ROYAL DUTCH SHELL PLC ANNUAL REPORT AND FORM 20-F FOR THE YEAR ENDED DECEMBER 31, 2018Annual Reportand Form 20-F for the year ended December 31, 2018, Royal Dutch Shell plc Contents
1
INTRODUCTION
01 Form 20-F
02 Cross reference to Form 20-F
04 Terms and abbreviations
05 About this Report
2
STRATEGIC REPORT
07 Chair’s message
09 Chief Executive Officer’s review
10 Strategy and outlook
12 Business overview
15 Risk factors
21 Market overview
24 Summary of results
27 Performance indicators
29
36 Upstream
44 Oil and gas information
53 Downstream
61 Corporate
62 Liquidity and capital resources
66 Environment and society
71 Climate change and energy
Integrated Gas
transition
79 Our people
3
GOVERNANCE
82 The Board of Royal Dutch Shell plc
89 Senior Management
91 Directors’ Report
95 Corporate governance
113 Audit Committee Report
119 Directors’ Remuneration Report
4
FINANCIAL STATEMENTS
AND SUPPLEMENTS
148 Independent Auditors’ Reports
related to the Consolidated and
Parent Company Financial
Statements
167 Consolidated Financial Statements
215 Supplementary information –
oil and gas (unaudited)
237 Parent Company Financial
Statements
247 Independent Auditors’ Reports
related to the Royal Dutch Shell
Dividend Access Trust Financial
Statements
251 Royal Dutch Shell Dividend Access
Trust Financial Statements
5
ADDITIONAL INFORMATION
256 Shareholder information
262 Section 13(r) of the US Securities
Exchange Act of 1934 disclosure
263 Non-GAAP measures reconciliations
265 Index to the Exhibits
266 Signatures
E1 Exhibits
Cover image
Shining a light on our energy
solutions. Showing the extensive
range of our activities; from
Upstream and Integrated Gas to
Downstream. Demonstrating the
importance it has on our day-to-day
lives through a simple and direct
iconographic approach.
Cover: Conran Design Group
Typesetting: DFIN
Printer: Tuijtel under ISO 14001
INTENTIONALLY LEFT BLANK
INTENTIONALLY LEFT BLANK
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, 2018
Commission file number 001-32575
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
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
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
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
1.375% Guaranteed Notes due May 2019
1.375% Guaranteed Notes due September 2019
4.3% Guaranteed Notes due 2019
Floating Rate Guaranteed Notes due 2019
2.125% Guaranteed Notes due 2020
2.25% Guaranteed Notes due 2020
4.375% Guaranteed Notes due 2020
Floating Rate Guaranteed Notes due 2020
1.75% Guaranteed Notes due 2021
1.875% Guaranteed Notes due 2021
2.375% Guaranteed Notes due 2022
2.25% Guaranteed Notes due 2023
3.4% Guaranteed Notes due 2023
3.5% Guaranteed Notes due 2023
Floating Rate Guaranteed Notes due 2023
3.25% Guaranteed Notes due 2025
2.5% Guaranteed Notes due 2026
2.875% Guaranteed Notes due 2026
3.875% Guaranteed Notes due 2028
4.125% Guaranteed Notes due 2035
6.375% Guaranteed Notes due 2038
5.5% Guaranteed Notes due 2040
3.625% Guaranteed Notes due 2042
4.55% Guaranteed Notes due 2043
4.375% Guaranteed Notes due 2045
3.75% Guaranteed Notes due 2046
4.00% Guaranteed Notes due 2046
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.
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
Outstanding as of December 31, 2018:
4,440,549,255 A ordinary shares with a nominal value of €0.07 each.
3,738,410,368 B ordinary shares with a nominal value of €0.07 each.
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 reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
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 been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.
See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(cid:1799)(cid:3) Yes
(cid:1798)(cid:3) Yes
(cid:1799)(cid:3) Yes
(cid:1799)(cid:3) Yes
(cid:1798) No
(cid:1799) No
(cid:1798) No
(cid:1798) No
Large accelerated filer (cid:300) Accelerated filer (cid:1407) Non-accelerated filer (cid:1407)
Emerging growth company (cid:1407)
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standards” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after
April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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.
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:
(cid:1798)
U.S. GAAP(cid:3)(cid:1798)
Other (cid:1798)(cid:3)
Item 18 (cid:1798)(cid:3)
(cid:1799)(cid:3)
Item 17(cid:3)(cid:1798)(cid:3)
(cid:1798)(cid:3) Yes
(cid:1799) No
Royal Dutch Shell plc
Carel van Bylandtlaan 30
2596 HR, The Hague, The Netherlands
Attn: Linda M. Szymanski
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Cross reference to Form 20-F
Part I
Item 1.
Item 2.
Item 3.
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
A.
B.
C.
D.
Selected financial data
Capitalization and indebtedness
Reasons for the offer and use of proceeds
Risk factors
Item 4.
Information on the Company
A.
B.
History and development of the company
Business overview
C. Organizational structure
D.
Property, plants and equipment
Unresolved Staff Comments
Operating and Financial Review and Prospects
A. Operating results
Item 4A.
Item 5.
Pages
N/A
N/A
26, 258
N/A
N/A
15-20
06, 10, 12, 24-25, 29-43, 53-56, 63-65, 256, 263-264
10-26, 29-61, 66-70, 215-236, 262
12, 14, E1-E19
10-11, 15-20, 24-25, 29-61, 66-70, 215-236
N/A
15-20, 24-61, 201-216
Liquidity and capital resources
10-11, 24-26, 29-30, 36-37, 53-55, 61-65, 177-181, 190-193, 197-207
B.
C.
D.
E.
F.
G.
Research and development, patents and licenses, etc.
Trend information
Off-balance sheet arrangements
Tabular disclosure of contractual obligations
Safe harbor
Item 6.
Directors, Senior Management and Employees
A.
B.
C.
D.
E.
Directors and senior management
Compensation
Board practices
Employees
Share ownership
Item 7.
Major Shareholders and Related Party Transactions
A. Major shareholders
B.
C.
Related party transactions
Interests of experts and counsel
Item 8.
Financial Information
A.
B.
Consolidated Statements and Other Financial Information
Significant Changes
Item 9.
The Offer and Listing
A. Offer and listing details
B.
Plan of distribution
C. Markets
D.
E.
F.
Selling shareholders
Dilution
Expenses of the issue
Item 10.
Additional Information
A.
Share capital
B. Memorandum and articles of association
C. Material contracts
D.
E.
F.
G.
H.
I.
Exchange controls
Taxation
Dividends and paying agents
Statement by experts
Documents on display
Subsidiary Information
10-11, 15-20, 21-28, 29-33, 36-43, 53-56, 61-78
14
65
65
05-06
82-90, 97-103
126-138, 214
82-90, 93, 95-104, 113-118, 119-138, 144-147
80-81, 101, 119-147, 208, 256
79, 213
257
93, 176, 188-189, 214, 255
N/A
62-65, 165-214, 249-255
93
256
N/A
256
N/A
N/A
N/A
N/A
104-118
N/A
260
260-261
N/A
N/A
06
N/A
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
62, 189, 202-207
02
INTRODUCTION SHELL ANNUAL REPORT AND FORM 20-F 2018
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Part I
Item 12.
Description of Securities Other than Equity Securities
A.
Debt Securities
B. Warrants and Rights
C. Other Securities
D.
American Depositary Shares
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
N/A
256, 259-260
N/A
N/A
103-104, 166, 249-250, E20-E21
95-99, 113
96-97
117-118, 214, 255
96
64, 92-93
N/A
96-98
N/A
N/A
165-214, 249-255
265
,
E1-E24
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SHELL ANNUAL REPORT AND FORM 20-F 2018 INTRODUCTION
03
Terms and abbreviations
(cid:3)
Currencies
$
€
£
US dollar
euro
sterling
Units of measurement
acre
b(/d)
approximately 0.004 square kilometres
barrels (per day)
boe(/d)
barrels of oil equivalent (per day); natural gas volumes are
converted into oil equivalent using a factor of 5,800 scf
per barrel
kboe(/d)
thousand barrels of oil equivalent (per day); natural gas
volumes are converted into oil equivalent using a factor of
5,800 scf per barrel
MMBtu
million British thermal units
megajoule
a unit of energy equal to one million joules
mtpa
million tonnes per annum
per day
volumes are converted into a daily basis using a
calendar year
scf(/d)
standard cubic feet (per day)
Products
GTL
LNG
LPG
NGL
gas to liquids
liquefied natural gas
liquefied petroleum gas
natural gas liquids
(cid:3)
Miscellaneous
ADS
AGM
API
CCS
American Depositary Share
Annual General Meeting
American Petroleum Institute
carbon capture and storage
CCS earnings
earnings on a current cost of supplies basis
CO2
EMTN
EPS
FCF
FID
GAAP
GHG
HSSE
IAS
IEA
IFRS
IOGP
carbon dioxide
Euro medium-term note
earnings per share
free cash flow
final investment decision
generally accepted accounting principles
greenhouse gas
health, safety, security and environment
International Accounting Standard
International Energy Agency
International Financial Reporting Standard(s)
International Association of Oil & Gas Producers
IPIECA
International Petroleum Industry Environmental Conservation
Association (global oil and gas industry association for
LTIP
OECD
OML
OPEC
OPL
PSC
PSP
environmental and social issues)
Long-term Incentive Plan
Organisation for Economic Co-operation and Development
oil mining lease
Organization of the Petroleum Exporting Countries
oil prospecting licence
production-sharing contract
Performance Share Plan
REMCO
Remuneration Committee
SEC
TRCF
TSR
WTI
US Securities and Exchange Commission
total recordable case frequency
total shareholder return
West Texas Intermediate
04
INTRODUCTION SHELL ANNUAL REPORT AND FORM 20-F 2018
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About this Report
The Royal Dutch Shell plc Annual Report and Form 20-F (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 US Securities and
Exchange Commission (SEC) for the year ended December 31, 2018, for
Royal Dutch Shell plc (the Company) and its subsidiaries (collectively
referred to as Shell). This Report presents the Consolidated Financial
Statements of Shell (pages 167-214), the Parent Company Financial
Statements of Shell (pages 237-246) and the Financial Statements of the
Royal Dutch Shell Dividend Access Trust (pages 251-255). Except for these
Financial Statements, the numbers presented throughout this Report may not
sum precisely to the totals provided and percentages may not precisely
reflect the absolute figures, due to rounding. Cross references to Form 20-F
are set out on pages 02-03 of this Report.
