with the money. Is this all to reduce debt? Or is there some sort of trade-off we should be aware of?

And finally just to squeeze another question, I'm sorry. You've taken a more cautionary stance on the long-term oil price assumption. Do you still believe the BG deal makes sense industrially? And the reason I ask is that, I'd like to better understand which projects in both the BG pipeline and Shell are actually competitive in a low oil deck. Given your relatively high cost of capital and elevated share count, then you have said you'll scrutinize projects even more heavily. But if I can be bold to ask, what projects are actually profitable, [say, to a barrel]?

Thanks very much, Christyan. I think I take the BG one and Jessica can take the other 2, Christyan.

Yes. I think the BG deal, if I look back on it, what it -- I think it was the right call to make at the time, it -- which has changed the company quite considerably. On the back of that transaction, we have become the most successful deepwater and Integrated Gas player in the world and of the IOCs, also the largest. And I think these are our 2 businesses at the moment that we are tremendously benefiting from. Integrated Gas, well, you've seen the resilience in this quarter. And I think there will be continued prospects for Integrated Gas much more so than perhaps other business.

With the deepwater business, you will also have seen that the CapEx savings that we take this year are not coming from deepwater. It's not ring fenced, by the way, but it is a very resilient part of the portfolio. So yes, I think the deal at the time did the right thing in high-grading the portfolio. Of course, bear in mind, we also divested $30 billion worth of assets. And of course, it really changed the dynamic in the company with significant amount of CapEx reduction, almost 50%, a $10 billion cost takeout, very significant dynamic in the company as a result of it.

So yes, knowing what we know now, of course, yes, I would still do the same. But of course, many things you would also do different had you known exactly that in February 2020 we would all be hit by a crisis like this. So there is, in that sense, no regrets. I do think the company is stronger as a result of it.

Your other questions, let me go to Jessica first and then see whether there's a few points I would like to add to it.

Thank you, Christyan, for your questions. On the supply side, we have a team in Shell that stays very close to all the dynamics from a demand and supply perspective and informs our thinking and shapes our thinking particularly at moments like this. I think one of the key words coming out of this quarter is uncertainty and the range of outcomes that can happen from a demand perspective, how effective will the various stimulus measures that the countries are taking have an impact, how quickly once lockdown has been stopped in each of the countries will demand pick up. A huge range of outcomes are possible. Similarly on the supply side will be full compliance with the OPEC cuts or not. What will be the logistics implications for supply around the world, whether that be from a demand -- a Downstream perspective or Upstream perspective. All of these things, we have a team being very close to and providing insight and analysis to inform our thinking.

What I would say is that, there's a whole range of outcomes that are possible, and we're considering all of those ranges when we're making the very important decisions that we've made over the course of the quarter.

On the dividend cut and the intent of the additional cash that will be available with the lower dividend level. First and foremost, this decision is driven by the current circumstances that we're operating in, which is one of very negative impact on our financial outlook for 2020 and a high degree of uncertainty going forward. And so it starts from a position of how do we ensure financial resilience and strength to manage risk. And that's really the starting point.

Beyond that, we still have the main objectives for the company, which are to operate with a strong balance sheet, to operate within AA credit metrics, to ensure we have the financial capability to invest and create value today and going forward and to ensure the longevity of our cash flows. So that's going to require us to continue to invest CapEx, to invest in OpEx, to grow our businesses and to reshape our businesses for the energy transition.

If we do both of these things well, we will then generate sufficient wealth to increase dividend per share, execute share buybacks over time. And we need to achieve all 3 of those things. So if conditions improve, we will continue to balance all 3 of those objectives. We need to make sure we have a strong balance sheet. We need to make sure we're making the right investments for the company. And ultimately, we need to provide compelling, leading returns for our shareholders.

Thanks, Jessica.

Thanks, Christyan.

Jennifer, can I have the next question, please?

Yes. We'll go next to Biraj Borkhataria with Royal Bank of Canada.

Two questions, please. So you both have mentioned resilience several times in the call. So I just want to get a sense of how you expect to manage the balance sheet going forward? One of the reasons you have to make this decision today is that gearing was already above your guided range. And actually, you're obviously buying back shares up -- in the quarter anyway and -- rather than paying down debt. So when you think about that 15% to 25% gearing range you've put out, is that sufficiently wide enough? And why shouldn't we see through-cycle gearing, which is maybe lower, kind of 5% to 10% range to protect against commodity price volatility?

And then the second question is kind of related to that. In the short term, that $10 billion difference in the dividend is cash you don't have. But at some point, there will be cash available to pay down debt. I guess part of the attraction of these large dividends is it restricts your ability to invest and it's a form of capital discipline. So maybe this could be seen as the early stages of rebuilding a war chest. So how can -- I guess the question is, how can investors be confident you'll be disciplined around that medium-term CapEx framework and any opportunities that might come up?

Thanks, Biraj. I'll take the second one and Jessica will talk to the first one. I think you spotted it correctly. The $10 billion savings are not savings. It's cash we didn't have in the first place because of the situation we are facing at the moment. But yes, over time, hopefully, and that's also what we expect, we just don't know exactly when and how the situation will recover. And then we will hope to be in a position to have more choices than what we have at this point in time. I think it -- the way I would like to look at it is that we -- I hope, to some extent, we have re-earned a little bit of a reputation for being disciplined, for having done the right things. We have clearly set ourselves a capital range in the last years, and we have been very clear and disciplined to stay at the bottom end of the range and now we are going right back to the level that we think is sort of the minimum viable CapEx level.

