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BUILDING AN ENERGY FUTURE
ANNUAL REPORT
Royal Dutch Shell plc annual RepoRt anD
FoRm 20-F FoR the yeaR enDeD DecembeR 31, 2012
all ouR RepoRtS aRe available at
http://RepoRtS.Shell.com
comprehensive financial information on our activities
throughout 2012
Detailed operational information including maps
Report on our progress in contributing to sustainable
development
DownloaD ouR appS at
www.Shell.com/mobile_anD_appS
company news
interactive stories about innovation
Service-station locations
check ouR lateSt newS
Follow @shell on twitter
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OUR bUsiNEssEs
builDinG an
eneRGy FutuRe
Global eneRGy DemanD iS RiSinG anD So aRe
conSumeR expectationS – moRe people want
eneRGy FRom cleaneR SouRceS. at Shell we
woRk with otheRS to unlock new eneRGy
SouRceS anD Squeeze moRe FRom what we
have. we Do thiS in ReSponSible anD innovative
wayS. in builDinG a betteR eneRGy FutuRe we all
have a paRt to play. Shell iS DoinG itS paRt.
exploring for oil
and gas
producing oil
and gas
mining
oil sands
extracting
bitumen
Refining oil
into fuels and
lubricants
Developing
fields
liquefying gas by
cooling (lnG)
Shipping
and trading
Shipping
and trading
producing
petrochemicals
Supply and
distribution
converting gas to liquid
products (Gtl)
producing
biofuels
Regasifying
lnG
Retail sales
Generating
wind power
b2b sales
chEmicAL
PRODUcTs
for plastics,
coatings,
detergents
Retail sales
b2b sales
FUELs AND
LUbRicANTs
for transport
gAs
for cooking, heating,
electrical power
REgisTERED OFFicE
Royal Dutch Shell plc
Shell centre
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united kingdom
Registered in england and wales
company number 4366849
Registered with the Dutch trade Register
under number 34179503
hEADQUARTERs
Royal Dutch Shell plc
carel van bylandtlaan 30
2596 hR the hague
the netherlands
shAREhOLDER RELATiONs
Royal Dutch Shell plc
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
Commission file number 1-32575
Royal Dutch Shell plc
(Exact name of registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organisation)
Carel van Bylandtlaan 30, 2596 HR, The Hague, The Netherlands
Tel. no: 011 31 70 377 9111
royaldutchshell.shareholders@shell.com
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class
American Depositary Shares representing two A ordinary shares
of the issuer with a nominal value of €0.07 each
American Depositary Shares representing two B ordinary shares
of the issuer with a nominal value of €0.07 each
1.875% Guaranteed Notes due 2013
4.0% Guaranteed Notes due 2014
0.625% Guaranteed Notes due 2015
3.1% Guaranteed Notes due 2015
3.25% Guaranteed Notes due 2015
1.125% Guaranteed Notes due 2017
5.2% Guaranteed Notes due 2017
4.3% Guaranteed Notes due 2019
4.375% Guaranteed Notes due 2020
2.375% Guaranteed Notes due 2022
2.25% Guaranteed Notes due 2023
6.375% Guaranteed Notes due 2038
5.5% Guaranteed Notes due 2040
3.625% Guaranteed Notes due 2042
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: none
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: none
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
Outstanding as of December 31, 2012:
3,706,535,798 A ordinary shares with a nominal value of €0.07 each.
2,599,337,678 B ordinary shares with a nominal value of €0.07 each.
‘ No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file to Section 13 pursuant reports
Í No
or 15(d) of the Securities Exchange Act of 1934.
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
‘ No
been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
‘ Yes
Í Yes
Í Yes
Í Yes
‘ No
Large accelerated filer Í Accelerated filer ‘ Non-accelerated filer ‘
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ‘ International Financial Reporting Standards as issued by the International Accounting
Standards Board
If “Other” has been checked in response to the previous question, indicate by check mark which financial
statement item the registrant has elected to follow. Item 17 ‘
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Copies of notices and communications from the Securities and Exchange Commission should be sent to:
Royal Dutch Shell plc
Carel van Bylandtlaan 30
2596 HR, The Hague, The Netherlands
Attn: Michiel Brandjes
Other ‘
Item 18 ‘
‘ Yes
Í
Í No
acre
b(/d)
boe(/d)
MMBtu
mtpa
per day
scf(/d)
PRODUCTS
GTL
LNG
LPG
NGL
2
Shell Annual Report and Form 20-F 2012 reports.shell.com
About this Report
ABBREVIATIONS
CURRENCIES
$
€
£
CHF
UNITS OF MEASUREMENT
US dollar
euro
sterling
Swiss franc
approximately 0.004 square kilometres
barrels (per day)
barrels of oil equivalent (per day); natural gas volumes are
converted to oil equivalent using a factor of 5,800 scf per barrel
million British thermal units
million tonnes per annum
volumes are converted to a daily basis using a calendar year
standard cubic feet (per day)
gas to liquids
liquefied natural gas
liquefied petroleum gas
natural gas liquids
American Depositary Share
Annual General Meeting
current cost of supplies
carbon dioxide
Deferred Bonus Plan
euro medium-term note
earnings per share
health, safety, security and environment
Interpretation(s) issued by the IFRS Interpretations Committee
International Financial Reporting Standard(s)
Long-term Incentive Plan
oil mining lease
Organization of the Petroleum Exporting Countries
oil prospecting licence
production-sharing contract
Performance Share Plan
research and development
Remuneration Committee
Restricted Share Plan
United States Securities and Exchange Commission
total recordable case frequency
total shareholder return
West Texas Intermediate
MISCELLANEOUS
ADS
AGM
CCS
CO2
DBP
EMTN
EPS
HSSE
IFRIC
IFRS
LTIP
OML
OPEC
OPL
PSC
PSP
R&D
REMCO
RSP
SEC
TRCF
TSR
WTI
reports.shell.com Shell Annual Report and Form 20-F 2012
About this Report
3
ABOUT THIS REPORT
This Report serves as the Annual Report and Accounts in accordance
with UK requirements and as the Annual Report on Form 20-F as filed
with the SEC for the year ended December 31, 2012, for Royal Dutch
Shell plc (the Company) and its subsidiaries (collectively known as
Shell). It presents the Consolidated Financial Statements of Shell
(pages 99-137), the Parent Company Financial Statements of Shell
(pages 159-167) and the Financial Statements of the Royal Dutch Shell
Dividend Access Trust (pages 171-174). Cross references to
Form 20-F are set out on pages 175-176 of this Report.
In this Report “Shell” is sometimes used for convenience where
references are made to the Company and its subsidiaries in general.
Likewise, the words “we”, “us” and “our” are also used to refer to
subsidiaries in general or to those who work for them. These
expressions are also used where no useful purpose is served by
identifying the particular company or companies. “Subsidiaries” and
“Shell subsidiaries” as used in this Report refer to companies over
which the Company, either directly or indirectly, has control through a
majority of the voting rights or the right to exercise control or to obtain
the majority of the benefits and be exposed to the majority of the risks.
The Consolidated Financial Statements consolidate the financial
statements of the Company and all subsidiaries. The companies in
which Shell has significant influence but not control are referred to as
“associates” and companies in which Shell has joint control are
referred to as “jointly controlled entities”. Joint ventures are comprised
of jointly controlled entities and jointly controlled assets. In this Report,
jointly controlled entities and associates are also referred to as “equity-
accounted investments”. The term “Shell interest” is used for
convenience to indicate the direct and/or indirect ownership interest
held by Shell in a venture, partnership or company, after exclusion of
all third-party interests.
Except as otherwise specified, the figures shown in the tables in this
Report represent those in respect of subsidiaries only, without
deduction of the non-controlling interest. However, the term “Shell
share” is used for convenience to refer to the volumes of hydrocarbons
that are produced, processed or sold through both subsidiaries and
equity-accounted investments. All of a subsidiary’s share of
production, processing or sales volumes are included in the Shell
share, even if Shell owns less than 100% of the subsidiary. In the case
of equity-accounted investments, however, Shell-share figures are
limited only to Shell’s entitlement. In all cases, royalty payments in kind
are deducted from the Shell share.
The financial statements contained in this Report have been prepared
in accordance with the provisions of the Companies Act 2006 and
with International Financial Reporting Standards (IFRS) as adopted by
the European Union. As applied to the financial statements, there are
no material differences from IFRS as issued by the International
Accounting Standards Board (IASB); therefore, the financial statements
have been prepared in accordance with IFRS as issued by the IASB.
IFRS as defined above includes IFRIC.
Except as otherwise noted, the figures shown in this Report are stated
in US dollars. As used herein all references to “dollars” or “$” are to
the US currency.
The Business Review and other sections of this Report contain forward-
looking statements (within the meaning of the US Private Securities
Litigation Reform Act of 1995) concerning the financial condition,
results of operations and businesses of Shell. All statements other than
statements of historical fact are, or may be deemed to be, forward-
looking statements. Forward-looking statements are statements of
future expectations that are based on management’s current
expectations and assumptions and involve known and unknown risks
and uncertainties that could cause actual results, performance or
events to differ materially from those expressed or implied in these
statements. Forward-looking statements include, among other things,
statements concerning the potential exposure of Shell to market risks
and statements expressing management’s expectations, beliefs,
estimates, forecasts, projections and assumptions. These forward-
looking statements are identified by their use of terms and phrases
such as “anticipate”, “believe”, “could”, “estimate”, “expect”,
“goals”, “intend”, “may”, “objectives”, “outlook”, “plan”, “probably”,
“project”, “risks”, “scheduled”, “seek”, “should”, “target”, “will” and
similar terms and phrases. There are a number of factors that could
affect the future operations of Shell and could cause those results to
differ materially from those expressed in the forward-looking
statements included in this Report, including (without limitation):
(a) price fluctuations in crude oil and natural gas; (b) changes in
demand for Shell’s products; (c) currency fluctuations; (d) drilling and
production results; (e) proved reserves estimates; (f) loss of market
share and industry competition; (g) environmental and physical risks;
(h) risks associated with the identification of suitable potential
acquisition properties and targets, and successful negotiation and
completion of such transactions; (i) the risk of doing business in
developing countries and countries subject to international sanctions;
(j) legislative, fiscal and regulatory developments including regulatory
measures as a result of climate changes; (k) economic and financial
market conditions in various countries and regions; (l) political risks,
including the risks of expropriation and renegotiation of the terms of
contracts with government entities, delays or advancements in the
approval of projects and delays in the reimbursement for shared costs;
and (m) changes in trading conditions. Also see “Risk factors” for
additional risks and further discussion. All forward-looking statements
contained in this Report are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. Readers
should not place undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of this Report.
Neither the Company nor any of its subsidiaries undertake any
obligation to publicly update or revise any forward-looking statement
as a result of new information, future events or other information. In
light of these risks, results could differ materially from those stated,
implied or inferred from the forward-looking statements contained in
this Report.
This Report contains references to Shell’s website and to the Shell
Sustainability Report. These references are for the readers’
convenience only. Shell is not incorporating by reference any
information posted on www.shell.com or in the Shell Sustainability
Report.
Documents on display
Documents concerning the Company, or its predecessors for reporting
purposes, which are referred to in this Report have been filed with the
SEC and may be examined and copied at the public reference facility
maintained by the SEC at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549, USA. For further information on the
operation of the public reference room and the copy charges, call the
SEC at 1-800-SEC-0330. All of the SEC filings made electronically by
Shell are available to the public on the SEC website at www.sec.gov
(commission file number 001-32575). This Report is also available,
free of charge, at www.shell.com/annualreport or at the offices of
Shell in The Hague, the Netherlands and London, UK. Copies of this
Report also may be obtained, free of charge, by mail.
4
Shell Annual Report and Form 20-F 2012 reports.shell.com
About this Report
TABLE OF CONTENTS
5
6
8
8
10
11
13
16
20
35
41
42
46
47
51
52
55
56
60
77
89
96
97
98
138
157
158
168
169
170
175
177
178
Chairman’s message
Chief Executive Officer’s review
Business Review
Performance indicators
Selected financial data
Business overview
Risk factors
Summary of results and strategy
Upstream
Downstream
Corporate
Liquidity and capital resources
Our people
Environment and society
Section 13(r) of the US Securities Exchange Act of 1934 disclosure
The Board of Royal Dutch Shell plc
Senior Management
Report of the Directors
Directors’ Remuneration Report
Corporate governance
Additional shareholder information
Report on the Annual Report and Accounts
Report on the Annual Report on Form 20-F
Consolidated Financial Statements
Supplementary information – oil and gas (unaudited)
Independent Auditors’ Report to the Members of Royal Dutch Shell plc
Parent Company Financial Statements
Independent Auditors’ Report to Computershare Trustees (Jersey) Limited
as Trustee of the Royal Dutch Shell Dividend Access Trust
Report of Independent Registered Public Accounting Firm
Royal Dutch Shell Dividend Access Trust Financial Statements
Cross reference to Form 20-F
Exhibits
Signatures
reports.shell.com Shell Annual Report and Form 20-F 2012
Chairman’s message
5
CHAIRMAN’S MESSAGE
In 2012, we continued to deliver on our strategy in the face of an
uncertain economic environment. At Shell, we naturally pay close
attention to short-term economic conditions, but we take a long-term,
strategic view of the Company’s development. We continue to invest
in, and maintain, a diverse portfolio of assets, despite economic
headwinds.
This gives us a resilience that enables us to build for the future: we can
continue to develop major projects to help meet rising energy demand,
while operating a global network of refineries and chemical plants that
help us derive maximum value from the resources we produce. We
balance growth opportunities and investment returns, while
continuously seeking to improve operational safety standards,
competitiveness and innovation.
The global economic growth rate for the year fell slightly, to an
estimated 3.2% from 3.9% for 2011. The average Brent crude oil
price for the year was $112 per barrel, very close to the figure for
2011.
Our dividends in 2012 increased to approximately $11 billion,
making them the largest in our sector. We expect to increase
dividends for the first quarter of 2013 by 4.7%, compared with the
same quarter of 2012.
Energy and climate
Our solid foundations and strategy will enable us to continue to grow
in a volatile world facing many difficult challenges. One of the
greatest of these challenges is how to meet rising energy demand,
while significantly reducing carbon dioxide (CO2) emissions.
Shell estimates that by 2050, global energy demand could increase
by up to 80%, as living standards rise and the world’s population
grows from seven to nine billion.
Renewable energy, including biofuels, will play a role. Our Raízen
joint venture in Brazil turns sugar cane into ethanol, which could
reduce overall CO2 emissions significantly compared with the gasoline
it replaces. By 2050, renewable sources could provide about 30% of
the world’s energy. However, fossil fuels are still likely to meet about
two-thirds of energy demand.
gas supplies there, as a result of the shale gas revolution, has lowered
prices and brought other advantages. When used to displace coal in
electricity generation, it could reduce CO2 emissions by about half.
Now the benefits of tight and shale gas are spreading to other parts of
the world, such as China, and we are at the forefront of this
development.
The world will also need to address tensions between supplies of the
linked essentials of water, energy and food, which could become
critical as the population grows. Energy is needed to produce food,
and water is needed to produce energy. Shell is leading efforts to
understand these stresses, and we are finding ways to recycle and use
water more efficiently.
Innovation has a vital role to play in the challenges we face. Since
2007, we have spent more than $1 billion a year on research and
development, and continue to deploy new technology. For example,
we have formed Sirius Well Manufacturing Services, an international
well services company, in partnership with China National Petroleum
Corporation. The 50:50 joint venture was incorporated in 2012, and
will use advanced techniques to drill multiple wells for tight, shale and
coalbed gas extraction in an efficient, repeatable way. It has potential
across the world.
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We continue to invest in the quality of our people. Our graduate and
experienced recruitment programmes, supported by structured
learning and development, are focused on providing the capability we
need for success in the future.
Learning lessons
As more accessible resources are depleted, those in challenging
environments will be essential in meeting global energy demand in the
decades ahead. In 2012, we took the first steps in exploring for new
resources off the coast of Alaska. Later events involving our drilling
ships were most regrettable. We have since decided to pause
exploration drilling in 2013, to prepare plans and equipment for
activity at a later stage. Alaska remains an area of high potential for
Shell in the long term. We will learn lessons from our experience, and
continue to explore for resources there in a careful and measured way.
We will also continue to invest in developing capabilities that help us
explore for energy resources in the right way: safely and responsibly,
with respect for the environment and the communities we operate
alongside.
Natural gas, the cleanest burning fossil fuel, is central to our long-term
business strategy. Shell is a major supplier of natural gas that powers
homes and businesses. In North America, we are unlocking gas
trapped in tight and shale rock formations. The dramatic increase in
Jorma Ollila
Chairman
6
Shell Annual Report and Form 20-F 2012 reports.shell.com
Chief Executive Officer’s review
CHIEF EXECUTIVE OFFICER’S
REVIEW
We made good progress in 2012 toward improving our performance,
even as we dealt with continued volatile economic conditions. We are
on target to meet strategic objectives. And we are delivering the
projects that form the foundation of our aim to become the world’s
most competitive and innovative energy company.
Still, there is work to do. We are focused on further improving our
operating performance in key areas, such as oil and gas production
and internal processes that influence customer satisfaction.
Let me highlight some of 2012’s milestones and achievements. Our
overall safety performance in 2012 matched that of 2011. And we
continued our strong focus on ensuring our facilities are safely run and
maintained. The Shell Sustainability Report has details on our safety
and environmental performance.
For 2012 our earnings on a current cost of supplies basis attributable
to shareholders were $27 billion. Cash flow from operating activities
was $46 billion and, excluding working capital movements, was
$43 billion. Net capital investment was $30 billion, as we build a
solid foundation for future growth.
We produced 3.3 million barrels of oil equivalent per day in 2012, up
3% from 2011 excluding the effect of divestments and exits, with
important contributions from our Pearl GTL plant in Qatar, which is
now ramped up, and the Pluto LNG Project in Australia, through our
participation in Woodside Petroleum Ltd. Equity LNG sales volumes of
20.2 million tonnes were up 7% compared with 2011.
In exploration, we continue to expand our portfolio, adding 120,000
square kilometres of new exploration acreage in 2012, including
positions in liquids-rich shales. We participated in seven notable
conventional exploration discoveries and appraisals, and 10
successful unconventional appraisals.
Harnessing innovation
We are building on our heritage as innovators and gaining public
recognition for our accomplishments. Shell was one of 50 innovation
leaders worldwide identified by the MIT Technology Review. We also
received industry awards for our Perdido deep-water project in the
Gulf of Mexico and our Prelude floating LNG project.
We continue to fine-tune our global network of technology centres to
support future business opportunities. That includes increasing our
capabilities in India and China. In November, we laid the foundation
stone for a new technology centre in Bangalore, India, which we aim
to build into a world-class technology hub.
Our Downstream business had a good operating performance for the
year, with reduced levels of unplanned downtime. We continued to
build on the strength of Shell’s brand in markets with growth potential.
In Brazil our Raízen biofuels joint venture is making good progress. In
its first full year of operation, the venture made a notable contribution
to Downstream earnings. Last year we broke ground on Shell’s seventh
lubricants blending plant in mainland China, to meet rising demand
there. And we also announced plans to build a blending plant in
Indonesia, another expanding market in Asia.
Our accomplishments in 2012 helped underpin Shell’s strong track
record since 2010. Over the last three years, our earnings on a
current cost of supplies basis attributable to shareholders increased by
45% and our cash flow from operating activities increased by 69%.
Compared with our major competitors, over the past three years we
have delivered the highest rates of growth in earnings per share and
cash flow from operating activities.
Building our future
Looking to the future, the projects that will help drive growth are
advancing well. We have about 30 projects under construction. We
produced the first oil from the Gumusut-Kakap project off the coast of
Malaysia and that will ramp up once a floating production facility is in
place. We added a new development phase to our Changbei tight-gas
operation in China, adding nearly 1,700 square kilometres, as well as
agreeing with our partner, China National Petroleum Corporation, to
potentially develop the main reservoir.
In October, we cut the first steel for the hull of our ground-breaking
Prelude floating LNG project. In November, the hull for the Mars B
project was completed in South Korea and shipped to Texas for
installation in the Gulf of Mexico. And we took the final investment
decision on the Quest carbon capture and storage project associated
with our oil sands operations in Canada, which will reduce our
environmental footprint. In all, we took final investment decisions on
seven projects during the year.
With our progress in 2012, the growth agenda set out at the
beginning of the year is on track. It includes $175-200 billion of cash
flow from operating activities, excluding working capital movements,
for 2012-2015, assuming the Brent oil price remains in the range of
$80-100 per barrel and conditions for North American natural gas
and downstream margins improve relative to 2012. It also includes net
capital investment of $120-130 billion, and a competitive dividend for
shareholders.
Looking further ahead, we are considering about 30 additional
projects, giving us an attractive set of options for the longer term. We
are now more constrained by capital than by opportunities, which
allows us to focus resources where the potential for growth is greatest.
Gas leadership
Let me highlight one area where we are already industry leaders and
that has great potential for the future: integrated gas projects, which
include LNG and gas-to-liquids (GTL), such as our Pearl plant.
Integrated gas projects contributed approximately 40% of our total
earnings in 2012.
Integrated gas builds on our strengths in exploration and production,
our downstream expertise in creating and marketing high-value
products, and our know-how in managing huge projects. Growth will
come from Australia, where we have an additional 7 million tonnes
per year under construction. Longer term, we are studying projects
with capacity of another 20 million tonnes per year, so there is
significant growth potential.
North America is one region of opportunity. The shale gas revolution
there has unlocked vast resources that provide an attractively priced
feedstock. We will soon supply LNG for long-haul trucks in Canada.
And we have other LNG, GTL and chemicals options on the drawing
board.
reports.shell.com Shell Annual Report and Form 20-F 2012
Chief Executive Officer’s review
7
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In February 2013, we agreed to acquire part of Repsol S.A.’s LNG
portfolio, subject to regulatory approval and other conditions
precedent. This acquisition will extend our international LNG portfolio.
I expect our strength in integrated gas projects will be one of the
drivers of our earnings and cash flow in the coming decades.
Strategic priorities
As we push ahead with our strategy, we have taken a fresh look at
how we manage our portfolio. Going forward we are using a clear set
of strategic themes to drive our choices about investment, people and
innovation.
First we have our upstream and downstream ”engines”, which are
mature businesses. They generate much of our cash flow. We will
continue to invest to keep them running smoothly and to extract
additional value.
Next we have our growth priorities, which are three areas of great
opportunity for us in the years ahead, thanks to our superior
technology and innovation. They are integrated gas, deep water and
resources plays, such as shale oil and gas.
Finally we have future opportunities for the longer term, including the
Arctic, Iraq, Kazakhstan, Nigeria, and heavy oil. We also continue to
ramp up our conventional exploration activities, which we think is a
cost-effective way of identifying new resources.
To conclude, we are making good progress toward our objectives.
We continue to work hard to improve our operating performance. And
we have clear strategic priorities to drive growth and value for our
shareholders.
Peter Voser
Chief Executive Officer
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Business Review > Performance indicators
BUSINESS REVIEW
PERFORMANCE INDICATORS
Key performance indicators
Total shareholder return
2012 -0.2%
2011 17.1%
Refinery and chemical plant availability
2012 92.9%
2011 91.2%
Total shareholder return (TSR) is the difference between the share price
at the start of the year and the share price at the end of the year, plus
gross dividends delivered during the calendar year (reinvested
quarterly), expressed as a percentage of the year-start share price. The
TSRs of major publicly traded oil and gas companies can be directly
compared, providing a way to determine how Shell is performing
against its industry peers.
Refinery and chemical plant availability is the weighted average of the
actual uptime of plants as a percentage of their maximum possible
uptime. The weighting is based on the capital employed adjusted for
cash and non-current liabilities. It excludes downtime due to
uncontrollable factors, such as hurricanes. This indicator is a measure
of operational excellence of Shell’s Downstream manufacturing
facilities.
Net cash from operating activities ($ billion)
2011 37
2012 46
Total recordable case frequency (injuries per million working hours)
2012 1.3
2011 1.2
Total recordable case frequency (TRCF) is the number of staff or
contractor injuries requiring medical treatment or time off for every
million hours worked. It is a standard measure of occupational safety.
Net cash from operating activities is the total of all cash receipts and
payments associated with our sales of oil, gas, chemicals and other
products. The components that provide a reconciliation from income
for the period are listed in the “Consolidated Statement of Cash
Flows”. This indicator reflects Shell’s ability to generate cash for both
investment and distribution to shareholders.
Project delivery
2012 90%
2011 79%
Project delivery reflects Shell’s capability to complete major projects
on time and within budget on the basis of targets set in the annual
Business Plan. The set of projects consists of at least 20 Shell-operated
capital projects that are in the execution phase (post final investment
decision).
Production available for sale (thousand boe/d)
2011 3,215
2012 3,262
Production is the sum of all average daily volumes of unrefined oil and
natural gas produced for sale by Shell subsidiaries and the Shell share
of equity-accounted investments. The unrefined oil comprises crude oil,
natural gas liquids, synthetic crude oil and bitumen. The gas volume is
converted into equivalent barrels of oil to make the summation
possible. Changes in production have a significant impact on Shell’s
cash flow.
Equity sales of liquefied natural gas (million tonnes)
2012 20.2
2011 18.8
Equity sales of liquefied natural gas (LNG) is a measure of the
operational performance of Shell’s Upstream business and the LNG
market demand.
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Additional performance indicators
Earnings on a current cost of supplies basis attributable to
Proved oil and gas reserves attributable to Royal Dutch Shell plc
Royal Dutch Shell plc shareholders ($ million)
2012 27,044
2011 28,625
shareholders (million boe)
2012 13,556
2011 14,250
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Proved oil and gas reserves attributable to Royal Dutch Shell plc
shareholders are the total estimated quantities of oil and gas from
Shell subsidiaries (excluding reserves attributable to non-controlling
interest) and the Shell share of equity-accounted investments that
geoscience and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known reservoirs, as
at December 31, under existing economic conditions, operating
methods and government regulations. Gas volumes are converted into
barrels of oil equivalent (boe). Reserves are crucial to an oil and gas
company, since they constitute the source of future production.
Reserves estimates are subject to change based on a wide variety of
factors, some of which are unpredictable. See “Risk factors”.
Operational spills of more than 100 kilograms
2012 204
2011 211
The operational spills indicator reflects the total number of incidents in
which 100 kilograms or more of oil or oil products were spilled by a
Shell-operated entity as a result of its operations. The number for 2011
was updated from 207 to reflect completion of investigations into
spills.
Employees (thousand)
2012 87
2011 90
The employees indicator consists of the annual average full-time
employee equivalent of the total number of people on full-time or part-
time employment contracts with Shell subsidiaries.
Earnings per share on a current cost of supplies basis ($)
2012 4.32
2011 4.61
Earnings on a current cost of supplies (CCS) basis attributable to Royal
Dutch Shell plc shareholders is the income for the period, adjusted for
the after-tax effect of oil-price changes on inventory and
non-controlling interest. CCS earnings per share is calculated by
dividing CCS earnings attributable to shareholders by the average
number of shares outstanding. See page 16 and Note 2 to the
“Consolidated Financial Statements”.
Net capital investment ($ million)
2012 29,803
2011 23,503
Net capital investment is defined as capital expenditure, adjusted for:
proceeds from disposals; exploration expense excluding exploration
wells written off; investments in equity-accounted investments; and
leases and other items. See Notes 2 and 4 to the “Consolidated
Financial Statements” for further information.
Return on average capital employed
2012 12.7%
2011 15.9%
Return on average capital employed (ROACE) is defined as annual
income, adjusted for after-tax interest expense, as a percentage of
average capital employed during the year. Capital employed is the
sum of total equity and total debt. ROACE measures the efficiency of
Shell’s utilisation of the capital that it employs and is a common
measure of business performance. See page 45.
Gearing
2012 9.2%
2011 13.1%
Gearing is defined as net debt (total debt less cash and cash
equivalents) as a percentage of total capital (net debt plus total
equity), at December 31. It is a measure of the degree to which Shell’s
operations are financed by debt. For further information see Note 15
to the “Consolidated Financial Statements”.
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Business Review > Selected financial data
SELECTED FINANCIAL DATA
The selected financial data set out below is derived, in part, from the
Consolidated Financial Statements. This data should be read in
conjunction with the Consolidated Financial Statements and related
Notes, as well as the Business Review in this Report.
CONSOLIDATED STATEMENT OF INCOME AND OF COMPREHENSIVE INCOME DATA
Revenue
Income for the period
Income attributable to non-controlling interest
Income attributable to Royal Dutch Shell plc shareholders
Comprehensive income attributable to Royal Dutch Shell plc
2012
467,153
26,840
248
26,592
2011
470,171
31,185
267
30,918
2010
368,056
20,474
347
20,127
2009
278,188
12,718
200
12,518
$ MILLION
2008
458,361
26,476
199
26,277
shareholders
27,178
29,727
20,131
19,141
15,228
All results are from continuing operations.
CONSOLIDATED BALANCE SHEET DATA
Total assets
Total debt
Share capital
Equity attributable to Royal Dutch Shell plc shareholders
Non-controlling interest
EARNINGS PER SHARE
Basic earnings per €0.07 ordinary share
Diluted earnings per €0.07 ordinary share
SHARES
2012
360,325
37,754
542
188,494
1,433
2011
345,257
37,175
536
169,517
1,486
2010
322,560
44,332
529
148,013
1,767
2009
292,181
35,033
527
136,431
1,704
2012
4.25
4.24
2011
4.98
4.97
2010
3.28
3.28
2009
2.04
2.04
2012
2011
2010
2009
$ MILLION
2008
282,401
23,269
527
127,285
1,581
$
2008
4.27
4.26
NUMBER
2008
Basic weighted average number of A and B shares
6,261,184,755
6,212,532,421
6,132,640,190
6,124,906,119
6,159,102,114
Diluted weighted average number of A and B shares
6,267,839,545
6,221,655,088
6,139,300,098
6,128,921,813
6,171,489,652
OTHER FINANCIAL DATA
Net cash from operating activities
Net cash used in investing activities
Dividends paid
Net cash used in financing activities
Increase/(decrease) in cash and cash equivalents
Earnings/(losses) by segment [A]
Upstream
Downstream
Corporate
Total segment earnings
Attributable to non-controlling interest
Earnings on a current cost of supplies basis attributable to
2012
46,140
28,453
7,682
10,630
7,258
22,162
5,350
(209)
27,303
(259)
2011
36,771
20,443
7,315
18,131
(2,152)
24,455
4,289
86
28,830
(205)
2010
27,350
21,972
9,979
1,467
3,725
15,935
2,950
91
18,976
(333)
2009
21,488
26,234
10,717
829
(5,469)
8,354
258
1,310
9,922
(118)
$ MILLION
2008
43,918
28,915
9,841
9,394
5,532
26,506
5,309
(69)
31,746
(380)
Royal Dutch Shell plc shareholders [B]
27,044
28,625
18,643
9,804
31,366
Net capital investment [A]
Upstream
Downstream
Corporate
Total
[A] See Notes 2 and 4 to the “Consolidated Financial Statements”.
[B] See table on page 16.
25,320
4,275
208
29,803
19,083
4,342
78
23,503
21,222
2,358
100
23,680
22,326
6,232
324
28,882
28,257
3,104
60
31,421
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Business Review > Business overview
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BUSINESS OVERVIEW
employ in our various businesses. In total, Shell currently has more
than 14,000 granted patents and pending patent applications.
History
From 1907 until 2005, Royal Dutch Petroleum Company and The
“Shell” Transport and Trading Company, p.l.c. were the two public
parent companies of a group of companies known collectively as the
“Royal Dutch/Shell Group”. Operating activities were conducted
through the subsidiaries of these parent companies. In 2005, Royal
Dutch Shell plc became the single parent company of Royal Dutch
Petroleum Company and of The “Shell” Transport and Trading
Company, p.l.c., now The Shell Transport and Trading Company
Limited.
Royal Dutch Shell plc (the Company) is a public limited company
registered in England and Wales and headquartered in The Hague,
the Netherlands.
Activities
Shell is one of the world’s largest independent oil and gas companies
in terms of market capitalisation, operating cash flow and oil and gas
production. We aim to sustain our strong operational performance
and continue our investments primarily in countries that have the
necessary infrastructure, expertise and remaining growth potential.
Such countries include Australia, Brazil, Brunei, Canada, China,
Denmark, Germany, Malaysia, the Netherlands, Nigeria, Norway,
Oman, Qatar, Russia, the UK and the USA.
We are bringing new oil and gas supplies on-stream from major field
developments. We are also investing in growing our integrated gas
activities. For example, our Pearl GTL plant completed its ramp-up at
the end of 2012. In Downstream we seek innovative ways to market
LNG, for example through the use of LNG in the transport sector.
At the same time, we are exploring for oil and gas in prolific
conventional geological formations, such as those found in Australia,
Brazil and the Gulf of Mexico. But we are also exploring for
hydrocarbons in formations, such as low-permeability reservoirs in the
USA, Australia, Canada and China, which can be developed by
fracturing techniques.
We also have a focused portfolio of refineries and chemical plants.
Furthermore, we are a leading biofuel producer and fuel retailer in
Brazil, through our Raízen joint venture. We have a strong retail
position not only in the major industrialised countries, but also in the
developing ones. The distinctive Shell pecten, (a trademark in use
since the early part of the twentieth century), and trademarks in which
the word Shell appears, support this marketing effort throughout the
world. A strong patent portfolio underlies the technology that we
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Businesses
Upstream International manages the Upstream businesses outside the
Americas. It explores for and recovers crude oil, natural gas and
natural gas liquids, liquefies and transports gas, and operates the
upstream and midstream infrastructure necessary to deliver oil and gas
to market. Upstream International also manages Shell’s LNG and GTL
businesses. Since January 2013, it manages its operations primarily
by line of business, with this structure overlaying individual country
organisations. This organisation is supported by activities such as
Exploration and New Business Development. Previously activities were
organised primarily by geographical location.
Upstream Americas manages the Upstream businesses in North and
South America. It explores for and recovers crude oil, natural gas and
natural gas liquids, transports gas and operates the upstream and
midstream infrastructure necessary to deliver oil and gas to market.
Upstream Americas also extracts bitumen from oil sands that is
converted into synthetic crude oil. Additionally, it manages the
US-based wind business. It manages its operations by line of business,
supported by activities such as Exploration and New Business
Development.
Downstream manages Shell’s refining and marketing activities for oil
products and chemicals. These activities are organised into globally
managed classes of business, although some are managed regionally
or provided through support units. Refining includes manufacturing,
supply and shipping of crude oil. Marketing sells a range of products
including fuels, lubricants, bitumen and liquefied petroleum gas (LPG)
for home, transport and industrial use. Chemicals produces and
markets petrochemicals for industrial customers, including the raw
materials for plastics, coatings and detergents. Downstream also
trades Shell’s flow of hydrocarbons and other energy-related products,
supplies the Downstream businesses, governs the marketing and
trading of gas and power, and provides shipping services.
Additionally, Downstream oversees Shell’s interests in alternative
energy (including biofuels but excluding wind) and CO2 management.
Projects & Technology manages the delivery of Shell’s major projects
and drives the research and innovation to create technology solutions.
It provides technical services and technology capability covering both
Upstream and Downstream activities. It is also responsible for
providing functional leadership across Shell in the areas of safety and
environment, and contracting and procurement.
12
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Segmental reporting
Upstream combines the operating segments Upstream International
and Upstream Americas, which have similar economic characteristics,
products and services, production processes, types and classes of
customers, and methods of distribution. Upstream and Downstream
earnings include their respective elements of Projects & Technology
and of trading activities. Corporate represents the key support
functions comprising holdings and treasury, headquarters, central
functions and Shell’s self-insurance activities.
REVENUE BY BUSINESS SEGMENT
(INCLUDING INTER-SEGMENT SALES)
2012
2011
2010
$ MILLION
Upstream
Third parties
Inter-segment
Total
Downstream
Third parties
Inter-segment
Total
Corporate
Third parties
Total
43,431
51,119
94,550
42,260
49,431
91,691
32,395
35,803
68,198
423,638
427,864
335,604
772
782
612
424,410
428,646
336,216
84
84
47
47
57
57
REVENUE BY GEOGRAPHICAL AREA
(EXCLUDING INTER-SEGMENT SALES)
$ MILLION
Europe
184,223 39.4
187,498 39.9
137,359 37.3
2012
%
2011
%
2010
%
Asia, Oceania,
Africa
USA
156,310 33.5
148,260 31.5
110,955 30.2
91,571 19.6
91,946 19.6
77,660 21.1
Other Americas
35,049
7.5
42,467
9.0
42,082 11.4
Total
467,153 100.0
470,171 100.0
368,056 100.0
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Business Review > Risk factors
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RISK FACTORS
The risks discussed below could have a material adverse effect
separately, or in combination, on our operational performance,
earnings, cash flows and financial condition. Accordingly, investors
should carefully consider these risks.
We are exposed to fluctuating prices of crude oil, natural gas,
oil products and chemicals.
Prices of oil, natural gas, oil products and chemicals are affected by
supply and demand, both globally and regionally. Moreover, prices
for oil and gas can move independently from each other. Factors that
influence supply and demand include operational issues, natural
disasters, weather, political instability, conflicts, economic conditions
and actions by major oil-exporting countries. Price fluctuations could
have a material effect. For example, in a low oil and gas price
environment, Shell would generate less revenue from its Upstream
production, and as a result certain long-term projects might become
less profitable, or even incur losses. Additionally, low oil and gas
prices could result in the debooking of proved oil or gas reserves, if
they become uneconomic in this type of environment. Prolonged
periods of low oil and gas prices, or rising costs, could also result in
projects being delayed or cancelled, as well as in the impairment of
certain assets. In a high oil and gas price environment, we could
experience sharp increases in cost and under some production-sharing
contracts our entitlement to proved reserves would be reduced. Higher
prices could also reduce demand for our products. Lower demand for
our products might result in lower profitability, particularly in our
Downstream business.
Our ability to achieve strategic objectives depends on how
we react to competitive forces.
We face competition in each of our businesses. While we seek to
differentiate our products, many of them are competing in commodity-
type markets. If we do not manage our expenses adequately, our cost
efficiency could deteriorate and our unit costs may increase. This in
turn could erode our competitive position. Increasingly, we compete
with government-run oil and gas companies, particularly in seeking
access to oil and gas resources. Today, these government-run
companies control vastly greater quantities of oil and gas resources
than the major, publicly held oil and gas companies. Government-run
entities have access to significant resources and may be motivated by
political or other factors in their business decisions, which may harm
our competitive position or hinder our access to desirable projects.
As our business model involves trading and treasury risks,
we are affected by the global macroeconomic environment as
well as financial and commodity market conditions.
Shell subsidiaries and equity-accounted investments are subject to
differing economic and financial market conditions throughout the
world. Political or economic instability affects such markets. Shell uses
debt instruments such as bonds and commercial paper to raise
significant amounts of capital. Should our access to debt markets
become more difficult, the potential impact on our liquidity could have
an adverse effect on our operations. Commodity trading is an
important component of our supply and distribution function. Trading
and treasury risks include, among others, exposure to movements in
commodity prices, interest rates and foreign exchange rates,
counterparty default and various operational risks (see also page 83).
As a global company doing business in more than 70 countries, we
are exposed to changes in currency values and exchange controls.
While we undertake some currency hedging, we do not do so for all of
our activities. See Notes 6 and 21 to the “Consolidated Financial
Statements”. Shell has significant financial exposure to the euro and
could be materially affected by a significant change in its value or any
structural changes to the European Union (EU) or the European
Economic and Monetary Union affecting the euro. While we do not
have significant direct exposure to sovereign debt, it is possible that
our partners and customers may have exposure which could impair
their ability to meet their obligations to us. Therefore, a sovereign debt
downgrade or default could have a material adverse effect on Shell.
Our future hydrocarbon production depends on the delivery
of large and complex projects, as well as on our ability to
replace proved oil and gas reserves.
We face numerous challenges in developing capital projects,
especially large ones. Challenges include uncertain geology, frontier
conditions, the existence and availability of necessary technology and
engineering resources, availability of skilled labour, project delays,
expiration of licences and potential cost overruns, as well as technical,
fiscal, regulatory, political and other conditions. These challenges are
particularly relevant in certain developing and emerging market
countries, such as Iraq and Kazakhstan, and in frontier areas, such as
the Arctic. Such potential obstacles may impair our delivery of these
projects, as well as our ability to fulfil related contractual commitments.
Future oil and gas production will depend on our access to new
proved reserves through exploration, negotiations with governments
and other owners of proved reserves and acquisitions, as well as
developing and applying new technologies and recovery processes to
existing fields and mines. Failure to replace proved reserves could
result in lower future production.
OIL AND GAS PRODUCTION AVAILABLE FOR SALE
MILLION BOE [A]
Shell subsidiaries
Shell share of equity-accounted investments
Total
2012
2011
2010
825
369
811
362
855
355
1,194
1,173
1,210
[A] Natural gas volumes are converted to oil equivalent using a factor of
5,800 scf per barrel.
PROVED DEVELOPED AND UNDEVELOPED OIL AND
GAS RESERVES [A][B] (AT DECEMBER 31)
MILLION BOE [C]
Shell subsidiaries
2012
2011
2010
9,873 10,320 10,176
Shell share of equity-accounted investments
3,701
3,946
4,097
Total
13,574 14,266 14,273
Attributable to non-controlling interest [D]
18
16
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Attributable to Royal Dutch Shell plc
shareholders
13,556 14,250 14,249
[A] We manage our total proved reserves base without distinguishing between
proved reserves from subsidiaries and those from equity-accounted
investments.
[B] Includes proved reserves associated with future production that will be
consumed in operations.
[C] Natural gas volumes are converted to oil equivalent using a factor of
5,800 scf per barrel.
[D] Represents proved reserves attributable to non-controlling interest in Shell
subsidiaries.
An erosion of our business reputation would have a negative
impact on our brand, our ability to secure new resources and
our licence to operate.
Shell is one of the world’s leading energy brands, and its brand and
reputation are important assets. The Shell General Business Principles
and Code of Conduct govern how Shell and its individual companies
conduct their affairs. It is a challenge for us to ensure that all
employees and contractors, well above 100,000 in total, comply with
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the principles. Failure – real or perceived – to follow these principles,
or other real or perceived failures of governance or regulatory
compliance, could harm our reputation. This could impact our licence
to operate, damage our brand, harm our ability to secure new
resources and limit our ability to access the capital market.
matters often change and are likely to become more stringent over
time. We could incur significant additional costs in the future
complying with such requirements or as a result of violations of, or
liabilities under, HSSE laws and regulations, such as fines, penalties,
clean-up costs and third-party claims.
Our future performance depends on the successful
development and deployment of new technologies.
Technology and innovation are essential to Shell. If we do not develop
the right technology, do not have access to it or do not deploy it
effectively, the delivery of our strategy and our licence to operate may
be adversely affected. We operate in environments where the most
advanced technologies are needed. While these technologies are
regarded as safe for the environment with today’s knowledge, there is
always the possibility of unknown or unforeseeable environmental
impacts that could harm our reputation, licence to operate or expose
us to litigation or sanctions.
Rising climate change concerns could lead to additional
regulatory measures that may result in project delays and
higher costs.
In the future, in order to help meet the world’s energy demand, we
expect our production to rise and more of our production to come from
unconventional sources than at present. Energy intensity of production
of oil and gas from unconventional sources can be higher than that of
production from conventional sources. Therefore, it is expected that
both the CO2 intensity of our production, as well as our absolute
Upstream CO2 emissions, will increase as our business grows.
Examples of such developments are our expansion of oil sands
activities in Canada and our gas-to-liquids project in Qatar.
Additionally, as production from Iraq increases, we expect that CO2
emissions from flaring will rise. We are working with our partners on
finding ways to capture the gas that is flared. Over time, we expect
that a growing share of our CO2 emissions will be subject to
regulation and carry a cost. If we are unable to find economically
viable, as well as publicly acceptable, solutions that reduce our CO2
emissions for new and existing projects or products, we may incur
additional costs, delayed projects or reduced production in certain
projects.
Moreover, continued public and political attention to climate change
concerns, including existing and future regulatory frameworks to
reduce greenhouse gas emissions, could result in increasing
production costs, lengthening project implementation times and
reducing demand for hydrocarbons.
The nature of our operations exposes us to a wide range of
health, safety, security and environment risks.
The health, safety, security and environment (HSSE) risks to which we
are potentially exposed cover a wide spectrum, given the geographic
range, operational diversity and technical complexity of Shell’s daily
operations. We have operations, including oil and gas production,
transport and shipping of hydrocarbons, and refining, in difficult
geographies or climate zones, as well as environmentally sensitive
regions, such as the Arctic or maritime environments, especially in
deep water. These and other operations expose us to the risk, among
others, of major process safety incidents, effects of natural disasters,
social unrest, personal health and safety lapses, and crime. If a major
HSSE risk materialises, such as an explosion or hydrocarbon spill, this
could result in injuries, loss of life, environmental harm, disruption to
business activities and, depending on their cause and severity,
material damage to our reputation and eventually loss of licence to
operate. In certain circumstances, liability could be imposed without
regard to Shell’s fault in the matter. Requirements governing HSSE
Shell mainly self-insures its risk exposures.
Shell insurance subsidiaries provide insurance coverage to Shell
entities, generally up to $1.15 billion per event and usually limited to
Shell’s percentage interest in the relevant entity. The type and extent of
the coverage provided is equal to that which is otherwise
commercially available in the third-party insurance market. While from
time to time the insurance subsidiaries may seek reinsurance for some
of their risk exposures, such reinsurance would not provide any
material coverage in the event of an incident like BP Deepwater
Horizon. Similarly, in the event of a material environmental incident,
there would be no material proceeds available from third-party
insurance companies to meet Shell’s obligations.
An erosion of the business and operating environment in
Nigeria would adversely impact Shell.
We face various risks in our Nigerian operations. These risks include:
security issues surrounding the safety of our people, host communities,
and operations; our ability to enforce existing contractual rights;
limited infrastructure; and potential legislation that could increase our
taxes or costs of operation. The Nigerian government is contemplating
new legislation to govern the petroleum industry which, if passed into
law, would likely have a significant adverse impact on Shell’s existing
and future activities in that country.
We operate in more than 70 countries, with differing degrees
of political, legal and fiscal stability. This exposes us to a
wide range of political developments that could result in
changes to laws and regulations. In addition, Shell
subsidiaries and equity-accounted investments face the risk
of litigation and disputes worldwide.
Developments in politics, laws and regulations can – and do – affect
our operations. Potential developments include: forced divestment of
assets; expropriation of property; cancellation or forced renegotiation
of contract rights; additional taxes including windfall taxes, restrictions
on deductions and retroactive tax claims; import and export
restrictions; foreign exchange controls; and changing environmental
regulations and disclosure requirements. Certain governments, states
and regulatory bodies have, in the opinion of Shell, exceeded their
constitutional authority by attempting unilaterally to amend or cancel
existing agreements or arrangements; by failing to honour existing
contractual commitments; and by seeking to adjudicate disputes
between private litigants. As a result of the financial crisis, US
regulators have adopted regulations that require disclosure of
information on payments to governments that we believe is immaterial
to investors, but that could compromise confidential commercial
arrangements and create conflicting legal requirements. EU regulators
have also proposed similar regulations. Additional regulations
targeted at the financial sector could have unintended consequences
for our trading, treasury and pension operations. In our Upstream
activities these developments can and do affect land tenure, re-writing
of leases, entitlement to produced hydrocarbons, production rates,
royalties and pricing. Parts of our Downstream activities are subject to
price controls in some countries. From time to time, cultural and
political factors play a role in unprecedented and unanticipated
judicial outcomes that could adversely affect Shell. If we do not comply
with policies and regulations, it may result in regulatory investigations,
litigation and ultimately sanctions.
reports.shell.com Shell Annual Report and Form 20-F 2012
Business Review > Risk factors
15
of operation of joint ventures or associates. Despite not having control,
we could still be exposed to the risks associated with these operations.
For example, our partners or members of a joint venture or an
associate (particularly local partners in developing countries) may not
be able to meet their financial or other obligations to the projects,
threatening the viability of a given project.
Violations of antitrust and competition law carry fines and
expose us or our employees to criminal sanctions and civil
suits.
Antitrust and competition laws apply to Shell subsidiaries and equity-
accounted investments in the vast majority of countries in which we do
business. Shell subsidiaries and equity-accounted investments have
been fined for violations of antitrust and competition law. These
include a number of fines by the European Commission Directorate-
General for Competition (DG COMP). Due to the DG COMP’s fining
guidelines, any future conviction of Shell subsidiaries or equity-
accounted investments for violation of EU competition law could result
in larger fines. Violation of antitrust laws is a criminal offence in many
countries, and individuals can be either imprisoned or fined.
Furthermore, it is now common for persons or corporations allegedly
injured by antitrust violations to sue for damages.
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Shell is currently subject to a Deferred Prosecution Agreement
with the U.S. Department of Justice for violations of the
Foreign Corrupt Practices Act.
In 2010, a Shell subsidiary agreed to a Deferred Prosecution
Agreement (DPA) with the U.S. Department of Justice (DOJ) for
violations of the Foreign Corrupt Practices Act (FCPA), which arose in
connection with its use of the freight-forwarding firm Panalpina. Also,
the Company has consented to a Cease and Desist Order from the
U.S. Securities and Exchange Commission (SEC) for violations of the
record keeping and internal control provisions of the FCPA as a result
of another Shell subsidiary’s violation of the FCPA, which also arose in
connection with the use of Panalpina in Nigeria. The DPA requires
Shell to continue to implement a compliance and ethics programme
designed to prevent and detect violations of the FCPA and other
applicable anti-corruption laws throughout Shell’s operations. The DPA
also requires the Company to report to the DOJ, promptly, any
credible evidence of questionable or corrupt payments. Any violations
of the DPA, or of the SEC’s Cease and Desist Order, could have a
material adverse effect on the Company.
The Company’s Articles of Association determine the
jurisdiction for shareholder disputes. This might limit
shareholder remedies.
Our Articles of Association generally require that all disputes between
our shareholders in such capacity and the Company or our
subsidiaries (or our Directors or former Directors) or between the
Company and our Directors or former Directors be exclusively
resolved by arbitration in The Hague, the Netherlands, under the Rules
of Arbitration of the International Chamber of Commerce. Our Articles
of Association also provide that, if this provision is for any reason
determined to be invalid or unenforceable, the dispute may only be
brought to the courts of England and Wales. Accordingly, the ability
of shareholders to obtain monetary or other relief, including in respect
of securities law claims, may be determined in accordance with these
provisions. See “Corporate governance” for further information.
Our operations expose us to social instability, terrorism, acts
of war, piracy and government sanctions that could have an
adverse impact on our business.
As seen recently in north Africa and the Middle East, social and civil
unrest, both within the countries in which we operate and
internationally, can – and does – affect Shell. Potential developments
that could impact our business include international sanctions, conflicts
including war, acts of political or economic terrorism and acts of
piracy on the high seas, as well as civil unrest and local security
concerns that threaten the safe operation of our facilities and transport
of our products. For example, EU sanctions have prohibited us from
producing oil and gas in Syria, and the USA and the EU have imposed
sanctions relating to transactions involving Iran and Sudan, among
other countries. If such risks materialise, they could result in injuries
and disruption to business activities.
We rely heavily on information technology systems for our
operations.
The operation of many of our business processes depends on the
availability of information technology (IT) systems. Our IT systems are
increasingly concentrated in terms of geography, number of systems,
and key contractors supporting the delivery of IT services. Shell, like
many other multinational companies, has been the target of attempts to
gain unauthorised access through the internet to our IT systems,
including more sophisticated attempts often referred to as advanced
persistent threat. Shell seeks to detect and investigate all such security
incidents, aiming to prevent their recurrence. Disruption of critical IT
services, or breaches of information security, could have adverse
consequences for Shell.
We have substantial pension commitments, whose funding is
subject to capital market risks.
Liabilities associated with defined benefit plans can be significant, as
can the cash funding of such plans; both depend on various
assumptions. Volatility in capital markets, and the resulting
consequences for investment performance and interest rates, may
result in significant changes to the funding level of future liabilities. In
case of a shortfall, Shell might be required to make substantial cash
contributions, depending on the applicable local regulations.
The estimation of proved oil and gas reserves involves
subjective judgements based on available information and
the application of complex rules, so subsequent downward
adjustments are possible.
The estimation of proved oil and gas reserves involves subjective
judgements and determinations based on available geological,
technical, contractual and economic information. The estimate may
change because of new information from production or drilling
activities, or changes in economic factors, including changes in the
price of oil or gas and changes in the taxation or regulatory policies of
host governments. It may also alter because of acquisitions and
divestments, new discoveries, and extensions of existing fields and
mines, as well as the application of improved recovery techniques.
Published proved oil and gas reserves estimates may also be subject to
correction due to errors in the application of published rules and
changes in guidance. Any downward adjustment would indicate lower
future production volumes.
Many of our major projects and operations are conducted in
joint ventures or associates. This may reduce our degree of
control, as well as our ability to identify and manage risks.
A significant share of our capital is invested in joint ventures or
associates. In cases where we are not the operator we have limited
influence over, and control of, the behaviour, performance and costs
16
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Business Review > Summary of results and strategy
SUMMARY OF RESULTS AND
STRATEGY
INCOME FOR THE PERIOD
Earnings by segment [A]
Upstream
Downstream
Corporate
Total segment earnings
$ MILLION
2012
2011
2010
22,162
24,455
15,935
5,350
4,289
2,950
(209)
86
91
27,303
28,830
18,976
Attributable to non-controlling interest
(259)
(205)
(333)
Earnings on a current cost of supplies basis
attributable to Royal Dutch Shell plc
shareholders
27,044
28,625
18,643
Current cost of supplies adjustment [A]
(463)
2,355
1,498
Non-controlling interest
11
(62)
(14)
Income attributable to Royal Dutch Shell plc
shareholders
Non-controlling interest
Income for the period
26,592
30,918
20,127
248
267
347
26,840
31,185
20,474
[A] Segment earnings are presented on a current cost of supplies basis. See
Note 2 to the “Consolidated Financial Statements” for further information.
Earnings 2012-2010
On average, 2012 realised liquids and gas prices remained stable
compared with 2011. The increase in Asia-Pacific realised gas prices
approximately offset the decrease in Americas realised gas prices.
Average realised synthetic crude oil prices for 2012 decreased
compared with 2011. Oil and gas production available for sale in
2012 was 3,262 thousand barrels of oil equivalent per day (boe/d),
compared with 3,215 thousand boe/d in 2011. Excluding the impact
of divestments and exits, production volumes were 3% higher than in
2011. Refining margins were generally higher in 2012 than in 2011
in key refining hubs, except Asia. This increase was driven by the
closure of some refining capacity and then refinery outages later in the
year, partly offset by an unfavourable economic environment and
geopolitical tensions.
Earnings on a current cost of supplies basis attributable to
shareholders in 2012 were $27,044 million, 6% lower than in 2011,
which, in turn, were 54% higher than in 2010.
In 2012, Upstream earnings were $22,162 million, compared with
$24,455 million in 2011 and $15,935 million in 2010. The 9%
decrease from 2011 to 2012 reflected higher depreciation charges,
increased operating and exploration expenses, lower gains
associated with the fair-value accounting of certain gas and derivative
contracts and additional tax charges, partly offset by higher
contributions from our integrated gas activities (LNG and GTL). In
2011, earnings increased by 53% compared with 2010, reflecting
higher realised oil and gas prices, together with higher equity LNG
sales volumes, increased trading contributions and a reduced level of
impairment, partly offset by higher operating expenses, lower
production volumes and increased taxes.
Downstream earnings are presented on a current cost of supplies basis
(CCS earnings). On this basis, the purchase price of the volumes sold
during a period is based on the current cost of supplies during the same
period, after making allowance for the tax effect. CCS earnings
therefore exclude the effect of changes in the oil price on inventory
valuation. Downstream earnings in 2012 were $5,350 million,
compared with $4,289 million in 2011 and $2,950 million in 2010.
The 25% increase from 2011 to 2012 reflected higher realised refining
margins, lower operating expenses and a reduced level of impairment.
These items were partly offset by lower trading contributions, lower
Chemicals earnings, lower divestment gains and lower gains associated
with the fair-value accounting of commodity derivatives. Earnings
increased between 2010 and 2011 as a result of higher chemical
margins, increased trading contributions and lower operating expenses,
partly offset by a larger loss in refining and lower sales volumes.
Balance sheet and net capital investment
Shell’s strategy to invest in the development of major growth projects
primarily in Upstream, explains the most significant changes to the
balance sheet in 2012. Property, plant and equipment increased by
$20 billion. Net capital investment was $30 billion, 27% higher than
in 2011; see Note 4 to the “Consolidated Financial Statements”. The
effect of net capital investment on property, plant and equipment was
partly offset by depreciation, depletion and amortisation of $15
billion.
Of the 2012 net capital investment, approximately 85% related to
Upstream projects, providing growth over the long term. They include
multibillion dollar, integrated facilities that are expected to provide
significant cash flows in the coming decades. In 2012, equity
attributable to Royal Dutch Shell plc shareholders increased by
$19 billion, to $188 billion, principally as a result of increased
retained earnings.
Gearing was 9.2% at the end of 2012, compared with 13.1% at the
end of 2011. The change reflects the increase in total equity and in
cash and cash equivalents.
Market overview
We estimate that global economic growth weakened to 3.2% in
2012, down from 3.9% the previous year, largely as a result of the
recession in the eurozone and a slowdown in most emerging markets.
In our view, global economic growth in 2013 is estimated to be 3.4%,
below the annual average of 3.8% of the last 10 years.
Within the eurozone, uncertainty and austerity measures weighed
heavily on economic sentiment and consumer and business spending.
In January 2013, the International Monetary Fund (IMF) projected the
eurozone economy to have contracted by 0.4% in 2012. According to
the same projections, growth of gross domestic product (GDP) in
China slowed to 7.8% in 2012, down from 9.3% in 2011, mainly due
to lower export growth and slower domestic demand growth. Other
emerging economies including Brazil, Russia and India also had lower
GDP growth rates. Brazil decelerated most to a rate of 1.0% in 2012,
down from 2.7% in 2011. The USA was a notable exception in this
environment; its GDP growth rate accelerated in 2012 to 2.3%,
compared with 1.8% in 2011.
Reflecting the state of the global economy, global oil demand rose by
0.9% (0.8 million b/d) in 2012 according to the International Energy
Agency December 2012 Oil Market Report. A 1.2 million b/d
demand increase in emerging economies offset a decline of
0.4 million b/d in developed economies. We estimate that global gas
demand grew by about 3% in 2012 with approximately two-thirds of
that growth coming from countries outside the Organisation for
Economic Co-operation and Development (OECD). Demand grew
strongest in Asia-Pacific, the Middle East and North America, while
demand in Europe contracted by an estimated 1% overall, and
particularly in electricity generation.
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OIL A N D N A TU RA L GA S P RIC E S
The following table provides an overview of the main oil and gas price
markers that Shell is exposed to:
OIL AND GAS AVERAGE INDUSTRY PRICES [A]
Brent ($/b)
West Texas Intermediate ($/b)
Henry Hub ($/MMBtu)
2012
2011
111.67
111.26
94.13
95.04
2.76
4.01
UK National Balancing Point (pence/therm)
59.74
56.35
Japan Customs-cleared Crude ($/b)
114.91
109.10
[A] Yearly average prices are based on daily spot prices.
2010
79.50
79.45
4.40
42.12
79.17
The Brent crude oil price, the international crude-oil benchmark,
traded in a range of $88-128 per barrel during 2012, ending the
year at $110 per barrel. Both the Brent and the West Texas
Intermediate (WTI) average crude oil prices for 2012 were little
changed compared with 2011. WTI continued to trade at a significant
discount to Brent due to production in the US mid-continent exceeding
pipeline capacity to clear the growing volumes. This resulted in crude
oil being transported to the Gulf coast by less efficient modes of
transport, such as rail, depressing prices in landlocked areas, such as
Cushing, Oklahoma, where WTI is delivered.
Unlike crude-oil pricing, which is global in nature, gas prices vary
significantly from region to region.
In the USA, the average natural gas price at Henry Hub was 31%
lower in 2012 compared with 2011, and traded in a range of
$1.91-3.90 per million British thermal units (MMBtu). Domestic
production increased strongly, particularly from onshore gas, which
more than offset increased demand, and led to lower prices. The daily
Henry Hub spot price briefly dropped below $2 per MMBtu in April
following an unusually warm winter, meaning that inventories were
high and production had to be discouraged. The daily price recovered
to a monthly average of $2.50 per MMBtu in May, and continued to
recover due to warmer than normal summer temperatures stimulating
gas-fired power generation demand due to its price advantage over
coal.
In Europe, prices rose. In the UK, the average price at the UK National
Balancing Point was 6% higher compared with 2011. In continental
Europe, price increases at the main gas trading hubs in Belgium,
Germany and the Netherlands were similar to those at the UK National
Balancing Point. These prices reflect a tightening of LNG markets and
higher prices in Asia-Pacific. The use of oil-indexed gas pricing is
decreasing in continental Europe, with many natural gas contracts now
including spot market pricing as a major component.
We also produce and sell natural gas in regions whose supply,
demand and regulatory circumstances differ markedly from those in
the USA or Europe. Long-term contracted LNG prices in Asia-Pacific
are predominantly indexed to the price of Japan Customs-cleared
Crude (JCC). In Japan, LNG import contracts have historically been
indexed to the JCC benchmark, as burning crude and fuel oil is the
alternative option for Japanese power utilities.
OIL A N D N A TU RA L GA S P RIC E S FOR I N V E S TM E N T E V A LU A TION
The range of possible future crude oil and natural gas prices used in
project and portfolio evaluations within Shell is determined after an
assessment of short-, medium- and long-term price drivers under
different sets of assumptions. Historical analysis, trends and statistical
volatility are considered in this assessment, as are analyses of possible
future economic conditions, geopolitics, actions by the Organization
of the Petroleum Exporting Countries (OPEC), supply costs and the
balance of supply and demand. Sensitivity analyses are used to test
the impact of low-price drivers, such as economic weakness, and high-
price drivers, such as strong economic growth and low investment
levels in new production capacity. Short-term events, such as relatively
warm winters or cool summers affecting demand, and supply
disruptions due to weather or politics, contribute to price volatility.
We expect oil and gas prices to remain volatile. For the purposes of
making investment decisions, generally we test the economic
performance of long-term projects against price ranges of $70-110 per
barrel for Brent oil and $3-5 per MMBtu for gas at Henry Hub. As part of
our normal business practice, the range of prices used for this purpose is
subject to review and change, and was last updated in the fourth quarter
of 2012.
RE FIN I N G A N D P E TROC HE M I C A L M A RK E T TRE N D S
Industry refining margins were generally higher in 2012 than in 2011
in key refining hubs, except Asia. Support for margins in 2012 came
from refinery closures in North America and Europe at the beginning
of the year, and from unplanned refinery outages later in the year.
Some demand growth, especially around the summer holiday driving
season in the USA, also contributed, although the economic
environment and geopolitical tensions dampened further gains. In the
USA a surge of light sweet crude supply and infrastructure bottlenecks
also acted to support margins.
A key driver of refining margins in 2013 is expected to be middle
distillate demand growth with some support from gasoline during the
middle of the year. The overall outlook remains uncertain, with the
economic environment remaining fragile, a structural overcapacity in
global refining, and geopolitical tensions in some regions that could
lead to supply disruptions.
Industry chemical margins in Europe and Asia during 2012 were
lower than in 2011 due to declining demand in Europe and lower
demand growth in Asia. US ethane cracker margins rose significantly
due to increased supply of natural gas liquids, and the wide price
differential between crude oil and natural gas. The outlook for
petrochemicals in 2013 remains uncertain as demand is strongly
correlated to economic growth.
Strategy and outlook
STRATEGY
Our strategy seeks to reinforce our position as a leader in the oil and
gas industry, while helping to meet global energy demand in a
responsible way. We aim to create competitive returns for
shareholders. Safety and environmental and social responsibility are
at the heart of our activities.
Intense competition exists for access to upstream resources and to new
downstream markets. But we believe that our technology, project
delivery capability and operational excellence will remain key
differentiators for our businesses. We expect about 80% of our capital
investment in 2013 to be in our Upstream businesses.
In Upstream we focus on exploration for new liquids and natural gas
reserves, and on developing major new projects where our technology
and know-how add value to the resources holders.
We focus on a series of strategic themes, each requiring distinctive
technologies and risk management:
▪ our upstream and downstream ”engines” are strongly cash-
generative, mature businesses, which will underpin our financial
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Business Review > Summary of results and strategy
performance to at least the end of this decade. Here we only make
investments in selective growth positions, and we apply Shell’s
distinctive technology and operating performance to extend the
productive lives of our assets and to enhance their profitability;
▪ our growth priorities are in three strategic themes, namely integrated
gas, deep water and resources plays such as shale oil and gas.
These will provide our medium-term growth, and we expect them to
become core engines in the future. Here, we use the advantages of
Shell’s technological know-how and global scale to unlock highly
competitive resources positions; and
▪ our future opportunities include the Arctic, Iraq, Kazakhstan,
Nigeria, and heavy oil, where we believe large reserves positions
could potentially become available, with the pace of development
driven by market and local operating conditions.
Meeting the growing demand for energy worldwide in ways that
minimise environmental and social impact is a major challenge for the
global energy industry. We aim to improve energy efficiency in our
own operations, support customers in managing their energy
demands, and continue to research and develop technologies that
increase efficiency and reduce emissions in liquids and natural gas
production.
Our commitment to technology and innovation continues to be at the
core of our strategy. As energy projects become more complex and
more technically demanding, we believe our engineering expertise
will be a deciding factor in the growth of our businesses. Our key
strengths include the development and application of technology, the
financial and project-management skills that allow us to deliver large
field development projects, and the management of integrated value
chains.
We aim to leverage our diverse and global business portfolio and
customer-focused businesses built around the strength of the Shell brand.
OUTLOOK
We continuously seek to improve our operating performance, with an
emphasis on health, safety and environment, asset performance and
operating costs. Asset sales are a key element of our strategy –
improving our capital efficiency by focusing our investment on the
most attractive growth opportunities. Sale of non-core assets in 2010-
2012 generated $21 billion in divestment proceeds. Exits from further
positions in 2013 are expected to generate up to $3 billion in
divestment proceeds. We have initiatives underway that are expected
to improve Shell’s integrated Downstream business, focusing on the
profitability of our portfolio and growth potential.
In early 2012, Shell set out a new growth agenda, to deliver
$175-200 billion of cash flow from operations excluding working
capital movements for 2012-2015 in aggregate, some 30-50% higher
than in 2008-2011. This assumes that the Brent oil price is in the
range of $80-100 per barrel and conditions for North American
natural gas and downstream margins improve relative to 2012. This
cash flow is to finance a 2012-2015 expected net capital investment
programme of $120-130 billion, an increase of some 10-20%
compared with the 2008-2011 level, and fund a competitive dividend
for shareholders. Shell is on track to deliver these targets.
In Upstream we have the potential to reach an average production of
some 4.0 million boe/d in 2017-2018, compared with 3.3 million
boe/d in 2012. Shell’s strategy in Upstream is designed to drive
financial growth, with production growth regarded as a proxy for this
over the long term. Our 2017-2018 production potential will be
driven by the timing of investment decisions and the near-term
macroeconomic outlook, and assumes some 250 thousand boe/d of
expected asset sales and licence expiries from 2011 to 2017-2018. In
Downstream we evaluate selective growth opportunities in chemicals,
biofuels and growth markets.
Shell has built up a substantial portfolio of options for a next wave of
growth. This portfolio has been designed to capture energy price
upside and manage Shell’s exposure to industry challenges from cost
inflation and political risk. Key elements of these opportunities are in
global exploration and established resources positions in the Gulf of
Mexico, North American tight gas, liquids-rich shales and Australian
LNG. These projects are part of a portfolio that has the potential to
underpin production growth to the end of this decade. Shell is working
to mature these projects, with an emphasis on financial returns.
The statements in this Strategy and outlook section do not take into
account the impact of the recently announced agreement to acquire
part of Repsol S.A.’s LNG portfolio. See page 137.
The statements in this Strategy and outlook section, including those
related to our growth strategies and our expected or potential future
cash flow from operations, net capital investment and production, are
based on management’s current expectations and certain material
assumptions and, accordingly, involve risks and uncertainties that
could cause actual results, performance or events to differ materially
from those expressed or implied herein. See page 3 and “Risk
factors”.
Proved reserves and production
Shell subsidiaries’ and the Shell share of equity-accounted investments’
estimated net proved oil and gas reserves are summarised in the table
on page 28 and are set out in more detail in “Supplementary
information – oil and gas (unaudited)”.
In 2012, Shell added 542 million boe of proved reserves before
taking into account production, of which 408 million boe came from
Shell subsidiaries and 134 million boe from the Shell share of
equity-accounted investments. These additions were negatively
impacted by lower commodity prices (431 million boe) and
divestments (74 million boe).
In 2012, total oil and gas production available for sale was
1,194 million boe. An additional 40 million boe were produced and
consumed in operations. Production available for sale from
subsidiaries was 825 million boe with an additional 30 million boe
consumed in operations. The Shell share of the production available
for sale of equity-accounted investments was 369 million boe with an
additional 10 million boe consumed in operations.
Accordingly, after taking into account total production, there was a
decrease of 692 million boe in proved reserves, comprising
447 million boe from subsidiaries and 245 million boe from the Shell
share of equity-accounted investments.
Research and development
Technology and innovation provide ways for Shell to stand apart from
its competitors. They help our current businesses perform, and they
make our future businesses possible. We have been spending more
than any other international oil and gas company to research and
develop innovative technology – more than $1 billion annually since
2007. In 2012, research and development (R&D) expenses were
$1,314 million, compared with $1,125 million in 2011 and $1,019
million in 2010.
Sustained investment in our key technologies continues to deliver
results. In 2012, we launched new fuels and lubricant formulations
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meeting specific customer needs for improved efficiency and better
performance. We also began construction of what is likely to be the
world’s first floating LNG facility, more than 480 metres long and six
times heavier than a fully loaded aircraft carrier. The facility is
designed to produce natural gas from the Prelude field offshore
Australia, cool it into a liquid and pump it onto LNG tankers – all done
at sea. The idea was born and developed entirely within Shell as part
of an innovation-stimulating programme called GameChanger. Also in
2012, Shell committed itself to design, build and operate the world’s
first commercial-scale facility to capture and store safely underground
CO2 emissions of an oil-sands project. The facility, based near
Edmonton, Canada, will help develop Shell’s CO2 capture technology.
The development of Shell technology is based on the needs of our
customers and partners, and is intrinsically linked to our strategic
objectives. In 2013, the key objectives of our R&D programme will
remain unchanged. We will continue to focus strongly on technologies
supporting our various businesses. For example: novel seismic
acquisition systems that help reveal previously unnoticed geological
details; methods based on the application of chemicals, heat or solvent
gases to increase the amount of oil ultimately recovered from fields;
and biofuels derived from non-edible plants or crop waste. We also
continue to work on technologies to reduce the environmental footprint
of our operations and products.
We remain committed to further shortening the time taken for
technology to move from the laboratory to deployment in the field. Our
technology portfolio will maintain a healthy balance of new and
mature developments. That will mean an increase in the number of
proposed concepts, more rapid termination of less promising projects
and increasing focus on larger-scale field tests and demonstrations.
Our single, integrated R&D organisation will continue to bring
together in-house technology development with external scientific,
engineering and commercial partnerships. Such partnering helps to
ensure a healthy influx of new ideas and to speed up their realisation.
Key accounting estimates and judgements
Refer to Note 3 to the “Consolidated Financial Statements” for a
discussion of key accounting estimates and judgements.
Legal proceedings
Refer to Note 25 to the “Consolidated Financial Statements” for a
discussion of legal proceedings.
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Business Review > Upstream
UPSTREAM
KEY STATISTICS
Segment earnings
Including:
$ MILLION
2012
2011
2010
22,162 24,455 15,935
Revenue (including inter-segment sales)
94,550 91,691 68,198
Share of profit of equity-accounted investments
8,001
7,127
4,900
Production and manufacturing expenses
16,474 15,606 13,697
Selling, distribution and administrative
expenses
Exploration
1,226
3,104
1,276
2,266
1,512
2,036
Depreciation, depletion and amortisation
11,387
8,827 11,144
Net capital investment [A]
25,320 19,083 21,222
Oil and gas production available for sale
(thousand boe/d)
3,262
3,215
3,314
Equity LNG sales volume (million tonnes)
20.2
18.8
16.8
Proved oil and gas reserves at December 31
(million boe) [B]
13,556 14,250 14,249
[A] See Notes 2 and 4 to the “Consolidated Financial Statements”.
[B] Excludes reserves attributable to non-controlling interest in Shell subsidiaries.
Overview
Our Upstream businesses explore for and extract crude oil and natural
gas, often in joint ventures with international and national oil and gas
companies. This includes the extraction of bitumen from mined oil
sands which we convert into synthetic crude oil. We liquefy natural
gas by cooling and transport the liquefied natural gas (LNG) to
customers across the world. We also convert natural gas to liquids
(GTL) to provide high quality fuels and other products, and we market
and trade natural gas (including LNG) in support of our Upstream
businesses.
Business conditions
According to the International Energy Agency, oil demand in 2012
increased by 0.9% (0.8 million b/d). Demand was impacted by
further weakened global economic growth in 2012, largely as a result
of a recession in the eurozone and a slowdown in most emerging
markets. Increased production, particularly in North America, Libya
and Iraq, helped meet this demand, partly offset by a fall in supply
from some Middle Eastern countries, especially Iran and Syria. The
average Brent crude oil price in 2012 was $112 per barrel, slightly
higher than in 2011.
Compared with 2011, segment earnings, excluding the items identified
above, benefited from the increased contribution of integrated gas
activities (LNG and GTL), reflecting the ramp-up of the Pearl GTL plant in
Qatar, higher realised LNG prices as well as increased LNG trading
contributions and equity LNG sales volumes. Earnings also reflected
higher realised gas prices outside the Americas. These items were more
than offset by reduced contributions from the Americas, mainly as a
result of higher depreciation, increased operating expenses, higher
exploration expenses and lower realised gas prices.
During 2012, our earnings in the Americas were $512 million,
excluding the related items identified at the beginning of the earnings
section. However, our Americas onshore gas business reported a loss,
mainly due to low North American gas prices, and higher
depreciation and exploration costs. This was more than offset by
earnings from our deep-water and heavy oil production.
Realised global liquids prices were 1% higher than in 2011. In
Canada, realised synthetic crude oil prices were 11% lower than in
2011. Realised global natural gas prices were 1% higher than in
2011, with a 31% decrease in the Americas and a 9% increase
outside the Americas.
In 2012, production was 3,262 thousand boe/d compared with
3,215 thousand boe/d in 2011. Liquids production was down 2%
and natural gas production increased by 5% compared with 2011.
Natural gas represented 50% of total production in 2012.
Approximately 18% of our natural gas production in 2012 was in the
Americas. Excluding the impact of divestments and exits, production
volumes in 2012 were 3% higher than in 2011.
New field start-ups and the continuing ramp-up of new projects, in
particular the ramp-up of the Pearl GTL plant in Qatar and the Pluto
LNG plant in Australia (Shell indirect interest 20.8%), contributed
some 225 thousand boe/d to production in 2012, which more than
offset the impact of field declines.
Equity LNG sales volumes in 2012 were a record of 20.2 million
tonnes, 7% higher than in 2011. The increase mainly came from the
first full year of operations for Qatargas 4, the start-up of the Pluto
LNG plant in the second quarter of 2012, and the continued strong
operational performance of the Sakhalin-2 LNG plant.
REALISED PRICE [A]
International natural gas
Americas natural gas
$/BOE
Oil
Demand for gas, especially LNG, was robust in markets east of Suez.
This was driven by economic growth across Asia-Pacific and nuclear
power generation capacity still being offline following Japan’s natural
disaster in March 2011. In Europe, gas demand was lower as a result of
the ongoing recession and competition from cheap coal imports from the
USA. Continued high levels of supply and warmer than normal weather
at the beginning of 2012 weakened gas prices in North America by
approximately 30% compared with 2011.
$120
$100
$80
$60
$40
$20
$0
Earnings 2012-2011
Segment earnings of $22,162 million included a net gain of
$2,137 million, mainly related to gains on divestments, partly offset by
impairments for natural gas assets in the USA, net tax charges and
decommissioning provisions. Segment earnings in 2011 of
$24,455 million included a net gain of $3,855 million, mainly related
to gains on divestments, the fair-value accounting of certain gas and
derivative contracts, and the cost impact of the US offshore drilling
moratorium. All gains and losses identified above relate to items that
individually exceed $50 million.
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
[A] Includes subsidiaries and European equity-accounted investments.
Excludes deemed transfer prices.
Earnings 2011-2010
Segment earnings in 2011 of $24,455 million included a net gain of
$3,855 million as described above. Segment earnings in 2010 of
$15,935 million included a net gain of $1,493 million, mainly related
to gains on divestments, partly offset by asset impairments, the
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fair-value accounting of certain gas contracts and the cost impact of
the US offshore drilling moratorium. All gains and losses identified
above relate to items that individually exceed $50 million.
Excluding these gains and losses, segment earnings in 2011 were
43% higher than in 2010, driven by continuing portfolio optimisation,
higher realised oil, natural gas and LNG prices, higher equity LNG
sales volumes and higher trading contributions, partly offset by higher
operating expenses, mainly reflecting the start-up of new projects,
lower production volumes and increased taxes.