Financial reporting terms used in this Report are in accordance with
International Financial Reporting Standards (IFRS). The Consolidated
Financial Statements comprise the financial statements of the Company and
its subsidiaries. “Subsidiaries” and “Shell subsidiaries” refer to those entities
over which the Company has control, either directly or indirectly. Entities
and unincorporated arrangements over which Shell has joint control are
generally referred to as “joint ventures” and “joint operations”, respectively.
Entities over which Shell has significant influence but neither control nor joint
control are referred to as “associates”. “Joint ventures” and “joint
operations” are collectively referred to as “joint arrangements”.
to consider even events that may only be remotely possible. Scenarios,
therefore, are not intended to be predictions of likely future events or
outcomes and investors should not rely on them when making an investment
decision with regard to Royal Dutch Shell plc securities.
Additionally, it is important to note that Shell’s existing portfolio has been
decades in development. While we believe our portfolio is resilient under a
wide range of outlooks, including the IEA’s 450 scenario (World Energy
Outlook 2016), it includes assets across a spectrum of energy intensities
including some with above-average intensity. While we seek to enhance
our operations’ average energy intensity through both the development of
new projects and divestments, we have no immediate plans to move to a
net-zero emissions portfolio over our investment horizon of 10-20 years.
Although, we have no immediate plans to move to a net-zero emissions
portfolio, in November of 2017, we announced our ambition to reduce the
Net Carbon Footprint of our energy products in accordance with society’s
implementation of the Paris Agreement’s goal of holding global average
temperature to well below 2°C above pre-industrial levels. Accordingly,
assuming society aligns itself with the Paris Agreement’s goals, we aim to
reduce the Net Carbon Footprint of our energy products, which includes
not only our direct and indirect carbon emissions, associated with
producing the energy products which we sell, but also our customers’
emissions from their use of the energy products that we sell, by around 20%
in 2035 and by around 50% in 2050.
This Report contains certain following forward-looking Non-GAAP measures
such as free cash flow, capital investment and divestments. We are unable to
provide a reconciliation of these forward-looking Non-GAAP measures to the
most comparable GAAP financial measures, because certain information
needed to reconcile those Non-GAAP measures to the most comparable
GAAP financial measures is dependent on future events some of which are
outside the control of the company, such as oil and gas prices, interest rates
and exchange rates. Moreover, estimating such GAAP measures with the
required precision necessary to provide a meaningful reconciliation is
extremely difficult and could not be accomplished without unreasonable effort.
Non-GAAP measures in respect of future periods which cannot be reconciled
to the most comparable GAAP financial measure are calculated in a manner
which is consistent with the accounting policies applied in Royal Dutch Shell
plc’s financial statements. All outlooks on financial metrics and/or alternative
performance measures exclude the effect of the implementation of IFRS 16
Leases, which will take place effective as of January 1, 2019.
In addition to the term “Shell”, in this Report “Shell Group”, “we”, “us” and
“our” are also used to refer to the Company and its subsidiaries in general
or to those who work for them. These terms are also used where no useful
purpose is served by identifying the particular entity or entities. The term
“Shell interest” is used for convenience to indicate the direct and/or indirect
ownership interest held by Shell in an entity or unincorporated joint
arrangement. The companies in which Royal Dutch Shell plc directly or
indirectly own investments are separate legal entities. Shell subsidiaries’
data include their interests in joint operations.
This Report contains data and analysis from Shell’s new Sky scenario. Unlike
Shell’s previously published Mountains and Oceans exploratory scenarios, the
Sky scenario is based on the assumption that society reaches the Paris
Agreement’s goal of holding the rise in global average temperatures this
century to well below two degrees Celsius (2°C) above pre-industrial levels.
Unlike Shell’s Mountains and Oceans scenarios which unfolded in an open-
ended way based upon plausible assumptions and quantifications, the Sky
scenario was specifically designed to reach the Paris Agreement’s goal in a
technically possible manner. These scenarios are a part of an ongoing
process used in Shell for over 40 years to challenge executives’ perspectives
on the future business environment. They are designed to stretch management
We also refer to “Shell’s Net Carbon Footprint” in this Report. This includes
Shell’s carbon emissions from the production of our energy products, our
suppliers’ carbon emissions in supplying energy for that production, and our
customers’ carbon emissions associated with their use of the energy
products we sell. Shell only controls its own emissions but, to support society
in achieving the Paris Agreement goals, we aim to help and influence such
suppliers and consumers to likewise lower their emissions. The use of the
terminology “Shell’s Net Carbon Footprint” is for convenience only and not
intended to suggest these emissions are those of Shell or its subsidiaries.
Except where indicated, the figures shown in the tables in this Report are in
respect of subsidiaries only, without deduction of any 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
subsidiaries, joint ventures and associates. All of a subsidiary’s production,
processing or sales volumes (including the share of joint operations) are
included in the Shell share, even if Shell owns less than 100% of the
subsidiary. In the case of joint ventures and associates, 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 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 interpretations issued by the IFRS Interpretations Committee.
Except where indicated, the figures shown in this Report are stated in
US dollars. As used herein all references to “dollars” or “$” are to the
US currency.
This Report contains 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
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SHELL ANNUAL REPORT AND FORM 20-F 2018 INTRODUCTION
05
About this Report Continued
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 “aim”, “ambition”, “anticipate”, “believe”, “could”,
“estimate”, “expect”, “goals”, “intend”, “may”, “objectives”, “outlook”,
“plan”, “probably”, “project”, “risks”, “schedule”, “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) 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 addressing climate change; (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 governmental 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” on pages 15-20
for additional risks and further discussion. No assurance is provided that
future dividend payments will match or exceed previous dividend payments.
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.
Shell V-Power and Shell LiveWire are Shell trademarks.
DOCUMENTS ON DISPLAY
The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC. 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, United Kingdom. Copies of this
Report also may be obtained, free of charge, by mail.
06
INTRODUCTION SHELL ANNUAL REPORT AND FORM 20-F 2018
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Strategic Report
Chair’s message: Building trust in Shell
We are making good progress in shaping Shell into one of the best
investment options for shareholders globally, while positioning it to thrive in
the transition to a lower-carbon world. This progress is described in Ben’s
CEO review.
Our ongoing work to provide more and cleaner energy should increase
recognition of the positive contributions that Shell can make to society over
the decades ahead.
Each member of our diverse Board brings invaluable perspectives to these
discussions, blending experience from both the public and private sectors.
To highlight the contributions of our three newest members, Roberto Setubal
brings insights from Brazil, a major developing country. Ann Godbehere
brings extensive mining, insurance and financial sector experience, and
Catherine Hughes brings decades of experience in the oil and gas industry.
The Board must scrutinise Shell’s plans and actions from different points of
view.
But our success in achieving these goals will depend largely on whether
society trusts us.
Investors invest in companies they trust, governments allow trusted companies to
operate and consumers buy things from people they trust. Trusted companies
are also likely to attract and retain the brightest minds, helping to ensure the
lasting vitality of the business.
Trust is clearly a virtuous circle. The question is, how can companies create
and keep it? I believe this can only be achieved by everybody
demonstrating unquestionable integrity – every day, in every way and
everywhere we work.
Unfortunately, as a result of a settlement agreement Shell entered into in
2011 in Nigeria for an oil block called OPL 245, we have seen Shell’s
name in news headlines around the world. This is a stark reminder that
building trust requires more than just complying with the law. Trust is also
about perception. If people perceive you as not sharing their values,
concerns or hopes for the future, they are unlikely to trust you.
This has been a difficult learning experience for us, particularly in terms of
how our behaviour is perceived. We are using this experience to remind all
our employees that even the perception of wrongdoing can result in a loss
of trust.
Unquestionable integrity is essential for earning and maintaining the trust of
customers, investors and wider society.
To gain and maintain trust across more than 70 countries in which we
operate, we also need to ensure we always work safely, without hurting
people or the environment, while rectifying problems that arise.
PUBLIC TRUST
According to our independent research, Shell still enjoys high levels of
public trust in many Asian countries, including China and India. But trust in
the oil and gas industry has declined in some parts of the world, particularly
in western Europe, over the last few decades. Shell is no exception.
Shell lost the trust of many investors in 2004, when senior executives
misrepresented the size of the company's oil reserves. The company has
been working to restore that trust ever since.
Earning trust takes time. Losing it takes no time at all.
That is why we invest a lot of time in raising ethical standards and
underscoring the importance of absolute integrity for all our employees. We
can never stop working to ensure that the highest ethical standards are
always followed by all Shell staff around the world.
And, because we strongly believe that all leaders must set an example, in
2018 we introduced mandatory ethical leadership workshops for senior
executives across our global operations. I took part in one such workshop in
December 2018, together with fellow Board member Sir Nigel Sheinwald
and several senior managers. It was a great opportunity to learn from each
other about the challenges facing leaders at Shell.
Ethical considerations are a key part of discussions in the Shell boardroom.
Over the last year or more, we have made a concerted effort to use the
experiences of our Board members, gained from working in a variety of
countries and industries, to identify ethical dilemmas that could arise from
business opportunities.
We are making good progress on improving the safety of our operations.
For example, our process safety incidents were reduced by more than a
quarter in 2018, compared to 2017. Our personal injury rate was our
second-lowest on record, following a record low in 2017. But two people
still tragically died while working for Shell in 2018. Our safety goal is zero
injuries and incidents.