And I -- yes, I -- what I would like to think is that with time, it will become acceptable that we manage the company with sort of the wisdom and the acceptance that the wisdom is there to make disciplined and the right choices. It -- I understand, of course, that if you have a -- very significant outgoings, there is immediately a limited room to maneuver but I wouldn't want to make that the main reason for having a high payout ratio.

Going forward, I think we have to tell you the story where we see the company go, how we're going to allocate, what we're going to do in terms of strategic choices, what it means for shareholder returns and growth in it, et cetera. Today is not a day to do that. Today is a day where we have to focus, indeed, let me say it again, on financial resilience because that is what will see us through the next months, quarters, maybe years.

Jessica?

In terms of the gearing levels and what's appropriate for the company, I would like for the CapEx choices we've made, the OpEx choices that we've made and the Board's decision on the dividend all reflect and demonstrate our commitment to ensuring a strong balance sheet and a resilient financial position for the company. The 15% to 25%, we remain committed to. And yes, we're above that number. And again, that's part of what's driving the choices that are being made over the last months.

There will be fluctuations up and down. We benefited from some working capital release this quarter that allowed us to reduce our gearing in the quarter. That can change next quarter. And as we've indicated, we expect the second quarter to probably be worse operating conditions, business conditions than we saw in the first quarter. Therefore, there would be an impact on our cash flow. So this will go up and down over the quarters. We take a multiyear view when making all of these decisions and thinking about the right financial framework for the group. And we'll be working back towards the AA credit metrics and within the 15% to 25% range over the coming years. And that's what the choices reflect is that commitment. And we believe it's the right one for our company.

Thank you very much.

Jennifer, who's next?

We'll go next to Martijn Rats with Morgan Stanley.

Yes. I had 2 questions as well. In the past, it's often been difficult not to grow the dividend when CapEx increased. And this is a comment not just over the last few years, but just over the last decade. Quite often, we've seen CapEx and dividends go up sort of hand-in-hand. And I think that's often also been a mechanism by which the dividend then ended up this very big number of, well, $15 billion, $16 billion at some point. Now at the moment, the CapEx is quite low and now the dividend is also quite low. And I was wondering if you would expect from here on if the immediacy of the crisis is sort of over, are we going to see once again sort of when CapEx goes up that the dividend also goes up, that these 2 will go up sort of hand-in-hand? Or would you still say looking at the medium term, and then I'll hang on a second, it is more important to get back to a level of investment for the company that is somewhat higher and that doesn't necessarily trigger this old sort of expectation that many of us might have based on history that when CapEx goes up, also the dividend goes up. I was hoping you could talk a little bit about that.

And secondly, I wanted to ask Jessica. You made some comments about the credit rating and the commitment to AA. I was -- I wanted to ask if you could give us an estimate of sort of the headroom that exists in terms of the incremental net debt that may or may not exist within the scope of that target credit rating.

Great. Martijn, thanks very much, 2 good questions. Let me get going on the first one. Jessica will definitely take the second one, as you suggested, and then perhaps she will also add a few things to my story on the dividend growth.

I think the dividend growth -- of course, we can take all sorts of views on what happened in the past. And indeed, you will probably see that over the first decade in this century and maybe with the second decade, they have grown in tandem. I don't think that correlation is necessarily causal and it also needs to be said that -- sorry, I lost my own train of thought. Let me step back. Yes, that indeed, the dividend growth that we had in the first part of this century at sort of 6% compounded on a year-by-year basis was indeed a very aggressive growth in dividend.

Our policy at the time and the policy in principle hasn't changed. We will be looking at all sorts of things, of course. But in principle, we still have a progressive dividend that is lower, but still, it is a meaningful dividend and it's an affordable dividend that then subsequently, we aim to grow with the capacity that we have for growing the dividend. And the capacity that we have for growing dividend, of course, needs to come from the value creation in the company. And the value creation in the company needs to come from continued investment, particularly in a depleting business that we have as a business model.

So while it is right that indeed dividend growth and CapEx growth, if you like, occur, it doesn't necessarily have to be a causal relationship. What I can see happen is that if we have more room to maneuver, if we have spent the money on paying the interest bills, on paying down debt, on spending the viable amount of capital that we are now talking about, of course, paying out $5 billion dividend that we now have and there is still money left over, we will have the same issue as we had before or the same choice to make, how to spend it. We can give it back in terms of more shareholder distributions. But then we better make sure that we also spend some on CapEx because otherwise, these increased shareholder distributions are not going to be sustainable.

We can do that in a mix of dividend per share growth and buybacks, and we probably will do that. But although at this point in time, it's kind of hard to say exactly what that mix will be, but it will have to be a combination of these 2 as well as a bit of further debt paydown.

I think, again, as I said before, it's a bit early in this sort of uncertainty phase to say, this is how it's going to look like. These are the numbers. This is our outlook. These are some of the commitments we make and everything else. We will come back as soon as there is visibility on how this will play out. And maybe already a bit earlier, we will give you a directional thinking, but we cannot be definitive on how exactly all these numbers are going to play out, Martijn. I hope you will appreciate that.

On the credit rating, Jessica?

Yes. On the credit rating, a couple of points to make. The credit rating is assessed over a multiyear period. So it's not just today. It's not just this quarter. The credit rating agency perspective, also in terms of how we think about our own balance sheet and how we're managing our own financial resilience, that's important to keep in mind. So it's not so much of what the net debt is today, but how we're managing the company through this period of time and our expectation of what net debt will be in 1, 2, 3 years' time, and particularly as the macro improves.