Net capital investment
Net capital investment was $25 billion in 2012, compared with
$19 billion in 2011 and $21 billion in 2010. Capital investment in
2012 was $31 billion (of which $14 billion was exploration
expenditure, including acquisitions of unproved properties). Divestment
proceeds were $6 billion in 2012.
Portfolio actions and business development
In Australia we increased our interest in the West Browse joint venture
to 35% and in the East Browse joint venture to 25% in an exchange
with Chevron for our 33.3% interest in Clio-Acme plus cash of
approximately $0.5 billion.
Also in Australia we formed a joint venture (Shell interest 82%) with
Nexus Energy and Osaka Gas to operate the Crux gas and
condensate field.
In Norway we acquired BP’s 18.4% interest in the offshore Draugen
field for a consideration of $0.2 billion. Shell is already the operator
of the field and this transaction brought Shell’s interest to 44.6%.
In the UK we acquired 75% of Hess Corporation’s interests in the Beryl
area fields and Scottish Area Gas Evacuation system. This transaction
was completed in January 2013, increasing Shell’s production in the
Beryl area fields from 9 thousand boe/d to 20 thousand boe/d.
In Italy we took the final investment decision on the onshore Tempa
Rossa field (Shell interest 25%) in the Basilicata region. This project is
expected to produce approximately 45 thousand boe/d at peak
production.
In Malaysia we took the final investment decision for the development
of the Malikai deep-water oil field, part of the Block G PSC (Shell
interest 35%), offshore Sabah. The Shell-operated project is expected
to produce approximately 60 thousand boe/d at peak production.
In Canada we took the final investment decision on the Quest carbon
capture and storage project (Shell interest 60%) near Edmonton,
Alberta. The Quest project is expected to capture and store deep
underground more than 1 mtpa of CO2 produced in bitumen processing,
and reduce direct emissions from the Scotford Upgrader by up to 35%.
We continued to divest selected Upstream assets during 2012, including
our 40% participating interest in the BS-4 oil and gas exploration block
in the Santos Basin offshore Brazil; our interest in the Gassled natural
gas transport infrastructure joint venture in Norway; our 30% interest in
oil mining leases 30, 34 and 40 in the Niger Delta, Nigeria; our 50%
interest in the Holstein field in the Gulf of Mexico; and our interest in the
Seal area within the Peace River oil sands of Alberta, Canada. Also in
Canada, we sold a 20% interest in our Groundbirch tight-gas project. In
Australia we completed the sale of a 17.5% interest in the Prelude FLNG
project to INPEX, and a 10% interest to KOGAS. We also completed the
sale of a further 5% interest to CPC Corporation in the first quarter of
2013.
Available-for-sale production
In 2012, hydrocarbon production from new start-ups and the
continuing ramp-up of new projects more than offset the impact of field
declines, and the impact of divestments and exits. There was also
further upside from new wells and improved reliability compared with
2011, partly offset by changes in contractual entitlements and other
non-operational factors.
Also in the UK we acquired Hess Corporation’s 15.7% interest in the
Schiehallion field and its 12.9% interest in the Schiehallion floating
production, storage and offloading (FPSO) facility for $0.5 billion. In
February 2013, we also acquired an additional 5.9% interest in the
offshore Schiehallion field from Murphy Schiehallion Ltd. bringing our
interest in the field to 55%.
Production growth was mainly driven by the continued ramp-up of
new projects, notably our Pearl GTL plant in Qatar, the start-up of the
Pluto LNG Project in Australia, and the first full year of production from
Qatargas 4. Further additions also came from new start-ups such as
Harweel in Oman, and the early first production from Gumusut-Kakap
in Malaysia.
Low North American gas prices led to an accelerated shift in
exploration and appraisal activities, along with production, from
existing dry gas fields to those rich in liquids.
In the USA Shell acquired acreage in the Delaware Permian Basin,
West Texas, from Chesapeake Energy Corporation for an announced
consideration of $1.9 billion. The acreage of approximately 2,200
square kilometres, with an additional 300 square kilometres linked to
contractual conditions, is expected to be rich in oil and natural gas
liquids and currently produces approximately 26 thousand boe/d with
growth potential.
We also took the following final investment decisions during 2012.
In Nigeria we took the final investment decision on the Forcados Yokri
Integrated Project (Shell interest 30%) and the Southern Swamp
Associated Gas Gathering Project (Shell interest 30%). These projects
are expected to produce at peak production approximately
90 thousand boe/d and 85 thousand boe/d respectively, and reduce
flaring intensity.
In Qatar we achieved full GTL production at our Pearl GTL plant at the
end of the fourth quarter of 2012, with both trains reaching 90% of
capacity. This completed the ramp-up period for this project. The plant
is designed to run at sustained operating rates of 90% or higher.
In Malaysia the Gumusut-Kakap field, located about 120 kilometres
offshore Sabah, began a phase of early production via the Murphy
Sabah Oil operated Kikeh production facility. A dedicated floating
production system is currently under construction for the Gumusut-
Kakap field (Shell interest 33%), which is Shell’s first deep-water
opportunity in the country, and is expected to produce approximately
135 thousand boe/d at peak production.
In the USA first production was achieved at the Caesar/Tonga deep-
water project (Shell interest 22.5%) in the Gulf of Mexico. At peak
production, the project is expected to produce approximately
40 thousand boe/d.
In Oman production began at the Harweel Enhanced Oil Recovery
project, which is expected to produce approximately 30 thousand
boe/d at peak production.
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Proved reserves
Shell subsidiaries’ and the Shell share of equity-accounted investments’
estimated net proved oil and gas reserves are summarised in the table
on page 28 and are set out in more detail in “Supplementary
information - oil and gas (unaudited)”.
After taking into account production of 379 million boe (of which
10 million boe were consumed in operations), the Shell share of
equity-accounted investments’ proved reserves decreased by
245 million boe in 2012.
In 2012, Shell added 542 million boe of proved reserves before
taking into account production, of which 408 million boe came from
Shell subsidiaries and 134 million boe from the Shell share of
equity-accounted investments.
The change in the yearly average commodity prices between 2011
and 2012 resulted in a net negative impact on the proved reserves of
431 million boe.
Shell subsidiaries
Before taking into account production, Shell subsidiaries added
408 million boe of proved reserves in 2012. This comprised
655 million barrels of oil and natural gas liquids and a reduction of
247 million boe (1,431 thousand million scf) of natural gas. Of the
408 million boe: 268 million boe were from the net effects of revisions
and reclassifications; a net decrease of 69 million boe related to
acquisitions and divestments; 196 million boe came from extensions
and discoveries; and 13 million boe were from improved recovery.
After taking into account production of 855 million boe (of which
30 million boe were consumed in operations), Shell subsidiaries’
proved reserves decreased by 447 million boe in 2012.
Shell subsidiaries’ proved developed reserves increased by 19 million
boe to 6,502 million boe, while proved undeveloped reserves
decreased by 466 million boe to 3,371 million boe.
The total addition of 408 million boe before taking into account
production included a net negative impact from commodity price
changes of 438 million boe of proved reserves.
SYNTHETIC C RUDE OIL
As part of the total proved reserves’ addition of 542 million boe, we
added 131 million barrels to our synthetic crude oil proved reserves. In
2012, we had synthetic crude oil production of 48 million barrels of
which 2 million barrels were consumed in operations. At December 31,
2012, we had total synthetic crude oil proved reserves of 1,763 million
barrels, of which 1,271 million barrels were proved developed reserves
and 492 million barrels were proved undeveloped reserves.
B I T U M E N
As part of the total proved reserves’ addition of 542 million boe, we
added 1 million barrels of bitumen proved reserves. After taking into
account production of 7 million barrels, bitumen proved reserves were
49 million barrels at December 31, 2012.
Shell share of equity-accounted investments
Before taking into account production, there was an increase of
134 million boe in the Shell share of equity-accounted investments’
proved reserves in 2012. This comprised 91 million barrels of oil and
natural gas liquids and 43 million boe (248 thousand million scf) of
natural gas. Of the 134 million boe: 129 million boe were from the
net effects of revisions and reclassifications; a net decrease of
5 million boe related to acquisitions and divestments; 7 million boe
came from extensions and discoveries; and 3 million boe were from
improved recovery.
The Shell share of equity-accounted investments’ proved developed
reserves decreased by 5 million boe to 3,002 million boe, and proved
undeveloped reserves decreased by 240 million boe to 699 million
boe.
The total addition of 134 million boe before taking into account
production included a net positive impact from commodity price
changes of 7 million boe of proved reserves.
Proved undeveloped reserves
In 2012, Shell subsidiaries’ and the Shell share of equity-accounted
investments’ proved undeveloped reserves (PUD) decreased by
706 million boe to 4,070 million boe. This is the result of additions of
122 million boe of new PUD offset by the maturation of 828 million
boe of PUD to proved developed reserves through project execution.
During 2012, Shell spent $9.3 billion on development activities
related to PUD maturation.
Proved undeveloped reserves held for five years or more (PUD5+) at
December 31, 2012, were 1,012 million boe. These relate to
installation of gas compression and drilling of additional gas wells,
which will be executed when required to support existing gas delivery
commitments (Australia, the Netherlands, Nigeria, Norway, the
Philippines and Russia); gas cap blow-down awaiting end-of-oil
production (Nigeria); ongoing onshore oil and gas development
(USA); Gulf of Mexico water-injection project execution in progress
(USA); and major complex projects taking longer than five years to
develop (such as in Kazakhstan). Most of the PUD5+ are held in
locations where Shell has a proven track record of developing similar
major projects or where project execution is ongoing but is taking
longer than expected.
Delivery commitments
Shell sells crude oil and natural gas from its producing operations
under a variety of contractual obligations. Most contracts generally
commit Shell to sell quantities based on production from specified
properties, although some natural gas sales contracts specify delivery
of fixed and determinable quantities, as discussed below.
In the past three years, Shell met all contractual delivery commitments.
In the period 2013 to 2015, Shell is contractually committed to deliver
to third parties and equity-accounted investments a total of
approximately 4,600 thousand million scf of natural gas from Shell
subsidiaries and equity-accounted investments. The sales contracts
contain a mixture of fixed and variable pricing formulae that are
generally referenced to the prevailing market price for crude oil,
natural gas or other petroleum products at the time of delivery.
The shortfall between Shell’s delivery commitments and its proved
developed reserves is estimated at 24% of Shell’s total gas delivery
commitments. This shortfall is expected to be met through the
development of proved undeveloped reserves as well as new projects
and purchases on the spot market.
Exploration
During 2012, Shell participated in seven notable conventional
exploration discoveries and appraisals in Australia, Brazil, Malaysia,
Nigeria and the USA, and 10 notable successful unconventional
appraisals in Australia, Canada, China, and the USA.
In 2012, Shell participated in 230 productive exploratory wells with
proved reserves allocated (Shell share: 168 wells). See page 155 for
further information.
In 2012, Shell participated in a further 314 wells (Shell share: 214
wells) that remained pending determination at December 31, 2012.
In 2012, Shell added acreage to its exploration portfolio mainly from
new licences in Albania, Australia, Benin, Canada, China, Malaysia,
New Zealand, Russia, South Africa, Tanzania, the UK and the USA.
In total, Shell secured rights to 120,000 square kilometres of new
exploration acreage, including positions in liquids-rich shales. This
was offset by divestments and relinquishments of acreage, which took
place in various countries (mainly Australia, China, Egypt, Germany,
Italy, New Zealand, Norway and Tanzania).
Business and property
Shell subsidiaries and equity-accounted investments are involved in all
aspects of Upstream activities, including matters such as land tenure,
entitlement to produced hydrocarbons, production rates, royalties,
pricing, environmental protection, social impact, exports, taxes and
foreign exchange.
The conditions of the leases, licences and contracts under which oil and
gas interests are held vary from country to country. In almost all cases
outside North America the legal agreements are generally granted by or
entered into with a government, government entity or government-run oil
and gas company, and the exploration risk usually rests with the
independent oil and gas company. In North America these agreements
may also be with private parties who own mineral rights. Of these
agreements, the following are most relevant to Shell’s interests:
▪ licences (or concessions), which entitle the holder to explore for
hydrocarbons and exploit any commercial discoveries. Under a
licence, the holder bears the risk of exploration, development and
production activities, and is responsible for financing these activities.
In principle, the licence holder is entitled to the totality of production
less any royalties in kind. The government, government entity or
government-run oil and gas company may sometimes enter as a joint-
venture participant sharing the rights and obligations of the licence
but usually without sharing the exploration risk. In a few cases, the
government entity, government-run oil and gas company or agency
has an option to purchase a certain share of production;
▪ lease agreements, which are typically used in North America and
are usually governed by similar terms as licences. Participants may
include governments or private entities, and royalties are either paid
in cash or in kind; and
▪ production-sharing contracts (PSCs) entered into with a government,
government entity or government-run oil and gas company. PSCs
generally oblige the independent oil and gas company, as
contractor, to provide all the financing and bear the risk of
exploration, development and production activities in exchange for a
share of the production. Usually, this share consists of a fixed or
variable part that is reserved for the recovery of the contractor’s cost
(cost oil). The remaining production is split with the government,
government entity or government-run oil and gas company on a fixed
or volume/revenue-dependent basis. In some cases, the government,
government entity or government-run oil and gas company will
participate in the rights and obligations of the contractor and will
share in the costs of development and production. Such participation
can be across the venture, or on a field-by-field basis. Additionally,
as the price of oil or gas increases above certain predetermined
levels, the independent oil and gas company’s entitlement share of
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production normally decreases. Accordingly, its interest in a project
may not be the same as its entitlement.
E U ROP E
Denmark
We hold a non-operating interest in a producing concession covering
the majority of our activities in Denmark. The concession was granted
in 1962 and will expire in 2042. Our interest reduced to 36.8% from
46% in July 2012, when the government entered the partnership with
a 20% interest and the government profit share of 20% was abolished.
Ireland
We are the operator of the Corrib Gas project (Shell interest 45%),
which is currently at an advanced stage of construction. At peak
production, Corrib is expected to supply a significant proportion of the
country’s natural gas needs.
The Netherlands
Shell and ExxonMobil are 50:50 shareholders in Nederlandse
Aardolie Maatschappij B.V. (NAM), the largest hydrocarbon producer
in the Netherlands. An important part of NAM’s gas production comes
from the onshore Groningen gas field, in which the Dutch government
has a 40% interest, with NAM holding the remaining 60%. NAM also
has a 60% interest in the Schoonebeek oil field, which has been
redeveloped using enhanced oil recovery technology. NAM also
operates a significant number of other onshore gas fields and offshore
gas fields in the North Sea.
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Norway
We are a partner in more than 20 production licences on the
Norwegian continental shelf and are the operator in six of these,
including the Ormen Lange gas field (Shell interest 17%) and the
Draugen oil field, where we increased our interest to 44.6%. We have
interests in the Troll, Gjøa, and Kvitebjørn fields, and have further
interests in the Valemon field development and various other potential
development assets.
United Kingdom
We operate a significant number of our interests on the UK
Continental Shelf on behalf of a 50:50 joint venture with ExxonMobil.
Most of our UK oil and gas production comes from the North Sea. We
hold various non-operated interests in the Atlantic Margin area,
principally in the West of Shetlands area. We have increased our
interest in the non-operated Schiehallion field to 55%, and in the Beryl
area fields, with interests ranging from 25% to 66%.
Rest of Europe
Shell also has interests in Albania, Austria, Germany, Greece,
Hungary, Italy, Slovakia, Spain and Ukraine.
A S I A ( I N C LUD I N G THE M I D D LE E A S T A N D RUS S I A )
Brunei
Shell and the Brunei government are 50:50 shareholders in Brunei Shell
Petroleum Company Sendirian Berhad (BSP). BSP holds long-term oil and
gas concession rights onshore and offshore Brunei, and sells most of its
natural gas production to Brunei LNG Sendirian Berhad (BLNG, Shell
interest 25%). BLNG was the first LNG plant in Asia-Pacific, and sells
most of its LNG on long-term contracts to customers in Asia.
We are the operator for the Block A concession (Shell interest 53.9%),
which is under exploration and development. We have a 35% interest
in the Block B concession, where gas and condensate are produced
24
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Business Review > Upstream
from the Maharaja Lela Field. In addition, we have a 12.5% interest in
exploration Block CA-2 under a PSC.
Company, a joint venture between Shell and KazMunayGas, will
manage production operations. First production is expected in 2013.
China
We operate the onshore Changbei tight-gas field under a PSC with
PetroChina. The PSC was amended in July 2012 for developing tight
gas in different geological layers of the same block.
We have an interest of 55% in the Pearls PSC, covering an area of
approximately 900 square kilometres located in the Kazakh sector of
the Caspian Sea that includes two oil discoveries (Auezov and
Khazar) and several exploration prospects.
Shell and PetroChina have also agreed to appraise, develop and
produce tight gas in the Jinqiu block under a PSC that expires in 2040
(Shell interest 49%) and signed a PSC in March 2012 for shale-gas
exploration, development and production in the Fushun Yongchuan
block (Shell interest 49%), both in Sichuan. Shell and PetroChina are
also assessing opportunities in coalbed methane in the Ordos Basin.
In 2012, Shell became a party to the Zitong PSC for tight gas
exploration, development and production in Sichuan (Shell interest
44.1%).
Shell has agreed with Chinese National Offshore Oil Corporation to
appraise and potentially develop two offshore oil and gas blocks in the
Yinggehai Basin under a PSC signed in July 2012 (Shell interest 49%).
Indonesia
We have a 30% participating interest in the offshore Masela block
where INPEX Masela is the operator. The Masela block contains the
Abadi gas field. The operator has currently selected a floating LNG
(FLNG) concept for the field’s first development phase.
Iran
Shell transactions in Iran are disclosed in accordance with Section 13(r)
of the US Securities Exchange Act of 1934. See page 51.
Iraq
We have a 45% interest in the Majnoon oil field that we operate under
a technical service contract that expires in 2030. The other Majnoon
shareholders are PETRONAS (30%) and the Iraqi government (25%),
which is represented by the Missan Oil Company. Majnoon is located
in southern Iraq and is one of the world’s largest oil fields. The first
phase of the development is planned to bring production to
approximately 175 thousand b/d from the level of 45 thousand b/d
when the contract entered into effect in March 2010. We also have a
15% interest in the West Qurna 1 field. At the end of 2012,
production was approximately 460 thousand b/d. According to the
provisions of both contracts, Shell’s equity entitlement volumes will be
lower than the Shell interest implies.
In 2012, Shell continued to work in establishing Basrah Gas
Company, a joint venture between Shell (44%), South Gas Company
(51%) and Mitsubishi Corporation (5%). The Basrah Gas Company
will gather, treat and process raw gas produced from the Rumaila,
West Qurna 1 and Zubair fields. Currently, an estimated 700 million
scf/d of gas is flared because of a lack of infrastructure to collect and
process it. The processed natural gas and associated products, such as
condensate and liquefied petroleum gas (LPG), will be sold primarily
to the domestic market with the potential to export any surplus.
Kazakhstan
We have a 16.8% interest in the offshore Kashagan field, where the
North Caspian Operating Company is the operator. This shallow-
water field covers an area of approximately 3,400 square kilometres.
Phase 1 development of the field is expected to lead to plateau
production of approximately 300 thousand boe/d, increasing further
with additional phases of development. NC Production Operations
Malaysia
We produce oil and gas located offshore Sabah and Sarawak under
19 PSCs, in which our interests range from 30% to 85%.
In Sabah we operate four producing offshore oil fields with interests
ranging from 50% to 80% as part of the 2011 North Sabah EOR PSC
and SB1 PSC (the latter expired at the end of December 2012). We
also have additional interests ranging from 30% to 50% in PSCs for
the exploration and development of five deep-water blocks. These
include the Gumusut-Kakap deep-water field (Shell interest 33%) and
the Malikai field (Shell interest 35%). Both these fields are currently
being developed with Shell as the operator. We started production
from Gumusut-Kakap in November 2012, ahead of completion of a
floating production system. We did this by connecting two wells to the
Kikeh production facility, which is operated by Murphy Sabah Oil.
We also have a 21% interest in the Siakap North-Petai field and a
30% interest in the Kebabangan field.
In Sarawak we are the operator of 20 gas fields with interests ranging
from 37.5% to 70%. Nearly all of the gas produced is supplied to
Malaysia LNG in Bintulu where we have a 15% interest in each of the
Dua and Tiga LNG plants. We also have a 40% interest in the 2011
Baram Delta EOR PSC and a 50% interest in Block SK-307.
In 2012, we signed five new exploration PSCs: Deepwater Block 2B,
SK318, SK319 and SK408, all offshore Sarawak, and SB311,
offshore Sabah.
We also operate a GTL plant (Shell interest 72%), which is adjacent to
the Malaysia LNG facilities in Bintulu. Using Shell technology, the
plant converts natural gas into high-quality middle distillates, drilling
fluids, waxes and other speciality products.
Oman
We have a 34% interest in Petroleum Development Oman (PDO), the
operator of an oil concession expiring in 2044. In 2012, production
began at its Harweel Enhanced Oil Recovery project, which is
expected to produce approximately 30 thousand boe/d at peak
production.
We are also participating in the development of the Mukhaizna oil
field (Shell interest 17%) where steam flooding, an enhanced oil
recovery method, is being applied on a large scale.
We have a 30% interest in Oman LNG, which mainly supplies Asian
markets under long-term contracts. We also have an 11% indirect
interest in Qalhat LNG, another Oman-based LNG facility.
Qatar
Pearl in Qatar is the world’s largest GTL plant. Shell operates the plant
under a development and production-sharing contract with the
government of Qatar. The fully integrated facility includes production,
transport and processing of approximately 1.6 billion scf/d of
well-head gas from Qatar’s North Field with installed capacity of
about 140 thousand boe/d of high-quality liquid hydrocarbon
products and 120 thousand boe/d of NGL and ethane. Ramp-up of
the project was completed in the fourth quarter of 2012. The plant
delivered its 100th cargo in mid-December and produced GTL Jet fuel,
with its first commercial market introduction in January 2013.
We have a 30% interest in Qatargas 4, which comprises integrated
facilities to produce approximately 1.4 billion scf/d of natural gas
from Qatar’s North Field, an onshore gas-processing facility and an
LNG train with a collective production capacity of 7.8 mtpa of LNG
and 70 thousand boe/d of NGL. The train delivered its first LNG in
2011 and has been operating at full capacity in 2012. The LNG is
shipped mainly to markets in North America, China, Europe and the
United Arab Emirates.
We are the operator of Block D under the terms of an exploration and
production-sharing contract with Qatar Petroleum, representing the
national government. We have a 75% interest, with PetroChina
holding the remaining 25% interest.
Russia
We have a 27.5% interest in Sakhalin-2, one of the world’s largest
integrated oil and gas projects. Located in a subarctic environment,
the project produced approximately 335 thousand boe/d in 2012.
Following optimisation of the LNG plant, production from its two trains
exceeded 10 million tonnes in 2012.
We have a 50% interest in the Salym fields in western Siberia, where
production was approximately 155 thousand boe/d during 2012.
We also have a 100% interest in four exploration and production
licences. They are for the East Talotinskiy area in the Nenets
Autonomous District, the Barun-Yustinsky block in Kalmykia and the
Arkatoitsky and the Lenzitsky blocks in the Yamalo Nenets
Autonomous District. We also have an exploration licence in the
North-Vorkutinsky area in the Komi Republic.
United Arab Emirates
In Abu Dhabi we hold a concessionary interest of 9.5% in the oil and
gas operations run by Abu Dhabi Company for Onshore Oil
Operations (ADCO). The licence expires in 2014. We also have a
15% interest in the licence of Abu Dhabi Gas Industries Limited
(GASCO), which expires in 2028. GASCO exports propane, butane
and heavier-liquid hydrocarbons that it extracts from the wet natural
gas associated with the oil produced by ADCO.
Rest of Asia (including the Middle East and Russia)
Shell also has interests in India, Japan, Jordan, Kuwait, the
Philippines, Saudi Arabia, Singapore, South Korea and Turkey. We
suspended all exploration and production activities in Syria in
December 2011.
OC E A N I A
Australia
We have interests in offshore production and exploration licences in the
North West Shelf (NWS) and Greater Gorgon areas of the Carnarvon
Basin, as well as in the Browse Basin and Timor Sea. Some of these
interests are held directly and others indirectly through a shareholding of
approximately 23% in Woodside Petroleum Ltd (Woodside). All interests
in Australian assets quoted below are direct interests.
Woodside is the operator of the Pluto LNG Project which produced its
first LNG in 2012. Woodside is also the operator on behalf of six joint-
venture participants of the NWS gas, condensate and oil fields, which
produced more than 470 thousand boe/d in 2012. Shell provides
technical support for the NWS development.
reports.shell.com Shell Annual Report and Form 20-F 2012
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25
We have a 50% interest in Arrow Energy Holdings Pty Limited
(Arrow), a Queensland-based joint venture with PetroChina. Arrow
owns coalbed methane assets, a domestic power business and the site
for a proposed LNG plant on Curtis Island, near Gladstone. In January
2012, Arrow completed the acquisition of coalbed methane company
Bow Energy Ltd (Shell-share consideration $0.3 billion).
We have a 25% interest in the Gorgon LNG project, which involves
the development of some of the largest gas discoveries to date in
Australia, beginning with the offshore Gorgon (Shell interest 25%) and
Jansz-lo (Shell interest approximately 20%) fields. It includes the
construction of a 15.3 mtpa LNG plant on Barrow Island.
We are the operator of a permit in the Browse Basin in which two
separate gas fields were found: Prelude in 2007, and Concerto in
2009. We are developing these fields on the basis of our innovative
FLNG technology. The Prelude FLNG project is expected to produce
about 110 thousand boe/d of natural gas and NGL, delivering
approximately 3.6 mtpa of LNG, 1.3 mtpa of condensate and 0.4 mtpa
of LPG. During 2012, we commenced construction of the Prelude FLNG
project and completed the sale of a 17.5% interest to INPEX and a 10%
interest to KOGAS. We also completed the sale of a 5% interest to CPC
Corporation in the first quarter of 2013, reducing our interest to 67.5%.
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We formed a joint venture to operate the Crux gas and condensate
field (Shell interest 82%). We also operate the AC/P41 block (Shell
interest 75%).
We are also a partner in the Browse joint ventures covering the
Brecknock, Calliance and Torosa gas fields. During 2012, we
increased our interest in the West Browse joint venture to 35% and in
the East Browse joint venture to 25%. The Browse resources are being
assessed for development on the basis of an LNG export project.
In the Timor Sea we have a 26.6% interest in the Sunrise gas field. The
joint-venture partners have selected FLNG as the preferred
development concept for Sunrise. The development is subject to
approval from both the Australian and Timor-Leste governments.
Shell is a partner in both Shell-operated and non-operated exploration
joint ventures in multiple basins including the Bonaparte, Exmouth
Plateau, Greater Gorgon, Outer Canning and South Exmouth.
We also have a 6.4% interest in the Wheatstone LNG project, which
includes the construction of two LNG trains with a combined capacity
of 8.9 mtpa.
Rest of Oceania
Shell also has interests in New Zealand.
A FRIC A
Nigeria
Shell-share production in Nigeria was approximately 365 thousand
boe/d in 2012 compared with approximately 385 thousand boe/d in
2011. Security, crude oil theft and flooding in the Niger Delta were
significant challenges in 2012.
Onshore The Shell Petroleum Development Company of Nigeria Ltd
(SPDC) is the operator of a joint venture (Shell interest 30%) that holds
more than 25 Niger Delta onshore oil mining leases (OMLs), which
expire in 2019. To provide funding, Modified Carry Agreements are
in place for certain key projects and a bridge loan was drawn down
by the Nigerian National Petroleum Company (NNPC) in 2010. The
Modified Carry Agreements are being reimbursed, and in
26
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December 2012 NNPC repaid the bridge loan with interest. New
financing agreements with NNPC are under discussion and are
expected to be put in place during 2013.
We have a 30% interest in the Gbaran-Ubie integrated oil and gas
project in Bayelsa State, which delivered 0.9 billion scf/d of gas in
2012. Gas from Gbaran-Ubie is delivered to Nigeria LNG Ltd (NLNG)
for export. In October 2012, SPDC declared force majeure on gas
supplies, as a result of a security incident on the Bomu-Bonny trunkline
and rain flooding. This force majeure was lifted the following month
and the impact on SPDC gas production was very limited.
In 2012, we sold our 30% interests in OMLs 30, 34 and 40 for a
consideration of $1.1 billion.
Offshore Our main offshore deep-water activities are carried out by Shell
Nigeria Exploration and Production Company (Shell interest 100%)
which holds interests in three deep-water blocks. We operate two of the
blocks, including the Bonga field 120 kilometres offshore. Deep-water
offshore activities are typically governed through PSCs.
SPDC also holds an interest in six shallow-water offshore leases, of
which five expired on November 30, 2008. However, SPDC satisfied
all the requirements of the Nigerian Petroleum Act to be entitled to an
extension. Currently, the status quo is maintained following a court
order issued on November 26, 2008. SPDC is pursuing a negotiated
solution with the federal government of Nigeria. Production from the
EA field, in one of the disputed leases, continued throughout 2012.
LNG Shell has a 25.6% interest in NLNG, which operates six LNG
trains with a total capacity of 22.0 mtpa. NLNG continued production
near full capacity during 2012.
Rest of Africa
Shell also has interests in Benin, Egypt, Gabon, Ghana, Libya, South
Africa, Tanzania and Tunisia.
N ORTH A ME RICA
Canada
We hold more than 2,200 mineral leases in Canada, mainly in
Alberta and British Columbia. We produce and market natural gas,
NGL, synthetic crude oil and bitumen. In addition, we hold significant
exploration acreage offshore. Bitumen is a very heavy crude oil
produced through conventional methods as well as through enhanced
oil-recovery methods. Synthetic crude oil is produced by mining
bitumen-saturated sands, extracting the bitumen from the sands, and
transporting it to a processing facility where hydrogen is added to
produce a wide range of feedstocks for refineries.
Gas and liquids-rich shale We hold rights to more than 10,000
square kilometres of conventional gas, tight gas and liquids-rich shale
acreage. We own and operate four natural gas processing and
sulphur-extraction plants in southern and south-central Alberta. We
continued to develop conventional gas, tight gas and liquids-rich shale
fields in west-central Alberta and east-central British Columbia during
2012, through drilling programmes and investment in infrastructure
facilitating new production.
Synthetic crude oil We operate the Athabasca Oil Sands Project
(AOSP) in north-east Alberta as part of a joint venture (Shell interest
60%). The AOSP’s bitumen production capacity is 255 thousand
boe/d. The bitumen is transported by pipeline for processing at the
Scotford Upgrader, which is operated by Shell and located in the
Edmonton area, Alberta. The first phase of the AOSP debottlenecking
project comes online in 2013, and is expected to add an additional
10 thousand boe/d at peak production. We also took the final
investment decision on the Quest carbon capture and storage project
(Shell interest 60%), which is expected to capture and permanently
store more than 1 mtpa of CO2 from the Scotford Upgrader.
Shell also holds a number of other minable oil sands leases in the
Athabasca region with expiry dates ranging from 2018 to 2025. By
completing a certain minimum level of development prior to their
expiry, leases may be extended.
Bitumen We produce and market bitumen in the Peace River area of
Alberta, and have a steam-assisted gravity drainage project in
operation near Cold Lake, Alberta. Additional heavy oil resources and
advanced recovery technologies are under evaluation on
approximately 1,200 square kilometres in the Grosmont oil sands
area, also in northern Alberta.
Offshore We have a 31.3% interest in the Sable Offshore Energy
project, a natural-gas complex offshore eastern Canada. We also have
a 100% operating interest in frontier deep-water acreage offshore Nova
Scotia, a 20% non-operating interest in an exploration asset off the east
coast of Newfoundland, and a number of exploration licences in the
Mackenzie Delta in the Northwest Territories.
United States of America
We produce oil and gas in the Gulf of Mexico, heavy oil in California
and primarily tight gas and associated liquid hydrocarbons in
Louisiana, Pennsylvania, Texas and Wyoming. The majority of our oil
and gas production interests are acquired under leases granted by the
owner of the minerals underlying the relevant acreage (including many
leases for federal onshore and offshore tracts). Such leases usually run
on an initial fixed term that is automatically extended by the
establishment of production for as long as production continues,
subject to compliance with the terms of the lease (including, in the case
of federal leases, extensive regulations imposed by federal law).
Gulf of Mexico The Gulf of Mexico is the major production area in the
USA, accounting for almost 50% of Shell’s oil and gas production in
the country. We have approximately 420 federal offshore leases in
the Gulf of Mexico, about one-fifth of which are producing. Our share
of production in the Gulf of Mexico averaged almost 190 thousand
boe/d in 2012. Key producing assets are Auger, Brutus, Enchilada,
Mars, NaKika, Perdido, Ram-Powell and Ursa.
Deferments resulting from the 2010 drilling moratorium, delivery of
new-build drilling rigs and new regulatory requirements continued to
affect the operational flexibility and delivery timing of our Gulf of
Mexico activities in 2012. While the new regulatory regime has
resulted in a longer and more complex permitting process, Shell
continues to meet all deep-water regulatory permitting and
environmental assessment requirements. Despite these challenges, we
continued to grow our presence in the Gulf of Mexico, with the
addition of two drilling rigs to our contracted offshore fleet in 2012.
We also secured 24 blocks in the 2012 central lease sale for a sum of
$400 million.
Onshore We hold more than 15,000 square kilometres of tight-gas
and liquids-rich shale acreage. This includes significant holdings in the
Marcellus shale, centred on Pennsylvania in north-east USA, the Eagle
Ford shale formation in south Texas, the Sand Wash and Niobrara
Shale in north-west Colorado, as well as the Mississippi Line in
south-central Kansas. In 2012, we also acquired approximately
2,200 square kilometres of mineral rights, with an additional
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300 square kilometres linked to contractual conditions, in the
Delaware Permian Basin in west Texas.
California We have a 51.8% interest in Aera Energy LLC (Aera),
which holds assets in the San Joaquin Valley and Los Angeles Basin
areas of southern California. Aera operates more than 15,000 wells,
producing approximately 130 thousand boe/d of heavy oil and gas.
Alaska We hold more than 410 federal leases for exploration in the
Beaufort and Chukchi seas in Alaska. During the 2012 drilling season,
we drilled two exploratory wells, one each in the Beaufort and
Chukchi seas. These wells are known as top holes as they do not go
deep enough to reach hydrocarbon reservoirs. After drilling they were
safely capped in accordance with regulatory requirements.
Rest of North America
Shell also has interests in Greenland and Mexico.
SOUTH A MERICA
Brazil
We are the operator of several producing fields offshore Brazil. They
include the Bijupirá and Salema fields (Shell interest 80%) and the
BC-10 field (Shell interest 50%). We also operate one offshore
exploration block in the Santos Basin, BMS-54 (Shell interest 80%).
We have interests in two offshore exploration blocks in the Espirito
Santo basins, BMES-23 and BMES-27, with a 20% and 17.5% interest
respectively. Shell also operates five blocks in the São Francisco
onshore basin area. In 2012, we divested our 40% interest in the
offshore Block BS-4 in the Santos Basin.
We also have an 18% interest in Brazil Companhia de Gas de São
Paulo (Comgás), a natural gas distribution company in the state of São
Paulo.
French Guiana
We are the operator of an exploration block in the 24,000 square
kilometres deep-water Guyane Maritime Permit (Shell interest 45%).
Rest of South America
Shell also has interests in Argentina, Colombia, Guyana and
Venezuela.
TRA D IN G
We market a portion of our share of equity production of LNG and
also trade LNG volumes around the world through our hubs in Dubai,
the Netherlands and Singapore. We also market and trade natural
gas, power and emission rights in the Americas and Europe.
28
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SUMMARY OF PROVED OIL AND GAS RESERVES OF SHELL SUBSIDIARIES AND SHELL SHARE OF
EQUITY-ACCOUNTED INVESTMENTS [A] (AT DECEMBER 31, 2012)
BASED ON AVERAGE PRICES FOR 2012
Oil and natural
Natural gas
Total
gas liquids
(thousand
Synthetic crude oil
Bitumen
all products
(million barrels)
million scf)
(million barrels)
(million barrels)
(million boe)[B]
Proved developed
Europe
Asia
Oceania
Africa
North America
USA
Canada
South America
Total proved developed
Proved undeveloped
Europe
Asia
Oceania
Africa
North America
USA
Canada
South America
448
1,277
53
496
500
28
48
2,850
345
429
121
192
403
5
39
11,599
14,454
1,424
1,012
1,674
872
84
31,119
2,569
1,857
5,186
1,229
678
139
15
Total proved undeveloped
Total proved developed and undeveloped
1,534
11,673
Europe
Asia
Oceania
Africa
North America
USA
Canada
South America
Total
793
1,706
174
688
903
33
87
4,384
14,168
16,311
6,610
2,241
2,352
1,011
99
42,792
[A] Includes 18 million boe of reserves attributable to non-controlling interest in Shell subsidiaries.
[B] Natural gas volumes are converted to oil equivalent using a factor of 5,800 scf per barrel.
–
–
–
–
–
1,271
–
1,271
–
–
–
–
–
492
–
492
–
–
–
–
–
1,763
–
1,763
–
–
–
–
–
18
–
18
–
–
–
–
–
31
–
31
–
–
–
–
–
49
–
49
2,448
3,769
299
670
789
1,467
62
9,504
788
749
1,015
404
520
552
42
4,070
3,236
4,518
1,314
1,074
1,309
2,019
104
13,574
reports.shell.com Shell Annual Report and Form 20-F 2012
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CAPITAL EXPENDITURE ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES AND EXPLORATION EXPENSE
OF SHELL SUBSIDIARIES BY GEOGRAPHICAL AREA [A]
$ MILLION
Asia
Oceania
Africa
North America – USA
North America – Other [B]
South America
Total
2012
3,175
3,412
5,534
2,277
11,344
3,475
907
2011
1,907
4,319
3,349
1,701
6,445
2,913
487
2010
2,033
3,137
1,804
1,629
9,400
3,455
373
30,124
21,121
21,831
[A] Capital expenditure is the cost of acquiring property, plant and equipment
for exploration and production activities, and – under the successful efforts
method of accounting for exploration costs – includes exploration drilling
costs capitalised pending determination of commercial reserves. See also
Note 2 to the “Consolidated Financial Statements” for further information.
Exploration expense is the cost of geological and geophysical surveys and
of other exploratory work charged to income as incurred. Exploration
expense excludes depreciation and release of cumulative currency
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translation differences.
[B] Comprises Canada and Greenland.
LOCATION OF OIL AND GAS EXPLORATION AND PRODUCTION
ACTIVITIES [A] (AT DECEMBER 31, 2012)
Development
and/or
Exploration
production
Shell operator[B]
Europe
Europe
Albania
Denmark
Germany
Ireland
Italy
The Netherlands
Norway
UK
Ukraine
Asia [C]
Brunei
China
Indonesia
Iraq
Jordan
Kazakhstan
Malaysia
Oman
Philippines
Qatar
Russia
Saudi Arabia
Turkey
United Arab Emirates
Oceania
Australia
New Zealand
Africa
Benin
Egypt
Gabon
Libya
Nigeria
South Africa
Tanzania
Tunisia
North America
USA
Canada
Greenland
South America
Argentina
Brazil
Colombia
French Guiana
Guyana
Venezuela
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
[A] Includes equity-accounted investments. Where an equity-accounted
investment has properties outside its base country, those properties are not
shown in this table.
[B] In several countries where “Shell operator” is indicated, Shell is the
operator of some but not all exploration and/or production ventures.
[C] Shell suspended all exploration and production activities in Syria in
December 2011.
30
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Average realised price by geographical area
OIL AND NATURAL GAS LIQUIDS
2012
Shell share of
2011
Shell share of
$/BARREL
2010
Shell share of
Europe
Asia
Oceania
Africa
North America – USA
North America – Canada
South America
Total
Shell
equity-accounted
Shell
equity-accounted
Shell
equity-accounted
subsidiaries
investments
subsidiaries
investments
subsidiaries
investments
108.13
107.76
91.62
112.45
103.59
68.31
100.01
107.15
104.60
67.33
90.14[A]
–
110.00
–
97.33
76.01
106.77
103.73
92.38
111.70
104.93
70.72
100.44
105.74
103.97
62.81
99.74[A]
–
109.49
–
97.76
73.01
73.35
76.21
67.90
79.63
76.36
53.23
69.99
75.74
83.24
44.27
78.05[A]
–
74.27
–
63.57
52.42
[A] Includes Shell’s ownership of 23% of Woodside Petroleum Ltd as from April 2012 (previously: 24% as from November 2010; 34% before that date), a
publicly listed company on the Australian Securities Exchange. We have limited access to data; accordingly, the numbers are estimated.
NATURAL GAS
Europe
Asia
Oceania
Africa
North America – USA
North America – Canada
South America
Total
2012
Shell share of
2011
Shell share of
$/THOUSAND SCF
2010
Shell share of
Shell
subsidiaries
equity-accounted
investments
Shell
subsidiaries
equity-accounted
investments
Shell
subsidiaries
equity-accounted
investments
9.48
4.81
11.14
2.74
3.17
2.36
2.63
5.53
9.64
10.13
9.48[A]
–
7.88
–
1.04
9.81
9.40
4.83
9.95
2.32
4.54
3.64
2.81
5.92
8.58
8.37
10.09[A]
–
8.91
–
0.99
8.58
6.87
4.40
8.59
1.96
4.90
4.09
3.79
5.28
6.71
6.55
8.79[A]
–
7.27
–
–
6.81
[A] Includes Shell’s ownership of 23% of Woodside Petroleum Ltd as from April 2012 (previously: 24% as from November 2010; 34% before that date), a
publicly listed company on the Australian Securities Exchange. We have limited access to data; accordingly, the numbers are estimated.
SYNTHETIC CRUDE OIL
North America – Canada
BITUMEN
North America – Canada
2012
Shell
subsidiaries
81.46
2012
Shell
subsidiaries
68.97
2011
Shell
subsidiaries
91.32
2011
Shell
subsidiaries
76.28
$/BARREL
2010
Shell
subsidiaries
71.56
$/BARREL
2010
Shell
subsidiaries
66.00
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Average production cost by geographical area
OIL, NATURAL GAS LIQUIDS AND NATURAL GAS [A]
2012
Shell share of
2011
Shell share of
$/BOE
2010
Shell share of
Europe
Asia
Oceania
Africa
North America – USA
North America – Canada
South America
Total
Shell
equity-accounted
Shell
equity-accounted
Shell
equity-accounted
subsidiaries
investments
subsidiaries
investments
subsidiaries
investments
14.50
7.53
9.06
9.52
20.09
19.47
16.36
12.47
3.56
4.71
16.97[B]
–
18.24
–
11.01
6.05
12.17
6.92
8.50
8.45
17.91
18.12
12.50
11.00
3.12
4.60
14.46[B]
–
17.63
–
12.25
5.60
10.09
6.07
5.85
7.09
12.90
17.48
8.88
9.10
2.78
4.68
8.37[B]
–
16.47
–
25.05
5.29
[A] Natural gas volumes are converted to oil equivalent using a factor of 5,800 scf per barrel.
[B] Includes Shell’s ownership of 23% of Woodside Petroleum Ltd as from April 2012 (previously: 24% as from November 2010; 34% before that date), a
publicly listed company on the Australian Securities Exchange. We have limited access to data; accordingly, the numbers are estimated.
SYNTHETIC CRUDE OIL
North America – Canada
BITUMEN
North America – Canada
2012
Shell
subsidiaries
40.40
2012
Shell
subsidiaries
24.11
2011
Shell
subsidiaries
46.19
2011
Shell
subsidiaries
31.81
$/BARREL
2010
Shell
subsidiaries
49.83
$/BARREL
2010
Shell
subsidiaries
23.82
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Oil and gas production (available for sale)
CRUDE OIL AND NATURAL GAS LIQUIDS [A]
2012
Shell share of
2011
Shell share of
THOUSAND B/D
2010
Shell share of
Shell
equity-accounted
Shell
equity-accounted
Shell
equity-accounted
subsidiaries
investments
subsidiaries
investments
subsidiaries
investments
Europe
Denmark
Italy
Norway
UK
Other [B]
Total Europe
Asia
Brunei
Malaysia
Oman
Russia
United Arab Emirates
Other [B]
Total Asia
Total Oceania
Africa
Gabon
Nigeria
Other [B]
Total Africa
North America
USA
Other [B]
Total North America
South America
Brazil
Other [B]
Total South America
Total
73
39
40
60
3
215
2
41
205
–
–
59
307
27
38
240
12
290
155
15
170
34
1
35
–
–
–
–
4
4
73
–
–
104
145
23
345
18
–
–
–
–
67
–
67
–
10
10
88
35
37
71
3
234
2
40
200
–
–
40
282
30
44
262
20
326
141
18
159
45
1
46
–
–
–
–
5
5
76
–
–
117
144
20
357
18
–
–
–
–
70
–
70
–
9
9
98
33
48
98
3
280
3
40
199
–
–
29
271
30
34
302
20
356
163
20
183
53
1
54
–
–
–
–
5
5
77
–
–
117
135
1
330
29
–
–
–
–
74
–
74
–
7
7
1,044
444
1,077
459
1,174
445
[A] Includes natural gas liquids. Royalty purchases are excluded. Reflects 100% of production attributable to subsidiaries except in respect of PSCs, where the
figures shown represent the entitlement of the subsidiaries concerned under those contracts.
[B] Comprises countries where 2012 production was lower than 20 thousand b/d or where specific disclosures are prohibited.
NATURAL GAS [A]
Europe
Denmark
Germany
The Netherlands
Norway
UK
Other [B]
Total Europe
Asia
Brunei
China
Malaysia
Russia
Other [B]
Total Asia
Oceania
Australia
New Zealand
Total Oceania
Africa
Egypt
Nigeria
Total Africa
North America
USA
Canada
Total North America
Total South America
Total
reports.shell.com Shell Annual Report and Form 20-F 2012
Business Review > Upstream
33
2012
Shell share of
2011
Shell share of
MILLION SCF/D
2010
Shell share of
Shell
equity-accounted
Shell
equity-accounted
Shell
equity-accounted
subsidiaries
investments
subsidiaries
investments
subsidiaries
investments
202
217
–
713
328
43
1,503
51
131
572
–
795
1,549
352
182
534
141
740
881
1,062
616
1,678
44
6,189
–
–
1,808
–
–
–
1,808
512
–
–
374
317
1,203
243
–
243
–
–
–
5
–
5
1
3,260
256
253
–
618
403
41
–
–
1,767
–
–
–
328
267
–
643
541
38
–
–
1,997
–
–
–
1,571
1,767
1,817
1,997
52
174
763
–
363
1,352
373
175
548
133
707
840
961
570
1,531
51
5,893
524
–
–
382
246
1,152
167
–
167
–
–
–
6
–
6
1
3,093
55
253
807
–
209
1,324
404
202
606
137
587
724
1,149
563
1,712
61
6,244
B
U
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I
N
E
S
S
R
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V
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W
497
–
–
359
–
856
204
–
204
–
–
–
4
–
4
–
3,061
[A] Reflects 100% of production attributable to subsidiaries except in respect of PSCs, where the figures shown represent the entitlement of the companies
concerned under those contracts.
[B] Comprises countries where 2012 production was lower than 115 million scf/d or where specific disclosures are prohibited.
SYNTHETIC CRUDE OIL
North America – Canada
BITUMEN
North America – Canada
2012
Shell
subsidiaries
125
2012
Shell
subsidiaries
20
2011
Shell
subsidiaries
115
2011
Shell
subsidiaries
15
THOUSAND B/D
2010
Shell
subsidiaries
72
THOUSAND B/D
2010
Shell
subsidiaries
18
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LNG and GTL plants at December 31, 2012
LNG LIQUEFACTION PLANTS IN OPERATION
Australia North West Shelf
Australia Pluto 1
Brunei LNG
Malaysia LNG (Dua and Tiga)
Nigeria LNG
Oman LNG
Qalhat (Oman) LNG
Qatargas 4
Sakhalin LNG
[A] Interest may be held via indirect shareholding.
[B] As reported by the operator.
[C] Our interests in the Dua and Tiga plants are due to expire in 2015 and 2023 respectively.
LNG LIQUEFACTION PLANTS UNDER CONSTRUCTION
Gorgon
Prelude
Wheatstone
Location
Karratha
Karratha
Lumut
Bintulu
Bonny
Sur
Sur
Ras Laffan
Prigorodnoye
Shell
100% capacity
interest (%)[A]
(mtpa)[B]
21
21
25
15
26
30
11
30
27.5
16.3
4.3
7.8
17.3[C]
22.0
7.1
3.7
7.8
9.6
Shell
100% capacity
Location
Barrow Island
interest (%)
25
Offshore Australia
Onslow
72.5[A]
6.4
(mtpa)
15.3
3.6
8.9
[A] We divested a further 5% interest in Prelude during the first quarter of 2013, reducing our interest to 67.5%.
GTL PLANTS IN OPERATION
Bintulu
Pearl
Equity LNG sales volumes
Shell
100% capacity
Country
Malaysia
Qatar
interest (%)
72
100
(b/d)
14,700
140,000
SHELL SHARE OF EQUITY LNG SALES VOLUMES
MILLION TONNES
Australia
Brunei
Malaysia
Nigeria
Oman
Qatar
Sakhalin
Total
2012
2011
3.6
1.7
2.5
5.1
1.9
2.4
3.0
3.1
1.7
2.4
5.0
2.0
1.7
2.9
20.2
18.8
2010
3.4
1.7
2.4
4.5
2.0
–
2.8
16.8
reports.shell.com Shell Annual Report and Form 20-F 2012
Business Review > Downstream
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DOWNSTREAM
KEY STATISTICS
Segment earnings [A]
Including:
$ MILLION
2012
5,350
2011
4,289
2010
2,950
Revenue (including inter-segment sales)
424,410 428,646 336,216
Share of earnings of equity-accounted
investments [A]
Production and manufacturing expenses
Selling, distribution and administrative
1,354
9,484
1,577
948
10,547
10,592
expenses
12,996
12,920
13,716
Depreciation, depletion and amortisation
Net capital investment [A]
Refinery availability (%)
Chemical plant availability (%)
Refinery processing intake (thousand b/d)
Oil products sales volumes (thousand b/d)
3,083
4,275
93
91
2,819
6,235
4,251
4,342
4,254
2,358
92
89
92
94
2,845
6,196
3,197
6,460
Chemicals sales volumes (thousand tonnes)
18,669
18,831
20,653
[A] Segment earnings are presented on a current cost of supplies basis. See
Notes 2 and 4 to the “Consolidated Financial Statements” for further
information.
Overview
Shell’s Downstream organisation is made up of a number of different
business activities, part of an integrated value chain, that collectively
turn crude oil into a range of refined products, which are moved and
marketed around the world for domestic, industrial and transport use.
The products include gasoline, diesel, heating oil, aviation fuel,
marine fuel, lubricants, bitumen, sulphur and liquefied petroleum gas
(LPG). In addition, we produce and sell petrochemicals for industrial
use worldwide.
Our Refining activities comprise Manufacturing, Supply and
Distribution. Marketing includes Retail, Lubricants, Business to Business
(B2B) and Alternative Energies. Chemicals has dedicated
manufacturing and marketing units of its own. We also trade crude oil,
oil products and petrochemicals, primarily to optimise feedstock for
Manufacturing and Chemicals and to supply our Marketing
businesses.
Downstream earnings are presented on a current cost of supplies basis
(CCS earnings). On this basis, the purchase price of the volumes sold
during a period is based on the current cost of supplies during the
same period, after making allowance for the tax effect. CCS earnings
therefore exclude the effect of changes in the oil price on inventory
valuation. Accordingly, when oil prices increase during the period,
CCS earnings are likely to be lower than earnings calculated on a
first-in first-out basis (FIFO). Similarly, in a period with declining oil
prices, CCS earnings are likely to be higher than earnings calculated
on a FIFO basis. This explains why 2012 CCS earnings were
$463 million higher than earnings calculated on a FIFO basis (2011:
$2,355 million lower; 2010: $1,498 million lower).
Business conditions
The industrial landscape in 2012 reflected weaker economic growth
in several regions, which reduced demand. Even so, refining margins
were higher in 2012 compared with 2011 in key refining hubs,
except Asia. Chemical margins in Europe and Asia were lower than in
2011 as a result of weak macroeconomic conditions, although US
ethane cracker margins rose significantly due to the wide price
differential between crude oil and natural gas, and improved
marketing margins.
Earnings 2012-2011
Segment earnings in 2012 were $5,350 million, 25% higher than in
2011. This increase reflected a return to profitability in Refining,
although marginal, as a result of higher realised refining margins and
better refinery availability that were partly offset by lower Chemicals
earnings. Trading contributions were lower in 2012 than in 2011,
while Marketing contributions were broadly unchanged. Both activities
continued to contribute significantly to Downstream earnings.
Realised refining margins recovered strongly from their low level at the
end of 2011, and improved across all regions apart from Asia.
Refinery intake volumes were 1% lower compared with 2011.
However, when portfolio impacts are excluded, refinery intake
volumes were 4% higher than in 2011. Refinery availability increased
to 93% compared with 92% in 2011.
Chemicals earnings were lower, mainly as a result of the global
economic slowdown, supply constraints of favourable feedstocks in the
USA, and the impact of hurricane Isaac on operations. Chemicals
sales volumes were 1% lower compared with 2011, as reductions in
European manufacturing capacity and rationalisation of the contract
portfolio were largely offset by improved operating performance.
Chemical plant availability increased to 91% compared with 89% in
2011.
Oil products sales volumes were 1% higher compared with 2011.
Lower marketing volumes, mainly as a result of portfolio divestments,
were more than offset by higher trading volumes. Excluding the impact
of divestments and the effect of the formation of the Raízen biofuel
joint venture, oil products sales volumes were 3% higher compared
with 2011.
Overall, operating expenses decreased in 2012 compared with
2011. Production and manufacturing expenses declined, driven by
manufacturing divestments, cost reduction initiatives and favourable
currency exchange rate effects. Selling, distribution and administrative
expenses were broadly unchanged; cost reductions, portfolio
divestments and favourable currency exchange rate effects were offset
by spending related to higher volumes, and growth-stimulating
programmes.
Earnings in 2012 included a net gain of $39 million. There were net
gains on divestments and a tax credit, partly offset by legal and
environmental provisions. The divestments relate to a number of retail
sites in Canada, LPG businesses in Malaysia and the Philippines, as
well as the continuation of the divestment of our Downstream activities
in Africa.
Earnings in 2011 included a net gain of $15 million. There was a
gain from the fair-value accounting of commodity derivatives, a gain
arising from the formation of the Raízen joint venture, a net gain on
divestments and a tax credit. These gains were significantly offset by
charges related to impairments, redundancy, decommissioning and
legal provisions. The 2011 divestments included the sale of our
Stanlow refinery in the UK, the majority of our Downstream activities in
seven African countries, our Downstream activities in Chile and
additional non-core business exits.
Earnings 2011-2010
Segment earnings in 2011, which included a net gain of $15 million
as described above, were $4,289 million, 45% higher than in 2010.
Earnings in 2010 included a net charge of $923 million. Impairment
charges were partly offset by a gain related to the fair-value
accounting of commodity derivatives, gains from divestments and a
36
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gain from the sale of land holdings associated with the former Shell
Haven refinery in the UK.
Business and property
RE FIN I N G
All gains and charges identified above relate to items that individually
exceed $50 million. The following comments relate to earnings after
excluding the net gain of $15 million from the 2011 results and the net
charge of $923 million from the 2010 results.
Downstream earnings increased in 2011 compared with 2010,
supported by improved realised unit marketing margins in most
businesses, although oil products sales volumes declined, mainly as a
result of portfolio divestments and the effects of the formation of the
Raízen joint venture. Chemicals reported record earnings in 2011 as
the market environment was favourable during most of the year,
resulting in higher realised margins, partly offset by the impact of
unplanned operational events on Chemicals sales volumes. Realised
refining margins were in line with 2010 until the fourth quarter, when
margins declined significantly as global market conditions
deteriorated. As a result, Refining reported a larger loss in 2011 than
in 2010. This loss was largely offset by increased contributions from
trading activities due to higher market volatility and greater arbitrage
opportunities relative to 2010.
Manufacturing
We have interests in more than 30 refineries worldwide with the
capacity to process approximately 3.4 million barrels of crude oil per
day. Approximately 40% of our refining capacity is in Europe and
Africa, 35% in the Americas and 25% in Asia-Pacific. The Port Arthur
refinery expansion project in Texas, USA, owned by Motiva
Enterprises (Shell interest 50%), restarted operations in early 2013,
following operational issues in 2012. The expansion brings an
additional 320 thousand b/d of capacity online in the US Gulf Coast
region (increasing the refinery’s total capacity to 620 thousand b/d).
Supply and Distribution
With more than 1,500 storage tanks and approximately 150
distribution facilities in approximately 25 countries, our Supply and
Distribution infrastructure is well positioned for making deliveries
throughout the world. Deliveries include feedstock for our refineries as
well as finished products for our Marketing businesses and customers
worldwide.
Net capital investment
Net capital investment was $4.3 billion in both 2012 and 2011.
M A R K E T I N G
Capital investment was $5.5 billion in 2012, of which $3.2 billion
was in Refining and Chemicals, and $2.3 billion was in Marketing.
Approximately 56% of our 2012 capital investment was used to
maintain the integrity and performance of our asset base.
In 2011, capital investment was $7.5 billion, of which $3.3 billion
was in Refining and Chemicals, and $4.2 billion was in Marketing. Of
the $4.2 billion in Marketing, we invested $1.7 billion in Raízen and
$0.4 billion in the acquisition of 253 retail stations in the UK.
Divestment proceeds were $1.2 billion in 2012 compared with
$3.2 billion in 2011. The planned asset divestment programme to
refocus our Downstream portfolio is now mostly complete.
Portfolio actions
In Refining, Shell acquired the remaining outstanding shares in Gasnor
AS, a market leader in Norway, that supplies LNG as a transport fuel
to industrial and marine customers.
In Australia refining operations at the 79 thousand b/d Clyde refinery
ceased. The Clyde refinery and the Gore Bay terminal are in the
process of being converted into a fuel import facility.
In Marketing, Shell agreed to acquire Neste Oil Corporation’s network
of 105 retail sites in Poland.
Shell completed the sale of the majority of its shareholding in
downstream activities in Botswana, Burkina Faso, Côte d’Ivoire,
Guinea, Kenya and Namibia, whilst downstream activities in
Tanzania were discontinued. The agreements form part of the
divestment of Shell’s shareholding in most of its downstream activities
in Africa as announced in 2011. Shell continues to divest non-strategic
Downstream positions. Divestments included retail stations in
North America and most of our LPG activities in Asia-Pacific.
Retail
We have about 44,000 service stations in more than 70 countries and
more than 100 years’ experience in fuel development. In recent years,
we have concentrated on developing differentiated fuels with special
formulations designed to clean engines and improve performance. We
sell such fuels under the Shell V-Power brand in more than 60
countries.
Lubricants
Across approximately 100 countries we make, market and sell
technically advanced lubricants not only for passenger cars, trucks
and coaches but also for industrial machinery in manufacturing,
mining, power generation, agriculture and construction.
Our strong competitive positioning was highlighted by a number of
leading market research firms. The tenth annual Kline & Company
report on the global lubricants sector (Global Lubricants Industry
2011: Market Analysis and Assessment) confirmed that Shell
maintained its volume and branded leadership position during 2011
with a 13% market share.
Business to Business
Our Business to Business (B2B) activities sell fuels, speciality products
and services to a broad range of commercial customers.
Shell Aviation provides fuel for approximately 7,000 aircraft every
day at more than 800 airports in more than 35 countries. On average
we refuel a plane every 12 seconds.
Shell Gas (LPG) provides liquefied petroleum gas and related services
to retail, commercial and industrial customers for cooking, heating,
lighting and transport.
Shell Commercial Fuels provides transport, industrial and heating fuels
in 20 countries. Our wide range of products, from reliable main-grade
fuels with standard quality to premium products, can offer tangible
benefits. These include fuel economy, enhanced equipment
performance, such as longer life and lower maintenance costs, and
environmental benefits, such as reduced emissions.
reports.shell.com Shell Annual Report and Form 20-F 2012
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37
Shell Bitumen supplies on average 11,000 tonnes of products every
day to 1,600 customers worldwide and invests in technology research
and development to create innovative, award-winning new products.
Downstream business activities with Iran,
Sudan and Syria
Shell Sulphur Solutions has developed a dedicated sulphur business to
manage the complete value chain of sulphur, from refining to
marketing. The business provides sulphur for industries such as mining
and textiles and also develops new products which incorporate
sulphur, for example in road surfaces, fertilisers and concrete.
Our marine activities provide lubricants, fuels and related technical
services to the shipping and boating industries. We supply more than
100 grades of lubricants and 20 different types of fuel for marine
vessels powered by diesel, steam-turbine and gas-turbine engines. We
serve more than 15,000 vessels worldwide, ranging from large ocean-
going tankers to small fishing boats.
Alternative Energies
We investigate alternative energy technologies with a long-term
aspiration to develop them into business opportunities. We were one
of the first companies to invest in advanced biofuels. Our Raízen joint
venture in Brazil produces sustainable ethanol from sugar, and
manages a retail network. With an annual production capacity of
more than 2 billion litres, it is one of the largest biofuel producers in
the world. We also continue to research and explore the potential of
hydrogen as an alternative energy source for the longer term.
IRAN
Shell transactions in Iran are disclosed in accordance with
Section 13(r) of the US Securities Exchange Act of 1934. See
page 51.
SUDAN
Shell-controlled companies ceased all operational activities in Sudan
in 2008. We have, however, continued soil remediation related to
earlier operations in the country.
SYRIA
Shell-controlled companies are in compliance with all EU and US
sanctions. Shell-controlled companies continue to supply limited
quantities of polyols via a Netherlands-based distributor to private
sector customers in Syria. Polyols are commonly used for the
production of foam in mattresses and soft furnishings.
Downstream data tables
The tables below reflect Shell subsidiaries, the 50% Shell interest in
Motiva in the USA and instances where Shell owns the crude or
feedstock processed by a refinery. Other equity-accounted investments
are only included where explicitly stated.
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Shell CO2 is responsible for coordinating and driving CO2
management activities across all our businesses.
OIL PRODUCTS – COST OF CRUDE OIL
PROCESSED OR CONSUMED [A]
C H E M I C A L S
Total
$ PER BARREL
2012
2011
106.82
104.71
2010
77.22
Manufacturing
Our plants produce a range of base chemicals, including ethylene,
propylene and aromatics, as well as intermediate chemicals, such as
styrene monomer, propylene oxide, solvents, detergent alcohols,
ethylene oxide and ethylene glycol. We have the capacity to produce
nearly 6 mtpa of ethylene.
Marketing
We sell petrochemicals to about 1,000 major industrial customers
worldwide, with the top 20 customers accounting for more than 40%
of our revenue. Our Chemicals business is in the top 10 of chemicals
enterprises in the world by revenue. Its products are used to make
numerous everyday items, from clothing and cars, to bubble bath and
bicycle helmets.
TRA D IN G
Our trading activities include the optimisation of our oil value chain,
including where necessary the sale or purchase of the excess or
shortfall of oil products, as well as trading around the physical flow of
hydrocarbons.
We trade in physical and financial contracts, lease storage and
transportation capacities around the globe and manage shipping
activities.
[A] Includes Upstream margin on crude oil supplied by Shell subsidiaries and
equity-accounted investment exploration and production companies.
CRUDE DISTILLATION CAPACITY [A]
THOUSAND B/CALENDAR DAY [B]
Europe
Asia-Pacific
Americas
Other
Total
2012
1,243
822
1,212
83
3,360
2011
1,243
861
1,064
83
3,251
2010
1,501
855
1,155
83
3,594
[A] Average operating capacity for the year, excluding mothballed capacity.
[B] Calendar day capacity is the maximum sustainable capacity adjusted for
normal unit downtime.
ETHYLENE CAPACITY [A]
THOUSAND TONNES/YEAR
Europe
Asia-Pacific
Americas
Other
Total
2012
1,659
1,556
2,212
366
5,793
2011
1,659
1,556
2,212
366
5,793
2010
1,878
1,565
2,212
366
6,021
[A] Includes the Shell share of equity-accounted investments’ capacity
entitlement (offtake rights), which may be different from nominal equity
interest. Nominal capacity is quoted as at December 31.
38
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OIL PRODUCTS – CRUDE OIL PROCESSED [A]
THOUSAND B/D
OIL PRODUCT SALES VOLUMES [A]
THOUSAND B/D
Europe
Asia-Pacific
Americas
Other
Total
2012
1,069
704
1,024
220
2011
1,058
731
985
200
2010
1,306
729
1,007
222
Europe
Gasolines
Kerosines
Gas/Diesel oils
3,017
2,974
3,264
Fuel oil
[A] Includes natural gas liquids, share of equity-accounted investments and
processing for others.
REFINERY PROCESSING INTAKE [A]
THOUSAND B/D
Other products
Total
Asia-Pacific
Gasolines
Kerosines
Gas/Diesel oils
Fuel oil
Other products
Total
Americas
Gasolines
Kerosines
2012
2,620
199
2,819
970
670
2011
2,652
193
2,845
1,041
666
2010
2,932
265
3,197
1,314
650
1,117
1,075
1,158
Crude oil
Feedstocks
Total
Europe
Asia-Pacific
Americas
Other
Total
62
63
75
Gas/Diesel oils
2,819
2,845
3,197
Fuel oil
[A] Includes crude oil, natural gas liquids and feedstocks processed in crude
distillation units and in secondary conversion units.
REFINERY PROCESSING OUTTURN [A]
THOUSAND B/D
Gasolines
Kerosines
Gas/Diesel oils
Fuel oil
Other
Total
2012
2011
995
321
996
256
452
993
339
977
252
385
2010
1,224
354
1,074
315
442
3,020
2,946
3,409
[A] Excludes “own use” and products acquired for blending purposes.
Other products
Total
Other
Gasolines
Kerosines
Gas/Diesel oils
Fuel oil
Other products
Total
Total product sales [B][C]
Gasolines
Kerosines
Gas/Diesel oils
Fuel oil
Other products
CHEMICALS SALES VOLUMES [A]
THOUSAND TONNES
Total
2012
2011
2010
450
234
909
180
184
467
261
876
227
192
505
299
953
205
227
1,957
2,023
2,189
319
176
445
304
227
315
164
423
273
220
308
172
370
301
224
1,471
1,395
1,375
1,123
1,136
1,128
264
528
89
233
265
461
91
236
270
523
90
249
2,237
2,189
2,260
184
60
230
64
32
570
2,076
734
2,112
637
676
6,235
156
93
236
60
44
589
2,074
783
1,996
651
692
6,196
174
86
253
75
48
636
2,115
827
2,099
671
748
6,460
[A] Excludes deliveries to other companies under reciprocal sale and purchase
arrangements, which are in the nature of exchanges. Sales of condensate
and natural gas liquids are included.
[B] Certain contracts are held for trading purposes and reported net rather
than gross. The effect in 2012 was a reduction in oil product sales of
approximately 856,000 b/d (2011: 925,000 b/d; 2010: 934,000 b/d).
[C] Export sales as a percentage of total oil product sales volumes amounted to
27.9% in 2012 (2011: 26.0%; 2010: 24.1%).
Europe
Base chemicals
First-line derivatives and others
Total
Asia-Pacific
Base chemicals
First-line derivatives and others
Total
Americas
Base chemicals
First-line derivatives and others
Total
Other
Base chemicals
First-line derivatives and others
Total
Total product sales
Base chemicals
First-line derivatives and others
Total
2012
2011
2010
3,771
2,626
6,397
2,209
3,053
5,262
3,336
3,145
6,481
379
150
529
4,006
2,689
6,695
2,027
3,111
5,138
3,405
3,193
6,598
229
171
400
4,507
2,795
7,302
2,209
3,415
5,624
3,949
3,134
7,083
461
183
644
9,695
8,974
9,667
11,126
9,164
9,527
18,669
18,831
20,653
[A] Excludes chemical feedstock trading and by-products.
REFINERIES IN OPERATION (AT DECEMBER 31, 2012)
Europe
Czech Republic
Denmark
Germany
The Netherlands
Norway
Asia-Pacific
Australia
Japan
Malaysia
Pakistan
Philippines
Singapore
Turkey
Americas
Argentina
Canada
Alberta
Ontario
USA
California
Louisiana
Texas
Washington
Other
Saudi Arabia
South Africa
Location
Kralupy[C]
Litvinov[C]
Fredericia
Harburg
Miro[C]
Rheinland
Schwedt[C]
Pernis
Mongstad[C]
Geelong
Mizue (Toa)[C]
Yamaguchi[C]
Yokkaichi[C]
Port Dickson
Karachi[C]
Tabangao
Pulau Bukom
Batman[C]
Izmir[C]
Izmit[C]
Kirikale[C]
Buenos Aires
Scotford
Sarnia
Martinez
Convent[C]
Norco[C]
Deer Park
Port Arthur[C][D]
Puget Sound
Al Jubail[C]
Durban[C]
reports.shell.com Shell Annual Report and Form 20-F 2012
Business Review > Downstream
39
Thousand barrels/calendar day, 100% capacity[B]
Thermal
Crude
cracking/
Asset
class
Shell
distillation
visbreaking/
interest (%)[A]
capacity
coking
Catalytic
cracking
Hydro-
cracking
Š
Š
(cid:3) Š
(cid:3) Š
Š
/
Š/
/
Š/
/
(cid:3) Š
Š/
/
/
Š
/
(cid:3)
(cid:3) Š
Š
Š/
Š/
/
16
16
100
100
32
100
38
90
21
100
18
13
26
51
30
67
100
1
1
1
1
100
100
100
100
50
50
50
50
100
50
38
59
101
63
108
310
327
220
404
205
118
60
110
193
107
43
96
462
23
217
217
106
100
92
71
145
227
229
312
569
137
292
165
–
14
40
14
65
57
47
45
23
–
23
–
–
–
–
31
63
–
17
–
–
18
–
5
42
–
25
79
138
23
62
23
24
–
–
15
89
–
50
48
55
38
38
25
55
39
–
–
34
–
14
13
–
20
–
19
65
82
107
63
81
52
–
34
B
U
S
I
N
E
S
S
R
E
V
I
E
W
–
30
–
–
–
79
–
81
–
–
–
–
–
–
–
–
55
–
18
25
16
–
62
9
37
45
34
53
67
–
45
–
[A] Shell interest rounded to nearest whole percentage point; Shell share of production capacity may differ.
[B] Calendar day capacity is the maximum sustainable capacity adjusted for normal unit downtime.
[C] Not operated by Shell.
[D] Includes the refinery expansion, whose crude distillation unit was restarted in January 2013 and is in ramp up phase.
(cid:3) Integrated refinery and chemical complex.
Š Refinery complex with cogeneration capacity.
/ Refinery complex with chemical unit(s).
40
Shell Annual Report and Form 20-F 2012 reports.shell.com
Business Review > Downstream
MAJOR CHEMICAL PLANTS IN OPERATION [A] (AT DECEMBER 31, 2012)
Location
Ethylene
Thousand tonnes/year, Shell share capacity
Styrene
monomer
Ethylene
glycol
Higher
olefins[B]
Europe
Germany
The Netherlands
UK
Asia-Pacific
China
Japan
Singapore
Americas
Canada
USA
Other
Saudi Arabia
Total
Rheinland
Moerdijk
Mossmorran [C]
Stanlow [C]
Nanhai [C]
Yamaguchi [C]
Jurong Island [D]
Pulau Bukom
Scotford
Deer Park
Geismar
Norco
Al Jubail [C]
272
972
415
–
475
–
281
800
–
836
–
1,376
366
5,793
–
789
–
–
320
–
720
–
450
–
–
–
400
2,679
–
155
–
–
175
–
940
–
450
–
375
–
–
–
–
–
330
–
11
–
–
–
–
920
–
–
2,095
1,261
[A] Includes joint-venture plants, with the exception of the Infineum additives joint ventures.
[B] Higher olefins are linear alpha and internal olefins (products range from C6-C2024).
[C] Not operated by Shell.
[D] Combination of 100% Shell-owned plants and joint ventures (Shell and non-Shell operated).
A Aromatics, lower olefins.
I
P
Intermediates.
Polyethylene, polypropylene.
O Other.
OTHER CHEMICAL LOCATIONS
Europe
Germany
The Netherlands
Asia-Pacific
Australia
Japan
Malaysia
Americas
Argentina
Canada
USA
Other
South Africa
A Aromatics, lower olefins.
I
Intermediates.
O Other.
Location
Harburg
Karlsruhe
Schwedt
Pernis
Geelong
Kawasaki
Yokkaichi
Bintulu
Port Dickson
Buenos Aires
Sarnia
Martinez
Mobile
Puget Sound
Durban
Additional
products
A
A, I
–
I
A, I, P
A, I
A, I, P, O
A, I
A, I
A, I
I
A
A, O
Products
I
A
A
A, I, O
A, I
A, I
A
I
A
I
A, I
O
A
O
I
CORPORATE
EARNINGS
Net interest and investment expense
Foreign exchange gains/(losses)
Other – including taxation
Segment earnings
2012
(1,001)
169
623
(209)
$ MILLION
2010
(309)
42
358
91
2011
(624)
(77)
787
86
Overview
The Corporate segment covers the non-operating activities supporting
Shell. It includes Shell’s holdings and treasury organisation, its
headquarters and central functions as well as its self-insurance
activities. All finance expense and income as well as related taxes are
included in the Corporate segment earnings rather than in the earnings
of the business segments.
The holdings and treasury organisation manages many of the
Corporate entities and is the point of contact between Shell and the
external capital markets. It conducts a broad range of transactions –
from raising debt instruments to transacting foreign exchange.
Treasury centres in London, Singapore and Rio de Janeiro support
these activities.
Headquarters and central functions provide business support in the
areas of communications, finance, health, human resources,
information technology, legal services, real estate and security. They
also provide support for the shareholder-related activities of the
Company. The central functions are supported by business service
centres located around the world which process transactions, manage
data and produce statutory returns, among other services. The majority
of the headquarters and central-function costs are recovered from the
business segments. Those costs that are not recovered are retained in
Corporate.
reports.shell.com Shell Annual Report and Form 20-F 2012
Business Review > Corporate
41
Shell mainly self-insures its risk exposures. Shell insurance subsidiaries
provide insurance coverage to Shell entities, generally up to
$1.15 billion per event and usually limited to Shell’s percentage
interest in the relevant entity. The type and extent of the coverage
provided is equal to that which is otherwise commercially available in
the third-party insurance market.
Earnings 2012-2010
Segment earnings for 2012 were a loss of $209 million, compared
with a gain of $86 million in 2011 and a gain of $91 million in 2010.
Net interest and investment expense increased by $377 million
between 2011 and 2012. Interest expense was significantly higher,
mostly driven by the liquidity premium associated with our currency
swaps, and an increase in Shell’s share of interest expense from
equity-accounted investments. Further, the amount of interest
capitalised on projects declined overall as major projects came on-
stream, partly offset by the development of new projects. These effects
were partly offset by higher interest income. In 2011, net interest and
investment expense increased by $315 million compared with 2010.
There was a substantial reduction in the amount of interest capitalised
with projects coming on-stream, and Shell’s share of interest expense
from equity-accounted investments was higher due to the debt
portfolios of new investments. These effects were partly offset by an
increase in interest income as a result of higher average levels of cash
balances.
Foreign exchange gains of $169 million in 2012 were principally due
to the favourable impact of exchange rates on non-functional currency
loans and cash balances in operating units. In 2011, foreign
exchange losses of $77 million were principally due to the adverse
impact of exchange rates on these items.
Other earnings decreased by $164 million in 2012 compared with
2011, mainly because of increased costs partly offset by higher tax
credits. The increase from 2010 to 2011 of $429 million was mainly
due to increased tax credits and reduced costs.
B
U
S
I
N
E
S
S
R
E
V
I
E
W
is to increase proved reserves and more than offset their decline due to
production. However, proved reserves and production increases are
subject to a variety of risks and other factors, including: crude oil and
natural gas prices; the uncertainties of exploration; operational
interruptions; geology; frontier conditions; availability of new
technology and engineering capacity; availability and cost of skilled
or specialist resources; project delays; cost overruns; and fiscal,
regulatory and political changes.
We have a diverse portfolio of field-development projects and
exploration opportunities. This diversity can help to reduce the impact
of the political and technical risks in Upstream, including the impact on
the cash flow generated by our operating activities.
It is our intention to continue to make selective acquisitions and
divestments as part of active portfolio management that is in line with
our strategy and influenced by market opportunities.
Statement of cash flows
Net cash from operating activities in 2012 was $46.1 billion, an
increase from $36.8 billion in 2011. This increase mainly reflected a
working capital decrease in 2012, compared with a working capital
increase in 2011. In 2010, net cash from operating activities was
$27.4 billion. The increase in 2011 compared with 2010 mainly
reflected the increase in earnings.
Net cash used in investing activities was $28.4 billion in 2012, an
increase from $20.4 billion in 2011. The increase was mainly the
result of higher capital expenditure and investments in equity-
accounted investments. In 2010, net cash used in investing activities
was $22.0 billion. The decrease in 2011 compared with 2010 was
mainly the result of higher proceeds from the sale of assets and lower
capital expenditure, partly offset by lower proceeds from the sale of
equity-accounted investments.