TRANSPARENCY
Trust can only be earned and kept if people see that we share their
concerns and hopes for the future. They can only see that if we are
transparent about what we do and why we do it. Transparency goes
beyond publishing financial results and executive pay figures. It is about
being as open as we can with governments, customers and partners. On
tax, for example, Shell has signed up to The B Team Responsible Tax
Principles. These include being open about the entities the Company owns
around the world, and why we own them.
The more transparent we are about our activities, the better equipped our
investors, customers and wider society are to decide whether we are
worthy of their trust.
Ultimately, we need to give them lots of reasons to trust us and no reasons
to distrust us. Perhaps nowhere is this more important than for the 30 million
daily retail customers who trust Shell to provide products they can rely on.
We must live up to that trust every day.
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07
Chair’s message: Building trust in Shell Continued
We want all our retail customers to strongly believe that, when they are
filling up or charging their vehicles, we are providing all the products and
services they need safely, efficiently and ethically. We want all our business
customers to be equally sure of Shell. By constantly demonstrating the
unquestionable integrity of our businesses, people and partnerships, we
believe we can earn and keep their trust over the long term.
Chad Holliday
Chair
08
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
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Chief Executive Offi cer’s review:
Delivering on our promises
Shell delivered a very strong financial performance in 2018. We are
continuing to make good progress in building a world-class investment case.
Higher oil and gas prices, combined with our ongoing work to improve the
performance and competitiveness of our businesses, contributed to a sharp
increase in cash flow from operating activities to $53 billion in 2018. We
are on track with our outlook of annual free cash flow of between $30
billion and $35 billion by 2020, at a Brent crude oil price of $60 a barrel
(real terms 2016).
We delivered on our promises for the year, including completing our $30-
billion divestment programme and starting up key growth projects, while
maintaining discipline on capital investment. We paid our entire dividend in
cash, further reduced our debt and launched our share buyback
programme.
But 2018 was not all good news for us. Tragically, a contractor died at our
Rheinland refinery in Germany and another died at an onshore well in the
USA. I am deeply unhappy about these incidents and call on all Shell
employees, contractors and suppliers to redouble their focus on safety.
RESULTS
Income for the period was $23.9 billion in 2018, compared with $13.4
billion in 2017. Earnings on a current cost of supplies basis increased to
$24.4 billion, compared with $12.5 billion in 2017. We distributed $15.7
billion to shareholders in dividends in 2018.
After cancelling the Scrip Dividend Programme with effect from the fourth
quarter 2017 dividend, our healthy free cash flow outlook and stronger
balance sheet gave us the confidence to start our share buyback
programme in mid-2018. We intend to buy back at least $25 billion of
shares by the end of 2020, subject to further progress with debt reduction
and oil price conditions.
Although our $30 billion divestment programme for 2016-18 has been
successfully completed, we expect to continue divestments at an average
rate of more than $5 billion a year until at least 2020. This will help us to
further strengthen the balance sheet, reduce debt and increase focus on our
strategic priorities.
Capital investment in 2018 was slightly below $25 billion, reflecting our
disciplined capital investment approach. Our capital investment outlook
remains between $25 billion and $30 billion a year until 2020. We see
$30 billion as a ceiling, even in a high oil price environment. Our continued
focus on capital efficiency and streamlining our portfolio will make us more
resilient and competitive.
We will continue to carefully control our costs and investment levels, but we
are still investing in strong commercial opportunities for growth. For
example, we added deep-water exploration acreage in both the Mexican
and US parts of the Gulf of Mexico, off the coast of Brazil, and off the
coast of Mauritania in 2018. We also announced two large deep-water
discoveries in the US Gulf of Mexico.
Natural gas will play a key role in the transition to a lower-carbon global
energy system over the next few decades, with liquefied natural gas (LNG)
shipments playing an increasingly important part. This is one of the driving
forces behind our taking the final investment decision in 2018 on LNG
Canada, a major project in which Shell has a 40% interest.
LNG Canada is well positioned to help Shell meet some of the world’s
growing gas needs. We expect the cash flow it generates to be significant
and resilient. Sustainable development was considered in every aspect of
the project. For example, it has been designed to achieve the lowest
carbon intensity of any LNG project in operation today, aided by the
partial use of hydropower.
With the continued strengthening of our balance sheet, cash flows and our
ongoing focus on capital efficiency, I am confident that we will do this while
continuing to grow our portfolio.
In December, Shell announced plans to set short-term targets for reducing the
Net Carbon Footprint of the energy products it sells – a carbon intensity
measure that includes our customers’ emissions when they use these products
– and to link these targets to executive remuneration. This is an industry first.
We continued to deliver new projects, including the completion of an
important chemical plant expansion in China and starting production from a
deep-water development in the US Gulf of Mexico a year ahead of
schedule. Overall, our production averaged 3.7 million barrels of oil
equivalent a day in 2018, unchanged from 2017. Increased production from
new field start-ups and ramp-ups, as well as lower maintenance activity, was
offset by the impact of divestments and field declines.
Stronger crude oil and gas prices contributed to sharp increases in our
Upstream and Integrated Gas earnings, while Downstream earnings fell
slightly.
Shell’s Remuneration Committee will include a new performance condition
linked to the transition to lower-carbon energy for the Long-term Incentive
Plan grant starting in 2019, one year earlier than planned. Further details
are in the Directors’ Remuneration Report.
In 2018, I also announced our ambition to provide a reliable electricity
supply to 100 million people in the developing world by 2030. Economic
and social progress are being hindered in many countries by a lack of
reliable energy supplies that are essential to providing basic medical
services and clean water, for example. Better access to energy improves
people’s lives.
We continued to streamline our business – including the sale of our
Downstream business in Argentina; Upstream interests in Iraq, Ireland,
Norway and Oman; and Integrated Gas interests in Malaysia, New
Zealand and Thailand.
I am proud of Shell’s success in 2018. We will continue to focus on
delivering on our strategy in 2019, maintaining our disciplined approach to
capital investment while working to grow our cash flow and returns. Our
strategy to deliver a world-class investment case is working.
The progress of our divestments has helped us to reduce net debt, with
gearing standing at 20.3% at the end of 2018, down from 25.0% in 2017.
Ben van Beurden
Chief Executive Officer
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09
Strategy and outlook
STRATEGY
Shell’s purpose is to power progress together by providing more and
cleaner energy solutions. Our strategy is to strengthen our position as a
leading energy company by providing oil, gas and low-carbon energy as
the world’s energy system transforms. Safety and social responsibility are
fundamental to our business approach. Shell will only succeed by working
collaboratively with customers, governments, business partners, investors
and other stakeholders.
Our strategy is founded on our outlook for the energy sector and the chance
to grasp the opportunities arising from the substantial changes in the world
around us. The rising standard of living of a growing global population is likely
to continue to drive demand for energy, including oil and gas, for years to
come. At the same time, technology changes and the need to tackle climate
change means there is a transition under way to a lower-carbon, multi-source
energy system with increasing customer choice. We recognise that the pace
and path forward are uncertain and require agile decision-making.
STRATEGIC AMBITIONS
Against this backdrop, we have the following strategic ambitions to guide
us in pursuing our purpose:
(cid:131) to provide a world-class investment case. This involves growing free cash
flow and increasing returns, all built upon a strong financial framework
and resilient portfolio;
(cid:131) to thrive in the energy transition by responding to society’s desire for
more and cleaner, convenient and competitive energy; and
(cid:131) to sustain a strong societal licence to operate and make a positive
contribution to society through our activities.
The execution of our strategy is founded on becoming a more customer-
centric and simpler, more streamlined organisation, focused on growing
returns and free cash flow. By investing in competitive projects, driving down
costs and selling non-core businesses, we are continuously reshaping our
portfolio to become a more resilient and focused company.
Our ability to achieve our strategic ambitions depends on how we respond
to competitive forces. We continuously assess the external environment –
the markets as well as the underlying economic, political, social and
environmental drivers that shape them – to evaluate changes in competitive
forces and business models. We use multiple future scenarios to assess the
resilience of our strategy. We undertake regular reviews of the markets we
operate in and analyse trends and uncertainties, as well as our traditional
and non-traditional competitors’ strengths and weaknesses, to understand
our competitive position. We maintain business strategies and plans that
focus on actions and capabilities to create and sustain competitive
advantage. We maintain a risk management framework that regularly
assesses our response to, and risk appetite for, identified risk factors (see
“Risk factors” on page 15).
Our Executive Directors’ remuneration is linked to the successful delivery of
our strategy, based on performance indicators that are aligned with
shareholder interests. Long-term incentives form the majority of the Executive
Directors’ remuneration for above-target performance. In 2018, the Long-
term Incentive Plan (LTIP) included cash generation, capital discipline, and
value created for shareholders metrics. See the “Directors’ Remuneration
Report” on page 142.
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STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
STRATEGIC THEMES
As part of our strategy, we divide our portfolio into strategic themes, each
with distinctive capabilities, growth strategies, risk management, capital
allocation and expected returns:
(cid:131) Cash engines are strategic themes that are expected to provide strong and
resilient returns and free cash flow, funding shareholder returns and
strengthening the balance sheet. Shell continues to invest in selective growth
opportunities for cash engines. Our cash engines are Conventional Oil and
Gas in Upstream, Integrated Gas, and Oil Products in Downstream.
(cid:131) Growth priorities are the cash engines of the future. Shell seeks to invest
in affordable growth in advantaged positions with a pathway to free
cash flow and returns in the near future. Our growth priorities currently
are Deep water in Upstream and Chemicals in Downstream.
(cid:131) Emerging opportunities are strategic themes that are expected to
become growth priorities after further development. These businesses
should provide us with material growth in free cash flow in the next
decade or beyond. We seek to manage our exposure to these
businesses while establishing scale. Our emerging opportunities currently
are Shales in Upstream and New Energies, which is part of the
Integrated Gas organisation.
For more details on how the strategic themes are embedded into our
businesses, see “Business Overview” on page 13.