Also important to point out, there's not one great -- one perfect metric. It's a combination of gearing, net debt, FFO to net debt, all of those things need to be taken into consideration, both from a balance sheet strength perspective as well as from a credit rating perspective.

What I would say in terms of headroom to be -- to answer your question more directly. As the macro improves, we will need to have our net debt go down. So all other things being equal in terms of ensuring that we deliver the metrics that are consistent with AA and have the balance sheet that we want to have to run the company, as the macro improves, I would expect our net debt to go down.

Thanks very much.

Jennifer, who is next in the queue?

Yes. We'll go next to Jon Rigby with UBS.

Two questions. One on the dividend again, I'm afraid. I mean you said a number of times or you used a number of times the word "uncertainty." I think everybody would agree with that, there's virtually no visibility as we sit here right today. But you could argue, I think, pretty persuasively that there'll be a lot more visibility in 3 months' time at the end of July. Wouldn't 2Q, for the sake of an additional $2 billion paid to shareholders, be a better time to make a considered choice around what you do with the dividend and indeed, what level you cut the dividend to? I haven't really heard a strong contextualization for the 66% cut.

And then the second part to that is, I think you did at some point reference the fact that your gut feel or your observation was that oil prices will be lower than you expected for the medium term. So maybe this is a question for Jessica. But if indeed that is the case, why have you only taken impairments on the balance sheet for a weak 2020 and left the long term unchanged?

Thanks, Jon. Very good questions both. Yes, the first one, indeed, uncertainty. And I call it the crisis of uncertainty. I am not so -- I think I would have to disagree with you, Jon. And normally, I don't do that. I'm not so sure whether by Q2 we will have more visibility. This is a very unusual type of dislocation that we are seeing. It's not just, well, the oil price is down because we have a supply/demand mismatch and it will correct itself. Here, we are looking not just at that. We are looking at a major demand destruction that we don't even know that will come back. So the oil price may come back. But if the volumes are significantly lower, we still have a major dislocation, of course, in our own cash wheel.

We don't know where margins will go. We don't know whether there is a major recession coming from here that will permanently or for a long time also impact on consumer behavior that we are dependent on in our Downstream businesses. And then as I said, at this stage, the relatively disorderly way in which whole systems starts to shut down is also going to affect us in ways that are very hard to predict. And then, of course, we don't know what will happen with the pandemic itself.

So I think it is highly unlikely that by June, July, we will be looking at something that is completely cleared up and we can understand what's going to happen next. So when you are faced with a situation like that, believe me, we have been looking at it on a -- since mid-February on an almost daily basis, what's happening? Can we understand this, et cetera? I've had a permanent crisis team on this since we saw this come out of -- what we have concluded, that the only sensible way to respond to this is not to try and model it and see it through and make some choices when you have to. You have to take early and decisive countermeasures, deal with the resiliency that you want to keep. And of course, if you want to keep resiliency, it only works if you take the countermeasures fully at a time that you still have resiliency, which is now.

If you would wait another quarter and you may say, it's for the sake of another quarter of dividends, but let's see what Q2 brings. I'm not very optimistic. It -- we may, by July, be talking about a completely different outlook altogether. So I think it would have been, in my mind, and not just not prudent, it would have been irresponsible to say, let's just use up our liquidity. Let's just lose -- borrow some more if we have to, to continue to pay a dividend that we know is ultimately not going to be sustainable. I think I would much rather face a very difficult day-to-day, which we definitely do. This is not a day that any of us is enjoying, rather than to be sitting here in the knowledge that Q2 will be inevitable. I think at that point in time, I'd much rather take the prudent action to preserve the resilience that we have and to see whether another quarter of carrying on will give us somehow a solution for it all.

Jessica?

Jon, a very fair question in terms of connecting the dots on some of the language I've used and what we did in the first quarter. We provide a little bit of context starting in February as things started to unfold from a COVID perspective and then the economic implications and then the gyrations we saw in the commodity markets as well. We have been looking at our prices and our financial outlook for the entire group pretty much on a weekly basis. And over the 6- to 8-week period and to the end of the quarter, we gradually shifted down the entire kind of range of outcomes we expected in terms of our low and our high case scenario.

We had the most confidence in 2020, I say that with humility, and felt like we needed to make some choices around 2020, and that had implications for the balance sheet. We are, of course, evaluating our price outlook for '21 and '22. We're trying to do this in a reasonably calm fashion, not jump to conclusions and follow our standard processes. Otherwise, we're at risk of resetting our balance sheet or marking to market our balance sheet every week or every month, and we're trying not to do that, but we're providing visibility on the choices that we've made. And in the second quarter, we'll be looking to update our longer-term prices.

Thank you very much.

Folks, I see that we have quite a few questions left. And in principle, only 12 more minutes to go. So what I'd suggest is that we just carry on. We go do at least 15:15. So for those of you who are still in the queue, keep on putting your questions in, we will go a little bit longer. But then can we have the next question, please.

Yes. We'll go next to Irene Himona with Societe Generale.

I had 2. First, Ben, on the dividend, I'm afraid. Your first dividend cut for many, many decades, a very deep cut. You made the link between lowering the dividend and your new 0 emissions target by 2050 by saying that in light of the uncertainty, you need to preserve financial resilience to be able to invest to grow these new lower-carbon businesses. My question is, isn't the dividend reset perhaps also a reflection or a recognition that these new lower-carbon businesses, especially renewable power are, in fact, lower cash generation than conventional oil and gas portfolio?