Net cash used in financing activities in 2012 was $10.6 billion
(2011: $18.1 billion; 2010: $1.5 billion). This included payment of
dividends of $7.4 billion (2011: $6.9 billion; 2010: $9.6 billion),
interest paid of $1.4 billion (2011: $1.7 billion; 2010: $1.3 billion)
and repurchases of shares of $1.5 billion (2011: $1.1 billion; 2010:
$nil). Debt issued in 2012 was largely offset by debt repaid (2011:
net repayments of debt of $7.1 billion; 2010: net new borrowings of
$9.3 billion).
Cash and cash equivalents were $18.6 billion at December 31, 2012
(2011: $11.3 billion; 2010: $13.4 billion).
42
Shell Annual Report and Form 20-F 2012 reports.shell.com
Business Review > Liquidity and capital resources
LIQUIDITY AND CAPITAL
RESOURCES
We manage our assets and liabilities with the aim that, across the
business cycle, “cash in” (including cash from operations and
divestments) at least equals “cash out” (including capital investment,
interest and dividends), while maintaining a strong balance sheet.
A key measure of our capital structure management is the proportion
of debt to equity. Across the business cycle we aim to manage gearing
(net debt to net debt plus total equity) within the range of 0-30%.
During 2012, gearing ranged from 8.1% to 13.1% (2011: 10.8% to
17.1%). See Note 15 to the “Consolidated Financial Statements”.
With respect to the objective of maintaining a strong balance sheet,
our priorities for applying our cash are investing for organic and
inorganic growth, servicing debt commitments, paying dividends and
returning surplus cash to our shareholders.
Overview
The most significant factors affecting our operating cash flow are
earnings and movements in working capital. The main drivers
impacting our earnings include: realised prices for crude oil and
natural gas; production levels of crude oil and natural gas; and
refining and marketing margins.
Since the contribution of Upstream to earnings is larger than that of
Downstream, changes affecting Upstream – particularly changes in
realised crude oil and natural gas prices and production levels – have
the largest impact on Shell’s operating cash flow. While Upstream
benefits from higher realised crude oil and natural gas prices, the extent
of such benefit (and the extent of an impact from a decline in these
prices) depends on: the extent to which contractual arrangements are
tied to market prices; the dynamics of production-sharing contracts; the
existence of agreements with governments or national oil companies that
have limited sensitivity to crude oil prices; tax impacts; and the extent to
which changes in commodity prices flow through into operating costs.
Changes in benchmark prices of crude oil and natural gas in any
particular period therefore provide only a broad indicator of changes in
Upstream earnings experienced in that period.
In Downstream, changes in any one of a range of factors derived from
either within the industry or the broader economic environment can
influence margins. The precise impact of any such changes depends
on how the oil markets respond to them. The market response is
affected by factors such as: whether the change affects all crude oil
types or only a specific grade; regional and global crude-oil and
refined-products inventories; and the collective speed of response of
the industry refiners and product marketers in adjusting their
operations. As a result, refinery and marketing margins fluctuate from
region to region and from period to period. Downstream earnings are
reported on a current cost of supplies basis, which excludes the effect
of changes in the oil price on inventory carrying amounts. However,
cash flow from operations is not affected by the reporting basis.
In the longer term, replacement of proved oil and gas reserves will
affect our ability to maintain or increase production levels in
Upstream, which in turn will affect our cash flow and earnings. We
will need to take measures to maintain or increase production levels in
future periods. These may include: developing new fields and mines;
developing and applying new technologies and recovery processes to
existing fields and mines; and making selective acquisitions. Our goal
reports.shell.com Shell Annual Report and Form 20-F 2012
Business Review > Liquidity and capital resources
43
B
U
S
I
N
E
S
S
R
E
V
I
E
W
CASH FLOW INFORMATION [A]
$ BILLION
2012
2011
2010
Net cash from operating activities excluding
working capital movements
Upstream
Downstream
Corporate
Total
Increase in inventories
(Increase)/decrease in accounts receivable
Increase/(decrease) in accounts payable and
accrued liabilities
(Increase)/decrease in working capital
Net cash from operating activities
Net cash used in investing activities
Net cash used in financing activities
Currency translation differences relating to cash
and cash equivalents
Increase/(decrease) in cash and cash
equivalents
Cash and cash equivalents at the beginning of
the year
Cash and cash equivalents at the end of the year
32.9
8.0
1.8
42.7
(1.7)
14.1
(9.0)
3.4
46.1
(28.4)
(10.6)
0.2
7.3
11.3
18.6
33.3
24.6
8.7
1.2
43.2
(1.9)
8.1
0.6
33.3
(2.9)
(10.1)
(11.9)
5.6
(6.4)
36.8
(20.4)
(18.1)
8.9
(5.9)
27.4
(22.0)
(1.5)
(0.4)
(0.2)
(2.1)
3.7
13.4
11.3
9.7
13.4
[A] For the “Consolidated Statement of Cash Flows” see page 102.
Financial condition and liquidity
Our financial position is strong. In 2012, we generated a return on
average capital employed (ROACE) of 12.7% (see page 45) and year-
end gearing was 9.2% (2011: 13.1%). We returned $11.0 billion to our
shareholders through dividends in 2012. Some of those dividends were
paid out as 103.8 million shares issued to shareholders who had elected
to receive new shares instead of cash. To partly offset the dilution created
by the issuance of those shares, 43.7 million shares were repurchased
and cancelled as part of our share buyback programme.
The size and scope of our businesses require a robust financial control
framework and effective management of our various risk exposures.
Financial turbulence in the eurozone and other international events
continue to put significant stress on the business environment in which
we operate. We are following closely the developments and the
challenges that the eurozone and other markets face, and are taking
all reasonable steps to ensure that we are well positioned to deal with
unexpected events should they occur.
Our treasury and trading operations are highly centralised, and are
effective in controlling credit exposures associated with managing our
substantial cash, foreign exchange and commodity positions.
We diversify our cash investments across a range of financial
instruments and counterparties to avoid concentrating risk in any one
type of investment or country. We carefully monitor our investments
and adjust them in light of new market information.
Exposure to failed financial and trading counterparties was minimal in
2012 (see Note 21 to the “Consolidated Financial Statements”).
Total employer contributions to our defined benefit pension plans in
2012 were $2.3 billion (2011: $2.3 billion) and are estimated to be
$2.5 billion in 2013, reflecting current funding levels. See Notes 3
and 18 to the “Consolidated Financial Statements” for further
information.
Cash and cash equivalents amounted to $18.6 billion at the end of
2012 (2011: $11.3 billion). Cash and cash equivalents are held in
various currencies but primarily in dollars, euros and sterling. Total
debt increased by $0.6 billion in 2012 to $37.8 billion at
December 31, 2012. The total debt outstanding (excluding leases) at
December 31, 2012, will mature as follows: 23% in 2013; 8% in
2014; 12% in 2015; 6% in 2016; and 51% in 2017 and beyond.
The debt maturing in 2013 is expected to be repaid from a
combination of cash balances and cash generated from operations.
We also maintain a $5.1 billion credit facility that was undrawn as at
December 31, 2012.
We believe our current working capital is sufficient for present
requirements. We satisfy our funding and working capital
requirements from the cash generated by our businesses and through
the issuance of external debt. Our external debt is principally financed
from the international debt capital markets through central debt
programmes consisting of:
▪ a $10 billion global commercial paper (CP) programme, exempt
from registration under section 3 (a)(3) of the US Securities Act of
1933, with maturities not exceeding 270 days;
▪ a $10 billion CP programme, exempt from registration under
section 4(2) of the US Securities Act of 1933, with maturities not
exceeding 397 days;
▪ a $25 billion euro medium-term note (EMTN) programme; and
▪ an unlimited US universal shelf (US shelf) registration.
All CP, EMTN and US shelf issuances have been undertaken by Shell
International Finance B.V., the issuance company for Shell, and are
guaranteed by Royal Dutch Shell plc. Further disclosure on debt is
included in Note 15 to the “Consolidated Financial Statements”.
Certain joint-venture operations are financed separately.
In 2012, despite our strong cash position, we took advantage of
favourable market conditions, including historically low interest rates,
to pre-finance bond maturities in 2013 and issued $4.25 billion of
long-term bonds under the US shelf registration. Periodically, for
working capital purposes, we issued commercial paper (2011: we
issued commercial paper, but no long-term bonds).
Our $5.1 billion committed credit facility, which is due to expire in
2015, and internally available liquidity provide back-up coverage for
commercial paper. Aside from certain borrowings in local
subsidiaries, we do not have any other committed credit facilities. We
consider additional facilities to be neither necessary nor cost-effective
for financing purposes, given our size, credit rating and cash-
generative nature.
The maturity profile of our outstanding commercial paper is actively
managed to ensure that the amount of commercial paper maturing
within 30 days remains consistent with the level of supporting liquidity.
While our subsidiaries are subject to restrictions, such as foreign
withholding taxes on the transfer of funds in the form of cash
dividends, loans or advances, such restrictions are not expected to
have a material impact on our ability to meet our cash obligations.
The consolidated unaudited ratio of earnings to fixed charges of Shell
for each of five years ending December 31, 2008-2012, is as follows:
RATIO OF EARNINGS TO FIXED CHARGES
Ratio of earnings to fixed
charges
30.99
35.78
21.75
12.90
26.80
2012
2011
2010
2009
2008
44
Shell Annual Report and Form 20-F 2012 reports.shell.com
Business Review > Liquidity and capital resources
For the purposes of the above table, earnings consist of pre-tax income
from continuing operations (before adjustment for non-controlling interest)
plus fixed charges (excluding capitalised interest) less undistributed
income of equity-accounted investments. Fixed charges consist of
expensed and capitalised interest (excluding accretion expense) plus
interest within rental expenses (for operating leases). Refer to
“Exhibit 7.1” regarding the calculation of the ratio of earnings to fixed
charges.
CAPITALISATION TABLE
$ MILLION
Dec 31, 2012
Dec 31, 2011
Equity attributable to Royal Dutch Shell plc
shareholders
Current debt
Non-current debt
Total debt [A]
Total capitalisation
188,494
169,517
7,833
29,921
37,754
6,712
30,463
37,175
226,248
206,692
[A] Of total debt, $33.4 billion (2011: $32.7 billion) was unsecured and
$4.4 billion (2011: $4.5 billion) was secured. Further disclosure on debt,
including the amount guaranteed by Royal Dutch Shell plc, is included in
Note 15 to the “Consolidated Financial Statements”.
Dividends
Our policy is to grow the US dollar dividend through time in line with our
view of Shell’s underlying earnings and cash flow. When setting the
dividend, the Board of Directors looks at a range of factors, including
the macro environment, the current balance sheet and future investment
plans. We have announced an interim dividend in respect of the fourth
quarter 2012 of $0.43 per share, a 2.4% increase compared with the
US dollar dividend for the same quarter of 2011. Shareholders have a
choice to receive dividends in cash or in shares via our Scrip Dividend
Programme. The Board expects that the first quarter 2013 interim
dividend will be $0.45 per share, an increase of 4.7% compared with
the US dollar dividend for the same quarter of 2012.
Net capital investment
Our net capital investment was $29.8 billion in 2012 (2011:
$23.5 billion; 2010: $23.7 billion). Of the total net capital
investment, $25.3 billion (2011: $19.1 billion; 2010: $21.2 billion)
related to Upstream; $4.3 billion (2011: $4.3 billion; 2010:
$2.4 billion) to Downstream; and $0.2 billion (2011: $0.1 billion;
2010: $0.1 billion) to Corporate.
Our 2012 net capital investment comprised $36.8 billion of capital
investment (2011: $31.1 billion; 2010: $30.6 billion) less $7.0 billion of
divestment proceeds (2011: $7.5 billion; 2010: $6.9 billion)
See Note 4 to the “Consolidated Financial Statements” for further
information.
Financial framework
We manage our businesses to deliver strong cash flows to fund
investment and growth. Our management decisions are based on
assumptions about future oil and gas prices.
Repurchases of shares
On May 22, 2012, the shareholders approved an authority, which will
expire at the end of the 2013 AGM, for the Company to repurchase up
to 632 million of its shares. In accordance with a similar authority
granted at the 2011 AGM, a share buyback programme was
commenced in that year to offset the dilution created by the issuance of
shares under our Scrip Dividend Programme. All of the shares purchased
under the buyback programme were cancelled. A resolution will be
proposed at the 2013 AGM to renew authority for the Company to
purchase its own share capital up to specified limits for another year.
Shares are also purchased by the employee share ownership trusts (see
page 58), in part through re-investment of dividends received, to meet
delivery commitments under employee share plans. All share purchases
are made in open-market transactions.
The following table provides information on repurchases of shares in
2012 and up to February 19, 2013. Purchases in euros and sterling are
converted to dollars using the exchange rate at each transaction date.
ISSUER PURCHASES OF EQUITY SECURITIES
Number
repurchased
for employee
A shares
Weighted
average
Number
repurchased
for employee
Number
repurchased
B shares
Weighted
average
Purchase period
share plans
price ($)[A]
share plans
for cancellation[B]
price ($)[A]
2012
January
March
April
May
June
July
August
September
October
November
December
Total 2012
2013
January
Total 2013 [C]
–
844,295
–
–
–
36.32
–
–
–
–
–
–
–
1,325,366
6,854,706
8,146,667
720,984
32.79
2,265,336
11,956,000
–
–
–
–
681,524
35.43
–
–
732,278
2,979,081
–
–
–
–
32.91
34.42
–
–
–
–
–
–
–
2,290,370
4,555,706
2,446,231
–
–
2,493,369
8,132,813
2,332,831
43,687,983
–
–
–
–
–
35.29
34.83
32.44
33.91
35.27
–
–
35.28
34.52
35.07
34.19
–
–
[A] Average price paid per share includes stamp duty and brokers’ commission.
[B] Under the share buyback programme.
[C] As at February 19, 2013.
Number
repurchased
for employee
share plans
768,737
187,410
–
–
438,085
519,100
1,211,128
168,090
–
–
181,367
3,473,917
928,694
928,694
A ADSs
Weighted
average
price ($)[A]
73.15
73.91
–
–
64.86
68.18
69.84
70.85
–
–
65.81
69.75
69.05
69.05
reports.shell.com Shell Annual Report and Form 20-F 2012
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Contractual obligations
The table below summarises Shell’s principal contractual obligations at
December 31, 2012, by expected settlement period. The amounts
presented have not been offset by any committed third-party revenue
in relation to these obligations.
CONTRACTUAL OBLIGATIONS
$ BILLION
Debt [A]
Finance leases [B]
Operating leases [C]
Less
Between
Between
5 years
than
1 and 3
3 and 5
1 year
years
years
7.5
0.7
4.9
6.4
1.2
7.9
5.7
1.2
5.9
and
later
12.8
4.4
12.2
Total
32.4
7.5
30.9
Return on average capital employed
ROACE measures the efficiency of Shell’s utilisation of the capital that
it employs. In this calculation, ROACE is defined as income for the
period adjusted for after-tax interest expense as a percentage of the
average capital employed for the period. Capital employed consists of
total equity, current debt and non-current debt. The tax rate is derived
from calculations at the published segment level.
CALCULATION OF RETURN ON AVERAGE
CAPITAL EMPLOYED
$ MILLION
Income for the period
Interest expense after tax
2012
2011
2010
26,840
31,185
20,474
938
770
577
Purchase obligations [D]
176.0
92.2
39.4
160.1
467.7
Income before interest expense
27,778
31,955
21,051
Other long-term
Capital employed – opening
208,178
194,112
173,168
contractual liabilities [E]
–
0.9
0.5
0.2
1.6
Capital employed – closing
227,681
208,178
194,112
Total
189.1
108.6
52.7
189.7
540.1
Capital employed – average
217,930
201,145
183,640
[A] Contractual repayments excluding $4.2 billion of finance lease
obligations. See Note 15 to the “Consolidated Financial Statements”.
[B] Includes interest. See Note 15 to the “Consolidated Financial Statements”.
[C] See Note 15 to the “Consolidated Financial Statements”.
[D] Includes all significant items, including fixed or minimum quantities to be
purchased; fixed, minimum or any agreement to purchase goods and
services that is enforceable, legally binding and specifies variable price
provisions; and the approximate timing of the purchase.
[E] Includes all obligations included in “Trade and other payables” in “Non-
current liabilities” on the Consolidated Balance Sheet that are
contractually fixed as to timing and amount. In addition to these amounts,
Shell has certain obligations that are not contractually fixed as to timing
and amount, including contributions to defined benefit pension plans (see
Note 18 to the “Consolidated Financial Statements”) and obligations
associated with decommissioning and restoration (see Note 19 to the
“Consolidated Financial Statements”).
The table above excludes interest expense related to debt, which is
estimated to be $1.1 billion payable in less than one year,
$1.7 billion payable between one and three years, $1.5 billion
payable between three and five years and $5.9 billion payable five
years and later. For this purpose, we assume that interest rates with
respect to variable interest rate debt remain constant and that there is
no change in the aggregate principal amount of debt other than
repayment at scheduled maturity as reflected in the table.
Guarantees and other off-balance sheet
arrangements
Guarantees at December 31, 2012, were $3.3 billion (2011:
$3.3 billion). This includes $2.2 billion (2011: $2.2 billion) of
guarantees of debt of equity-accounted investments, for which the largest
amount outstanding during 2012 was $2.2 billion (2011: $2.4 billion).
ROACE
12.7%
15.9%
11.5%
In 2012, about 27% of our average capital employed was not
generating any revenue, which reduced our ROACE by approximately
5%. These assets included projects being developed and exploration
acreage.
Financial information relating to the Royal
Dutch Shell Dividend Access Trust
The results of operations and financial position of the Royal Dutch Shell
Dividend Access Trust (the Trust) are included in the consolidated
results of operations and financial position of Shell. Certain condensed
financial information in respect of the Trust is given below. Separate
financial statements for the Trust are also included in this Report.
For the years 2012, 2011 and 2010 the Trust recorded income before
tax of £2,383 million, £2,175 million and £2,863 million
respectively. In each period this reflected the amount of dividends
received on the dividend access share.
At December 31, 2012, the Trust had total equity of £nil (2011: £nil;
2010: £nil), reflecting cash of £1,202,271 (2011: £997,987; 2010:
£774,546) and unclaimed dividends of £1,202,271 (2011:
£997,987; 2010: £774,546). The Trust only records a liability for an
unclaimed dividend, and a corresponding amount of cash, to the
extent that cheques expire, which is one year after their issuance, or to
the extent that they are returned unpresented.
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OUR PEOPLE
Competitiveness and innovation
Our people are central to our aim of being the world’s most
competitive and innovative energy company. We recruit, train and
recompense them according to a people strategy based on three
priorities: assuring sources of talent now and in the future;
strengthening leadership and professionalism; and enhancing
individual and organisational performance.
Over the course of 2012, Shell employed an average of 87,000
people in more than 70 countries. We had a strong external
recruitment drive to execute our strategy and growth plans for the
future, hiring approximately 1,200 graduates and 3,500 experienced
professionals. The majority of our graduates and experienced
professional hires came from technical disciplines.
EMPLOYEES BY GEOGRAPHICAL AREA
(AVERAGE NUMBERS)
The Netherlands
UK
Other
Europe
Asia, Oceania, Africa
USA
Other Americas
Total
THOUSAND
2012
2011
2010
8
6
10
24
31
20
12
87
8
7
10
25
33
20
12
90
8
7
13
28
34
20
15
97
Employee communication and involvement
Two-way dialogue between management and staff – directly and,
where appropriate, via employee representative bodies – is important
and embedded in our work practices. On a quarterly basis, we brief
our staff about Shell’s operational and financial results through various
channels, including electronic communications from the Chief
Executive Officer, webcasts, publications and face-to-face gatherings.
in the number of senior leadership positions, while the number of
women stayed the same. In 42% of the countries where Shell
subsidiaries and equity-accounted investments are based, local
nationals filled more than half of the senior leadership positions,
compared with 34% of countries in 2011.
Employee share plans
Shell has a number of share plans designed to align employees’
interests with Shell’s performance through share ownership. For
information on the share-based compensation plans for Executive
Directors, see the “Directors’ Remuneration Report”.
PERFORMANCE SHARE PLAN
The Performance Share Plan (PSP) was introduced in 2005.
Conditional awards of the Company’s shares are made under the
terms of the PSP to some 15,000 employees each year. The extent to
which the awards vest is determined over a three-year performance
period. Half of the award is linked to the key performance indicators
described on page 8, averaged over the period. For the PSP awards
made prior to 2010, the other half of the award was linked to the
relative total shareholder return over the period compared with four of
our main competitors. For awards made in 2010 and onwards, the
other half of the award is linked to a comparison with four of our main
competitors over the period on the basis of four relative performance
measures. All shares that vest are increased by an amount equal to the
notional dividends accrued on those shares during the period from the
award date to the vesting date. None of the awards results in
beneficial ownership until the shares are delivered. Also refer to
Note 22 to the “Consolidated Financial Statements”.
RESTRICTED SHARE PLAN
Under the Restricted Share Plan, awards are made on a highly
selective basis to senior staff. Shares are awarded subject to a three-
year retention period. All shares that vest are increased by an amount
equal to the notional dividends accrued on those shares during the
period from the award date to the vesting date.
The Shell People Survey is one of the principal tools used to measure
employee engagement: the degree of affiliation and commitment to
Shell. It provides insights into employees’ views, and has had a
consistently high response rate. The average employee engagement
score in 2012 was 77% favourable, a three-point increase from 2011.
GLOBAL EMPLOYEE SHARE PURCHASE PLAN
Employees in 50 countries may participate in the Global Employee
Share Purchase Plan. This plan enables eligible employees to make
contributions towards the purchase of the Company’s shares at a 15%
discount to the market price either at the start or at the end of an
annual cycle – whichever date offers the lower market price.
We promote safe reporting of views about our processes and
practices. Our global telephone helpline and website enable
employees to report, confidentially and anonymously, breaches of the
Shell General Business Principles and Code of Conduct.
Diversity and inclusion
We have a culture that embraces diversity and fosters inclusion. By
embedding these principles in our operations, we have a better
understanding of the needs of our varied customers, partners and
stakeholders throughout the world and can benefit from a wider talent
pool. We provide equal opportunity in recruitment, career
development, promotion, training and reward for all employees,
including those with disabilities. We make adjustments in job design
and provide appropriate training where possible for any existing
employee who becomes disabled.
We actively monitor representation of women and local nationals in
senior leadership positions, and have talent-development processes to
support us in delivering more diverse representation. At the end of
2012, the proportion of women in senior leadership positions was
16.2%, compared with 16.6% in 2011, because of a small increase
UK SHARESAVE SCHEME
Eligible employees of participating companies in the UK may
participate in the UK Sharesave Scheme. Options are granted over the
Company’s shares at market value on a date normally not more than
30 days before the grant date of the option. These options are
normally exercisable after completion of a three-year or five-year
contractual savings period.
UK SHELL ALL EMPLOYEE SHARE OWNERSHIP PLAN
Eligible employees of participating companies in the UK may
participate in the Shell All Employee Share Ownership Plan, under
which monthly contributions from gross pay are made towards the
purchase of the Company’s shares.
ENVIRONMENT AND SOCIETY
Our success in business depends on our ability to meet a range of
environmental and social challenges. We must show we can operate
safely and manage the effect our activities can have on neighbouring
communities and society as a whole. If we fail to do this, we may incur
liabilities or sanctions, lose opportunities to do business, our
reputation as a company may be harmed, and our licence to operate
may be impacted.
The Shell General Business Principles include a commitment to
sustainable development that involves balancing short- and long-term
interests, and integrating economic, environmental and social aspects
into our business decisions. We have rigorous standards and a firm
governance structure in place to help manage potential impacts. We
also work with communities, business partners, non-governmental
organisations and other bodies to address potential impacts and share
the benefits of our operations and projects.
Detailed data and information on our 2012 environmental and social
performance will be published in April 2013 in the Shell Sustainability
Report.
Safety
Sustaining our licence to operate depends on maintaining the safety
and reliability of our operations. We manage safety risk across our
businesses through controls and compliance systems combined with a
safety-focused culture. Our global standards and operating
procedures define the controls and physical barriers we require to
prevent incidents. For example, our offshore wells are designed with at
least two independent barriers to mitigate the risk of an uncontrolled
release of hydrocarbons. We regularly inspect, test and maintain
these barriers to ensure they meet our standards.
We continue to strengthen the safety culture among our employees
and contractors. We expect everyone working for us to intervene and
stop work that may appear to be unsafe. In addition to our ongoing
safety awareness programmes, we hold an annual global safety day
to give workers time to reflect on how to prevent incidents. We expect
everyone working for us to comply with our 12 mandatory Life-Saving
Rules. If employees break these rules, they will face disciplinary action
up to and including termination of employment. If contractors break
the Life-Saving Rules, they can be removed from the worksite.
Climate change
Growth in energy demand means that all forms of energy will be
needed over the longer term. With hydrocarbons forecast to provide
the bulk of the energy needed over coming decades, policymakers are
focusing on regulations that balance energy demand with
environmental concerns. The management of emissions of carbon
dioxide (CO2) will become increasingly important as concerns over
climate change lead to tighter environmental regulation.
We already assess potential costs associated with CO2 emissions
when evaluating projects. But in the years to come, governments may
impose a price on CO2 emissions that all companies will have to
incorporate in their investment plans, and may also require companies
to apply technical measures to reduce their CO2 emissions. This could
result in higher energy, product and project costs. Currently enacted,
proposed and future legislation are also expected to increase the cost
of doing business. Furthermore, in our own operations, we are
working to understand the potential physical impact of climate change
in the future on our facilities and new projects. Shell, together with
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other energy companies, has been subject to litigation regarding
climate change. We believe these lawsuits are without merit and are
not material to Shell.
As energy demand increases and easily accessible oil and gas
resources decline, we are developing resources that require more
energy and require advanced technology to produce. This growth
includes expanding our conventional oil and gas businesses, our oil
sands operations in Canada, our gas-to-liquids (GTL) business in
Qatar, and our global liquefied natural gas (LNG) business. As our
businesses grow and production becomes more energy intensive, we
expect there will be an associated increase in the direct CO2
emissions from the Upstream facilities we operate.
We are seeking cost-effective ways to manage CO2 emissions and see
potential business opportunities in developing such solutions. Our
main contributions to reducing CO2 emissions are in four areas:
supplying more natural gas; supplying more biofuels; progressing
carbon capture and storage (CCS) technologies; and implementing
energy efficiency measures in our operations.
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Nearly one-third of the world’s CO2 emissions come from power
generation. For most countries, using more gas in power generation
instead of coal can make the largest contribution, at the lowest cost, to
meeting their emission reduction objectives this decade. In combination
with renewables and utilisation of CCS, natural gas is essential for
significantly lower CO2 emissions beyond 2020. With Shell’s leading
position in LNG and new technologies for recovering natural gas from
tight rock formations, we can supply natural gas to replace coal in
power generation.
We see biofuels as one of the most practical and commercially viable
ways to reduce CO2 emissions from transport fuels in coming years.
Our Raízen joint venture in Brazil produces low-carbon biofuel from
sugar cane. We are also investing in research to help develop and
commercialise advanced biofuels.
The International Energy Agency has stated that CCS could contribute
approximately 19% of the CO2 mitigation effort required by 2050. To
advance CCS technologies, Shell is involved in CCS projects including
the Quest project in Canada, the Mongstad test centre in Norway, and
the Gorgon CO2 injection project in Australia. In 2012, we also
submitted a proposal for a project in the UK to store CO2 in a depleted
gas reservoir in the North Sea. During this important demonstration
phase, government support is essential, and initiatives such as the
United Nations’ acceptance of CCS as an offsetting activity under the
Clean Development Mechanism is a positive step in progressing such
technologies.
We continue to focus on implementing energy efficiency measures in
our operations. Shell has multibillion dollar programmes in place in an
effort to improve the energy efficiency of our operations. These include
our oil and gas production projects, oil refineries and chemical plants.
In addition, we work to help our customers conserve energy and
reduce their CO2 emissions, including through the development and
sale of advanced fuels and lubricants.
The flaring, or burning off, of gas in our Upstream business contributed
to our overall greenhouse gas emissions in 2012. The majority of this
flaring takes place at facilities where there is no infrastructure to
capture the gas produced with oil, known as associated gas. Most of
the continuous flaring takes place in Nigeria, where the security
situation and lack of partner funding had previously slowed progress
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on projects to capture associated gas. However, the Shell Petroleum
Development Company of Nigeria Ltd (SPDC) made progress in
reducing flaring in 2012. Improved security in some areas of the
Niger Delta and stable co-funding from our partners meant SPDC was
able to continue its multi-year programme to install new gas-gathering
facilities and repair existing facilities damaged during the militant
crisis of 2006 to 2009. SPDC is working on projects to further reduce
flaring. Progress will depend on continued partner support, the local
security conditions and the development of an effective market for gas
in Nigeria.
We expect gas flaring from our Majnoon operations in Iraq to rise in
coming years as oil production increases while we evaluate with our
partners the most effective way to capture the associated gas. In the
south of Iraq we set up a joint venture to capture the associated gas
currently being flared from non-operated fields in Basrah province.
Spills
Large spills of crude oil, oil products and chemicals associated with
our operations can result in major clean-up costs as well as fines and
other damages. They can also affect our licence to operate and harm
our reputation. We have clear requirements and procedures designed
to prevent spills, and multibillion dollar programmes are underway to
maintain or improve our facilities and pipelines.
Shell business units are responsible for organising and executing oil
spill responses in line with Shell guidelines as well as with national
legislation. All our offshore installations have plans in place to respond
to a spill. These plans detail response strategies and techniques,
available equipment, and trained personnel and contacts. We are
able to call upon significant resources such as containment booms,
collection vessels and aircraft. We are also able to draw upon the
contracted services of oil spill response organisations, if required. We
conduct regular exercises to ensure these plans remain effective.
Shell is a founding member of the Marine Well Containment
Company, a non-profit industry consortium to provide a containment
response system for the Gulf of Mexico. In addition, Shell is operating
the Subsea Well Response Project, an industry cooperative effort to
enhance global well-containment capabilities.
Shell also maintains site-specific emergency response plans in the
event of an onshore spill. Like the offshore response plans, these are
designed to meet Shell guidelines as well as relevant legal and
regulatory requirements. They also provide for initial assessment of
incidents and the mobilisation of resources needed to manage them.
In 2012, the number of operational spills of more than 100 kilograms
decreased to 204, down from 211 in 2011. As of the end of February
2013, there were three spills under investigation in Nigeria that may
result in adjustments to the 2012 data. The number of operational
spills of more than 100 kilograms for 2011 was updated to 211 from
207 to reflect completion of investigations into spills.
As previously noted, detailed data and information on our 2012
environmental and social performance will be published in April 2013
in the Shell Sustainability Report.
Although oil spills in Nigeria resulting from sabotage and theft of
crude oil remain a significant challenge, there are instances where
spills occur in our operations due to operational failures, accidents or
corrosion. SPDC has been working to reduce operational spills that
are under its control. It maintains a public website to track the
response, investigation and clean-up of every spill from its facilities
due to operational failure, sabotage or theft.
In 2011, the United Nations Environment Programme (UNEP) released
a study of oil spills in Ogoniland, where SPDC operated until 1993.
SPDC accepted the recommendations of the UNEP report, and has
established an independent scientific advisory panel to review SPDC
practices in the rehabilitation and remediation of oil spill sites in the
Niger Delta. In July 2012, the Federal Government of Nigeria
established the Hydrocarbon Pollution Restoration Project – an
essential first step to implement the recommendations of the UNEP
report. Since the release of the UNEP report, SPDC has undertaken a
range of interim activities in Ogoniland where it was free to do so,
including helping fund the provision of emergency water supplies and
installing permanent water facilities in one affected area, launching a
community health outreach programme across Ogoniland, and
cleaning up a number of sites where SPDC was granted access. The
response to the UNEP report will require a joint effort by all
stakeholders, and SPDC intends to play its full part.
Hydraulic fracturing
Over the last decade, we have expanded our onshore oil and gas
portfolio using advances in technology to access previously
uneconomic tight oil and gas resources, including those locked in
shale formations.
One of the key technologies applied in tight-oil and tight-gas fields is
known as hydraulic fracturing, a technique that has been used since
the 1950s. It involves pumping a mixture of water, sand and chemical
additives at very high pressure into a rock formation, creating tiny
fissures through which oil and gas can flow. To protect and isolate
potable groundwater from hydraulic-fracturing fluids in the wellbore,
we line our tight-oil and tight-gas wells with steel casing and cement.
All of our oil and gas wells are expected to have two or more
subsurface barriers to protect groundwater. We monitor a wellbore’s
integrity during and, in many cases, after hydraulic fracturing. When
we acquire assets, we evaluate the assets’ wells for conformity with
our safety and operating principles, and put in place a plan with a
timeline for rectifying any inconsistencies.
We recycle or reuse as much water as we believe is reasonably
practical. We store, treat or dispose of water in accordance with
regulatory requirements.
To the extent allowed by our suppliers, Shell makes the material safety
data sheet information available for locations where wells are being
hydraulically fractured. Shell supports regulation to require suppliers
to release such information. The chemicals used in hydraulic fracturing
will vary from well to well and from contractor to contractor, but some
can be toxic. For that reason, we have stringent procedures for
handling hydraulic-fracturing chemicals in accordance with the design
and assurance processes described above. The formations into which
these additives may be injected are typically more than a thousand
metres below freshwater aquifers. Our procedures require that potable
groundwater must be isolated from well completion and production
activities. Moreover, we only use air, water or a water-based liquid
while drilling through the potable groundwater aquifer to a depth
considerably below the aquifer. The casing and cement are then put in
place before drilling is resumed and hydraulic fracturing is initiated.
In June 2012, methane was detected in a well and a stream in Tioga
County, Pennsylvania, USA. Shell plugged the well, halting the release
of methane to the surface. Our investigation determined that a well
abandoned in the 1930s was the likely conduit for the methane gas
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and water that reached the surface. We are taking additional
precautionary measures to reduce the risk of abandoned wells
potentially being a conduit for methane to reach water sources.
There have been reports linking hydraulic fracturing to earth tremors.
Most seismic events occur naturally due to motion along faults under
stress in the earth’s crust. Some areas are more seismically active than
others. While more than 1.1 million wells in the USA have been
hydraulically fractured, there have been relatively few reported cases
of seismicity detected at the surface near the time and vicinity of such
operations. Shell analyses publicly available seismic, geologic and
geophysical data to determine historical seismicity in areas where we
plan to operate, and if seismic activity beyond historic levels is
detected, we will investigate and review our operations.
Some jurisdictions are considering more stringent permitting, well
construction or other regulations relating to fracturing, as well as local
bans and other land use restrictions. Such regulations could subject
our operations to delays, increased costs or prohibitions.
Oil sands
We are developing mineable oil sands resources in Alberta, Canada.
We use hot water to remove bitumen, which is a heavy oil. Tailings
are the residual by-products that remain after the bitumen is separated
from the mined oil sands ore. They are composed of some residual
bitumen, water, sand, silt, heavy metals, and clay particles. Tailings
are stored in an above-ground tailings pond or in mined-out pits.
Tailings contain naturally occurring chemicals that are toxic; we
monitor them continuously, assess their potential environmental
impact, and take measures to protect wildlife and to prevent
contamination of surface water and groundwater. The tailings
management areas at the Athabasca Oil Sands Project’s Muskeg River
and Jackpine mines cover an area of 24 square kilometres.
The land that is mined must be reclaimed – for example, through
revegetation or reforestation – to a capability equivalent to that which
existed prior to development, as required by the Alberta government.
When dried, tailings are blended and treated to produce material
suitable for use in land reclamation. We continue to work with the
Energy Resources Conservation Board of Alberta to ensure we meet
the requirements of Directive 074, a regulation which was introduced
in 2009 to reduce the amount of liquid tailings, thereby speeding up
land reclamation.
We also continue to work on tailings technology and collaborate with
research institutions and other operators to advance solutions and
ultimately accelerate the pace of land reclamation.
In late 2010, we found water at the bottom of a section of a pit at the
Muskeg River Mine. The water was confirmed to be saline and to
originate from an aquifer below the mine pit. We continue to work
closely with the local authorities and industry experts to develop a
permanent solution. Meanwhile, the water is contained within a
segregated area in the pit.
Exploration in Alaska
In 2012, Shell started a multi-year drilling programme in the Beaufort
and Chukchi seas off the coast of Alaska. We previously operated for
almost 50 years in Alaska, including in both these seas, until 1998.
We are therefore familiar with these shallow waters and the
hydrocarbon reservoirs beneath them, which are of relatively low
pressure. Our preparations to explore for oil in 2012 followed a
number of years of work to lay the foundations for the responsible
development of the area’s potential resources. We have worked
closely with regulators, local communities and other organisations to
develop what we believe are appropriate safeguards.
To prepare for drilling off the coast of Alaska, we have developed a
thorough oil spill response capability that includes capping and
containment equipment, and oil spill response vessels.
In 2012, we completed our top-hole drilling operations off the North
Slope. This was conducted safely, in accordance with permits and
regulatory standards. This work has prepared the ground for
continued drilling. However, there were challenges. For example,
during the first full-scale deployment test of our containment dome, the
dome was damaged. We have since put in place a comprehensive
plan to repair and modify the dome. We also experienced challenges
in moving our rigs to and from the area of operations.
In October 2012, the Arctic Challenger, a purpose-built oil spill
containment vessel, received U.S. Coast Guard certification and
classification from the American Bureau of Shipping, which was too
late for the 2012 drilling season. At the end of February 2013, the
final inspection by the U.S. Department of the Interior (Bureau of
Safety and Environmental Enforcement) was pending.
After successfully completing its role in supporting our 2012 Alaska
exploration programme, Shell’s Alaska drilling unit Kulluk encountered
a series of challenges posed by severe weather and mechanical issues
with its tow ship while on its way to Washington State for
maintenance. These incidents caused the Kulluk to run aground off the
southern coast of Alaska, before being successfully moored off the
coast of Kodiak Island. This occurred after completion of our
exploration programme and did not involve drilling operations. We
are cooperating with the U.S. Coast Guard investigation and are
carrying out a detailed assessment of the vessel.
We have decided to pause our exploration drilling activity for 2013 in
Alaska’s Beaufort and Chukchi seas to prepare equipment and plans
for a resumption of activity at a later stage. Our exploration in Alaska
is a long-term programme that we intend to pursue in a safe and
measured way.
Water
Global demand for fresh water is growing while access to fresh water
is becoming more constrained in some parts of the world. It is
estimated that, by 2025, two-thirds of the world’s population will live
in areas where the demand for fresh water exceeds the available
amount or where the water’s poor quality restricts its use.
As world energy demand rises, the energy industry is becoming one of
the larger industrial consumers of fresh water globally. Shell’s water
footprint may expand in the future with the development of
unconventional resources, such as shale oil and gas, oil sands, and
our biofuel business. A combination of increasing demand for water
resources, growing stakeholder expectations and concerns, and
water-related legislation may drive actions that affect our ability to
secure access to fresh water and to discharge water from our
operations.
At our oil sands operations in Canada we use far less than our water
allocation from the Athabasca River, and we minimise the amount
withdrawn during the winter months, when the flow rate is low. We
also reduce the amount of fresh water needed in operations by
recycling water from the tailings ponds. About 80% of the water we
use is recycled, and we are investigating new ways to further reduce
fresh water intake.
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Our Pearl GTL plant in Qatar does not take fresh water from its arid
surroundings and water produced in the GTL manufacturing process is
recycled in the operation.
Biofuels
The international market for biofuels is growing, driven largely by the
introduction of new energy policies in Europe and the USA that call for
more renewable, lower-carbon fuels for transport. Shell predicts that
biofuels will increase from 3% of the global transport fuel mix today to
more than 10% by 2050. Sustainable biofuels are expected to play an
increasingly important role in helping to meet our customers’ fuel
needs and reduce CO2 emissions.
Sustainability challenges exist with today’s biofuels. These include:
CO2 emissions that vary according to the raw materials, production
and distribution processes used; competition with food crops for
available land; and labour rights.
We are one of the world’s largest biofuels distributors. We include our
own long-established sustainability clauses in our supply contracts and
where possible, we source biofuels that have been certified against
internationally recognised sustainability standards. These clauses are
designed to prevent the sourcing of biofuels from suppliers that may
not abide by human rights guidelines, or that may have cleared land
rich in biodiversity.
We are also developing our own capabilities to produce sustainable
biofuel components. The Raízen joint venture produces approximately
2 billion litres annually of ethanol from sugar cane in Brazil – the most
sustainable and cost-competitive of today’s biofuels. This ethanol can
reduce CO2 emissions by around 70% compared with gasoline, from
cultivation of the sugar cane to using the ethanol as fuel.
The joint-venture agreement includes developing joint sustainability
principles, standards and operating procedures that also apply to
third-party suppliers. We also continue to work with industry,
governments and voluntary organisations towards the development of
global sustainability standards for biofuels.
We continue to invest in developing more advanced biofuels for the
future. These new technologies will take time to reach commercial
scale. Government support will be required to accelerate their speed
of development.
Environmental costs
We are subject to a variety of environmental laws, regulations and
reporting requirements in the countries where we operate. Infringing
any of these laws, regulations and requirements could result in
significant costs, including clean-up costs, fines, sanctions, and third-
party claims, as well as harm our ability to do business and our
reputation.
Our ongoing operating expenses include the costs of avoiding
unauthorised discharges into the air and water, and the safe disposal
and handling of waste.
We place a premium on developing effective technologies that are
also safe for the environment. However, when operating at the
forefront of technology, there is always the possibility that a new
technology brings with it environmental impacts that have not been
assessed, foreseen or determined to be harmful, when originally
implemented. While we believe we take all reasonable precautions to
limit these risks, we are subject to additional remedial environmental
and litigation costs as a result of our operations’ unknown and
unforeseeable impacts on the environment. Although these costs have
so far not been material to Shell, no assurance can be made that this
will always be the case.
In this regard, as oil and gas fields age, it is possible in certain
circumstances for seismic activity to increase based on the unique
geology of individual fields. For example, after more than 60 years of
developing the Groningen gas field in the Netherlands, seismic
activity has recently increased leading to measurable earth tremors.
Our Dutch joint venture is currently reviewing its operations, in
consultation with Dutch authorities.
Neighbouring communities
Gaining the trust of local communities is essential to the success of our
projects and operations. We have global requirements for social
performance – how we perform in our relationship with communities.
The requirements set clear rules and expectations for how we engage
with and respect communities that may be impacted by our operations.
For all major installations and new projects we appoint a person who
is responsible for assessing social impacts and finding ways to
mitigate them. In addition, we have specific requirements for
minimising our impact on indigenous peoples’ traditional lifestyles,
and on handling involuntary resettlement and grievance issues.
reports.shell.com Shell Annual Report and Form 20-F 2012
Business Review > Section 13(r) of the US Securities Exchange Act of 1934 disclosure
51
SECTION 13(r) OF THE
US SECURITIES EXCHANGE
ACT OF 1934 DISCLOSURE
In accordance with our General Business Principles and Code of
Conduct, Shell seeks to comply with all applicable international trade
laws including applicable sanctions and embargoes.
The activities listed below have been conducted outside the US by non-
US Shell subsidiaries. For the disclosure below, amounts have been
converted into US dollars at the average or spot exchange rate, as
appropriate. We do not believe that any of the transactions or
activities listed below violated US sanctions.
In 2010, we ceased all of our Upstream commercial activities and
suspended new business development in Iran, as a direct consequence
of the international sanctions imposed on the country.
We recently began the process to close our small representative office
in Iran and terminate all its activities. During 2012, local payments
made in connection with this office were transacted through Bank
Tejarat, and subsequently through Bank Karafarin. All payments were
made in local currency.
In 2012, in connection with staff employed at this office, as well as
Iranian expatriates, we paid $635,486 in social security and other
payroll taxes to the Iranian government. We also paid $167,071 in
rental taxes, as well as $573,338 in corporate and withholding taxes,
the majority of which relates to prior years’ commercial activities. In
addition, we paid $14,378 for electricity, gas, telecommunications
and water to the following suppliers: Mobile Telecommunication
Company of Iran, Tehran Electrical Distribution Company, Tehran
Province Gas Company, Tehran Province Water and Wastewater, and
Telecommunication Company of Tehran. None of the above activities
generated gross revenue or net profit during 2012.
Some of the suppliers to our local representative office, which
themselves are not blocked pursuant to US Executive Order
Nos. 13224 or 13382, have used banks that are blocked pursuant to
those US Executive Orders. In 2012, some payments to the accounts of
these suppliers, and to the accounts of our local employees, were
made through Bank Eghtesad Novin, Bank Karafarin, Bank Mellat,
Bank Melli, Bank Pasargad, Bank Refah, Bank Saderat, Bank Saman,
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Bank Sarmayeh, Bank Sepah and Bank Tejarat. We no longer make
payments to accounts held at these banks, with the exception of Bank
Karafarin where we maintain an account for local transactions. None
of these activities generated gross revenue or net profit in 2012.
However, in 2012, our balance of $6.5 million in the banks discussed
above, used to fund local activities, generated non-taxable interest
income of $1.4 million.
In Downstream, through Shell’s trading activities, we purchased crude
oil, condensate and fuel oil from Iran for trading purposes, and for
petrochemical and refining operations. In 2012, our crude oil
purchases from Iran generated a gross revenue of $481 million and a
net loss of $6 million; our condensate and fuel oil purchases from Iran
generated a gross revenue of $631 million and a net profit of
$4 million. None of these purchases has been paid for, and all
contracts were terminated and activities ceased before June 28,
2012.
In Downstream, through Shell’s retail credit cards activities, we
provided retail services to the following Iranian diplomatic missions:
Botschaft der Islamischen Republik Iran and Permanent Mission of the
Islamic Republic of Iran, in Austria; Délégation permanente de la
République islamique d’Iran auprès de l’UNESCO, in France;
Consulate General of the Islamic Republic of Iran, in Hong Kong,
China; Iráni Nagykövetség, in Hungary; Embassy of the Islamic
Republic of Iran, in the Netherlands; and Mission Permanente d’Iran,
in Switzerland. In 2012, these activities generated a gross revenue of
$97,829 and a net profit of $2,354. We are in the process of either
terminating these contractual agreements or transferring them to third
parties as part of larger agreements. Through Shell’s retail credit cards
activities, we also provided retail services in Switzerland to Naftiran
Intertrade Co. (NICO) Sàrl. In 2012, this activity generated a gross
revenue of $10,353 and a net profit of $286. This contract was
terminated in February 2013.
In Downstream, through Shell’s marine activities, we provided in 2012
oil analysis relating to lubricants used in machinery and equipment on
ships to a non-sanctioned third party for the Iranian vessel “Souvenir”.
This service did not generate any gross revenue. We have informed
the third party that we will no longer provide any services for vessels
that are subject to US sanctions.
Currently, we have approximately $2,336 million payable to, and
$11 million receivable from, National Iranian Oil Company. We are
unable to settle the payable position as a result of applicable
sanctions.
52
Shell Annual Report and Form 20-F 2012 reports.shell.com
The Board of Royal Dutch Shell plc
THE BOARD OF ROYAL DUTCH SHELL PLC
Jorma Ollila
CHAIRMAN
Born August 15, 1950. A Finnish national, appointed Chairman of the
Company with effect from June 2006. He started his career at
Citibank in London and Helsinki, before moving in 1985 to Nokia,
where he became Vice President of International Operations.
In 1986, he was appointed Senior Vice President Finance and
between 1990 and 1992 he served as President of Nokia Mobile
Phones. Between 1992 and 1999 he was President and Chief
Executive Officer of Nokia, and from 1999 to 2006 he was Chairman
and Chief Executive Officer. He remained Chairman from 2006 until
May 2012.
member of the Supervisory Board of Aegon N.V. from 2004 to 2006,
a member of the Supervisory Board of UBS AG from 2005 to April
2010 and a member of the Swiss Federal Auditor Oversight Authority
from 2006 to December 2010. In 2011, he was awarded the title of
Dato Seri Laila Jasa by the Sultan of Brunei.
He is a Director of Catalyst, a non-profit organisation which works to
build inclusive environments and expand opportunities for women and
business, and he was appointed to the Board of Directors of Roche
Holdings Limited in March 2011. He is also active in a number of
international and bilateral organisations, including the European
Round Table of Industrialists and The Business Council.
Chairman of the Nomination and Succession Committee
Simon Henry
CHIEF FINANCIAL OFFICER
Hans Wijers
DEPUTY CHAIRMAN AND SENIOR INDEPENDENT DIRECTOR
Born January 11, 1951. A Dutch national, appointed a Non-executive
Director of the Company with effect from January 2009. Until April
2012 he was Chief Executive Officer and Chairman of the Board of
Management of Akzo Nobel N.V., a position he had held since 2003.
He obtained a PhD in economics from Erasmus University Rotterdam
while teaching there. Later, he became Managing Partner of The
Boston Consulting Group. He served as Dutch Minister for Economic
Affairs from 1994 to 1998, after which he returned to The Boston
Consulting Group as Senior Partner until his appointment as a Board
member of Akzo Nobel N.V. in 2002. He is Chairman of the
Supervisory Board of AFC Ajax N.V., a member of the Supervisory
Board of Heineken N.V., and a trustee of various charities. In January
2013, he was appointed a Non-executive Director of GlaxoSmithKline
plc with effect from April 1, 2013.
Chairman of the Remuneration Committee and Member of the
Nomination and Succession Committee
Peter Voser
CHIEF EXECUTIVE OFFICER
Born August 29, 1958. A Swiss national, appointed Chief Executive
Officer of the Company with effect from July 2009. He first joined
Shell in 1982 and held a variety of finance and business roles in
Switzerland, the UK, Argentina and Chile, including Chief Financial
Officer of Oil Products. In 2002, he joined the Asea Brown Boveri
(ABB) Group of Companies as Chief Financial Officer and a member
of the ABB Group Executive Committee.
Born July 13, 1961. A British national, appointed Chief Financial
Officer of the Company with effect from May 2009. He joined Shell in
1982 as an engineer at the Stanlow refinery in the UK. After
qualifying as a member of the Chartered Institute of Management
Accountants in 1989, he held various finance posts, including Finance
Manager of Marketing in Egypt, Controller for the Upstream business
in Egypt, Oil Products Finance Adviser for Asia-Pacific, Finance
Director for the Mekong Cluster and General Manager Finance for the
South East Asian Retail business.
He was appointed Head of Group Investor Relations in 2001 and
Chief Financial Officer for Exploration & Production in 2004.
Josef Ackermann
NON-EXECUTIVE DIRECTOR
Born February 7, 1948. A Swiss national, appointed a Non-executive
Director of the Company in May 2008. He is Chairman of the Board
of Directors of Zurich Insurance Group Limited and of Zurich Insurance
Company Limited, positions he has held since March 2012.
He started his professional career in 1977 at Schweizerische
Kreditanstalt (SKA), where he held a variety of positions in corporate
banking, foreign exchange/money markets, treasury and investment
banking. In 1990, he was appointed to SKA’s Executive Board, on
which he served as President between 1993 and 1996. He joined
Deutsche Bank’s Management Board in 1996 with responsibility for
the investment banking division and, from 2006 and 2002
respectively until May 2012, he was Chairman of the Management
Board and of the Group Executive Committee of Deutsche Bank AG.
He is a member of the Supervisory Board of Siemens AG, the Board of
Directors of Investor AB and a number of advisory boards. He also has
various roles in several foundations and academic institutions.
He returned to Shell in October 2004, when he became a Managing
Director of The “Shell” Transport and Trading Company, p.l.c. and
Chief Financial Officer of the Royal Dutch/Shell Group. He was a
Member of the Nomination and Succession Committee and the
Remuneration Committee
reports.shell.com Shell Annual Report and Form 20-F 2012
The Board of Royal Dutch Shell plc
53
Guy Elliott
NON-EXECUTIVE DIRECTOR
Christine Morin-Postel
NON-EXECUTIVE DIRECTOR
Born December 26, 1955. A British national, appointed a
Non-executive Director of the Company with effect from September
2010. He is Chief Financial Officer of Rio Tinto plc and Rio Tinto
Limited, positions he has held since 2002.
Following a period in investment banking, he joined the Rio Tinto
Group in 1980 after gaining an MBA at INSEAD. He has held a
variety of marketing, strategy and general management positions,
including Head of Business Evaluation and President of Rio Tinto
Brasil. He was a Non-executive Director and the Senior Independent
Director of Cadbury plc from 2007 and 2008 respectively until March
2010. While on the Cadbury Board, he served as Chairman of the
Audit Committee until April 2009. He has been a member of the UK
Takeover Panel since 2012.
Chairman of the Audit Committee
Charles O. Holliday
NON-EXECUTIVE DIRECTOR
Born March 9, 1948. A US national, appointed a Non-executive
Director of the Company with effect from September 2010. He served
as Chief Executive Officer of DuPont from 1998 to January 2009, and
as Chairman from 1999 to December 2009. He joined DuPont in
1970 after receiving a B.S. in industrial engineering from the
University of Tennessee and held various manufacturing and business
assignments, including a six-year, Tokyo-based posting as President of
DuPont Asia/Pacific, before becoming Chairman and Chief Executive
Officer.
He previously served as Chairman of the World Business Council for
Sustainable Development, Chairman of The Business Council,
Chairman of Catalyst, Chairman of the Society of Chemical Industry –
American Section, and is a founding member of the International
Business Council. He is Chairman of the Board of Directors of Bank of
America Corporation and a Director of Deere & Company.
Chairman of the Corporate and Social Responsibility Committee and
Member of the Remuneration Committee
Gerard Kleisterlee
NON-EXECUTIVE DIRECTOR
Born September 28, 1946. A Dutch national, appointed a Non-
executive Director of the Company with effect from November 2010.
He was President/Chief Executive Officer and Chairman of the Board
of Management of Koninklijke Philips Electronics N.V. from 2001 to
March 2011. Having joined Philips in 1974, he held several positions
before being appointed as Chief Executive Officer of Philips’
Components division in 1999 and Executive Vice-President of Philips
in 2000.
He is Chairman of Vodafone Group plc, a member of the Supervisory
Board of Daimler AG, and a Director of Dell Inc.
Born October 6, 1946. A French national, appointed a Non-executive
Director of the Company in October 2004. She was a member of the
Supervisory Board of Royal Dutch Petroleum Company (Royal Dutch)
from July 2004 and was a Board member of Royal Dutch until
December 2005.
Previously, she was Chief Executive of Société Générale de Belgique,
Executive Vice-President and a member of the Executive Committee of
Suez S.A., Chairman and Chief Executive Officer of Crédisuez S.A.
and a Non-executive Director of Pilkington plc, Alcan Inc. and EXOR
S.p.A. She is a Non-executive Director of British American Tobacco
plc.
Member of the Audit Committee
Sir Nigel Sheinwald GCMG
NON-EXECUTIVE DIRECTOR
Born June 26, 1953. A British national, appointed a Non-executive
Director of the Company with effect from July 2012. He was a senior
British diplomat who served as British Ambassador to the USA from
2007 to 2012. He joined the Diplomatic Service in 1976 and served
in Brussels (twice), Washington and Moscow and in a wide range of
policy roles in London. He served as British Ambassador and
Permanent Representative to the European Union in Brussels from
2000 to 2003. Prior to his appointment as British Ambassador to the
USA, he served as Foreign Policy and Defence Adviser to the Prime
Minister and Head of the Cabinet Office Defence and Overseas
Secretariat. He retired from the Diplomatic Service in March 2012. He
is a Senior Adviser to the Universal Music Group and Visiting
Professor at King’s College, London.
Member of the Corporate and Social Responsibility Committee
Linda G. Stuntz
NON-EXECUTIVE DIRECTOR
Born September 11, 1954. A US national, appointed a Non-executive
Director of the Company with effect from June 2011. She is a founding
partner of the law firm of Stuntz, Davis & Staffier, P.C., based in
Washington, D.C. Her law practice includes energy and
environmental regulation as well as matters relating to government
support of technology development and transfer. From 1989 to 1993,
she held senior policy positions at the U.S. Department of Energy,
including Deputy Secretary. She played a principal role in the
development and enactment of the Energy Policy Act of 1992.
From 1981 to 1987, she was an Associate Minority Counsel and
Minority Counsel to the Energy and Commerce Committee of the
U.S. House of Representatives. She chaired the Electricity Advisory
Committee to the U.S. Department of Energy from 2008 to 2009, and
was a member of the Board of Directors of Schlumberger Limited from
1993 to 2010. She is a member of the Board of Directors of Raytheon
Company.
Member of the Audit Committee
Member of the Audit Committee
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Shell Annual Report and Form 20-F 2012 reports.shell.com
The Board of Royal Dutch Shell plc
Jeroen van der Veer
NON-EXECUTIVE DIRECTOR
Born October 27, 1947. A Dutch national, appointed a Non-executive
Director of the Company with effect from July 2009. Previously, he
was Chief Executive from October 2004. He was appointed President
of Royal Dutch Petroleum Company in 2000, having been a
Managing Director since 1997. He was a Director of Shell Canada
Limited from 2003 until 2005.
He was Vice-Chairman and Senior Independent Director of Unilever
(which includes Unilever N.V. and Unilever plc) until May 2011 and is
Chairman of the Supervisory Boards of Koninklijke Philips Electronics
N.V. and of ING Group. He also has various roles in several
foundations and charities.
Member of the Corporate and Social Responsibility Committee
Gerrit Zalm
NON-EXECUTIVE DIRECTOR
Born May 6, 1952. A Dutch national, appointed a Non-executive
Director of the Company with effect from January 1, 2013. He is
Chairman of the Board of Management of ABN AMRO Bank N.V., a
position he has held since February 2009. Before joining ABN
AMRO, he was the Minister of Finance of the Netherlands from 1994
until 2002, Chairman of the VVD Liberal Party in the Lower House
(2002) and Minister of Finance from 2003 until 2007. During 2007
until 2009 he was an adviser to PricewaterhouseCoopers (2007),
Chairman of the trustees of the International Accounting Standards
Board (2007-2010), an adviser to Permira (private equity fund)
(2007-2008) and Chief Financial Officer of DSB Bank (2008). Prior to
1994, he was head of the Netherlands Bureau for Economic Policy
Analysis, a professor at Vrije Universiteit Amsterdam and held various
positions at the Ministry of Finance and at the Ministry of Economic
Affairs. He studied General Economics at Vrije Universiteit Amsterdam
and received an Honorary Doctorate in Economics from this university.
Member of the Corporate and Social Responsibility Committee
Michiel Brandjes
COMPANY SECRETARY
Born December 14, 1954. A Dutch national, appointed as Company
Secretary and General Counsel Corporate of the Company in
February 2005. He joined Shell in 1980 as a Legal Adviser and was
later appointed Head of Legal in Singapore. Following a period as
Head of Legal in China, he was appointed Company Secretary of
Royal Dutch Petroleum Company.
reports.shell.com Shell Annual Report and Form 20-F 2012
Senior Management
55
SENIOR MANAGEMENT
The Senior Management of the Company comprises the Executive
Directors and those listed below. All are members of the Executive
Committee (see page 80).
Hugh Mitchell
CHIEF HUMAN RESOURCES & CORPORATE OFFICER
Ben van Beurden
DOWNSTREAM DIRECTOR
Born April 23, 1958. A Dutch national, appointed Downstream
Director with effect from January 1, 2013. Previously he was Executive
Vice President Chemicals, and has held various engineering, plant
management and operations and commercial roles in the Netherlands,
Africa, Malaysia, the UK and the USA.
Matthias Bichsel
PROJECTS & TECHNOLOGY DIRECTOR
Born July 24, 1954. A Swiss national, appointed Projects &
Technology Director with effect from July 1, 2009. Previously, he was
Executive Vice President Development and Technology, being
responsible for delivering reserves and production from new upstream
projects, as well as providing technology applications and research
via Shell’s Upstream technology organisation.
Andrew Brown
UPSTREAM INTERNATIONAL DIRECTOR
Born January 29, 1962. A British national, appointed Upstream
International Director with effect from April 1, 2012. Previously he
was Executive Vice President for Shell’s activities in Qatar and a
member of the Upstream International Leadership Team. He was
awarded the Order of the British Empire in 2012 for his services to
British-Qatari business relations.
Born February 13, 1957. A British national, appointed Chief Human
Resources & Corporate Officer with effect from July 1, 2009. In 1997,
he became HR Vice President for the Global Oil Products business and
in 2003 was appointed Director International, one of the Royal Dutch/
Shell Group’s Corporate Centre Directors. In 2005, he was appointed
Human Resources Director of Shell.
Marvin Odum
UPSTREAM AMERICAS DIRECTOR
Born December 13, 1958. A US national, appointed Upstream
Americas Director with effect from July 1, 2009. Previously, he was
Executive Vice President for the Americas for Shell Exploration &
Production. He was appointed President of Shell Oil Company in
2008, having served as Executive Vice President since 2005 with
responsibility for Shell’s Exploration & Production businesses in the
western hemisphere.
Peter Rees QC
LEGAL DIRECTOR
Born April 21, 1957. A British national, appointed Legal Director with
effect from January 1, 2011. He started his legal career in 1979 at the
international law firm Norton Rose. He became a partner in 1987 and
Head of Dispute Resolution and a member of the Executive Committee
in 1997. In 2006, he joined Debevoise & Plimpton as a partner in its
London office. In 2009, he was appointed Queen’s Counsel.
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Shell Annual Report and Form 20-F 2012 reports.shell.com
Report of the Directors
REPORT OF THE DIRECTORS
Principal activities
Royal Dutch Shell plc (the Company) is a holding company which
owns, directly or indirectly, investments in the numerous companies
constituting Shell. Shell is engaged worldwide in the principal aspects
of the oil and gas industry and also has interests in chemicals and
other energy-related businesses. Details of the Company’s subsidiaries
can be found in Exhibit 8.
Business Review
The information that fulfils the requirements of the Business Review can
be found in the “Chairman’s message” on page 5, the “Chief
Executive Officer’s review” on pages 6-7 and also in the “Business
Review” on pages 8-51, all of which are incorporated in this Report of
the Directors by way of reference. This Report of the Directors also
serves as the Management Report for the purpose of Disclosure and
Transparency Rule 4.1.8R. Throughout this Report of the Directors, the
Board aims to present a balanced and understandable assessment of
the Company’s position and prospects in its reporting to shareholders
and other interested parties.
Research and development
Shell carries out its research and development programmes in a
worldwide network of technology centres complemented by external
partnerships. The main technology centres are in the Netherlands and
the USA, with other centres in Canada, China, Germany, India,
Norway, Oman, Qatar and the UK. Further details of Shell’s research
and development, including expenditure, can be found on
pages 18-19 of the “Business Review” as well as in the “Consolidated
Statement of Income”.
Recent developments and post-balance sheet
events
Recent developments and post-balance sheet events are given in
Note 28 to the “Consolidated Financial Statements”.
Financial statements and dividends
The “Consolidated Statement of Income” and “Consolidated Balance
Sheet” are available on pages 99 and 100 respectively.
The table below sets out the dividends on each class of share and each
class of American Depositary Share (ADS [A]). The Company
announces its dividends in US dollars and, at a later date, announces
the euro and sterling equivalent amounts using a market exchange
rate.
[A] ADSs are listed on the New York Stock Exchange under the symbols RDS.A
and RDS.B. Each ADS represents two shares – two A shares in the case of
RDS.A or two B shares in the case of RDS.B.
Dividends on A shares are paid by default in euros, although holders
are able to elect to receive dividends in sterling. Dividends on B shares
are paid by default in sterling, although holders are able to elect to
receive dividends in euros. Dividends on ADSs are paid in US dollars.
In September 2010, the Company introduced a Scrip Dividend
Programme which enables shareholders to increase their shareholding
by choosing to receive new shares instead of cash dividends, if
approved by the Board. Only new A shares are issued under the
programme, including to shareholders who hold B shares. Full details
of the programme can be found at www.shell.com/dividend.
The Directors have announced a fourth quarter interim dividend as set
out in the table below, payable on March 28, 2013, to shareholders
on the Register of Members at close of business on February 15,
2013. The closing date for scrip election and dividend currency
election was March 1, 2013 [B]. The euro and sterling equivalents
announcement date was March 8, 2013.
[B] Different scrip and dividend currency election dates may apply to
shareholders holding shares in a securities account with a bank or other
financial institution ultimately holding through Euroclear Nederland. Such
shareholders can obtain the applicable deadlines from their broker,
financial intermediary, bank or other financial institution where they hold
their securities account. A different scrip election date may also apply to
registered and non-registered ADS holders. Registered ADS holders can
contact The Bank of New York Mellon for the applicable deadline. Non-
registered ADS holders can contact their broker, financial intermediary,
bank or other financial institution for the applicable election deadline.
Creditor payment policy and practice
Statutory regulations issued under the UK Companies Act 2006 (the
Act) require a public company to make a statement of its policy and
practice on the payment of trade creditors. As a holding company
whose principal business is to hold shares in subsidiaries, the
Company has no trade creditors. Given the international nature of
DIVIDENDS
Q1
Q2
Q3
Q4
Total announced in respect of the year
Amount paid during the year
$
0.43
0.43
0.43
0.43
1.72
€
0.3468
0.3421
0.3333
0.3314
1.3536
1.3424
A shares
pence
27.92
27.08
26.86
28.79
110.65
108.60
$
0.43
0.43
0.43
0.43
1.72
pence
27.92
27.08
26.86
28.79
110.65
108.60
B shares[A]
A ADSs
€
0.3468
0.3421
0.3333
0.3314
1.3536
1.3424
$
0.86
0.86
0.86
0.86
3.44
3.42
2012
B ADSs
$
0.86
0.86
0.86
0.86
3.44
3.42
[A] It is expected that holders of B shares will receive dividends through the dividend access mechanism applicable to such shares. The dividend access
mechanism is described more fully on pages 85-86.
Shell’s operations there is no specific company-wide creditor payment
policy. Relationships with suppliers are governed by Shell’s
commitment to long-term relations, based on trust and mutually
beneficial arrangements. Shell U.K. Limited, Shell’s most significant UK
operating company, had approximately 22 days’ purchases
outstanding at December 31, 2012 (2011: 30 days), based on the
average daily amount invoiced by suppliers during the year. Shell
U.K. Limited has adopted the Prompt Payment Code, a copy of which
is available from the Company Secretary.
Directors’ responsibilities in respect of the
preparation of the annual report and accounts
The Directors are responsible for preparing the Annual Report
including the financial statements in accordance with applicable law
and regulations. Company law requires the Directors to prepare
financial statements for each financial year. Under that law the
Directors have prepared the Consolidated and Parent Company
Financial Statements in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union (EU). In
preparing these financial statements, the Directors have also elected to
comply with IFRS as issued by the International Accounting Standards
Board (IASB). Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of Shell and the Company and of the
profit or loss of Shell and the Company for that period. In preparing
these financial statements, the Directors are required to:
▪ select suitable accounting policies and then apply them consistently;
▪ make judgements and accounting estimates that are reasonable and
prudent; and
▪ state whether IFRS as adopted by the EU and IFRS as issued by the
IASB have been followed.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the transactions of Shell
and the Company and disclose with reasonable accuracy, at any time,
the financial position of Shell and the Company and to enable them to
ensure that the financial statements comply with the Companies Act
2006 and, as regards the Consolidated Financial Statements, with
Article 4 of the IAS Regulation and therefore are in accordance with
IFRS as adopted by the EU. The Directors are also responsible for
safeguarding the assets of Shell and the Company and hence for
taking reasonable steps for the prevention and detection of fraud and
other irregularities.
Each of the Directors, whose names and functions are listed on
pages 52-54, confirms that, to the best of their knowledge:
▪ the financial statements, which have been prepared in accordance
with IFRS as adopted by the EU, and with IFRS as issued by the IASB,
give a true and fair view of the assets, liabilities, financial position
and profit of Shell and the Company;
▪ the Business Review includes a fair review of the development and
performance of the business and the position of Shell, together with a
description of the principal risks and uncertainties that it faces; and
▪ he or she has taken all the steps that ought to have been taken in
order to become aware of any relevant audit information and to
establish that the auditors are aware of that information. There is no
relevant audit information of which the auditors are unaware.
reports.shell.com Shell Annual Report and Form 20-F 2012
Report of the Directors
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The Directors are responsible for the maintenance and integrity of the
Shell website (www.shell.com). Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Board of Directors
The Directors during the year were Josef Ackermann, Malcolm
Brinded (who stood down with effect from April 1, 2012), Guy Elliott,
Simon Henry, Charles O. Holliday, Lord Kerr of Kinlochard (who stood
down with effect from May 22, 2012), Gerard Kleisterlee, Christine
Morin-Postel, Jorma Ollila, Sir Nigel Sheinwald (appointed with effect
from July 1, 2012), Linda G. Stuntz, Jeroen van der Veer, Peter Voser
and Hans Wijers.
Appointment and reappointment of Directors
In line with the UK Corporate Governance Code, all Directors will retire
at each Annual General Meeting (AGM) and, subject to the Articles of
Association and their wish to continue as a Director of the Company,
seek reappointment by shareholders. At the 2013 AGM, this will include
Gerrit Zalm who was appointed as a Director of the Company by the
Board with effect from January 1, 2013. Christine Morin-Postel and
Jeroen van der Veer will not be seeking reappointment and will be
standing down at the close of business of the 2013 AGM after having
served as Non-executive Directors since July 2004 and July 2009
respectively. Prior to his role as a Non-executive Director, Jeroen van der
Veer had served as Chief Executive from October 2004 until June 2009.
The biographies of all Directors are given on pages 52-54 and, for
those seeking reappointment, also in the Notice of the AGM. Details of
the Executive Directors’ contracts can be found on page 67 and copies
are available for inspection from the Company Secretary.
Furthermore, a copy of the form of these contracts has been filed with
the U.S. Securities and Exchange Commission as an exhibit.
The terms and conditions of appointment of Non-executive Directors
are set out in their letters of appointment with the Company which, in
accordance with the UK Corporate Governance Code, are available
for inspection from the Company Secretary.
No Director is, or was, materially interested in any contract subsisting
during or at the end of the year that was significant in relation to the
Company’s business. See also “Related party transactions” on
page 58.
Financial risk management, objectives and
policies
Descriptions of the use of financial instruments and Shell’s financial
risk management objectives and policies are set out in the “Business
Review” and on pages 83-84, and also in Note 21 to the
“Consolidated Financial Statements”.
Qualifying third-party indemnities
The Company has entered into a deed of indemnity with each Director
who served during the year under identical terms. The deeds
indemnify the Directors to the widest extent permitted by the
applicable laws of England against all liability incurred as a Director
or employee of the Company or of certain other entities.
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Report of the Directors
Directors’ interests
The interests (in shares of the Company or calculated equivalents) of
the Directors in office at the end of the year, including any interests of
a “connected person” (as defined in the Disclosure and Transparency
Rules), are set out below:
DIRECTORS’ INTERESTS [A]
January 1, 2012
December 31, 2012
A shares
B shares
A shares
B shares
Josef Ackermann
10,000
–
10,253
–
Guy Elliott
Simon Henry
Charles O. Holliday
Gerard Kleisterlee
Christine Morin-Postel
Jorma Ollila
Sir Nigel Sheinwald
Linda G. Stuntz
Jeroen van der Veer
Peter Voser
Hans Wijers
–
5,677
–
5,677
9,175
50,843
9,175
51,652
–
20,000[B]
–
20,000[B]
5,000
8,485
25,000
–
–
–
5,000
8,485
25,000
–
–
–
–
–
470[C]
3,000[D]
–
–
470
8,400[E]
195,195
148,496
5,251
–
–
–
383,400
289,013
5,251
–
–
–
[A] Excludes interests in shares or options awarded under the Long-term
Incentive Plan, the Deferred Bonus Plan, and the share option plans.
Interests under these plans as at January 1, 2012, and December 31,
2012, are given on pages 72-76.
[B] Held as 10,000 ADSs (RDS.B ADS). Each RDS.B ADS represents two
B shares.
[C] At the date of appointment.
[D] Held as 1,500 ADSs (RDS.B ADS). Each RDS.B ADS represents two
B shares.
[E] Held as 4,200 ADSs (RDS.B ADS). Each RDS.B ADS represents two
B shares.
There were no changes in Directors’ share interests during the period
from December 31, 2012, to March 13, 2013, except in the case of
Simon Henry whose interests increased by 277 B shares, and for those
changes in the interests in shares or options awarded under the Long-
term Incentive Plan, the Deferred Bonus Plan, and the share option
plans set out in the “Directors’ Remuneration Report” on pages 72-76.
As at March 13, 2013, the Directors and Senior Management [A] of
the Company beneficially owned individually and in aggregate
(including shares under option) less than 1% of the total shares of each
class of the Company shares outstanding.
[A] The Senior Management of the Company is given on page 55.
The Board continues to regard the ability to repurchase issued shares
in suitable circumstances as an important part of the financial
management of the Company. A resolution will be proposed at the
2013 AGM to renew the authority for the Company to purchase its
own share capital up to specified limits for another year. More detail
of this proposal is given in the Notice of the AGM.
Political and charitable contributions
No donations were made by the Company or any of its subsidiaries to
political parties or organisations during the year. Shell Oil Company
administers the non-partisan Shell Oil Company Employees’ Political
Awareness Committee (SEPAC), a political action committee
registered with the US Federal Election Commission. Eligible
employees may make voluntary personal contributions to the SEPAC.
Shell, through individual subsidiaries, sponsors social investment
programmes in many countries throughout the world. In the UK, Shell
donated $16 million in 2012 to charitable causes and sponsorships.
This included donations to: “The Big Bang”, the UK’s largest single
science and engineering fair for young people; a climate science
gallery at the Science Museum, London; the “Shell Classic
International”, a series of international concerts held at the Royal
Festival Hall, London; and the Shell Foundation, an independent
charity established in 2000 that applies business thinking to global
development challenges.
Diversity and inclusion
Detailed information can be found in the “Business Review” on
page 46.
Employee communication and involvement
Detailed information can be found in the “Business Review” on
page 46.
Corporate social responsibility
A summary of Shell’s approach to corporate social responsibility can
be found on pages 47-50 of the “Business Review”. Further details will
be available in the Shell Sustainability Report 2012.
Essential contracts and Takeovers Directive
information
Shell does not have contracts or other arrangements that individually
are essential to its business, nor does it have any significant
agreements that would take effect, alter or terminate upon a change of
control of the Company following a takeover bid.
Related party transactions
Other than disclosures given in Notes 5 and 10 to the “Consolidated
Financial Statements”, there were no transactions or proposed
transactions that were material to either the Company or any related
party. Nor were there any transactions with any related party that
were unusual in their nature or conditions.
S HA RE C A P I TA L
The Company’s issued share capital as at December 31, 2012, is set
out in Note 11 to the “Parent Company Financial Statements”. The
percentage of the total issued share capital represented by each class
of share is given below. Other disclosure requirements pursuant to the
Takeovers Directive can be found below and on pages 85-88.
Repurchases of shares
On May 22, 2012, shareholders approved an authority, which will
expire at the end of the 2013 AGM, for the Company to repurchase
up to a maximum of 632 million of its shares (excluding share
purchases for employee share-based compensation plans). During
2012, 43.7 million B shares with a nominal value of €3.1 million
($3.7 million) (representing 0.7% of the Company’s entire issued
share capital at December 31, 2012) were purchased for cancellation
for a total cost of $1,492 million, including expenses, at an average
price of $34.13 per B share. During the period January 1, 2013, to
February 19, 2013, no share purchases were made.
SHARE CAPITAL PERCENTAGE
Share class
A ordinary
B ordinary
Sterling deferred
%
59.03
40.97
de minimis
T R A N S F E R OF SE C U R I T I E S
There are no significant restrictions on the transfer of securities.
SHARE OWNERSHIP TRUSTS
Shell currently operates three primary employee share ownership
trusts: a Dutch Stichting and two US Rabbi Trusts. The shares held by
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the Stichting are voted by the Stichting Board and the shares in the
Rabbi Trusts are voted by the Voting Trustee, Evercore Trust Company,
N.A. Both the Stichting Board and the Voting Trustee are independent
of the Company.
The UK Shell All Employee Share Ownership Plan (SAESOP) has a
separate related share ownership trust. Shares held for the SAESOP
are voted by its trustee, EES Corporate Trustees Limited, as directed by
the participants.
S I GN I FI C A N T S HA RE HOLD I N GS
Information concerning significant shareholdings is given on page 90.
A RTIC LE S OF A S S OC I A TI ON
Information concerning the Articles of Association is given on
pages 85-88.
Auditors
PricewaterhouseCoopers LLP has signified its willingness to continue in
office and a resolution for its reappointment will be proposed at the
2013 AGM.
Corporate governance
The Company’s statement on corporate governance is included in the
“Corporate governance” report on pages 77-88 and is incorporated
in this “Report of the Directors” by way of reference.
Annual General Meeting
The Annual General Meeting (AGM) will take place on May 21,
2013, at the Circustheater, Circusstraat 4, The Hague, The
Netherlands. Details of the business to be put to shareholders at the
AGM can be found in the Notice of the Annual General Meeting.
Signed on behalf of the Board
/s/ Michiel Brandjes
Michiel Brandjes
Company Secretary
March 13, 2013
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Directors’ Remuneration Report
DIRECTORS’ REMUNERATION REPORT
INDEX TO THE DIRECTORS’
REMUNERATION REPORT
Remuneration elements
Remuneration principles
Strategy alignment
Pay for performance
Competitiveness
Shareholding
Consistency
Compliance
Risk assessment
60 Letter from the Chairman of the Remuneration Committee
61 Overview
63 The Remuneration Committee
63 Remuneration policy for Executive Directors
63
64
64
64
64
64
65
65
65
65
65
65
67
67
67
68 Remuneration determinations for Executive Directors
Base salary
68
Annual bonus
68
Other cash and non-cash earnings
69
Long-term Incentive Plan
69
Deferred Bonus Plan
69
69
Pension interests
70 Non-executive Directors
70
Remuneration policy
70 Additional statutory disclosure
71 Data tables
71
75
Base salary
Annual bonus
Long-term incentives
Pensions
Contracts of employment
External appointments
Executive Directors
Non-executive Directors
Dear Shareholders,
As the Chairman of the Remuneration Committee (REMCO), I am
pleased to present the 2012 Directors’ Remuneration Report of Royal
Dutch Shell plc.