Our intention is to have an advantaged and resilient position in each
strategic theme to drive an optimal free cash flow and returns profile over
multiple timelines. When we set our plans and goals, we do so on the basis
of delivering sustained returns over decades.
OUTLOOK FOR 2019 AND BEYOND
We continuously seek to improve our operating performance and maximise
sustainable free cash flow, with an emphasis on health, safety, security,
environment and asset performance, as well as our ethics and compliance
principles. In order to achieve that, we strive for highly qualified and
motivated employees.
We are on track with our outlook of annual free cash flow of between $30
billion and $35 billion by 2020, at a Brent crude oil price of $60 a barrel
(real terms 2016).
Our capital investment outlook remains between $25 billion and $30 billion
a year until 2020. We see $30 billion as a ceiling, even in a high oil price
environment.
Following the successful delivery of our $30 billion divestment programme
during 2016-18, we will continue with an annual average outlook of at least
$5 billion of divestments in 2019 and 2020.
Following the delivery of an additional $10 billion of cash flow from
operations between 2014 and 2018, key project start-ups and ramp-ups are
expected to generate an additional $5 billion cash flow from operations
between 2018 and 2020, assuming $60 per barrel (real terms 2016) and
mid-cycle Downstream industry conditions. We will remain highly selective
on new investment decisions throughout 2019 and beyond.
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We launched our share buyback programme in 2018. Our intention remains
to buy back at least $25 billion of our shares by the end of 2020, subject
to further progress with debt reduction and oil price conditions.
We fully support the Paris Agreement’s goal to keep the rise in global
average temperature this century to well below two degrees Celsius above
pre-industrial levels and to pursue efforts to limit temperature increase even
further to 1.5 degrees Celsius. We have set a long-term ambition to reduce the
Net Carbon Footprint of our energy products, measured in grams of carbon-
dioxide equivalent per megajoule consumed, by around 20% by 2035 and
by around 50% by 2050, in pace with society. To operationalise this long-
term ambition, we will start setting specific Net Carbon Footprint targets for
shorter-term periods. The first target has been set for a three-year period and is
detailed in the Climate Change section on page 77. The target and other
measures will be linked to our executive remuneration and we have
introduced an additional performance condition in our Long-term Incentive
Plan (LTIP) in 2019 linked to the transition to lower-carbon energy. Further
details can be found in the Directors’ Remuneration Report on page 124.
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, free cash flow, share buybacks, capital investment, divestments,
production and Net Carbon Footprint 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
“About this Report” on pages 05-06 and “Risk factors” on pages 15-20.
This outlook does not include the impact of the application of the new
standard IFRS 16 Leases, which is effective as of January 1, 2019.
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11
Business overview
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.
BUSINESS MODEL
Shell is an international energy company with expertise in the exploration,
development, production, refining and marketing of oil and natural gas, as
well as in the manufacturing and marketing of chemicals. We are one of the
world’s largest independent energy companies in terms of market
capitalisation, cash flow from operating activities, and production levels.
We seek to create shareholder value through the following activities:
(cid:131) We explore for crude oil and natural gas worldwide, both in
conventional fields and from sources such as tight rock, shale and coal
formations. We work to develop new crude oil and natural gas supplies
from major fields. We also extract bitumen from oil sands, which we
convert into synthetic crude oil.
(cid:131) We cool natural gas to produce liquefied natural gas (LNG) that can be
safely shipped to markets around the world, and we convert gas into
liquids (GTL).
(cid:131) We transport and trade oil, gas and other energy-related products, such
as electricity and carbon-emissions rights.
(cid:131) We have a portfolio of refineries and chemical plants which enables us
to capture value from oil and gas production, turning them into a range
of refined and petrochemical products which are moved and marketed
around the world for domestic, industrial and transport use. The products
we sell include gasoline, diesel, heating oil, aviation fuel, marine fuel,
LNG for transport, lubricants, bitumen and sulphur. We also produce and
sell ethanol from sugar cane in Brazil, through our Raízen joint venture.
(cid:131) We invest in low-carbon energy solutions such as biofuels, hydrogen,
wind and solar power, and in other opportunities linked to the energy
transition.
The integration of our businesses is one of our competitive advantages,
allowing for optimisations across our global portfolio. Our key strengths
include the development and application of innovation and technology, the
financial and project management skills that allow us to safely develop
large and integrated projects, the management of integrated value chains
and the marketing of energy products. The distinctive Shell pecten, a
trademark in use since the early part of the 20th century, and trademarks in
which the word Shell appears, help raise the profile of our brand globally.
Sales and marketing
Exploration
Retail
Lubricants
Aviation
Power
Customers
B2B & Retail
Exploring for oil
and gas; offshore
Exploring for oil
and gas; onshore
Transport and trading
Development and extraction
Liquefying
gas by cooling
(LNG)
Shipping
and trading
Regasifying
(LNG)
Supply and
distribution
Developing
fields
Producing oil
and gas
Extracting
bitumen
Manufacturing and Energy Production
Upgrading
bitumen
Refining oil into
fuels and lubricants
Converting gas into
liquid products (GTL)
Producing
petrochemicals
Producing
biofuels
Generating
power
(cid:3)
(cid:3)
(cid:3)
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ORGANISATION
We describe below how our activities are organised. Integrated Gas,
Upstream and Downstream focus on our seven strategic themes (see
“Strategy and outlook” on page 10). Our Projects & Technology
organisation manages the delivery of Shell’s major projects and drives
research and innovation to develop new technology solutions.
INTEGRATED GAS (INCLUDING NEW ENERGIES)
This organisation covers two strategic themes: Integrated Gas, which is a cash
engine; and New Energies, which is an emerging opportunity.
life-cycle technical and non-technical risks is in place for each opportunity,
with assurance and control activities embedded throughout the project life
cycle. We focus on the cost-effective delivery of projects through
commercial agreements, supply-chain management, and construction and
engineering productivity through effective planning and simplification of
delivery processes. Development of our employees’ project management
competencies is underpinned by project principles, standards and
processes. A dedicated competence framework, training, standards and
processes exist for various technical disciplines. In addition, we provide
governance support for our non-Shell-operated ventures or projects.
SEGMENTAL REPORTING
Our reporting segments are Integrated Gas, Upstream, Downstream and
Corporate. Upstream combines the operating segments Upstream
(managed by our Upstream organisation) and Oil Sands (managed by our
Downstream organisation), which have similar economic characteristics.
Integrated Gas, Upstream and Downstream include their respective
elements of our Projects & Technology organisation. The Corporate
segment comprises our holdings and treasury organisation, self-insurance
activities, and headquarters and central functions. See Note 4 to the
“Consolidated Financial Statements” on pages 181-184.
Revenue by business segment
(including inter-segment sales)
Integrated Gas
Third parties
Inter-segment
Total
Upstream
Third parties
Inter-segment
Total
Downstream
Third parties
Inter-segment
Total
Corporate
Third parties
Total
$ million
2018
2017
2016
43,764
32,674
25,282
4,853
3,978
3,908
48,617
36,652
29,190
9,892
7,723
6,412
37,841
32,469
26,524
47,733
40,192
32,936
334,680 264,731
201,823
5,358
4,248
1,727
340,038 268,979
203,550
43
43
51
51
74
74
Integrated Gas manages LNG activities and the conversion of natural gas
into GTL fuels and other products. It includes natural gas exploration and
extraction, and the operation of upstream and midstream infrastructure
necessary to deliver gas to market. It markets and trades natural gas, LNG,
electricity and carbon-emission rights and also markets and sells LNG as a
fuel for heavy-duty vehicles and marine vessels.
In New Energies, we are exploring emerging opportunities and investing in
those where we believe sufficient commercial value is available. We focus
on new fuels for transport, such as advanced biofuels, hydrogen and
charging for battery-electric vehicles; and power, including from low-carbon
sources such as wind and solar as well as natural gas.
UPSTREAM
Our Upstream organisation covers three strategic themes: Conventional Oil and
Gas, which is a cash engine; Deep water, which is a growth priority; and Shales,
which is an emerging opportunity.
It manages the exploration for and extraction of crude oil, natural gas and
natural gas liquids. It also markets and transports oil and gas, and operates
infrastructure necessary to deliver them to market.
DOWNSTREAM
Our Downstream organisation comprises two strategic themes: Oil
Products, which is a cash engine; and Chemicals, which is a growth priority.
It manages different Oil Products and Chemicals activities as part of an
integrated value chain, that trades and refines crude oil, and other
feedstocks into a range of products which are moved and marketed around
the world for domestic, industrial and transport use. The products we sell
include gasoline, diesel, heating oil, aviation fuel, marine fuel, biofuel,
lubricants, bitumen and sulphur. In addition, we produce and sell
petrochemicals for industrial use worldwide. Our Downstream organisation
also manages Oil Sands activities (the extraction of bitumen from mined oil
sands and its conversion into synthetic crude oil).
PROJECTS & TECHNOLOGY
Our Projects & Technology organisation manages the delivery of our major
projects and drives research and innovation to develop new technology
solutions. It provides technical services and technology capability for our
Integrated Gas, Upstream and Downstream activities. It is also responsible
for providing functional leadership across Shell in the areas of safety and
environment, contracting and procurement, wells activities and greenhouse
gas management.
Our future hydrocarbon production depends on the delivery of large and
integrated projects (see “Risk factors” on page 15). Systematic management of
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Business overview Continued
Revenue by geographical area
(excluding inter-segment sales)
Europe
Asia, Oceania, Africa
USA
Other Americas
Total
$ million
2018
2017
2016
118,960 100,609
81,573
153,716
114,683
87,635
89,876 66,854
44,615
25,827
23,033
19,768
388,379 305,179 233,591
TECHNOLOGY AND INNOVATION
Technology and innovation are essential to our efforts to meet the world’s
energy needs in a competitive way. If we do not develop the right technology,
do not have access to it or do not deploy it effectively, this could have a material
adverse effect on the delivery of our strategy and our licence to operate (see
“Risk factors” on pages 17-18). We continuously look for technologies and
innovations of potential relevance to our business. Our Chief Technology Officer
oversees the development and deployment of new and differentiating
technologies and innovations across Shell, seeking to align business and
technology requirements throughout our technology maturation process.