My second question for Jessica. Looking at your countermeasures on that slide, Jessica, can you help us understand how all those reduce your cash neutral oil price. By that, I mean, the price that covers both CapEx and dividend. So what was it before? And how do the countermeasures reduce it now?

Thanks very much, Irene. Very good questions, and it allows me also an opportunity to clarify a few things. Yes, I did indeed say, you're correct to point out, that lowering the dividend, we do have more room to maneuver, and that allows us to invest in growth in the future. It allows us to preserve also the value of the business that we have.

I think I -- where I would probably defer is to say, that -- first of all, we did not lower the dividend, of course, to be able to continue to invest in power. We had to lower the dividend because of the uncertainty. And of course, you have to bear in mind that we will invest in the energy transition, whether that's power or hydrogen or bio or investing in different ways of interacting with our customers with a view that we have to have compelling returns.

And quite often, I think the assumption that investing in the businesses of the future is bound to be a lower returning and a lower cash-generating business than investing in, say, deepwater, it's just not entirely correct. If you look at the full cycle cost of these businesses, many of our businesses in the Upstream side, indeed, do have the benefit of more compelling economics at the time of investment decision. But they also come with a lot of associated costs, reinvestment decision, sunk cost, dry holes, disappointments, geologically and everything else that these other businesses do not have.

So it is -- so in my mind, the jury is still out. And in my mind, therefore, we should aim to build a business that is not only the business of the future in terms of societal needs, it's also a business that continuously makes us an attractive investment proposition because of the cash-generating and return properties that these businesses bring to us.

Jessica?

Good. And I just want to make one comment on the last question as well somewhat quickly. Just to keep in mind that the investments we're making in the energy transition are not just in power, that we are making important investments and building out new business models across Shell driving the energy transition. So our Global Commercial business, our retail business, our Chemicals business, our Integrated Gas business are all part of the energy transition. And a lot of those have very compelling returns, some of them higher than our Upstream returns. So just to keep that in mind, it's not just a power story for us.

In terms of the countermeasures, indeed, we're looking to reduce our cash cost by some $8 billion to $9 billion over the next 12 months, which is CapEx and OpEx. We're also looking to structurally reduce working capital across the group. That's more from an operational perspective. We do use working capital for our trading business. But we think there's some operational opportunities for us to be leaner on the -- on inventory and working capital more generally.

And of course, there's the Board's decision to reduce the dividend, which will remove $10 billion of outlays in terms of cash going forward. So all of that, in total, some $20 billion impact on kind of the demand on cash from the company.

My sense was that you were looking, perhaps, for a breakeven price number for me to provide. We don't think in those terms. We've got -- the breadth of our business, the scale of our business does not suit kind of a breakeven price number way of thinking from our perspective. The number of assumptions that need to be made across the commodities, across the Downstream margins doesn't suit itself well to thinking of just one breakeven price. But structurally, you can see -- and perhaps on the basis of perhaps calculation you think is more fit, I think it's transparent the amount of cash that we're going to remove from the demands on the company and overall then should make us kind of balance out at a lower point and as said multiple times, give us more financial resilience and flexibility going forward.

Thanks, Jessica.

Thanks, Irene.

Jennifer, who is next in line?

Yes. We'll go next to Ryan Todd with Simmons Energy.

Great. Maybe I'll give you a break on the dividend for a little bit and ask a couple of portfolio-related questions. On the production side, I appreciate the guidance on the second quarter, even with the range. Can you maybe give any color around regional impacts on reduced volumes outlook and whether there's a risk that -- is there any risk that some of those volumes don't return on the back end of this?

And on the LNG side, can you maybe frame up the decision to opt out of the Port Arthur LNG project within your maintained desire to -- for global leadership and market share in LNG? Is that driven mostly by a need to shed capital near term, just relative project economics and maybe any commentary on relative competitiveness on U.S. LNG volumes within that portfolio?

Yes. Thanks very much, Ryan. Let me take the second one and Jessica can take the first one. I'm not sure that I heard it correctly. I heard you talk about the Port Arthur LNG project. It was the Lake Charles one, which is relatively closely related to it, of course, in terms of geographical distance.

So indeed, we haven't gone ahead with Lake Charles, which was a project that we have been working on for some time, simply because it does not fit in our capital program going forward. It -- we felt it was impossible to delay, preserve it or do something else with it. So indeed, we have decided not to go ahead with it. And that's one example, indeed, of how we get to a lower capital outlay for this year and, of course, for years to come.

Jessica, production and the regional impacts.

So in the QRA, there is an outlook provided on the second quarter. I would draw everyone's attention to first paragraph, which again, just highlights to the degree of uncertainty that we're working with even with respect to the next quarter, that's why there's a significant range. We do expect the production levels to go down in the second quarter, and that is a combination of effects. We are a -- equity participants in a number of assets around the world that are within OPEC plus plus countries, and we have some expectation that the production levels may be impacted in association with some of the commitments that have been made in terms of reduction within the OPEC family.

In addition to that, there are shut-ins that we're contemplating for various reasons. Some of it's from logistic constraint reasons, some of it's supply chain reasons. And in addition to that, there's some choices being made for economic reasons as well.