This report covers the remuneration of Directors for 2012. The
reported remuneration of Executive Directors is driven by performance
against agreed annual and multi-year targets. Key components were
the 2012 Scorecard results leading to an above target annual bonus
and the 2009 long-term incentive awards vesting at 60% of target.
Base salaries for the Executive Directors were reviewed and adjusted
with effect from January 1, 2013.
No policy changes were made during 2012.
As stated in last year’s annual report, Malcolm Brinded stood down as
an Executive Director with effect from April 1, 2012. His reported
remuneration relates to his period as an Executive Director during the
year and his end-of-service arrangements.
REMCO has had a number of interactions with shareholders during the
year. There was a consensus that the long-term performance of Shell
should guide our remuneration policies, along with our commitments
to transparency and ongoing shareholder engagement. As a
remuneration committee, we continue to operate with this in mind.
Overall we received positive feedback on our Directors’ Remuneration
Report and its consistent format. Despite this, there is always room for
improvement. This year we have made an effort to explain better how
REMCO accounts for individual performance in determining annual
bonuses. We have also adjusted the way we describe the Deferred
Bonus Plan and Directors’ shareholdings.
We subscribe to the ambition of the UK government to increase the
transparency of remuneration reporting. We therefore look forward to
the revised regulations in this area for the 2013 Directors’
Remuneration Report.
I hope you find our 2012 Directors’ Remuneration Report clear,
transparent and informative. As always, I welcome your feedback and
look forward to meeting you at our AGM on May 21, 2013.
Hans Wijers
Chairman of the Remuneration Committee
March 12, 2013
reports.shell.com Shell Annual Report and Form 20-F 2012
Directors’ Remuneration Report > Overview
61
In respect of the reward instruments in use, they are designed to make
executive reward strongly correlated to business success. Where the
results do not match business performance, REMCO has a duty to
make adjustments. The table below provides an overview of the
Executive Directors’ remuneration policy in 2012 and REMCO
decisions made in respect of each element.
Malcolm Brinded stood down as an Executive Director with effect from
April 1, 2012. In this report we include remuneration related to his
period as an Executive Director. The forward-looking statements are
related to the two remaining Executive Directors.
OVERVIEW
REMCO continued operating existing policies in 2012. Particularly in the
area of performance conditions relating to variable pay, no reviews were
required.
In 2012, we continued our constructive engagements with major
shareholders and shareholder institutions. The 2012 AGM vote resulted
in 90.88% in favour of the 2011 Remuneration Report resolution.
Further developments in the governance landscape could require
changes to our policies. During 2013, REMCO will consider share
plan design, as the existing plan rules governing long-term incentives
will expire in 2015. REMCO will seek shareholder views where
appropriate.
Base salary and pensionable
salary
Annual bonus
Policy
▪ Base salaries are quoted in euros and are reviewed in
Determinations
▪ Effective from January 1, 2013, base salaries were
January.
▪ Pensionable salaries in the base country are reviewed
at the same time on the basis of base country market
movements and conversion of the euro base salary
using long-term exchange rates.
▪ Target levels (as a percentage of base salary):
Chief Executive Officer – 150%
Other Executive Directors – 110%
Maximum bonus – 250% and 220%, respectively.
▪ Calculation of an Executive Director’s annual bonus:
– Shell results at the end of the year are translated into
a score of between zero and two, on the basis of a
predefined scorecard and REMCO’s judgement.
– Bonus awards are based on this score multiplied by
the target bonus levels, and adjusted for individual
performance as determined by REMCO.
increased as follows: Chief Executive Officer Peter Voser
to €1,640,000 (+2.5%) and Chief Financial Officer
Simon Henry to €985,000 (+4.8%).
▪ Pensionable salaries were also reviewed and, effective
January 1, 2013, increased to CHF 2,540,000 (+2.2%)
for Peter Voser and to £720,000 (+4.9%) for Simon
Henry.
▪ The Executive Directors’ Scorecard for 2012 produced a
calculated score of 1.35 which REMCO confirmed to be
the final outcome.
▪ Considered individual performance and set the
individual bonuses for 2012 at €3,300,000 and
€1,500,000 for Peter Voser and Simon Henry,
respectively. The prorated 2012 bonus for Malcolm
Brinded was set at €550,000.
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Long-term Incentive Plan (LTIP)
▪ Target award levels (as a percentage of base salary):
▪ New LTIP awards were made on February 28, 2013 (see
Chief Executive Officer – 300%
Other Executive Directors – 240%
Maximum vesting – 600% and 480%, respectively.
▪ The actual value delivered after three years depends on
the relative performance of LTIP measures against other
oil majors.
▪ LTIP shares to be held for two years following vesting.
▪ Shareholding requirements – three times base salary for
the Chief Executive Officer and two times base salary
for other Executive Directors built up over five years.
▪ Executive Directors are required to invest no less than
25%, and can choose to invest up to 50% of their
annual bonus in deferred bonus shares.
▪ Half of these deferred bonus shares are matchable with
additional performance-related shares, which can be
earned on the same basis as the LTIP vesting.
page 69 for further details).
▪ On March 12, 2013, 175% of the LTIP shares awarded
in 2010 vested, in line with the plan rules and based on
relative performance on TSR, growth in EPS,
hydrocarbon production and net cash from operating
activities. This is how Shell performed relative to its
competitors: TSR (second), EPS (first), hydrocarbon
production (second) and net cash from operating
activities (first).
▪ Both Executive Directors elected to defer the maximum
50% of the 2012 annual bonus into the DBP. Shares
worth €1,650,000 and €750,000 were purchased by
Peter Voser and Simon Henry, respectively.
▪ On March 12, 2013, 175% of the performance-related
matching DBP shares awarded in 2010 to Peter Voser,
Simon Henry and Malcolm Brinded vested.
Deferred Bonus Plan (DBP)
62
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Directors’ Remuneration Report > Overview
This report follows the UK requirements of the Companies Act 2006,
the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008, the Listing Rules and the UK Corporate
Governance Code. It outlines the remuneration policies and individual
remuneration details for Executive Directors and Non-executive
Directors of the Company for the year ended December 31, 2012.
The Board has approved this report, and it will be presented to
shareholders for approval at the AGM of the Company on May 21,
2013.
The base currency in this Directors’ Remuneration Report is the euro.
Where amounts are shown in other currencies, an average exchange
rate for 2012 is used, unless a specific date is stated, in which case
the average exchange rate for the specific date is used.
FORM E R E X E C U TI V E D I RE C TOR M A LC OLM B RI N D E D
The end of employment arrangements for Malcolm Brinded and the
way they feature in this report are summarised below.
▪ The Earnings of Executive Directors table on page 71 contains the
base salary paid for his period of service as an Executive Director
and the annual bonus for 2012. The cash benefits section of this
table includes the severance payment of €2,520,000, as disclosed
in the 2011 Directors’ Remuneration Report.
▪ Certain shares under the Long-term Incentive Plan lapsed as awards
granted in 2011 and 2012 were prorated for service. This lapsing is
reflected in the table on page 72.
▪ The status of the awards under the Deferred Bonus Plan is reported in
the table on page 73.
▪ Share options granted in 2004 were exercised in 2012 after he
The table below summarises the 2012 compensation for the current
Executive Directors. The total amount includes:
stood down as an Executive Director. This exercise is reflected in the
Share Options table on page 74.
▪ Accrued pension entitlements are reported on page 74.
▪ Shell purchased the house Malcolm Brinded owned in the
Netherlands. This transaction resulted in a one-off additional
payment to him to cover the loss in value of the property. A
description of this transaction and the additional payment is
provided in the footnotes to the Earnings of Executive Directors table.
▪ base salary earned in 2012;
▪ annual bonus for 2012 performance paid in 2013;
▪ other cash and non-cash remuneration;
▪ value of LTIP and Performance Share Plan (PSP) awards granted in
2009 that vested in March 2012;
▪ value of DBP awards granted in 2009 that vested in March 2012,
representing the matching shares delivered less the original amount
deferred; and
▪ value of exercised share options.
2012 SUMMARY COMPENSATION
Earnings [A]
Value of released 2009 LTIP awards
Value of released 2009 DBP awards
Value of released 2009 PSP awards
Value of exercised share options
Total compensation in euros
in dollars
in sterling
€ THOUSAND
Simon
Henry
2,502
–
–
1,412[B]
298
4,212
5,416
3,417
Peter
Voser
5,086
2,468
1,026
–
–
8,580
11,033
6,962
[A] More details can be found on page 71.
[B] Value of shares under the PSP, received prior to appointment as an
Executive Director, released in March 2012.
The UK’s Department for Business, Innovation & Skills has published a
consultation on directors’ remuneration reporting (set out in its
“Consultation on revised remuneration reporting regulations”
document dated June 2012). One of the draft proposals is the
publication of a single remuneration figure for each director. It is
proposed that this single figure includes a value for the increase in
each director’s accrued pension over the year. For defined benefit
pension arrangements it is proposed that this is calculated by
multiplying the annual increase in accrued pension by twenty (the
so-called HMRC Lifetime Allowance method). The annual increase in
accrued pension for 2012 can be found on page 74 in the currency of
the pension plan. Multiplying this increase by 20, without reduction for
inflation, and expressed in euros gives an illustrative value for the
increase in accrued pension during 2012 of €954,000 for Peter
Voser and €802,000 for Simon Henry.
reports.shell.com Shell Annual Report and Form 20-F 2012
Directors’ Remuneration Report > The Remuneration Committee
63
THE REMUNERATION
COMMITTEE
REMUNERATION POLICY FOR
EXECUTIVE DIRECTORS
REMCO needs to ensure the remuneration structure and its decisions
generate fair and appealing long-term rewards for the Executive
Directors while reflecting Shell business performance and sustained
shareholder-value growth.
Shell’s Executive Directors are asked to make decisions in executing a
strategy set by the Board, which represents the Company’s
shareholders.
The Executive Directors’ remuneration package comprises a base
salary, an annual bonus and long-term incentives, as well as a pension
plan and other benefits.
Remuneration principles
REMCO makes policy decisions guided by the following principles:
▪ alignment with Shell’s strategy;
▪ pay for performance;
▪ competitiveness;
▪ long-term creation of shareholder value;
▪ consistency;
▪ compliance; and
▪ risk assessment.
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REMCO’s key responsibilities in respect of Executive Directors include:
▪ setting remuneration policy;
▪ agreeing performance frameworks, setting targets and reviewing
performance;
▪ determining actual remuneration and benefits; and
▪ determining contractual terms.
REMCO’s Terms of Reference are reviewed regularly and updated as
appropriate. They are available at www.shell.com/investor. Copies
can be obtained from the Company Secretary. See inside back cover
for details.
The members of the Remuneration Committee are:
▪ Hans Wijers (Chairman of the Committee);
▪ Josef Ackermann; and
▪ Charles O. Holliday.
Their biographies are given on pages 52-54; REMCO meeting
attendance is given on page 79. No other Non-executive Directors
participated in the REMCO meetings.
Advice and consultation from within Shell on various subjects including
the Executive Directors’ Scorecard and the remuneration of Senior
Management was sought from:
▪ Peter Voser, Chief Executive Officer;
▪ Hugh Mitchell, Chief Human Resources & Corporate Officer and
Secretary to the Committee; and
▪ Michael Reiff, Executive Vice President Remuneration, Benefits &
Services.
The Chairman of the Board and the Chief Executive Officer were
consulted on remuneration decisions affecting other Executive
Directors.
In addition, REMCO engaged Deloitte LLP to provide an external
perspective on shareholder voting, corporate governance
developments and market practice. Deloitte LLP also provided other
consulting services to Shell during the year, including advice on
taxation and operational excellence, but did not provide advice on
Board executive remuneration matters other than for REMCO.
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Directors’ Remuneration Report > Remuneration policy for Executive Directors
R E M U N E R A T I O N S U P P O R T I N G T H E S T R A T E G I C F O C U S
Strategic focus
(cid:2) Investment priorities driven on a global thematic basis:
– Operational performance and selective growth of upstream and downstream engines
– Growth priority: integrated gas, deep water and resources plays (shale oil and gas)
– Development of future opportunities
(cid:2) More efficient deployment of capital, people and technology
SHORT TERM: ONE YEAR
Base salary
Annual bonus
MEDIUM TERM: FIVE YEARS
LTIP
Deferred bonus
LONG TERM: FIVE TO TEN YEARS
Personal shareholdings
(cid:2) Base salary competitively positioned
recognising the scope and complexity of the
role.
(cid:2) Annual bonus based on performance against
a scorecard of short-term strategic targets
and individual achievement.
(cid:2) Three-year growth in TSR, EPS (CCS),
hydrocarbon production and net cash from
operating activities, compared with that of
BP, Chevron, ExxonMobil and Total,
determines LTIP pay-out and DBP match.
(cid:2) LTIP shares need to be held for two years
after vesting.
(cid:2) Shareholding requirement for tenure in role.
(cid:2) Variable pay gains subject to clawback
provisions, extending three years beyond
payment.
S TRA TE GY A LI GN M E N T
The Executive Directors’ compensation package is strongly linked to
the achievement of stretch targets that are seen as indicators of the
execution of Shell’s strategy. REMCO considers this link to be critical.
The chart above summarises the connection.
P A Y FO R P E R F O R M A N C E
The chart below shows that, with on-target values, more than three-
quarters of the Executive Directors’ compensation (excluding pension)
is linked directly to Shell’s performance through the variable pay
instruments described below. Our short-term incentives are linked to
absolute targets, and long-term incentives are linked to relative targets
which reflect the interests of shareholders.
TARGET PAY DISTRIBUTION
Base salary 21%
Annual bonus 27%
Long-term incentives 52%
REMCO believes the pay distribution ratios and the gearing between
target and maximum remain fit for purpose. A consequence of this
design is that the total compensation can differ substantially from year
to year, depending on Shell and individual performance.
C OM P E TI TI V E N E S S
REMCO determines remuneration levels by reference to companies of
comparable size, complexity and global scope. The current key
comparator group consists of BP, Chevron, ExxonMobil and Total as
well as a selection of major Europe-based companies. The spread
provides a balanced mix across industries. There was no change in the
comparator group in 2012.
EUROPEAN COMPARATOR GROUP
Allianz
Anglo American
AstraZeneca
AXA
Barclays
BHP Billiton
Deutsche Bank
Diageo
E.ON
GlaxoSmithKline
HSBC
Nokia
Novartis
Philips
Rio Tinto
Roche
Siemens
Unilever
Vivendi
Vodafone
S HA RE HOLD I N G
REMCO believes that Executive Directors should align their interests
with those of shareholders by holding shares in Royal Dutch Shell plc.
The Chief Executive Officer is expected to build up a shareholding
over five years of three times his base salary. Other Executive
Directors are expected to build up a shareholding to the value of two
times their base salary over the same period.
REMCO periodically translates these guidelines into absolute
shareholding targets for simplicity and consistency. These targets were
reviewed in 2012, and were re-confirmed at 240,000 shares for the
Chief Executive Officer and 100,000 shares for other Executive
Directors.
Executive Directors are required to maintain the required shareholding
level for the full period of their appointment.
Bonuses invested in shares in the DBP, including accrued dividends,
count towards the guideline. Unexercised share options, unvested LTIP
awards and matching shares under the DBP that are subject to
performance conditions do not count.
As at December 31, 2012, the relevant shareholding of Royal Dutch
Shell plc shares by Peter Voser was 426,638 A shares, equivalent to
approximately seven times his base salary, and by Simon Henry was
9,175 A shares and 99,843 B shares, equivalent to approximately
three times his base salary.
C ON S I S TE N C Y
The remuneration structure for Executive Directors is generally
consistent with that for the Senior Management of Shell. This
consistency builds a culture of alignment with Shell’s purpose and a
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Directors’ Remuneration Report > Remuneration policy for Executive Directors
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common approach to sharing in Shell’s success. REMCO sets the
principles of the remuneration policy and has oversight of the
individual remuneration decisions for Senior Management.
2013 ANNUAL BONUS SCORECARD MEASURES FOR
EXECUTIVE DIRECTORS
30% WEIGHT
50% WEIGHT
Executive Directors’ benefits are also in line with those for other
employees on the basis of local market practices. Personal loans or
guarantees are not provided to Executive Directors. They are
employed under local Dutch terms and conditions – except for their
pensions. Their base salary levels are therefore set in euros. Only base
salaries, translated into their pension plan’s currency, are
pensionable, and referred to as the pensionable salary.
REMCO takes pay and employment conditions of other employees
within Shell into account when determining Executive Directors’ pay
and benefits, to ensure alignment and consistency among the different
levels of the organisation. Executive Directors’ annual performance is
measured on the basis of a Shell-wide scorecard.
C OM P LIA N C E
REMCO takes its decisions in the context of the Shell General Business
Principles. It also ensures compliance with applicable laws and
corporate governance requirements when designing and
implementing policies and plans.
R I S K A S S E S S M E N T
REMCO ensures the remuneration structures and rewards meet risk-
assessment tests to ensure that shareholder interests are safeguarded
and that inappropriate actions are avoided. For example:
▪ all performance-based incentives awarded to Executive Directors are
subject to a clawback provision which applies in situations of
financial restatements due to material non-compliance and/or
misconduct by an Executive Director or misconduct through his
direction or non-direction. To facilitate clawback actions, specific
provisions are incorporated in all incentive award documents issued
from 2011. The clawback period covers at least the three-year
period preceding the decision to claw back;
▪ the use of multiple performance measures, including non-financial
and relative measures, mitigates unintended financial and
behavioural consequences;
▪ the Executive Directors’ shareholdings ensure that they bear the
consequences of their management decisions; and
▪ Executive Directors’ expenses are audited internally and reviewed by
REMCO on a regular basis.
Remuneration elements
CASH FLOW
Cash generated from operations that
factors in the impact of commodity
price fluctuations as well as business
performance so that Executive
Directors, like shareholders, share the
effects of both.
20% WEIGHT
SUSTAINABLE DEVELOPMENT
Equally weighted indicators of safety
and environmental performance.
OPERATIONAL EXCELLENCE
▪ Project delivery: indicator of Shell’s
ability to deliver projects on-stream
on time and on budget.
▪ Hydrocarbon production, sales of
liquefied natural gas, refinery and
chemical plant availability:
indicators of the full and effective
use of resources – both facilities
and people – according to the
relevant business.
As was the case in 2011, for the 2012 Executive Directors’
Scorecard, the sustainable development component was a
combination of the safety measure (10% weight) and additional
targeted internal measures (10% weight in total) covering operational
spills, energy efficiency and use of fresh water. These measures reflect
some of the most important sustainability issues faced by Shell and will
also be used for 2013.
REMCO strengthens the Executive Directors’ individual accountability
by increasing or decreasing their annual bonuses to take account of
how well they have delivered against their own individual
performance targets. These targets typically relate to qualitative
differentiators not already covered on the scorecard, for example
stakeholder management, portfolio development, organisational
leadership and brand value. A positive individual adjustment
corresponds with personal impact beyond expectations and a
negative adjustment would mean expectations were not completely
met.
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The calculation of an Executive Director’s annual bonus is:
Annual bonus = base salary x target bonus % x scorecard result;
adjusted for individual performance (and capped at 250% of salary
for the Chief Executive Officer and 220% of salary for other Executive
Directors).
ANNUAL BONUS LEVELS (% OF SALARY)
BAS E SALARY
The base salary rewards day-to-day leadership and direction as well
as holistic management of various internal and external stakeholders.
Chief Executive Officer
Other Executive Directors
Target award Maximum
150%
110%
250%
220%
A N N U A L B ON U S
REMCO uses the annual bonus to focus on short-term targets that the
Board agrees each year as part of the Business Plan, and on individual
performance against personal targets. A scorecard with financial,
operational, project delivery and sustainable development targets
represents the link to business results. The scorecard targets are
stretching but realistic. The scorecard for the year is set and approved
by REMCO. The outcome of the performance year is usually known in
January of the following year, and REMCO translates this into a score
of between zero and two. In doing so, REMCO exercises its judgement
to ensure that the final annual bonuses for Executive Directors are in
line with Shell’s performance for the reported year.
LON G- TE RM IN C E N TIV E S
There are two main long-term incentive programmes currently in use:
the Long-term Incentive Plan (LTIP) and the Deferred Bonus Plan (DBP).
Another long-term incentive programme – the Restricted Share Plan
(RSP) – is available for retention purposes.
Long-term incentives focus on performance relative to other oil majors:
BP, Chevron, ExxonMobil and Total. They reward Executive Directors
if Shell outperforms its peers over a three-year period on a
combination of TSR, EPS growth on the basis of current cost of supplies
(CCS), hydrocarbon production growth and net cash growth from
operating activities.
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Directors’ Remuneration Report > Remuneration policy for Executive Directors
Vested shares are increased by dividend shares accrued over the
performance period. Following payment of taxes, vested shares from
LTIP awards must be held for a further two years to align with the
strategic focus. REMCO always approves award dates in advance.
2013 LONG-TERM INCENTIVE MEASURES FOR
EXECUTIVE DIRECTORS
30% WEIGHT
20% WEIGHT
TSR
Assessment of actual wealth created
for shareholders.
HYDROCARBON PRODUCTION
GROWTH
Overall indicator of success in
locating and developing proved
reserves and delivering production.
30% WEIGHT
20% WEIGHT
EPS GROWTH (ON A CCS
BASIS) [A]
Indicator of the quality of revenue
growth and cost management that
underpins TSR.
NET CASH GROWTH FROM
OPERATING ACTIVITIES
Source of dividends and capital
expenditure commitments which
support sustainable growth based on
portfolio and cost management.
[A] Earnings per share on a CCS basis takes into account the changes in the
cost of supplies and thereby enables a consistent comparison with other oil
majors. See Note 2 to the “Consolidated Financial Statements” for further
information.
For simplicity, we measure and rank growth based on the data points
at the beginning of the three-year performance period relative to the
data points at the end of the period, using unadjusted publicly
reported data. These measures were introduced with the 2009 LTIP
and DBP awards. Before 2009, TSR was the only performance
measure.
LTIP AWARD LEVELS (% OF SALARY)
Chief Executive Officer
Other Executive Directors
Maximum
Target award[A]
vesting
300%
240%
600%
480%
[A] LTIP target awards cannot exceed four times base salary, as approved by
shareholders in 2005.
T I ME L IN E FO R 2 0 1 3 LTI P SH A RE AWA RD S
Performance period
Retention period
February Award
Vesting
esaeleR
2013
2014
2015
2016
2017
2018
Deferred Bonus Plan Under the DBP, Executive Directors must invest at
least 25% of their annual bonus, up to a maximum of 50%, in
Royal Dutch Shell plc shares. These deferred bonus shares are
released after three years, and may be matched with additional
shares. The number of additional shares awarded as a match will
depend on the performance of Shell compared with its peer group
during the three-year deferral period. To calculate the number of
additional shares, the same vesting percentage as the LTIP award is
applied to half of the Executive Directors’ deferred bonus shares. As
with the LTIP award, the maximum vesting percentage that can be
applied is 200%, and the minimum is 0%. At the end of the three
years, Executive Directors also receive shares equal to the value of any
dividends that would have accrued during the period on the deferred
bonus shares as well as any additional matching shares released. The
consistent performance alignment of LTIP and DBP reinforces the
carried interest of Executive Directors with Shell and shareholders,
using Company grants under the LTIP and earned cash under the DBP.
TIMELINE FOR 2 012 DE FERRED BON US PL AN
Performance period
for annual bonus
Deferral period
The LTIP and DBP vest on the basis of relative performance rankings as
follows:
February Award
esaeleR
2012
2013
2014
2015
2016
RELATIVE PERFORMANCE RANKINGS
Shell’s rank against peers
shares ultimately awarded, taking into
Number of conditional performance
on each of the four
performance measures
1st
2nd
3rd
account the weightings of the four
performance measures.
2 x initial LTIP award
2 x half of the deferred bonus shares
1.5 x initial LTIP award
1.5 x half of the deferred bonus shares
0.8 x initial LTIP award
0.8 x half of the deferred bonus shares
4th or 5th
Nil
TSR underpin If the TSR ranking is fourth or fifth, the level of the award
that can be vested on the basis of the three other measures will be
capped at 50% of the maximum payout for the LTIP and half of the
deferred bonus shares for the DBP.
Use of discretion REMCO confirms that it would exercise upward
discretion only after consulting shareholders.
Restricted Share Plan In certain circumstances, three-year restricted
share awards may be made under the Restricted Share Plan (RSP) for
retention purposes. At the start of the year, there were no RSP awards
outstanding for the current Executive Directors and no new awards
were made to them during the year.
Employee share plans Executive Directors are not eligible to
participate in other employee share plans (see page 46).
Proration The annual bonus is prorated in the final year of
employment. As of 2011, the LTIP awards are prorated on an
Executive Director’s departure on the basis of his service within the
performance period. The prorated awards will vest at the end of the
performance period, subject to satisfaction of performance conditions.
REMCO retains the discretion to modify the prorating if it considers
that this would be appropriate.
Dilution To deliver shares under these plans, we use market-purchased
shares rather than issue new shares. The dilution limit under the
discretionary plans is 5% in 10 years and, to date, no shareholder
dilution has resulted from these plans, although it is permitted under
the rules of the plans.
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Directors’ Remuneration Report > Remuneration policy for Executive Directors
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Pensions
Executive Directors’ pensions are maintained in their base country
pension arrangements, as are those of other employees working
internationally. Contribution rates for Executive Directors are the same
as for other employees under these plans. The pension accrual rates
are 1.8% (1/56) of base salary for each year of service for Peter
Voser and 1.85% (1/54) for Simon Henry. Executive Directors’ euro
base salaries are translated into their home currencies for pension
plan purposes. Once their salaries are denominated in base country
currency, they are maintained in line with the euro base salary
increases taking into account exchange rate fluctuations and other
factors as determined by REMCO.
Contracts of employment
Executive Directors’ employment contracts are governed by Dutch
employment law. This choice was made because mandatory
provisions of Dutch employment law apply even if a foreign law has
been specified to govern the contract. This is consistent with the
employment terms of other Shell senior managers and staff based in
the Netherlands. The contracts end by notice of either party (one
month for an employee and up to a maximum of four months for the
employer) or automatically at retirement. Under Dutch law, termination
payments are not linked to the contract’s notice period.
For current Executive Directors, REMCO will offer compensation for
losses resulting from termination of employment up to one times annual
pay (base salary plus target bonus). For future Executive Directors, all
new contracts will include a cap of one times annual pay (base salary
plus target bonus) on any payments resulting from loss of employment,
with a reference to the Executive Directors’ duty to seek alternative
employment and thereby mitigate their loss. This level of termination
payments was part of a number of policy changes supported by
shareholders in 2011 following consultations.
REMCO will determine terms and conditions for any situation where a
severance payment is appropriate, taking into consideration
applicable law, corporate governance provisions and the best
interests of shareholders at the time. REMCO will ensure that poor
performance is not rewarded in such circumstances.
External appointments
The Board considers external appointments to be valuable in
broadening Executive Directors’ knowledge and experience. The
number of outside directorships is generally limited to one. The Board
must explicitly approve such appointments. Executive Directors are
allowed to retain any cash or share-based compensation they receive
from such external board directorships.
EXECUTIVE DIRECTORS’ EMPLOYMENT CONTRACTS
EXTERNAL APPOINTMENTS
Peter Voser
Simon Henry
Employing company
Shell Petroleum N.V.
Shell Petroleum N.V.
Contract date
July 20, 2005
Appointee organisation
May 20, 2009
Peter Voser [A]
Roche
Malcolm Brinded [A]
Shell Petroleum N.V.
July 20, 2005
Malcolm Brinded [B]
Network Rail
THOUSAND
2012 fee
£
13
CHF
330
[A] Malcolm Brinded stood down as an Executive Director with effect from
[A] Appointed as a Non-executive Director as of March 1, 2011.
April 1, 2012. During April 2012 he transferred to employment in his base
[B] Appointed as a Non-executive Director as of October 12, 2010. The
country of the UK where he was employed by Shell International Limited
amount shown has been prorated to show fees receivable during Malcolm
until April 30, 2012, his last day of employment.
Brinded’s period as an Executive Director of Royal Dutch Shell plc.
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Directors’ Remuneration Report > Remuneration determinations for Executive Directors
REMUNERATION
DETERMINATIONS FOR
EXECUTIVE DIRECTORS
REMCO considered overall performance and decided to follow the
mathematical outcome of the scorecard.
More details on certain of these measures are provided in
“Performance indicators” on pages 8-9.
Base salary
REMCO reviewed Executive Directors’ annual base salary levels and
made the following decisions regarding salary adjustments.
I N D I V I D U A L P E RFORM A N C E
An Executive Director’s individual performance is also taken into
account in determining his annual bonus. Individual performance is
assessed against personal targets.
REMCO considered the individual performance of each Executive
Director in 2012 and for Peter Voser and Simon Henry determined an
upward adjustment of the bonus generated by the scorecard.
Particular individual achievements during 2012 which supported
REMCO’s judgement are set out below.
Chief E xecutive Officer
Peter Voser strongly led the strategy review and its implementation,
including delivery of key projects following final investment decisions,
which progressed well in all business units. The Company’s speed of
implementation has accelerated, additional options were delivered in
respect of portfolio, and future option development expanded. He
actively drove portfolio management leading to initiatives to further
commercialise the North American gas position, and to deepen the
China strategy. The Company’s senior leadership was further
strengthened, including key Executive Committee appointments, and
good progress was made in many areas of the sustainability agenda.
Chief Financial Officer
Simon Henry was responsible for strong development of the overall
financial operating agenda, executed a very effective delivery and
discussion of the strategic plan, and initiated the creation of a new
global IT vision. He further strengthened external relationships with
investors and key stakeholders in Asia, and played a major role in
business performance appraisal and improvements on process
standardisation. Strong operational cash performance resulted in
lower gearing levels, and a stronger balance sheet overall.
2012 BONUSE S
Based on the scorecard outcome, the calculated 2012 bonus would be
€3,240,000 for Peter Voser and €1,395,900 for Simon Henry. As
described above, REMCO also took into account individual
performance and determined the final annual bonuses for 2012 as
€3,300,000 for Peter Voser and €1,500,000 for Simon Henry. For
the prorated period, REMCO determined €550,000 for Malcolm
Brinded.
Below
Threshold
On target
Above
Outstanding
BASE SALARY OF EXECUTIVE DIRECTORS (UNAUDITED)
Peter Voser
Simon Henry
€ thousand
1,640
985
Increase
Effective date
2.5%
4.8%
January 1, 2013
January 1, 2013
In making salary adjustment determinations, REMCO considered:
▪ the market positioning of the Executive Directors’ compensation
packages;
▪ the different tenure and experience each Executive Director has in his
role;
▪ the planned average salary increase in 2013 for other employees
across three major countries – the Netherlands, the UK and the USA;
▪ the impact of pensionable salary increase on pension benefits; and
▪ Shell’s performance and Executive Directors’ individual performance
in 2012.
Annual bonus
S C ORE C A RD RE S U LT SE T A T 1. 35
In assessing Shell’s 2012 performance, REMCO noted that:
▪ Net cash from operating activities was on target at $46 billion;
▪ Operational excellence was above target:
– project delivery was outstanding at 90%;
– hydrocarbon production was substantially below target at
3,262 thousand boe/d;
– LNG sales were outstanding at 20.2 million tonnes; and
– combined refinery and chemical plant availability was above
target at 92.9%.
▪ Shell’s sustainability performance was in aggregate above target:
– occupational safety, as measured by the total recordable case
frequency (TRCF), was on target at 1.3 cases per million working
hours; and
– targeted internal measures covering volume of operational spills,
use of fresh water, and energy intensity were better than target,
whereas the number of operational spills was on target.
2 0 1 2 S C O R E C A R D F O R E X E C U T I V E D I R E C T O R S
Measures
Operational cash flow
Operational excellence
Project delivery
Production
Sales of liquefied natural gas
Refinery and chemical plant availability
Sustainable development
Safety
Additional sustainability measures [A]
Overall performance
Weight
30%
50%
20%
12%
6%
12%
20%
10%
10%
100%
Score
1.19
1.44
2.00
0.00
2.00
1.65
1.35
1.13
1.57
1.35
[A] Operational spills (volume and number), use of fresh water and energy intensity.
0
0.40
0.80
1.20
1.60
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reports.shell.com Shell Annual Report and Form 20-F 2012
Directors’ Remuneration Report > Remuneration determinations for Executive Directors
69
Other cash and non-cash earnings
Executive Directors received car allowances and transport to and from
home and office, as well as employer contributions to insurance plans.
As appropriate for those employees outside their home country,
additional amounts for children’s school fees were reimbursed, in line
with Shell’s International Mobility Policy. The Earnings of Executive
Directors table is on page 71.
Long-term Incentive Plan
Vesting In 2010, Executive Directors were granted a conditional
award of performance shares under the LTIP. At the end of the
performance period, which was from January 1, 2010, to
December 31, 2012, Shell was ranked second among its peer group
in terms of TSR, first in terms of EPS growth, second in terms of
hydrocarbon production growth and first in terms of growth in net cash
from operating activities. REMCO also considered the underlying
financial performance of Shell and decided to release 175% of shares
under the LTIP, using no discretion.
Award On February 28, 2013, a conditional award of performance
shares under the LTIP was made to the Executive Directors. The award
had a face value of three times base salary for the Chief Executive
Officer and 2.4 times base salary for the Chief Financial Officer,
resulting in the following shares being awarded conditionally:
AWARDED LTIP SHARES
Peter Voser
Simon Henry
[A] Royal Dutch Shell plc A shares.
[B] Royal Dutch Shell plc B shares.
Number of shares
conditionally awarded
195,393[A]
91,920[B]
For details of LTIP awards and releases see the Long-term Incentive
Plan table on page 72.
Deferred Bonus Plan
Vesting In 2010, Executive Directors were granted conditional awards
of matching shares under the DBP. The performance period was
January 1, 2010, to December 31, 2012. Given that the performance
condition of the DBP is the same as for the 2010 LTIP, REMCO decided
to release 175% of the performance-related matching shares under the
DBP.
Award Peter Voser and Simon Henry elected to defer 50% of their
2012 annual bonus into the DBP which was awarded on February 28,
2013, resulting in share awards as follows:
AWARDED DBP SHARES
Peter Voser
Simon Henry
[A] Royal Dutch Shell plc A shares.
[B] Royal Dutch Shell plc B shares.
Number of deferred shares
awarded
65,528[A]
29,162[B]
Half of the shares awarded are matchable with additional
performance-related shares which can be earned on the same basis as
the LTIP vesting.
For details of DBP awards and releases see the Deferred Bonus Plan
table on page 73.
Pension interests
During 2012, Peter Voser, Simon Henry and Malcolm Brinded
accrued retirement benefits under defined benefit plans. In addition to
the standard Swiss pension arrangements, Peter Voser has an
unfunded pension arrangement that was agreed upon his return to
Shell in 2004 and implemented in 2006.
For details of accrued pension benefits see page 74. The transfer
values have been calculated in accordance with regulations 7 to 7E of
the Occupational Pension Schemes (Transfer Values)
Regulations 1996.
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Directors’ Remuneration Report > Non-executive Directors & Additional statutory disclosure
NON-EXECUTIVE DIRECTORS
Remuneration policy
The Board determines the fees payable to Non-executive Directors
(NEDs) of the Company, within the limit of €4,000,000 specified by
the Articles of Association and in accordance with the NEDs’
responsibilities and time commitments.
The Board reviews NED fees periodically to ensure that they are
aligned with those of other major listed companies. The Chairman’s
fee is determined by REMCO. A review was undertaken during 2012
and the Chairman’s fee was increased from €800,000 to €825,000.
The Board reviewed the NED fees, which resulted in an increase in the
base annual fee from €120,000 to €125,000. These changes were
implemented in January 2013.
NON-EXECUTIVE DIRECTORS’ FEES STRUCTURE
(UNAUDITED)
Chairman of the Board
Non-executive Director annual fee
Senior Independent Director
Audit Committee
Chairman [A]
Member
Corporate and Social Responsibility Committee
Chairman [A]
Member
Nomination and Succession Committee
Chairman [A]
Member
Remuneration Committee
Chairman [A]
Member
Intercontinental travel fee
€
825,000
125,000
55,000
45,000
25,000
35,000
17,250
25,000
12,000
35,000
17,250
5,000
[A] The chairman of a committee does not receive an additional fee for
membership of that committee.
The Chairman and the other NEDs cannot receive awards under any
incentive or performance-based remuneration plans, and personal
loans or guarantees are not granted to them. NEDs receive an
additional fee of €5,000 for any Board meeting involving
intercontinental travel – except for one meeting per year held in a
location other than The Hague. The earnings of the NEDs in office
during 2012 can be found on page 75.
NEDs do not accrue any retirement benefits as a result of their Non-
executive Directorships with the Company. During his service as an
employee, Jeroen van der Veer accrued retirement benefits and was
awarded share options as well as conditional shares under the LTIP
and DBP. Relevant awards are summarised on pages 75-76. The
policy in respect of prorating LTIP and DBP awards on termination of
employment came into effect for awards made from 2011 onwards.
ADDITIONAL STATUTORY
DISCLOSURE
C OM P E N S A TION OF D I RE C TORS A N D S E N I OR M A N A GE M E N T
Shell paid and/or accrued a total amount of compensation of
$83,028,000 [A] for services in all capacities that Directors and
Senior Management at Shell provided during the year ended
December 31, 2012 (2011: $85,692,000). In addition, Shell
accrued a total amount of $12,644,000 (excluding inflation), to
provide pension, retirement and similar benefits for Directors and
Senior Management during the year ended December 31, 2012
(2011: $9,236,000).
[A] Compensation includes gains realised from long-term incentive awards
released and share options exercised during the year.
Biographies of the Directors and Senior Management are found on
pages 52-55.
PE RFORMA N C E GRA PHS
The graphs below compare, on the basis required by the UK
Companies Act 2006, Schedule 8 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008, the
TSR performance of Royal Dutch Shell plc over the past five financial
years with that of the companies comprising the Euronext 100 share
index and the FTSE 100 share index.
The Board regards the Euronext 100 and the FTSE 100 share indices as
appropriate broad market equity indices for comparison, as they are the
leading market indices in the home markets of Royal Dutch Shell plc.
HIS TORI C A L TSR P E RFORM A N C E OF ROY A L D U TC H SHE LL P LC
A ( RDSA ) SHA RE S
Growth in the value of a hypothetical €100 holding over five years.
Euronext 100 comparison based on 30 trading day average values.
RDSA VERSUS EURONEXT 100
Value of hypothetical €100 Holding
€150
RDSA
Euronext 100
€125
€100
€75
€50
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
HIS TORI C A L TSR P E RFORM A N C E OF ROY A L D U TC H SHE LL P LC
B ( RDSB) SHA RE S
Growth in the value of a hypothetical £100 holding over five years.
FTSE 100 comparison based on 30 trading day average values.
RDSB VERSUS FTSE 100
Value of hypothetical £100 Holding
RDSB
FTSE 100
£150
£125
£100
£75
£50
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
reports.shell.com Shell Annual Report and Form 20-F 2012
Directors’ Remuneration Report > Data tables – Executive Directors
71
DATA TABLES – EXECUTIVE
DIRECTORS
EARNINGS OF EXECUTIVE DIRECTORS IN OFFICE DURING 2012 (AUDITED)
Salary
Bonus [A]
Cash benefits [B]
Non-cash benefits [C]
Total in euros
Total in dollars
Total in sterling
Peter Voser
Simon Henry
2011
1,550
3,500
155
3
5,208
7,249
4,521
2012
940
1,500
20
42
2,502
3,217
2,030
2011
890
1,500
50
29
2,469
3,436
2,143
2012
1,600
3,300
183
3
5,086
6,539
4,126
€ THOUSAND
Malcolm Brinded
2012
300
550
2,520
28
3,398
4,370
2,758
2011
1,175
2,000
1
38
3,214
4,473
2,790
[A] The annual bonus figures are shown in the table in their related performance year and not in the following year in which they are paid.
[B] Cash benefits include employer contributions to insurance plans, school fees, car allowances, tax compensation and the severance payment specific to
Malcolm Brinded. Separately, as disclosed in the 2011 Directors’ Remuneration Report, following his relocation to the Netherlands in 2002, Malcolm Brinded
received an indemnity on the house that Shell requested him to purchase in the Netherlands. The indemnity entailed that, should a Shell-initiated transfer result
in the sale of this property at a loss (defined as a sale price below the original purchase price of €3,375,532), Shell would compensate him for such loss.
Malcolm Brinded returned to the UK in April 2012 and marketed the property. In November 2012, Shell purchased the property for €2,383,333 (calculated
as the average of three independent valuations). Since this was lower than the original purchase price, Shell made a payment to Malcolm Brinded of
€992,199 to compensate him for the difference between the final sale price and the original purchase price which, when grossed up for tax, amounted to
€2,067,248.
[C] Non-cash benefits comprise life and medical insurance, company-provided transport for home to office commuting, relocation costs, and lease cars.
The aggregate amount paid to or receivable by Executive Directors
from Royal Dutch Shell plc and its subsidiaries for services in all
capacities during the fiscal year ended December 31, 2012, was
€13,043,000 (2011: €10,891,000).
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Directors’ Remuneration Report > Data tables – Executive Directors
LONG-TERM INCENTIVE PLAN
Number of shares
under award as at
January 1, 2012[A]
Audited
Unaudited
Dividend
Dividend
shares
Number
Total number of
shares
Market
shares
awarded/
of shares
Value of
shares under
Additional
accrued
price at
accrued
(lapsed)
released
shares at
award as at
Potential value as at
Original
in prior
date of
during the
during the
during the
release
December 31,
December 31,
award
years[B]
175,985
–
182,174
8,907
227,560 24,878
128,074 23,162
81,699
84,047
–
4,088
107,541 11,973
26,000
4,248
104,296
–
110,961
5,397
148,660 16,551
153,855 28,356
award
€
27.28
25.53
19.78
19.40
£
22.95
21.45
16.56
15.40
22.95
21.45
16.56
16.58
year[B]
year[C]
year
(thousand)[D]
2012
2012 (thousand)[E]
–
–
–
–
–
–
€
–
–
–
€
$
184,985
200,853
4,805
6,156
6,341
8,124
265,348 12,062
15,917
(60,494)
91,802
2,468
–
–
–
–
–
–
–
£
–
–
–
21,176
52,019
1,178
(69,531)
(38,786)
–
–
–
–
–
–
–
(72,883)
110,593
2,504
85,754
92,510
125,446
–
36,491
81,423
173,411
–
–
£
1,865
2,374
4,775
–
794
2,090
6,600
–
–
$
3,015
3,838
7,719
–
1,283
3,378
10,670
–
9,000
9,772
12,910
1,060
4,055
4,375
5,932
595
1,726
3,851
8,200
1,265
A shares
Peter Voser
2012-2014
2011-2013
2010-2012 [F]
2009-2011
B shares
Simon Henry
2012-2014
2011-2013
2010-2012 [F]
2009-2011 [G]
Malcolm Brinded
2012-2014 [H]
2011-2013 [H]
2010-2012 [F][H]
2009-2011
[A] The 2012 award was made on February 3, 2012. (See pages 65-66 for more details about LTIP performance conditions.)
[B] Dividend shares are performance-related and accumulate each year on an assumed notional LTIP award. Such dividend shares are disclosed and recorded on
the basis of the number of shares conditionally awarded but, when an award vests, dividend shares will be awarded only in relation to vested shares as if the
vested shares were held from the award date.
[C] The vesting of the 2009 LTIP award at 60% meant that 40% of the shares originally awarded to Peter Voser and Malcolm Brinded have lapsed. The vesting of
the 2009 Performance Share Plan (PSP) award at 170% for Simon Henry meant that additional shares were released at vesting. The outstanding 2011 and
2012 LTIP awards for Malcolm Brinded have been prorated for service on his termination of employment on April 30, 2012. This prorating resulted in the
lapsing of previously awarded shares.
[D] The vested awards were delivered on March 21, 2012. The respective share prices used to calculate the values at release were €26.89 for Peter Voser and
£22.65 for Simon Henry and Malcolm Brinded, which were the closing prices of the previous trading day on Euronext Amsterdam for Royal Dutch Shell plc
A shares and on the London Stock Exchange for Royal Dutch Shell plc B shares.
[E] Representing the value of the conditional shares awarded in previous years under the LTIP at the end of the year. This is calculated by multiplying the market
price of Royal Dutch Shell plc shares at December 31, 2012, by the number of shares under the LTIP that would vest based on the achievement of LTIP
performance conditions up to December 31, 2012. (See pages 65-66 for more details about LTIP performance conditions.)
[F] On March 12, 2013, REMCO determined to vest 175% of shares for the 2010 award (see page 69). The vesting percentage is applied to the total number of
shares awarded on February 5, 2010. The resulting number of shares has been increased by notional dividends accrued between award date and vesting
date (as if this resulting number of shares had been in place from award date).
[G] Awarded under the PSP prior to appointment as an Executive Director. More information about the PSP can be found on pages 132-133.
[H] The total number of shares under award as at cessation of appointment as an Executive Director on March 31, 2012, was 167,181 for the 2010 award,
117,745 for the 2011 award, and 105,539 for the 2012 award.
reports.shell.com Shell Annual Report and Form 20-F 2012
Directors’ Remuneration Report > Data tables – Executive Directors
73
DEFERRED BONUS PLAN (AUDITED)
Number of shares
under award as at
January 1, 2012[B]
Non-
performance-
Dividend
Dividend
shares
Number of
related
Dividend
shares
Performance-
accrued on
Number
Total
number of
shares under
award as at
67,443
80,989
54,946
–
28,508
33,282
20,539
38,011
49,849
43,713
–
shares
deferred
from the
matching
shares
Market
accrued
related
performance-
of shares
Value of
shares
accrued
price at
during
matching
related
released
shares at
Realised
gains on
the
year[D]
shares
vested
matching
during the
release
deferral
December 31,
shares[E]
year
(thousand)[F]
(thousand)[G]
2012
awarded
in prior
Awards [A]
A shares
Peter Voser
bonus[C]
at grant
years[D]
date of
award
€
2012-2014
2011-2013
64,161
73,457
2010-2012 [H]
47,121
–
–
–
2009-2011
36,687
9,171
B shares
Simon Henry
2012-2014
2011-2013
27,160
30,238
2010-2012 [H]
17,607
Malcolm Brinded
2012-2014 [I]
2011-2013 [I]
36,214
45,289
2010-2012 [H][I] 37,474
–
–
–
–
–
–
–
27.28
3,282
3,591
5,151
8,294
25.53
3,941
19.78
2,674
19.40
632
£
–
22.95
1,348
1,470
1,960
21.45
1,574
16.56
972
–
22.95
1,797
2,203
4,172
21.45
2,357
16.56
2,067
–
–
–
–
–
–
–
–
–
€
–
–
–
€
–
–
–
8,254
1,609
64,647
1,738
1,026
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£
–
–
–
–
–
–
£
–
–
–
–
–
–
2009-2011
44,073
11,018 10,153
16.58
755
9,916
1,966
77,881
1,764
1,033
[A] Awards made in 2010, 2011 and 2012 refer to the portion of the 2009, 2010 and 2011 annual bonus respectively, which was deferred, and the related
accrued dividends and matching shares.
[B] The 2012 award was made on February 3, 2012.
[C] Representing the proportion of the annual bonus that has been deferred and converted into notional share entitlements (deferred bonus shares), in which there
is no beneficial ownership. Half of the shares awarded are matchable with additional performance-related shares, which can be earned on the same basis as
the LTIP vesting. The value of the deferred bonus shares awarded for 2012 is also included in the annual bonus figures in the Earnings of Executive Directors
table on page 71.
[D] Representing dividends accumulated since the award on the number of shares equal to the deferred bonus shares awarded.
[E] Dividend shares are performance-related and accumulate each year on an assumed notional DBP award. When an award vests, dividend shares will be
awarded only in relation to vested shares as if the vested shares were held from the award date.
[F] The vested awards were delivered on March 21, 2012. The respective share prices used to calculate the values at release were €26.89 for Peter Voser and
£22.65 for Malcolm Brinded, which were the closing prices of the previous trading day on Euronext Amsterdam for Royal Dutch Shell plc A shares and on the
London Stock Exchange for Royal Dutch Shell plc B shares.
[G] Representing the difference between the value of shares released and bonus deferred. Peter Voser and Malcolm Brinded each deferred 50% of their 2008
annual bonus.
[H] On March 12, 2013, REMCO decided to vest 175% of the performance-related matching shares relating to the 2010 award. The total vested award
(comprising the original deferred bonus award plus the matching award) has been increased by the notional dividends accrued between the award date and
the vesting date (see page 69).
[I] The total number of shares under award at cessation of appointment as an Executive Director on March 31, 2012, was 42,143 for the 2010 award, 48,054
for the 2011 award, and 36,646 for the 2012 award.
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Directors’ Remuneration Report > Data tables – Executive Directors
SHARE OPTIONS (AUDITED)
A shares
Malcolm Brinded [C]
B shares
Peter Voser
Simon Henry [D]
Number of
Number of
Number of
options under
options
options under
award as at
exercised
award as at
January 1,
during the
December 31,
Grant
Exercisable
2012
year
2012
price [A]
€
from date Expiry date
Realised
Realisable
gains on share
gains as at
December 31,
options
exercised
2012
during the year
(thousand) [B]
€
$
(thousand)
€
$
50,000
229,866
22,728
32,583
–
–
22,728
229,866
–
–
32,583
–
31.05
21/03/05 20/03/12
£
15.04
12.74
13.89
13.89
–
£
–
$
–
£
–
–
$
–
05/11/07 04/11/14 1,544 2,495
19/03/06 18/03/13
–
–
235
371
07/05/07 06/05/14
256
414
–
–
07/05/07 06/05/14
–
–
1,825 2,925
Malcolm Brinded [E]
229,866
229,866
–
[A] Average of the opening and closing share prices over a period of five successive trading days prior to and including the day on which the options are granted
(not at a discount).
[B] Representing the value of unexercised share options granted in previous years at the end of the year, calculated by taking the difference between the grant
price of the option and the market price of Royal Dutch Shell plc shares at December 31, 2012, multiplied by the number of shares under option at
December 31, 2012. The actual gain realised, if any, will depend on the market price of Royal Dutch Shell plc shares at the time of exercise.
[C] These share options expired unexercised during the year.
[D] Awarded to Simon Henry prior to his appointment as an Executive Director. Simon Henry exercised 22,728 share options on August 22, 2012. The market
price at the date of exercise was £23.08.
[E] Malcolm Brinded had 229,866 share options under award as at the date he stood down as an Executive Director on March 31, 2012. He exercised these
share options on April 2, 2012. The market price at the date of exercise was £21.82.
The 2012 high, low and year-end prices of Royal Dutch Shell plc
A and B shares are set out on page 92.
PENSIONS (AUDITED)
Peter Voser [A][D]
Simon Henry [B][D]
Malcolm Brinded [B][C][D]
PENSIONS (AUDITED)
At December 31, 2012
Increase over the year
THOUSAND
Accrued pension
Increase over the year
(excluding inflation)
CHF
1,312
£
386
666
$
1,434
$
623
1,076
CHF
57
£
33
24
$
63
$
53
39
CHF
57
£
22
5
$
63
$
35
7
Transfer values of accrued benefits
THOUSAND
Increase in accrued
pension over the year
(excluding inflation) less
Directors’ contributions
CHF
702
£
476
104
$
767
$
770
168
Increase over the year
less Directors’
contributions
CHF
2,017
£
748
227
$
2,204
$
1,209
367
Peter Voser [A]
Simon Henry [B]
Malcolm Brinded [B][C]
At December 31, 2012
At December 31, 2011
CHF
17,758
£
9,058
17,487
$
19,406
$
14,643
28,269
CHF
15,665
£
8,270
17,260
$
16,647
$
12,748
26,606
[A] The pension values for Peter Voser include all of his Shell pension benefits. This includes a capped defined benefit pension in the Swiss pension fund based on
salary up to a cap of CHF 835,200 per annum and benefits for salary in excess of this level provided via an individual savings account and an unfunded
pension promise. As at December 31, 2012, his capped defined benefit pension was CHF 435,141 per annum, and the transfer value in respect of this
benefit was CHF 5,889,201. The individual savings account was worth CHF 2,581,175 at December 31, 2012. The balance of his benefits (valued at
CHF 9,287,315 at December 31, 2012) will be provided through the unfunded pension arrangement.
[B] Simon Henry and Malcolm Brinded elected to have their benefits in the Shell Contributory Pension Fund (the main UK pension arrangement) restricted to the
UK applicable lifetime allowance with any excess provided from an unfunded defined benefit scheme (the Shell Supplementary Pension Plan). While Simon
Henry is, and Malcolm Brinded was, working outside of the UK, in line with Shell’s general pension policy, their benefits are provided by the Shell Overseas
Contributory Pension Fund rather than the Shell Contributory Pension Fund. The values of the accrued pension benefits in each plan are aggregated in the
table, and not disclosed separately.
[C] Malcolm Brinded elected to receive his retirement benefits on April 30, 2012, and commuted £120,228 per annum of his pension for a lump sum of
£2,208,949. The pension amounts shown do not allow for this effect for consistency between the start-of-year and end-of-year pension figures. The transfer
value at December 31, 2012, is based on Malcolm Brinded’s post-commutation pension but has then been increased to add in the value of the lump sum and
the pension payments (which amounted to £363,520) he received during 2012.
[D] Employer contributions to pension plans in respect of Executive Directors were €848,143 in 2012 (2011: €1,161,641).
reports.shell.com Shell Annual Report and Form 20-F 2012
Directors’ Remuneration Report > Data tables – Non-executive Directors
75
DATA TABLES – NON-EXECUTIVE
DIRECTORS
FEES OF NON-EXECUTIVE DIRECTORS IN OFFICE DURING 2012 (AUDITED)
Non-executive Directors
Josef Ackermann
Guy Elliot
Charles O. Holliday
Lord Kerr of Kinlochard [A]
Gerard Kleisterlee
Christine Morin-Postel
Jorma Ollila [B]
Sir Nigel Sheinwald [C]
Linda G. Stuntz
Jeroen van der Veer
Hans Wijers
2012[D]
THOUSAND
2011
€
145
165
207
80
145
145
800
69
175
137
200
$
186
212
266
103
186
186
1,029
88
225
176
258
€
137
157
196
214
145
153
800
–
95
137
162
$
191
219
272
297
202
212
1,112
–
131
191
226
[A] Lord Kerr of Kinlochard stood down with effect from May 22, 2012.
[B] Jorma Ollila receives no additional payments for chairing the Nomination and Succession Committee. He has the use of an apartment and company-provided
transport between home and office. The total value of his non-cash benefits amounted to approximately €121,000. Accordingly, his total fees and non-cash
benefits for 2012 were €921,000 (2011: €864,000).
[C] Sir Nigel Sheinwald was appointed with effect from July 1, 2012.
[D] In 2012, the total amount of fees and non-cash benefits received by NEDs was €2,389,000 (2011: €2,259,000).
Jeroen van der Veer’s long-term incentive and
pension interests
The following tables show the LTIP, DBP, share option and pension
interests of Jeroen van der Veer. All awards listed below were granted
when Jeroen van der Veer was an Executive Director.
LONG-TERM INCENTIVE PLAN (AUDITED)
Number of A shares under award as at January 1, 2012
Original award
Dividend shares accrued in prior years
Market price at date of award
Dividend shares accrued during the year [A]
Additional shares awarded/(lapsed) during the year [B]
Number of shares released during the year
Value of shares at release (thousands) [C]
Total number of shares under award as at December 31, 2012
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2009 to 2011
365,305
309,358
55,947
€19.40
2,560
(146,121)
221,744
€5,962
–
[A] Dividend shares are performance-related and accumulate each year at an assumed notional LTIP award. Such dividend shares are disclosed and recorded on
the basis of the number of shares conditionally awarded but, when an award vests, dividend shares will be awarded only in relation to vested shares as if the
vested shares were held from the award date.
[B] The vesting of the 2009 LTIP award at 60% meant that 40% of the shares originally awarded have lapsed.
[C] The vested awards were delivered on March 21, 2012. The share price used to calculate the value at release was €26.89, which was the closing price of the
previous trading day on Euronext Amsterdam for Royal Dutch Shell plc A shares.
76
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Directors’ Remuneration Report > Data tables – Non-executive Directors
DEFERRED BONUS PLAN [A] (AUDITED)
Number of A shares under award as at January 1, 2012
Number of shares deferred from the bonus [B]
Non-performance-related matching shares awarded at grant
Dividend shares accrued in prior years [C]
Market price at date of award
Dividend shares accrued during the year [C]
Performance-related matching shares vested during the year
Dividend shares accrued on the performance-related matching shares [D]
Number of shares released during the year
Value of shares at release (thousand) [E]
Realised gains on deferral (thousand) [F]
Total number of shares under award as at December 31, 2012
2009 to 2011
142,696
96,674
24,168
21,854
€19.40
1,667
21,751
4,236
170,350
€4,580
€2,705
–
[A] Awards made in 2009 refer to the portion of the 2008 annual bonus which was deferred, and the related accrued dividends and matching shares.
[B] Representing the proportion of the annual bonus that has been deferred and converted into notional share entitlements (deferred bonus shares), in which there
is no beneficial ownership.
[C] Representing dividends accumulated since the award on the number of shares equal to the deferred bonus shares awarded.
[D] Dividend shares are performance-related and accumulate each year on an assumed notional DBP award. When an award vests, dividend shares will be
awarded only in relation to vested shares as if the vested shares were held from the award date.
[E] The vested awards were delivered on March 21, 2012. The share price used to calculate the value at release was €26.89, which was the closing price of the
previous trading day on Euronext Amsterdam for Royal Dutch Shell plc A shares.
[F] Representing the difference between the value of shares released and the bonus deferred.
SHARE OPTIONS (AUDITED)
Awarded
Number of options under award as at January 1, 2012
Number of options exercised during the year
Realised gains on share options exercised during the year (thousand)
Number of options expired during the year
Number of options under award as at December 31, 2012
Grant price [A]
Exercisable from date
Expiry date
A SHARES
2002
2003
2004
105,000
300,000
300,000
–
–
105,000
–
€31.05
21/03/05
300,000[B]
€2,792
–
–
–
–
–
€18.41
19/03/06
300,000
€20.65
07/05/07
20/03/12
18/03/13
06/05/14
[A] The grant price is the average of the opening and closing share prices over a period of five successive trading days prior to and including the day on which
the options are granted (not at a discount).
[B] Jeroen van der Veer exercised 150,000 share options on February 13, 2012, and 150,000 share options on July 31, 2012. The market prices at the dates of
exercise were €27.55 for 50,000 and €27.45 for 100,000 on February 13, 2012, and €27.94 on July 31, 2012.
PENSIONS [A] (AUDITED)
Accrued pension
At December 31, 2012
Increase over the year
€
1,569
$
2,070
€
0
$
0
At December 31, 2012
At December 31, 2011
Increase over the year
Transfer value of accrued
benefits
27,232
35,936
26,919
34,788
€
$
€
$
€
313
$
413
Increase/(decrease) over the year
THOUSAND
(excluding inflation)
€
$
(30)
(40)
Increase/(decrease) in accrued
pension over the year
(excluding inflation)
€
$
(581)
(767)
[A] Jeroen van der Veer is a pensioner. The pension payments made to him during 2012 amounted to approximately €1,569,000. The accrued pension,
excluding the impact of inflation, shows a decrease as Dutch price inflation was higher than the pension increase granted in the Dutch pension fund during the
year. The transfer value shows an increase largely due to a decrease in the discount rate and addition of interest, partially offset by payments made in the
year.
Signed on behalf of the Board
/s/ Michiel Brandjes
Michiel Brandjes
Company Secretary
March 13, 2013
reports.shell.com Shell Annual Report and Form 20-F 2012
Corporate governance
77
CORPORATE GOVERNANCE
Dear Shareholders,
I am pleased to introduce this report which describes our governance
arrangements and explains how they were operated during the year.
We are committed to the highest standards of corporate governance
and believe that such standards are essential to business integrity,
performance and maintaining investors’ trust.
We fully embrace the view that good corporate governance facilitates
effective, entrepreneurial and prudent management that can deliver
the long-term success of the Company. As a company with a premium
listing on the London Stock Exchange, we are required to report
against the 2010 UK Corporate Governance Code, and I am pleased
to say that we were fully compliant in 2012.
As Chairman, I regard the issue of Board succession as very important
and during the year we have been busy dealing with a number of new
appointments and succession issues. Following the retirement of Lord
Kerr of Kinlochard at the 2012 Annual General Meeting (AGM), Hans
Wijers was appointed Deputy Chairman and Senior Independent
Director, and we were delighted to appoint Sir Nigel Sheinwald and
Gerrit Zalm as Non-executive Directors with effect from July 2012 and
January 2013 respectively. During the year we also undertook a
review of the membership of the four Board committees and made a
number of changes.
The Board and the Nomination and Succession Committee are very
mindful of the importance of diversity within the Boardroom in general
and believe that maintaining an appropriate balance of experience,
skills, knowledge and background is key to effective Board
performance. It believes gender diversity is an important element of
this mix and we have stated our aim that by 2015 at least 25% of the
Directors will be women. This is in line with the recommendations of
the report by Lord Davies of Abersoch entitled “Women on Boards”
(Davies Report).
I am also mindful of my responsibility to ensure that the views of
shareholders are communicated to the Board and my obligation to
maintain a dialogue with major shareholders, particularly on such
matters as governance and strategy. I regard this as critical to
developing trust and confidence, and to this end I meet regularly with
major shareholders, sometimes with senior members of the
management team or other Non-executive Directors of the Board. I
believe this to be mutually beneficial to the Company and investors
alike.
Looking forward, we will continue to strive for the highest standards of
corporate governance since we believe this will help lead to the
continued success of the Company.
Jorma Ollila
Chairman
March 13, 2013
Statement of Compliance
The Board confirms that throughout the year the Company has applied
the main principles and complied with the relevant provisions set out in
the 2010 UK Corporate Governance Code (the Code) [A]. In addition
to complying with applicable corporate governance requirements in
the UK, the Company must follow the rules of Euronext Amsterdam as
well as Dutch securities laws because of its listing on this exchange.
The Company must likewise follow US securities laws and the New
York Stock Exchange (NYSE) rules and regulations because its
securities are registered in the USA and listed on the NYSE.
[A] In September 2012, the Financial Reporting Council issued an update to the
2010 UK Corporate Governance Code which applies to accounting periods
beginning on or after October 1, 2012.
NYSE governance standards
In accordance with the NYSE rules for foreign private issuers, the
Company follows home-country practice in relation to corporate
governance. However, foreign private issuers are required to have an
audit committee that satisfies the requirements of the U.S. Securities
and Exchange Commission’s Rule 10A-3. The Company’s Audit
Committee satisfies such requirements. The NYSE also requires a
foreign private issuer to provide certain written affirmations and
notices to the NYSE, as well as a summary of the ways in which its
corporate governance practices differ significantly from those followed
by domestic US companies under NYSE listing standards. The
Company’s summary of its corporate governance differences is given
below and can be found at www.shell.com/investor.
N ON - E X E C U TI V E D I RE C TOR IN D E P E N D E N C E
The Board follows the provisions of the Code in respect of Non-
executive Director independence, which states that at least half of the
Board, excluding the Chairman, should comprise Non-executive
Directors determined by the Board to be independent. In the case of
the Company, the Board has determined that all the Non-executive
Directors are wholly independent with the exception of Jeroen van der
Veer who served as Chief Executive until his retirement from that role
on June 30, 2009 (see pages 78-79 for more information).
N OM I N A TI N G/C ORP ORA TE GOV E RN A N C E C OM M I TTE E A N D
C O M P E N S A T I O N C O M M I T T E E
The NYSE listing standards require that a listed company maintain a
nominating/corporate governance committee and a compensation
committee, both composed entirely of independent directors and with
certain specific responsibilities. The Company’s Nomination and
Succession Committee and Remuneration Committee, respectively,
comply with these requirements, except that the terms of reference of
the Nomination and Succession Committee require only a majority of
the committee members to be independent.
A U D I T C O M M I T T E E
As required by NYSE listing standards, the Company maintains an
Audit Committee for the purpose of assisting the Board’s oversight of
its financial statements, its internal audit function and its independent
auditors. The Company’s Audit Committee is in full compliance with
the U.S. Securities and Exchange Commission’s Rule 10A-3 and
Section 303A.06 of the NYSE Listed Company Manual. However, in
accordance with English law, the Company’s Audit Committee makes
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recommendations to the Board for it to put to shareholders for
approval in general meeting regarding the appointment,
reappointment and removal of independent auditors. Consequently,
the Company’s Audit Committee is not directly responsible for the
appointment of independent auditors.
S HA RE HOLD E R A P P ROV A L OF S HA RE - B A S E D C OM P E N S A TI ON
P LA N S
The Company complies with the listing rules of the UK Listing Authority
(UKLA) which require shareholder approval for the adoption of share-
based compensation plans which are either long-term incentive
schemes in which Directors can participate or schemes which may
involve the issue of new shares. Under the UKLA rules, such plans
cannot be changed to the advantage of participants without
shareholder approval, except for certain minor amendments, for
example to benefit the administration of the plan or to take account of
tax benefits. The rules on the requirements to seek shareholder
approval for share-based compensation plans, including those in
respect of material revisions to such plans, may deviate from the NYSE
listing standards.
CODE OF ETHICS
The NYSE listing standards require that listed companies adopt a code
of business conduct and ethics for all directors, officers and employees
and promptly disclose any waivers of the code for directors or
executive officers. The Company has adopted the Shell General
Business Principles (see below), which satisfy the NYSE requirements.
The Company also has internal procedures in place by which any
employee can raise in confidence accounting, internal accounting
controls and auditing concerns. Additionally, any employee can report
irregularities to management through a worldwide dedicated
telephone line and website without jeopardising his or her position
(see below).
Shell General Business Principles
The Shell General Business Principles define how Shell subsidiaries are
expected to conduct their affairs. These principles include, among
other things, Shell’s commitment to support fundamental human rights
in line with the legitimate role of business and to contribute to
sustainable development. They can be found at www.shell.com/sgbp.
Shell Code of Conduct
Directors and employees are required to comply with the Shell Code of
Conduct, which is intended to help them put Shell’s business principles
into practice. This code clarifies the basic rules and standards they are
expected to follow and the behaviour expected of them. It can be
found at www.shell.com/codeofconduct.
Code of Ethics
Executive Directors and Senior Financial Officers of Shell must also
comply with a Code of Ethics. This code is specifically intended to
meet the requirements of Section 406 of the Sarbanes-Oxley Act and
the listing requirements of the NYSE (see above). It can be found at
www.shell.com/codeofethics.
Shell Global Helpline
Employees, contract staff and third parties with whom Shell has a
business relationship (such as customers, suppliers and agents) may
raise ethics and compliance concerns through the Shell Global
Helpline. This is a worldwide confidential reporting mechanism,
operated by an external third party, which is open 24 hours a day,
seven days a week through local telephone numbers and at
www.shell.com or www.compliance-helpline.com/shell.
Board structure and composition
During 2012, the Board comprised the Chairman, Jorma Ollila; two
Executive Directors including the Chief Executive Officer, except for
the period from January 1 to March 31 when there were three
Executive Directors; and nine Non-executive Directors, including the
Deputy Chairman and Senior Independent Director, except for the
period from May 23 to June 30 when there were eight Non-executive
Directors.
At the 2012 Annual General Meeting (AGM) on May 22, 2012, Lord
Kerr of Kinlochard stood down as a Non-executive Director and Sir
Nigel Sheinwald was appointed as a Non-executive Director with
effect from July 1, 2012. Hans Wijers succeeded Lord Kerr as Deputy
Chairman and Senior Independent Director.
A list of current Directors, including their biographies, is given on
pages 52-54.
The Board recognises its collective responsibility for the long-term
success of the Company. It meets eight times a year and has a formal
schedule of matters reserved to it. This includes: overall strategy and
management; corporate structure and capital structure; financial
reporting and controls, including approval of the Annual Report and
Form 20-F and interim dividends; risk management and internal
controls; significant contracts; and succession planning and new
Board appointments. The full list of matters reserved to the Board for
decision can be found at www.shell.com/investor.
Role of Directors
The roles of the Chairman, a non-executive role, and the Chief
Executive Officer are separate, and the Board has agreed their
respective responsibilities.
The Chairman, Jorma Ollila, is responsible for the leadership and
management of the Board and for ensuring that the Board and its
committees function effectively. One way in which this is achieved is
by ensuring Directors receive accurate, timely and clear information.
He is also responsible for agreeing and regularly reviewing the
training and development needs of each Director (see “Induction and
training” on page 79) which he does with the assistance of the
Company Secretary.
The Chief Executive Officer, Peter Voser, bears overall responsibility
for the implementation of the strategy agreed by the Board, the
operational management of the Company and the business enterprises
connected with it. He is supported in this by the Executive Committee,
which he chairs (see page 80).
Non-executive Directors
Non-executive Directors are appointed by the Board or by
shareholders in general meeting and, in accordance with the Code,
must seek re-election by shareholders on an annual basis. Their letter
of appointment refers to a specific term of office, such term being
subject to the provisions of the Code and the Company’s Articles of
Association (the Articles). Upon appointment, Non-executive Directors
confirm they are able to allocate sufficient time to meet the
expectations of the role. Appointments are subject to three months’
notice and there is no compensation provision for early termination.
The Non-executive Directors bring a wide range and balance of skills
and international business experience to Shell. Through their
contribution to Board meetings and to the Board’s committee meetings,
they are expected to challenge constructively and help develop
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proposals on strategy and bring independent judgement on issues of
performance and risk. The Chairman and the Non-executive Directors
meet routinely without the Executive Directors to discuss, among other
things, the performance of individual Directors. A number of Non-
executive Directors also meet major shareholders from time to time.
The role of the Senior Independent Director is to provide a sounding
board for the Chairman and to serve as an intermediary for the other
Directors when necessary. The Senior Independent Director is
available to shareholders if they have concerns that contact through
the normal channels of Chairman, Chief Executive Officer or other
Executive Directors has failed to resolve or for which such contact is
inappropriate.
All the Non-executive Directors as at the end of 2012 are considered
by the Board to be wholly independent, with the exception of Jeroen
van der Veer, who served as Chief Executive until his retirement from
that role on June 30, 2009. He will stand down as a Non-executive
Director at the close of business of the 2013 AGM. The standard by
which Directors’ independence is determined can be found at
www.shell.com/investor within the terms of reference of the
Nomination and Succession Committee.
Conflicts of interest
Certain statutory duties with respect to directors’ conflicts of interest
are in force under the Companies Act 2006 (the Act). In accordance
with the Act and the Articles, the Board may authorise any matter that
otherwise may involve any of the Directors breaching his or her duty to
avoid conflicts of interest. The Board has adopted a procedure to
address these requirements. It includes the Directors completing
detailed conflict of interest questionnaires. The matters disclosed in the
questionnaires are reviewed by the Board and, if considered
appropriate, authorised in accordance with the Act and the Articles.
Conflicts of interest as well as any gifts and hospitality received by and
provided by Directors are kept under review by the Board.
Significant commitments of the Chairman
The Chairman’s other significant commitments are given in his
biography on page 52.
Independent professional advice
All Directors may seek independent professional advice in connection
with their role as a Director. All Directors have access to the advice
and services of the Company Secretary. The Company has provided to
the Directors indemnities and directors’ and officers’ insurance in
connection with the performance of their responsibilities. Copies of
these indemnities and the directors’ and officers’ insurance policies
are open to inspection. Copies of these indemnities have been
previously filed with the U.S. Securities and Exchange Commission
(SEC) and are incorporated by reference as an exhibit to this Report.
Board activities during the year
The Board met eight times during the year. Seven of the meetings were
held in The Hague, the Netherlands, and one meeting was held in
Perth, Australia. The agenda for each meeting included a number of
regular items, including reports from each of the Board committees
and from the Chief Executive Officer, the Chief Financial Officer and
the other members of the Executive Committee. At most meetings the
Board also considered a number of investment, divestment and
financing proposals. During the year, the Board considered numerous
strategic issues and approved each of the quarterly, half-year and full-
year financial results and dividend announcements. Specific attention
in 2012 was paid to our shipping activities, matters and projects in
Alaska, Australia and Nigeria, asset integrity and process safety, CO2
management, project delivery and operational excellence, risk
management and control, and safety and environmental performance.
The Board received reports and presentations on all these subjects
which it discussed and considered.
The Board also received regular reports from the various functions,
including Corporate (which includes Human Resources, Health and
Security), Finance (which includes Investor Relations) and Legal.
Induction and training
Following appointment to the Board, Directors receive a comprehensive
induction tailored to their individual needs. This includes site visits and
meetings with senior management to enable them to build up a detailed
understanding of Shell’s business and strategy, and the key risks and
issues with which they are faced. In the case of Sir Nigel Sheinwald,
who was appointed during the year, site visits were arranged to Shell
operations in Australia; Rotterdam, the Netherlands; Nigeria;
Aberdeen, UK; and Port Arthur, USA. In addition, visits were arranged
to research and development facilities in Amsterdam and Rijswijk, the
Netherlands, the Company’s headquarters in The Hague and the
registered office at Shell Centre, London.
Throughout the year, regular updates on developments in legal
matters, governance and accounting are provided to Directors. The
Board regards site visits as an integral part of ongoing Director
training. Additional training is available so that Directors can update
their skills and knowledge as appropriate.
Attendance at Board and Board committee
meetings
Attendance during the year for all Board and Board committee
meetings is given in the table below.
ATTENDANCE AT BOARD AND BOARD COMMITTEE MEETINGS [A]
Corporate and
Nomination
Social
and
Audit
Responsibility
Succession
Remuneration
Board
Committee
Committee
Committee
Committee
Josef Ackermann
7/8
Malcolm Brinded 2/2
Guy Elliott
Simon Henry
Charles
8/8
8/8
5/5
O. Holliday
8/8
Lord Kerr of
Kinlochard
2/2
Gerard
Kleisterlee
8/8
5/5
Christine Morin-
Postel
Jorma Ollila
Sir Nigel
Sheinwald
Linda G. Stuntz
Jeroen van der
Veer
Peter Voser
Hans Wijers
8/8
8/8
4/4
8/8
8/8
8/8
8/8
5/5
5/5
4/4
4/5
5/5
2/2
6/6
6/6
5/5
4/4
2/2
2/2
4/4
[A] The first figure represents attendance and the second figure the possible
number of meetings. For example, 7/8 signifies attendance at seven out of
eight possible meetings. Where a Director stood down from the Board or a
Board committee during the year, or was appointed during the year, only
meetings before standing down or after the date of appointment are
shown.
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Executive Committee
The Executive Committee operates under the direction of the Chief
Executive Officer in support of his responsibility for the overall
management of the Company’s business and affairs. The Chief
Executive Officer has final authority in all matters of management that
are not within the duties and authorities of the Board or of the
shareholders’ general meeting.
The membership of the Executive Committee is as follows:
EXECUTIVE COMMITTEE
Peter Voser
Simon Henry
Chief Executive Officer [A][B]
Chief Financial Officer [A][B]
Ben van Beurden
Downstream Director [B][C]
Matthias Bichsel
Projects & Technology Director [B]
Andrew Brown
Upstream International Director [B][D]
Hugh Mitchell
Marvin Odum
Peter Rees
Chief Human Resources & Corporate Officer [B]
Upstream Americas Director [B]
Legal Director [B]
[A] Director of the Company.
[B] Designated an Executive Officer pursuant to US Exchange Act Rule 3b-7.
Beneficially owns less than 1% of outstanding classes of securities.
[C] As announced on October 10, 2012, Ben van Beurden took over the
responsibilities for the Downstream business as a member of the Executive
Committee in succession to Mark Williams with effect from January 1, 2013.
[D] As announced on February 22, 2012, Andrew Brown took over the
responsibilities for the Upstream International business as a member of the
Executive Committee with effect from April 1, 2012. Malcolm Brinded
stood down as Executive Director, Upstream International with effect from
this date.
Board committees
There are four Board committees made up of Non-executive Directors.
These are the:
▪ Audit Committee;
▪ Corporate and Social Responsibility Committee;
▪ Nomination and Succession Committee; and
▪ Remuneration Committee.
Each of these Board committees has produced a report which is set out
below and has been approved by the relevant chairman. A copy of
each committee’s terms of reference is available from the Company
Secretary and can be found at www.shell.com/investor.
A U D I T C O M M I T T E E
The members of the Audit Committee are Guy Elliott (Chairman of the
Committee), Gerard Kleisterlee, Christine Morin-Postel and Linda G.
Stuntz, all of whom are financially literate, independent, Non-
executive Directors. For the purposes of the Code, Guy Elliott qualifies
as a person with “recent and relevant financial experience” and for
the purposes of US securities laws is an “audit committee financial
expert”. The Committee met five times during the year; the Committee
members’ attendances are shown on page 79.