In 2018, research and development expenses were $986 million, compared
with $922 million in 2017, and $1,014 million in 2016. Our main technology
centres are in India, the Netherlands and the USA, with other centres in Brazil,
China, Germany, Oman and Qatar. A strong patent portfolio underlies the
technology that we employ in our various businesses. In total, we have around
10,325 granted patents and pending patent applications.
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Risk factors
The risks discussed below could have a material adverse effect
separately, or in combination, on our earnings, cash flows and
financial condition. Accordingly, investors should carefully consider
these risks.
Measures that we use to manage or mitigate our various risks are set out in
the relevant sections of this Report, indicated by way of cross references
under each risk factor. The Board’s responsibility for identifying, evaluating
and managing our significant risks is discussed in “Corporate governance”
on pages 103-104.
We are exposed to fluctuating prices of crude oil, natural gas, oil
products and chemicals.
The prices of crude oil, natural gas, oil products and chemicals are affected
by supply and demand, both globally and regionally. Government actions
may also affect the prices of crude oil, natural gas, oil products and
chemicals. For example, if a government were to ban diesel automobiles
from entering a city or provide tax deductions for the purchase of
renewable automobiles. Moreover, prices for oil and gas can move
independently of each other. Factors that influence supply and demand
include operational issues, natural disasters, weather, political instability,
conflicts, economic conditions and actions by major oil and gas producing
countries. Additionally, in a low oil and gas price environment, we would
generate less revenue from our Upstream and Integrated Gas businesses,
and, as a result, parts of those businesses could become less profitable, or
could incur losses. Additionally, low oil and gas prices have resulted, and
could continue to result, in the debooking of proved oil or gas reserves, if
they become uneconomic in this type of price environment. Prolonged
periods of low oil and gas prices, or rising costs, have resulted and could
continue to result in projects being delayed or cancelled. In addition, assets
have been impaired in the past, and there could be impairments in the
future. Low oil and gas prices could also affect our ability to maintain our
long-term capital investment programme and dividend payments. Prolonged
periods of low oil and gas prices could adversely affect the financial, fiscal,
legal, political and social stability of countries that rely significantly on oil
and gas revenue. In a high oil and gas price environment, we could
experience sharp increases in costs, and, under some production-sharing
contracts, our entitlement to proved reserves would be reduced. Higher
prices could also reduce demand for our products, which could result in
lower profitability, particularly in our Downstream business. Accordingly,
price fluctuations could have a material adverse effect on our earnings,
cash flows and financial condition.
See “Market overview” on page 21.
Our ability to deliver competitive returns and pursue commercial
opportunities depends in part on the accuracy of our price
assumptions.
We use a range of oil and gas price assumptions, which we review on a
periodic basis, to evaluate projects and commercial opportunities. If our
assumptions prove to be incorrect, it could have a material adverse effect
on our earnings, cash flows and financial condition.
See “Market overview” on page 22.
Our ability to achieve strategic objectives depends on how we react to
competitive forces.
We face competition in each of our businesses. We seek to differentiate
our products; however, many of them are competing in commodity-type
markets. Accordingly, failure to manage our costs as well as our
operational performance could result in a material adverse effect on our
earnings, cash flows and financial condition. We also compete with state-
owned oil and gas entities with vast access to financial resources. State-
owned entities could be motivated by political or other factors in making
their business decisions. Accordingly, when bidding on new leases or
projects, we could find ourselves at a competitive disadvantage as these
state-owned entities may not require a competitive return. If we are unable
to obtain competitive returns when bidding on new leases or projects, it
could have a material adverse effect on our earnings, cash flows and
financial condition.
See “Strategy and outlook” on page 10.
We seek to execute divestments in the pursuit of our strategy. We may
not be able to successfully divest these assets in line with our strategy.
We may not be able to successfully divest assets at acceptable prices or
within the timeline envisaged due to market conditions or credit risk,
resulting in increased pressure on our cash position and potential
impairments. Additionally, in some cases, we have retained certain liabilities
following a divestment. Moreover, even in cases where we have not
expressly retained certain liabilities, we may be held liable for past acts,
failures to act or liabilities that are different from those foreseen. We may
also face liabilities if a purchaser fails to honour its commitments.
Accordingly, if we are unable to divest assets at acceptable prices or within
our envisaged timeframe, this could have a material adverse effect on our
earnings, cash flows and financial condition.
See “Strategy and outlook” on pages 10-11.
Our future hydrocarbon production depends on the delivery of large
and integrated projects, as well as on our ability to replace proved oil
and gas reserves.
We face numerous challenges in developing capital projects, especially
those which are large and integrated. Challenges include uncertain
geology, frontier conditions, the existence and availability of necessary
technology and engineering resources, the availability of skilled labour, the
existence of transportation infrastructure, project delays, the 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, in frontier areas and in
deep-water fields, such as off the coast of Brazil. We may fail to assess or
manage these and other risks properly. Such potential obstacles could
impair our delivery of these projects, our ability to fulfil the value potential at
the time of the project investment approval, and/or our ability to fulfil
related contractual commitments. These could lead to impairments and
could have a material adverse effect on our earnings, cash flows and
financial condition.
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 on developing and
applying new technologies and recovery processes to existing fields. Failure
to replace proved reserves could result in lower future production,
potentially having a material adverse effect on our earnings, cash flows and
financial condition.
See “Business overview” on page 13.
SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
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Risk factors Continued
Oil and gas production available for sale
Million boe [A]
Shell subsidiaries
Shell share of joint ventures and associates
2018
1,179
159
2017
2016
1,168
1,158
170
184
Total
[A] Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.
1,338
1,338
1,342
Proved developed and undeveloped oil
and gas reserves [A][B] (at December 31)(cid:3)
2018
(cid:3) Million boe [C]
2016
2017
Shell subsidiaries
10,294
10,177
11,040
Shell share of joint ventures and associates
1,285
2,056
2,208
Total
11,578
12,233
13,248
Attributable to non-controlling interest in
Shell subsidiaries
5
[A] We manage our total proved reserves base without distinguishing between proved reserves from
subsidiaries and those from joint ventures and associates.
[B] Includes proved reserves associated with future production that will be consumed in operations.
[C] Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.
325
331
The estimation of proved oil and gas reserves involves subjective
judgements based on available information and the application of
complex rules; therefore, 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. Estimates could 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 regulatory policies of
host governments, or other events. Estimates could also be altered by
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 could also be subject to
correction due to errors in the application of published rules and changes in
guidance. Downward adjustments could indicate lower future production
volumes and could also lead to impairment of assets. This could have a
material adverse effect on our earnings, cash flows and financial condition.
See “Supplementary information – oil and gas (unaudited)” on page 215.
Rising climate change concerns have led and could lead to additional
legal and/or regulatory measures which could result in project delays
or cancellations, a decrease in demand for fossil fuels, potential
litigation and additional compliance obligations.
In December 2015, 195 nations adopted the Paris Agreement, which we fully
support. The Paris Agreement aims to limit increases in global temperatures to
well below two degrees Celsius. As a result, we expect continued and
increased attention to climate change from all sectors of society. This attention
has led, and we expect it to continue to lead, to additional regulations
designed to reduce greenhouse gas (GHG) emissions.
We expect that a growing share of our GHG emissions will be subject to
regulation, resulting in increased compliance costs and operational
restrictions. If our GHG emissions rise alongside our ambitions to increase
the scale of our business, our regulatory burden will increase proportionally.
We also expect that GHG regulation, as well as emission reduction actions
by customers, will continue to focus more on suppressing demand for fossil
16
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
fuels, either through taxes, fees, incentives to promote the sale of electric
vehicles or even through the future prohibition of sales of new diesel or
gasoline vehicles. This could result in lower revenue and, in the long term,
potential impairment of certain assets.
Additionally, some groups are pressuring certain investors to divest their
investments in fossil fuel companies. If this were to continue, it could have a
material adverse effect on the price of our securities and our ability to
access equity capital markets. The World Bank has also announced plans
to stop financing upstream oil and gas projects in 2019. Similarly, according
to press reports, other financial institutions also appear to be considering
limiting their exposure to certain fossil fuel projects. Accordingly, our ability
to use financing for future projects may be adversely impacted. This could
also adversely impact our potential partners’ ability to finance their portion
of costs, either through equity or debt.
Further, in some countries, governments, regulators, organisations and
individuals have filed lawsuits seeking to hold fossil fuel companies liable for
costs associated with climate change. While we believe these lawsuits to
be without merit, losing any of these lawsuits could have a material adverse
effect on our earnings, cash flows and financial condition.
In addition, physical effects of climate change such as, but not limited to,
rise in temperature, sea-level rise and fluctuations in water levels could
adversely impact both our operations and supply chains.
If we are unable to find economically viable, as well as publicly
acceptable, solutions that reduce our GHG emissions and/or GHG
intensity for new and existing projects or for the products we sell, we could
experience additional costs or financial penalties, delayed or cancelled
projects, and/or reduced production and reduced demand for
hydrocarbons, which could have a material adverse effect on our earnings,
cash flows and financial condition.
Also, if we are unable to keep pace with society’s energy transition or we
are unable to provide the desired low GHG emissions products needed to
facilitate society’s energy transition, it could have a material adverse effect
on our earnings, cash flows and financial condition.
See “Climate change and energy transition” on page 73.
Our operations expose us to social instability, criminality, civil unrest,
terrorism, piracy, cyber-disruption, acts of war and risks of pandemic
diseases that could have a material adverse effect on our business.