Roughly speaking, 40% of it is OPEC related, 40% of it is shut-in related and 20% of it's economics related across the portfolio. All of this is through -- with a certain degree of uncertainty. It's across the portfolio, so it's really around the world. It's not one geography that's being impacted. We don't expect any of this to be permanent. On balance, there may be 1 or 2 wells or assets where perhaps we're end of field life anyway, and that might make more economic sense to go ahead and leave those permanently shut in, but the expectation is on balance. This won't be a permanent reduction for us.

Thank you very much.

Jennifer, can I have the next question, please?

Yes. We'll go next to Lucas Herrmann with Exane.

A few remaining. Can I just start by going back to the climate ambitions and the 20% to 30% and what it really implies to the portfolio. In getting to a 20% reduction in the carbon associates or the carbon footprint associated with your products seem dramatic enough, getting to 30% and within 15 years, to me implies a very significant shift in the allocation of capital towards the business, and indeed, the way you treat the Upstream business and invest in it. But I just wonder whether you can expand to some degree on your thoughts and direction there. I wonder, can you make any comment on what your thoughts are around CapEx as we go into 2021? My assumption at the moment would clearly be that you'd expect no increase whatsoever. I'm just cognizant of the guidance given a very long 9 months ago, which clearly was a much higher spend. So just help us thinking a little bit about things as we move forward. I'll leave it there.

Finally, Jessica, divestments. I presume that given market conditions, the expectation is not what you'll realize in excess of the $5 billion target this year, and that number should be reworked.

Yes. Thanks very much, Lucas. And yes, indeed, you're absolutely right. Upping the ambition of a 20% reduction in Net Carbon Footprint of the energy products that we sell by 2035 from 20% to 30% is a very significant step. And -- but as a matter of fact, if you look at all the curves that you can dream of, that the IPCC calculates as curves that the world can follow to get to 1.5 degree C, it is probably the upper limit of what society needs to do, a reduction with only 30% get to this 1.5-degree outcome. It will be massive.

But one important thing, and apologies if I'm stating the obvious, Lucas, but I feel I have to say it again. It is the energy intensity of the products that we sell. So it's not the energy intensity of the resources that we develop. So indeed, the product mix that we sell and of course, you have to bear in mind that we sell 6x as much oil products, if you like, than we produce oil under the ground. So the mix of the products that we sell will have to have a 30% lower-carbon intensity.

So that is not just to be achieved by investing in lower-carbon energy production. It is actually changing the mix. Some of it indeed will then mean that we also have to invest in producing these lower-carbon energy products. But of course, we can also do that partly by just being a lot more critical of how much bang we get for our carbon buck. So there are many -- there's a long tail of products in our portfolio. But actually, the cash flow you get per tonne of carbon that you basically sell is actually quite modest. So it is also, at the beginning, not just a matter of continuously investing more in developing renewable resources, it's also high-grading the carbon credentials of the products we are selling.

And with a mix of these 2, we will get to a lower-carbon intensity. And ultimately, we have to get out of carbon intensity altogether. We have to get to net zero and doing that together with our customers.

But I -- you're absolutely right, if you say from 20% to 30%, even if it's not the asset metric, but a product metric, still a major achievement. But we are on track to achieve it if you can extrapolate very much from the first few years. So at this point in time, we have reduced the Net Carbon Footprint of our products by about 1.2%, 1.3%. So you see we are getting on to the curve of reduction.

Let me leave it at that and hand over to Jessica to talk a bit about CapEx.

Thank you, Lucas, for the questions. As we look at our financial framework over a multiyear period and all of the choices are -- that we've -- we're making are in that context, we have identified options and the ability to materially reduce CapEx also for '21 and '22, depending on how the circumstances unfold.

So we have that -- those levers available to us, and we'll make those choices as and when we need to and provide that guidance when appropriate. On the divestment side, indeed, the market isn't necessarily particularly favorable at the moment. That being said, we have completed just over $2 billion in divestments in the first quarter. So we're almost halfway there to the $5 billion for this year. We do have assets that still are attracting attention from the market, and we have some optimism. But it's -- we're not necessarily relying on it to happen either. So it is possible for us to achieve that this year with certain assets that are on the market and given the level of interest that we're seeing, but we're cautiously optimistic.

Thank you very much.

Jennifer, who is next in line?

Yes. We'll go next to Christopher Kuplent with Bank of America.

First question, I found another way to ask around the dividend, I'm afraid. And if we look back then from when you started with a DPS increase after your CEO appointment, you've been using that term "progressive dividend policy" for a while. But that turned out to be the only DPS increase. And in fact, your focus was very much shifted towards buybacks. Can you tell us now what you actually mean with dividend, with progressive dividends after this cut and whether your preference that we've noticed in terms of the significant buybacks implemented over the last few years versus DPS growth has indeed shifted? That's question #1.

And question #2, coming back to lower carbon. Just wanted you to spend a bit of time reflecting on the attractiveness of returns, whether you think this current crisis that we're in has materially increased your hurdle rates investing in oil products as well as oil upstream.

Thanks very much, Chris, and 2 very good questions. I will have a go at both of them and then see what Jessica wants to add.

Yes. I think your history is correct. But of course, if I can put a little bit of historical context around it. Relatively early on in my tenure, this opportunity of the BG combination came up. And then, of course, the whole idea was, at the time, that we had to almost guarantee the dividend. And right at the beginning, of course, we heard the question of Oswald about a 10% yield. That -- we had that 10% yield because everybody at the time was very concerned that with the combination with BG and the low oil prices, that a lot of people thought would not recover again, and our dividend would be insecure. And at the time, indeed, I said, "No, no, $1.88 is the dividend for the period that we are looking at here." And that's why I could say with confidence, enjoy the yield.