Role
The key responsibilities of the Committee are to assist the Board in
fulfilling its oversight responsibilities in relation to: internal control and
financial reporting; the effectiveness of the risk management and
internal control system; compliance with applicable external legal and
regulatory requirements; monitoring the qualifications, expertise,
resources and independence of both the internal and external
auditors; and assessing each year the auditors’ performance and
effectiveness. The Committee keeps the Board informed of the
Committee’s activities and recommendations. Where the Committee is
not satisfied with, or wherever it considers action or improvement is
required concerning any aspect of risk management and internal
control, financial reporting or audit-related activities, it promptly
reports these concerns to the Board.
Activities
The Committee in its meetings covers a variety of topics, both standing
items that the Committee considers as a matter of course (typically in
relation to the quarterly results announcements, control and accounting
matters) as well as a range of specific topics relevant to the overall
control framework of the Company. The Committee invites the Chief
Financial Officer, the Chief Internal Auditor, the Executive Vice
President Controller, the Vice President Accounting and Reporting and
the external auditors to attend each meeting. Other members of
management attend as and when requested. The Committee also holds
private sessions with the external auditors and the Chief Internal
Auditor without members of management being present.
During 2012, the Committee received comprehensive reports from
management and the internal and external auditors. In particular, it
reviewed regular reports on risks, controls and assurance, monitored
the effectiveness of the procedures for internal control over financial
reporting, reviewed the Company’s evaluation of the internal control
systems as required under Section 404 of the Sarbanes-Oxley Act and
discussed the Company’s annual accounts, half-year report and
quarterly unaudited financial statements with management and the
external auditors. It also discussed with the Chief Financial Officer, the
Executive Vice President Controller, the Vice President Accounting and
Reporting, and the external auditors issues that arose on accounting
policies, practices and reporting, and received reports regarding the
receipt, investigation and treatment of complaints regarding
accounting, internal accounting controls, auditing and other matters.
The Committee also reviewed the Internal Audit Department’s annual
audit plan and the performance assessment of the Internal Audit
function. The Committee also visited Shell’s Real Time Operation
Center of the Wells Organization in Aberdeen, UK, and was updated
on various matters such as strategy, controls and risk management
including on process safety, resource planning and developments in
drill technologies. The Committee has furthermore requested reports on
such matters that it deemed appropriate.
The Committee conducted an annual evaluation of its performance and
concluded that it was effective and able to fulfil its role in accordance
with its terms of reference. In December 2012, the Board approved an
adjustment to the Committee’s terms of reference to reflect more clearly
its responsibility for monitoring the effectiveness of Shell’s system of
risk management and internal control. The amended terms of reference
are available from the Company Secretary and can be found at
www.shell.com/investor.
External auditors
During 2012, the Committee evaluated the effectiveness of the
external auditors (PricewaterhouseCoopers LLP) and, following due
consideration, made a recommendation to the Board that they be
reappointed for the year ending December 31, 2012. There are no
contractual obligations that restrict the Committee’s ability to make
such a recommendation.
The last competitive audit tender was in 2005 when
PricewaterhouseCoopers LLP was first appointed as sole auditors of the
Company. Their performance has been evaluated each year by the
Committee. Such evaluations have taken account of the prior year’s
external audit experience, feedback from management and compliance
with relevant legislative, regulatory and professional requirements.
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Non-audit services
The Committee has adopted a policy on the engagement of the
external auditor to supply non-audit services. This policy, designed to
safeguard auditor objectivity and independence, includes guidelines
on permitted and non-permitted services and on services requiring
specific approval by the Committee.
In addition to holding regular formal meetings, the Committee also visits
Shell locations and meets with local staff and external stakeholders in
order to observe how Shell’s standards regarding health, safety, security,
the environment and social performance are being implemented in
practice. During 2012, the Committee visited the Niger Delta, Nigeria
and a production platform in the UK North Sea.
Examples of non-permitted services are actuarial services,
bookkeeping services, valuation services (unless the services are
unrelated to financial reporting), management or recruitment services,
legal services and expert services unrelated to the audit, tax advice
and broker or dealer, investment adviser or banking services.
For other services, because of their knowledge, experience and/or for
reasons of confidentiality it can be more efficient or necessary to
engage the external auditors rather than another party. Under the
policy, permitted services must not present a conflict of interest. The
Committee reviews quarterly reports from management on the extent
of the permitted non-audit services provided in accordance with the
policy or for which specific approval is being sought. Non-audit
services in the following categories can be contracted without further
individual prior approval provided the fee value for each contract
does not exceed $500,000:
▪ tax compliance work that is part of the assurance process for the
audit of the Consolidated or Parent Company Financial Statements or
the accounts of subsidiaries;
▪ regulatory compliance audits; and
▪ verification of non-financial data for public disclosure.
Any other non-audit services must be specifically preapproved before
the external auditor is contracted.
The scope of the permitted non-audit services contracted with the
external auditors in 2012 consisted mainly of tax compliance work
and the associated compensation amounted to approximately 2% of
total Auditors’ remuneration.
Fees
Note 26 to the “Consolidated Financial Statements” provides the
detail of the Auditors’ remuneration.
C ORP ORA TE A N D S OC I A L RE S P ON S I B I LITY C OM M I TTE E
The members of the Corporate and Social Responsibility Committee
are Charles O. Holliday (Chairman of the Committee), Sir Nigel
Sheinwald (with effect from July 1, 2012), Jeroen van der Veer and
Gerrit Zalm (with effect from January 1, 2013). Lord Kerr of
Kinlochard stood down as a Director of the Company and member of
the Committee with effect from the close of business of the 2012 AGM.
The Committee met four times during the year; the Committee
members’ attendances are shown on page 79.
The Committee has a mandate to maintain a comprehensive overview
of the policies and performance of the subsidiaries of the Company
with respect to the Shell General Business Principles and the Code of
Conduct as well as major issues of public concern. Conclusions and
recommendations made by the Committee are reported directly to
executive management and the Board.
The Committee fulfils its responsibilities by reviewing the management
of health, safety, security, environmental and social impacts of
projects and operations. It also monitors emerging environmental and
social issues. It additionally provides input into the Shell Sustainability
Report and reviews a draft of the report before publication.
N OM I N A TI ON A N D S U C C E S S I ON C OM M I TTE E
The members of the Nomination and Succession Committee are Jorma
Ollila (Chairman of the Committee), Josef Ackermann (with effect from
May 23, 2012) and Hans Wijers. Lord Kerr of Kinlochard stood down
as a Director of the Company and member of the Committee with
effect from the close of business of the 2012 AGM. The Committee met
six times during the year; the Committee members’ attendances are
shown on page 79.
The Committee keeps under review the leadership needs of the
Company and identifies and nominates suitable candidates for the
Board’s approval to fill vacancies as and when they arise. In addition,
it makes recommendations on who should be appointed Chairman of
the Audit Committee, the Corporate and Social Responsibility
Committee and the Remuneration Committee and, in consultation with
the relevant chairman, recommends who should sit on the Board
committees. It also makes recommendations on corporate governance
guidelines, monitors compliance with corporate governance
requirements and makes recommendations on disclosures connected
with corporate governance and its appointment processes.
During 2012, the Committee dealt with issues related to: director
search, succession and nomination; the terms of appointment for the
Non-executive Directors; the appointment of the Upstream International
Director and the Downstream Director; the Executive Committee talent
pipeline; and the terms of reference of the Audit Committee and the
Corporate and Social Responsibility Committee. It also considered the
UK’s Department for Business, Innovation & Skills (BIS) Executive Pay-
Shareholder Voting Rights Consultation and the 2012 UK Corporate
Governance Code. Additionally, the Committee conducted an
evaluation of the Company’s corporate governance arrangements, led
the Board evaluation process and considered any potential conflicts of
interest and the independence of the Non-executive Directors.
The Board takes the issue of Boardroom diversity very seriously and
believes that maintaining an appropriate balance of experience, skills,
knowledge and background is key to its effective performance. It
believes gender diversity is an important element of this mix. In 2011,
it issued a statement welcoming the recommendations of the Davies
Report and stated that by 2015 at least 25% of the Directors would, as
recommended by the report, be expected to be women. At the end of
2012 there were two women on the Board (16%).
As part of its role in identifying and nominating suitable candidates for
the Board’s approval, the Nomination and Succession Committee will
be reviewing candidates from a variety of backgrounds and will seek
to produce a list of candidates that fully reflects the Board’s aim in
relation to diversity, and in particular with reference to gender
diversity. The Board will endeavour to increase the number of women
Non-executive Directors from two to three by 2015.
The Committee maintains regular contact with leading global search
firms (including Egon Zehnder International) to identify and consider
suitable candidates who reflect the Board’s preferred profile in terms of
experience, skills, knowledge, nationality and gender, however it was
not considered necessary to use such services nor advertising in relation
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to appointments made during the year. These firms have no other
connection with the Company than that of search consultants.
R E M U N E R A T I O N C O M M I T T E E
The members of the Remuneration Committee are Hans Wijers
(Chairman of the Committee), Josef Ackermann and Charles
O. Holliday. The Committee met five times during the year; the
Committee members’ attendances are shown on page 79.
The Committee determines and agrees with the Board the
remuneration policy for the Chairman, Chief Executive Officer and
Executive Directors and, within the terms of this policy, determines
their individual remuneration. The Committee also considers and
advises on the terms of any contract to be offered to an Executive
Director. It monitors the remuneration for other senior executives and
makes recommendations. The Committee’s terms of reference were
reviewed and confirmed in 2012. They are available from the
Company Secretary and can be found at www.shell.com/investor.
In 2012, the Committee continued its constructive engagements with
major shareholders and shareholder bodies. This dialogue will continue
in 2013; after publication of the 2012 Annual Report and Form 20-F,
further meetings with major shareholders are planned. The Committee
will continue to monitor developments in respect of executive
remuneration governance and reporting, and prepare for revised
regulations in this area for the 2013 Directors’ Remuneration Report.
Further information on the work of the Committee and details of the
remuneration of all the Directors for the year ended December 31,
2012, are set out in the “Directors’ Remuneration Report” beginning
on page 60.
Board evaluation
The Board carried out a performance evaluation of itself, its
Committees, the Chairman and each of the Directors. This was led by
the Nomination and Succession Committee and, like the process in
2011, was conducted in-house. In accordance with the provisions of
the Code, it is the intention to engage an external facilitator to assist in
the process for 2013.
The 2012 process consisted of the Chairman holding one-to-one
interviews with each of the Directors. The Directors were asked to
consider certain specific matters in advance, such as the functioning
and effectiveness of the Board and the major issues and challenges for
2013 and beyond. The Deputy Chairman and Senior Independent
Director conducted a separate review of the Chairman’s performance
which involved each Director completing a confidential questionnaire
and an offer to meet and discuss any particular issues. A review of
each Board committee was undertaken by the respective Committee
Chairman by questionnaire discussed in the relevant committee.
The performance of the Board and the Board Committees was
discussed by the Nomination and Succession Committee and the full
Board. The Chairman reported on the views of the Directors in relation
to: functioning and effectiveness, performance, individual
contributions, major challenges for the Company in 2013 and
beyond, reputation and information and training. Successes and
points for further improvement were noted in each of these categories.
Suggestions for 2013 included further consideration of the balance of
discussion held on strategy, operational and performance matters,
and an increased focus on people issues. It was concluded that while
the Company faced a number of challenges and disappointments in
2012, the Board and Board committees continued to operate
effectively.
The performance evaluation of the Chairman was reviewed in a
session led by the Deputy Chairman with attendance by all other
Directors excluding the Chairman. Directors had answered five
questions concerning the performance evaluation of the Chairman (in
relation to handling of the Board, representational role, internal role,
suggestions for 2013 and key 2013 issues). The Board’s evaluation of
the Chairman’s 2012 performance was unanimously positive.
Directors noted that the Chairman was very accessible to them, the
2012 AGM had gone well, and that the external engagements by the
Chairman had made a good impression. Individual Directors made a
number of Board planning and meeting suggestions for consideration.
Shareholder communications
The Board recognises the importance of two-way communication with
the Company’s shareholders. As well as giving a balanced report of
results and progress at each AGM, the Company meets with
institutional and retail shareholders to respond to their questions.
Shell’s corporate website at www.shell.com/investor has information
for institutional and retail shareholders alike. Shareholders have an
opportunity to ask questions in person at the AGM and are free to
contact the Company directly at any time of the year. Shareholders
can contact Shell directly via dedicated shareholder email addresses
or via dedicated shareholder telephone numbers as given on the
inside back cover of this Report.
The Company’s Registrar, Equiniti, operates an internet access facility
for shareholders, providing details of their shareholdings at
www.shareview.co.uk. Facilities are also provided for shareholders to
lodge proxy appointments electronically. The Company’s Corporate
Nominee provides a facility for investors to hold their shares in the
Company in paperless form.
Results presentations and analysts’ meetings
The quarterly, half-yearly and annual results presentations as well as
all major analysts’ meetings are announced in advance on the Shell
website and through a regulatory release. These presentations are
broadcast live via webcast and teleconference. Other meetings with
analysts or investors are not normally announced in advance, nor can
they be followed remotely by webcast or any other means. Procedures
are in place to ensure that discussions in such meetings are always
limited to non-material information or information already in the public
domain.
Results and meeting presentations can be found at www.shell.com.
This is in line with the requirement to ensure that all shareholders and
other parties in the financial market have equal and simultaneous
access to information that may influence the price of the Company’s
securities. The Chairman, the Deputy Chairman and Senior
Independent Director, the Chief Executive Officer, the Chief Financial
Officer and the Executive Vice President Investor Relations meet
regularly with major shareholders and report the views of such
shareholders to the Board.
Notification of major shareholdings
Information concerning notifications of major shareholdings is given
on page 90.
Responsibility for preparing the annual report
and accounts
Information concerning the responsibility for preparing the annual
report and accounts is given on page 57.
Going concern
The Business Review on pages 8-51 includes information about Shell’s
financial strategy, financial condition, and liquidity and cash flows, as
well as the factors, including the principal risks, likely to affect Shell’s
future development. Further information on the management of Shell’s
capital structure and use of financial instruments to support its
operating plan is given in Notes 15 and 21 to the “Consolidated
Financial Statements” respectively.
Shell’s operating plan for the foreseeable future demonstrates its
ability to operate its cash-generating activities, selling products to a
diversified customer base. These activities are expected to generate
sufficient cash to enable Shell to fund its investment activities,
dividends and service its financing requirements. As a result, the
Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the
foreseeable future and continue to adopt the going concern basis of
accounting in preparing the financial statements contained in this
Report.
Controls and procedures
The Board is responsible for maintaining a sound system of risk
management and internal control, and for regularly reviewing its
effectiveness. It has delegated authority to the Audit Committee to
assist it in fulfilling its responsibilities in relation to internal control and
financial reporting.
A single overall control framework is in place for the Company and its
subsidiaries that is designed to manage rather than eliminate the risk
of failure to achieve business objectives. It therefore only provides a
reasonable and not an absolute assurance against material
misstatement or loss.
The following diagram illustrates the Control Framework’s key
components, Foundations, Organisation and Processes. “Foundations”
comprise the objectives, principles and rules that underpin and
establish boundaries for Shell’s activities. “Organisation” sets out how
the various legal entities relate to each other and how their business
activities are organised and managed. “Processes” refer to the more
material processes, including how authority is delegated, how
strategy, planning and appraisal are used to improve performance,
how compliance is managed and how assurance is provided. All
control activities relate to one or more of these components.
The system of risk management and internal control over financial
reporting is an integral part of the Shell Control Framework. Regular
reviews are performed to identify the significant risks to financial
reporting and the key controls designed to address them. These
controls are documented, responsibility is assigned and they are
monitored for design and operating effectiveness. Controls found not
to be effective are remediated.
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CO N TROL FRAMEW ORK
External Regulatory and Legal Environment, External Stakeholders
Shell General Business Principles
Royal Dutch Shell plc Board, Chief Executive Officer and
Executive Committee
Statement on
Risk Management
Code of Conduct
Standards, Manuals
and Guides
Delegation of
Authority
Strategy, Planning
and Appraisal
Compliance and Assurance
Businesses, Functions
Legal Entities
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Processes
The Board confirms that there is an ongoing process for identifying,
evaluating and managing the significant risks to the achievement of
Shell’s objectives. This has been in place throughout the year and, up
to the date of this Report, is regularly reviewed by the Board and
accords with the guidance for directors, known as the Turnbull
Guidance.
Shell has a variety of processes for obtaining assurance on the
adequacy of risk management and internal control. The Executive
Committee and the Audit Committee regularly consider group-level
risks and associated control mechanisms. The Board has conducted its
annual review of the effectiveness of Shell’s system of risk management
and internal control, including financial, operational and compliance
controls.
P E N S I O N FU N D S
In general, local trustees manage the defined benefit pension funds
and set the required contributions based on independent actuarial
valuations in accordance with local regulations rather than the IFRS
measures. For further information regarding the judgement applied in
setting the actuarial assumptions and its relationship to the financial
position of Shell, see Notes 3 and 18 to the “Consolidated Financial
Statements”.
Shell has a number of ways to address key pension risks. Principal
among these is the Pensions Forum, a joint Finance/Human Resources
body, chaired by the Chief Financial Officer, which provides
guidance on Shell’s input to pension strategy, policy and operation.
The Forum is supported by the Pensions Risk Committee in reviewing
the results of assurance processes with respect to pension risks (see
“Risk factors”).
TRE A S U RY A N D TRA D I N G
In the normal course of business, Shell uses financial instruments of
various kinds for the purposes of managing exposure to interest rate,
currency and commodity price movements.
Shell has treasury standards applicable to all subsidiaries, and each
subsidiary is required to adopt a treasury policy consistent with these
standards. These policies cover financing structure, interest rate and
foreign exchange risk management, insurance, counterparty risk
management and use of derivative instruments. Wherever possible,
treasury operations are carried out through specialist regional
organisations without removing from each subsidiary the responsibility
to formulate and implement appropriate treasury policies.
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Most of Shell’s debt is raised from central borrowing programmes. The
financing of most subsidiaries is structured on a floating-rate basis
and, except in special cases, further interest rate risk management is
discouraged.
Each subsidiary has treasury policies in place that are designed to
measure and manage their foreign exchange exposures by reference
to their functional currency. Many of the markets in which Shell
operates are priced, directly or indirectly, in dollars. As a result, the
functional currency of most Upstream subsidiaries and those with
significant cross-border business is the dollar. For Downstream
subsidiaries, the local currency is typically also the functional
currency.
Apart from forward foreign exchange contracts to meet known
commitments, the use of derivative financial instruments by most
subsidiaries is not permitted by their treasury policy.
Certain subsidiaries have a mandate to trade crude oil, natural gas,
LNG, refined products, chemical feedstocks, power and environmental
products, and to use commodity derivatives (forwards, futures, swaps
and options) as a means of managing price and timing risks arising
from this trading. In effecting these transactions, the subsidiaries
concerned operate within procedures and policies designed to ensure
that risks, including those relating to the default of counterparties, are
managed within authorised limits.
Shell uses risk management systems for recording and valuing
instruments. There is regular review of mandated trading limits by
senior management, daily monitoring of market risk exposure using
value-at-risk (VAR) techniques (see below), daily monitoring of trading
positions against limits and marking-to-market of trading exposures
with a department independent of traders reviewing the market values
applied to trading exposures. Although trading losses can and do
occur, the nature of Shell’s trading portfolio and its management are
considered adequate mitigants against the risk of significant losses.
Shell utilises VAR techniques based on variance/covariance or Monte
Carlo simulation models to make a statistical assessment of the market
risk arising from possible future changes in market values over a 24-hour
period and within a 95% confidence level. The calculation of the range
of potential changes in fair value takes into account positions, the history
of price movements and the correlation of these price movements. Each
of the models is regularly back-tested against actual fair-value
movements to ensure that model integrity is maintained.
Other than in exceptional cases, the use of external derivative
instruments is confined to specialist trading and central treasury
organisations that have appropriate skills, experience, supervision,
control and reporting systems.
Information on derivatives and other financial instruments and
derivative commodity instruments is provided in Note 21 to the
“Consolidated Financial Statements”.
M A N A GE M E N T’S E V A LUA TI ON OF D I S C LOSU RE C ON TROLS A N D
P ROC E D U RE S OF S HE LL
As indicated in the certifications in Exhibits 12.1 and 12.2 of this
Report, Shell’s Chief Executive Officer and Chief Financial Officer
have evaluated the effectiveness of Shell’s disclosure controls and
procedures as at December 31, 2012. On the basis of that evaluation,
these officers have concluded that Shell’s disclosure controls and
procedures are effective.
M A N A GE M E N T’S RE P ORT ON IN TE RN A L C ON TROL OV E R
FIN A N C I A L RE P ORTIN G OF S HE LL
Management, including the Chief Executive Officer and Chief
Financial Officer, is responsible for establishing and maintaining
adequate internal control over Shell’s financial reporting and the
production of the Consolidated Financial Statements. It conducted an
evaluation of the effectiveness of Shell’s internal control over financial
reporting and the production of the Consolidated Financial Statements
based on the “Internal Control – Integrated Framework” issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. On the basis of this evaluation, management concluded
that, as at December 31, 2012, the Company’s internal control over
Shell’s financial reporting and the production of the Consolidated
Financial Statements was effective.
PricewaterhouseCoopers LLP, the independent registered public
accounting firm that audited the financial statements, has issued an
attestation report on the Company’s internal control over financial
reporting, as stated in their report on page 97.
THE TRUS TE E ’S A N D M A N A GE M E N T’S E V A LUA TI ON OF
DISCLOSURE CON TROLS A N D PROCE D URE S FOR THE ROYA L
D U T C H SH E L L D I V I D E N D A C C E S S T R U S T
The Trustee of the Royal Dutch Shell Dividend Access Trust (the Trustee)
and Shell’s Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the disclosure controls and procedures
in respect of the Dividend Access Trust (the Trust) as at December 31,
2012. On the basis of this evaluation, these officers have concluded
that the disclosure controls and procedures of the Trust are effective.
THE TRUS TE E ’S A N D M A N A GE M E N T’S RE P ORT ON IN TE RN A L
C ON TROL OV E R FI N A N C I A L RE P ORTIN G OF THE ROY A L D U TC H
S H E L L D I V I D E N D A C C E S S T R U S T
The Trustee is responsible for establishing and maintaining adequate
internal control over the Trust’s financial reporting. The Trustee and the
Company’s management conducted an evaluation of the effectiveness
of internal control over financial reporting based on the “Internal
Control – Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission. On the basis
of this evaluation, the Trustee and management concluded that, as at
December 31, 2012, the Trust’s internal control over financial
reporting was effective.
PricewaterhouseCoopers CI LLP, the independent registered public
accounting firm that audited the financial statements, has issued an
attestation report on the Trustee’s and management’s internal control
over financial reporting, as stated in their report on page 168.
C HA N GE S I N I N TE RN A L C ON TROL OV E R FI N A N C I A L RE P ORTIN G
There has not been any change in the internal control over financial
reporting of Shell or the Trust that occurred during the period covered
by this Report that has materially affected, or is reasonably likely to
materially affect, the internal control over financial reporting. Material
financial information of the Trust is included in the Consolidated
Financial Statements of Shell and is therefore subject to the same
disclosure controls and procedures as Shell. See below and the Royal
Dutch Shell Dividend Access Trust Financial Statements for additional
information.
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Articles of Association
The following summarises certain provisions of the Articles [A] and of
the applicable laws of England. This summary is qualified in its entirety
by reference to the Articles and the Act.
[A] Copies of the Articles have been previously filed with the SEC and are
incorporated by reference as exhibits to this Report. They can be found at
www.shell.com.
M A N A GE M E N T A N D D I RE C TORS
The Articles provide that the Company’s Board of Directors must
consist of not less than three members nor more than 20 members at
any time. The Company has a single tier Board of Directors headed by
a Chairman, with management led by a Chief Executive Officer. See
“Board structure and composition” on page 78.
Under the Articles, at every AGM any Director who was in office at the
time of the two previous AGMs and who did not retire at either of them
must retire. Further, a Director who would not otherwise be required to
retire must retire if he or she has been in office, other than as a
Director holding an executive position, for a continuous period of nine
years or more at the date of the meeting, and any such Director will be
eligible to stand for reappointment. However, notwithstanding the
provisions of the Articles, the Company complies with the Code that
requires all Directors to stand for annual reappointment by
shareholders. At the AGM, shareholders can pass an ordinary
resolution to reappoint each of the Directors or to appoint another
eligible person in his or her place.
Under the Articles:
▪ a Director may not vote or be counted in the quorum in respect of
any matter in which he or she is materially interested including any
matter related to his or her own compensation;
▪ the Directors may exercise the Company’s power to borrow money
provided that the borrowings of Shell shall not, without the consent of
an ordinary resolution of the Company’s shareholders, exceed two
times the Company’s adjusted capital and reserves (these powers
relating to borrowing may only be varied by special resolution of
shareholders); and
▪ Directors are not required to hold shares of the Company to qualify
as a director.
RIGHTS A TTA CHIN G TO SHA RE S
Dividend rights and rights to share in the Company’s profit
Under the applicable laws of England, dividends are payable on
A and B shares only out of profits available for distribution, as
determined in accordance with the Act and under IFRS.
Subject to the Act, if the Directors consider that the Company’s
financial position justifies the payment of a dividend, the Company
can pay an interim dividend. Shareholders can declare dividends by
passing an ordinary resolution although such dividends cannot exceed
the amount recommended by the Board.
It is the intention that dividends will be announced and paid quarterly.
Dividends are payable to persons registered as shareholders on the
record date relating to the relevant dividend. All dividends will be
divided and paid in proportions based on the amounts paid up on the
Company’s shares during any period for which that dividend is paid.
Any dividend or other money payable in cash relating to a share can
be paid by sending a cheque, warrant or similar financial instrument
payable to the shareholder entitled to the dividend by post addressed
to the shareholder’s registered address. Alternatively, it can be made
payable to someone else named in a written instruction from the
shareholder (or all joint shareholders) and sent by post to the address
specified in that instruction. A dividend can also be paid by inter-bank
transfer or by other electronic means (including payment through
CREST) directly to an account with a bank or other financial institution
(or other organisation operating deposit accounts if allowed by the
Company) named in a written instruction from the person entitled to
receive the payment under the Articles. Such an account must be held
at an institution based in the UK unless the share on which the payment
is to be made is held by Euroclear Nederland and is subject to the
Securities Giro Act (“Wet giraal effectenverkeer”). Alternatively, a
dividend can be paid in some other way requested in writing by a
shareholder (or all joint shareholders) and agreed to by the Company.
The Company will not be responsible for a payment which is lost or
delayed.
Where any dividends or other amounts payable on a share have not
been claimed, the Directors can invest them or use them in any other
way for the Company’s benefit until they are claimed. The Company
will not be a trustee of the money and will not be liable to pay interest
on it. If a dividend or other money has not been claimed for 12 years
after being announced or becoming due for payment, it will be
forfeited and go back to the Company, unless the Directors decide
otherwise.
The Company expects that dividends on B shares will be paid under
the dividend access mechanism described below. The Articles provide
that if any amount is paid by the issuer of the dividend access share by
way of dividend on the dividend access share and paid by the Trustee
to any holder of B shares, the dividend that the Company would
otherwise pay to such holder of B shares will be reduced by an amount
equal to the amount paid to such holder of B shares by the Trustee.
Dividend access mechanism for B shares
General A and B shares are identical, except for the dividend access
mechanism, which will only apply to B shares. Dividends paid on A
shares have a Dutch source for tax purposes and are subject to Dutch
withholding tax.
It is the expectation and the intention, although there can be no
certainty, that holders of B shares will receive dividends through the
dividend access mechanism. Any dividends paid on the dividend
access share will have a UK source for UK and Dutch tax purposes.
There will be no Dutch withholding tax on such dividends and certain
holders (not including US holders of B shares or B American
Depositary Shares (ADSs)) will be entitled to a UK tax credit in respect
of their proportional shares of such dividends. For further details
regarding the tax treatment of dividends paid on the A and B shares
and ADSs, refer to “Taxation” on pages 94-95.
Description of dividend access mechanism A dividend access share has
been issued by The Shell Transport and Trading Company Limited
(Shell Transport) to Computershare Trustees (Jersey) Limited (formerly
EES Trustees International Limited) as Trustee. EES Trustees
International Limited replaced Lloyds TSB Offshore Trust Company
Limited as Trustee on January 26, 2012. Pursuant to a declaration of
trust, the Trustee will hold any dividends paid in respect of the
dividend access share on trust for the holders of B shares and will
arrange for prompt disbursement of such dividends to holders of B
shares. Interest and other income earned on unclaimed dividends will
be for the account of Shell Transport and any dividends which are
unclaimed after 12 years will revert to Shell Transport. Holders of B
shares will not have any interest in the dividend access share and will
not have any rights against Shell Transport as issuer of the dividend
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access share. The only assets held on trust for the benefit of the holders
of B shares will be dividends paid to the Trustee in respect of the
dividend access share.
Transport, for any reason and without financial recompense. This
might, for instance, occur in response to changes in relevant tax
legislation.
The declaration and payment of dividends on the dividend access
share will require board action by Shell Transport and will be subject
to any applicable limitations in law or in the Shell Transport articles of
association in effect. In no event will the aggregate amount of the
dividend paid by Shell Transport under the dividend access
mechanism for a particular period exceed the aggregate of the
dividend announced by the Board of the Company on B shares in
respect of the same period.
Operation of the dividend access mechanism If, in connection with the
announcement of a dividend by the Company on B shares, the board
of Shell Transport elects to declare and pay a dividend on the dividend
access share to the Trustee, the holders of B shares will be beneficially
entitled to receive their share of that dividend pursuant to the
declaration of trust (and arrangements will be made to ensure that the
dividend is paid in the same currency in which they would have
received a dividend from the Company).
If any amount is paid by Shell Transport by way of a dividend on the
dividend access share and paid by the Trustee to any holder of
B shares, the dividend which the Company would otherwise pay on
B shares will be reduced by an amount equal to the amount paid to
such holders of B shares by the Trustee.
The Company will have a full and unconditional obligation, in the
event that the Trustee does not pay an amount to holders of B shares
on a cash dividend payment date (even if that amount has been paid
to the Trustee), to pay immediately the dividend announced on
B shares. The right of holders of B shares to receive distributions from
the Trustee will be reduced by an amount equal to the amount of any
payment actually made by the Company on account of any dividend
on B shares.
If for any reason no dividend is paid on the dividend access share,
holders of B shares will only receive dividends from the Company
directly. Any payment by the Company will be subject to Dutch
withholding tax (unless an exemption is obtained under Dutch law or
under the provisions of an applicable tax treaty).
The dividend access mechanism has been approved by the Dutch
Revenue Service pursuant to an agreement
(“vaststellingsovereenkomst”) with the Company and N.V. Koninklijke
Nederlandsche Petroleum Maatschappij (Royal Dutch Petroleum
Company) dated October 26, 2004, as supplemented and amended
by an agreement between the same parties dated April 25, 2005. The
agreement states, among other things, that dividend distributions on
the dividend access share by Shell Transport will not be subject to
Dutch dividend withholding tax provided that the dividend access
mechanism is structured and operated substantially as set out above.
The Company may not extend the dividend access mechanism to any
future issuances of B shares without the approval of the Dutch Revenue
Service.
Accordingly, the Company would not expect to issue additional
B shares unless that approval were obtained or the Company were to
determine that the continued operation of the dividend access
mechanism was unnecessary. Any further issue of B shares is subject to
advance consultation with the Dutch Revenue Service.
The dividend access mechanism may be suspended or terminated at
any time by the Company’s Directors or the Directors of Shell
The daily operations of the Trust are administered on behalf of Shell by
the Trustee. Material financial information of the Trust is included in the
Consolidated Financial Statements of Shell and is therefore subject to
the same disclosure controls and procedures as Shell.
Disputes between a shareholder or American Depositary Share
holder and Royal Dutch Shell plc, any subsidiary, Director or
professional service provider
The Articles generally require that, except as noted below, all disputes
(i) between a shareholder in such capacity and the Company and/or
its Directors, arising out of or in connection with the Articles or
otherwise; (ii) so far as permitted by law, between the Company and
any of its Directors in their capacities as such or as the Company’s
employees, including all claims made by the Company or on its behalf
against Directors; (iii) between a shareholder in such capacity and the
Company’s professional service providers (which could include the
Company’s auditors, legal counsel, bankers and ADS depositaries);
and (iv) between the Company and its professional service providers
arising in connection with any claim within the scope of (iii) above,
shall be exclusively and finally resolved by arbitration in The Hague,
the Netherlands, under the Rules of Arbitration of the International
Chamber of Commerce (ICC), as amended from time to time. This
would include all disputes arising under UK, Dutch or US law
(including securities laws), or under any other law, between parties
covered by the arbitration provision. Accordingly, the ability of
shareholders to obtain monetary or other relief, including in respect of
securities law claims, may be determined in accordance with these
provisions, and the ability of shareholders to obtain monetary or other
relief may therefore be limited and their cost of seeking and obtaining
recoveries in a dispute may be higher than otherwise would be the
case.
The tribunal shall consist of three arbitrators to be appointed in
accordance with the ICC rules. The chairman of the tribunal must have
at least 20 years’ experience as a lawyer qualified to practise in a
common law jurisdiction which is within the Commonwealth (as
constituted on May 12, 2005) and each other arbitrator must have at
least 20 years’ experience as a qualified lawyer.
Pursuant to the exclusive jurisdiction provision in the Articles, if a court
or other competent authority in any jurisdiction determines that the
arbitration requirement described above is invalid or unenforceable in
relation to any particular dispute in that jurisdiction, then that dispute
may only be brought in the courts of England and Wales, as is the
case with any derivative claim brought under the Act. The governing
law of the Articles is the substantive law of England.
Disputes relating to the Company’s failure or alleged failure to pay all
or part of a dividend which has been announced and which has fallen
due for payment will not be subject to the arbitration and exclusive
jurisdiction provisions of the Articles. Any derivative claim brought
under the Act will not be subject to the arbitration provisions of the
Articles.
Pursuant to the relevant Depositary agreement, each holder of ADSs is
bound by the arbitration and exclusive jurisdiction provisions of the
Articles as described in this section as if that holder were a
shareholder.
Voting rights and general meetings of shareholders
Shareholders meetings Under the applicable laws of England, the
Company is required in each year to hold an AGM of shareholders in
addition to any other meeting of shareholders that may be held. Each
AGM must be held in the period six months from the date following the
Company’s accounting reference date each year. Additionally,
shareholders may submit resolutions in accordance with Section 338
of the Act.
Directors have the power to convene a general meeting of
shareholders at any time. In addition, Directors must convene a
meeting upon the request of shareholders holding not less than 5% of
the Company’s paid-up capital carrying voting rights at general
meetings of shareholders pursuant to Section 303 of the Act. A request
for a general meeting of shareholders must state the general nature of
the business to be dealt with at the meeting, and must be authenticated
by the requesting shareholders. If Directors fail to call such a meeting
within 21 days from receipt of the request, the shareholders that
requested the general meeting, or any of them representing more than
half of the total voting rights of all shareholders that requested the
meeting, may themselves convene a meeting which must be called
within three months. Any such meeting must be convened in the same
manner, as nearly as possible, as that in which meetings are required
to be convened by the Directors.
The Company is required to give at least 21 clear days’ notice of any
AGM or any other general meeting of the Company.
The Articles require that in addition to any requirements under the
legislation, the notice for any general meeting must state where the
meeting is to be held (the principal meeting place) and the location of
any satellite meeting place, which shall be identified as such in the
notice. At the same time that notice is given for any general meeting,
an announcement of the date, time and place of that meeting will, if
practicable, be published in a national newspaper in the Netherlands.
The rules of the UKLA, Euronext Amsterdam and the NYSE require the
Company to inform holders of its securities of the holding of meetings
which they are entitled to attend.
A shareholder is entitled to appoint a proxy (who is not required to be
another shareholder) to represent and vote on behalf of the
shareholder at any general meeting of shareholders, including the
AGM.
Business may not be transacted at any general meeting, including the
AGM, unless a quorum is present. A quorum is two people who are
entitled to vote at that general meeting. They can be shareholders who
are personally present or proxies for shareholders entitled to vote at
that general meeting or a combination of both.
If a quorum is not present within five minutes of the time fixed for a
general meeting to start or within any longer period not exceeding one
hour which the chairman of the meeting can decide, and if the meeting
was called by shareholders, it will be cancelled. Any other meeting
will be adjourned to a day (being not less than 10 days later,
excluding the day on which it is adjourned and the day for which it is
reconvened), time and place decided upon by the chairman of the
meeting. One shareholder present in person or by proxy and entitled
to vote will constitute a quorum at any adjourned general meeting.
Record dates Entitlement to attend and vote at the AGM is determined
by reference to the Company’s Register of Members. In order to attend
and vote at the AGM, a member must be entered on the Register of
Members or the register of the Royal Dutch Shell Corporate Nominee
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no later than the record date. The record date will not be more than 48
hours before the meeting, not taking account of any part of a day that
is not a working day.
Voting rights A and B shares have identical voting rights and vote
together as a single class on all matters including the election of
directors unless a matter affects the rights of one class as a separate
class. If a resolution affects the rights attached to either class of shares
as a separate class, it must be approved either in writing by
shareholders holding at least three-quarters of the issued shares of that
class by amount, excluding any shares of that class held as treasury
shares, or by special resolution passed at a separate meeting of the
registered holders of the relevant class of shares.
It is the intention that all voting at general meetings will take place on a
poll. A poll is voting by means of a ballot where the number of shares
held by each voting shareholder is counted, as opposed to voting by
way of a show of hands where the actual number of shares held by
voting shareholders is not taken into account. Under the Act, if a poll is
demanded, the resolution conducted on a poll must be approved by
holders of at least a majority of the votes cast at the meeting. Special
resolutions require the affirmative vote of at least three-quarters of the
votes cast at the meeting to be approved.
On a poll, every holder of A shares or B shares present in person or by
proxy has one vote for every share he or she holds. This is subject to
any rights or restrictions which are given to any class of shares in
accordance with the Articles. No shareholder is entitled to vote if he or
she has been served with a restriction order after failure to provide the
Company with information concerning interests in his or her shares
required to be provided under Section 793 of the Act.
Major shareholders have no differing voting rights.
Rights in a winding up If the Company is voluntarily wound up, the
liquidator can distribute to shareholders any assets remaining after the
liquidator’s fees and expenses have been paid and all sums due to
prior ranking creditors (as defined under the laws of England) have
been paid. Under the Articles, the holders of the sterling deferred
shares would be entitled (such entitlement ranking in priority to the
rights of holders of ordinary shares) to receive an amount equal to the
aggregate of the capital paid up or credited as paid up on each
sterling deferred share but would not be entitled to participate further
in the profits or assets of the Company. Any assets remaining after the
entitlements of the holders of sterling deferred shares are satisfied
would be distributed to the holders of A and B shares pro rata
according to their shareholdings.
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Redemption provisions Ordinary shares are not subject to any
redemption provisions.
Sinking fund provisions Ordinary shares are not subject to any sinking
fund provision under the Articles or as a matter of the laws of England.
Liability to further calls No holder of the Company’s ordinary shares is
currently liable to make additional contributions of capital in respect of
the Company’s ordinary shares.
Discriminating provisions There are no provisions discriminating
against a shareholder because of his or her ownership of a particular
number of shares.
Variation of rights The Act provides that the Articles can be amended
by a special resolution of the Company’s shareholders.
88
Shell Annual Report and Form 20-F 2012 reports.shell.com
Corporate governance
The Articles provide that, if permitted by legislation, the rights attached
to any class of shares can be changed if this is approved either in
writing by shareholders holding at least three-quarters of the issued
shares of that class by amount (excluding any shares of that class held
as treasury shares) or by a special resolution passed at a separate
meeting of the holders of the relevant class of shares. At each such
separate meeting, all of the provisions of the Articles relating to
proceedings at a general meeting apply, except that: (i) a quorum will
be present if at least one shareholder who is entitled to vote is present
in person or by proxy who owns at least one-third in amount of the
issued shares of the class; (ii) any shareholder who is present in person
or by proxy and entitled to vote can demand a poll; and (iii) at an
adjourned meeting, one person entitled to vote and who holds shares
of the class, or his or her proxy, will be a quorum. These provisions
are not more restrictive than required by law in England.
Limitations on rights to own shares There are no limitations imposed by
the Articles or the applicable laws of England on the rights to own
shares, including the right of non-residents or foreign persons to hold
or vote the Company’s shares, other than limitations that would
generally apply to all shareholders.
Change of control
There are no provisions in the Articles or of corporate legislation in
England that would delay, defer or prevent a change of control.
Threshold for disclosure of share ownership
The Disclosure and Transparency Rules of the UK’s Financial Services
Authority impose an obligation on persons [A] to notify the Company
of the percentage of voting rights held as a shareholder, or through the
direct or indirect holding of financial instruments, if the percentage of
voting rights held in the Company reaches, exceeds or falls below 3%
or any 1% threshold above 3%.
[A] For this purpose “persons” includes companies, natural persons, legal
persons and partnerships.
Section 793 of the Act governs the Company’s right to investigate who
has an interest in its shares. Under that section, a public company can
serve a notice on any person it knows or has reasonable cause to
believe is, or was at any time in the preceding three years, interested
in its shares in order to obtain certain information about that interest.
The Articles provide that in any statutory notice under the relevant
legislation, the Company will ask for details of those who have an
interest and the extent of their interest in a particular holding. The
Articles also provide that when a person receives a statutory notice, he
has 14 days to comply with it. If he does not do so or if he makes a
statement in response to the notice which is false or inadequate in
some important way, the Company may, on notice, restrict the rights
relating to the identified shares. The restriction notice will state that the
identified shares no longer give the shareholder any right to attend or
vote either personally or by proxy at a shareholders’ meeting or to
exercise any right in relation to shareholders’ meetings. Where the
identified shares make up 0.25% or more (in amount or in number) of
the existing shares of a class at the date of delivery of the restriction
notice, the restriction notice can also contain the following further
restrictions: (i) Directors can withhold any dividend or part of a
dividend or other money otherwise payable in respect of the identified
shares without any liability to pay interest when such money is finally
paid to the shareholder; and (ii) Directors can refuse to register a
transfer of any of the identified shares which are certificated shares
unless Directors are satisfied that they have been sold outright to an
independent third party. Once a restriction notice has been given,
Directors are free to cancel it or exclude any shares from it at any time
they think fit. In addition, they must cancel the restriction notice within
seven days of being satisfied that all information requested in the
statutory notice has been given. Also, where any of the identified
shares are sold and Directors are satisfied that they were sold outright
to an independent third party, they must cancel the restriction notice
within seven days of receipt of notification of the sale. The Articles do
not restrict in any way the provision of the legislation which applies to
failures to comply with notices under the legislation.
The UK City Code on Takeovers and Mergers (the Takeover Code)
imposes disclosure obligations on parties subject to the Takeover
Code’s disclosure regime. This code requires any person who is
interested in 1% or more of any class of relevant securities of an
offeree company to make an opening position disclosure following the
commencement of an offer period. The Takeover Code also requires
any person who is, or becomes, interested in 1% or more of any class
of relevant securities of an offeree company to make a dealing
disclosure if the person deals in any relevant securities of the offeree
company during an offer period. If two or more persons act together
pursuant to an agreement or understanding, whether formal or
informal, to acquire or control an interest in relevant securities of an
offeree company, they will normally be deemed to be a single person
for the purpose of the relevant provisions of the Takeover Code.
Rule 13d-1 of the US Securities Exchange Act of 1934 requires that a
person or group acquiring beneficial ownership of more than 5% of
equity securities registered under the US Securities Exchange Act
discloses such information to the SEC within 10 days after the acquisition.
Capital changes
The conditions imposed by the Articles for changes in capital are not
more stringent than those required by the applicable laws of England.
Further information
The following information can be found at www.shell.com/investor:
▪ the terms of reference of the Audit Committee, Corporate and Social
Responsibility Committee, Nomination and Succession Committee
and Remuneration Committee (these documents explain the
Committees’ roles and the authority the Board delegates to them);
▪ the full list of matters reserved to the Board for decision;
▪ Shell General Business Principles;
▪ Shell Code of Conduct;
▪ Code of Ethics for Executive Directors and Senior Financial Officers;
and
▪ Articles of Association.
Signed on behalf of the Board
/s/ Michiel Brandjes
Michiel Brandjes
Company Secretary
March 13, 2013
reports.shell.com Shell Annual Report and Form 20-F 2012
Additional shareholder information
89
ADDITIONAL SHAREHOLDER
INFORMATION
The Company was incorporated in England and Wales on February 5,
2002, as a private company under the Companies Act of England and
Wales 1985, as amended. On October 27, 2004, the Company was
re-registered as a public company limited by shares and changed its
name from Forthdeal Limited to Royal Dutch Shell plc. The Company is
registered at Companies House, Cardiff, under company number
4366849, and at the Chamber of Commerce, The Hague, under
company number 34179503. The business address for the Directors
and Senior Management is: Carel van Bylandtlaan 30, 2596 HR, The
Hague, The Netherlands.
The Company is resident in the Netherlands for Dutch and UK tax
purposes and its primary objective is to carry on the business of a
holding company. It is not directly or indirectly owned or controlled by
another corporation or by any government and does not know of any
arrangements that may result in a change of control of the Company.
Nature of trading market
The Company has two classes of ordinary shares: A and B shares. The
principal trading market for A shares is Euronext Amsterdam and the
principal trading market for B shares is the London Stock Exchange.
Ordinary shares are traded in registered form.
A and B American Depositary Shares (ADSs) are listed on the New
York Stock Exchange [A]. A depositary receipt is a certificate that
evidences ADSs. Depositary receipts are issued, cancelled and
exchanged at the office of The Bank of New York Mellon, 101 Barclay
Street, New York, NY 10286, USA, as depositary (the Depositary)
under a deposit agreement between the Company, the Depositary and
the holders of ADSs. Each ADS represents two €0.07 shares of Royal
Dutch Shell plc deposited under the agreement. More information
relating to ADSs is given on page 93.
[A] At February 19, 2013, there were outstanding 414,589,396 A ADSs and
183,614,697 B ADSs representing 22.0% and 14.0% of the respective
share capital class, held by 7,199 and 969 holders of record with an
address in the USA respectively. In addition to holders of ADSs, as at
February 19, 2013, there were 65,619 A shares and 763,521 B shares of
€0.07 each representing 0.002% and 0.029% of the respective share
capital class, held by 103 and 875 holders of record registered with an
address in the USA respectively.
LISTING INFORMATION
Ticker symbol London
Ticker symbol Amsterdam
Ticker symbol New York (ADS [A])
ISIN Code
CUSIP
SEDOL Number London
SEDOL Number Euronext
Weighting on FTSE as at 31/12/12
Weighting on AEX as at 31/12/12
A shares
RDSA
RDSA
RDS.A
B shares
RDSB
RDSB
RDS.B
GB00B03MLX29 GB00B03MM408
G7690A100
G7690A118
B03MLX2
B09CBL4
5.31%
13.70%
B03MM40
B09CBN6
3.85%
not included
[A] Each A ADS represents two A shares of €0.07 each and each B ADS
represents two B shares of €0.07 each.
Share capital
The issued and fully paid share capital of the Company as at
February 19, 2013, was as follows:
SHARE CAPITAL
Issued and fully paid
Number
Nominal value
Ordinary shares of €0.07 each
A shares
B shares
3,772,388,687
2,617,715,189
Sterling deferred shares of £1 each
50,000
€264,067,208
€183,240,063
£50,000
The Directors may only allot new ordinary shares if they have authority
from shareholders to do so. The Company seeks to renew this authority
annually at its Annual General Meeting (AGM). Under the resolution
passed at the Company’s 2012 AGM, the Directors were granted
authority to allot ordinary shares up to an aggregate nominal amount
equivalent to approximately one-third of the issued ordinary share
capital of the Company (in line with the guidelines issued by institutional
investors).
The following is a summary of the material terms of the Company’s
ordinary shares, including brief descriptions of the provisions
contained in the Articles of Association (the Articles) and applicable
laws of England and Wales in effect on the date of this document. This
summary does not purport to include complete statements of these
provisions:
▪ upon issuance, A and B shares are fully paid and free from all liens,
equities, charges, encumbrances and other interest of the Company
and not subject to calls of any kind;
▪ all A and B shares rank equally for all dividends and distributions on
ordinary share capital announced; and
▪ A and B shares are admitted to the Official List of the UK Listing
Authority and to trading on the market for listed securities of the
London Stock Exchange. A and B shares are also admitted to trading
on Euronext Amsterdam. A and B ADSs are listed on the New York
Stock Exchange.
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Additional shareholder information
As at December 31, 2012, trusts and trust-like entities holding shares
for the benefit of employee plans of Shell held (directly and indirectly)
84.2 million shares of the Company with an aggregate market value
of $2,909 million and an aggregate nominal value of €5.9 million.
Significant shareholdings
The Company’s A and B shares have identical voting rights, and
accordingly the Company’s major shareholders do not have different
voting rights.
S I GN I FI C A N T I N D I RE C T A N D D I RE C T S HA RE HOLD I N GS
As at February 19, 2013, interests of major investors with 3% or more
of either class of the Company’s shares is given below.
INDIRECT
BlackRock, Inc.
Legal & General Group plc
The Capital Group Companies, Inc.
A shares
B shares
Number
190,215,159
112,654,650
83,555,345
%
5.04
2.99
2.21
Number
169,732,143
85,580,421
236,641,320
%
6.48
3.27
9.04
Number
359,947,302
198,235,071
320,196,665
As at February 19, 2013, direct holdings of 3% or more of either class
of the Company’s shares held by registered members representing the
interests of underlying investors is given below.
DIRECT
BNY (Nominees) Limited
Chase Nominees Limited
Chase Nominees Limited (LEND)
Euroclear Nederland
Lynchwood Nominees Limited (2006420)
State Street Nominees Limited (OM04)
N OTIFICA TION OF MA J OR SHA RE HOLDIN GS
During the year ended December 31, 2012, the Company was
notified by the following investor of its interests in the Company’s
shares pursuant to Disclosure and Transparency Rule 5.
INVESTOR
A shares
B shares
Number
%
Number
%
Number
684,582,945
18.15
355,282,916
13.57 1,039,865,861
16.27
22,241,791
29,806,628
0.59
0.79
200,578,854
89,982,649
7.66
3.44
222,820,645
119,789,277
3.49
1.87
1,807,403,075
47.91
14,071,113
0.54 1,821,474,188
28.50
32,478,265
54,054,818
0.86
1.43
102,681,807
133,411,145
3.92
5.10
135,160,072
187,465,963
2.12
2.93
The Capital Group Companies, Inc. [A]
103,649,913
2.79
248,240,789
9.44
351,890,702
A shares
B shares
Number
%
Number
%
Number
Total
%
5.54
[A] The Capital Group Companies, Inc. (CGC) stated in its reason for notification to the Company that, due to a company reorganisation, Capital Research and
Management Company (CRMC) and Capital Group International, Inc. (CGII) would no longer report relevant holdings under management separately. Instead
the relevant holdings under management by CRMC and CGII would be reported in aggregate by CGC. It stated that it was solely for this reason (and not as a
result of any additional acquisition or disposal) that CGC reported this aggregated holding.
The Company received no notifications pursuant to Disclosure and
Transparency Rule 5 in the period from December 31, 2012, to
February 19, 2013 (being a date not more than one month prior to the
date of the Company’s Notice of AGM 2013).
Total
%
5.63
3.10
5.01
Total
%
Dividends
The following tables show the dividends on each class of share and
each class of ADS for the years 2008-2012.
A AND B SHARES
$
Q1
Q2
Q3
Q4
Total announced in
2012
2011
2010
2009
2008
0.43
0.43
0.43
0.43
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.42
0.40
0.40
0.40
0.40
respect of the year
1.72
1.68
1.68
1.68
1.60
A SHARES
Q1
Q2
Q3
Q4
Total announced in
2012
2011
2010
2009
0.35
0.34
0.33
0.33
0.29
0.29
0.32
0.32
0.32
0.32
0.31
0.30
0.32
0.30
0.28
0.30
€ [A]
2008
0.26
0.26
0.31
0.30
respect of the year
1.35
1.22
1.25
1.21
1.13
Amount paid during
the year
1.34
1.20
1.25
1.21
1.07
[A] Euro equivalent, rounded to the nearest euro cent.
B SHARES
PENCE [A]
Q1
Q2
Q3
Q4
Total announced in
2012
27.92
27.08
26.86
28.79
2011
25.71
25.77
27.11
26.74
2010
27.37
26.89
26.72
25.82
2009
28.65
25.59
25.65
26.36
2008
20.05
20.21
24.54
27.97
respect of the year
110.65
105.33
106.80
106.25
92.77
Amount paid during
the year
108.60
104.41
107.34
107.86
82.91
[A] Sterling equivalent.
A AND B ADSs
$
Q1
Q2
Q3
Q4
Total announced in
2012
2011
2010
2009
2008
0.86
0.86
0.86
0.86
0.84
0.84
0.84
0.84
0.84
0.84
0.84
0.84
0.84
0.84
0.84
0.84
0.80
0.80
0.80
0.80
respect of the year
3.44
3.36
3.36
3.36
3.20
Amount paid during
the year
3.42
3.36
3.36
3.32
3.12
reports.shell.com Shell Annual Report and Form 20-F 2012
Additional shareholder information
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Additional shareholder information
High, low and year-end share prices
The following table shows the high, low and year-end prices of the
Company’s registered ordinary shares:
▪ of €0.07 nominal value on the London Stock Exchange;
▪ of €0.07 nominal value on Euronext Amsterdam; and
▪ in the form of ADSs on the New York Stock Exchange (ADSs do not
have a nominal value).
ANNUAL SHARE PRICES
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
QUARTERLY SHARE PRICES
2011
Q1
Q2
Q3
Q4
2012
Q1
Q2
Q3
Q4
MONTHLY SHARE PRICES
2012
September
October
November
December
2013
January
February
Euronext Amsterdam
New York Stock Exchange
Low
€
16.25
15.27
19.53
20.12
24.30
A shares
Year-end
€
18.75
21.10
24.73
28.15
25.98
High
$
88.73
63.75
68.54
77.96
74.51
A ADSs
Low
Year-end
$
41.62
38.29
49.16
57.97
60.62
$
52.94
60.11
66.78
73.09
68.95
London Stock Exchange
New York Stock Exchange
Low
pence
1,223
1,315
1,550
1,768
2,020
B shares
Year-end
pence
1,726
1,812
2,115
2,454
2,175
High
$
87.54
62.26
68.32
78.75
77.52
Low
$
41.41
37.16
47.12
58.42
63.05
B ADSs
Year-end
$
51.43
58.13
66.67
76.01
70.89
High
€
29.63
21.46
25.28
28.40
29.18
High
pence
2,245
1,897
2,149
2,476
2,499
Euronext
Amsterdam
A shares
Low
€
23.80
23.49
20.12
21.97
26.07
24.30
26.53
25.29
Euronext
Amsterdam
A shares
Low
€
26.87
25.90
25.29
25.51
25.85
24.36
High
€
26.74
26.37
26.04
28.40
29.18
27.12
28.99
27.32
High
€
28.31
27.21
27.32
26.49
27.06
26.02
London
New York
New York
Stock Exchange
Stock Exchange
Stock Exchange
High
pence
2,289
2,352
2,323
2,476
2,499
2,286
2,384
2,271
B shares
Low
pence
1,772
2,000
1,768
1,900
2,187
2,020
2,170
2,093
High
$
73.84
77.96
75.56
73.50
74.51
72.07
73.96
70.61
A ADSs
Low
$
65.30
66.90
59.85
57.97
68.36
60.62
66.51
64.17
High
$
73.87
78.75
76.13
76.51
77.52
74.19
76.13
72.67
B ADSs
Low
$
65.00
67.36
60.05
58.42
69.46
63.05
69.04
66.25
London
New York
New York
Stock Exchange
Stock Exchange
Stock Exchange
High
pence
2,349
2,248
2,271
2,241
2,375
2,309
B shares
Low
pence
2,198
2,155
2,093
2,140
2,165
2,143
High
$
73.96
70.58
70.61
69.93
73.00
70.92
A ADSs
Low
$
69.00
67.13
64.17
66.63
68.35
64.53
High
$
76.13
72.50
72.67
72.00
74.95
72.79
B ADSs
Low
$
70.93
69.12
66.25
68.83
70.48
66.00
reports.shell.com Shell Annual Report and Form 20-F 2012
Additional shareholder information
93
Method of holding shares or an interest in
shares
There are several ways in which Royal Dutch Shell plc registered
shares or an interest in these shares can be held, including:
▪ directly as registered shares either in uncertificated form or in
certificated form in a shareholder’s own name;
▪ indirectly through Euroclear Nederland (in respect of which the Dutch
Securities Giro Act (“Wet giraal effectenverkeer”) is applicable);
▪ through the Royal Dutch Shell Corporate Nominee; and
▪ as a direct or indirect holder of either an A or a B ADS with the
Depositary.
American Depositary Shares
The Depositary is the registered shareholder of the shares underlying
the A or B American Depositary Shares (ADSs) and enjoys the rights of
a shareholder under the Articles. Holders of ADSs will not have
shareholder rights. The rights of the holder of an A or a B ADS are
specified in the respective Depositary agreements with the Depositary
and are summarised below.
The Depositary will receive all cash dividends and other cash
distributions made on the deposited shares underlying the ADSs and,
where possible and on a reasonable basis, will distribute such
dividends and distributions to holders of ADSs. Rights to purchase
additional shares will also be made available to the Depositary who
may make such rights available to holders of ADSs. All other
distributions made on the Company’s shares will be distributed by the
Depositary in any means that the Depositary thinks is equitable and
practical. The Depositary may deduct its fees and expenses and the
amount of any taxes owed from any payments to holders and it may
sell a holder’s deposited shares to pay any taxes owed. The
Depositary is not responsible if it decides that it is unlawful or
impractical to make a distribution available to holders of ADSs.
The Depositary will notify holders of ADSs of shareholders’ meetings of
the Company and will arrange to deliver voting materials to such
holders of ADSs if requested by the Company. Upon request by a
holder, the Depositary will endeavour to appoint such holder as proxy
in respect of such holder’s deposited shares entitling such holder to
attend and vote at shareholders’ meetings. Holders of ADSs may also
instruct the Depositary to vote their deposited securities and the
Depositary will try, as far as practical and lawful, to vote deposited
shares in accordance with such instructions. The Company cannot
ensure that holders will receive voting materials or otherwise learn of
an upcoming shareholders’ meeting in time to ensure that holders can
instruct the Depositary to vote their shares.
Upon payment of appropriate fees, expenses and taxes,
(i) shareholders may deposit their shares with the Depositary and
receive the corresponding class and amount of ADSs and (ii) holders
of ADSs may surrender their ADSs to the Depositary and have the
corresponding class and amount of shares credited to their account.
Further, subject to certain limitations, holders may, at any time, cancel
ADSs and withdraw their underlying shares or have the corresponding
class and amount of shares credited to their account. The Depositary
may also deliver ADSs prior to deposit of the underlying securities
subject to certain conditions, including, without limitation, that such
pre-released ADSs are fully collateralised and that the underlying
securities are assigned to and held for the account of the Depositary.
FE E S P A I D B Y HOLD E RS OF A D S s
The Depositary collects its fees for delivery and surrender of ADSs
directly from investors depositing shares or surrendering ADSs for the
purpose of withdrawal or from intermediaries acting for them. The
Depositary collects fees for making distributions to investors by
deducting those fees from the amounts distributed or by selling a
portion of distributable property to pay the fees. The Depositary may
generally refuse to provide fee-attracting services until its fees for those
services are paid. (See page 94.)
RE IMBURSE M E N TS TO THE C OMPA N Y
The Bank of New York Mellon, as Depositary, has agreed to reimburse
the Company for expenses it incurs that are related maintenance
expenses of the ADS programme. The Depositary has agreed to
reimburse the Company for its continuing annual stock exchange
listing fees. The Depositary has also agreed to pay certain legal
expenses and the standard out-of-pocket maintenance costs for the
ADSs, which consist of the expenses of postage and envelopes for
mailing annual and interim financial reports, printing and distributing
dividend cheques, electronic filing of US Federal tax information,
mailing required tax forms, stationery, postage, facsimile and
telephone calls. It has also agreed to reimburse the Company annually
for certain costs associated with the AGM, investor relationship
programmes and special investor relations promotional activities.
There are limits on the amount of expenses for which the Depositary
will reimburse the Company, but the amount of reimbursement
available to the Company is not necessarily tied to the amount of fees
the Depositary collects from investors. From January 1, 2012, to
February 19, 2013, the Company received $2,000,413 from the
Depositary.
Scrip Dividend Programme
In September 2010, the Company introduced a Scrip Dividend
Programme which enables shareholders to increase their shareholding
by choosing to receive new shares instead of cash dividends, if
approved by the Board. Only new A shares are issued under the
programme, including to shareholders who hold B shares. Full details
of the programme can be found at www.shell.com/dividend.
When the programme was introduced, the Dividend Reinvestment
Plans (DRIPs) provided by Equiniti and Royal Bank of Scotland N.V.
were withdrawn; the dividend reinvestment feature of the plan
provided by The Bank of New York Mellon was likewise withdrawn. If
shareholders had been participating in one of these plans, they were
not necessarily enrolled automatically in the Scrip Dividend
Programme; in most cases, they had to elect to join the programme.
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Additional shareholder information
PERSONS DEPOSITING OR WITHDRAWING SHARES MUST PAY:
FOR:
$5.00 or less per 100 ADSs (or portion of 100 ADSs)
Issuance of ADSs, including those resulting from a distribution of shares, rights
Registration and transfer fees
Expenses of the Depositary
or other property;
Cancellation of ADSs for the purpose of their withdrawal, including if the
deposit agreement terminates;
Distribution of securities to holders of deposited securities by the Depositary to
ADS registered holders.
Registration and transfer of shares on the share register to or from the name of
the Depositary or its agent when they deposit or withdraw shares.
Cable, telex and facsimile transmissions (when expressly provided in the
deposit agreement);
Converting foreign currency to US dollars.
Taxes and other governmental charges the Depositary or the custodian has to pay
As necessary.
on any ADS or share underlying an ADS, for example, share transfer taxes, stamp
duty or withholding taxes
Exchange controls and other limitations
affecting security holders
Other than those individuals and entities that are subject to EU
sanctions, for example regarding Iran and Syria, there is no legislative
or other legal provision currently in force in the UK, the Netherlands or
arising under the Articles restricting remittances to non-resident holders
of the Company’s ordinary shares or affecting the import or export of
capital for use by the Company.
Taxation
GE N E RA L
The Company is incorporated in England and Wales and tax-resident
in the Netherlands. As a tax resident of the Netherlands, it is generally
required by Dutch law to withhold tax at a rate of 15% on dividends
on its ordinary shares and ADSs, subject to the provisions of any
applicable tax convention or domestic law. The following sets forth the
operation of the provisions on dividends on the Company’s various
ordinary shares and ADSs to UK and US holders, as well as certain
other tax rules pertinent to holders. Holders should consult their tax
adviser for more details.
D I V I D E N D S P A I D ON THE D I V I D E N D A C C E S S S HA RE
There is no Dutch withholding tax on dividends on B shares or B ADSs
provided that such dividends are paid on the dividend access share
pursuant to the dividend access mechanism (see “Dividend access
mechanism for B shares” on pages 85-86). Dividends paid on the
dividend access share are treated as UK-source for tax purposes and
there is no UK withholding tax on them. Also, under UK law, individual
shareholders resident in the UK are entitled to a UK tax credit with
dividends paid on the dividend access share. The amount of the UK
tax credit is 10/90ths of the cash dividend; it is not repayable when it
exceeds the individual’s UK tax liability. In 2012, all dividends with
respect to B shares and B ADSs were paid on the dividend access
share pursuant to the dividend access mechanism.
DUTCH WITHHOLDING TAX
When Dutch withholding tax applies on dividends paid to a US holder
(that is, dividends on A shares or A ADSs, or on B shares or B ADSs
that are not paid on the dividend access share pursuant to the
dividend access mechanism), the US holder will be subject to Dutch
withholding tax at the rate of 15%. A US holder who is entitled to the
benefits of the 1992 Double Taxation Convention (the Convention)
between the USA and the Netherlands as amended by the protocol
signed on March 8, 2004, will be entitled to a reduction in the Dutch
withholding tax, either by way of a full or a partial exemption at
source or by way of a partial refund or a credit as follows:
▪ if the US holder is an exempt pension trust as described in article
35 of the Convention, or an exempt organisation as described in
article 36 thereof, the US holder will be exempt from Dutch
withholding tax; or
▪ if the US holder is a company that holds directly at least 10% of the
voting power in the Company, the US holder will be subject to Dutch
withholding tax at a rate not exceeding 5%.
In general, the entire dividend (including any amount withheld) will be
dividend income to the US holder, and the withholding tax will be
treated as a foreign income tax that is eligible for credit against the US
holder’s income tax liability or a deduction subject to certain
limitations. A “US holder” includes, but is not limited to, a citizen or
resident of the USA, or a corporation or other entity organised under
the laws of the USA or any of its political subdivisions.
When Dutch withholding tax applies on dividends paid to UK-resident
holders (that is, dividends on A shares or A ADSs, or on B shares or
B ADSs that are not paid on the dividend access share pursuant to the
dividend access mechanism), the dividend will typically be subject to
withholding tax at a rate of 15%. Such UK holder will be entitled to a
credit (not repayable) for withholding tax against their UK tax liability.
However, from July 1, 2009, certain corporate shareholders are,
subject to conditions, exempt from UK tax on dividends. Withholding
tax suffered cannot be offset against such exempt dividends. Pension
funds meeting certain defined criteria can, however, claim a full
refund of the dividend tax withheld. Also, resident corporate
shareholders holding at least a 5% shareholding and meeting other
defined criteria are exempted at source from dividend tax.
For shareholders who are resident in any other country, the availability
of a whole or partial exemption or refund of Dutch withholding tax is
governed by Dutch tax law and/or the tax convention, if any, between
the Netherlands and the country of the shareholder’s residence.
S C R I P D I V I D E N D P R O G R A M M E
As mentioned on pages 56 and 93, in September 2010 the Company
introduced a Scrip Dividend Programme which enables shareholders
to increase their shareholding by choosing to receive new shares
instead of cash dividends, if approved by the Board. Only new
A shares are issued under the programme, including to shareholders
who hold B shares.
reports.shell.com Shell Annual Report and Form 20-F 2012
Additional shareholder information
95
The tax consequences of electing to receive new A shares in place of a
cash dividend will depend on individual circumstances.
FINANCIAL CALENDAR
Financial year ends
Further details regarding the taxation consequences of the Scrip
Dividend Programme can be found at www.shell.com/dividend.
D U TC H C A P I TA L GA I N S TA X A TI ON
Capital gains on the sale of shares of a Dutch tax-resident company by
a US holder are generally not subject to taxation by the Netherlands
unless the US shareholder has a permanent establishment therein and
the capital gain is derived from the sale of shares that are part of the
business property of the permanent establishment.
DUTCH SUCCE SSION DUTY A N D GIFT TA X E S
Shares of a Dutch tax-resident company held by an individual who is
not a resident or a deemed resident of the Netherlands will generally
not be subject to succession duty in the Netherlands on the individual’s
death unless the shares are part of the business property of a
permanent establishment situated in the Netherlands.
A gift of shares of a Dutch tax-resident company by an individual, who
is not a resident or deemed a resident of the Netherlands, is generally
not subject to Dutch gift tax.
Announcements
Full year results for 2012
First quarter results for 2013
Second quarter results for 2013
Third quarter results for 2013
Dividend timetable [A]
2012 Fourth quarter interim [B]
Announced
Ex-dividend date
Record date
Scrip reference share price announcement date
Closing date for scrip election and currency
election [C]
Euro and sterling equivalents announcement date
Payment date
2013 First quarter interim
Announced
Ex-dividend date
Record date
U K S TA M P D U TY A N D S TA M P D U TY RE S E RV E TA X
Sales or transfers of the Company’s ordinary shares within a clearance
service (such as Euroclear Nederland) or of the Company’s ADSs
within the ADS depositary receipts system will not give rise to a stamp
duty reserve tax (SDRT) liability and should not in practice require the
payment of UK stamp duty.
Scrip reference share price announcement date
Closing date for scrip election and currency
election [C]
Euro and sterling equivalents announcement date
Payment date
The transfer of the Company’s ordinary shares to a clearance service
(such as Euroclear Nederland) or to an issuer of depositary shares
(such as ADSs) will generally give rise to a UK stamp duty or SDRT
liability at the rate of 1.5% of consideration given or, if none, of the
value of the shares. A sale of the Company’s ordinary shares that are
not held within a clearance service (for example, settled through the
UK’s CREST system of paperless transfers) will generally be subject to
UK stamp duty or SDRT at the rate of 0.5% of the amount of the
consideration, normally paid by the purchaser.
C A P I TA L GA I N S TA X
For the purposes of UK capital gains tax, the market values [A] of the
shares of the former public parent companies of the Royal Dutch/Shell
Group at the relevant dates were:
2013 Second quarter interim
Announced
Ex-dividend date
Record date
Scrip reference share price announcement date
Closing date for scrip election and currency
election [C]
Euro and sterling equivalents announcement date
Payment date
2013 Third quarter interim
Announced
Ex-dividend date
Record date
Scrip reference share price announcement date
Closing date for scrip election and currency
£
election [C]
December 31, 2012
January 31, 2013
May 2, 2013
August 1, 2013
October 31, 2013
January 31, 2013
February 13, 2013
February 15, 2013
February 20, 2013
March 1, 2013
March 8, 2013
March 28, 2013
May 2, 2013
May 15, 2013
May 17, 2013
May 22, 2013
June 3, 2013
June 10, 2013
June 27, 2013
August 1, 2013
August 14, 2013
August 16, 2013
August 21, 2013
September 2, 2013
September 9, 2013
September 26, 2013
October 31, 2013
November 13, 2013
November 15, 2013
November 20, 2013
November 29, 2013
Royal Dutch Petroleum Company
(N.V. Koninklijke Nederlandsche
Petroleum Maatschappij) which ceased to
exist on December 21, 2005
The “Shell” Transport and Trading
Company, p.l.c.
March 31, 1982
July 20, 2005
Euro and sterling equivalents announcement date
December 6, 2013
Payment date
December 23, 2013
1.1349
17.6625
Annual General Meeting
May 21, 2013
[A] This timetable is the intended timetable as announced on November 1, 2012.
[B] The Directors do not propose to recommend any further distribution in respect
of 2012.
which delisted on July 19, 2005
1.4502
Not applicable
[C] Different scrip and dividend currency election dates may apply to
[A] Restated where applicable to reflect all capitalisation issues since the
shareholders holding shares in a securities account with a bank or other
relevant date. This includes the change in the capital structure in 2005,
financial institution ultimately holding through Euroclear Nederland. Such
when Royal Dutch Shell plc became the single parent company of Royal
shareholders can obtain the applicable deadlines from their broker, financial
Dutch Petroleum Company and of The “Shell” Transport and Trading
Company, p.l.c., now The Shell Transport and Trading Company Limited,
intermediary, bank or other financial institution where they hold their
securities account. A different scrip election date may also apply to
and one share in Royal Dutch Petroleum Company was exchanged for two
registered and non-registered ADS holders. Registered ADS holders can
Royal Dutch Shell plc A shares and one share in The “Shell” Transport and
contact The Bank of New York Mellon for the applicable deadline.
Trading Company, p.l.c. was exchanged for 0.287333066 Royal Dutch
Non-registered ADS holders can contact their broker, financial intermediary,
Shell plc B shares.
bank or other financial institution for the applicable election deadline.
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Shell Annual Report and Form 20-F 2012 reports.shell.com
Report on the Annual Report and Accounts
REPORT ON THE ANNUAL
REPORT AND ACCOUNTS
Independent auditors’ report to the members of
Royal Dutch Shell plc
We have audited the Consolidated Financial Statements of Royal
Dutch Shell plc (the Company) and its subsidiaries (collectively Shell)
for the year ended December 31, 2012, which comprise the
Consolidated Statement of Income, the Consolidated Statement of
Comprehensive Income, the Consolidated Balance Sheet, the
Consolidated Statement of Changes in Equity, the Consolidated
Statement of Cash Flows and the related Notes. The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as
adopted by the European Union.
RE SPE C TIVE RE SPON SIBILITIE S OF DIRE CTORS A N D A UDITORS
As explained more fully in the statement of the Directors’
responsibilities in respect of the preparation of the financial statements
set out on page 57, the Directors are responsible for the preparation
of the Consolidated Financial Statements and for being satisfied that
they give a true and fair view. Our responsibility is to audit and
express an opinion on the Consolidated Financial Statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply with
the Auditing Practices Board’s Ethical Standards for Auditors.
SEPARATE OPINION IN RELATION TO IFRSs AS ISSUED BY THE IASB
As explained in Note 1 to the Consolidated Financial Statements, Shell
in addition to complying with its legal obligation to apply IFRSs as
adopted by the European Union, has also applied IFRSs as issued by
the International Accounting Standards Board (IASB).
In our opinion the Consolidated Financial Statements comply with
IFRSs as issued by the IASB.
OPIN ION ON OTHE R MA TTE RS PRE SCRIBE D BY THE C OMPA N IE S
ACT 2006
In our opinion the information given in the Report of the Directors for
the financial year for which the Consolidated Financial Statements are
prepared is consistent with the Consolidated Financial Statements.
MA TTE RS ON WHICH WE A RE RE QUIRE D TO RE PORT BY
E X C E P TI ON
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
▪ certain disclosures of Directors’ remuneration specified by law are
not made; or
▪ we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
This report, including the opinions, has been prepared for and only for
the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do
not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our
prior consent in writing.
▪ the Directors’ statement, set out on page 83, in relation to going
concern;
▪ the part of the Corporate Governance Statement relating to the
Company’s compliance with the nine provisions of the UK Corporate
Governance Code specified for our review; and
▪ certain elements of the report to shareholders by the Board on
Directors’ remuneration.
S C OP E OF THE A U D I T OF THE FIN A N C I A L STA TE M E N TS
An audit involves obtaining evidence about the amounts and
disclosures in the Consolidated Financial Statements sufficient to give
reasonable assurance that the Consolidated Financial Statements are
free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are
appropriate to Shell’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall
presentation of the Consolidated Financial Statements. In addition, we
read all the financial and non-financial information in the Royal Dutch
Shell plc Annual Report and Form 20-F for 2012 to identify material
inconsistencies with the audited Consolidated Financial Statements. If
we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
OP I N I ON ON FI N A N C I A L STA TE M E N TS
In our opinion the Consolidated Financial Statements:
▪ give a true and fair view of the state of Shell’s affairs as at
December 31, 2012, and of its income and cash flows for the year
then ended;
▪ have been properly prepared in accordance with IFRSs as adopted
by the European Union; and
▪ have been prepared in accordance with the requirements of the
Companies Act 2006 and Article 4 of the lAS Regulation.
OTHE R M A TTE R
We have reported separately on the Parent Company Financial
Statements of Royal Dutch Shell plc for the year ended December 31,
2012, and on the information in the Directors’ Remuneration Report
that is described as having been audited.
Stephen Johnson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
March 13, 2013
Note:
▪ The report set out above is included for the purposes of Royal Dutch
Shell plc’s Annual Report and Accounts for 2012 only and does not
form part of Royal Dutch Shell plc’s Annual Report on Form 20-F for
2012.
▪ The maintenance and integrity of the Royal Dutch Shell plc website
(www.shell.com) are the responsibility of the Directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the Consolidated Financial
Statements since they were initially presented on the website.
▪ Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
reports.shell.com Shell Annual Report and Form 20-F 2012
Report on the Annual Report on Form 20-F
97
REPORT ON THE ANNUAL
REPORT ON FORM 20-F
Report of independent registered public
accounting firm
TO THE BOA RD OF DIRE CTORS A N D ROYA L D UTCH SHE LL P LC
SHAREHOLDERS
In our opinion, the accompanying Consolidated Statement of Income,
the Consolidated Statement of Comprehensive Income, the
Consolidated Balance Sheets, the Consolidated Statement of Changes
in Equity, the Consolidated Statement of Cash Flows and the related
Notes to the Consolidated Financial Statements present fairly, in all
material respects, the financial position of Royal Dutch Shell plc (the
Company) and its subsidiaries at December 31, 2012, and
December 31, 2011, and the results of their operations and cash
flows for each of the three years in the period ended December 31,
2012, in conformity with International Financial Reporting Standards
as issued by the International Accounting Standards Board and in
conformity with International Financial Reporting Standards as
adopted by the European Union. Also in our opinion, the Company
maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2012, based on criteria
established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for these
Consolidated Financial Statements, for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control over Financial Reporting of
Shell set out on page 84. Our responsibility is to express opinions on
these Consolidated Financial Statements and on the Company’s
internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the Consolidated Financial
Statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the Consolidated Financial Statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the Consolidated Financial Statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis
for our opinions.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in
accordance with authorisations of management and directors of the
company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorised acquisition, use, or
disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
PricewaterhouseCoopers LLP
London
March 13, 2013
Note that the report set out above is included for the purposes of
Royal Dutch Shell plc’s Annual Report on Form 20-F for 2012 only and
does not form part of Royal Dutch Shell plc’s Annual Report and
Accounts for 2012.