As seen in recent years in Nigeria, North Africa, the Middle East, South
America and South-East Asia, social and civil unrest, both in the countries in
which we operate and elsewhere, can and do affect us. Such potential
developments that could have a material adverse effect on our earnings,
cash flows and financial condition include: acts of political or economic
terrorism; acts of maritime piracy; cyber-espionage or disruptive cyber-
attacks; conflicts including war and civil unrest (including disruptions by non-
governmental and political organisations); and local security concerns that
threaten the safe operation of our facilities, transport of our products and
the well-being of our people. Pandemic diseases can also affect our
operations directly and indirectly. If such risks materialise, they could result
in injuries, loss of life, environmental harm and disruption to business
activities, which in turn could have a material adverse effect on our
earnings, cash flows and financial condition.
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See “Environment and society” on page 70.
We operate in more than 70 countries that have differing degrees of
political, legal and fiscal stability. This exposes us to a wide range of
political developments that could result in changes to contractual terms,
laws and regulations. In addition, we and our joint arrangements and
associates face the risk of litigation and disputes worldwide.
Developments in politics, laws and regulations can and do affect our
operations. Potential impacts 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; antitrust claims; changes to trade compliance
regulations; price controls; local content requirements; foreign exchange
controls; changes to environmental regulations; changes to regulatory
interpretations and enforcement; and changes to disclosure requirements.
Any of these, individually or in aggregate, could have a material adverse
effect on our earnings, cash flows and financial condition.
In addition to the above risks, the United Kingdom is expected to leave the
European Union (EU) in March 2019. As a result of this decision, it is
possible that we may experience delays in moving our products and
employees between the UK and EU. Also, additional tariffs and taxes could
impact the demand for some of our products. This potential delay and
reduced demand for our products, combined with the potential adverse
changes in macroeconomic conditions in both the EU and UK, could have a
material adverse effect on our earnings and cash flows.
From time to time, social and political factors play a role in unprecedented
and unanticipated judicial outcomes that could adversely affect Shell.
Non-compliance with policies and regulations could result in regulatory
investigations, litigation and, ultimately, sanctions. Certain governments and
regulatory bodies have, in Shell’s opinion, exceeded their constitutional
authority by: attempting unilaterally to amend or cancel existing agreements
or arrangements; failing to honour existing contractual commitments; and
seeking to adjudicate disputes between private litigants. Additionally,
certain governments have adopted laws and regulations that could
potentially conflict with other countries’ laws and regulations, potentially
subjecting us to both criminal and civil sanctions. Such developments and
outcomes could have a material adverse effect on our earnings, cash flows
and financial condition.
See “Corporate governance” on page 104.
The nature of our operations exposes us, and the communities in which
we work, to a wide range of health, safety, security and environment
risks.
The health, safety, security and environment (HSSE) risks to which we, and the
communities in which we work, are potentially exposed cover a wide
spectrum, given the geographic range, operational diversity and technical
complexity of our operations. These risks include the effects of natural disasters
(including weather events), earthquakes, social unrest, personal health and
safety lapses, and crime. If a major risk materialises, such as an explosion or
hydrocarbon spill, this could result in injuries, loss of life, environmental harm,
disruption of business activities, and loss or suspension of our licence to
operate or ability to bid on mineral rights. Accordingly, this would have a
material adverse effect on our earnings, cash flows and financial condition.
Our operations are subject to extensive HSSE regulatory requirements that
often change and are likely to become more stringent over time. Governments
could require operators to adjust their future production plans, as has been
done in the Netherlands, affecting production and costs. We could incur
significant additional costs in the future due to compliance with these
requirements or as a result of violations of, or liabilities under, laws and
regulations, such as fines, penalties, clean-up costs and third-party claims.
Therefore, HSSE risks, should they materialise, could have a material adverse
effect on our earnings, cash flows and financial condition.
See “Environment and society” on page 66.
A further erosion of the business and operating environment in Nigeria
could have a material adverse effect on us.
In our Nigerian operations, we face various risks and adverse conditions.
These include: security issues surrounding the safety of our people, host
communities and operations; sabotage and theft; our ability to enforce existing
contractual rights; litigation; limited infrastructure; potential legislation that
could increase our taxes or costs of operations; the effect of lower oil and gas
prices on the government budget; and regional instability created by militant
activities. Any of these risks or adverse conditions could have a material
adverse effect on our earnings, cash flows and financial condition.
See “Upstream” on page 41.
Production from the Groningen field in the Netherlands causes
earthquakes that affect local communities.
Shell and ExxonMobil are 50:50 shareholders in Nederlandse Aardolie
Maatschappij B.V. (NAM). An important part of NAM’s gas production
comes from the onshore Groningen gas field, in which EBN, a Dutch
government entity, has a 40% interest and NAM a 60% interest. Since
1995, production from the Groningen field has caused earthquakes. Some
of these earthquakes have caused damage to houses and other structures
in the region, resulting in complaints and lawsuits from the local community.
Following the Dutch cabinet’s decision to reduce NAM’s production from
the Groningen field to zero by 2030, NAM’s shareholders and the Dutch
State signed a heads of agreement in June 2018. This agreement supports
the ramp-down of production from the Groningen field, includes measures
to ensure the financial robustness of NAM, and determines the split of legal
responsibilities between the Dutch government and the Groningen field
partners. Shell’s proved reserves were reduced by 0.63 billion boe as a
result in 2018. Additional earthquakes, lawsuits and any acceleration of the
current plan to cease production from the Groningen field by 2030 could
have further adverse effects on NAM and therefore could impact our
earnings, cash flows and financial condition.
See “Upstream” on page 39.
Our future performance depends on the successful development and
deployment of new technologies and new products.
Technology and innovation are essential to our efforts to meet the world’s
energy demands in a competitive way. If we do not develop the right
technology and products, do not have access to such technology and
products or do not deploy these effectively, there could be a material
adverse effect on the delivery of our strategy and our licence to operate.
We operate in environments where advanced technologies are utilised. In
developing new technologies and new products, unknown or
unforeseeable technological failures or environmental and health effects
SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
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Risk factors Continued
could harm our reputation and licence to operate or expose us to litigation
or sanctions. The associated costs of new technology are sometimes
underestimated, or delays occur. If we are unable to develop the right
technologies and products in a timely and cost-effective manner, or if we
develop technologies and products that adversely impact the environment
or health of individuals, there could be a material adverse effect on our
earnings, cash flows and financial condition.
See “Business overview” on page 14.
We are exposed to treasury and trading risks, including liquidity risk,
interest rate risk, foreign exchange risk, commodity price risk and
credit risk. We are affected by the global macroeconomic environment
as well as financial and commodity market conditions.
Our subsidiaries, joint arrangements and associates are subject to differing
economic and financial market conditions around the world. Political or
economic instability affects such markets.
We use 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 a material
adverse effect on our operations. Our financing costs could also be
affected by interest rate fluctuations or any credit rating deterioration.
We are exposed to changes in currency values and to exchange controls as
a result of our substantial international operations. Our reporting currency is
the dollar. However, to a material extent, we hold assets and are exposed to
liabilities in other currencies. Commodity trading is an important component of
our Upstream, Integrated Gas and Downstream businesses and is integrated
with our supply business. While we undertake some foreign exchange and
commodity hedging, we do not do so for all our activities. Furthermore,
even where hedging is in place, it may not function as expected.
We are exposed to credit risk; our counterparties could fail or could be unable
to meet their payment and/or performance obligations under contractual
arrangements. Although 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. In addition, our pension plans
may invest in government bonds, and therefore could be affected by a
sovereign debt downgrade or other default.
If any of the risks set out above materialise, they could have a material
adverse effect on our earnings, cash flows and financial condition.
See “Liquidity and capital resources” on page 62 and Note 19 to the
“Consolidated Financial Statements” on pages 202-207.
We have substantial pension commitments, funding of which is subject
to capital market risks.
Liabilities associated with defined benefit pension plans can be significant,
as can the cash funding requirement of such plans; both depend on various
assumptions. Volatility in capital markets or government policies, and the resulting
consequences for investment performance and interest rates, as well as changes
in assumptions for mortality, retirement age or pensionable remuneration at
retirement, could result in significant changes to the funding level of future
liabilities. We operate a number of defined benefit pension plans and, in case of
a shortfall, we could be required to make substantial cash contributions
(depending on the applicable local regulations) resulting in a material adverse
effect on our earnings, cash flows and financial condition.
See “Liquidity and capital resources” on page 62.
We mainly self-insure our risk exposure. We could incur significant
losses from different types of risks that are not covered by insurance
from third-party insurers.
Our insurance subsidiaries provide hazard insurance coverage to other
Shell entities and only reinsure a portion of their risk exposures. Such
reinsurance would not provide any material coverage in the event of a
large-scale safety and environmental incident. Similarly, in the event of a
material safety and environmental incident, there would be no material
proceeds available from third-party insurance companies to meet our
obligations. Therefore, we may incur significant losses from different types of
risks that are not covered by insurance from third-party insurers, potentially
resulting in a material adverse effect on our earnings, cash flows and
financial condition.
See “Corporate” on page 61.
An erosion of our business reputation could have a material adverse
effect on our brand, our ability to secure new resources or access
capital markets, and on our licence to operate.
Our reputation is an important asset. The Shell General Business Principles
(Principles) govern how Shell and its individual companies conduct their
affairs, and the Shell Code of Conduct instructs employees and contract
staff on how to behave in line with the Principles. Our challenge is to ensure
that all employees and contract staff, more than 100,000 in total, comply
with the Principles and the Code of Conduct. Real or perceived failures of
governance or regulatory compliance could harm our reputation. This could
impact our licence to operate, damage our brand, reduce consumer
demand for our branded products, harm our ability to secure new resources
and contracts, and limit our ability to access capital markets and attract
staff. Many other factors, including the materialisation of the risks discussed
in several of the other risk factors, could negatively impact our reputation
and could have a material adverse effect on our earnings, cash flows and
financial condition.
See “Corporate governance” on pages 96-97.
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Many of our major projects and operations are conducted in joint
arrangements or associates. This could reduce our degree of control,
as well as our ability to identify and manage risks.