Now of course, we know how the whole thing played out. We digested the acquisition. We then said we will deliver on a number of commitments on which we, I think, delivered all including turning off the scrip, starting the buyback, and we were very clear that once we had line of sight to complete the $25 billion of buyback, dividend per share growth would be in the offering again. And the whole idea, of course, would be that by reducing the share count, we would increasingly have room to accelerate the dividend per share growth. As I said, that was a great plan until COVID-19 came along, and that has significantly disrupted that plan.

But you can see the fundamental logic in there. Yes, I buy the idea that we have to have a growth story also on the dividend. But fundamentally still, Chris, I would like to see whether we can go back to another belief that I've had for a long time, which is, as long as a company, you can show that you have a strong organic free cash flow position, that you can grow, then that should be an indicator of value and an indicator of potency and value that can come back to shareholders. And I think that ultimately, I think, needs to be the way companies get valuated. So not so much on dividend yield, but increasingly on free cash flow yield.

The lower-carbon business. Well, yes, I think it is maybe going back to how I responded, I believe, to Irene's question. I think the whole idea that Upstream projects, by definition, are very attractive and projects in the new energy space are very unattractive. And that the only reason why you do these ones is because you somehow have a lower cost of capital.

I think that idea, I've never been a great subscriber to it. And not because today we are seeing the downsides of being in a highly cyclical business, which today is an unusual situation in which you cannot draw sort of general conclusions. But you're absolutely right that if you are heavily invested in a commodity business like oil and gas, which is a globally -- a global commodity, you are more likely to see global commodity cycles than when you are in a much more regional commodity or a national commodity.

Mentally still, though, I believe that we need to build a portfolio of diversified business that are spreading our risks, whether that is through the different commodities, different markets, the different end users within the economy, and it includes petrochemicals and other products. And we need to do it in such a way that they are differentiated in terms of returns. And ultimately, we need to show that we can build a portfolio with a high return on capital employed and a good free cash flow yield. I think we can do that with the plans that we will have, the details of them we will need to -- we need to discuss another day.

Jessica, anything you would like to add?

Maybe just a quick point to emphasize whenever I get the opportunity to do so, that low-carbon businesses exist across our portfolio, it's not just our power business. I think there's a tendency for people to equate the energy transition, new energy to power. And then within that box, the PPA-driven generational business, which tends to be the lower return, lower risk part of the business. And just to say, we have a much more fulsome portfolio of products and services and business models that are serving the energy transition that have a breadth of return profiles in our marketing business and the potential in the Chemicals business, which can have very important contributions to the energy transition, we can have returns of 10%, 15%, 25%, provide a little bit more color.

Thanks very much, Jessica.

Folks, I see that we have quite a few questions still outstanding. And in principle, 4 minutes left. So let me make another offer of extending the call to 15:30 our time, so another 20 minutes or so. I think this is a really important day. There's many good questions coming forward. I think we have to take our time to answer them. So let's take the next question and then carry on until half past the hour.

Yes. We'll go next to Alastair Syme with Citi.

Can I come back to the -- well, I agree with your observation on dividend yield is never a good valuation at all because ultimately, the dividend is a choice, as we've seen today. But people often could level the same criticism with free cash flow yield because CapEx is also a choice. So can I sort of ask about the appropriate level of investment? And the observation is the SEC reserve life, of course, keeps on falling. We've seen the disclosure from 2019 now. It's 30% below where you bought BG. You remain well below your key peers. So how do we have confidence that the spending level that you have been running at or indeed the revised $20 billion spending is enough to grow organic free cash flow?

It's a very good question, Alastair. And it -- and of course, we have debated this on a number of occasions before, and thank you very much for also sharing my view on dividend yield as being a relatively poor approximation of valuation, a very poor tool.

I would have to say, unfortunately, that I also find SEC reserve life a poor tool, to be perfectly honest. I don't -- I understand that that's not what you are suggesting. But the question is, indeed, at heart, which I think is a very good question, what is the minimum spend level to protect the current value in the company. And we have gone through quite a bit of an exercise, of course, last year to point out in relatively great detail for the different businesses that we have, be that Upstream, Integrated Gas or our Downstream and New Energies businesses, what sort of sustaining levels we would need to bend that. Sustaining levels being the level of CapEx that you would need to have in order to sustain cash flow generation from that business. And that, in aggregate, came up with $20 billion. That's also the number that we are falling back on.

Now let me be very clear that, that $20 billion that we are falling back on is not exactly the same makeup as the $20 billion that we had a sustaining business, a sustaining capital in our MD '19 presentation.

Of course, to give an example, it -- we spend more in Chemicals than the sustaining level simply because we're in the middle of building a large project, which wasn't necessarily needed if you were just to sustain the business. Likewise was sustaining the cash flow at our projected 2020 levels is at this point in time simply impossible, no matter how much money we would invest unless and until we would have a major recovery in the economy. But if -- but the fundamental thinking is still pretty much the same, Alastair, and I hope you can come on that journey with us as well. If we say we want to be clear what it is that we have invest -- to invest in these businesses to sustain them, then we can make choices to perhaps overinvest these businesses to grow value in them and maybe also in some businesses, underinvest. We'll let them wane a little bit because we want to shift center of gravity of the portfolio to where the portfolio needs to be into the future.