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Consolidated Financial Statements
INDEX TO THE CONSOLIDATED
FINANCIAL STATEMENTS
99
99
100
101
102
103
103
103
108
110
112
113
113
114
114
116
118
118
119
119
119
122
122
124
127
128
128
132
134
135
136
136
136
137
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Note 1 Basis of preparation
Note 2 Accounting policies
Note 3 Key accounting estimates and judgements
Note 4 Segment information
Note 5 Employees, Directors and Senior Management
Note 6 Interest and other income
Note 7 Interest expense
Note 8 Intangible assets
Note 9 Property, plant and equipment
Note 10 Joint ventures and associates
Note 11 Investments in securities
Note 12 Trade and other receivables
Note 13 Inventories
Note 14 Cash and cash equivalents
Note 15 Debt and lease arrangements
Note 16 Trade and other payables
Note 17 Taxation
Note 18 Retirement benefits
Note 19 Decommissioning and other provisions
Note 20 Share capital
Note 21 Financial instruments and other derivative contracts
Note 22 Share-based compensation plans and shares held in trust
Note 23 Other reserves
Note 24 Dividends
Note 25 Legal proceedings and other contingencies
Note 26 Auditors’ remuneration
Note 27 Earnings per share
Note 28 Post-balance sheet events
CONSOLIDATED STATEMENT OF INCOME
Revenue
Share of profit of equity-accounted investments
Interest and other income
Total revenue and other income
Purchases
Production and manufacturing expenses
Selling, distribution and administrative expenses
Research and development
Exploration
Depreciation, depletion and amortisation
Interest expense
Income before taxation
Taxation
Income for the period
Income attributable to non-controlling interest
Income attributable to Royal Dutch Shell plc shareholders
All results are from continuing activities.
EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Income for the period
Other comprehensive income, net of tax:
Currency translation differences
Unrealised (losses)/gains on securities
Cash flow hedging gains/(losses)
Share of other comprehensive (loss)/income of equity-accounted investments
Other comprehensive income/(loss) for the period
Comprehensive income for the period
Comprehensive income attributable to non-controlling interest
Comprehensive income attributable to Royal Dutch Shell plc shareholders
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements
99
NOTES
10
6
7
17
4
NOTES
27
27
NOTES
23
2012
467,153
8,948
5,599
481,700
369,725
26,280
14,616
1,314
3,104
14,615
1,757
50,289
23,449
26,840
248
26,592
2012
4.25
4.24
2012
26,840
1,644
(815)
31
(222)
638
27,478
300
27,178
2011
470,171
8,737
5,581
484,489
370,044
26,458
14,335
1,125
2,266
13,228
1,373
55,660
24,475
31,185
267
30,918
2011
4.98
4.97
2011
31,185
(3,328)
1,684
(222)
60
(1,806)
29,379
(348)
29,727
$ MILLION
2010
368,056
5,953
4,143
378,152
283,176
24,458
15,528
1,019
2,036
15,595
996
35,344
14,870
20,474
347
20,127
$
2010
3.28
3.28
$ MILLION
2010
20,474
(142)
(298)
(2)
488
46
20,520
389
20,131
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The Notes on pages 103 to 137 form an integral part of these Consolidated Financial Statements.
NOTES
Dec 31, 2012
Dec 31, 2011
$ MILLION
8
9
10
11
17
18
12
13
12
14
15
16
17
18
19
15
16
17
18
19
20
22
23
4,470
172,293
38,350
4,867
4,045
12,575
8,991
4,521
152,081
37,990
5,492
4,732
11,408
9,256
245,591
225,480
30,781
65,403
18,550
114,734
360,325
29,921
4,175
15,590
6,298
17,435
73,419
7,833
72,839
12,684
402
3,221
96,979
170,398
542
(2,287)
10,021
180,218
188,494
1,433
189,927
360,325
28,976
79,509
11,292
119,777
345,257
30,463
4,921
14,649
5,931
15,631
71,595
6,712
81,846
10,606
387
3,108
102,659
174,254
536
(2,990)
8,984
162,987
169,517
1,486
171,003
345,257
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Consolidated Financial Statements
CONSOLIDATED BALANCE SHEET
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Equity-accounted investments
Investments in securities
Deferred tax
Retirement benefits
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Debt
Trade and other payables
Deferred tax
Retirement benefits
Decommissioning and other provisions
Current liabilities
Debt
Trade and other payables
Taxes payable
Retirement benefits
Decommissioning and other provisions
Total liabilities
Equity
Share capital
Shares held in trust
Other reserves
Retained earnings
Equity attributable to Royal Dutch Shell plc shareholders
Non-controlling interest
Total equity
Total liabilities and equity
Signed on behalf of the Board
/s/ Simon Henry
Simon Henry
Chief Financial Officer
March 13, 2013
The Notes on pages 103 to 137 form an integral part of these Consolidated Financial Statements.
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements
101
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
$ MILLION
Equity attributable to Royal Dutch Shell plc shareholders
At January 1, 2012
Comprehensive income for the period
Capital contributions from, and other changes in,
non-controlling interest
Dividends paid (see Note 24)
Scrip dividends (see Note 24)
Repurchases of shares
Shares held in trust: net sales and dividends received
Share-based compensation
At December 31, 2012
At January 1, 2011
Comprehensive income for the period
Capital contributions from, and other changes in,
non-controlling interest
Dividends paid (see Note 24)
Scrip dividends (see Note 24)
Repurchases of shares
Shares held in trust: net (purchases)/sales and
dividends received
Share-based compensation
At December 31, 2011
At January 1, 2010
Comprehensive income for the period
Capital contributions from, and other changes in,
non-controlling interest
Dividends paid (see Note 24)
Scrip dividends (see Note 24)
Shares held in trust: net (purchases)/sales and
dividends received
Share-based compensation
At December 31, 2010
Share
capital
Shares
held in
trust
Other
reserves
(see Note 20)
(see Note 22)
(see Note 23)
536
(2,990)
–
–
–
9
(3)
–
–
542
529
–
–
–
10
(3)
–
–
536
527
–
–
–
2
–
–
–
–
–
–
–
703
–
(2,287)
(2,789)
–
–
–
–
–
(201)
–
(2,990)
(1,711)
–
–
–
–
(1,078)
–
8,984
586
–
–
(9)
3
–
457
10,021
10,094
(1,191)
–
–
(10)
3
–
88
8,984
9,982
4
–
–
(2)
–
110
Retained
earnings
162,987
26,592
Total
169,517
27,178
Non-
controlling
interest
1,486
300
39
39
(10,955)
(10,955)
(61)
(292)
3,565
(1,728)
150
(432)
180,218
140,179
30,918
3,565
(1,728)
853
25
188,494
148,013
29,727
41
41
(10,457)
(10,457)
3,580
(1,106)
3,580
(1,106)
142
(310)
162,987
127,633
20,127
(59)
(222)
169,517
136,431
20,131
–
–
–
–
1,433
1,767
(348)
505
(438)
–
–
–
–
1,486
1,704
389
Total
equity
171,003
27,478
(22)
(11,247)
3,565
(1,728)
853
25
189,927
149,780
29,379
546
(10,895)
3,580
(1,106)
(59)
(222)
171,003
138,135
20,520
283
283
(10,196)
(10,196)
69
(395)
352
(10,591)
612
1,521
199
612
443
309
–
–
–
612
443
309
529
(2,789)
10,094
140,179
148,013
1,767
149,780
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The Notes on pages 103 to 137 form an integral part of these Consolidated Financial Statements.
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Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flow from operating activities
Income for the period
Adjustment for:
Current taxation
Interest expense (net)
Depreciation, depletion and amortisation
Net gains on sale of assets
Increase in inventories
Decrease/(increase) in accounts receivable
(Decrease)/increase in accounts payable and accrued liabilities
Share of profit of equity-accounted investments
Dividends received from equity-accounted investments
Deferred taxation and decommissioning and other provisions
Other
Net cash from operating activities (pre-tax)
Taxation paid
Net cash from operating activities
Cash flow from investing activities
Capital expenditure
Investments in equity-accounted investments
Proceeds from sale of assets
Proceeds from sale of equity-accounted investments
Proceeds from (purchases)/sale of securities (net)
Interest received
Net cash used in investing activities
Cash flow from financing activities
NOTES
2012
2011
$ MILLION
2010
26,840
31,185
20,474
22,722
1,543
14,615
(4,228)
(1,746)
14,145
(9,008)
(8,948)
10,573
461
201
67,170
(21,030)
46,140
(32,576)
(3,028)
6,346
698
(86)
193
23,009
1,164
13,228
(4,485)
(1,930)
(10,109)
5,568
(8,737)
9,681
1,768
(949)
59,393
(22,622)
36,771
(26,301)
(1,886)
6,990
468
90
196
16,384
842
15,595
(3,276)
(2,888)
(11,931)
8,890
(5,953)
6,519
(1,934)
(10)
42,712
(15,362)
27,350
(26,940)
(2,050)
3,325
3,591
(34)
136
(28,453)
(20,443)
(21,972)
4
4
Net (decrease)/increase in debt with maturity period within three months
(165)
(3,724)
4,647
Other debt:
New borrowings
Repayments
Interest paid
Change in non-controlling interest
Cash dividends paid to:
Royal Dutch Shell plc shareholders
Non-controlling interest
Repurchases of shares
Shares held in trust: net (purchases)/sales and dividends received
Net cash used in financing activities
Currency translation differences relating to cash and cash equivalents
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at January 1
Cash and cash equivalents at December 31
5,108
(4,960)
(1,428)
23
(7,390)
(292)
(1,492)
(34)
(10,630)
201
7,258
11,292
18,550
1,249
(4,649)
(1,665)
8
(6,877)
(438)
(1,106)
(929)
(18,131)
(349)
(2,152)
13,444
11,292
7,849
(3,240)
(1,312)
381
(9,584)
(395)
–
187
(1,467)
(186)
3,725
9,719
13,444
24
15
The Notes on pages 103 to 137 form an integral part of these Consolidated Financial Statements.
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
Under the provisions of the Companies Act 2006 and Article 4 of the International Accounting Standards (IAS) Regulation, the Consolidated
Financial Statements of Royal Dutch Shell plc (the Company) and its subsidiaries (collectively known as Shell) have been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by the European Union. As applied to Shell, there are no material differences
from IFRS as issued by the International Accounting Standards Board (IASB); therefore, the Consolidated Financial Statements have been
prepared in accordance with IFRS as issued by the IASB.
As described in the accounting policies in Note 2, the Consolidated Financial Statements have been prepared under the historical cost convention
except for certain items measured at fair value. Those accounting policies have been applied consistently in all periods presented and there were
no material changes during 2012.
The Consolidated Financial Statements were approved and authorised for issue by the Board of Directors on March 13, 2013.
Accounting standards not yet adopted
Revised IAS 19 Employee Benefits was issued during 2011 and will be adopted, with retrospective effect, from 2013. The revision eliminates the
use of the corridor method of accounting for actuarial gains and losses arising in connection with defined benefit plans and introduces changes to
the way in which such plans are accounted for in income and other comprehensive income. As presented in Note 18, unrecognised net actuarial
losses and past service costs were $19,266 million at December 31, 2012; after deferred taxation impacts of $5,521 million, Shell’s total equity
would have been reduced by $13,745 million had the revised standard been applied at that date. The impact of the change on Shell’s income for
2011 and 2012 is not significant.
IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and revised standards
IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures were issued during 2011 and will be adopted in
2013. The standards reinforce the principles for determining when an investor controls another entity, amend in certain cases the accounting for
arrangements where an investor has joint control and introduce changes to certain disclosures. The impact of the changes on the accounting for
Shell’s interests is not significant.
IFRS 13 Fair Value Measurement was issued during 2011 and will be adopted, with prospective effect, from 2013. The standard affects nearly
all instances where assets and liabilities are currently recognised or disclosed at fair value, primarily by refining the measurement concept to
represent an asset or liability’s exit value. The standard also introduces certain additional considerations to the measurement process. The impact
of the changes for Shell is not significant.
Revised standards IAS 32 Financial Instruments: Presentation and IFRS 7 Financial Instruments: Disclosures were issued during 2011 and will be
adopted, with retrospective effect, in 2014 and 2013 respectively. The revisions amend the requirements for the offsetting of certain financial
assets and financial liabilities and related disclosures. The impact of the changes is currently under review, although adoption of these revised
standards will not affect Shell’s income for the period or total equity.
IFRS 9 Financial Instruments, as issued in 2009 and revised in 2010, is required to be adopted by 2015. The standard’s impact on Shell is
principally limited to its investments in securities, some of which may be measured differently under the standard; the full impact of the changes in
accounting for financial instruments will not be known until the IASB’s project has been completed.
2 ACCOUNTING POLICIES
Nature of the Consolidated Financial Statements
The Consolidated Financial Statements are presented in US dollars (dollars) and include the financial statements of the Company and its
subsidiaries, being those companies over which the Company, either directly or indirectly, has control through a majority of the voting rights or
the right to exercise control or to obtain the majority of the benefits and be exposed to the majority of the risks.
Subsidiaries are consolidated from the date on which control is obtained until the date that such control ceases, using consistent accounting
policies. All inter-company balances and transactions, including unrealised profits arising from such transactions, are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Non-controlling interest represents
the proportion of income, other comprehensive income and net assets in subsidiaries that is not attributable to the Company’s shareholders.
Nature of operations and segmental reporting
Shell is engaged in the principal aspects of the oil and gas industry in more than 70 countries and reports its business through three segments.
Upstream combines the operating segments Upstream International and Upstream Americas, which have similar characteristics and are engaged
in exploring for and recovering crude oil and natural gas; the liquefaction and transportation of gas; the extraction of bitumen from oil sands that
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Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 2 continued]
is converted into synthetic crude oil; and wind energy. Downstream is engaged in manufacturing; distribution and marketing activities for oil
products and chemicals; alternative energy (excluding wind); and CO2 management. Corporate represents the key support functions, comprising
holdings and treasury, headquarters, central functions and Shell’s self-insurance activities. Integrated within the Upstream and Downstream
segments are Shell’s trading activities. Sales between segments are based on prices generally equivalent to commercially available prices.
Segment earnings are presented on a current cost of supplies basis (CCS earnings). On this basis, the purchase price of volumes sold during the period
is based on the current cost of supplies during the same period after making allowance for the tax effect. CCS earnings therefore exclude the effect of
changes in the oil price on inventory carrying amounts. Net capital investment is defined as capital expenditure as reported in the Consolidated
Statement of Cash Flows, adjusted for: proceeds from disposals; exploration expense excluding exploration wells written off; investments in equity-
accounted investments; and leases and other items. CCS earnings and net capital investment information are the dominant measures used by the Chief
Executive Officer for the purposes of making decisions about allocating resources and assessing performance.
Revenue recognition
Revenue from sales of oil, natural gas, chemicals and all other products is recognised at the fair value of consideration received or receivable,
after deducting sales taxes, excise duties and similar levies, when the significant risks and rewards of ownership have been transferred, which is
when title passes to the customer. For sales by Upstream operations, this generally occurs when product is physically transferred into a vessel,
pipe or other delivery mechanism; for sales by refining operations, it is either when product is placed onboard a vessel or offloaded from the
vessel, depending on the contractually agreed terms; and for wholesale sales of oil products and chemicals it is either at the point of delivery or
the point of receipt, depending on contractual conditions.
Revenue resulting from the production of oil and natural gas from properties in which Shell has an interest with partners in joint ventures is
recognised on the basis of Shell’s working interest (entitlement method). Revenue resulting from the production of oil and natural gas under
production-sharing contracts is recognised for those amounts relating to Shell’s cost recoveries and Shell’s share of the remaining production.
Gains and losses on derivative contracts and the revenue and costs associated with other contracts that are classified as held for trading purposes
are reported on a net basis in the Consolidated Statement of Income. Purchases and sales of hydrocarbons under exchange contracts that are
necessary to obtain or reposition feedstock for refinery operations are presented net in the Consolidated Statement of Income.
Property, plant and equipment and intangible assets
A – RECOGNITION
Property, plant and equipment comprise assets owned by Shell, assets held by Shell under finance leases and assets operated by Shell as contractor in
production-sharing contracts. They include rights and concessions in respect of properties with proved reserves (proved properties) and with no
proved reserves (unproved properties). Property, plant and equipment, including expenditure on major inspections, and intangible assets are initially
recognised in the Consolidated Balance Sheet at cost where it is probable that they will generate future economic benefits. This includes capitalisation
of decommissioning and restoration costs associated with provisions for asset retirement (see “Provisions”), certain development costs (see “Research
and development”) and the effects of associated cash flow hedges (see “Derivative contracts”) as applicable. The accounting for exploration costs is
described separately below (see “Exploration costs”). Intangible assets include goodwill, capitalised software costs and trademarks. Interest is
capitalised, as an increase in property, plant and equipment, on major capital projects during construction.
Property, plant and equipment and intangible assets are subsequently carried at cost less accumulated depreciation, depletion and amortisation
(including any impairment). Gains and losses on disposals are determined by comparing the proceeds with the carrying amounts of assets sold
and are recognised in income, within interest and other income.
B – DE PRE C IA TION , D E P LE TION A N D A M ORTISA TION
Property, plant and equipment related to hydrocarbon production activities are depreciated on a unit-of-production basis over the proved
developed reserves of the field concerned, except in the case of assets whose useful lives differ from the lifetime of the field, in which case the
straight-line method is applied. Rights and concessions in respect of proved properties are depleted on the unit-of-production basis over the total
proved reserves of the relevant area. Where individually insignificant, unproved properties may be grouped and depreciated based on factors
such as the average concession term and past experience of recognising proved reserves.
Other property, plant and equipment and intangible assets are depreciated and amortised on a straight-line basis over their estimated useful lives,
except for goodwill, which is not amortised. They include major inspection costs, which are depreciated over the estimated period before the next
planned major inspection (three to five years), and the following:
Asset type
Upgraders
Refineries and chemical plants
Retail service stations
Property, plant and equipment held under finance leases
Software
Trademarks
Useful life
30 years
20 years
15 years
lease term
5 years
40 years
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
105
[Note 2 continued]
Estimates of the useful lives and residual values of property, plant and equipment and intangible assets are reviewed annually and adjusted if
appropriate.
C – I M P A I R M E N T
The carrying amount of goodwill is tested for impairment annually; in addition, assets other than unproved properties (see “Exploration costs”) are
tested for impairment whenever events or changes in circumstances indicate that the carrying amounts for those assets may not be recoverable. If
assets are determined to be impaired, the carrying amounts of those assets are written down to their recoverable amount, which is the higher of
fair value less costs to sell and value-in-use.
Value-in-use is determined as the amount of estimated risk-adjusted discounted future cash flows. For this purpose, assets are grouped into cash-
generating units based on separately identifiable and largely independent cash inflows. Estimates of future cash flows used in the evaluation of
impairment of assets are made using management’s forecasts of commodity prices, market supply and demand, product margins and, in the case
of exploration and production assets, expected production volumes. The latter takes into account assessments of field and reservoir performance
and includes expectations about both proved reserves and volumes that are expected to constitute proved reserves in the future (unproved
volumes), which are risk-weighted utilising geological, production, recovery and economic projections. Cash flow estimates are risk-adjusted to
reflect local conditions as appropriate and discounted at a rate based on Shell’s marginal cost of debt.
Impairments, except those related to goodwill, are reversed as applicable to the extent that the events or circumstances that triggered the original
impairment have changed.
Impairment charges and reversals are reported within depreciation, depletion and amortisation.
On reclassification as held for sale, the carrying amounts of intangible assets and property, plant and equipment are also reviewed and, where
appropriate, written down to their fair value less costs to sell. No further provision for depreciation, depletion or amortisation is charged.
Exploration costs
Oil and natural gas exploration costs are accounted for under the successful efforts method: exploration costs are recognised in income when
incurred, except that exploratory drilling costs are included in property, plant and equipment pending determination of proved reserves.
Exploration costs capitalised in respect of exploration wells that are more than 12 months old are written off unless (a) proved reserves are
booked, or (b) (i) they have found commercially producible quantities of reserves, and (ii) they are subject to further exploration or appraisal
activity in that either drilling of additional exploratory wells is underway or firmly planned for the near future or other activities are being
undertaken to sufficiently progress the assessing of reserves and the economic and operating viability of the project.
Joint ventures and associates
Arrangements under which Shell has contractually agreed to share control with another party or parties are joint ventures, which may be
incorporated (jointly controlled entities) or unincorporated (jointly controlled assets). Investments in entities over which Shell has the right to
exercise significant influence but not control are classified as associates.
Interests in jointly controlled entities and associates are accounted for using the equity method, under which the investment is initially recognised
at cost and subsequently adjusted for the Shell share of post-acquisition income less dividends received and the Shell share of other
comprehensive income and other movements in equity, together with any loans of a long-term investment nature. Interests in jointly controlled
assets are recognised by including the Shell share of assets, liabilities, income and expenses on a line-by-line basis. Where necessary,
adjustments are made to the financial statements of joint ventures and associates to bring the accounting policies used into line with those of Shell.
In an exchange of assets and liabilities for an interest in a jointly controlled entity, the non-Shell share of any excess of the fair value of the assets
and liabilities transferred over the pre-exchange carrying amounts is recognised in income. Unrealised gains on other transactions between Shell
and its joint ventures and associates are eliminated to the extent of Shell’s interest in them; unrealised losses are treated similarly but may also
result in an assessment of whether the asset transferred is impaired.
Inventories
Inventories are stated at cost or net realisable value, whichever is lower. Cost comprises direct purchase costs (including transportation), cost of
production and manufacturing and taxes, and is determined using the first-in, first-out (FIFO) method for oil and chemicals and by the weighted
average cost method for materials.
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Income taxes
The charge for current tax is calculated based on the income reported by the Company and its subsidiaries, as adjusted for items that are
non-taxable or disallowed and using rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxation is determined, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the Consolidated Balance Sheet.
Deferred tax assets and liabilities are calculated using the enacted or substantively enacted rates that are expected to apply when the asset or
liability is recovered. They are not recognised where they arise on the initial recognition of an asset or liability in a transaction (other than in a
106
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Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 2 continued]
business combination) that, at the time of the transaction, affects neither accounting nor taxable profit, or in respect of taxes on possible future
distributions of retained earnings of subsidiaries and equity-accounted investments where the timing of the distribution can be controlled by Shell
and it is probable that the retained earnings will be reinvested by the companies concerned.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary
differences can be utilised.
Income taxes are recognised in income except when they relate to items recognised in other comprehensive income, in which case the tax is also
recognised in other comprehensive income. Income tax assets and liabilities are presented separately in the Consolidated Balance Sheet except
where there is a right of set-off within fiscal jurisdictions and an intention to settle such balances on a net basis.
Employee benefits
A – E M P LOY E E RE TIRE M E N T P LA N S ( P E N S I ON S )
Retirement plans that define the amount of pension benefit to be provided (“defined benefit plans”) generally are funded by payments to
independent trusts. Where a plan is not funded, a provision is made. Valuations of both funded and unfunded plans are carried out annually by
independent actuaries, using the projected unit credit method to calculate the defined benefit obligation. Pension expense principally represents
the increase in the actuarial present value of the obligation for pension benefits based on employee service during the year and the interest on this
obligation in respect of employee service in previous years, net of the expected return on plan assets.
Actuarial gains and losses are accounted for using the corridor method. Under this method, to the extent that any cumulative unrecognised
actuarial gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that
excess is recognised in income over the expected average remaining working lives of the employees participating in the plan. Otherwise, the
actuarial gain or loss is not recognised.
For retirement plans where benefits depend solely on the amount contributed to the employee’s account and the investment returns earned on
these contributions (“defined contribution plans”), pension expense is the amount of employer contributions payable for the period.
B – RE TIRE ME N T BE N E FITS OTHE R THA N P E N SION S
Retirement healthcare and life insurance benefits are provided to certain retirees, the entitlement to which is usually dependent upon the employee
remaining in service up to retirement age and the completion of a minimum service period. These plans are not funded and a provision is made.
Valuations of benefits are carried out annually by independent actuaries, using the projected unit credit method to calculate the defined benefit
obligation.
The expected cost of retirement benefits other than pensions is accrued over the periods employees render service. Actuarial gains and losses are
accounted for using the corridor method, as described above.
C – S HA RE - B A S E D C OM P E N S A TI ON P LA N S
The fair value of share-based compensation for the Performance Share Plan (the main equity-settled plan) is estimated using a Monte Carlo pricing
model and is recognised in income from the date of grant over the vesting period with a corresponding increase directly in equity. The periodic
change in the fair value of share-based compensation for cash-settled plans is recognised in income with a corresponding change in liabilities.
Leases
Agreements under which payments are made to owners in return for the right to use an asset for a period are accounted for as leases. Leases that
transfer substantially all the risks and rewards of ownership are recognised at the commencement of the lease term as finance leases within
property, plant and equipment and debt at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments.
Finance lease payments are apportioned between interest expense and repayments of debt. All other leases are recorded as operating leases,
and the cost is recognised in income on a straight-line basis.
Financial instruments and other derivative contracts
A – FIN A N C I A L A S S E TS
Investments in securities
Investments in securities (also referred to as “securities”) comprise equity and debt securities classified on initial recognition as available-for-sale
and are carried at fair value, except where their fair value cannot be measured reliably, in which case they are carried at cost, less any
impairment. Unrealised holding gains and losses other than impairments are recognised in other comprehensive income, except for translation
differences arising on foreign currency debt securities, which are recognised in income. On maturity or disposal, net gains and losses previously
deferred in accumulated other comprehensive income are recognised in income.
Interest income on debt securities is recognised in income using the effective interest method. Dividends on equity securities are recognised in
income when receivable.
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
107
[Note 2 continued]
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, including offsetting bank overdrafts, short-term deposits, money market funds and
similar instruments that have a maturity of three months or less at the date of acquisition.
Receivables
Receivables are recognised initially at fair value based on amounts exchanged and subsequently at amortised cost less any impairment.
B – FIN A N C I A L LI A B I LITIE S
Debt and accounts payable are recognised initially at fair value based on amounts exchanged, net of transaction costs, and subsequently at
amortised cost, except for fixed rate debt subject to fair value hedging, which is remeasured for the hedged risk (see “Derivative contracts”).
Interest expense on debt is accounted for using the effective interest method and, other than interest capitalised, is recognised in income.
C – D E R I V A T I V E C O N T R A C T S
Derivatives are used in the management of interest rate risk, foreign currency risk and commodity price risk, and in the management of foreign
currency cash balances. These derivative contracts are recognised at fair value.
Those derivatives qualifying and designated as hedges are either: (i) a “fair value” hedge of the change in fair value of a recognised asset or
liability or an unrecognised firm commitment, or (ii) a “cash flow” hedge of the change in cash flows to be received or paid relating to a
recognised asset or liability or a highly probable forecasted transaction.
A change in the fair value of a hedging instrument designated as a fair value hedge is recognised in income, together with the consequential
adjustment to the carrying amount of the hedged item. The effective portion of a change in fair value of a derivative designated as a cash flow
hedge is recognised in other comprehensive income until the hedged transaction occurs; any ineffective portion is recognised in income. Where
the hedged item is a non-financial asset or liability, the amount in accumulated other comprehensive income is transferred to the initial carrying
amount of the asset or liability; for other hedged items, the amount in accumulated other comprehensive income is recognised in income when the
hedged transaction affects income.
All relationships between hedging instruments and hedged items are documented, as well as risk management objectives and strategies for
undertaking hedge transactions. The effectiveness of a hedge is also continually assessed and, when it ceases, hedge accounting is discontinued.
Gains and losses on derivatives not qualifying and designated as hedges, including forward sale and purchase contracts for commodities in
trading operations that may be settled by the physical delivery or receipt of the commodity, are recognised in income.
Unless designated as hedging instruments, contracts to sell or purchase non-financial items that can be settled net as if the contracts were financial
instruments and that do not meet expected own use requirements (typically, forward sale and purchase contracts for commodities in trading
operations), and contracts that are or contain written options, are recognised at fair value; associated gains and losses are recognised in income.
Derivatives embedded within contracts that are not already required to be recognised at fair value, and that are not closely related to the host
contract in terms of economic characteristics and risks, are separated from their host contract and recognised at fair value; associated gains and
losses are recognised in income.
Fair value measurements
Fair value measurements are estimates of the amounts for which assets or liabilities (generally financial instruments and other derivative contracts)
could be exchanged at the measurement date, based on the assumption that such exchanges take place between knowledgeable, unrelated
parties in unforced transactions. Where available, fair value measurements are derived from prices quoted in active markets for identical assets
or liabilities. In the absence of such information, other observable inputs are used to estimate fair value. Inputs derived from external sources are
corroborated or otherwise verified, as appropriate. In the absence of publicly available information, fair value is determined using estimation
techniques that take into account market perspectives relevant to the asset or liability, in as far as they can reasonably be ascertained, based on
predominantly unobservable inputs. For derivative contracts where publicly available information is not available and for share-based
compensation plans, fair value estimations are generally determined using models and other valuation methods, the key inputs for which include
future prices, volatility, price correlation, counterparty credit risk and market liquidity, as appropriate; for other assets and liabilities, fair value
estimations are generally based on the net present value of expected future cash flows.
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Provisions
Provisions are recognised at the balance sheet date at management’s best estimate of the expenditure required to settle the present obligation.
Non-current amounts are discounted at a rate intended to reflect the time value of money. Specific details for decommissioning and restoration
costs are described below. The carrying amounts of provisions are regularly reviewed and adjusted for new facts or changes in law or
technology.
Provisions for decommissioning and restoration costs, which arise principally in connection with hydrocarbon production facilities and pipelines,
are measured on the basis of current requirements, technology and price levels; the present value is calculated using amounts discounted over the
useful economic life of the assets. The liability is recognised (together with a corresponding amount as part of the related property, plant and
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Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 2 continued]
equipment) once an obligation crystallises in the period when a reasonable estimate can be made. The effects of changes resulting from revisions
to the timing or the amount of the original estimate of the provision are reflected on a prospective basis, generally by adjustment to the carrying
amount of the related property, plant and equipment.
Other provisions are recognised in income in the period in which an obligation arises and the amount can be reasonably estimated. Provisions
are measured based on current legal requirements and existing technology where applicable. Recognition of any joint and several liability is
based on management’s best estimate of the final pro rata share of the liability. Provisions are determined independently of expected insurance
recoveries. Recoveries are recognised and reported as separate events and brought into account when virtually certain of realisation.
Shares held in trust
Shares in the Company held by employee share ownership trusts are not included in assets but are reflected at cost as a deduction from equity as
shares held in trust.
Research and development
Development costs that are expected to generate probable future economic benefits are capitalised as intangible assets. All other research and
development expenditure is recognised in income as incurred.
Acquisitions and disposals of interests in a business
Assets acquired and liabilities assumed when control is obtained over a business are recognised at their fair value at the date of the acquisition;
the amount of the purchase consideration above this value is recognised as goodwill, with any non-controlling interest recognised as the
proportionate share of the identifiable net assets. Acquisitions of the non-controlling interest in subsidiaries and disposals of shares in subsidiaries
while retaining control are accounted for as transactions within equity. The difference between the purchase consideration or disposal proceeds
and the relevant proportion of the non-controlling interest is reported in retained earnings as a movement in equity attributable to the Company’s
shareholders.
Currency translation
Foreign currency transactions are translated using the exchange rate at the dates of the transactions or valuation where items are re-measured.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at quarter-end exchange rates of
monetary assets and liabilities denominated in foreign currencies (including those in respect of inter-company balances unless related to quasi-
equity loans) are recognised in income, except when deferred in equity as qualifying cash flow hedges, and presented within interest and other
income or within purchases where not related to financing. Share capital issued in currencies other than the dollar is translated at the exchange
rate at the date of issue.
On consolidation, assets and liabilities of non-dollar entities are translated to dollars at year-end rates of exchange, while their statements of
income, other comprehensive income and cash flows are translated at quarterly average rates. The resulting translation differences are
recognised as currency translation differences within other comprehensive income. Upon divestment of all or part of an interest in, or upon
liquidation of, an entity, cumulative currency translation differences related to that entity are generally recognised in income.
Consolidated Statement of Income presentation
Purchases reflect all costs related to the acquisition of inventories, the effects of the changes therein, and include supplies used for conversion into
finished or intermediate products. Production and manufacturing expenses are the costs of operating, maintaining and managing production and
manufacturing assets. Selling, distribution and administrative expenses include direct and indirect costs of marketing and selling products.
3 KEY ACCOUNTING ESTIMATES AND JUDGEMENTS
In order to prepare the Consolidated Financial Statements in conformity with IFRS, management has to make estimates and judgements. The
matters described below are considered to be the most important in understanding the judgements that are involved in preparing these statements
and the uncertainties that could impact the amounts reported in the results of operations, financial condition and cash flows. Shell’s accounting
policies are described in Note 2.
Estimation of proved oil and gas reserves
Unit-of-production depreciation, depletion and amortisation charges are principally measured based on management’s estimates of proved
developed oil and gas reserves. Estimates of proved reserves are also used in the determination of impairment charges and reversals. Also,
exploration drilling costs are capitalised pending the results of further exploration or appraisal activity, which may take several years to complete
and before any related proved reserves can be booked.
Proved reserves are estimated by reference to available geological and engineering data and only include volumes for which access to market is
assured with reasonable certainty. Estimates of proved reserves are inherently imprecise, require the application of judgement and are subject to
regular revision, either upward or downward, based on new information such as from the drilling of additional wells, observation of long-term
reservoir performance under producing conditions and changes in economic factors, including product prices, contract terms or development
plans.
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
109
[Note 3 continued]
Changes to estimates of proved developed reserves affect prospectively the amounts of depreciation, depletion and amortisation charged and,
consequently, the carrying amounts of exploration and production assets. It is expected, however, that in the normal course of business the
diversity of the asset portfolio will limit the effect of such revisions. The outcome of, or assessment of plans for, exploration or appraisal activity
may result in the related capitalised exploration drilling costs being recorded in income in that period.
Information about the carrying amounts of exploration and production assets and the amounts charged to income, including depreciation,
depletion and amortisation, is presented in Note 9.
Impairment of assets
For the purposes of determining whether impairment of assets has occurred, and the extent of any impairment or its reversal, the key assumptions
management uses in estimating risk-adjusted future cash flows for value-in-use measures are future oil and gas prices, expected production
volumes and refining margins appropriate to the local circumstances and environment. These assumptions and the judgements of management
that are based on them are subject to change as new information becomes available. Changes in economic conditions can also affect the rate
used to discount future cash flow estimates.
Future price assumptions tend to be stable because management does not consider short-term increases or decreases in prices as being indicative
of long-term levels, but they are nonetheless subject to change. Expected production volumes, which comprise proved reserves and unproved
volumes, are used for impairment testing because management believes this to be the most appropriate indicator of expected future cash flows.
As discussed in “Estimation of proved oil and gas reserves”, reserves estimates are inherently imprecise. Furthermore, projections about unproved
volumes are based on information that is necessarily less robust than that available for mature reservoirs. Due to the nature and geographical
spread of the business activity in which those assets are used, it is typically not practicable to estimate the likelihood or extent of impairments
under different sets of assumptions. The discount rate applied is reviewed annually, although it has been stable in recent years.
Changes in assumptions could affect the carrying amounts of assets, and impairment charges and reversals will affect income.
Information about the carrying amounts of assets and impairments is presented in Notes 8 and 9.
Defined benefit pension plans
The amounts reported for employee retirement plans are presented in Note 18. Defined benefit plan assets and obligations are subject to
significant volatility as market values and actuarial assumptions change. Under the accounting policy applied, volatility in the amounts recognised
in the Consolidated Financial Statements is reduced as the methodology provides for unexpected changes in the amount of plan assets and
benefit obligation (actuarial gains and losses) to be amortised over the expected average remaining working lives of the employees participating
in the plan rather than being recognised immediately in the Consolidated Financial Statements.
Local trustees manage the pension funds and set the required contributions based on independent actuarial valuation in accordance with local
regulations rather than the IFRS measures.
Pension expense for these plans principally represents the change in actuarial present value of the obligation for benefits based on employee
service during the year and the interest on the obligation in respect of employee service in previous years, net of the expected return on plan
assets. The calculations are sensitive to changes in the assumptions made regarding future outcomes. Substantial judgement is required in
determining the assumptions, which vary for the different plans to reflect local conditions but are determined under a common process in
consultation with independent actuaries. The principal assumptions and their bases include:
▪ rates of increase in pensionable remuneration: historical outturns and management’s long-term expectation;
▪ mortality rates: the latest available standard mortality tables for the individual countries concerned. The assumptions for each country are
reviewed each year and are adjusted where necessary to reflect changes in fund experience and actuarial recommendations;
▪ discount rates used to convert future cash flows to current values: prevailing long-term AA corporate bond yields, which can be volatile, chosen
to match the duration of the relevant obligation; and
▪ expected rates of return on plan assets: a projection of real long-term bond yields and an equity risk premium, which are combined with local
inflation assumptions and applied to the actual asset mix of each plan. The amount of the expected return on plan assets is calculated using the
expected rate of return for the year and the fair value of assets at the beginning of the year.
The assumptions are reviewed annually. The weighted average values applicable for the principal plans are presented in Note 18, together with
information on sensitivities.
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Decommissioning and restoration costs
Provisions are recognised for the future decommissioning and restoration of hydrocarbon production facilities and pipelines at the end of their
economic lives. The estimated cost is recognised in income over the life of the proved developed reserves on a unit-of-production basis or on a
straight-line basis, as applicable. Changes in the estimates of costs to be incurred, proved developed reserves or in the rate of production will
therefore impact income, generally over the remaining economic life of the related assets.
110
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Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 3 continued]
Estimates of the amounts of provisions recognised are based on current legal and constructive requirements, technology and price levels. Because
actual outflows can differ from estimates due to changes in laws, regulations, public expectations, technology, prices and conditions, and can
take place many years in the future, the carrying amounts of provisions are regularly reviewed and adjusted to take account of such changes. The
discount rate applied is reviewed annually, although it has been stable in recent years.
Information about decommissioning and restoration provisions is presented in Note 19.
Taxation
Tax liabilities are recognised when it is considered probable that there will be a future outflow of funds to a taxing authority. In such cases,
provision is made for the amount that is expected to be settled, where this can be reasonably estimated. This requires the application of
judgement as to the ultimate outcome, which can change over time depending on facts and circumstances. A change in estimate of the likelihood
of a future outflow and/or in the expected amount to be settled would be recognised in income in the period in which the change occurs.
Deferred tax assets are recognised only to the extent it is considered probable that those assets will be recoverable. This involves an assessment of
when those deferred tax assets are likely to reverse, and a judgement as to whether or not there will be sufficient taxable profits available to offset
the tax assets when they do reverse. This requires assumptions regarding future profitability and is therefore inherently uncertain. To the extent
assumptions regarding future profitability change, there can be an increase or decrease in the amounts recognised in respect of deferred tax
assets as well as in the amounts recognised in income in the period in which the change occurs.
Information about taxation charges, deferred tax liabilities and recognised and unrecognised deferred tax assets is presented in Note 17.
4 SEGMENT INFORMATION
A – Income information by business segment
2012
Revenue and other income
Revenue
Third party
Inter-segment
Share of profit/(loss) of equity-accounted investments
Interest and other income
Total
Earnings on a current cost of supplies basis
Other items
Depreciation, depletion and amortisation charge of which:
Impairment losses
Impairment reversals
Interest expense
Taxation charge/(credit)
2011
Revenue and other income
Revenue
Third party
Inter-segment
Share of profit/(loss) of equity-accounted investments
Interest and other income
Total
Earnings on a current cost of supplies basis
Other items
Depreciation, depletion and amortisation charge of which:
Impairment losses
Impairment reversals
Interest expense
Taxation charge/(credit)
Upstream
Downstream
Corporate
Total
$ MILLION
43,431
51,119
8,001
4,836
423,638
772
1,240
305
22,162
5,350
11,387
980
–
774
3,083
138
24
89
23,630
1,129
84
–
(293)
458
(209)
145
3
–
894
(1,310)
467,153
8,948
5,599
481,700
27,303
14,615
1,121
24
1,757
23,449
$ MILLION
Upstream
Downstream
Corporate
Total
42,260
49,431
7,127
4,150
427,864
782
1,896
1,106
24,455
4,289
8,827
325
–
756
4,251
1,194
4
83
23,994
1,632
47
–
(286)
325
86
150
–
–
534
(1,151)
470,171
8,737
5,581
484,489
28,830
13,228
1,519
4
1,373
24,475
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
111
[Note 4 continued]
2010
Revenue and other income
Revenue
Third party
Inter-segment
Share of profit/(loss) of equity-accounted investments
Interest and other income
Total
Earnings on a current cost of supplies basis
Other items
Depreciation, depletion and amortisation charge of which:
Impairment losses
Impairment reversals
Interest expense
Taxation charge/(credit)
Upstream
Downstream
Corporate
Total
$ MILLION
32,395
35,803
4,900
3,616
335,604
612
1,167
418
57
–
(114)
109
15,935
2,950
91
11,144
1,724
40
663
14,822
4,254
1,192
8
84
998
197
39
–
249
(950)
368,056
5,953
4,143
378,152
18,976
15,595
2,955
48
996
14,870
Segment earnings on a current cost of supplies basis reconcile to income for the period as follows:
Total segment earnings on a current cost of supplies basis
Current cost of supplies adjustment:
Purchases
Taxation
Share of (loss)/profit of equity-accounted investments
Income for the period
2012
27,303
2011
28,830
$ MILLION
2010
18,976
(514)
165
(114)
2,825
(789)
319
1,789
(510)
219
26,840
31,185
20,474
B – Net capital investment and equity-accounted investments by business segment
NET CAPITAL INVESTMENT
Net capital investment
Upstream
Downstream
Corporate
Total
Proceeds from disposals
Capital investment
Exploration expense, excluding exploration wells written off
Investments in equity-accounted investments
Leases and other adjustments
Capital expenditure
EQUITY-ACCOUNTED INVESTMENTS
Upstream
Downstream
Corporate
Total
2012
2011
2010
$ MILLION
25,320
4,275
208
29,803
6,958
36,761
(2,114)
(3,028)
957
32,576
19,083
4,342
78
23,503
7,548
31,051
(1,462)
(1,886)
(1,402)
26,301
Dec 31,
2012
21,766
16,576
8
21,222
2,358
100
23,680
6,882
30,562
(1,214)
(2,050)
(358)
26,940
$ MILLION
Dec 31,
2011
21,683
16,303
4
38,350
37,990
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Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 4 continued]
C – Information by geographical area
2012
Third-party revenue, by origin
Intangible assets, property, plant and equipment and equity-accounted
Asia,
Oceania,
Africa
156,310
Europe
184,223
USA
91,571
Other
Americas
35,049
$ MILLION
Total
467,153
investments at December 31
31,275
91,602
51,865
40,371
215,113
2011
Third-party revenue, by origin
Intangible assets, property, plant and equipment and equity-accounted
Asia,
Oceania,
Africa
148,260
Europe
187,498
USA
91,946
Other
Americas
42,467
$ MILLION
Total
470,171
investments at December 31
27,509
83,409
44,234
39,440
194,592
2010
Third-party revenue, by origin
Intangible assets, property, plant and equipment and equity-accounted
Asia,
Oceania,
Africa
110,955
Europe
137,359
USA
77,660
Other
Americas
42,082
$ MILLION
Total
368,056
investments at December 31
28,580
76,553
39,934
36,091
181,158
5 EMPLOYEES, DIRECTORS AND SENIOR MANAGEMENT
A – Employee expense
Remuneration
Social law taxes
Retirement benefits (see Note 18)
Share-based compensation (see Note 22)
Total
2012
11,133
789
2,502
909
2011
11,158
774
1,804
754
$ MILLION
2010
10,667
758
1,980
701
15,333
14,490
14,106
In addition, redundancy costs in 2012 were $114 million (2011: $373 million; 2010: $142 million). See also Note 19.
B – Average employee numbers
Upstream
Downstream
Corporate
Total
Employees working in business service centres are included in the Corporate segment.
2012
2011
2010
THOUSAND
26
48
13
87
27
51
12
90
26
59
12
97
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
113
[Note 5 continued]
C – Remuneration of Directors and Senior Management
Short-term benefits
Retirement benefits
Share-based compensation
Realised gains on exercise of share options
2012
24.8
3.4
47.2
5.0
2011
27.3
3.2
36.0
2.1
$ MILLION
2010
27.8
2.9
22.6
2.6
Directors and Senior Management comprise the members of the Executive Committee and the Non-executive Directors of the Company.
Short-term benefits comprise salaries and fees, annual bonuses (recognised in the period for which performance is assessed), other benefits and
employer social security contributions. Retirement benefits comprise employer contributions.
Share-based compensation in 2012 includes exceptional costs recognised in respect of an Executive Director who stood down during the year.
In addition to the amounts presented above for 2012 are termination and related amounts of $5.9 million in respect of the Executive Director who
stood down during the year and gains of $2.9 million arising on the exercise of share options after standing down.
6 INTEREST AND OTHER INCOME
Interest income
Dividend income (from investments in securities)
Net gains on sale of assets
Foreign exchange gains/(losses) on financing activities
Other
Total
2012
214
799
4,228
194
164
5,599
2011
209
830
4,485
63
(6)
$ MILLION
2010
153
399
3,276
(17)
332
5,581
4,143
Net gains on sale of assets in 2012 arose from divestments of interests and other portfolio transactions including Upstream interests in Australia,
Nigeria and the USA (2011: Upstream interests in the USA, Nigeria, Brazil and Cameroon and Downstream interests in Chile; 2010: Upstream
interests in Australia, Nigeria and the USA).
Other net foreign exchange losses of $67 million (2011: $31 million losses; 2010: $18 million gains) are included in purchases.
7 INTEREST EXPENSE
Interest incurred and similar charges
Less: interest capitalised
Other net fair value losses/(gains) on fair value hedges of debt
Accretion expense (see Note 19)
Total
The rate applied in determining the amount of interest capitalised in 2012 was 3% (2011: 3%; 2010: 3%).
2012
1,251
(567)
210
863
1,757
2011
1,292
(674)
(83)
838
1,373
$ MILLION
2010
1,231
(969)
(13)
747
996
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8 INTANGIBLE ASSETS
2012
Cost
At January 1
Additions
Sales, retirements and other movements
Currency translation differences
At December 31
Depreciation, depletion and amortisation, including impairments
At January 1
Charge for the year
Sales, retirements and other movements
Currency translation differences
At December 31
Net carrying amount at December 31
2011
Cost
At January 1
Additions
Sales, retirements and other movements
Currency translation differences
At December 31
Depreciation, depletion and amortisation, including impairments
At January 1
Charge for the year
Sales, retirements and other movements
Currency translation differences
At December 31
Net carrying amount at December 31
Goodwill
Software
and other
$ MILLION
Total
2,980
4,411
7,391
–
(51)
26
228
(166)
74
228
(217)
100
2,955
4,547
7,502
360
39
(63)
4
340
2,615
2,510
2,870
336
(199)
45
2,692
1,855
375
(262)
49
3,032
4,470
Goodwill
Software
and other
$ MILLION
Total
3,383
–
(358)
(45)
2,980
393
31
(62)
(2)
360
2,620
4,429
7,812
291
(241)
(68)
291
(599)
(113)
4,411
7,391
2,380
2,773
350
(177)
(43)
2,510
1,901
381
(239)
(45)
2,870
4,521
Goodwill at December 31, 2012 and 2011, principally related to Pennzoil-Quaker State Company, a lubricants business in the Downstream
segment based largely in North America. For impairment testing purposes, cash flow projections for this business reflected long-term growth rates
that were assumed to be equal to the average expected inflation rate for the USA (2012: 2.0%; 2011: 2.0%) and were adjusted for a variety of
risks, in particular volume and margin deterioration. The nominal pre-tax discount rate applied was 6% (2011: 6%).
9 PROPERTY, PLANT AND EQUIPMENT
2012
Cost
At January 1
Additions
Sales, retirements and other movements
Currency translation differences
At December 31
Depreciation, depletion and amortisation, including impairments
At January 1
Charge for the year
Sales, retirements and other movements
Currency translation differences
At December 31
Net carrying amount at December 31
Exploration and production assets
Exploration
Manufacturing
and evaluation
Production
and distribution
Other
Total
$ MILLION
28,351
11,754
(7,473)
239
32,871
2,351
1,218
(1,477)
18
2,110
30,761
175,065
18,366
1,939
3,481
198,851
96,794
9,303
(2,163)
2,196
106,130
92,721
65,412
2,980
(1,622)
690
67,460
30,377
2,660
(1,892)
468
31,613
35,847
26,729
1,913
(2,742)
671
26,571
13,954
1,059
(1,744)
338
13,607
12,964
295,557
35,013
(9,898)
5,081
325,753
143,476
14,240
(7,276)
3,020
153,460
172,293
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Consolidated Financial Statements > Notes to the Consolidated Financial Statements
115
[Note 9 continued]
2011
Cost
At January 1
Additions
Sales, retirements and other movements
Currency translation differences
At December 31
Depreciation, depletion and amortisation, including impairments
At January 1
Charge for the year
Sales, retirements and other movements
Currency translation differences
At December 31
Net carrying amount at December 31
Exploration and production assets
Exploration
Manufacturing
and evaluation
Production
and distribution
Other
Total
$ MILLION
26,052
7,971
(5,451)
(221)
28,351
2,095
595
(315)
(24)
2,351
26,000
166,345
11,859
(1,363)
(1,776)
175,065
94,944
7,814
(5,008)
(956)
96,794
78,271
65,908
3,919
(3,722)
(693)
65,412
30,797
3,359
(3,353)
(426)
30,377
35,035
27,220
2,950
(2,644)
(797)
26,729
14,984
1,079
(1,697)
(412)
13,954
12,775
285,525
26,699
(13,180)
(3,487)
295,557
142,820
12,847
(10,373)
(1,818)
143,476
152,081
The net carrying amount at December 31, 2012, includes $35,429 million (2011: $24,494 million) of assets in the course of construction. This
amount excludes exploration and evaluation assets.
The minimum contractual commitments for capital expenditure at December 31, 2012, amounted to $9.3 billion (2011: $4.9 billion).
Exploration and production assets at December 31, 2012, include rights and concessions in respect of proved and unproved properties of
$29,842 million (2011: $26,422 million). Exploration and evaluation assets principally include rights and concessions in respect of unproved
properties and capitalised exploration drilling costs.
The net carrying amounts at December 31 include assets held under finance leases of:
Exploration and production assets
Manufacturing and distribution
Other
Total
The depreciation, depletion and amortisation charge for the year includes impairment losses and reversals as follows:
2012
1,618
813
618
3,049
$ MILLION
2011
1,759
802
574
3,135
Impairment losses
Exploration and production assets
Manufacturing and distribution
Other
Total
Impairment reversals
Exploration and production assets
Manufacturing and distribution
Other
Total
2012
2011
2010
$ MILLION
940
49
93
1,082
–
23
1
24
317
1,134
36
1,487
–
4
–
4
1,620
1,140
33
2,793
40
7
1
48
Impairment losses and reversals have been recognised in the year in respect of a number of cash-generating units, although no single instance is
individually significant. Impairment charges were driven generally by changes in development and production plans in Upstream and, in 2011
and 2010, by lower refining margins in Downstream. Information on the segments affected is presented in Note 4.
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
116
Shell Annual Report and Form 20-F 2012 reports.shell.com
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 9 continued]
Capitalised exploration drilling costs were as follows:
At January 1
Additions pending determination of proved reserves
Amounts charged to expense
Reclassifications to productive wells on determination of proved reserves
Other movements, including acquisitions, disposals and currency translation differences
At December 31
2012
5,298
6,395
(990)
(2,748)
(69)
7,886
2011
4,218
4,195
(804)
(2,022)
(289)
5,298
$ MILLION
2010
3,614
3,141
(822)
(1,779)
64
4,218
With effect from 2012, amounts charged to expense include expenditures capitalised and expensed in the same year. Comparative information
is reclassified.
Exploration drilling costs capitalised for periods greater than one year at December 31, analysed according to the most recent year of activity,
are as follows:
Between one and five years
Between six and ten years
Total
2012
Number
of wells
154
36
190
$ million
2,118
508
2,626
Amounts capitalised for periods greater than one year at December 31, 2012, comprise $1,174 million relating to 22 projects where drilling
activities were underway or firmly planned for the future and $1,452 million relating to 22 projects awaiting development concepts, and are
analysed according to the most recent year of activity, as follows:
Between one and five years
Between six and ten years
Total
2012
Number
$ million
of projects
2,536
90
2,626
41
3
44
10 JOINT VENTURES AND ASSOCIATES
A – Information on the Shell share of equity-accounted investments
Jointly
controlled
Jointly
controlled
Jointly
controlled
2012
2011
$ MILLION
2010
Revenue
Income for the period
entities
Associates
Total
entities
Associates
Total
entities
Associates
Total
72,740
4,071
39,991
112,731
4,877
8,948
66,349
4,781
36,688
103,037
3,956
8,737
44,641
3,643
27,759
72,400
2,310
5,953
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total assets less total liabilities
Dec 31, 2012
$ MILLION
Dec 31, 2011
Jointly
controlled
entities
Associates
12,804
34,228
47,032
9,114
12,114
21,228
25,804
7,936
27,315
35,251
7,498
15,207
22,705
12,546
Jointly
controlled
Total
20,740
61,543
82,283
16,612
27,321
43,933
38,350
entities
Associates
Total
14,048
30,689
44,737
8,953
11,246
20,199
24,538
7,809
21,857
27,467
58,156
35,276
80,013
7,078
16,031
14,746
25,992
21,824
42,023
13,452
37,990
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
117
[Note 10 continued]
B – Major investments in joint ventures and associates
Description
Country of incorporation
Shell interest (%)
Fair value
($ million)
DECEMBER 31, 2012
Segment
Upstream
Downstream
Name
Aera
Arrow
Brunei LNG
Brunei Shell
NAM
Nigeria LNG
Oman LNG
Qatargas 4 LNG
Sakhalin Energy
Woodside
CNOOC and Shell
Jointly controlled entity
Jointly controlled entity
Associate
Jointly controlled entity
USA
Australia
Brunei
Brunei
Jointly controlled entity
The Netherlands
Associate
Associate
Associate
Associate
Associate
Nigeria
Oman
Qatar
Bermuda
Australia
China
USA
The Netherlands
USA
Petrochemicals (Nanhai)
Jointly controlled entity
Jointly controlled entity
Jointly controlled entity
Jointly controlled entity
Deer Park
Infineum
Motiva
Raízen
Jointly controlled entity
Brazil
Saudi Arabia Petrochemical
Jointly controlled entity
Saudi Aramco Shell Refinery
Jointly controlled entity
Showa Shell
Associate
Saudi Arabia
Saudi Arabia
Japan
52
50
25
50
50
26
30
30
28
23
50
50
50
50
50
50
50
35
6,687
751
All shareholdings in the above entities are in ordinary shares or the equivalent and are stated to the nearest percentage point. Fair value
information is stated for those associates for which there are published price quotations, and represent the relevant share price on December 31,
2012, multiplied by the number of shares held.
Although Shell has a 52% investment in Aera, the governing agreements and constitutive documents for this entity do not allow Shell to control this
entity as voting control is either split 50:50 between the shareholders or requires unanimous approval of the shareholders or their representatives.
Consequently, this entity has not been consolidated.
In 2011, Shell and Cosan S.A. established Raízen, a biofuel venture operating in Brazil. Under the terms of the agreement, Shell’s contribution
comprised cash of $1,699 million and ethanol production technology and other Downstream assets.
Shell has other major Upstream joint venture activities that operate as jointly controlled assets.
C – Transactions between subsidiaries and equity-accounted investments
Transactions with equity-accounted investments principally comprise sales and purchases of goods and services in the ordinary course of business
and in total amounted to:
Charges to equity-accounted investments
Charges from equity-accounted investments
2012
51,484
44,597
2011
55,280
47,615
$ MILLION
2010
38,368
34,827
Balances outstanding at December 31, 2012 and 2011, in respect of the above transactions are presented in Notes 12 and 16.
Other arrangements in respect of equity-accounted investments at December 31 were as follows:
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
Commitments to make purchases from equity-accounted investments
Amounts guaranteed in respect of equity-accounted investments
Commitments to provide debt or equity funding to equity-accounted investments
2012
158.9
2.2
3.8
$ BILLION
2011
192.0
2.2
0.5
118
Shell Annual Report and Form 20-F 2012 reports.shell.com
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
11 INVESTMENTS IN SECURITIES
Investments in securities at December 31, 2012, comprise equity and debt securities. Equity securities principally comprise 15% interests in each
of Malaysia LNG Dua Sendirian Berhad and Malaysia LNG Tiga Sendirian Berhad. Debt securities comprise a portfolio required to be held by
Shell’s insurance companies as security for their activities.
Equity and debt securities carried at fair value totalled $4,623 million at December 31, 2012 (2011: $5,248 million), with the remainder
carried at cost. Of these, $1,342 million (2011: $1,218 million) are measured by reference to prices in active markets for identical assets, and
$3,281 million (2011: $4,030 million) are measured by reference to predominantly unobservable inputs. Assets in the latter category, all of
which are equity securities, are measured based on expected dividend flows, adjusted for country and other risks as appropriate and discounted
to their present value. In the case of the Malaysia LNG investments referred to above, were the oil price assumption used in their valuation to be
decreased by $10 per barrel, their carrying amount would decrease by $230 million (2011: $379 million). Movements in the carrying amounts
of investments in securities measured using predominantly unobservable inputs were as follows:
At January 1
(Losses)/gains recognised in other comprehensive income
Purchases
Sales
Currency translation differences
At December 31
12 TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
Amounts due from equity-accounted investments
Derivative contracts (see Note 21)
Prepayments and deferred charges
Total
2012
4,030
(762)
16
(15)
12
$ MILLION
2011
2,388
1,633
25
(18)
2
3,281
4,030
Current
40,210
8,844
3,716
9,191
3,442
65,403
Dec 31, 2012
Non-current
–
2,542
2,630
1,882
1,937
8,991
$ MILLION
Dec 31, 2011
Non-current
–
3,375
2,580
1,615
1,686
9,256
Current
48,307
8,204
3,231
16,394
3,373
79,509
The fair value of financial assets included above approximates the carrying amount.
Other receivables principally include income tax recoverable (see Note 17), other taxes recoverable and balances due from joint venture
partners.
Provisions for impairments deducted from trade and other receivables amounted to $466 million at December 31, 2012 (2011: $544 million).
The ageing of trade receivables at December 31 is as follows:
Not overdue
Overdue 1–30 days
Overdue 31–60 days
Overdue 61–90 days
Overdue 91–180 days
Overdue more than 180 days
Total
Information about credit risk is presented in Note 21.
2012
37,379
1,792
239
148
156
496
$ MILLION
2011
44,433
2,573
297
99
394
511
40,210
48,307
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
119
13 INVENTORIES
Oil and chemicals
Materials
Total
Dec 31, 2012
Dec 31, 2011
$ MILLION
29,217
1,564
30,781
27,343
1,633
28,976
The cost of inventories recognised in income in 2012 includes net write-downs of $51 million (2011: $151 million net write-downs; 2010:
$184 million net reversals).
14 CASH AND CASH EQUIVALENTS
Cash
Short-term bank deposits
Money market funds and other cash equivalents
Total
Dec 31, 2012
Dec 31, 2011
$ MILLION
4,498
5,177
8,875
4,592
3,260
3,440
18,550
11,292
Included in cash and cash equivalents at December 31, 2012, are amounts totalling $703 million (2011: $557 million) that are subject to
currency controls or other legal restrictions. Information about credit risk is presented in Note 21.
15 DEBT AND LEASE ARRANGEMENTS
A – Debt
Debt
(excluding
finance
lease
Finance
lease
obligations)
obligations
1,798
5,708
7,506
26,054
33,560
–
327
327
3,867
4,194
Dec 31, 2012
$ MILLION
Dec 31, 2011
Debt
(excluding
finance
lease
Finance
lease
obligations)
obligations
2,262
4,140
6,402
26,450
32,852
–
310
310
4,013
4,323
Total
1,798
6,035
7,833
29,921
37,754
18,550
19,204
Total
2,262
4,450
6,712
30,463
37,175
11,292
25,883
Short-term debt
Long-term debt due within one year
Current debt
Non-current debt
Total debt
Cash and cash equivalents (see Note 14)
Net debt
C A P I TA L STRU C TURE M A N A GE M E N T
Shell management’s financial strategy is to manage Shell’s assets and liabilities with the aim that, across the business cycle, “cash in” at least
equals “cash out” while maintaining a strong balance sheet.
A key measure of Shell’s capital structure management is the proportion of debt to equity. Across the business cycle, management aims to
manage gearing (net debt to net debt plus total equity) within the range of 0-30%. During 2012, gearing ranged from 8.1% to 13.1%
(2011: 10.8% to 17.1%) and at December 31, 2012, it was 9.2% (2011: 13.1%), calculated as follows:
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
Net debt
Total equity
Total capital
Gearing
$ MILLION, EXCEPT WHERE OTHERWISE INDICATED
2012
19,204
189,927
209,131
9.2%
2011
25,883
171,003
196,886
13.1%
With respect to the objective of maintaining a strong balance sheet, management prioritises the application of cash to investing for organic and
inorganic growth, the servicing of debt commitments, paying dividends and returning surplus cash to shareholders.
120
Shell Annual Report and Form 20-F 2012 reports.shell.com
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 15 continued]
Management’s policy is to grow the US dollar dividend through time in line with its view of Shell’s underlying earnings and cash flow.
The movement in net debt was as follows:
At January 1, 2012
Cash flow
Other movements
Currency translation differences
At December 31, 2012
At January 1, 2011
Cash flow
Other movements
Currency translation differences
At December 31, 2011
Current
Non-current
Cash and cash
debt
(6,712)
4,480
(5,549)
(52)
(7,833)
(9,951)
7,157
(4,079)
161
debt
equivalents
(30,463)
(4,463)
5,040
(35)
(29,921)
(34,381)
(33)
3,930
21
11,292
7,057
–
201
18,550
13,444
(1,803)
–
(349)
$ MILLION
Net
debt
(25,883)
7,074
(509)
114
(19,204)
(30,888)
5,321
(149)
(167)
(6,712)
(30,463)
11,292
(25,883)
The following information at December 31 is also relevant to obtaining an understanding of Shell’s indebtedness:
Net present value of operating lease obligations [A]
Under-funded retirement benefit obligation [B]
Fair value hedges related to debt [C]
Cash required for operational requirements
2012
29,224
13,391
(1,182)
2,400
$ MILLION
2011
18,770
10,711
(983)
2,300
[A] Total future minimum operating lease payments at December 31 discounted at 1.2% in 2012 (2011: 1.5%).
[B] The excess of pension and other retirement benefit obligation over related plan assets of $8,712 million (2011: $6,325 million) and $4,679 million
(2011: $4,386 million) respectively (see Note 18).
[C] The fair value of hedging derivatives in designated fair value hedges, net of related accrued interest.
BORROWIN G FA CILITIE S
Shell has access to international debt capital markets via two commercial paper (CP) programmes, a euro medium-term note (EMTN) programme
and a US universal shelf (US shelf) registration. Issuances under the CP programmes are supported by a committed credit facility and cash. These
arrangements and undrawn facilities at December 31 are summarised as follows:
CP programmes
EMTN programme
US shelf registration
Committed credit facility
2012
20,000
25,000
Facility
2011
20,000
25,000
unlimited
unlimited
5,100
5,100
$ MILLION
Amount undrawn
2012
20,000
14,697
n/a
5,100
2011
20,000
12,443
n/a
5,100
Under the CP programmes, Shell can issue debt of up to $10 billion with maturities not exceeding 270 days and $10 billion with maturities not
exceeding 397 days.
The EMTN programme is updated annually, most recently in June 2012. No debt was issued under this programme in 2012 (2011: $nil).
The US shelf registration provides Shell with the flexibility to issue debt securities, ordinary shares, preferred shares and warrants. The registration
is updated every three years and was last updated in October 2011. During 2012, debt totalling $4,250 million (2011: $nil) was issued under
the registration.
The committed credit facility is available on same-day terms, at pre-agreed margins, and is due to expire in 2015. The terms and availability are
not conditional on Shell’s financial ratios or its financial credit ratings.
In addition, other subsidiaries have access to short-term bank facilities totalling $3,717 million at December 31, 2012 (2011: $3,542 million).
Information about liquidity risk is presented in Note 21.
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
121
[Note 15 continued]
B – Debt (excluding finance lease obligations)
In accordance with risk management policy, interest rate swaps were entered into against most of the fixed rate debt due to mature after more
than one year, affecting the effective interest rate on these balances (see Note 21).
The following tables compare contractual cash flows for debt (excluding finance lease obligations) owed at December 31, with the carrying
amount in the Consolidated Balance Sheet. Contractual amounts reflect the effects of changes in currency exchange rates; differences from
carrying amounts reflect the effects of discounting, premiums and, where hedge accounting is applied, fair value adjustments. Interest is estimated
assuming interest rates applicable to variable rate debt remain constant and there is no change in aggregate principal amounts of debt other than
repayment at scheduled maturity as reflected in the table.
2012
EMTN programme
US shelf registration
Bank and other borrowings
Total (excluding interest)
Interest
2011
EMTN programme
US shelf registration
Bank and other borrowings
Total (excluding interest)
Interest
Less than
1 year
3,299
2,000
2,207
7,506
1,133
Less than
1 year
2,262
1,500
2,640
6,402
1,308
Contractual payments
Difference
$ MILLION
Between
1 and 2
Between
2 and 3
Between
3 and 4
Between
4 and 5
years
–
2,500
3
2,503
914
years
–
3,500
416
3,916
828
years
1,650
–
310
1,960
777
years
1,979
1,750
9
3,738
680
5 years
and later
3,299
9,500
22
12,821
5,944
Total
10,227
19,250
2,967
32,444
10,276
from
carrying
Carrying
amount
845
271
–
amount
11,072
19,521
2,967
1,116
33,560
Contractual payments
Difference
$ MILLION
Between
1 and 2
Between
2 and 3
Between
3 and 4
Between
4 and 5
years
3,231
2,000
2
5,233
1,037
years
–
2,500
1
2,501
866
years
–
2,750
58
2,808
789
years
1,615
–
387
2,002
729
5 years
and later
5,169
7,750
37
12,956
6,009
Total
12,277
16,500
3,125
31,902
10,738
from
carrying
Carrying
amount
608
342
–
amount
12,885
16,842
3,125
950
32,852
Debt is issued under the EMTN programme and US shelf registration by Shell International Finance B.V., a 100%-owned subsidiary of the
Company, and is underwritten by guarantees issued by the Company; bank and other borrowings are raised by other subsidiaries with no
recourse beyond the immediate borrower and/or the local assets.
The fair value of debt excluding finance lease obligations at December 31, 2012, was $36,389 million (2011: $35,511 million).
C – Lease arrangements
Leasing arrangements are entered into, as lessee, for in Upstream, principally drilling and ancillary equipment and service vessels; in
Downstream, principally tankers, storage capacity and retail sites; and in Corporate, principally land and buildings.
The future minimum lease payments for finance and operating leases and the present value of minimum finance lease payments at December 31,
by payment date are as follows:
2012
Less than 1 year
Between 1 and 5 years
5 years and later
Total
Total future
minimum
$ MILLION
Finance leases
Operating leases
Present value
of minimum
Total future
minimum
lease payments
Interest
lease payments
lease payments
705
2,372
4,397
7,474
378
1,223
1,679
3,280
327
1,149
2,718
4,194
4,924
13,827
12,160
30,911
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
122
Shell Annual Report and Form 20-F 2012 reports.shell.com
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 15 continued]
2011
Less than 1 year
Between 1 and 5 years
5 years and later
Total
Total future
minimum
$ MILLION
Finance leases Operating leases
Present value
of minimum
Total future
minimum
lease payments
Interest
lease payments
lease payments
705
2,425
4,653
7,783
395
1,279
1,786
3,460
310
1,146
2,867
4,323
3,913
9,769
6,230
19,912
Finance lease obligations are secured on the leased assets.
Future minimum lease payments are stated before deduction of expected rental income from non-cancellable sub-leases of $589 million
(2011: $587 million) in respect of finance leases and $251 million (2011: $284 million) in respect of operating leases.
Finance lease obligations include obligations under certain power generation contracts (“tolling agreements”). The present value of the future
minimum lease payments under these contracts is $2,129 million at December 31, 2012 (2011: $2,255 million). The leases mature between
2021 and 2024 and the average interest rate is 8%.
Operating lease expense was as follows:
Rental expense, of which:
Contingent rentals
Sub-lease income
16 TRADE AND OTHER PAYABLES
Trade payables
Other payables
Amounts due to equity-accounted investments
Derivative contracts (see Note 21)
Accruals and deferred income
Total
2012
3,631
88
(183)
2011
3,520
91
(177)
$ MILLION
2010
3,373
172
(99)
Dec 31, 2012
Non-current
$ MILLION
Dec 31, 2011
Current
Non-current
–
2,237
30
658
1,250
4,175
44,844
4,196
5,162
15,831
11,813
81,846
–
2,200
559
1,002
1,160
4,921
Current
42,448
4,902
4,868
9,145
11,476
72,839
The fair value of financial liabilities included above approximates the carrying amount.
Other payables principally include balances due to joint venture partners and liabilities under employee benefit plans.
17 TAXATION
A – Taxation charge
Current taxation
Charge in respect of current period
Adjustment in respect of prior periods
Total
Deferred taxation
Relating to the origination and reversal of temporary differences
Relating to changes in tax rates
Adjustment in respect of prior periods
Total
Total taxation charge
2012
2011
2010
$ MILLION
22,551
171
22,722
698
247
(218)
727
23,449
22,519
490
23,009
2,295
(45)
(784)
1,466
24,475
16,891
(507)
16,384
(2,030)
(60)
576
(1,514)
14,870
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
123
[Note 17 continued]
The applicable tax charge at statutory tax rates reconciles to the actual taxation charge as follows:
Income before taxation
Less: Share of profit of equity-accounted investments
Income before taxation and share of profit of equity-accounted investments
Applicable tax charge at standard statutory tax rates
Adjustment in respect of prior periods
Derecognition/(recognition) of tax losses
Income not subject to tax at standard statutory rates
Expenses not deductible for tax purposes
Deductible items not expensed
Taxable income not recognised
Other reconciling items, including amounts relating to changes in tax rate
Taxation charge
2012
50,289
(8,948)
41,341
23,687
(47)
206
(1,369)
965
(562)
259
310
2011
55,660
(8,737)
46,923
25,552
(294)
(450)
(1,280)
1,117
(473)
310
(7)
$ MILLION
2010
35,344
(5,953)
29,391
16,253
69
(99)
(1,880)
1,205
(641)
198
(235)
23,449
24,475
14,870
The weighted average of statutory tax rates was 57.3% in 2012 (2011: 54.5%; 2010: 55.3%). The increase from 2011 to 2012 was principally
due to a change in the geographical mix of income in the Upstream segment, with a higher proportion of Upstream income in 2012 arising in
jurisdictions subject to relatively higher tax rates. The decrease from 2010 to 2011 was principally due to a lower proportion of Upstream income
arising in such jurisdictions in 2011.
The taxation charge includes not only those of general application but also taxes at special rates levied on income from certain Upstream
activities and various other taxes to which these activities are subjected.
The adjustments in respect of prior periods relate to events in the current period and reflect the effects of changes in rules, facts or other factors
compared with those used in establishing the current tax position or deferred tax balance in prior periods.
B – Taxes payable
Income taxes
Sales taxes, excise duties and similar levies and social law taxes
Total
$ MILLION
Dec 31, 2012 Dec 31, 2011
8,663
4,021
12,684
7,151
3,455
10,606
Included in other receivables at December 31, 2012 (see Note 12), is current tax receivable of $751 million (2011: $864 million).
C – Deferred taxation
Taking into consideration offsetting balances within the same tax jurisdiction, movements in deferred tax assets/(liabilities) were as follows:
2012
At January 1
Deferred tax assets
Deferred tax liabilities
Recognised in the period
Credited/(charged) to income
Other movements
Currency translation differences
At December 31
Deferred tax assets
Deferred tax liabilities
Decommissioning
and other
provisions
Losses
carried
forward
Property,
plant and
equipment
Retirement
benefits
4,011
3,333
7,344
289
(399)
237
127
1,881
5,590
7,471
1,029
2,219
3,248
1,700
(180)
32
1,552
1,088
3,712
4,800
(1,761)
(18,310)
(20,071)
(2,650)
(790)
(401)
(3,841)
(273)
(23,639)
(23,912)
368
(1,544)
(1,176)
349
(65)
(62)
222
366
(1,320)
(954)
$ MILLION
Other
Total
1,085
(347)
738
(415)
724
3
312
983
67
1,050
4,732
(14,649)
(9,917)
(727)
(710)
(191)
(1,628)
4,045
(15,590)
(11,545)
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Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 17 continued]
2011
At January 1
Deferred tax assets
Deferred tax liabilities
Recognised in the period
(Charged)/credited to income
Other movements
Currency translation differences
At December 31
Deferred tax assets
Deferred tax liabilities
Decommissioning
and other
provisions
4,311
3,517
7,828
(400)
(17)
(67)
(484)
4,011
3,333
7,344
Losses
carried
forward
979
1,657
2,636
906
(233)
(61)
612
1,029
2,219
3,248
Property,
plant and
equipment
Retirement
benefits
$ MILLION
Other
Total
(2,463)
(15,909)
(18,372)
(1,854)
(39)
194
(1,699)
(1,761)
(18,310)
(20,071)
375
(1,539)
(1,164)
(58)
20
26
(12)
368
(1,544)
(1,176)
2,159
(1,114)
1,045
(60)
(286)
39
(307)
1,085
(347)
738
5,361
(13,388)
(8,027)
(1,466)
(555)
131
(1,890)
4,732
(14,649)
(9,917)
Other movements in deferred tax assets and liabilities principally relate to acquisitions, divestments, reclassifications between assets and
liabilities and amounts recognised in other comprehensive income and directly in equity (see Note 23).
Where the realisation of deferred tax assets is dependent on future profits, losses carried forward are recognised only to the extent that business
forecasts predict that such profits will be available. At December 31, 2012, recognised losses carried forward amounted to $27,006 million
(2011: $17,933 million).
Unrecognised tax losses, credits and other deductions where recovery is not expected, amounted to $17,623 million at December 31, 2012
(2011: $15,376 million), including amounts of $17,455 million (2011: $15,316 million) that are subject to time limits for utilisation of five years
or later or are not time-limited.
Earnings retained by subsidiaries and equity-accounted investments amounted to $169,595 million at December 31, 2012 (2011:
$147,639 million). Provision has been made for withholding and other taxes that would become payable on the distribution of these earnings
only to the extent that either Shell does not control the relevant entity or it is expected that these earnings will be remitted in the foreseeable future.
18 RETIREMENT BENEFITS
Retirement plans are provided for employees of major subsidiaries. The nature of such plans varies according to the legal and fiscal requirements
and economic conditions of the country in which the employees are engaged.
The obligation in respect of defined benefit pension plans is based on employees’ years of service and average/final pensionable remuneration.
The calculation of the obligation depends on actuarial assumptions, as described in Note 3. Defined benefit plans are typically structured as
separate legal entities managed by trustees, who hold the plan assets in trust.
For defined contribution plans, pension expense is the amount of employer contributions payable for the period.
Some subsidiaries have established unfunded defined benefit plans to provide certain other retirement healthcare and life insurance benefits
(other benefits) to their retirees. Entitlement to these other benefits is usually based on the employee remaining in service up to retirement age and
the completion of a minimum service period.
Retirement benefit expense comprised the following:
Service cost
Interest cost
Expected return on plan assets
Net actuarial losses recognised and other components
Total for defined benefit plans
Defined contribution plans
Total
Pension benefits
2012
1,336
3,109
2011
1,262
3,354
2010
1,141
3,227
(3,704)
(3,960)
(3,645)
1,017
1,758
384
2,142
531
1,187
345
1,532
641
1,364
329
1,693
2012
113
208
39
360
360
$ MILLION
Other benefits
2010
62
216
9
287
287
2011
61
206
5
272
272
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Consolidated Financial Statements > Notes to the Consolidated Financial Statements
125
[Note 18 continued]
Retirement benefit expense is presented principally within production and manufacturing expenses and selling, distribution and administrative
expenses in the Consolidated Statement of Income.
Amounts recognised in the Consolidated Balance Sheet at December 31 in respect of defined benefit plans were as follows:
Non-current assets
Non-current liabilities
Current liabilities
Net amount recognised
Pension and other benefits are derived as follows:
2012
12,575
(6,298)
(402)
5,875
Total
2011
11,408
(5,931)
(387)
5,090
Pension benefits
2012
12,575
(2,401)
(190)
9,984
2011
11,408
(2,196)
(180)
9,032
$ MILLION
Other benefits
2012
2011
(3,897)
(212)
(4,109)
(3,735)
(207)
(3,942)
Defined benefit obligation
At January 1
Increase in present value of the obligation for benefits based on employee service during the
year
Interest on the obligation for benefits in respect of employee service in previous years
Benefit payments made
Actuarial losses
Other movements
Currency translation differences
At December 31
Plan assets
At January 1
Expected return on plan assets
Actuarial gains/(losses)
Employer contributions
Plan participants’ contributions
Benefit payments made
Other movements
Currency translation differences
At December 31
Plan assets less than defined benefit obligation at December 31
Unrecognised net actuarial losses since adoption of IFRS
Unrecognised past service cost
Net amount recognised
Pension benefits
$ MILLION
Other benefits
2012
2011
2012
2011
69,962
65,848
4,386
4,067
1,336
3,109
(3,063)
8,342
(66)
2,027
81,647
63,637
3,704
4,375
2,304
86
(3,063)
(91)
1,983
72,935
(8,712)
18,690
6
9,984
1,262
3,354
(3,104)
3,732
111
(1,241)
69,962
63,262
3,960
(1,888)
2,316
90
(3,104)
71
(1,070)
63,637
(6,325)
15,349
8
9,032
113
208
(160)
537
(408)
3
61
206
(155)
228
2
(23)
4,679
4,386
(4,679)
(4,386)
541
29
408
36
(4,109)
(3,942)
A D D I TION A L I N FORM A TI ON
The composition of the defined benefit obligation and the impacts of experience adjustments in respect of the obligation and associated plan
assets were as follows:
Pension benefits
Obligation for pension benefits in respect of unfunded plans
Obligation for pension benefits in respect of funded plans
Total defined benefit obligation
Experience adjustments as a percentage of the total benefit obligation
Plan assets
Experience adjustments as a percentage of plan assets
Plan deficit
Actual return on plan assets
Other benefits
Total benefit obligation (unfunded)
Experience adjustments as a percentage of the total benefit obligation
2012
2011
2010
2009
2008
$ MILLION, EXCEPT WHERE OTHERWISE INDICATED
3,933
77,714
81,647
0.0%
72,935
6.0%
(8,712)
8,079
4,679
4.9%
3,567
66,395
69,962
0.6%
63,637
(3.0)%
(6,325)
2,072
4,386
(4.7)%
3,293
62,555
65,848
0.1%
63,262
5.6%
(2,586)
7,200
4,067
(3.4)%
3,087
59,631
62,718
(0.5)%
59,425
10.5%
(3,293)
9,398
3,825
(1.9)%
2,684
49,955
52,639
1.0%
44,299
(61.1)%
(8,340)
(22,087)
3,494
0.6%
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Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 18 continued]
Employer contributions to defined benefit pension plans in 2013 are estimated to be $2.5 billion.