In cases where we are not the operator, we have limited influence over,
and control of, the behaviour, performance and costs of operation of such
joint arrangements or associates. Despite not having control, we could still
be exposed to the risks associated with these operations, including
reputational, litigation (where joint and several liability could apply) and
government sanction risks. For example, our partners or members of a joint
arrangement 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. Where we are the
operator of a joint arrangement, the other partner(s) could still be able to
veto or block certain decisions, which could be to our overall detriment.
Accordingly, where we have limited influence, we are exposed to
operational risks that could have a material adverse effect on our earnings,
cash flows and financial condition.
See “Corporate governance” on page 104.
We rely heavily on information technology systems for our operations.
The operation of many of our business processes depends on reliable
information technology (IT) systems. Our IT systems are increasingly
dependent on key contractors supporting the delivery of IT services, and
continue to expand in terms of the number of systems. Shell, like many other
multinational companies, is the target of attempts to gain unauthorised
access to our IT systems and our data through various channels, including
more sophisticated and coordinated attempts often referred to as
advanced persistent threats. While our IT systems have been breached in
the past, we believe that to date, no significant breach has occurred. Timely
detection is becoming increasingly complex but we seek to detect and
investigate all such security incidents, aiming to prevent their recurrence.
Disruption of critical IT services, or breaches of information security, could
harm our reputation and have a material adverse effect on our earnings,
cash flows and financial condition.
See “Corporate” on page 61.
Violations of antitrust and competition laws carry fines and expose us
and/or our employees to criminal sanctions and civil suits.
Antitrust and competition laws apply to Shell and its joint ventures and
associates in the vast majority of countries in which we do business. Shell and its
joint ventures and associates have been fined for violations of antitrust and
competition laws in the past. These include a number of fines by the European
Commission Directorate-General for Competition (DG COMP). Due to DG
COMP’s fining guidelines, any future conviction of Shell or any of its joint
ventures or associates for violation of EU competition law could result in
significantly larger fines and have a material adverse effect on us. Violation of
antitrust laws is a criminal offence in many countries, and individuals can be
imprisoned or fined. In certain circumstances, directors may receive director
disqualification orders. Furthermore, it is now common for persons or
corporations allegedly injured by antitrust violations to sue for damages. Any
violation of these laws can harm our reputation and could have a material
adverse effect on our earnings, cash flows and financial condition.
See “Corporate governance” on pages 96-97.
Violations of anti-bribery, tax-evasion and anti-money laundering laws
carry fines and expose us and/or our employees to criminal sanctions,
civil suits and ancillary consequences (such as debarment and the
revocation of licences).
Anti-bribery, tax-evasion and anti-money laundering laws apply to Shell, its
joint ventures and associates in all countries in which we do business. Shell
and its joint ventures and associates in the past have been fined for
violations of the US Foreign Corrupt Practices Act. Any violation of anti-
bribery, tax-evasion or anti-money laundering laws, including those potential
violations associated with Shell Nigeria Exploration and Production
Company Ltd.’s (SNEPCO’s) investment in Nigerian oil block OPL 245 and
the 2011 settlement of litigation pertaining to that block, could have a
material adverse effect on our earnings, cash flows and financial condition.
See “Our people” on pages 79-81, “Corporate governance” on pages 96-
97 and Note 25 to the “Consolidated Financial Statements” on pages 211-
213.
Violations of data protection laws carry fines and expose us and/or
our employees to criminal sanctions and civil suits.
Data protection laws apply to Shell and its joint ventures and associates in
the vast majority of countries in which we do business. Most of the countries
we operate in have data protection laws and regulations. Additionally, the
EU General Data Protection Regulation (GDPR) came into effect in May
2018, which increased penalties up to a maximum of 4% of global annual
turnover for breach of the regulation. The GDPR requires mandatory breach
notification, the standard for which is also followed outside the EU
(particularly in Asia). Non-compliance with data protection laws could
expose us to regulatory investigations, which could result in fines and
penalties as well as harm our reputation. In addition to imposing fines,
regulators may also issue orders to stop processing personal data, which
could disrupt operations. We could also be subject to litigation from
persons or corporations allegedly affected by data protection violations.
Violation of data protection laws is a criminal offence in some countries,
and individuals can be imprisoned or fined. Any violation of these laws or
harm to our reputation could have a material adverse effect on our
earnings, cash flows and financial condition.
See “Corporate governance” on pages 96-97.
Violations of trade compliance laws and regulations, including
sanctions, carry fines and expose us and our employees to criminal
sanctions and civil suits.
We use “trade compliance” as an umbrella term for various national and
international laws designed to regulate the movement of items across
national boundaries and restrict or prohibit trade and other dealings with
certain parties. The number and breadth of such laws continue to expand.
For example, the EU and the USA continue to impose restrictions and
prohibitions on certain transactions involving Syria. In addition, the USA
continues to have comprehensive sanctions in place against Iran, while the
EU and other nations continue to maintain targeted sanctions. Additional
restrictions and controls directed at defined oil and gas activities in Russia,
which were imposed by the EU and the USA in 2014, are still in force.
Further restrictions regarding Russia were introduced by the USA in 2017
and expanded in 2018. Both the EU and the USA introduced sectorial
sanctions against Venezuela in 2017, which the USA expanded in 2018
and 2019. The US sanctions primarily target the government of Venezuela
and the oil industry. In addition to the significant trade-control programmes
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Risk factors Continued
administered by the EU and the USA, many other nations are also adopting
such programmes. This expansion of sanctions, including the frequent
additions of prohibited parties, combined with the number of markets in
which we operate and the large number of transactions we process, makes
ensuring compliance with all sanctions complex and at times challenging.
Any violation of one or more of these regimes could lead to loss of import
or export privileges, significant penalties on or prosecution of Shell or its
employees, and could harm our reputation and have a material adverse
effect on our earnings, cash flows and financial condition.
See “Corporate governance” on pages 96-97.
Investors should also consider the following, which could limit shareholder
remedies.
The Company’s Articles of Association determine the jurisdiction for
shareholder disputes. This could 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 to be
determined invalid or unenforceable for any reason, the dispute could only be
brought before the courts of England and Wales. Accordingly, the ability of
shareholders to obtain monetary or other relief, including in respect of securities
law claims, could be determined in accordance with these provisions.
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Market overview
We maintain a large business portfolio across an integrated value chain
and are exposed to crude oil, natural gas, oil product and chemical prices
(see “Risk factors” on page 15). This diversified portfolio helps us mitigate
the impact of price volatility. Our annual planning cycle and periodic
portfolio reviews aim to ensure that our levels of capital investment and
operating expenses are appropriate in the context of a volatile price
environment. We test the resilience of our projects and other opportunities
against a range of crude oil, natural gas, oil product and chemical prices
and costs. We also aim to maintain a strong balance sheet to provide
resilience against weak market prices.
CRUDE OIL
Brent crude oil, an international benchmark, traded between $51 per barrel (/b)
and $86/b in 2018, ending the year at the lower price of $51/b. It averaged
$71/b for the year, $17/b higher than in 2017, and $27/b higher than in 2016
when the average price was at its lowest average level since 2004.
On a yearly average basis, West Texas Intermediate crude oil traded at a
$6/b discount to Brent in 2018, compared with $3/b in 2017. The discount
widened from 2017, reflecting constrained pipeline capacity from the
landlocked Cushing storage hub to the US Gulf Coast. US oil exports increased
from 2017, which helped to limit further widening of the price differential.
GLOBAL ECONOMIC GROWTH
One of the key drivers of oil, natural gas and oil product demand growth is
economic growth. According to the World Economic Outlook released by
the International Monetary Fund (IMF) in January 2019, global economic
growth for 2018 is estimated at 3.7%, 0.1% lower than in 2017. Economic
growth moderated in some large advanced economies in the second half
of the year, after strong growth in 2017, while the group of emerging-market
economies continued to expand at broadly the same pace as in 2017.
Reflecting the economic conditions described above, global oil demand
grew by 1.2 million barrels per day (b/d), or 1.2%, to 99.2 million b/d,
according to the International Energy Agency’s (IEA) Oil Market Report
published in January 2019 (Oil Market Report). This growth was driven by
emerging economies, where demand grew by 0.9 million b/d. In advanced
economies, demand grew by 0.3 million b/d. Oil demand growth in 2018
was 0.4 million b/d lower than in 2017, when it rose by 1.6 million b/d.
According to the IMF’s latest estimate, economic growth accelerated in the
USA to 2.9% in 2018 from 2.2% in 2017, with private sector activity partly
supported by sizable tax cuts and higher defense expenditures. But growth
slowed in the eurozone and in the United Kingdom due to weaker export
growth, higher energy prices and increased political uncertainty, such as the
prospect of the UK leaving the European Union (Brexit). Growth in emerging-
market economies showed a divergent picture. In China, growth slowed from
6.9% in 2017 to an estimated 6.6% in 2018, due to weaker credit growth and
additional US tariffs on imports from China. Argentina and Turkey slid into
recession as financial conditions deteriorated and investors became
increasingly concerned about financial risks and political uncertainty. In
contrast, economic recovery continued in Brazil and India. Higher oil and gas
prices lifted growth among fuel-exporting economies, such as some in sub-
Saharan Africa (e.g. Nigeria), the Middle East and Russia.
For 2019, the IMF expects the weaker economic conditions seen towards
the end of 2018 to continue as many countries face headwinds from rising
trade barriers, geopolitical tensions, and tightening financing conditions.
GLOBAL PRICES, DEMAND AND SUPPLY
The following table provides an overview of the main crude oil and natural
gas price markers that we are exposed to:
Oil and gas average industry prices [A](cid:3)
Brent ($/b)
West Texas Intermediate ($/b)
Henry Hub ($/MMBtu)
UK National Balancing Point
(pence/therm)
2018
2017
71
65
3.1
54
51
3.0
60
45
Japan Customs-cleared Crude ($/b)
[A] Yearly average prices are based on daily spot prices. The 2018 average price for Japan
Customs-cleared Crude excludes December data.