And we have to do that for you and for our investors as transparently as possible. So you can see what choices are -- we are making, you can see where the cash flows of the future are going to come from, you can see whether you like that or don't like it, you can challenge us on whether these -- the returns are indeed there. And then we can also demonstrate clearly that if indeed we invest more than we strictly need to sustain the company where is, whether we have the right balance of growing that value and giving that value also back to you as shareholders. That is the game that I thought we created a lot more transparency on in MD '19. As I said, best plans got waylaid by what is happening at the moment. But that's very much still the intent by which I would like to not only run the company, but also talk about the company and build the investment case. Where do we go with our discretionary CapEx, if you like? Where do we create value? And where do we harvest perhaps the value of the past?

Can we have the next question, please, Jennifer?

Yes. We'll go next to Jason Gammel with Jefferies.

First question I had was on OpEx reduction. It's obviously a very steep cut to what was already, in my mind, a pretty lean level of spending. And I know you touched on some of the areas that would account for those reductions. But do you have any concerns that you may actually be cutting into some of the core competencies of the organization and perhaps even challenging resiliency?

And the second question that I had is it seems that perhaps your evaluation in the medium-term of the industry may have changed a bit or at least, certainly, the level of uncertainty around it has increased. Do you think there are any structural changes to the way that the industry will be run on the other side of the crisis? And are there any parts of the portfolio that you think could no longer be viable businesses? In particular, oil, sands and shales?

Very good questions, Jason. Why don't you start on the first one, Jessica, and then see how far you get on the second one. I'll get my thoughts together on issue.

Thank you, Jason, for the questions. In terms of the OpEx reductions, it characterizes a bit more. They're in all parts of our business. So everyone is stepping up to meet the demands of the moment in our Upstream, Integrated Gas, New Energies and Downstream businesses, putting more pressure on one part of the business versus another.

A good portion of it has to do with repacing our growth ambitions that we had, particularly like in our marketing business, and some of that will be also logistics driven. Some of these things blend in with one other. So with the COVID-19 impact, our ability to exert -- execute some of the growth programs that we had anticipated in the year simply isn't possible. Some of that will come back. But we're all -- we're looking for the $3 billion to $4 billion to be structurally lower from 2021 going forward.

We're taking all kinds of -- all kinds of discretionary spend is being scrutinized, essentially freezing external hiring except for exceptional circumstances. Ben spoke to some of the choices being made on salary increases and the bonus for the year. So really across the board.

When it comes to core competency and capability in the organization, we're very sensitive to that. And I spoke -- I mentioned some more structural works that we're doing. That is always front and center in our mind, that -- for us to have a compelling investment case and to competitively differentiate, that needs to be driven by the advantages we have and the competencies that we have in the company, and we've got a number of them. And we're very sensitive to any cuts that we make, not undercutting the long-term quality of the company and our ability to differentiate going forward.

We're very sensitive to the competency question.

Okay. Thanks, Jessica.

And let me talk a little bit to your second question, which I think is a really important question, Jason, which I think a lot of people are pondering, of course, at this point in time.

And while I would also say let's see how this crisis plays out and let's see where we will end up on the other side of it, it is indeed very likely that there will be few areas that will continue to feel pressure. Again, depending on how the disruption has been and what sort of structural issues we've had around logistics, et cetera, et cetera, it may well be that for a long time, we are facing an overhang on the market that may depress oil and gas prices for some time to come.

So of course, those businesses then that are sitting behind challenged infrastructure, those businesses that have a high breakeven price and I also fundamentally believe those businesses that have a very high-carbon footprint in terms of the Scope 1 and 2 emissions, maybe also Scope 3, I think those will be increasingly challenged simply because of the base economics or simply because I think a crisis like this has the potential to catalyze society into a different way of thinking much as the Paris Agreement has had.

So yes, things like oil sands could be a challenge. Some very high CO2, very landlocked businesses, et cetera. That, by the way, has also very much been the lens through which we have been looking at our portfolio. And if you look back at how we have divested, you will probably trace back we have made the choice to get out of high-breakeven, high-carbon projects, landlocked projects. But I believe -- and I believe that is a choice that we are not happy with. But I think more of that may still be to come going forward.

We'll go to the next question. Jennifer, who is next in line?

Yes. We'll go next to Roger Read with Wells Fargo.

A couple of questions I'd like to follow up on. One that hasn't, I don't think, really been asked. But a lot of concern here about the uncertainty going forward. You have some exposure directly in China. I was curious since that was the first country to head into the lockdowns and obviously, the first major country to come out, what you're seeing there in terms of recovery and how that may reflect on our expectations in Europe and North America and elsewhere.

And then the second question is, okay, we've made the changes on CapEx, OpEx and the dividend. As you think about the balance sheet going forward, should we think about a rapid deleveraging, if possible, assuming a relatively reasonable recovery overall? Or are we looking at cash being put in different places? I mean your liquidity seems significant at this point, cash on hand. I know things will get tougher in the next couple of months. But I was just curious how you really want to address the balance sheet issues.

Thanks, Roger. Good questions. Let me take a stab at the first one, and Jessica will take the second one.

Indeed, we have seen, of course, very clearly what happened in China, and we had a relatively good window on it. We actually have an office in Wuhan even and, of course, quite a significant operation in China, an absolute -- much in relative terms -- relative to the size of the market. And we're learning an awful lot from our Chinese colleagues on not only how to deal with the situation, but also how to deal with going back to work and how the economy is potentially dealing with the aftermath. I think it would be a bit premature to say, "Oh, we now know exactly how the curve will flow." And therefore, we just have to replicate China across the world because, of course, if you watch the news also, the way this pandemic is playing out in different parts of the world is fundamentally different. And we don't even know whether in China, there will be a second wave at this stage.