Weighted average plan asset allocations by asset category for the principal pension plans at December 31 were as follows:
Equities
Debt securities
Real estate
Other
Total
Target allocation
Percentage of plan assets
2012
51%
39%
6%
4%
100%
2012
48%
40%
3%
9%
100%
2011
48%
40%
3%
9%
100%
Long-term investment strategies of plans are generally determined by the relevant pension fund trustees using a structured asset liability modelling
approach to define the asset mix that best meets the objectives of optimising returns within agreed risk levels while maintaining adequate funding
levels.
Assumptions and sensitivities
The weighted averages for the most significant assumptions applicable for the principal defined benefit pension plans were as follows:
Used to determine benefit expense for year
Rates of increase in pensionable remuneration
Discount rates
Expected rates of return on plan assets
Used to determine benefit obligation at December 31
Rates of increase in pensionable remuneration
Discount rates
Expected age at death for persons aged 60
Men (years)
Women (years)
2012
2011
2010
5.1%
4.5%
6.0%
5.0%
3.8%
86
89
5.5%
5.1%
6.3%
5.1%
4.5%
86
88
5.5%
5.5%
6.6%
5.5%
5.1%
86
88
Demographic (including mortality) assumptions are determined in the light of local conditions. Mortality assumptions are reviewed annually to
reflect the latest available standard mortality tables for individual countries concerned, adjusted where appropriate to reflect experience.
The long-term assumptions for pensionable remuneration increases, used to determine the benefit obligation at December 31, 2011, were
decreased by 0.4% on average compared with December 31, 2010. The decrease reflected actuarial experience combined with lower long-term
inflation expectations for the UK.
The assumptions for discount rates reflected decreases of AA rated corporate bond yields of 1.0% in the eurozone (2011: 0.3%), of 0.4% in the
UK (2011: 0.6%) and of 0.6% in the USA (2011: 0.9%).
The effect of a one percentage point increase/(decrease) at December 31, 2012, in the rate of increase in pensionable remuneration and in the
discount rates would be to increase/(decrease) the defined benefit obligation by $2,849 million/($2,479 million) and (decrease)/increase the
defined benefit obligation by ($11,275 million)/$14,456 million respectively. The effect of an increase/(decrease) of one year in life
expectancy at December 31, 2012, would be to increase/(decrease) the defined benefit obligation by $2,736 million/($2,771 million).
The weighted averages for the most significant assumptions applicable for the principal other defined benefit plans were as follows:
Discount rates (used to determine benefit obligation)
Healthcare cost trend rates in year after reporting year
Ultimate healthcare cost trend rates
Year ultimate healthcare cost trend rate is applicable
2012
3.9%
7.1%
4.2%
2028
2011
4.6%
7.4%
4.3%
2028
2010
5.4%
7.7%
4.3%
2027
The effect of a one percentage point increase/(decrease) at December 31, 2012, in the rate of increase in the assumed healthcare cost trend
rates would be to increase/(decrease) the defined benefit obligation by $645 million/($522 million).
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
127
19 DECOMMISSIONING AND OTHER PROVISIONS
Current
Non-current
$ MILLION
Total
Dec 31, 2012
Dec 31, 2011
Dec 31, 2012
Dec 31, 2011
Dec 31, 2012
Dec 31, 2011
Decommissioning and restoration
Environmental
Redundancy
Litigation
Other
Total
Movements in provisions were as follows:
1,356
366
228
390
881
3,221
894
357
406
256
1,195
3,108
14,715
1,032
275
307
1,106
17,435
13,072
1,078
297
330
854
15,631
At January 1, 2012
Additional provisions
Amounts charged against provisions
Accretion expense
Reclassifications and other movements
Currency translation differences
At December 31, 2012
At January 1, 2011
Additional provisions
Amounts charged against provisions
Accretion expense
Reclassifications and other movements
Currency translation differences
At December 31, 2011
Decommissioning
and restoration
Environmental
Redundancy
Litigation
13,966
382
(686)
784
1,293
332
16,071
13,017
584
(543)
750
242
(84)
1,435
218
(269)
32
(35)
17
1,398
1,122
570
(257)
29
(6)
(23)
13,966
1,435
703
114
(307)
11
(29)
11
503
950
373
(567)
8
(46)
(15)
703
586
205
(96)
7
(5)
–
697
557
160
(155)
13
17
(6)
586
16,071
1,398
503
697
1,987
20,656
Other
2,049
209
(323)
29
(5)
28
1,987
2,007
806
(647)
38
(105)
(50)
13,966
1,435
703
586
2,049
18,739
$ MILLION
Total
18,739
1,128
(1,681)
863
1,219
388
20,656
17,653
2,493
(2,169)
838
102
(178)
2,049
18,739
The timing and amounts settled in respect of these provisions are uncertain and dependent on various factors that are not always within
management’s control. Additional provisions are stated net of reversals of provisions recognised in previous periods.
Of the decommissioning and restoration provision at December 31, 2012, an estimated $4,666 million is expected to be utilised within one to
five years, $3,483 million within six to ten years, and the remainder in later periods.
Reviews of estimated decommissioning and restoration costs are carried out annually, which in 2012 resulted in an increase of $1,586 million
(2011: $543 million) in both the provision, reported within reclassifications and other movements, and the corresponding property, plant and
equipment assets reported within sales, retirements and other movements in Note 9. Offsetting this increase in 2012 was a reduction resulting
from disposals of assets, principally in Nigeria, the USA and Canada, of $242 million (2011: the USA, Nigeria, Cameroon and Norway, of
$457 million).
Provisions for environmental remediation costs relate to a number of events in different locations, none of which is individually significant.
The amounts charged against provisions for redundancy in 2011 principally relate to payments made to staff leaving employment as a result of
the restructuring programme announced in 2009.
Provisions for litigation costs at December 31, 2012, relate to a number of cases, none of which is individually significant. Further information is
presented in Note 25.
Included in other provisions at December 31, 2012, are $863 million (2011: $790 million) relating to employee end-of-service benefits.
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Consolidated Financial Statements > Notes to the Consolidated Financial Statements
20 SHARE CAPITAL
ISSUED AND FULLY PAID
At January 1, 2012
Scrip dividends
Repurchases of shares
At December 31, 2012
At January 1, 2011
Scrip dividends
Repurchases of shares
At December 31, 2011
NOMINAL VALUE
At January 1, 2012
Scrip dividends
Repurchases of shares
At December 31, 2012
At January 1, 2011
Scrip dividends
Repurchases of shares
At December 31, 2011
Ordinary shares of €0.07 each
B
A
Sterling deferred
shares of £1 each
NUMBER OF SHARES
3,668,550,437
2,661,403,172
50,000
103,838,250
–
–
(43,687,983)
3,772,388,687
2,617,715,189
3,563,952,539
2,695,808,103
104,597,898
–
–
(34,404,931)
–
–
50,000
50,000
–
–
3,668,550,437
2,661,403,172
50,000
Ordinary shares of €0.07 each
B
A
312
9
–
321
302
10
–
312
224
–
(3)
221
227
–
(3)
224
$ MILLION
Total
536
9
(3)
542
529
10
(3)
536
The total nominal value of sterling deferred shares is less than $1 million.
At the Company’s Annual General Meeting on May 22, 2012, the Board was authorised to allot ordinary shares in the Company, and to grant
rights to subscribe for or to convert any security into ordinary shares in the Company, up to an aggregate nominal amount of €147 million
(representing 2,100 million ordinary shares of €0.07 each), and to list such shares or rights on any stock exchange. This authority expires at the
earlier of the close of business on August 22, 2013, and the end of the Annual General Meeting to be held in 2013, unless previously renewed,
revoked or varied by the Company in a general meeting.
21 FINANCIAL INSTRUMENTS AND OTHER DERIVATIVE CONTRACTS
Financial instruments and other derivative contracts in the Consolidated Balance Sheet comprise investments in securities (see Note 11), cash and
cash equivalents (see Note 14), debt (see Note 15) and certain amounts (including derivatives) reported within trade and other receivables (see
Note 12) and trade and other payables (see Note 16).
A – Risks
In the normal course of business, financial instruments of various kinds are used for the purposes of managing exposure to interest rate, currency
and commodity price movements.
Treasury standards are applicable to all subsidiaries, and each subsidiary is required to adopt a treasury policy consistent with these standards.
These policies cover: financing structure; interest rate and foreign exchange risk management; insurance; counterparty risk management; and use
of derivative instruments. Wherever possible, treasury operations are carried out through specialist regional organisations without removing from
each subsidiary the responsibility to formulate and implement appropriate treasury policies.
Apart from forward foreign exchange contracts to meet known commitments, the use of derivative financial instruments by most subsidiaries is not
permitted by their treasury policy.
Other than in exceptional cases, the use of external derivative instruments is confined to specialist trading and central treasury organisations that
have appropriate skills, experience, supervision, control and reporting systems.
Shell’s operations expose it to market, credit and liquidity risk, as described below.
MA RK E T RISK
Market risk is the possibility that changes in interest rates, currency exchange rates or the prices of crude oil, natural gas, LNG, refined products,
chemical feedstocks, power and environmental products will adversely affect the value of assets, liabilities or expected future cash flows.
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
129
[Note 21 continued]
Interest rate risk
Most debt is raised from central borrowing programmes. Interest rate swaps and currency swaps have been entered into to effectively convert
most centrally issued debt to floating rate linked to dollar LIBOR (London Inter-Bank Offer Rate), reflecting Shell’s policy to have debt principally
denominated in dollars and to maintain a largely floating interest rate exposure profile. Consequently, Shell is exposed predominantly to dollar
LIBOR interest rate movements. The financing of most subsidiaries is also structured on a floating-rate basis and, except in special cases, further
interest rate risk management is discouraged.
On the basis of the floating rate net debt position at December 31, 2012, and assuming other factors (principally foreign exchange rates and
commodity prices) remained constant and that no further interest rate management action were taken, an increase in interest rates of 1% would
decrease pre-tax income by $27 million (2011: $146 million).
The carrying amounts and maturities of debt and borrowing facilities are presented in Note 15. Interest expense is presented in Note 7.
Foreign exchange risk
Many of the markets in which Shell operates are priced, directly or indirectly, in dollars. As a result, the functional currency of most Upstream
companies and those with significant cross-border business is the dollar. For Downstream companies, the local currency is typically the functional
currency. Consequently, Shell is exposed to varying levels of foreign exchange risk when it enters into transactions that are not denominated in
the companies’ functional currencies, when foreign currency monetary assets and liabilities are translated at the reporting date and as a result of
holding net investments in operations that are not dollar-functional. The main currencies to which Shell is exposed are sterling, the Canadian
dollar, euro and Australian dollar. Each company has treasury policies in place that are designed to measure and manage its foreign exchange
exposures by reference to its functional currency.
Exchange rate gains and losses arise in the normal course of business from the recognition of receivables and payables and other monetary items
in currencies other than individual companies’ functional currency. Currency exchange risk may also arise in connection with capital expenditure.
For major projects, an assessment is made at the final investment decision stage whether to hedge any resulting exposure.
Hedging of net investments in foreign operations or of income that arises in foreign operations that are non-dollar functional is not undertaken.
Assuming other factors (principally interest rates and commodity prices) remained constant and that no further foreign exchange risk management
action were taken, a 10% appreciation against the dollar at December 31 of the main currencies to which Shell is exposed would have the
following pre-tax effects:
10% appreciation against the dollar of:
Sterling
Canadian dollar
Euro
Australian dollar
Increase/(decrease)
2012
(185)
131
30
246
in income
2011
(58)
(360)
458
153
$ MILLION
Increase
in net assets
2011
1,042
1,364
1,768
120
2012
1,214
1,384
1,883
142
The above sensitivity information is calculated by reference to carrying amounts of assets and liabilities at December 31 only. The pre-tax effect
on income arises in connection with monetary balances denominated in currencies other than the relevant entity’s functional currency; the pre-tax
effect on net assets arises principally from the translation of assets and liabilities of entities that are not dollar-functional.
Foreign exchange gains and losses arising from foreign currency transactions included in income are presented in Note 6.
Price risk
Certain subsidiaries have a mandate to trade crude oil, natural gas, LNG, refined products, chemical feedstocks, power and environmental
products, and to use commodity derivatives (forwards, futures, swaps and options) as a means of managing price and timing risks arising from
this trading. In effecting these transactions, the companies concerned operate within procedures and policies designed to ensure that risks,
including those relating to the default of counterparties, are managed within authorised limits.
Risk management systems are used for recording and valuing instruments. There is regular review of mandated trading limits by senior
management, daily monitoring of market risk exposure using value-at-risk (VAR) techniques (see below), daily monitoring of trading positions
against limits and marking-to-market of trading exposures with a department independent of traders reviewing the market values applied to
trading exposures. Although trading losses can and do occur, the nature of the trading portfolio and its management are considered adequate
mitigants against the risk of significant losses.
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Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 21 continued]
VAR techniques based on variance/covariance or Monte Carlo simulation models are used to make a statistical assessment of the market risk
arising from possible future changes in market values over a 24-hour period and within a 95% confidence level. The calculation of the range of
potential changes in fair value takes into account positions, the history of price movements and the correlation of these price movements. Each of
the models is regularly back-tested against actual fair value movements to ensure model integrity is maintained.
VALUE-AT-RISK (PRE-TAX)
Global oil
North America gas and power
Europe gas and power
2012
High
28
21
7
Low
Average
Year-end
High
9
4
1
17
9
3
21
8
3
39
16
17
Low
10
3
3
$ MILLION
2011
Average
Year-end
19
8
9
19
12
4
CREDIT RISK
Policies are in place to ensure that wholesale sales of products are made to customers with appropriate creditworthiness. These policies include
detailed credit analysis and monitoring of trading partners and restricting large-volume trading activities to the highest-rated counterparties.
Credit information is regularly shared between business and finance functions, with dedicated teams in place to quickly identify and respond to
cases of credit deterioration. Mitigation measures are defined and implemented for high-risk business partners and customers, and include
shortened payment terms, collateral or other security posting and vigorous collections. In addition, policies limit the amount of credit exposure to
any individual financial institution. There are no material concentrations of credit risk, with individual customers or geographically, and there has
been no significant level of counterparty default in recent years.
Surplus cash is invested in a range of short-dated, secure and liquid instruments including short-term deposits, money market funds and similar
instruments. The portfolio of these investments is diversified to avoid concentrating risk in any one instrument, country or counterparty.
Management monitors the investments regularly and adjusts the investment portfolio in light of new market information where necessary to ensure
credit risk is effectively diversified.
In commodity trading, counterparty credit risk is managed within a framework of credit limits with utilisation being regularly reviewed. Credit
checks are performed by a department independent of traders, and are undertaken before contractual commitment. Where appropriate, netting
arrangements, credit insurance, prepayments and collateral are used to manage specific risks.
LIQUIDITY RISK
Liquidity risk is the risk that suitable sources of funding for Shell’s business activities may not be available. Management believes that it has access
to sufficient debt funding sources (capital markets), and to undrawn committed borrowing facilities to meet currently foreseeable requirements.
Information about borrowing facilities is presented in Note 15.
B – Derivative contracts
The carrying amounts of derivative contracts as at December 31 (see Notes 12 and 16), designated and not designated as hedging instruments
for hedge accounting purposes, were as follows:
2012
Interest rate swaps
Forward foreign exchange contracts
Currency swaps
Commodity derivatives
Other contracts
Total
2011
Interest rate swaps
Forward foreign exchange contracts
Currency swaps
Commodity derivatives
Other contracts
Total
Designated
designated
Not
368
45
1,133
–
–
1,546
–
314
13
8,746
454
9,527
Designated
designated
Not
466
2
894
–
–
–
506
292
15,626
223
Assets
Total
368
359
1,146
8,746
454
11,073
Assets
Total
466
508
1,186
15,626
223
1,362
16,647
18,009
$ MILLION
Liabilities
Not
Designated
designated
–
–
14
–
–
14
–
153
60
8,798
778
9,789
Total
–
153
74
8,798
778
9,803
Net
368
206
1,072
(52)
(324)
1,270
$ MILLION
Liabilities
Not
Designated
designated
–
28
23
167
–
218
–
390
351
Total
–
418
374
14,882
15,049
992
992
16,615
16,833
Net
466
90
812
577
(769)
1,176
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
131
[Note 21 continued]
Derivative contracts are used principally as hedging instruments; however, because hedge accounting is not always applied, movements in the
carrying amounts of derivative contracts that are recognised in income are not always matched in the same period by the recognition of the
income effects of the related hedged items. Net losses before tax on derivative contracts, excluding realised commodity contracts and those
accounted for as hedges, were $904 million in 2012 (2011: $1,957 million; 2010: $3,213 million).
Certain contracts entered into to hedge price risk relating to forecast commodity transactions and foreign exchange risk relating to forecast
capital expenditure were designated in cash flow hedging relationships. The net liability carrying amount of commodity derivative contracts
designated as cash flow hedging instruments of $162 million at December 31, 2012, is presented after the offset of related margin balances
maintained with exchanges. Net losses of $280 million (2011: $226 million) arising on these contracts, the majority of which mature within three
years, were recognised in other comprehensive income in 2012; a further $5 million net losses (2011: $3 million) were recognised in income.
Certain interest rate and currency swaps were designated in fair value hedges, principally in respect of debt. Information about the impact of
these hedges is presented in Note 7 and Note 15.
In the course of trading operations, certain contracts are entered into for delivery of commodities that are accounted for as derivatives. The
resulting price exposures are managed by entering into related derivative contracts. These contracts are managed on a fair value basis, and the
maximum exposure to liquidity risk is the undiscounted fair value of derivative liabilities.
For a minority of commodity derivatives, carrying amounts cannot be derived from quoted market prices or other observable inputs, in which case
fair value is estimated using valuation techniques such as Black-Scholes, option spread models and extrapolation using quoted spreads with
assumptions developed internally based on observable market activity.
Other contracts include certain contracts that are held to sell or purchase commodities, and other contracts containing embedded derivatives,
which are required to be recognised at fair value because of pricing or delivery conditions, even though they are only entered into to meet
operational requirements. These contracts are expected to mature between 2013 and 2025, with certain contracts having early termination rights
(for either party). Valuations are derived from quoted market prices for the next six years; thereafter, from forward gas price formulae used in
similar contracts. Future gas price assumptions are the most significant input to this model, such that a decrease at December 31, 2012, of 10% in
the projected gas price would, assuming other inputs remained unchanged, increase pre-tax income by $203 million (2011: $213 million).
The contractual maturities of derivative liabilities at December 31 compare with their carrying amounts in the Consolidated Balance Sheet as
follows:
2012
Forward foreign exchange
contracts
Currency swaps
Commodity derivatives
Other contracts
Total
2011
Forward foreign exchange
contracts
Currency swaps
Commodity derivatives
Other contracts
Total
Less
than
1 year
138
50
6,019
163
6,370
Less
than
1 year
314
337
11,767
166
12,584
Between
1 and 2
years
Between
2 and 3
years
Between
3 and 4
years
Between
4 and 5
years
5 years
and later
Total
Discounting
Contractual maturities
11
7
1,747
165
1,930
4
–
693
158
855
1
–
228
154
383
1
4
89
152
246
–
20
57
234
311
155
81
8,833
1,026
10,095
(2)
(7)
(35)
(248)
(292)
Between
1 and 2
years
Between
2 and 3
years
Between
3 and 4
years
Between
4 and 5
years
5 years
and later
Total
Discounting
Contractual maturities
118
14
2,430
194
2,756
5
–
705
200
910
–
–
417
203
620
–
1
166
184
351
–
25
135
410
570
437
377
15,620
1,357
17,791
(19)
(3)
(571)
(365)
(958)
$ MILLION
Carrying
amount
153
74
8,798
778
9,803
$ MILLION
Carrying
amount
418
374
15,049
992
16,833
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
132
Shell Annual Report and Form 20-F 2012 reports.shell.com
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 21 continued]
The net carrying amounts of derivative contracts held at December 31, categorised according to the predominant source and nature of inputs
used in determining the fair value of each contract, were as follows:
2012
Interest rate swaps
Forward foreign exchange contracts
Currency swaps
Commodity derivatives
Other contracts
Total
2011
Interest rate swaps
Forward foreign exchange contracts
Currency swaps
Commodity derivatives
Other contracts
Total
Prices in
active markets
Other
for identical
observable
Unobservable
assets/liabilities
–
–
–
16
8
24
inputs
368
206
1,072
(247)
66
1,465
inputs
–
–
–
179
(398)
(219)
$ MILLION
Total
368
206
1,072
(52)
(324)
1,270
$ MILLION
Prices in
active markets
Other
for identical
observable
Unobservable
assets/liabilities
–
–
2
11
14
27
inputs
466
90
810
391
(19)
1,738
inputs
–
–
–
175
(764)
(589)
Total
466
90
812
577
(769)
1,176
Movements in the net carrying amounts of derivative contracts measured using predominantly unobservable inputs were as follows:
At January 1
Net gains recognised in revenue
Purchases
Sales
Recategorisations (net)
Currency translation differences
At December 31
2012
(589)
276
99
(157)
178
(26)
(219)
$ MILLION
2011
(1,303)
633
136
(231)
184
(8)
(589)
Included in net gains recognised in revenue for 2012 are unrealised net gains totalling $482 million relating to assets and liabilities held at
December 31, 2012 (2011: $190 million).
COLLA TE RA L
The carrying amount of financial assets pledged as collateral for liabilities or contingent liabilities at December 31, 2012, and presented within
trade and other receivables (see Note 12), was $541 million (2011: $426 million). The carrying amount of collateral held at December 31,
2012, and presented within trade and other payables (see Note 16), was $353 million (2011: $607 million).
22 SHARE-BASED COMPENSATION PLANS AND SHARES HELD IN TRUST
A – Share-based compensation plans
Share-based compensation is paid to employees as described below. The total share-based compensation expense for the year and the fair value
of awards made during the year were as follows:
Equity-settled plans
Cash-settled plans
Total share-based compensation expense
Fair value of share-based compensation awards granted in the year
2012
798
111
909
697
2011
662
92
754
676
$ MILLION
2010
478
223
701
466
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
133
[Note 22 continued]
The principal share-based employee compensation plan is the Performance Share Plan (the Plan). Other schemes offer employees opportunities to
acquire shares and American Depository Shares (ADSs) of the Company or receive cash benefits measured by reference to the Company’s share
price.
Awards of shares and ADSs of the Company under the Plan are granted upon certain conditions to eligible employees who are not members of
the Executive Committee. The actual amount of shares that may vest range from 0% to 200% of the awards, depending on the outcomes of
prescribed performance conditions over a three-year period beginning on January 1 of the award year. Shares and ADSs vest for nil
consideration.
A Monte Carlo option pricing model is used to estimate the fair value of the share-based compensation expense arising from the Plan. The model
projects and averages the results for a range of potential outcomes for the vesting conditions, the principal assumptions for which are the share
price volatility and dividend yields for Shell and four of its main competitors over the last three years and the last 10 years.
Shares granted, vested and expired or forfeited in respect of the Plan were as follows:
At January 1, 2012
Granted
Vested
Expired/forfeited
At December 31, 2012
At January 1, 2011
Granted
Vested
Expired/forfeited
At December 31, 2011
Number of
Number of
Number of
A shares
(million)
25
B shares
(million)
10
A ADSs
(million)
8
10
(8)
–
27
25
9
(8)
(1)
25
3
(3)
–
10
10
3
(3)
–
10
3
(2)
–
9
8
3
(3)
–
8
Weighted
average
remaining
contractual
life (years)
1.0
1.1
1.0
1.0
Prior to the introduction in 2005 of the Plan, schemes were operated under which options over shares and ADSs of the Company were awarded
to eligible employees, at a price not less than the fair market value of the shares and ADSs at the date the options were granted. The options have
a range of expiry dates until 2016 and no additional expense to Shell arises in connection with them.
Options outstanding in respect of share option plans at December 31 were as follows:
2012
2011
Number
under option
(million)
14
29
A shares
Weighted
average
exercise
price ($)
24.58
28.84
Number
under option
(million)
4
7
B shares
Weighted
average
exercise
price ($)
21.94
22.53
Number
under option
(million)
4
6
A ADSs
Weighted
average
exercise
price ($)
46.93
48.08
In respect of cash-settled plans, the liability and intrinsic value of vested plans at December 31 were as follows:
Liability
Intrinsic value of vested plans
2012
92
92
$ MILLION
2011
279
279
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
B – Shares held in trust
Shell employee share ownership trusts purchase the Company’s shares in the open market to meet future obligations arising from share-based
compensation granted to employees. At December 31, 2012, they held 40.5 million A shares (2011: 53.5 million), 18.4 million B shares
(2011: 22.0 million) and 12.7 million A ADSs (2011: 17.2 million).
The total carrying amount of the Company’s shares, which are all held in connection with the share-based compensation plans, at December 31,
2012, was $2,287 million (2011: $2,990 million).
134
Shell Annual Report and Form 20-F 2012 reports.shell.com
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 22 continued]
From 2010, dividends received on shares held in trust are reflected in retained earnings; the carrying amount of shares held in trust and retained
earnings at December 31, 2010, reflected the cumulative effect of this change.
23 OTHER RESERVES
At January 1, 2012
Other comprehensive income attributable to Royal Dutch Shell plc
shareholders
Scrip dividends
Repurchases of shares
Share-based compensation
At December 31, 2012
At January 1, 2011
Other comprehensive loss attributable to Royal Dutch Shell plc
shareholders
Scrip dividends
Repurchases of shares
Share-based compensation
At December 31, 2011
At January 1, 2010
Other comprehensive income attributable to Royal Dutch Shell plc
shareholders
Scrip dividends
Share-based compensation
At December 31, 2010
Share
Capital
$ MILLION
Accumulated
other
premium
redemption
Share plan
comprehensive
reserve
154
reserve
60
reserve
1,571
–
–
–
–
154
154
–
–
–
–
154
154
–
–
–
–
–
3
–
63
57
–
–
3
–
60
57
–
–
–
57
–
–
–
457
2,028
1,483
–
–
–
88
1,571
1,373
–
–
110
1,483
income
3,767
586
–
–
–
4,353
4,958
Total
8,984
586
(9)
3
457
10,021
10,094
(1,191)
(1,191)
–
–
–
3,767
4,954
4
–
–
4,958
(10)
3
88
8,984
9,982
4
(2)
110
10,094
Merger
reserve
3,432
–
(9)
–
–
3,423
3,442
–
(10)
–
–
3,432
3,444
–
(2)
–
3,442
154
The merger reserve and share premium reserve were established as a consequence of Royal Dutch Shell plc becoming the single parent company
of Royal Dutch Petroleum Company and The “Shell” Transport and Trading Company, p.l.c., now The Shell Transport and Trading Company
Limited, in 2005.
The capital redemption reserve was established in connection with repurchases of shares of Royal Dutch Shell plc.
The share plan reserve is maintained in respect of equity-settled share-based compensation plans (see Note 22); related deferred taxation
derecognised directly within equity was $7 million in 2012 (2011: $26 million recognised; 2010: $12 million recognised).
Accumulated other comprehensive income comprises the following:
2012
Currency translation differences
Recognised in the period
Reclassified to income
Net currency translation differences
Unrealised gains/(losses) on securities
Recognised in the period
Reclassified to income
Jan 1,
2012
70
Net unrealised gains/(losses) on securities
3,946
Cash flow hedging gains/(losses)
Recognised in the period
Reclassified to income
Net cash flow hedging gains/(losses)
Total
(249)
3,767
Pre-tax
1,622
32
1,654
(711)
(96)
(807)
(251)
282
31
878
Tax
(10)
–
(10)
(9)
1
(8)
9
(9)
–
(18)
$ MILLION
Recognised in 2012
Share of
equity-
Attributable to
Non-
Royal Dutch
After
accounted
controlling
Shell plc
Dec 31,
tax
investments
interest
shareholders
2012
1,612
32
1,644
(720)
(95)
(815)
(242)
273
31
860
(136)
(52)
1,456
1,526
(56)
–
(871)
3,075
(30)
(222)
–
(52)
1
586
(248)
4,353
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
135
[Note 23 continued]
2011
Recognised in 2011
Share of
equity-
Attributable to
Non-
Royal Dutch
$ MILLION
Jan 1,
2011
Pre-tax
Tax
tax
investments
interest
shareholders
2011
After
accounted
controlling
Shell plc
Dec 31,
Currency translation differences
Recognised in the period
Reclassified to income
Net currency translation differences
2,732
Unrealised gains/(losses) on securities
Recognised in the period
Reclassified to income
Net unrealised gains/(losses) on securities
2,214
Cash flow hedging gains/(losses)
Recognised in the period
Reclassified to income
Net cash flow hedging gains/(losses)
Total
2010
12
4,958
Jan 1,
2010
(2,755)
(587)
(3,342)
1,656
16
1,672
(228)
–
(228)
(1,898)
14
–
14
3
9
12
6
–
6
32
(2,741)
(587)
(3,328)
1,659
25
1,684
(222)
–
(222)
(1,866)
48
618
(2,662)
70
47
1
1,732
3,946
(35)
60
(4)
615
(261)
(1,191)
(249)
3,767
Recognised in 2010
Share of
equity-
Attributable to
Non-
Royal Dutch
$ MILLION
Pre-tax
Tax
tax
investments
interest
shareholders
2010
After
accounted
controlling
Shell plc
Dec 31,
Currency translation differences
Recognised in the period
Reclassified to income
Net currency translation differences
2,528
Unrealised gains/(losses) on securities
Recognised in the period
Reclassified to income
Net unrealised gains/(losses) on securities
2,464
Cash flow hedging gains/(losses)
Recognised in the period
Reclassified to income
Net cash flow hedging gains/(losses)
Total
(38)
4,954
138
(276)
(138)
(272)
(25)
(297)
(13)
12
(1)
(436)
(4)
–
(4)
(10)
9
(1)
(1)
–
(1)
(6)
134
(276)
(142)
(282)
(16)
(298)
(14)
12
(2)
(442)
388
(42)
204
2,732
48
–
(250)
2,214
52
488
–
(42)
50
4
12
4,958
24 DIVIDENDS
Interim dividends – A shares
Cash: $1.71 per share (2011: $1.68; 2010: $1.68)
Scrip: $1.71 per share (2011: $1.68; 2010: $0.42)
Total – A shares
Interim dividends – B shares
Cash: $1.71 per share (2011: $1.68; 2010: $1.68)
Scrip: $1.71 per share (2011: $1.68; 2010: $0.42)
Total – B shares
Total
2012
2011
2010
$ MILLION
3,583
2,803
6,386
3,807
762
4,569
10,955
3,440
2,556
5,996
3,437
1,024
4,461
10,457
5,239
549
5,788
4,345
63
4,408
10,196
In addition, on January 31, 2013, the Directors announced a further interim dividend in respect of 2012 of $0.43 per A share and $0.43 per
B share. The total dividend is estimated to be $2,748 million and is payable on March 28, 2013. Under the Scrip Dividend Programme,
shareholders can elect to receive dividends in the form of A shares.
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
136
Shell Annual Report and Form 20-F 2012 reports.shell.com
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
[Note 24 continued]
Dividends on A shares are by default paid in euros, although holders may elect to receive dividends in sterling. Dividends on B shares are by
default paid in sterling, although holders may elect to receive dividends in euros. Dividends on ADSs are paid in dollars.
25 LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
Groundwater contamination
Shell Oil Company (including subsidiaries and affiliates, referred to collectively as SOC), along with numerous other defendants, has been sued
by public and quasi-public water purveyors, as well as governmental entities. The plaintiffs allege responsibility for groundwater contamination
caused by releases of gasoline containing oxygenate additives. Most of these suits assert various theories of liability, including product liability,
and seek to recover actual damages, including clean-up costs. Some assert claims for punitive damages. Fewer than 10 of these cases remain.
On the basis of court rulings in SOC’s favour in certain cases claiming damages from threats of contamination, the claims asserted in remaining
matters, and Shell’s track record with regard to amounts paid to resolve varying claims, the management of Shell currently does not believe that
the outcome of the remaining oxygenate-related litigation pending, as at December 31, 2012, will have a material impact on Shell.
Nigerian claims
Shell subsidiaries and associates operating in Nigeria are parties to various environmental and contractual disputes. These disputes are at
different stages in litigation, including at the appellate stage, where judgments have been rendered against Shell. If taken at face value, the
aggregate amount of these judgments could be seen as material. The management of Shell, however, believes that these matters will ultimately be
resolved in a manner favourable to Shell. While no assurance can be provided as to the ultimate outcome of any litigation, these matters are not
expected to have a material effect on Shell.
Other
In the ordinary course of business, Shell subsidiaries are subject to a number of other loss contingencies arising from litigation and claims brought
by governmental and private parties. The operations and earnings of Shell subsidiaries continue, from time to time, to be affected to varying
degrees by political, legislative, fiscal and regulatory developments, including those relating to the protection of the environment and indigenous
groups, in the countries in which they operate. The industries in which Shell subsidiaries are engaged are also subject to physical risks of various
types. The nature and frequency of these developments and events, as well as their effect on future operations and earnings, are unpredictable.
26 AUDITORS’ REMUNERATION
Fees in respect of the audit of the Consolidated and Parent Company Financial Statements, including audit of
consolidation returns
Other audit fees, principally in respect of audits of accounts of subsidiaries
Total audit fees
Audit-related fees (for other services provided pursuant to legislation)
Fees in respect of non-audit services (principally for tax compliance)
Total
2012
2011
2010
$ MILLION
5
41
46
1
1
48
5
42
47
2
–
49
4
50
54
1
1
56
In addition, PricewaterhouseCoopers provides audit services to retirement benefit plans for employees of subsidiaries. Remuneration amounted to
$2 million in 2012 (2011: $2 million; 2010: $1 million).
27 EARNINGS PER SHARE
2012
2011
2010
Income attributable
to Royal Dutch Shell plc
Basic weighted
Diluted weighted
shareholders
average number of
average number of
($ million)
26,592
30,918
20,127
A and B shares
6,261,184,755
6,212,532,421
6,132,640,190
A and B shares
6,267,839,545
6,221,655,088
6,139,300,098
Basic earnings per share are calculated by dividing the income attributable to Royal Dutch Shell plc shareholders for the year by the weighted
average number of A and B shares outstanding during the year.
reports.shell.com Shell Annual Report and Form 20-F 2012
Consolidated Financial Statements > Notes to the Consolidated Financial Statements
137
[Note 27 continued]
Diluted earnings per share are based on the same income figures. The weighted average number of shares outstanding during the year is
adjusted for the number of shares related to share option schemes.
Earnings per share are identical for A and B shares.
28 POST-BALANCE SHEET EVENTS
Shell entered into an agreement to acquire part of Repsol S.A.’s LNG portfolio for a cash consideration of $4.4 billion. Under the terms of the
agreement, which is subject to regulatory approvals and other conditions precedent, Shell will assume the finance lease obligations of the
businesses acquired, provisionally estimated at $1.8 billion.
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
138
Shell Annual Report and Form 20-F 2012 reports.shell.com
Supplementary information – oil and gas (unaudited)
SUPPLEMENTARY INFORMATION –
OIL AND GAS (UNAUDITED)
Proved reserves and related information, and disclosures set out on
pages 138-156, are referred to as “unaudited” as a means of
clarifying that this information is not covered by the audit opinion of
the independent registered public accounting firm that has audited
and reported on the Consolidated Financial Statements.
Proved oil and gas reserves
Proved reserves’ estimates are calculated pursuant to the U.S.
Securities and Exchange Commission (SEC) Rules and the Financial
Accounting Standard Board’s Topic 932. The definitions used are in
accordance with the SEC Rule 4-10 (a) of Regulation S-X.
We include proved reserves associated with future production that will
be consumed in operations.
Proved reserves shown are net of any quantities of crude oil or natural
gas that are expected to be taken by others as royalties in kind but do
not exclude quantities related to royalties expected to be paid in cash
(except in North America and in other situations in which the royalty
quantities are owned by government or other parties) or those related
to fixed margin contracts. Proved reserves include certain quantities of
crude oil or natural gas that will be produced under arrangements that
involve Shell subsidiaries and equity-accounted investments in risks
and rewards but do not transfer title of the product to those entities.
Proved reserves cannot be measured exactly since estimation of
reserves involves subjective judgement (see “Risk factors” on
pages 13-15). These estimates remain subject to revision and are
unaudited supplementary information.
Proved reserves assurance process
A central group of reserves experts, who on average have around
25 years’ experience in the oil and gas industry, undertake the
primary assurance of the proved reserves bookings. This group of
experts is part of the Resources Assurance and Reporting (RAR)
organisation. A Vice President with 31 years’ experience in the oil and
gas industry currently heads the RAR organisation. He is a member of
the Society of Petroleum Engineers and holds a diploma of Ingénieur
Civil des Ponts et Chaussées de France. The RAR organisation reports
directly to an Executive Vice President of Finance, who is a member of
the Upstream Reserves Committee (URC). The URC is a
multidisciplinary committee consisting of senior representatives from
the Finance, Legal, Projects & Technology and Upstream
organisations. The URC reviews and endorses all major (larger than
20 million barrels of oil equivalent) proved reserves bookings and
endorses the total aggregated proved reserves. Final approval of all
proved reserves bookings remains with Shell’s Executive Committee.
The Internal Audit function also provides secondary assurance through
audits of the control framework.
Additional information concerning proved
reserves
Proved reserves can be either developed or undeveloped.
Subsidiaries’ proved reserves at December 31, 2012, were divided
into 66% developed and 34% undeveloped on a barrel of oil
equivalent basis. For the Shell share of equity-accounted investments,
the proved reserves were divided into 81% developed and 19%
undeveloped.
Proved reserves are recognised under various forms of contractual
agreements. Shell’s proved reserves volumes at December 31, 2012,
present in agreements such as PSCs or other forms of economic
entitlement contracts, where the Shell share of reserves can vary with
commodity prices, were approximately 1,172 million barrels of crude
oil and natural gas liquids, and 12,227 thousand million scf of natural
gas.
reports.shell.com Shell Annual Report and Form 20-F 2012
Supplementary information – oil and gas (unaudited) > Crude oil, natural gas liquids, synthetic crude oil and bitumen
139
CRUDE OIL, NATURAL GAS
LIQUIDS, SYNTHETIC CRUDE
OIL AND BITUMEN
Shell subsidiaries’ estimated net proved reserves of crude oil, natural
gas liquids, synthetic crude oil and bitumen at the end of the year;
their share of the net proved reserves of equity-accounted investments
at the end of the year; and the changes in such reserves during the
year are set out below.
Significant changes in crude oil, natural gas liquids, synthetic crude oil
and bitumen proved developed and undeveloped reserves are
discussed below.
Proved reserves 2012-2011
SHELL SUBSIDIARIES
S HE LL SHA RE OF E QU I TY - A C C OU N TE D IN V E S TM E N TS
Asia
The net increase of 79 million barrels in revisions and reclassifications
resulted from field performance studies and development activities.
The reservoir analyses and updates in fields supported continuing
better performance than historically predicted in Brunei, Russia and
the United Arab Emirates.
Proved reserves 2011-2010
SHELL SUBSIDIARIES
Europe
The net increase of 140 million barrels in revisions and
reclassifications resulted from field performance studies and
development activities. The reservoir performance analyses and
updates in multiple fields supported continuing better production
performance of major assets than historically predicted, primarily in
fields in Italy and the UK. The increase of 81 million barrels from
extensions and discoveries are associated with activities in the UK.
Europe
The increase of 56 million barrels in purchases of minerals in place
resulted from the acquisition of additional interests in assets in Norway
and the UK.
Asia
The net increase of 191 million barrels in revisions and
reclassifications resulted from field performance studies and
development activities. The reservoir performance analyses and
updates in multiple fields supported continuing better performance
than historically predicted in Iraq, Kazakhstan, Malaysia and Oman.
Asia
The net decrease of 293 million barrels in revisions and
reclassifications resulted from field performance studies and
development activities in producing fields in Oman and revised
development plans in Kazakhstan.
Oceania
The increase of 95 million barrels in extensions and discoveries
resulted from new bookings in Australia associated with LNG
integrated projects.
Africa
The net increase of 95 million barrels in revisions and reclassifications
resulted from field performance studies and development activities.
The reservoir analyses and updates in fields supported continuing
better performance than historically predicted in Gabon and Nigeria.
Africa
The net increase of 128 million barrels in revisions and
reclassifications resulted from field performance studies and
development activities. The reservoir analyses and updates in fields
supported continuing better performance than historically predicted.
USA
The net increase of 80 million barrels in revisions and reclassifications
resulted from field performance studies and development activities.
Canada
The increase of 116 million barrels of synthetic crude oil resulted from
an extension of mining operations in Alberta.
Canada
The synthetic crude oil net increase of 131 million barrels in revisions
and reclassifications resulted from field performance studies and
development activities.
S HE LL SHA RE OF E QU I TY - A C C OU N TE D IN V E S TM E N TS
Asia
The net increase of 83 million barrels in revisions and reclassifications
resulted from better field production performance and ongoing
development activities in fields in Brunei and Russia.
F
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A
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Shell Annual Report and Form 20-F 2012 reports.shell.com
Supplementary information – oil and gas (unaudited) > Crude oil, natural gas liquids, synthetic crude oil and bitumen
Crude oil, natural gas liquids,
synthetic crude oil and bitumen
PROVED DEVELOPED AND UNDEVELOPED RESERVES 2012
MILLION BARRELS
Europe
Asia Oceania
Africa
USA
North
South
America America
Canada
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
Synthetic
Oil and
Oil and
Synthetic
Total
All
NGL
NGL
NGL
NGL
NGL
NGL
crude oil Bitumen
NGL
NGL
crude oil Bitumen
products
Shell subsidiaries
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [A]
At December 31
Shell share of equity-accounted
investments
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production
At December 31
Total
Reserves attributable to
non-controlling interest in Shell
subsidiaries
At December 31
723
1,104
175
24
–
44
56
–
191
6
2
–
–
(78)
(112)
769
1,191
31
(5)
560
79
–
–
–
–
–
2
–
–
(2)
24
(126)
515
793
1,706
5
–
–
–
(24)
(10)
146
34
1
–
–
–
(1)
(6)
28
174
731
95
–
1
–
(33)
(106)
688
–
–
–
–
–
–
–
–
688
532
35
1,680
55
80
4
30
26
(6)
(57)
609
306
10
3
–
–
–
(25)
294
903
3
–
1
–
(1)
(5)
33
–
–
–
–
–
–
–
–
131
–
–
–
–
(48)
1,763
–
–
–
–
–
–
–
–
1
–
1
–
(1)
(7)
49
–
–
–
–
–
–
–
–
33
1,763
49
63
12
–
7
–
–
(13)
69
19
2
–
–
–
–
(3)
18
87
3,363
1,680
55
5,098
410
131
10
85
82
(64)
(381)
–
–
–
–
(48)
1
–
1
–
(1)
(7)
542
10
86
82
(65)
(436)
3,505
1,763
49
5,317
950
87
3
2
–
(1)
(162)
879
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
950
87
3
2
–
(1)
(162)
879
4,384
1,763
49
6,196
–
–
–
16
–
–
–
–
–
16
–
–
16
[A] Includes 2 million barrels consumed in operations.
PROVED DEVELOPED RESERVES 2012
MILLION BARRELS
Europe
Asia Oceania
Africa
USA
North
South
America America
Canada
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
Synthetic
Oil and
Oil and
Synthetic
Total
All
NGL
NGL
NGL
NGL
NGL
NGL
crude oil Bitumen
NGL
NGL
crude oil Bitumen
products
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted
investments
At January 1
At December 31
460
425
781
817
30
23
483
460
35
34
21
19
438
496
–
–
PROVED UNDEVELOPED RESERVES 2012
Europe
Asia Oceania
Africa
240
283
202
217
USA
22
28
1,249
1,271
–
–
–
–
22
18
–
–
35
31
2,011
2,114
1,249
1,271
22
18
3,282
3,403
18
17
754
736
–
–
–
–
754
736
North
South
America America
Canada
MILLION BARRELS
Total
All
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
Synthetic
Oil and
Oil and
Synthetic
NGL
NGL
NGL
NGL
NGL
NGL
crude oil Bitumen
NGL
NGL
crude oil Bitumen
products
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted
investments
At January 1
At December 31
263
344
323
374
140
112
293
192
1
1
77
55
13
9
–
–
292
326
104
77
13
5
–
–
431
492
–
–
33
31
–
–
28
38
1,352
1,391
431
492
33
31
1,816
1,914
1
1
196
143
–
–
–
–
196
143
reports.shell.com Shell Annual Report and Form 20-F 2012
Supplementary information – oil and gas (unaudited) > Crude oil, natural gas liquids, synthetic crude oil and bitumen
141
Crude oil, natural gas liquids,
synthetic crude oil and bitumen
PROVED DEVELOPED AND UNDEVELOPED RESERVES 2011
MILLION BARRELS
Europe
Asia Oceania
Africa
USA
North
South
America America
Canada
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
Synthetic
Oil and
Oil and
Synthetic
Total
All
NGL
NGL
NGL
NGL
NGL
NGL
crude oil Bitumen
NGL
NGL
crude oil Bitumen
products
Shell subsidiaries
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
587
140
–
81
–
–
1,493
(293)
1
6
–
–
74
17
–
95
–
–
Production [A]
At December 31
(85)
(103)
723
1,104
(11)
175
Shell share of equity-accounted
investments
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production
At December 31
Total
Reserves attributable to
non-controlling interest in Shell
subsidiaries
At December 31
30
592
35
3
–
–
–
–
83
1
14
–
–
(2)
31
(130)
560
754
1,664
6
–
1
–
(1)
(7)
34
209
750
128
–
1
–
(29)
(119)
731
–
–
–
–
–
–
–
–
731
556
28
–
5
–
(5)
(52)
532
287
15
31
–
–
(2)
(25)
306
838
3,561
1,567
51
5,179
35
1,567
51
3
–
4
–
–
42
–
116
–
–
9
–
–
–
–
66
10
1
3
–
–
33
2
195
–
(34)
42
–
116
–
–
9
–
–
–
–
(7)
35
(45)
1,680
(5)
55
(17)
(394)
(45)
63
3,363
1,680
(5)
55
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35
1,680
55
23
(1)
–
–
–
–
(3)
19
82
967
106
32
15
–
(3)
(167)
950
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,313
1,680
55
6,048
84
2
311
–
(34)
(444)
5,098
967
106
32
15
–
(3)
(167)
950
–
–
–
13
–
–
–
–
–
13
–
–
13
[A] Includes 3 million barrels consumed in operations.
PROVED DEVELOPED RESERVES 2011
MILLION BARRELS
Europe
Asia Oceania
Africa
USA
North
South
America America
Canada
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
Synthetic
Oil and
Oil and
Synthetic
Total
All
NGL
NGL
NGL
NGL
NGL
NGL
crude oil Bitumen
NGL
NGL
crude oil Bitumen
products
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted
investments
At January 1
At December 31
496
460
382
781
22
30
402
483
36
35
22
21
406
438
–
–
PROVED UNDEVELOPED RESERVES 2011
Europe
Asia Oceania
Africa
262
240
205
202
USA
26
22
1,214
1,249
–
–
–
–
23
22
–
–
38
35
1,646
2,011
1,214
1,249
23
22
2,883
3,282
21
18
672
754
–
–
–
–
672
754
North
South
America America
Canada
MILLION BARRELS
Total
All
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
Synthetic
Oil and
Oil and
Synthetic
NGL
NGL
NGL
NGL
NGL
NGL
crude oil Bitumen
NGL
NGL
crude oil Bitumen
products
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted
investments
At January 1
At December 31
91
1,111
263
323
38
140
344
293
8
1
190
77
13
13
–
–
294
292
82
104
9
13
–
–
353
431
–
–
28
33
–
–
28
28
1,915
1,352
353
431
28
33
2,296
1,816
2
1
295
196
–
–
–
–
295
196
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
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S
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Shell Annual Report and Form 20-F 2012 reports.shell.com
Supplementary information – oil and gas (unaudited) > Crude oil, natural gas liquids, synthetic crude oil and bitumen
Crude oil, natural gas liquids,
synthetic crude oil and bitumen
PROVED DEVELOPED AND UNDEVELOPED RESERVES 2010
MILLION BARRELS
Europe
Asia Oceania
Africa
USA
North
South
America America
Canada
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
Synthetic
Oil and
Oil and
Synthetic
Total
All
NGL
NGL
NGL
NGL
NGL
NGL
crude oil Bitumen
NGL
NGL
crude oil Bitumen
products
Shell subsidiaries
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [A]
At December 31
Shell share of equity-accounted
investments
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production
At December 31
Total
Reserves attributable to
non-controlling interest in Shell
subsidiaries
At December 31
422
38
1,599
496
205
1,231
313
–
–
11
(23)
8
7
33
–
(102)
(99)
587
1,493
30
2
–
–
–
–
599
101
4
9
–
–
(2)
30
(121)
592
77
7
–
1
–
–
(11)
74
58
2
–
–
–
(15)
(10)
35
735
138
–
7
14
(14)
(130)
750
–
–
–
–
–
–
–
–
617
2,085
109
750
47
54
96
1
(5)
(59)
556
288
22
–
4
–
–
(27)
287
843
2
–
2
–
–
(4)
–
–
–
–
(7)
35
(28)
1,567
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57
(2)
–
3
–
–
(7)
51
–
–
–
–
–
–
–
–
38
17
–
31
–
–
3,037
1,599
729
62
144
59
(42)
(4)
–
–
–
–
57
(2)
–
3
–
–
4,693
723
62
147
59
(42)
(20)
(428)
(28)
66
3,561
1,567
(7)
51
(463)
5,179
19
6
–
1
–
–
(3)
23
89
994
133
4
14
–
(15)
(163)
967
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
994
133
4
14
–
(15)
(163)
967
4,528
1,567
51
6,146
35
1,567
51
–
5
–
13
–
–
–
–
–
18
–
–
18
[A] Includes 2 million barrels consumed in operations.
PROVED DEVELOPED RESERVES 2010
MILLION BARRELS
Europe
Asia Oceania
Africa
USA
North
South
America America
Canada
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
Synthetic
Oil and
Oil and
Synthetic
Total
All
NGL
NGL
NGL
NGL
NGL
NGL
crude oil Bitumen
NGL
NGL
crude oil Bitumen
products
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted
investments
At January 1
At December 31
384
496
341
382
9
22
420
402
40
36
39
22
379
406
–
–
PROVED UNDEVELOPED RESERVES 2010
Europe
Asia Oceania
Africa
249
262
216
205
USA
23
26
691
1,214
–
–
–
–
29
23
–
–
35
38
1,451
1,646
691
1,214
29
23
2,171
2,883
17
21
701
672
–
–
–
–
701
672
North
South
America America
Canada
MILLION BARRELS
Total
All
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
Synthetic
Oil and
Oil and
Synthetic
NGL
NGL
NGL
NGL
NGL
NGL
crude oil Bitumen
NGL
NGL
crude oil Bitumen
products
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted
investments
At January 1
At December 31
112
890
91
1,111
21
8
179
190
37
38
19
13
356
344
173
294
–
–
72
82
15
9
–
–
908
353
–
–
28
28
–
–
3
28
1,586
1,915
908
353
28
28
2,522
2,296
2
2
293
295
–
–
–
–
293
295
NATURAL GAS
Shell subsidiaries’ estimated net proved reserves of natural gas at the
end of the year; their share of the net proved reserves of equity-
accounted investments at the end of the year; and the changes in such
reserves during the year are set out below. The volumes in the table
below have not been adjusted to standard heat content. Apart from
integrated projects, volumes of gas are reported on an “as-sold” basis.
The price used to calculate future revenue and cash flows from proved
gas reserves is the contract price or the 12-month average on “as-sold”
volumes. Volumes associated with integrated projects are those
measured at a designated transfer point between the Upstream and
Downstream portions of the integrated project. Natural gas volumes
are converted to oil equivalent using a factor of 5,800 scf per barrel.
Significant changes in natural gas proved developed and
undeveloped reserves are discussed below.
Proved reserves 2012-2011
SHELL SUBSIDIARIES
Oceania
The decrease of 303 thousand million scf in sales in place resulted
from the sale of part of our interest in the Prelude LNG integrated
project in Australia.
USA
The net decrease of 1,076 thousand million scf in revisions and
reclassifications related to reductions from lower commodity prices,
partly offset by increases from field performance studies and
development activities. The increase of 393 thousand million scf in
extensions and discoveries resulted from new bookings and extensions
of proved areas by drilling activities.
Canada
The net decrease of 683 thousand million scf in revisions and
reclassifications resulted from lower commodity prices.
S HE LL SHA RE OF E QU I TY - A C C OU N TE D IN V E S TM E N TS
Asia
The net increase of 284 thousand million scf in revisions and
reclassifications resulted from field performance studies and
development activities. The reservoir performance analyses and
updates in multiple fields supported continuing better production
performance in Brunei and Russia.
reports.shell.com Shell Annual Report and Form 20-F 2012
Supplementary information – oil and gas (unaudited) > Natural gas
143
Proved reserves 2011-2010
SHELL SUBSIDIARIES
Europe
The net increase of 990 thousand million scf in revisions and
reclassifications resulted from better production performance and
development activities resulting in extending the end-of-field life
primarily in Denmark and Norway, and from development activities in
Ireland and development activities and better production performance
in the UK.
Asia
The net decrease of 860 thousand million scf in revisions and
reclassifications primarily resulted from a decrease in entitlement
share due to higher commodity prices. The increase of 239 thousand
million scf in extensions and discoveries resulted from new bookings
and extensions of proved areas by drilling activities.
Oceania
The increase of 1,471 thousand million scf from extensions and
discoveries was associated with LNG integrated projects in Australia.
USA
The net increase of 405 thousand million scf in revisions and
reclassifications related to drilling activities and studies. The increase
of 694 thousand million scf in extensions and discoveries resulted from
new bookings and extensions of proved areas by drilling activities.
The decrease of 213 thousand million scf resulted from asset sales.
Canada
The increase of 816 thousand million scf in extensions and discoveries
related to development drilling which resulted in additional proved
areas.
S HE LL SHA RE OF E QU I TY - A C C OU N TE D IN V E S TM E N TS
Asia
The net increase of 310 thousand million scf in revisions and
reclassifications resulted primarily from studies.
F
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A
N
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A
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I
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T
A
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Supplementary information – oil and gas (unaudited) > Natural gas
Natural gas
PROVED DEVELOPED AND UNDEVELOPED RESERVES 2012
THOUSAND MILLION STANDARD CUBIC FEET
North America
South
Shell subsidiaries
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [A]
At December 31
Shell share of equity-accounted investments
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [B]
At December 31
Total
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
5,498
10,691
14
–
68
22
–
160
–
–
–
–
(581)
(631)
5,952
136
2,800
(142)
3,196
(1,076)
–
–
–
(303)
(214)
–
89
–
(163)
(343)
16
393
139
(6)
(397)
2,045
(683)
–
84
–
(191)
(244)
5,021
10,220
5,571
2,241
2,265
1,011
9,903
(89)
6,262
284
1,142
15
–
3
–
–
–
26
–
–
(670)
(481)
9,147
14,168
6,091
16,311
–
–
–
(21)
(97)
1,039
6,610
–
–
–
–
–
–
–
–
2,241
63
31
–
–
–
–
(7)
87
2,352
–
–
–
–
–
–
–
–
1,011
104
30,286
8
–
4
–
–
(21)
95
6
(1)
–
–
–
–
(1)
4
99
(1,583)
16
638
161
(663)
(2,431)
26,424
17,376
240
–
29
–
(21)
(1,256)
16,368
42,792
Reserves attributable to non-controlling interest in Shell
subsidiaries
At December 31
–
6
–
7
–
–
–
13
[A] Includes 161 thousand million standard cubic feet consumed in operations.
[B] Includes 60 thousand million standard cubic feet consumed in operations.
PROVED DEVELOPED RESERVES 2012
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted investments
At January 1
At December 31
PROVED UNDEVELOPED RESERVES 2012
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted investments
At January 1
At December 31
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
THOUSAND MILLION STANDARD CUBIC FEET
North America
South
4,685
4,192
7,837
7,407
9,379
9,366
4,936
5,088
839
843
241
581
1,112
1,012
1,506
1,607
–
–
46
67
951
872
–
–
92
81
5
3
18,564
17,973
13,065
13,146
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
THOUSAND MILLION STANDARD CUBIC FEET
North America
South
813
829
2,066
1,740
1,312
854
1,326
1,003
5,113
4,728
1,688
1,229
1,690
658
1,094
139
901
458
–
–
17
20
–
–
12
14
1
1
11,722
8,451
4,311
3,222
reports.shell.com Shell Annual Report and Form 20-F 2012
Supplementary information – oil and gas (unaudited) > Natural gas
145
Natural gas
PROVED DEVELOPED AND UNDEVELOPED RESERVES 2011
THOUSAND MILLION STANDARD CUBIC FEET
North America
South
Shell subsidiaries
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [A]
At December 31
Shell share of equity-accounted investments
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [B]
At December 31
Total
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
5,082
990
11,970
(860)
–
31
–
–
(605)
–
239
–
(120)
(538)
5,498
10,691
10,484
6,248
72
–
–
–
(4)
(649)
9,903
15,401
310
–
168
–
–
(464)
6,262
16,953
4,814
(118)
–
1,471
–
–
(215)
5,952
1,335
(112)
–
14
–
(30)
(65)
2,989
2,671
1,308
90
–
71
–
(21)
(329)
405
–
694
–
(213)
(361)
2,800
3,196
155
–
816
–
(5)
(229)
2,045
–
–
–
–
–
–
–
74
(6)
3
–
–
(1)
(7)
–
–
–
–
–
–
–
1,142
7,094
–
2,800
63
3,259
–
2,045
149
(23)
–
–
–
–
(22)
104
11
(4)
–
–
–
–
28,983
639
–
3,322
–
(359)
(2,299)
30,286
18,152
260
3
182
–
(35)
(1)
(1,186)
6
110
17,376
47,662
Reserves attributable to non-controlling interest in Shell
subsidiaries
At December 31
–
10
–
9
–
–
–
19
[A] Includes 149 thousand million standard cubic feet consumed in operations.
[B] Includes 57 thousand million standard cubic feet consumed in operations.
PROVED DEVELOPED RESERVES 2011
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted investments
At January 1
At December 31
PROVED UNDEVELOPED RESERVES 2011
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted investments
At January 1
At December 31
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
THOUSAND MILLION STANDARD CUBIC FEET
North America
South
4,358
4,685
8,154
7,837
2,273
9,379
2,510
4,936
1,041
839
1,092
1,112
1,460
1,506
311
241
–
–
55
46
869
951
–
–
89
92
9
5
11,182
18,564
11,039
13,065
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
THOUSAND MILLION STANDARD CUBIC FEET
North America
South
724
813
2,330
2,066
9,697
1,312
3,738
1,326
3,773
5,113
1,024
901
1,897
1,688
1,211
1,690
439
1,094
–
–
19
17
–
–
60
12
2
1
17,801
11,722
7,113
4,311
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
146
Shell Annual Report and Form 20-F 2012 reports.shell.com
Supplementary information – oil and gas (unaudited) > Natural gas
Natural gas
PROVED DEVELOPED AND UNDEVELOPED RESERVES 2010
THOUSAND MILLION STANDARD CUBIC FEET
North America
South
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
Shell subsidiaries
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [A]
At December 31
Shell share of equity-accounted investments
At January 1
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [B]
At December 31
Total
4,722
1,077
13,733
(1,379)
4,800
262
–
–
2
(20)
(699)
–
122
9
–
(515)
–
9
–
(20)
(237)
3,038
2,258
1,172
118
–
194
5
(80)
(286)
292
41
432
173
(94)
(431)
36
–
334
–
(11)
(223)
5,082
11,970
4,814
2,989
2,671
1,308
11,113
6,079
1,832
103
–
–
–
–
321
1
184
–
–
(732)
(337)
10,484
15,566
6,248
18,218
52
–
–
48
(516)
(81)
1,335
6,149
–
–
–
–
–
–
–
–
2,989
65
16
–
–
–
–
(7)
74
2,745
–
–
–
–
–
–
–
–
1,308
11
160
238
(75)
–
13
–
(2)
(25)
149
5
6
–
–
–
–
–
29,961
331
41
1,104
189
(227)
(2,416)
28,983
19,094
498
1
184
48
(516)
(1,157)
18,152
47,135
Reserves attributable to non-controlling interest in Shell
subsidiaries
At December 31
–
24
–
8
–
–
–
32
[A] Includes 138 thousand million standard cubic feet consumed in operations.
[B] Includes 40 thousand million standard cubic feet consumed in operations.
PROVED DEVELOPED RESERVES 2010
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted investments
At January 1
At December 31
PROVED UNDEVELOPED RESERVES 2010
Shell subsidiaries
At January 1
At December 31
Shell share of equity-accounted investments
At January 1
At December 31
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
THOUSAND MILLION STANDARD CUBIC FEET
North America
South
3,574
4,358
8,732
8,154
2,418
2,273
1,973
2,510
1,046
1,041
957
1,092
1,248
1,460
354
311
–
–
56
55
754
869
–
–
173
89
10,170
11,182
5
9
11,120
11,039
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
THOUSAND MILLION STANDARD CUBIC FEET
North America
South
1,148
724
2,381
2,330
11,315
9,697
4,106
3,738
3,754
3,773
1,478
1,024
2,081
1,897
1,010
1,211
–
–
9
19
418
439
–
–
65
60
–
2
19,791
17,801
7,974
7,113
reports.shell.com Shell Annual Report and Form 20-F 2012
Supplementary information – oil and gas (unaudited) > Standardised measure of discounted future cash flows
147
STANDARDISED MEASURE
OF DISCOUNTED FUTURE
CASH FLOWS
those at the end of each year, currently enacted tax rates and a 10%
annual discount factor. The information so calculated does not provide
a reliable measure of future cash flows from proved reserves, nor does
it permit a realistic comparison to be made of one entity with another
because the assumptions used cannot reflect the varying circumstances
within each entity.
SEC Form 20-F requires the disclosure of a standardised measure of
discounted future cash flows, relating to proved reserves’ quantities
and based on a 12-month unweighted arithmetic average sales price,
calculated on a first-day-of-the-month basis, with cost factors based on
In addition, a substantial but unknown proportion of future real cash
flows from oil and gas production activities is expected to derive from
reserves which have already been discovered, but which cannot yet
be regarded as proved.
2012 – SHELL SUBSIDIARIES
Future cash inflows
Future production costs
Future development costs
Future tax expenses
Future net cash flows
Effect of discounting cash flows at 10%
Standardised measure of discounted future net
cash flows
Non-controlling interest included
Europe
Asia
Oceania
129,581
154,672
40,891
18,717
43,997
25,976
10,620
15,356
–
30,819
13,151
47,301
63,401
28,859
34,542
8
North America
South
USA
Canada
America
Total
$ MILLION
65,144
14,800
21,943
7,436
20,965
16,586
Africa
82,382
20,830
7,350
33,954
20,248
5,833
65,975
36,543
15,708
4,832
8,892
3,909
150,393
81,516
17,573
13,298
38,006
27,331
4,379
–
14,415
281
4,983
–
10,675
–
6,942
3,459
1,836
721
926
198
728
–
655,089
228,858
96,278
151,539
178,414
93,336
85,078
289
2012 – SHELL SHARE OF EQUITY-ACCOUNTED INVESTMENTS
Future cash inflows
Future production costs
Future development costs
Future tax expenses
Future net cash flows
Effect of discounting cash flows at 10%
Standardised measure of discounted future net
Europe
82,091
57,542
1,817
8,894
13,838
6,277
102,607
15,814
47,685
7,082
19,740
28,100
11,737
3,710
4,188
2,399
5,517
2,169
cash flows
7,561
16,363
3,348
Asia
Oceania[A]
Africa
USA
Canada
America
Total
North America
South
$ MILLION
–
–
–
–
–
–
–
31,479
9,434
4,087
6,846
11,112
4,854
6,258
–
–
–
–
–
–
–
1,867
233,858
827
71
520
449
133
119,198
17,245
38,399
59,016
25,170
316
33,846
[A] Includes Shell’s ownership of 23% of Woodside Petroleum Ltd as from April 2012 (previously: 24%), a publicly listed company on the Australian Securities
Exchange. We have limited access to data; accordingly, the numbers are estimated.
2011 – SHELL SUBSIDIARIES
Future cash inflows
Future production costs
Future development costs
Future tax expenses
Future net cash flows
Effect of discounting cash flows at 10%
Standardised measure of discounted future net
Europe
Asia
Oceania
134,985
131,083
39,102
15,548
51,533
28,802
12,002
26,746
13,280
41,412
49,645
22,306
66,460
15,029
23,692
8,257
19,482
17,510
Africa
88,833
25,795
7,325
32,812
22,901
7,454
cash flows
16,800
27,339
1,972
15,447
6,730
16,768
Non-controlling interest included
–
12
–
269
–
–
North America
South
USA
Canada
America
Total
$ MILLION
68,992
37,258
15,004
6,066
10,664
3,934
161,029
69,986
20,935
18,028
52,080
35,312
6,291
2,904
1,370
657,673
216,820
97,154
762
158,870
1,255
184,829
293
98,811
962
–
86,018
281
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
148
Shell Annual Report and Form 20-F 2012 reports.shell.com
Supplementary information – oil and gas (unaudited) > Standardised measure of discounted future cash flows
2011 – SHELL SHARE OF EQUITY-ACCOUNTED INVESTMENTS
Future cash inflows
Future production costs
Future development costs
Future tax expenses
Future net cash flows
Effect of discounting cash flows at 10%
Standardised measure of discounted future net
Europe
85,799
58,419
2,290
9,753
15,337
6,758
103,430
17,173
48,613
6,651
20,679
27,487
11,056
5,089
4,167
2,315
5,602
2,301
cash flows
8,579
16,431
3,301
Asia
Oceania[A]
Africa
USA
Canada
America
Total
North America
South
$ MILLION
–
–
–
–
–
–
–
33,018
11,512
3,361
6,350
11,795
5,151
6,644
–
–
–
–
–
–
–
1,909
241,329
826
211
541
331
120
124,459
16,680
39,638
60,552
25,386
211
35,166
[A] Includes Shell’s ownership of 24% of Woodside Petroleum Ltd, a publicly listed company on the Australian Securities Exchange. We have limited access to
data; accordingly, the numbers are estimated.
2010 – SHELL SUBSIDIARIES
Future cash inflows
Future production costs
Future development costs
Future tax expenses
Future net cash flows
Effect of discounting cash flows at 10%
Standardised measure of discounted future net
cash flows
Non-controlling interest included
North America
South
USA
Canada
America
Total
$ MILLION
Europe
82,004
28,812
11,719
25,739
15,734
4,150
Asia
Oceania
125,394
24,155
17,432
34,635
49,172
29,399
35,794
8,797
11,946
5,090
9,961
8,498
Africa
65,203
22,453
7,770
21,854
13,126
4,111
53,573
25,277
11,753
5,852
10,691
3,835
114,649
67,835
18,988
7,521
20,305
13,524
11,584
19,773
1,463
–
126
–
9,015
166
6,856
6,781
–
–
2010 – SHELL SHARE OF EQUITY-ACCOUNTED INVESTMENTS
Future cash inflows
Future production costs
Future development costs
Future tax expenses
Future net cash flows
Effect of discounting cash flows at 10%
Standardised measure of discounted future net
Europe
71,140
50,406
2,265
6,881
11,588
5,159
Asia
69,452
30,703
5,116
14,750
18,883
7,024
Oceania[A]
12,179
Africa
–
USA
21,994
Canada
–
North America
3,083
1,410
1,751
5,935
2,423
–
–
–
–
–
–
8,099
2,944
3,921
7,030
2,928
4,102
–
–
–
–
–
–
cash flows
6,429
11,859
3,512
[A] Includes Shell’s ownership of 24% of Woodside Petroleum Ltd as from November 2010 (previously: 34%), a publicly listed company on the Australian
Securities Exchange. We have limited access to data; accordingly, the numbers are estimated.
4,873
2,507
1,330
572
464
82
382
–
481,490
179,836
80,938
101,263
119,453
63,599
55,854
292
South
America
1,667
493
118
531
525
165
$ MILLION
Total
176,432
92,784
11,853
27,834
43,961
17,699
360
26,262
reports.shell.com Shell Annual Report and Form 20-F 2012
Supplementary information – oil and gas (unaudited) > Standardised measure of discounted future cash flows
149
Change in standardised measure of discounted
future net cash flows relating to proved
reserves
2012
At January 1
Net changes in prices and production costs
Revisions of previous reserves estimates
Extensions, discoveries and improved recovery
Purchases and sales of minerals in place
Development cost related to future production
Sales and transfers of oil and gas, net of production costs
Development cost incurred during the year
Accretion of discount
Net change in income tax
At December 31
2011
At January 1
Net changes in prices and production costs
Revisions of previous reserves estimates
Extensions, discoveries and improved recovery
Purchases and sales of minerals in place
Development cost related to future production
Sales and transfers of oil and gas, net of production costs
Development cost incurred during the year
Accretion of discount
Net change in income tax
At December 31
2010
At January 1
Net changes in prices and production costs
Revisions of previous reserves estimates
Extensions, discoveries and improved recovery
Purchases and sales of minerals in place
Development cost related to future production
Sales and transfers of oil and gas, net of production costs
Development cost incurred during the year
Accretion of discount
Net change in income tax
At December 31
Shell share
of equity-
accounted
investments
35,166
6,166
2,696
299
(91)
(2,971)
(16,139)
2,288
5,130
1,302
33,846
Shell share
of equity-
accounted
investments
26,262
23,636
3,205
1,725
(288)
(4,173)
(15,296)
2,607
3,727
(6,239)
35,166
Shell share
of equity-
accounted
investments
22,346
10,585
3,732
785
(2,070)
(698)
(11,432)
2,380
3,393
(2,759)
26,262
$ MILLION
Total
121,184
1,535
19,451
4,158
(1,912)
(15,150)
(59,139)
21,847
21,700
5,250
118,924
$ MILLION
Total
82,116
103,828
18,349
16,233
(2,245)
(25,906)
(62,965)
16,136
14,299
(38,661)
121,184
$ MILLION
Total
55,741
59,808
27,020
6,271
(1,753)
(13,053)
(48,273)
15,834
9,321
(28,800)
82,116
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
Shell
subsidiaries
86,018
(4,631)
16,755
3,859
(1,821)
(12,179)
(43,000)
19,559
16,570
3,948
85,078
Shell
subsidiaries
55,854
80,192
15,144
14,508
(1,957)
(21,733)
(47,669)
13,529
10,572
(32,422)
86,018
Shell
subsidiaries
33,395
49,223
23,288
5,486
317
(12,355)
(36,841)
13,454
5,928
(26,041)
55,854
150
Shell Annual Report and Form 20-F 2012 reports.shell.com
Supplementary information – oil and gas (unaudited) > Oil and gas exploration and production activities capitalised costs
OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
CAPITALISED COSTS
The aggregate amount of property, plant and equipment and intangible
assets relating to oil and gas exploration and production activities and
the aggregate amount of the related depreciation, depletion and
amortisation at December 31 are shown in the tables below.
Shell subsidiaries
Cost
Proved properties [A]
Unproved properties
Support equipment and facilities
Depreciation, depletion and amortisation
Proved properties [A]
Unproved properties
Support equipment and facilities
Net capitalised costs
[A] Includes capitalised asset decommissioning and restoration costs and related depreciation.
Shell share of equity-accounted investments
Cost
Proved properties [A]
Unproved properties
Support equipment and facilities
Depreciation, depletion and amortisation
Proved properties [A]
Unproved properties
Support equipment and facilities
Net capitalised costs
[A] Includes capitalised asset decommissioning and restoration costs and related depreciation.
$ MILLION
2012
2011
191,053
167,690
33,061
6,637
28,474
6,313
230,751
202,477
101,709
2,110
3,549
107,368
92,562
2,351
3,515
98,428
123,383
104,049
$ MILLION
2012
2011
50,227
45,389
3,584
3,480
2,563
3,249
57,291
51,201
25,968
23,669
180
1,893
28,041
29,250
155
1,798
25,622
25,579
reports.shell.com Shell Annual Report and Form 20-F 2012
Supplementary information – oil and gas (unaudited) > Oil and gas exploration and production activities costs incurred
151
OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
COSTS INCURRED
Costs incurred during the year in oil and gas property acquisition,
exploration and development activities, whether capitalised or charged
to income currently, are shown in the table below. Development costs
include capitalised asset decommissioning and restoration costs and
exclude costs of acquiring support equipment and facilities, but include
depreciation thereon.
Shell subsidiaries
2012
Acquisition of properties
Proved
Unproved
Exploration
Development
[A] Comprises Canada and Greenland.
2011
Acquisition of properties
Proved
Unproved
Exploration
Development
[A] Comprises Canada and Greenland.
2010
Acquisition of properties
Proved
Unproved
Exploration
Development
[A] Comprises Canada and Greenland.
Europe
Asia
Oceania
Africa
USA
Other[A] America
Total
North America
South
$ MILLION
387
16
421
3,080
–
148
867
2,773
–
1,769
352
4,901
–
96
559
1,733
567
2,610
4,898
3,621
1
381
1,109
2,113
–
152
479
354
955
5,172
8,685
18,575
Europe
Asia
Oceania
Africa
USA
Other[A] America
Total
North America
South
$ MILLION
32
1
321
1,152
1
1,181
510
3,089
–
73
300
1,196
1
174
404
1,047
–
1,417
3,138
2,697
1
763
663
1,614
–
23
386
340
35
3,632
5,722
11,135
Europe
Asia
Oceania
Africa
USA
Other[A] America
Total
North America
South
$ MILLION
302
304
380
4
110
414
2,590
2,800
–
–
410
437
313
330
508
1,569
38
5,776
1,939
2,072
–
86
443
3,239
–
–
277
307
657
6,606
4,371
13,014
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
152
Shell Annual Report and Form 20-F 2012 reports.shell.com
Supplementary information – oil and gas (unaudited) > Oil and gas exploration and production activities costs incurred
Shell share of equity-accounted investments
2012
Acquisition of properties
Proved
Unproved
Exploration
Development
2011
Acquisition of properties
Proved
Unproved
Exploration
Development
2010
Acquisition of properties
Proved
Unproved
Exploration
Development
Europe
Asia
Oceania
Africa
USA
Other
America
Total
North America
South
$ MILLION
–
–
38
209
–
–
323
2,217
–
–
103
549
–
–
–
–
–
–
10
405
–
–
–
–
–
–
–
34
–
–
474
3,414
Europe
Asia
Oceania
Africa
USA
Other
America
Total
North America
South
$ MILLION
–
–
26
280
–
–
250
2,103
–
279
160
1,023
–
–
–
–
–
–
9
349
–
–
–
–
–
–
–
–
279
445
81
3,836
Europe
Asia
Oceania
Africa
USA
Other
America
Total
North America
South
$ MILLION
–
–
59
306
–
–
276
2,083
–
–
127
849
–
–
–
–
–
–
4
302
–
–
–
–
–
–
–
50
–
–
466
3,590
reports.shell.com Shell Annual Report and Form 20-F 2012
Supplementary information – oil and gas (unaudited) > Oil and gas exploration and production activities earnings
153
OIL AND GAS EXPLORATION AND
PRODUCTION ACTIVITIES EARNINGS
Shell subsidiaries
2012
Revenue
Third parties
Sales between businesses
Total
Production costs excluding taxes
Taxes other than income tax [B]
Exploration
Depreciation, depletion and amortisation
Other (costs)/income
Earnings before taxation
Taxation charge/(credit)
Earnings after taxation
Europe
Asia
Oceania
Africa
USA
Other[A] America
Total
North America
South
$ MILLION
4,705
10,275
14,980
2,516
350
347
1,531
(1,331)
8,905
6,327
2,578
3,981
16,450
20,431
1,582
410
461
1,222
(3,157)
13,599
10,742
2,857
1,941
1,129
3,070
395
322
175
304
1,769
3,643
1,104
2,539
2,807
10,364
13,171
1,540
1,248
699
1,261
322
8,745
5,358
3,387
3,573
3,906
7,479
2,486
39
801
207
6,443
6,650
2,986
–
423
3,837
2,037
23
1,431
1,454
255
145
198
315
17,237
49,998
67,235
11,760
2,514
3,104
10,507
(563)
(2,175)
(63)
(5,198)
(247)
(127)
(120)
(971)
(428)
(543)
478
137
341
34,152
23,113
11,039
[A] Comprises Canada and Greenland.
[B] Includes cash paid royalties to governments outside North America.
2011
Revenue
Third parties
Sales between businesses
Total
Production costs excluding taxes
Taxes other than income tax [B]
Exploration
Depreciation, depletion and amortisation
Other (costs)/income
Earnings before taxation
Taxation charge/(credit)
Earnings after taxation
Europe
Asia
Oceania
Africa
USA
Other[A] America
Total
North America
South
$ MILLION
5,038
10,379
15,417
2,243
390
288
1,473
(1,670)
9,353
6,048
3,305
4,227
14,495
18,722
1,301
588
326
1,008
(3,242)
12,257
9,748
2,509
1,823
1,160
2,983
386
300
178
351
(331)
3,143
10,986
14,129
1,453
1,499
493
1,181
1,071
1,437
10,574
(15)
1,452
6,511
4,063
3,369
4,016
7,385
2,005
59
745
342
6,710
7,052
2,979
–
110
2,427
1,575
797
(2,080)
2,946
714
2,232
308
165
143
96
1,570
1,666
250
180
126
352
504
1,262
471
791
18,038
49,316
67,354
10,617
3,016
2,266
8,367
(4,951)
38,137
23,642
14,495
[A] Comprises Canada and Greenland.
[B] Includes cash paid royalties to governments outside North America.
2010
Revenue
Third parties
Sales between businesses
Total
Production costs excluding taxes
Taxes other than income tax [B]
Exploration
Depreciation, depletion and amortisation
Other (costs)/income
Earnings before taxation
Taxation charge/(credit)
Earnings after taxation
Europe
Asia
Oceania
Africa
USA
Other[A] America
Total
North America
South
$ MILLION
4,100
8,572
12,672
2,186
303
335
2,690
(1,144)
6,014
2,915
3,099
2,755
10,672
13,427
1,106
333
275
748
(2,748)
8,217
6,752
1,465
1,674
980
2,654
287
284
110
436
2,479
4,016
524
3,492
2,215
8,225
10,440
1,244
1,019
294
1,192
497
7,188
4,564
2,624
3,547
3,153
6,700
1,700
100
730
487
4,101
4,588
2,257
–
167
1,858
3,178
(528)
(1,324)
1,784
(2,338)
542
(614)
1,242
(1,724)
121
1,356
1,477
209
154
125
636
72
425
132
293
14,899
37,059
51,958
8,989
2,193
2,036
10,738
(2,696)
25,306
14,815
10,491
[A] Comprises Canada and Greenland.
[B] Includes cash paid royalties to governments outside North America.
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
S
U
P
P
L
E
M
E
N
T
S
154
Shell Annual Report and Form 20-F 2012 reports.shell.com
Supplementary information – oil and gas (unaudited) > Oil and gas exploration and production activities earnings
Shell share of equity-accounted investments
2012
Third party revenue
Total
Production costs excluding taxes
Taxes other than income tax [B]
Exploration
Depreciation, depletion and amortisation
Other income/(costs)
Earnings before taxation
Taxation
Earnings after taxation
Europe
6,448
6,448
411
3,574
17
209
390
2,627
969
1,658
Asia
Oceania[A]
Africa
12,592
12,592
1,441
1,441
952
4,861
391
1,310
(128)
4,950
1,971
2,979
372
111
155
335
80
548
136
412
–
–
–
–
–
–
–
–
–
–
North America
South
$ MILLION
USA
2,715
2,715
453
157
10
269
(13)
1,813
658
1,155
Other
America
–
–
–
–
–
–
–
–
–
–
341
341
41
118
–
41
(252)
(111)
26
(137)
Total
23,537
23,537
2,229
8,821
573
2,164
77
9,827
3,760
6,067
[A] Includes Shell’s ownership of 23% of Woodside Petroleum Ltd as from April 2012 (previously: 24%), a publicly listed company on the Australian Securities
Exchange. We have limited access to data; accordingly, the numbers are estimated.
[B] Includes cash paid royalties to governments outside North America.
2011
Third party revenue
Total
Production costs excluding taxes
Taxes other than income tax [B]
Exploration
Depreciation, depletion and amortisation
Other income/(costs)
Earnings before taxation
Taxation
Earnings after taxation
Europe
5,688
5,688
353
2,990
13
237
349
2,444
940
1,504
Asia
11,021
11,021
932
4,358
60
1,250
(30)
4,391
1,983
2,408
Oceania[A]
1,271
Africa
–
1,271
247
74
89
246
(141)
474
174
300
–
–
–
–
–
–
–
–
–
North America
USA
2,807
2,807
457
127
8
211
103
2,107
765
1,342
Other
–
–
–
–
–
–
–
–
–
–
South
America
318
318
41
89
–
35
(108)
45
45
–
$ MILLION
Total
21,105
21,105
2,030
7,638
170
1,979
173
9,461
3,907
5,554
[A] Includes Shell’s ownership of 24% of Woodside Petroleum Ltd, a publicly listed company on the Australian Securities Exchange. We have limited access to
data; accordingly, the numbers are estimated.
[B] Includes cash paid royalties to governments outside North America.
2010
Third party revenue
Total
Production costs excluding taxes
Taxes other than income tax [B]
Exploration
Depreciation, depletion and amortisation
Other income/(costs)
Earnings before taxation
Taxation
Earnings after taxation
Europe
5,027
5,027
355
2,471
19
247
337
2,272
878
1,394
Asia
Oceania[A]
Africa
6,895
6,895
815
2,416
8
1,177
(56)
2,423
1,338
1,085
1,471
1,471
196
139
111
303
3
725
207
518
–
–
–
–
–
–
–
–
–
–
North America
South
$ MILLION
USA
2,023
2,023
449
35
4
270
18
1,283
465
818
Other
America
–
–
–
–
–
–
–
–
–
–
196
196
64
9
–
30
43
136
136
–
Total
15,612
15,612
1,879
5,070
142
2,027
345
6,839
3,024
3,815
[A] Includes Shell’s ownership of 24% of Woodside Petroleum Ltd as from November 2010 (previously: 34%), a publicly listed company on the Australian
Securities Exchange. We have limited access to data; accordingly, the numbers are estimated.
[B] Includes cash paid royalties to governments outside North America.
reports.shell.com Shell Annual Report and Form 20-F 2012
Supplementary information – oil and gas (unaudited) > Acreage and wells
155
ACREAGE AND WELLS
The tables below reflect Shell subsidiaries and equity-accounted
investments acreage and wells.
The term “gross” refers to the total activity in which Shell subsidiaries
and equity-accounted investments have an interest. The term “net” refers
to the sum of the fractional interests owned by Shell subsidiaries plus the
Shell share of equity-accounted investments’ fractional interests.
OIL AND GAS ACREAGE (AT DECEMBER 31)
2012
2011
THOUSAND ACRES
2010
Europe
Asia
Oceania
Africa
North America – USA
North America – Other [A]
South America
Total
Developed
Undeveloped
Developed
Undeveloped
Developed
Undeveloped
Gross
9,091
26,989
1,703
5,428
1,837
1,181
162
Net
2,659
9,400
Gross
5,844
Net
1,964
Gross
9,016
53,460
26,604
27,268
Net
2,586
9,810
Gross
6,688
Net
2,376
Gross
8,983
48,554
25,779
27,496
467
70,575
26,469
2,299
1,176
30,404
23,460
8,878
6,990
785
36,179
27,349
76
17,242
9,668
1,798
6,060
1,592
1,101
162
500
67,907
26,326
2,465
20,706
15,364
984
757
7,815
6,140
31,573
23,849
76
20,655
8,905
2,274
6,701
1,568
1,002
162
Net
2,550
9,970
Gross
8,165
Net
3,265
41,781
22,800
553
81,748
24,413
2,424
23,327
17,079
952
664
76
7,003
5,834
31,501
21,489
15,878
6,588
46,391
16,862 222,582 122,504
46,997
17,178 203,898 108,739
48,186 17,189 209,403 101,468
[A] Comprises Canada and Greenland.
NUMBER OF PRODUCTIVE WELLS (AT DECEMBER 31) [A]
Europe
Asia
Oceania
Africa
Gross
1,431
7,200
48
837
Oil
Net
425
2,316
5
324
North America – USA
15,108
7,630
North America – Canada
South America
Total
460
73
393
29
2012
Gas
Net
398
116
217
62
Gross
1,454
7,361
48
883
Oil
Net
427
2,352
5
357
2,808
14,993
7,607
880
2
476
67
406
33
2011
Gas
Net
430
162
212
65
Gross
1,464
7,236
39
1,180
Oil
Net
412
2,382
4
447
2,222
15,322
7,771
906
2
433
73
370
34
Gross
1,317
289
557
98
3,449
1,115
7
Gross
1,341
298
608
89
3,884
1,007
6
2010
Gas
Net
443
164
211
59
2,457
764
1
Gross
1,266
243
574
95
4,618
1,165
7
25,157
11,122
7,968
4,483
25,282
11,187
6,832
3,999
25,747
11,420
7,233
4,099
[A] The number of productive wells with multiple completions (more than one formation producing into the same well bore) was 1,923 gross at December 31,
2012 (net 696); 2011: 1,997 gross (net 739); 2010: 2,011 gross (net 779).
NUMBER OF NET PRODUCTIVE WELLS AND DRY HOLES DRILLED
Productive
2012
Dry
Productive
2011
Dry
Productive
2010
Dry
Exploratory [A]
Europe
Asia
Oceania
Africa
North America – USA
North America – Canada
South America
Total
Development
Europe
Asia
Oceania
Africa
North America – USA
North America – Canada
South America
Total
1
3
–
3
124
37
–
168
9
255
7
25
352
49
1
698
1
4
1
7
3
9
1
26
–
4
–
–
–
2
–
6
1
6
–
3
70
21
1
102
12
196
–
23
347
102
1
681
1
97
2
5
2
4
1
112
1
8
–
2
2
1
–
14
2
8
–
8
75
29
1
123
20
269
3
11
388
34
1
726
4
28
2
5
5
8
1
53
1
4
–
–
–
–
–
5
[A] Productive wells are wells with proved reserves allocated. Exploratory wells in the process of drilling are excluded and presented separately on page 156.
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
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E
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S
156
Shell Annual Report and Form 20-F 2012 reports.shell.com
Supplementary information – oil and gas (unaudited) > Acreage and wells
NUMBER OF WELLS IN THE PROCESS OF EXPLORATORY DRILLING [A]
2012
Wells in the process of
Wells in the process of
drilling at January 1 and
drilling at January 1 and
proved reserves allocated
determined as dry
New wells in the process
At January 1
during the year
during the year
of drilling at December 31
At December 31
Gross
Net
Gross
Net
Gross
Europe
Asia
Oceania
Africa
North America – USA
North America – Canada
South America
Total
Gross
24
101
333
39
235
145
11
888
Net
6
47
94
24
167
142
5
485
(8)
(19)
–
(4)
(153)
(48)
–
(232)
(2)
(8)
–
(2)
(98)
(46)
–
(156)
(7)
(10)
(10)
(11)
(2)
(18)
(4)
(62)
(2)
(4)
(5)
(8)
(1)
(18)
(2)
(40)
[A] Wells in the process of drilling includes exploratory wells temporarily suspended.
NUMBER OF WELLS IN THE PROCESS OF DEVELOPMENT DRILLING [A]
Europe
Asia
Oceania
Africa
North America – USA
North America – Canada
South America
Total
[A] In addition to the present activities mentioned above, Shell has ongoing activities related to the installation of waterflood projects in Europe, Asia, Africa and
North America. Activities related to steam floods are in progress in Europe, Asia and North America, and gas compression is being installed in Europe and
Asia.
Net
3
22
67
10
146
58
2
308
Gross
14
105
465
40
242
146
10
1,022
Net
5
57
156
24
214
136
5
597
At January 1
At December 31
2012
Net
3
20
1
4
105
13
–
146
Gross
13
50
24
7
211
58
7
370
Net
3
16
6
2
127
50
4
208
5
33
142
16
162
67
3
428
Gross
14
69
3
8
191
16
1
302
reports.shell.com Shell Annual Report and Form 20-F 2012
Independent Auditors’ Report to the Members of Royal Dutch Shell plc
157
SE PA RAT E O PI NI ON IN RE L AT I O N TO IFR Ss AS ISSUE D B Y THE
I A S B
As explained in Note 1 to the Parent Company Financial Statements,
the Company in addition to complying with its legal obligation to
apply IFRSs as adopted by the European Union, has also applied IFRSs
as issued by the International Accounting Standards Board (IASB).
In our opinion the Parent Company Financial Statements comply with
IFRSs as issued by the IASB.
OPIN ION ON OTHE R MA TTE RS PRE SCRIBE D BY THE C OMPA N IE S
ACT 2006
In our opinion:
▪ the part of the Directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006;
and
▪ the information given in the Report of the Directors for the financial
year for which the Parent Company Financial Statements are
prepared is consistent with the Parent Company Financial
Statements.
MA TTE RS ON WHICH WE A RE RE QUIRE D TO RE PORT BY
E X C E P TI ON
We have nothing to report in respect of the following matters where
the Companies Act 2006 requires us to report to you if, in our opinion:
▪ adequate accounting records have not been kept by the Company,
or returns adequate for our audit have not been received from
branches not visited by us; or
▪ the Parent Company Financial Statements and the part of the
Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
▪ certain disclosures of Directors’ remuneration specified by law are
not made; or
▪ we have not received all the information and explanations we
require for our audit.
OTHE R M A TTE R
We have reported separately on the Consolidated Financial Statements
of Royal Dutch Shell plc for the year ended December 31, 2012.
Stephen Johnson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
March 13, 2013
Note:
▪ The maintenance and integrity of the Royal Dutch Shell plc website
(www.shell.com) are the responsibility of the Directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the Parent Company Financial
Statements since they were initially presented on the website.
▪ Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
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INDEPENDENT AUDITORS’
REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC
We have audited the Parent Company Financial Statements of Royal
Dutch Shell plc (the Company) for the year ended December 31,
2012, which comprise the Statement of Income, the Statement of
Comprehensive Income, the Balance Sheet, the Statement of Changes
in Equity, the Statement of Cash Flows and the related Notes. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
RE SPE C TIVE RE SPON SIBILITIE S OF DIRE CTORS A N D A UDITORS
As explained more fully in the statement of the Directors’
responsibilities in respect of the preparation of the financial statements
set out on page 57, the Directors are responsible for the preparation
of the Parent Company Financial Statements and for being satisfied
that they give a true and fair view. Our responsibility is to audit and
express an opinion on the Parent Company Financial Statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply with
the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for
the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do
not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our
prior consent in writing.
S C OP E OF THE A U D I T OF THE FIN A N C I A L STA TE M E N TS
An audit involves obtaining evidence about the amounts and
disclosures in the Parent Company Financial Statements sufficient to
give reasonable assurance that the Parent Company Financial
Statements are free from material misstatement, whether caused by
fraud or error. This includes an assessment of: whether the accounting
policies are appropriate to the Company’s circumstances and have
been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
Directors; and the overall presentation of the Parent Company
Financial Statements. In addition, we read all the financial and non-
financial information in the Royal Dutch Shell plc Annual Report and
Form 20-F for 2012 to identify material inconsistencies with the
audited Parent Company Financial Statements. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
OP I N I ON ON FI N A N C I A L STA TE M E N TS
In our opinion the Parent Company Financial Statements:
▪ give a true and fair view of the state of the Company’s affairs as at
December 31, 2012, and of its income and cash flows for the year
then ended;
▪ have been properly prepared in accordance with IFRSs as adopted
by the European Union; and
▪ have been prepared in accordance with the requirements of the
Companies Act 2006.
158
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Parent Company Financial Statements
INDEX TO THE PARENT
COMPANY FINANCIAL
STATEMENTS
The Parent Company Financial Statements have not been audited in accordance with the standards of the Public Company Accounting Oversight
Board (United States).
159
159
159
160
160
161
161
161
162
162
162
162
163
163
163
164
164
165
166
166
167
167
Statement of Income
Statement of Comprehensive Income
Balance Sheet
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Parent Company Financial Statements
Note 1 Basis of preparation
Note 2 Accounting policies
Note 3 Finance income/(expense)
Note 4 Remuneration of Directors and Senior Management
Note 5 Investments in subsidiaries
Note 6 Taxation
Note 7 Accounts receivable
Note 8 Cash and cash equivalents
Note 9 Financial instruments and other derivative contracts
Note 10 Accounts payable and accrued liabilities
Note 11 Share capital
Note 12 Other reserves
Note 13 Dividends
Note 14 Related parties
Note 15 Legal proceedings and other contingencies
Note 16 Auditors’ remuneration
STATEMENT OF INCOME
Dividend income
Finance income
Administrative expenses
Finance expense
Income before taxation
Taxation
Income for the period
All results are from continuing activities.
STATEMENT OF COMPREHENSIVE INCOME
Income for the period
Comprehensive income for the period
BALANCE SHEET
Assets
Non-current assets
Investments in subsidiaries
Deferred tax
Current assets
Accounts receivable
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Total liabilities
Equity
Share capital
Other reserves
Retained earnings
Total equity
Total liabilities and equity
Signed on behalf of the Board
/s/ Simon Henry
Simon Henry
Chief Financial Officer
March 13, 2013
reports.shell.com Shell Annual Report and Form 20-F 2012
Parent Company Financial Statements
159
NOTES
3
3
6
2012
3,807
320
(70)
(24)
4,033
53
4,086
2012
4,086
4,086
$ MILLION
2011
13,438
79
(103)
(225)
13,189
6
13,195
$ MILLION
2011
13,195
13,195
$ MILLION
NOTES
Dec 31, 2012
Dec 31, 2011
5
6
7
8
10
11
12
202,490
351
202,841
12,902
120
13,022
215,863
1,015
1,015
1,015
542
202,052
12,254
214,848
215,863
202,291
350
202,641
17,433
121
17,554
220,195
1,110
1,110
1,110
536
201,606
16,943
219,085
220,195
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Parent Company Financial Statements
STATEMENT OF CHANGES IN EQUITY
At January 1, 2012
Comprehensive income for the period
Dividends paid
Scrip dividends
Repurchases of shares
Share-based compensation
At December 31, 2012
At January 1, 2011
Comprehensive income for the period
Dividends paid
Scrip dividends
Repurchases of shares
Share-based compensation
At December 31, 2011
STATEMENT OF CASH FLOWS
Cash flow from operating activities
Income for the period
Adjustment for:
Dividend income
Taxation
Unrealised foreign exchange (gains)/losses
Interest income
Interest expense
Share-based compensation
Decrease/(increase) in working capital
Net cash from/(used in) operating activities (pre-tax)
Taxation refunded
Net cash from/(used in) operating activities
Cash flow from investing activities
Dividends received
Interest received
Net cash from investing activities
Cash flow from financing activities
Cash dividends paid
Repurchases of shares
Interest paid
Net cash used in financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at January 1
Cash and cash equivalents at December 31
NOTES
Share
capital
536
Other
reserves
201,606
13
13
12
12
13
13
12
12
–
–
9
(3)
–
542
529
–
–
10
(3)
–
–
–
(9)
3
452
202,052
201,542
–
–
(10)
3
71
536
201,606
Retained
earnings
16,943
4,086
(10,955)
3,565
(1,728)
343
12,254
11,142
13,195
(10,457)
3,580
(1,106)
589
16,943
NOTES
2012
$ MILLION
Total equity
219,085
4,086
(10,955)
3,565
(1,728)
795
214,848
213,213
13,195
(10,457)
3,580
(1,106)
660
219,085
$ MILLION
2011
4,086
13,195
(3,807)
(13,438)
(53)
(293)
(26)
24
51
5,090
5,072
–
5,072
3,807
26
3,833
(7,390)
(1,492)
(24)
(8,906)
(1)
121
120
(6)
205
(79)
17
69
(17,097)
(17,134)
11
(17,123)
13,438
79
13,517
(6,877)
(1,106)
(17)
(8,000)
(11,606)
11,727
121
13
8
The Notes on pages 161 to 167 form an integral part of these Parent Company Financial Statements.
reports.shell.com Shell Annual Report and Form 20-F 2012
Parent Company Financial Statements > Notes to the Parent Company Financial Statements
161
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
The Financial Statements of Royal Dutch Shell plc (the Company) have been prepared in accordance with the provisions of the Companies Act
2006 and with International Financial Reporting Standards (IFRS) as adopted by the European Union. As applied to the Company, there are no
material differences with IFRS as issued by the International Accounting Standards Board (IASB); therefore, the Financial Statements have been
prepared in accordance with IFRS as issued by the IASB.
As described in the accounting policies in Note 2, the Financial Statements have been prepared under the historical cost convention except for
certain items measured at fair value. Those accounting policies have been applied consistently in all periods presented and there were no
material changes during 2012.
The Financial Statements were approved and authorised for issue by the Board of Directors on March 13, 2013.
The preparation of financial statements in conformity with IFRS requires the use of certain accounting estimates. It also requires management to
exercise its judgement in the process of applying the Company’s accounting policies. Actual results may differ from those estimates.
The financial results of the Company are included in the Consolidated Financial Statements on pages 99-137. The financial results of the
Company incorporate the results of the Dividend Access Trust (the Trust), the financial statements for which are presented on pages 171-174.
The Company’s principal activity is being the parent company for Shell, as described in Note 1 to the Consolidated Financial Statements. It
conducts itself wholly within the Corporate business segment (see Note 4 to the Consolidated Financial Statements).
2 ACCOUNTING POLICIES
The Company’s accounting policies follow those of Shell as set out in Note 2 to the Consolidated Financial Statements. Key accounting estimates
and judgements affecting the assessment and measurement of impairment follow those set out in Note 3 to the Consolidated Financial Statements.
The following are the principal accounting policies that specifically relate to the Company:
Presentation currency
The Company’s presentation and functional currency is US dollars (dollars).
Taxation
The Company is tax-resident in the Netherlands. For the assessment of corporate income tax in the Netherlands, the Company and certain of its
subsidiaries form a fiscal unit, in respect of which the Company recognises in its financial statements any current tax payable or receivable for the
fiscal unit as a whole.
The Company’s tax charge or credit recognised in income is calculated at the statutory tax rate prevailing in the Netherlands.
Investments
Investments in subsidiaries are stated at cost, net of any impairment.
The original cost of the Company’s investment in Royal Dutch Petroleum Company (Royal Dutch) was based on the fair value of the shares
transferred to the Company by the former shareholders of Royal Dutch in exchange for A shares in the Company during the public exchange offer
in 2005. The original cost of the Company’s investment in The “Shell” Transport and Trading Company, p.l.c., now The Shell Transport and
Trading Company Limited (Shell Transport), was the fair value of the shares held by the former shareholders of The “Shell” Transport and Trading
Company, p.l.c. transferred in consideration for the issuance of B shares as part of the Scheme of Arrangement in 2005. The Company’s
investments in Royal Dutch and Shell Transport now represent an investment in Shell Petroleum N.V. (Shell Petroleum); this change had no impact
on the cost of investments in subsidiaries.
Share-based compensation plans
The fair value of share-based compensation for equity-settled plans granted to subsidiary employees under the Company’s schemes is recognised
as an investment in subsidiaries from the date of grant over the vesting period with a corresponding increase in equity. In the year of vesting of a
plan, the costs for the actual deliveries are recharged to the relevant employing subsidiaries. This is recognised as a repayment of the investment
originally booked. If the actual vesting costs are higher than the cumulatively recognised share-based compensation charge, the difference is
recognised in income.
Information on the principal plans, including vesting conditions and shares granted, vested and expired or forfeited during the year, is set out in
Note 22 to the Consolidated Financial Statements.
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Parent Company Financial Statements > Notes to the Parent Company Financial Statements
[Note 2 continued]
Dividend income
Interim dividends are recognised on a paid basis unless the dividend has been confirmed by a general meeting of Shell Transport or of Shell
Petroleum, in which case income is recognised on declaration date.
3 FINANCE INCOME/(EXPENSE)
Finance income
Interest income
Foreign exchange gains
Total
Finance expense
Interest expense
Foreign exchange losses
Total
2012
26
294
320
(24)
–
(24)
$ MILLION
2011
79
–
79
(17)
(208)
(225)
4 REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT
Remuneration of Directors and Senior Management, consisting of short-term benefits, retirement benefits, share-based compensation and gains
realised on the exercise of share options, is set out in Note 5 to the Consolidated Financial Statements. Of these amounts, $49 million
(2011: $38 million) is borne by the Company and is presented within administrative expenses.
5 INVESTMENTS IN SUBSIDIARIES
At January 1
Share-based compensation
Recharge of vested share-based compensation
Other
At December 31
6 TAXATION
A – Taxation credit
Current taxation
Credit in respect of current period
Total
Deferred taxation
Relating to the origination and reversal of temporary differences
Total
Total taxation credit
2012
202,291
867
(731)
63
$ MILLION
2011
202,160
644
(657)
144
202,490
202,291
2012
$ MILLION
2011
(44)
(44)
(9)
(9)
(53)
(12)
(12)
6
6
(6)
reports.shell.com Shell Annual Report and Form 20-F 2012
Parent Company Financial Statements > Notes to the Parent Company Financial Statements
163
[Note 6 continued]
The applicable tax charge at the statutory tax rate reconciles to the actual taxation credit as follows:
Income before taxation
Applicable tax charge at the statutory tax rate of 25.0% (2011: 25.0%)
Income not subject to tax
Expenses not deductible for tax purposes
Other reconciling items
Taxation credit
B – Taxes payable
Taxes payable are reported within accounts payable and accrued liabilities (see Note 10).
C – Deferred tax assets
At January 1
Recognised in income
Other movements
At December 31
2012
4,033
1,008
(1,026)
12
(47)
(53)
$ MILLION
2011
13,189
3,297
(3,361)
52
6
(6)
2012
350
9
(8)
351
$ MILLION
2011
252
(6)
104
350
Deferred tax assets are recognised in respect of tax losses, which are available for relief against future taxable profits for up to nine years from
the year in which the loss was incurred.
7 ACCOUNTS RECEIVABLE
Amounts due from subsidiaries (see Note 14)
Other receivables
Total
8 CASH AND CASH EQUIVALENTS
Dec 31, 2012
Dec 31, 2011
$ MILLION
12,901
1
12,902
17,433
–
17,433
Cash and cash equivalents comprised call deposits in euros, sterling and dollars with Shell Treasury Centre Limited, a subsidiary. The Company
earned interest on these balances of $nil in 2012 (2011: $3 million). Interest on euro balances is calculated at EONIA less 0.125% (2011:
EONIA less 0.15%), on sterling balances at LIBOR (2011: LIBOR) and on dollar balances at US LIBOR less 0.125% (2011: US LIBID).
9 FINANCIAL INSTRUMENTS AND OTHER DERIVATIVE CONTRACTS
Financial assets and liabilities in the Company’s Balance Sheet comprise cash and cash equivalents (see Note 8), accounts receivable (see
Note 7) and certain amounts reported within accounts payable and accrued liabilities (see Note 10).
Foreign exchange derivatives are used by the Company to manage foreign exchange risk. Foreign exchange risk arises when certain transactions
are denominated in a currency that is not the Company’s functional currency. There are no derivative financial instruments held at December 31,
2012 or 2011.
The fair value of financial assets and liabilities at December 31, 2012 and 2011, all of which fall due within 12 months, approximates their
carrying amount.
Information on financial risk management is presented in Note 21 to the Consolidated Financial Statements.
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Parent Company Financial Statements > Notes to the Parent Company Financial Statements
10 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Amounts owed to subsidiaries (see Note 14)
Withholding tax payable
Accruals and other liabilities
Unclaimed dividends
Total
11 SHARE CAPITAL
ISSUED AND FULLY PAID
At January 1, 2012
Scrip dividends
Repurchases of shares
At December 31, 2012
At January 1, 2011
Scrip dividends
Repurchases of shares
At December 31, 2011
NOMINAL VALUE
At January 1, 2012
Scrip dividends
Repurchases of shares
At December 31, 2012
At January 1, 2011
Scrip dividends
Repurchases of shares
At December 31, 2011
Dec 31, 2012
Dec 31, 2011
$ MILLION
654
117
242
2
965
135
8
2
1,015
1,110
Ordinary shares of €0.07 each
B
A
3,668,550,437
2,661,403,172
103,838,250
–
–
(43,687,983)
3,772,388,687
3,563,952,539
104,597,898
–
2,617,715,189
2,695,808,103
–
(34,404,931)
NUMBER OF SHARES
Sterling deferred
shares of £1 each
50,000
–
–
50,000
50,000
–
–
3,668,550,437
2,661,403,172
50,000
Ordinary shares of €0.07 each
B
A
312
9
–
321
302
10
–
312
224
–
(3)
221
227
–
(3)
224
$ MILLION
Total
536
9
(3)
542
529
10
(3)
536
The total nominal value of sterling deferred shares is less than $1 million.
The B shares repurchased in 2012 and 2011 under the Company’s share buyback programme were all cancelled.
At the Company’s Annual General Meeting on May 22, 2012, the Board was authorised to allot ordinary shares in the Company, and to grant
rights to subscribe for or to convert any security into ordinary shares in the Company, up to an aggregate nominal amount of €147 million
(representing 2,100 million ordinary shares of €0.07 each), and to list such shares or rights on any stock exchange. This authority expires at the
earlier of the close of business on August 22, 2013, and the end of the Annual General Meeting to be held in 2013, unless previously renewed,
revoked or varied by the Company in a general meeting.
The B shares rank pari passu in all respects with the A shares except for the dividend access mechanism described below. The Company and Shell
Transport can procure the termination of the dividend access mechanism at any time. Upon such termination, the B shares will form one class with
the A shares ranking pari passu in all respects and the A and B shares will be known as ordinary shares without further distinction.
The sterling deferred shares are redeemable only at the discretion of the Company for £1 each and carry no voting rights. There are no further
rights to participate in profits or assets, including the right to receive dividends. Upon winding up or liquidation, the shares carry a right to
repayment of paid-up nominal value, ranking ahead of the A and B shares.
For information on the number of shares in the Company held by Shell employee share ownership trusts and in connection with share-based
compensation plans, refer to Note 22 to the Consolidated Financial Statements.
Dividend access mechanism for B shares
GE N E RA L
Dividends paid on A shares have a Dutch source for tax purposes and are subject to Dutch withholding tax.
reports.shell.com Shell Annual Report and Form 20-F 2012
Parent Company Financial Statements > Notes to the Parent Company Financial Statements
165
[Note 11 continued]
It is the expectation and the intention, although there can be no certainty, that holders of B shares will receive dividends via the dividend access
mechanism. Any dividends paid on the dividend access share will have a UK source for Dutch and UK tax purposes; there will be no UK or Dutch
withholding tax on such dividends and certain holders (not including US holders) of B shares or B American Depositary Shares (ADSs) will be
entitled to a UK tax credit in respect of their proportional share of such dividends.
D E S C R I P T I O N OF D I V I D E N D A C C E S S M E C H A N I S M
A dividend access share has been issued by Shell Transport to Computershare Trustees (Jersey) Limited (formerly EES Trustees International
Limited) as dividend access trustee (the Trustee). EES Trustees International Limited replaced Lloyds TSB Offshore Trust Company Limited as Trustee
on January 26, 2012. Pursuant to a declaration of trust, the Trustee will hold any dividends paid in respect of the dividend access share on trust
for the holders of B shares from time to time and will arrange for prompt disbursement of such dividends to holders of B shares. Interest and other
income earned on unclaimed dividends will be for the account of Shell Transport and any dividends that are unclaimed after 12 years will revert
to Shell Transport. Holders of B shares will not have any interest in the dividend access share and will not have any rights against Shell Transport
as issuer of the dividend access share. The only assets held on trust for the benefit of the holders of B shares will be dividends paid to the Trustee
in respect of the dividend access share.
The declaration and payment of dividends on the dividend access share will require Board action by Shell Transport and will be subject to any
applicable legal or articles limitations in effect from time to time. In no event will the aggregate amount of the dividend paid by Shell Transport
under the dividend access mechanism for a particular period exceed the aggregate amount of the dividend declared by the Company’s Board on
the B shares in respect of the same period.
OP E RA TI ON OF THE D I V I D E N D A C C E S S M E C HA N I S M
If, in connection with the declaration of a dividend by the Company on the B shares, the Board of Shell Transport elects to declare and pay a
dividend on the dividend access share to the Trustee, the holders of the B shares will be beneficially entitled to receive their share of that dividend
pursuant to the declaration of trust (and arrangements will be made to ensure that the dividend is paid in the same currency in which they would
have received a dividend from the Company).
If any amount is paid by Shell Transport by way of a dividend on the dividend access share and paid by the Trustee to any holder of B shares, the
dividend which the Company would otherwise pay on the B shares will be reduced by an amount equal to the amount paid to such holders of
B shares by the Trustee.
The Company will have a full and unconditional obligation, in the event that the Trustee does not pay an amount to holders of B shares on a cash
dividend payment date (even if that amount has been paid to the Trustee), to pay immediately the dividend declared on the B shares. The right of
holders of B shares to receive distributions from the Trustee will be reduced by an amount equal to the amount of any payment actually made by
the Company on account of any dividend on B shares.
The dividend access mechanism may be suspended or terminated at any time by the Company’s Directors or the Directors of Shell Transport, for
any reason and without financial recompense. This might, for instance, occur in response to changes in relevant tax legislation.
12 OTHER RESERVES
At January 1, 2012
Scrip dividends
Repurchases of shares
Share-based compensation
At December 31, 2012
At January 1, 2011
Scrip dividends
Repurchases of shares
Share-based compensation
At December 31, 2011
Share premium
Capital redemption
reserve
154
–
–
–
154
154
–
–
–
154
reserve
60
–
3
–
63
57
–
3
–
60
Share plan
reserve
1,027
–
–
452
1,479
956
–
–
71
Other
reserve
200,365
(9)
–
–
200,356
200,375
(10)
–
–
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L
E
M
E
N
T
S
$ MILLION
Total
201,606
(9)
3
452
202,052
201,542
(10)
3
71
1,027
200,365
201,606
On January 6, 2006, loan notes were converted into 4,827,974 A shares. The difference between the value of the loan notes and the value of the
new shares issued was credited to the share premium reserve.
The capital redemption reserve was established in connection with repurchases of shares of the Company.
166
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Parent Company Financial Statements > Notes to the Parent Company Financial Statements
[Note 12 continued]
The share plan reserve represents the fair value of share-based compensation granted to employees of subsidiaries under the Company’s equity-
settled schemes.
The other reserve was established as a consequence of the Company becoming the single parent company of Royal Dutch and Shell Transport
and represented the difference between the cost of the investment in those companies and the nominal value of shares issued in exchange for
those investments as required by the prevailing legislation at that time, section 131 of the Companies Act 1985.
13 DIVIDENDS
Interim
March 22, 2012
March 22, 2012
Interim
June 21, 2012
June 21, 2012
Interim
September 20, 2012
September 20, 2012
Interim
December 20, 2012
December 20, 2012
Total
Interim
March 25, 2011
March 25, 2011
Interim
June 27, 2011
June 27, 2011
Interim
September 19, 2011
September 19, 2011
Interim
December 16, 2011
December 16, 2011
Total
$0.42 per A share
$0.42 per B share
$0.43 per A share
$0.43 per B share
$0.43 per A share
$0.43 per B share
$0.43 per A share
$0.43 per B share
$0.42 per A share
$0.42 per B share
$0.42 per A share
$0.42 per B share
$0.42 per A share
$0.42 per B share
$0.42 per A share
$0.42 per B share
Cash
Scrip
Total
$ MILLION
816
855
1,008
1,104
937
1,036
822
812
728
271
597
51
680
111
798
329
1,544
1,126
1,605
1,155
1,617
1,147
1,620
1,141
7,390
3,565
10,955
820
738
890
878
912
954
818
867
681
387
601
236
571
148
703
253
1,501
1,125
1,491
1,114
1,483
1,102
1,521
1,120
6,877
3,580
10,457
In addition, on January 31, 2013, the Directors announced a further interim dividend in respect of 2012 of $0.43 per A share and $0.43 per B share.
The total dividend is estimated to be $2,748 million and is payable on March 28, 2013. Under the Scrip Dividend Programme, shareholders can elect
to receive dividends in the form of A shares. The cash dividends on the B shares are paid via the Trust (see Note 11).
Dividends on A shares are by default paid in euros, although holders may elect to receive dividends in sterling. Dividends on B shares are by
default paid in sterling, although holders may elect to receive dividends in euros. Dividends on ADSs are paid in dollars.
14 RELATED PARTIES
Significant subsidiaries at December 31, 2012, and Shell’s percentage interest therein, are set out in Exhibit 8. The Company has no direct
interest in jointly controlled entities and associates. Shell’s major investments in jointly controlled entities and associates at December 31, 2012,
are set out in Note 10 to the Consolidated Financial Statements. A complete list of investments in subsidiaries, jointly controlled entities and
associates will be attached to the Company’s annual return made to the Registrar of Companies.
Shell Petroleum
Shell Treasury Luxembourg Sarl
Total
$ MILLION
Amounts due from subsidiaries
Amounts owed to subsidiaries
(see Note 7)
(see Note 10)
Dec 31, 2012 Dec 31, 2011 Dec 31, 2012 Dec 31, 2011
12,901
17,433
–
–
12,901
17,433
285
369
654
307
658
965
reports.shell.com Shell Annual Report and Form 20-F 2012
Parent Company Financial Statements > Notes to the Parent Company Financial Statements
167
[Note 14 continued]
The amount due from Shell Petroleum, which is denominated in dollars, is repayable on demand. Interest is calculated at US LIBOR less 0.125%
(2011: US LIBOR less 0.1%) and interest income in 2012 was $8 million (2011: $1 million).
The net amount due to Shell Treasury Luxembourg Sarl at December 31, 2012, comprises an interest-bearing receivable of €9,545 million
(2011: €12,988 million) and an interest-bearing payable of $12,964 million (2011: $17,444 million). Interest on euro balances is calculated at
EONIA less 0.125% (2011: EONIA less 0.15%) and on dollar balances at US LIBOR (2011: US LIBOR). Net interest expense on these balances
in 2012 was $7 million (2011: $57 million net interest income).
Other transactions and balances
The Company enters into forward and spot foreign exchange contracts with Treasury companies, which are subsidiaries. At December 31, 2012,
there were no open contracts with these companies in respect of foreign exchange contracts.
The Company settles general and administrative expenses of the Trust including the auditors’ remuneration.
The Company has guaranteed contractual payments totalling $29,477 million at December 31, 2012 (2011: $28,777 million) and related
interest in respect of listed debt issued by Shell International Finance B.V.
15 LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
Refer to Note 25 to the Consolidated Financial Statements.
16 AUDITORS’ REMUNERATION
Auditors’ remuneration for 2012 audit services was $153,800 (2011: $152,700).
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Independent Auditors’ Report to Computershare Trustees (Jersey) Limited as Trustee of the Royal Dutch Shell Dividend Access Trust
INDEPENDENT AUDITORS’
REPORT TO COMPUTERSHARE
TRUSTEES (JERSEY) LIMITED
(FORMERLY EES TRUSTEES
INTERNATIONAL LIMITED)
AS TRUSTEE OF THE ROYAL
DUTCH SHELL DIVIDEND
ACCESS TRUST
We have audited the Financial Statements of Royal Dutch Shell
Dividend Access Trust (the Trust) for the year ended December 31,
2012, which comprise the Statement of Income, the Statement of
Comprehensive Income, the Balance Sheet, the Statement of Changes
in Equity, the Statement of Cash Flows and the related Notes. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
RESPECTIVE RESPONSIBILITIES OF TRUSTEE AND AUDITORS
The Trustee is responsible for the preparation of the Financial
Statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the Financial
Statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards for
Auditors.
This report, including the opinions, has been prepared for and only for
the Trustee and the Royal Dutch Shell plc B shareholders as a body
and for no other purposes. We do not, in giving these opinions,
accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
An audit involves obtaining evidence about the amounts and
disclosures in the Financial Statements sufficient to give reasonable
assurance that the Financial Statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the
Trust’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting
estimates made by the Trustee; and the overall presentation of the
Financial Statements. In addition, we read all the financial and non-
financial information in the Royal Dutch Shell plc Annual Report and
Form 20-F for 2012 to identify material inconsistencies with the
audited Consolidated Financial Statements. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
OPINION ON FINANCIAL STATEMENTS
In our opinion the Financial Statements:
▪ give a true and fair view of the state of the Trust’s affairs as at
December 31, 2012, and of its income and cash flows for the year
then ended; and
▪ have been properly prepared in accordance with IFRSs as adopted
by the European Union.
SEPARATE OPINION IN RELATION TO IFRSs AS ISSUED BY THE IASB
As explained in Note 2 to the Financial Statements, the Trust in
addition to complying with its legal obligation to apply IFRSs as
adopted by the European Union, has also applied IFRSs as issued by
the International Accounting Standards Board (IASB).
In our opinion the Financial Statements comply with IFRSs as issued by
the IASB.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following matters where
we would report to you if, in our opinion:
▪ proper accounting records have not been kept by the Trust; or
▪ the Financial Statements are not in agreement with the accounting
records; or
▪ we have not received all the information and explanations we
require for our audit.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Jersey, Channel Islands
March 13, 2013
Note:
▪ The report set out above is included for the purposes of Royal Dutch
Shell plc’s Annual Report and Accounts for 2012 only and does not
form part of Royal Dutch Shell plc’s Annual Report on Form 20-F for
2012.
▪ The maintenance and integrity of the Royal Dutch Shell plc website
(www.shell.com) are the responsibility of the Directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the Consolidated Financial
Statements since they were initially presented on the website.
▪ Legislation in the Jersey governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
reports.shell.com Shell Annual Report and Form 20-F 2012
Report of Independent Registered Public Accounting Firm
169
REPORT OF INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM
To Computershare Trustees (Jersey) Limited
(formerly EES Trustees International Limited) as
Trustee of the Royal Dutch Shell Dividend
Access Trust and the Board of Directors and
Shareholders of Royal Dutch Shell plc.
In our opinion, the accompanying Statement of Income, the Statement
of Comprehensive Income, the Balance Sheet, the Statement of
Changes in Equity, the Statement of Cash Flows and the related Notes
to the Financial Statements present fairly, in all material respects, the
financial position of the Royal Dutch Shell Dividend Access Trust (the
Trust) at December 31, 2012, and December 31, 2011, and the
results of its operations and cash flows for each of the three years in
the period ended December 31, 2012, in conformity with
International Financial Reporting Standards as issued by the
International Accounting Standards Board and in conformity with
International Financial Reporting Standards as adopted by the
European Union. Also in our opinion, the Trust maintained, in all
material respects, effective internal control over financial reporting as
of December 31, 2012, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The
Trustee and the management of Royal Dutch Shell plc are responsible
for these Financial Statements, for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in
the Trustee’s and Management’s Report on Internal Control over
Financial Reporting of the Royal Dutch Shell Dividend Access Trust set
out on page 84. Our responsibility is to express opinions on these
Financial Statements and on the Trust’s internal control over financial
reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether
the Financial Statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all
material respects. Our audits of the Financial Statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the Financial Statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in
accordance with authorisations of management and directors of the
company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorised acquisition, use, or
disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ PricewaterhouseCoopers CI LLP
Jersey, Channel Islands
March 13, 2013
Note that the report set out above is included for the purposes of Royal
Dutch Shell plc’s Annual Report on Form 20-F for 2012 only and does
not form part of Royal Dutch Shell plc’s Annual Report and Accounts
for 2012.
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Royal Dutch Shell Dividend Access Trust Financial Statements
INDEX TO THE ROYAL DUTCH
SHELL DIVIDEND ACCESS TRUST
FINANCIAL STATEMENTS
171
171
171
172
172
173
173
173
173
174
174
174
174
174
174
Statement of Income
Statement of Comprehensive Income
Balance Sheet
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Royal Dutch Shell Dividend Access Trust
Financial Statements
Note 1 The Trust
Note 2 Basis of preparation
Note 3 Accounting policies
Note 4 Other liabilities
Note 5 Capital account
Note 6 Distributions made
Note 7 Auditors’ remuneration
Note 8 Financial instruments
Note 9 Related party transactions
STATEMENT OF INCOME
Dividend income
Income before and after taxation and for the period
All results are from continuing activities.
STATEMENT OF COMPREHENSIVE INCOME
Income for the period
Comprehensive income for the period
BALANCE SHEET
Assets
Current assets
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Other liabilities
Total liabilities
Equity
Capital account
Revenue account
Total equity
Total liabilities and equity
reports.shell.com Shell Annual Report and Form 20-F 2012
Royal Dutch Shell Dividend Access Trust Financial Statements
171
2012
2,383
2,383
2012
2,383
2,383
2011
2,175
2,175
£ MILLION
2010
2,863
2,863
2011
2,175
2,175
£ MILLION
2010
2,863
2,863
NOTES Dec 31, 2012 Dec 31, 2011
£ MILLION
4
5
1
1
1
1
–
–
–
1
1
1
1
1
–
–
–
1
Signed on behalf of Computershare Trustees (Jersey) Limited as Trustee
of the Royal Dutch Shell Dividend Access Trust.
/s/ Lisa Knowles
Lisa Knowles
March 13, 2013
/s/ Karen Kurys
Karen Kurys
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The Notes on pages 173 to 174 form an integral part of these Royal Dutch Shell Dividend Access Trust Financial Statements.
172
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Royal Dutch Shell Dividend Access Trust Financial Statements
STATEMENT OF CHANGES IN EQUITY
At January 1, 2012
Comprehensive income for the period
Distributions made
At December 31, 2012
At January 1, 2011
Comprehensive income for the period
Distributions made
At December 31, 2011
At January 1, 2010
Comprehensive income for the period
Distributions made
At December 31, 2010
STATEMENT OF CASH FLOWS
Cash flow from operating activities
Income for the period
Adjustment for:
Dividends received
Net cash from operating activities
Cash flow from investing activities
Dividends received
Net cash from investing activities
Cash flow from financing activities
Distributions made
Net cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents at January 1
Cash and cash equivalents at December 31
NOTES
Capital
account
6
6
6
–
–
–
–
–
–
–
–
–
–
–
–
Revenue
account
–
2,383
(2,383)
–
–
£ MILLION
Total
equity
–
2,383
(2,383)
–
–
2,175
(2,175)
2,175
(2,175)
–
–
2,863
(2,863)
–
–
–
2,863
(2,863)
–
2012
2011
2010
£ MILLION
2,383
2,175
2,863
(2,383)
–
2,383
2,383
(2,383)
(2,383)
–
1
1
(2,175)
–
2,175
2,175
(2,175)
(2,175)
–
1
1
(2,863)
–
2,863
2,863
(2,863)
(2,863)
–
1
1
The Notes on pages 173 to 174 form an integral part of these Royal Dutch Shell Dividend Access Trust Financial Statements.
reports.shell.com Shell Annual Report and Form 20-F 2012
Royal Dutch Shell Dividend Access Trust Financial Statements > Notes to the Royal Dutch Shell Dividend Access Trust Financial Statements
173
NOTES TO THE ROYAL DUTCH SHELL DIVIDEND ACCESS TRUST
FINANCIAL STATEMENTS
1 THE TRUST
The Royal Dutch Shell Dividend Access Trust (the Trust) was established on May 19, 2005, by The “Shell” Transport and Trading Company, p.l.c.,
now The Shell Transport and Trading Company Limited (Shell Transport), and Royal Dutch Shell plc (the Company). The Trust is governed by the
applicable laws of England and Wales and is resident in Jersey. The Trustee of the Trust is Computershare Trustees (Jersey) Limited, following a
change of name from EES Trustees International Limited on September 10, 2012, registration number 92182 (the Trustee), Queensway House,
Hilgrove Street, St Helier, Jersey, JE1 1ES, replacing Lloyds TSB Offshore Trust Company Limited following a Deed of Novation and Deed of
Retirement and Appointment dated January 26, 2012. The Trust was established as part of a dividend access mechanism.
A dividend access share has been issued by Shell Transport to the Trustee. Following the announcement of a dividend by the Company on the
B shares, Shell Transport may declare a dividend on the dividend access share.
The primary purposes of the Trust are to receive, on behalf of the B shareholders of the Company and in accordance with their respective holdings
of B shares in the Company, any amounts paid by way of dividend on the dividend access share and to pay such amounts to the B shareholders
on the same pro rata basis.
The Trust shall not endure for a period in excess of 80 years from May 19, 2005, being the date on which the Trust Deed was executed.
2 BASIS OF PREPARATION
The Financial Statements of the Trust have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the
European Union. As applied to the Trust, there are no material differences with IFRS as issued by the International Accounting Standards Board
(IASB); therefore, the Financial Statements have been prepared in accordance with IFRS as issued by the IASB.
As described in the accounting policies in Note 3, the Financial Statements have been prepared under the historical cost convention. Those
accounting policies have been applied consistently in all periods presented and there were no material changes during 2012.
The Financial Statements were approved and authorised for issue by the Trustee on March 13, 2013.
The preparation of financial statements in conformity with IFRS requires the use of certain accounting estimates. It also requires management to
exercise its judgement in the process of applying the Trust’s accounting policies. Actual results may differ from these estimates. The financial
results of the Trust are included in the Consolidated and Parent Company Financial Statements on pages 99-137 and pages 159-167
respectively.
3 ACCOUNTING POLICIES
The Trust’s accounting policies follow those of Shell as set out in Note 2 to the Consolidated Financial Statements. The following are the principal
accounting policies that specifically relate to the Trust:
Presentation currency
The Trust’s presentation and functional currency is sterling. The Trust’s dividend income and dividends paid are principally in sterling.
Taxation
The Trust is not subject to taxation.
Dividend income
Interim dividends on the dividend access share are recognised on a paid basis unless the dividend has been confirmed by a general meeting of
Shell Transport, in which case income is recognised based on the record date of the dividend by the Company on its B shares.
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Royal Dutch Shell Dividend Access Trust Financial Statements > Notes to the Royal Dutch Shell Dividend Access Trust Financial Statements
4 OTHER LIABILITIES
Other liabilities consist of £1,202,271 (2011: £997,987) relating to unclaimed dividends, including any dividend cheque payments that have
expired or have been returned unpresented.
5 CAPITAL ACCOUNT
The capital account is represented by the dividend access share of 25 pence settled in the Trust by Shell Transport, which also represents an asset
in the Trust. This is classified as equity in the balance sheet.
6 DISTRIBUTIONS MADE
Distributions are made to the B shareholders of the Company in accordance with the Trust Deed. Refer to Note 13 to the Parent Company
Financial Statements for information about dividends per share. Cumulative unclaimed dividends as at December 31, 2012, amounted to
£1,202,271 (2011: £997,987). Amounts are recorded as distributed once a wire transfer or cheque is issued. All cheques are valid for
one year from the date of issue. Any wire transfers that are not completed are replaced by cheques. To the extent that cheques expire or are
returned unpresented, the Trust records a liability for unclaimed dividends and a corresponding amount of cash.
7 AUDITORS’ REMUNERATION
Auditors’ remuneration for 2012 audit services was £33,750 (2011: £33,750; 2010: £33,750).
8 FINANCIAL INSTRUMENTS
Financial risk management is carried out by the Trustee and the Company to ensure that relevant policies and procedures are in place to minimise
risk.
The Trust, in its normal course of business, is not subject to market risk, credit risk or liquidity risk. The Trustee does not consider that any foreign
exchange exposures will materially affect the operations of the Trust.
The fair value of financial assets and liabilities at December 31, 2012 and 2011, approximates their carrying amount. All financial assets and
liabilities fall due within 12 months.
9 RELATED PARTY TRANSACTIONS
The Trust received dividend income of £2,383 million (2011: £2,175 million; 2010: £2,863 million) in respect of the dividend access share. The
Trust made distributions of £2,383 million (2011: £2,175 million; 2010: £2,863 million) to the B shareholders of the Company.
The Company pays the general and administrative expenses of the Trust including the auditors’ remuneration.
reports.shell.com Shell Annual Report and Form 20-F 2012
Cross reference to Form 20-F
175
CROSS REFERENCE TO FORM 20-F
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3.
Key Information
A. Selected financial data
B. Capitalisation and indebtedness
C. Reasons for the offer and use of proceeds
D. Risk factors
Item 4.
Information on the Company
A. History and development of the company
B. Business overview
C. Organisational structure
D. Property, plant and equipment
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
A. Operating results
B.
Liquidity and capital resources
C. Research and development, patents and licences, etc.
D.
Trend information
E. Off-balance sheet arrangements
F.
Tabular disclosure of contractual obligations
G. Safe harbour
Item 6.
Directors, Senior Management and Employees
A. Directors and senior management
B. Compensation
C. Board practices
D. Employees
E. Share ownership
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders
B. Related party transactions
C.
Interests of experts and counsel
Item 8.
Financial Information
PAGES
N/A
N/A
10, 91
44-45
N/A
13-15
11, 16-27, 29, 35-37, 89
8-9,11-12, 14-41, 46-51, 138-146
11, E2-E5
16-40, 47-50, 155-156
N/A
8-10, 12, 14-41, 130-132
16-21, 29, 35-36, 42-45, 83-84, 106-107, 119-122, 128-132, 163, 174
18-19, 56, 108
8-9, 11-12, 16-23, 35-40
45
45
45
52-55, 78-79
61-76
52-54, 56-59, 66-67, 77-88
46, 112
46, 58, 63-76, 89, 106, 132-134
58, 105, 116-117, 166-167, 174
88-90
N/A
A. Consolidated Statements and Other Financial Information
38, 42-45, 96-137, 157-174
B. Significant Changes
Item 9.
The Offer and Listing
A. Offer and listing details
B.
Plan of distribution
C. Markets
D. Selling shareholders
E. Dilution
F.
Expenses of the issue
Item 10. Additional Information
A. Share capital
B. Memorandum and articles of association
C. Material contracts
D. Exchange controls
E.
Taxation
F. Dividends and paying agents
G. Statement by experts
H. Documents on display
I.
Subsidiary information
56
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89
N/A
N/A
N/A
44, 46, 58, 74, 89-90, 101, 128, 132-134, 160, 164
85-88
58
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56, 85-86, 89, 93, 95
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Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other than Equity Securities
83-84, 103-110, 118, 128-132, 163, 174
89, 93-94
176
Shell Annual Report and Form 20-F 2012 reports.shell.com
Cross reference to Form 20-F
PART II
Item 13.
Item 14.
Item 15.
Item 16.
Defaults, Dividend Arrearages and Delinquencies
Material Modifications to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
[Reserved]
Item 16A.
Audit committee financial expert
Item 16B.
Code of Ethics
Item 16C.
Principal Accountant Fees and Services
Item 16D.
Exemptions from the Listing Standards for Audit Committees
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F.
Change in Registrant’s Certifying Accountant
Item 16G.
Corporate Governance
Item 16H.
Mine Safety Disclosure
PART III
Item 17.
Item 18.
Item 19.
Financial Statements
Financial Statements
Exhibits
PAGES
N/A
N/A
83-84, 97, E6-E7
77, 80
78
81, 136, 167, 174
77-78
44
N/A
77-78
N/A
PAGES
N/A
96-137, 157-174
177, E1-E10
reports.shell.com Shell Annual Report and Form 20-F 2012
Exhibits
177
INDEX TO THE EXHIBITS
Exhibit No. Description
PAGE
1.1
Memorandum of Association of Royal Dutch Shell plc, together with a special resolution of Royal Dutch Shell plc dated May 18, 2010,
(incorporated by reference to Exhibit 4.12 to the Registration Statement on Form F-3 (No. 333-177588) of Royal Dutch Shell plc
filed with the Securities and Exchange Commission on October 28, 2011).
1.2
Articles of Association of Royal Dutch Shell plc, together with a special resolution of Royal Dutch Shell plc dated May 18, 2010, (incorporated
by reference to Exhibit 4.11 to the Registration Statement on Form F-3 (No. 333-177588) of Royal Dutch Shell plc filed with the
2
4.2
4.3
4.4
4.5
Securities and Exchange Commission on October 28, 2011).
Dividend Access Trust Deed (incorporated by reference to Exhibit 2 to the Annual Report for fiscal year ended December 31, 2006, on
Form 20-F (File No. 001-32575) of Royal Dutch Shell plc filed with the Securities and Exchange Commission on March 13, 2007).
Shell Provident Fund Regulations and Trust Agreement (incorporated by reference to Exhibit 4.7 to the Post-Effective Amendment to Registration
Statement on Form S-8 (No. 333-126715) of Royal Dutch Shell plc filed with the Securities and Exchange Commission on June 18,
2007).
Form of Director Indemnity Agreement (incorporated by reference to Exhibit 4.3 to the Annual Report for the fiscal year ended December 31,
2005, on Form 20-F (File No. 001-32575) of Royal Dutch Shell plc filed with the Securities and Exchange Commission on March 13, 2006).
Senior Debt Securities Indenture dated June 27, 2006, among Shell International Finance B.V., as issuer, Royal Dutch Shell plc, as guarantor,
and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form F-3
(No. 333-126726) of Royal Dutch Shell plc filed with the Securities and Exchange Commission on July 20, 2005, amended from
then to be dated as of June 27, 2006, and with the parties signatures).
Form of Directors Letter of appointments (incorporated by reference to Exhibits 4.5 - 4.11 to the Annual Report for fiscal year ended
December 31, 2006, on Form 20-F (File No. 001-32575) of Royal Dutch Shell plc filed with the Securities and Exchange Commission on
March 13, 2007).
4.6
Compromise Agreement with Malcolm Brinded (February 21, 2012) (incorporated by reference to Exhibit 4.6 to the Annual Report for fiscal
year ended December 31, 2011, on Form 20-F (File No. 001-32575) of Royal Dutch Shell plc filed with the Securities and Exchange
7.1
7.2
7.3
8
12.1
12.2
13.1
99.1
99.2
Commission on March 15, 2012).
Calculation of Ratio of Earnings to Fixed Charges.
Calculation of Return on Average Capital Employed (ROACE) (incorporated by reference to page 45 herein).
Calculation of gearing (incorporated by reference to page 9 and Note 15 to the Consolidated Financial Statements on page 119 herein).
Significant Shell subsidiaries as at December 31, 2012.
Section 302 Certification of Royal Dutch Shell plc.
Section 302 Certification of Royal Dutch Shell plc.
Section 906 Certification of Royal Dutch Shell plc.
Consent of PricewaterhouseCoopers LLP, London.
Consent of PricewaterhouseCoopers CI LLP, Jersey, Channel Islands, relating to the Royal Dutch Shell Dividend Access Trust.
E1
E2
E6
E7
E8
E9
E10
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Shell Annual Report and Form 20-F 2012 reports.shell.com
Signatures
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the
undersigned to sign the Annual Report on Form 20-F on its behalf.
Royal Dutch Shell plc
/s/ Peter Voser
Peter Voser
Chief Executive Officer
March 13, 2013
reports.shell.com Shell Annual Report and Form 20-F 2012
Exhibits
E1
EXHIBIT 7.1
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Pre-tax income from continuing operations before income from equity investees
Total fixed charges
Distributed income from equity investees
Less: interest capitalised
Total earnings
Interest expensed and capitalised
Interest within rental expense
Total fixed charges
Ratio of earnings to fixed charges
2012
41,341
1,712
10,573
567
53,059
1,461
251
1,712
30.99
2011
46,923
1,608
9,681
674
57,538
1,209
399
1,608
35.78
2010
29,391
1,684
6,519
969
36,625
1,218
466
1,684
21.75
2009
16,044
1,669
4,903
1,088
21,528
902
767
1,669
12.90
$ MILLION
2008
43,374
2,009
9,325
870
53,838
1,371
638
2,009
26.80
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Shell Annual Report and Form 20-F 2012 reports.shell.com
Exhibits
EXHIBIT 8
Significant subsidiaries
Significant subsidiaries at December 31, 2012, and Shell’s
percentage of share capital (to the nearest whole number) are set out
below. All of these subsidiaries have been included in the
“Consolidated Financial Statements” of Shell on pages 99-137. Those
held directly by the Company are marked with an asterisk (*). A
complete list of investments in subsidiaries, jointly controlled entities
and associates will be attached to the Company’s annual return made
to the Registrar of Companies.
Company name
Shell Development (Australia) Proprietary Limited
Shell Energy Holdings Australia Limited
Qatar Shell GTL Limited
Shell Deepwater Borneo Limited
Shell International Trading Middle East Limited
Shell Brasil Petroleo Ltda
Shell Canada Energy
Shell Canada Exploration
Shell Canada Resources
Schiehallion Oil and Gas Limited
Shell EP Holdingselskab Danmark ApS
Shell Gabon
Shell Upstream Gabon SA
Ferngasbeteiligungsgesellschaft mbH
Shell Erdgas Marketing GmbH & Co. KG
Shell Erdgas Beteiligungsgesellschaft mbH
Shell Exploration and Production Libya GmbH
Shell Verwaltungsgesellschaft Fur Erdgasbeteiligungen mbH
Shell E&P Ireland Limited
Shell Italia E&P Spa
Sarawak Shell Berhad
Shell MDS (Malaysia) Sendirian Berhad
Shell Abu Dhabi B.V.
Jordon Oil Shale Company B.V.
Shell Azerbaijan Exploration and Production B.V.
Shell Caspian B.V.
Shell Deepwater Tanzania B.V.
Shell E and P Offshore Services B.V.
Shell Egypt N.V.
Shell Egypt Deepwater B.V.
Shell Egypt Shallow Water B.V.
Shell EP Middle East Holdings B.V.
Shell Exploration and Production Investments B.V.
Shell Generating (Holding) B.V.
Shell Global Solutions International B.V.
Shell International Exploration and Production B.V.
Shell Kazakhstan Development B.V.
Shell Olie – OG Gasudvinding Danmark B.V.
Shell Sakhalin Holdings B.V.
Shell Salym Development B.V.
Shell Western LNG B.V.
Energy Holdings Offshore Limited
Energy Petroleum Holdings Limited
Energy Petroleum Taranaki Limited
Shell Energy Asia Limited
Shell Investments NZ Limited
Shell New Zealand (2011) Limited
Shell Nigeria Exploration and Production Company Limited
The Shell Petroleum Development Company of Nigeria Limited
A/S Norske Shell
%
Country of incorporation
Principal activities
Class of shares held
100 Australia
100 Australia
100 Bermuda
100 Bermuda
100 Bermuda
100 Brazil
100 Canada
100 Canada
100 Canada
100 Cayman Islands
100 Denmark
75 Gabon
100 Gabon
100 Germany
50 Germany
100 Germany
100 Germany
100 Germany
100 Ireland
100 Italy
100 Malaysia
72 Malaysia
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 New Zealand
100 New Zealand
100 New Zealand
100 New Zealand
100 New Zealand
100 New Zealand
100 Nigeria
100 Nigeria
100 Norway
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Membership Interest
Membership Interest
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Equity
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Redeemable, non-redeemable
Ordinary
Ordinary
Redeemable, non-redeemable
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
reports.shell.com Shell Annual Report and Form 20-F 2012
Exhibits
E3
Company name
Enterprise Oil Norge AS
Shell Tankers (Singapore) Private Limited
Shell Espana SA
Enterprise Oil Limited
Shell Benin Upstream Limited
Shell China Exploration and Production Company Limited
Shell Energy Europe Limited
Shell EP Offshore Ventures Limited
Shell Exploration and Production Oman Limited
Shell Gas Holdings (Malaysia) Limited
Shell U.K. Limited
SCCP Oil & Gas, LLC
Shell Energy North America (US), L.P.
Shell Exploration & Production Company
Shell Frontier Oil & Gas Inc.
Shell Gulf of Mexico Inc.
Shell Offshore Inc.
%
Country of incorporation
Principal activities
Class of shares held
100 Norway
100 Singapore
100 Spain
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Upstream
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
98 United States of America
Upstream
100 United States of America
Upstream
100 United States of America
Upstream
100 United States of America
Upstream
100 United States of America
Upstream
100 United States of America
Upstream
Membership Interest
Partnership Capital
Ordinary
Ordinary
Ordinary
Ordinary
Shell Offshore Response Company LLC
100 United States of America
Upstream
Membership Interest
Shell Onshore Ventures Inc.
Shell US E&P Investments LLC
SWEPI LP
100 United States of America
Upstream
100 United States of America
Upstream
Ordinary
Equity (Voting)
100 United States of America
Upstream
Partnership Capital
Shell Compania Argentina De Petroleo S.A.
Shell Australia Limited
Shell Refining (Australia) Proprietary Limited
The Shell Company of Australia Limited
Shell Austria Gesellschaft mbH
Shell Western Supply & Trading Limited
Belgian Shell S.A.
Shell Saudi Arabia (Refining) Limited
Pennzoil-Quaker State Canada Incorporated
Shell Canada Limited
Shell Chemicals Canada Limited
Shell (China) Limited
Shell Tongyi (Beijing) Petroleum Chemical Co. Limited [A]
100 Argentina
100 Australia
100 Australia
100 Australia
100 Austria
100 Barbados
100 Belgium
100 Bermuda
100 Canada
100 Canada
100 Canada
100 China
75 China
Shell Czech Republic Akciova Spolecnost
100 Czech Republic
A/S Dansk Shell
Butagaz Sas
Ste Des Petroles Shell Sas
Deutsche Shell GmbH
Deutsche Shell Holding GmbH
Shell Deutschland Oil GmbH
Shell Hong Kong Limited
Shell Hungary Kereskedelmi zRt
Shell India Markets Private Limited
Aico Uno S.r.l.
Shell Italia Holding SpA
Shell Italia SpA
Shell Malaysia Trading Sendirian Berhad
Shell Refining Company (Federation Of Malaya) Berhad
Shell Chemicals Europe B.V.
Shell Chemicals Ventures B.V.
Shell China Holdings B.V.
Shell Gas (LPG) Holdings B.V.
Shell MSPO2 Holding B.V.
Shell Nanhai B.V.
Shell Nederland Chemie B.V.
Shell Nederland Raffinaderij B.V.
Shell Trademark Management B.V.
[A] Shell voting rights are 80%.
100 Denmark
100 France
100 France
100 Germany
100 Germany
100 Germany
100 Hong Kong
100 Hungary
100 India
100 Italy
100 Italy
100 Italy
100 Malaysia
51 Malaysia
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Nominative
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Equity
Quotas
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
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Shell Annual Report and Form 20-F 2012 reports.shell.com
Exhibits
Company name
Shell Trading Rotterdam B.V.
Shell Trading Russia B.V.
Gasnor AS
Pilipinas Shell Petroleum Corporation
Shell Polska Sp. Z O.O.
OOO “Shell Neft”
Shell Chemicals Seraya (Pte) Limited
Shell Eastern Petroleum (Pte) Limited
Shell Eastern Trading (Pte) Limited
Shell Seraya Pioneer (Pte) Limited
Shell South Africa Holdings (Pty) Limited
Shell South Africa Marketing (Pty) Limited
Shell Brands International AG
Shell & Turcas Petrol A.S.
Shell Additives U.K. Limited
Shell Caribbean Investments Limited
Shell Chemicals U.K. Limited
Shell International Petroleum Company Limited
Shell International Trading and Shipping Company Limited
Shell Trading International Limited
The Shell Company of Thailand Limited
The Shell Company of Turkey Limited
The Shell Company (W.I.) Limited
Criterion Catalysts & Technologies L.P.
Equilon Enterprises LLC
Pennzoil-Quaker State Company
Quaker State Investment Corporation
San Pablo Bay Pipeline Company LLC
SCOGI, G.P.
Shell Chemical LP
Shell Chemicals Arabia LLC
Shell Gom Pipeline Company LLC
Shell Pipeline Company LP
Shell Trading (US) Company
Shell Transportation Holdings LLC
SOPC Holdings East LLC
SOPC Holdings West LLC
TMR Company
Shell Bermuda (Overseas) Limited
Shell Holdings (Bermuda) Limited
Shell Oman Trading Limited
Solen Insurance Limited
Shell Americas Funding (Canada) Limited
Shell Finance Luxembourg Sarl
Shell Treasury Luxembourg Sarl
B.V. Dordtsche Petroleum Maatschappij
Shell Brazil Holding B.V.
Shell Finance (Netherlands) B.V.
Shell Gas B.V.
Shell International Finance B.V. *
Shell Nederland B.V.
Shell Overseas Investments B.V.
Shell Petroleum N.V.*
Shell Treasury Centre East (Pte) Limited
Shell Finance Switzerland AG
Solen Versicherungen AG
Shell Energy Investments Limited
Shell Holdings (U.K.) Limited
Shell International Holdings Limited
Shell Overseas Holdings Limited
Shell Treasury Centre Limited
%
Country of incorporation
Principal activities
Class of shares held
100 The Netherlands
100 The Netherlands
100 Norway
67 Philippines
100 Poland
100 Russia
100 Singapore
100 Singapore
100 Singapore
100 Singapore
100 South Africa
72 South Africa
100 Switzerland
70 Turkey
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Downstream
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Membership Interest
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Registered (Voting)
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100 United States of America
Downstream
100 United States of America
Downstream
100 United States of America
Downstream
100 United States of America
Downstream
Partnership Capital
Membership Interest
Ordinary
Ordinary
100 United States of America
Downstream
Membership Interest
100 United States of America
Downstream
Equity
100 United States of America
Downstream
Partnership Capital
100 United States of America
Downstream
Ordinary
100 United States of America
Downstream
100 United States of America
Downstream
Membership Interest
Partnership Capital
100 United States of America
Downstream
Ordinary
100 United States of America
Downstream
100 United States of America
Downstream
100 United States of America
Downstream
100 United States of America
Downstream
100 Bermuda
100 Bermuda
100 Bermuda
100 Bermuda
100 Canada
100 Luxembourg
100 Luxembourg
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 The Netherlands
100 Singapore
100 Switzerland
100 Switzerland
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Corporate
Membership Interest
Membership Interest
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Common
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Registered (Voting)
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
reports.shell.com Shell Annual Report and Form 20-F 2012
Exhibits
E5
Company name
Shell Treasury Dollar Company Limited
Shell Treasury Euro Company Limited
Shell Treasury U.K. Limited
The Shell Petroleum Company Limited
The Shell Transport and Trading Company Limited
Pecten Victoria Company
Shell Leasing Company
Shell Oil Company
Shell Petroleum Inc.
Shell Treasury Center (West) Inc.
%
Country of incorporation
Principal activities
Class of shares held
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
100 United Kingdom
Corporate
Corporate
Corporate
Corporate
Corporate
100 United States of America
Corporate
100 United States of America
Corporate
100 United States of America
Corporate
100 United States of America
Corporate
100 United States of America
Corporate
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
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Shell Annual Report and Form 20-F 2012 reports.shell.com
Exhibits
EXHIBIT 12.1
I, Peter Voser, certify that:
1. I have reviewed the Annual Report on Form 20-F of Royal Dutch Shell plc (the Company);
2. Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
the report;
3. Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects
the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in the report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Company and have:
▪ designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the report is being prepared;
▪ designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
▪ evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in the report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by the report based on such evaluation; and
▪ disclosed in the report any change in the Company’s internal control over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting;
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the Company’s auditors and the audit committee of the Company’s Board of Directors (or persons performing the equivalent functions):
▪ all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Company’s ability to record, process, summarise and report financial information; and
▪ any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control
over financial reporting.
/s/ Peter Voser
Peter Voser
Chief Executive Officer
March 13, 2013
reports.shell.com Shell Annual Report and Form 20-F 2012
Exhibits
E7
EXHIBIT 12.2
I, Simon Henry, certify that:
1. I have reviewed the Annual Report on Form 20-F of Royal Dutch Shell plc (the Company);
2. Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
the report;
3. Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects
the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in the report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Company and have:
▪ designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the report is being prepared;
▪ designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
▪ evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in the report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by the report based on such evaluation; and
▪ disclosed in the report any change in the Company’s internal control over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting;
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the Company’s auditors and the audit committee of the Company’s Board of Directors (or persons performing the equivalent functions):
▪ all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Company’s ability to record, process, summarise and report financial information; and
▪ any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control
over financial reporting.
/s/ Simon Henry
Simon Henry
Chief Financial Officer
March 13, 2013
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Shell Annual Report and Form 20-F 2012 reports.shell.com
Exhibits
EXHIBIT 13.1
In connection with the Annual Report on Form 20-F of Royal Dutch Shell plc (the Company) 2012, a corporation organised under the laws of
England and Wales for the period ending December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the
Report), each of the undersigned officers of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to such officer’s knowledge, that:
1. The Report fully complies, in all material respects, with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company as of, and for, the periods presented in the Report.
The foregoing certification is provided solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act of 2002
and is not intended to be used or relied upon for any other purpose.
/s/ Peter Voser
Peter Voser
Chief Executive Officer
/s/ Simon Henry
Simon Henry
Chief Financial Officer
March 13, 2013
reports.shell.com Shell Annual Report and Form 20-F 2012
Exhibits
E9
EXHIBIT 99.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (No. 333-177588, 333-177588-01) and the
Registration Statements on Form S-8 (No. 333-126715, 333-141397 and 333-171206) of Royal Dutch Shell plc of our report dated March 13,
2013, relating to the Consolidated Financial Statements and the effectiveness of internal control over financial reporting, which appears in this
Annual Report on Form 20-F.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
London
March 13, 2013
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Shell Annual Report and Form 20-F 2012 reports.shell.com
Exhibits
EXHIBIT 99.2
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (No. 333-177588, 333-177588-01) and the
Registration Statements on Form S-8 (No. 333-126715, 333-141397 and 333-171206) of the Royal Dutch Shell Dividend Access Trust of our
report dated March 13, 2013, relating to the Royal Dutch Shell Dividend Access Trust Financial Statements, and the effectiveness of internal
control over financial reporting, which appears in this Annual Report on Form 20-F.
/s/ PricewaterhouseCoopers CI LLP
PricewaterhouseCoopers CI LLP
Jersey, Channel Islands
March 13, 2013
OUR bUsiNEssEs
builDinG an
eneRGy FutuRe
Global eneRGy DemanD iS RiSinG anD So aRe
conSumeR expectationS – moRe people want
eneRGy FRom cleaneR SouRceS. at Shell we
woRk with otheRS to unlock new eneRGy
SouRceS anD Squeeze moRe FRom what we
have. we Do thiS in ReSponSible anD innovative
wayS. in builDinG a betteR eneRGy FutuRe we all
have a paRt to play. Shell iS DoinG itS paRt.
exploring for oil
and gas
producing oil
and gas
mining
oil sands
extracting
bitumen
Refining oil
into fuels and
lubricants
Developing
fields
liquefying gas by
cooling (lnG)
Shipping
and trading
Shipping
and trading
producing
petrochemicals
Supply and
distribution
converting gas to liquid
products (Gtl)
producing
biofuels
Regasifying
lnG
Retail sales
Generating
wind power
b2b sales
chEmicAL
PRODUcTs
for plastics,
coatings,
detergents
Retail sales
b2b sales
FUELs AND
LUbRicANTs
for transport
gAs
for cooking, heating,
electrical power
REgisTERED OFFicE
Royal Dutch Shell plc
Shell centre
london Se1 7na
united kingdom
Registered in england and wales
company number 4366849
Registered with the Dutch trade Register
under number 34179503
hEADQUARTERs
Royal Dutch Shell plc
carel van bylandtlaan 30
2596 hR the hague
the netherlands
shAREhOLDER RELATiONs
Royal Dutch Shell plc
carel van bylandtlaan 30
2596 hR the hague
the netherlands
+31 (0)70 377 1365
+31 (0)70 377 4088
+31 (0)70 377 3953 (fax)
or
Royal Dutch Shell plc
Shell centre
london Se1 7na
united kingdom
+44 (0)20 7934 3363
+44 (0)20 7934 7515 (fax)
royaldutchshell.shareholders@shell.com
www.shell.com/shareholder
iNVEsTOR RELATiONs
Royal Dutch Shell plc
po box 162
2501 an the hague
the netherlands
+31 (0)70 377 4540
or
Shell oil company
investor Relations
910 louisiana Street, 4580b
houston, tx 77002
uSa
+1 713 241 1042
+1 713 241 0176 (fax)
ir-europe@shell.com
ir-usa@shell.com
www.shell.com/investor
shARE REgisTRATiON
equiniti
aspect house
Spencer Road
lancing
west Sussex bn99 6Da
united kingdom
0800 169 1679 (uk)
+44 (0)121 415 7073
+44 (0)1903 833 113 (fax)
For online information about your
holding and to change the way you receive
your company documents:
www.shareview.co.uk
AmERicAN DEPOsiTARy
shAREs (ADs s)
the bank of new york mellon
po box 358516
pittsburgh, pa 15252-8516
uSa
+1 888 737 2377 (uSa)
+1 201 680 6825 (international)
shrrelations@bnymellon.com
www.bnymellon.com/shareowner
REPORT ORDERiNg
order@shell.com
+31 (0)72 567 1001
annual Report/20-F service for uS residents
+1 888 301 0504
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BUILDING AN ENERGY FUTURE
ANNUAL REPORT
Royal Dutch Shell plc annual RepoRt anD
FoRm 20-F FoR the yeaR enDeD DecembeR 31, 2012
all ouR RepoRtS aRe available at
http://RepoRtS.Shell.com
comprehensive financial information on our activities
throughout 2012
Detailed operational information including maps
Report on our progress in contributing to sustainable
development
DownloaD ouR appS at
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