But we have definitely learned from it. We particularly learned that the protocols on how to run operations, how to run the company, what works, what doesn't work, even how do you deal with -- at a very complex sort of psychological safety issues that come with people having to be quarantined at home, sometimes even quarantined at work sites. But I think it would be too early to say we now have a template to see how the economy will recover.

Jessica?

Further strengthening the balance sheet is a priority. So as the macro improves, I would expect us to see deleveraging occurring with our balance sheet. This is all very dynamic, though. As you mentioned, the second quarter, we could see further deterioration. Working capital moves can have an important impact on our cash flow and therefore, our gearing and leverage in a given quarter. Through the cycle, we are working towards solid AA credit metrics and to support that as the macro improves, we would be prioritizing deleveraging.

Thanks, Jessica.

Jennifer, who is next in line, please?

Yes. We'll go next to Jason Kenney with Santander.

So just I'm slightly curious about the credibility of long-term investment cases in large-cap, integrated oil with what's happened today. I mean you mentioned in the call in various answers that COVID-19 has significantly disrupted the plan. Your best laid plans were waylaid, all the levers are being pulled. And it leads me to question what the crisis management actually is. And I mean you also said that $10 billion was -- we simply don't have this year. So what happens if you have an exogenous event this year? I mean God forbid that you don't, but what is there still left for crisis management that could be company-specific to Shell this year?

And secondly, on Integrated Gas -- I mean Integrated Gas has a lagged effect relative to oil. And I was wondering if you give me maybe some shape on how Integrated Gas could move over the year, probably a third quarter-fourth quarter issue rather than the second quarter-third quarter issue. But if you could just maybe talk to that, that would be great.

Very good questions, Jason. And let me take the first one, Jessica, the second.

Well, I would say, of course, yes, the crisis that has hit us all, it's unprecedented. It has hit the sector in an unprecedented way. And if you look at the report that came out from the IEA today, for instance, the amount of demand destruction that is happening at the moment is completely unprecedented. It will go very, very deep in the coming weeks and months. And for the year, the IEA talks about a demand destruction that is 7x the impact than the demand destruction during the financial crisis. So it is wiping out the demand of equivalent to a country like India at this point in time. So yes, indeed, we -- these things hurt us significantly. And the fact that it's both so disorderly may also hit us in the viability of some of the operations that we have in the near term. And that is the uncertainty that we are referring to.

But precisely because of that, Jason, we need to take that action early, [serve] the financial resilience of this company. And while I'm not planning for and while we don't see any signs of weakening of, say, the operations that we have, yes, absolutely, we -- you cannot use up your resilience so that you have none left if heaven forbid exogenous events come to us or a second black swan hits us. That is the reason why we believe we need to be prudent as a Board and give ourselves the room to maneuver when there is not only no visibility going forward, but we don't even know whether there's a massive pothole in the road coming around the corner.

And so precisely for that reason, we are doing the things that we do, incredibly painful though it may be. If you talk about, is this still an investment case? Yes, we have reduced the dividend. It is significantly lower for the reasons that we had to -- that we mentioned we had to do this. But it is an affordable dividend in a very wide range, macroeconomic outcomes, and it is still a meaningful dividend. So I do believe there is an investment case in our company going forward.

Jessica, Integrated Gas.

For Integrated Gas, 90% of our contracts are Brent-linked, and those tend to have a lag of 3 to 6 months. So indeed, in the latter part of this year, starting in Q2 with likely going through Q3 and Q4, we would expect to see the impact of the decline in Brent prices coming through in terms of the revenue and cash flow generation that we'll see in the Integrated Gas business. So there will be an impact throughout the rest of the year associated with the contracts and the lag to Brent that I just referenced.

Okay. Thanks, Jessica. I'm going to take one more question, and then we're going to wrap it up. If there are any further questions left or any further questions on your mind, by all means, get to our IR team, we will deal with all the questions that are still out there. I realized this is a big day. There may still be many sort of secondary questions coming into people's minds.

But Jennifer, can I have the last question, please?

Yes. We'll go next to Peter Low with Redburn.

Hopefully, just one quick follow-up. On the working capital release in the quarter, and sorry if I missed this, does any of that relate to the structural reduction you're targeting? Or is the 1Q release more temporary? And should we assume a portion of that unwind in subsequent quarters? I'm just trying to get an understanding of the shape of the cash flow as we move through this year.

Thanks, Peter.

Jessica, can you take it?

Yes. This does not include some of the work we're doing on structurally reducing working capital. So it's more temporary. The bulk of it is simply repricing the inventory as prices declined in the quarter. That was partially offset by payables declining less than receivables did. And so there's also a negative impact from a payables perspective that will also reverse. But the combination of those effects are temporary and will flow through, and we would see the impact from structural reductions coming through later in the year.

Okay. Thanks very much, Jessica, and thank you all very much for your questions and for joining today and for your patience to staying half an hour longer. We will have our second quarter results on the 30th of July, and I hope to be able to speak to many of you then.

But of course, I also would like you to note that we have scheduled an additional shareholder webcast with the entire Board to answer any questions that you may have on the 13th of May. That is in the lead up to our AGM, which is scheduled on the 19th of May. But that one will be a virtual-only format because of the COVID-19 crisis. And with that, thank you very much again. Please stay safe and stay healthy. Goodbye.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation, you may now disconnect.