54
74
(cid:3)(cid:3)
2016
44
43
2.5
35
42
Oil supply in 2018 is estimated in the Oil Market Report at 99.9 million b/d,
an increase of 2.5 million b/d compared with 2017. Because growth in oil
supply outpaced growth in demand, the trend of falling global crude oil and
oil products inventory levels, which started in mid-2016, began to reverse in
the middle of 2018. Average commercial inventory levels for OECD countries
in November 2018 were estimated at 2,850 million barrels in the Oil Market
Report, around 50 million barrels less than in November 2017 and about 150
million barrels above the year average levels seen in 2014 when the Brent
price was around $100/b before starting to fall in late 2014.
Due to falling inventory levels, oil prices strengthened to a peak of $86/b
in October 2018. Oil prices fell in November to below $60/b, driven by
market expectations of higher supply growth and lower demand growth.
The outlook for supply growth became more bullish due to the US
government waiving some export sanctions on Iran and record production
levels in the USA and Saudi Arabia. At the same time, the outlook for
demand growth weakened as macroeconomic indicators deteriorated.
On the non-OPEC supply side, the US Energy Information Administration
reported another year of supply growth. US production is estimated to have
averaged 10.8 million b/d in 2018, 1.4 million b/d higher than in 2017, and
2.0 million b/d higher than in 2016. Like 2017, higher oil prices in 2018
reflected an attractive environment for US production to grow and for
drilling activity to increase, as indicated by a higher onshore oil rig count for
the year. Production from other non-OPEC countries increased by 1.2 million
b/d in 2018 and averaged 56.6 million b/d.
To support oil prices, OPEC members agreed in November 2017 to extend
an agreement to reduce overall production by 1.2 million b/d, relative to
production levels in October 2016. In December 2018, in response to a
40% fall in oil prices from the peak levels seen in October, OPEC and other
non-OPEC resource holders, most notably Russia, agreed to reduce
production by 1.2 million b/d from October levels. OPEC production
averaged 32.5 million b/d in 2018, a similar level to 2017 and about
0.5 million b/d less than in 2016.
SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
21
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Market overview Continued
Looking ahead, the IMF’s global economic outlook indicates a slightly
lower outlook for global economic growth. Additionally, according to the
IEA, moderate oil price levels at the beginning of 2019 could create around
1.4 million b/d of additional demand growth in 2019. If OPEC members
and co-operating non-OPEC resource holders, such as Russia, successfully
implement the December 2018 agreement, then demand growth and
production declines from existing operations would have to be balanced by
production growth from non-OPEC countries, mostly from the USA. As a
consequence, markets could tighten, and prices could rise if supply growth
from the USA moderates. Postponements and cancellations of new supply
projects over the last few years could lead to further market tightening in the
next few years, given the long lead time of many of these projects. In such a
scenario, we believe that the average Brent crude oil price could be 10% to
40% higher in 2022 than the 2018 average.
On the other hand, we believe that the price environment could weaken if
OPEC and the non-OPEC resource holders abandon their production cuts,
global economic growth slows, or if other non-OPEC producers, such as US
shale producers, effectively deliver more and cheaper oil to the market. In
such a scenario, we believe that the average Brent crude oil price could be
10% to 30% lower in 2022 than the 2018 average.
NATURAL GAS
We estimate global gas demand to have grown by about 3.2% in 2018,
which is higher than the average annual growth rate of 2.4% since the
beginning of the century. A combination of weather conditions,
implementation of new policies such as the partial substitution of coal by
gas-fired power generation in China, and global economic growth led to
an increase in demand in most regions.
Global liquefied natural gas (LNG) imports grew by 28 million tonnes (9.6%)
in 2018. LNG demand growth was supported by weather conditions, lower
nuclear power generation and the start-up of new regasification capacity in
Asia. China and India alone increased their regasification capacity by 19%
and 33% from 2017 respectively, equal to 21 million tonnes per annum, in
total. Supply growth was primarily driven by the start-up of new projects in
Australia, the USA and Russia. The majority of additional LNG supply was
absorbed by Asia, offsetting declines in the Middle East and North Africa.
Natural gas prices can vary from region to region.
In the USA, the natural gas price at the Henry Hub averaged $3.1 per
million British thermal units (MMBtu) in 2018, 3% higher than in 2017, and
traded in a range of $2.5-4.9/MMBtu. There was some downward
pressure on prices due to strong gas supply growth, which averaged 11%
higher than in 2017, helped by higher oil prices and new gas pipeline
capacity. However, gas prices were also supported by a range of other
factors, such as below-normal storage inventory levels, and demand growth
due to colder than normal weather in the second half of 2018, the
completion of LNG liquefaction projects, increased exports to Mexico by
pipeline and US industrial demand.
In Europe, natural gas prices were higher than in 2017. The average price at
the UK National Balancing Point (NBP) was 33% higher in 2018. At the main
continental gas trading hubs – in the Netherlands, Belgium and Germany –
prices were also stronger, as reflected by stronger Dutch Title Transfer Facility
(TTF) prices. European gas prices were supported by record prices for carbon
dioxide (CO2) allowances (EUAs) which averaged €16/tCO2 in 2018
22
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
compared to €6/tCO2 in 2017, resulting in higher preference for gas over
coal in power generation. Gas prices were also supported by lower nuclear
power output, particularly in Belgium and Spain, lower than normal
temperatures early in the year, and competition from North-East Asian markets
for LNG supplies for storage replenishment ahead of winter.
We also produce and sell natural gas in regions where supply, demand
and regulatory circumstances differ markedly from those in the USA or
Europe. Long-term contracted LNG prices in the Asia-Pacific region
generally increased in 2018 as they are predominantly indexed to the price
of Japan Customs-cleared Crude, which has increased in line with global oil
prices. North Asia spot prices (reflected by the Japan Korea Marker) also
increased due to relatively strong demand, particularly from China.
Looking ahead, we expect gas markets in North America, Europe and Asia
Pacific to be well supplied over the next few years, despite our expectation
of LNG demand growth in Asia. Price developments are very uncertain and
dependent on many factors.
In the USA, Henry Hub gas prices may increase over the next few years due
to increasing demand from LNG exports, exports to Mexico by pipeline, and
US residential/industrial users. On the other hand, increasing availability of
low-cost natural gas and oil, combined with technological improvements,
could continue to place pressure on natural gas prices. Due to such
uncertainty, we believe that average Henry Hub gas prices could be
between 10% lower to 30% higher by 2022 than the 2018 average. In
Europe, we believe gas prices will be increasingly influenced by the cost of
LNG imports from the USA. We believe that the price at the UK NBP may
average between 30% lower and 30% higher by 2022 than the 2018
average. In the Asia Pacific region, gas prices are expected to continue to be
strongly influenced by oil prices, but also increasingly by Henry Hub gas
prices. By 2022, we believe that the price of LNG delivered under contract to
the Asia-Pacific market may average between 30% lower and 30% higher
than the 2018 average.
CRUDE OIL AND NATURAL GAS PRICE ASSUMPTIONS
Our ability to deliver competitive returns and pursue commercial opportunities
ultimately depends on the accuracy of our price assumptions (see “Risk factors”
on page 15). The range of possible future crude oil and natural gas prices used
in project and portfolio evaluations is determined after a rigorous assessment of
short, medium and long-term market drivers. Historical analyses, trends and
statistical volatility are considered in this assessment, as are analyses of market
fundamentals such as possible future economic conditions, geopolitics, actions
by OPEC and other major resource holders, production 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 in new production capacity. Short-term
events, such as relatively warm winters or cool summers, affect demand. Supply
disruptions, due to weather or political instability, contribute to price volatility.
See also Note 8 to the “Consolidated Financial Statements” on page 188.
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REFINING MARGINS
Refining marker average industry gross margins
US West Coast
US Gulf Coast Coking
Rotterdam Complex
Singapore
2018
11.5
7.0
2.5
1.4
2017
14.0
9.9
4.3
3.6
$/b
2016
12.9
9.1
2.5
2.8
Industry gross refining margins were lower on average in 2018 than in 2017 in
each of the key refining hubs of Europe, Singapore and the USA. Oil products
demand growth has slowed in line with global economic growth. Periods of high
crude prices led to reductions in oil products demand. Refinery capacity
additions, especially in the Middle East and Asia, combined with tempered
demand growth have led to generally lower refinery utilisations. Refinery activity
continued to be low in Latin America.
Looking forward, we believe refinery margins may be impacted by the
introduction of the new International Maritime Organization shipping fuel
specification in 2020.
PETROCHEMICAL MARGINS
Cracker industry margins
North East/South East Asia naphtha
Western Europe naphtha
US ethane
$/tonne
2018
2017
2016
511
653
332
688
727
471
672
598
450
Cracker industry margins fell in all three main regions in 2018. Asian naphtha
cracker margins fell sharply in the fourth quarter, amid continuing concerns
over the potential impact of US tariffs, while US ethane cracker margins came
under pressure from new cracker unit start-ups. Supported by healthy
European demand, European naphtha cracker margins decreased the least
during 2018.
The outlook for petrochemical margins in 2019 and beyond depends on
supply and demand balances and feedstock costs. Demand for
petrochemicals is closely linked to economic growth. Product prices reflect
prices of raw materials, which are closely linked to crude oil and natural gas
prices. The balance of these factors will drive margins.
The statements in this “Market overview” section, including those related to our
price forecasts, are forward-looking statements 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 “About
this Report” on pages 05-06 and “Risk factors” on pages 15-20.
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SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
23
Summary of results
Key statistics
$ million, except where indicated
Income for the period
Current cost of supplies adjustment
Total segment earnings [A][B], of which:
Integrated Gas
Upstream
Downstream
Corporate
Capital investment [B]
Divestments [B]
Operating expenses [B]
Return on average capital employed [B]
Gearing at December 31 [C]
Oil and gas production (thousand boe/d)
2018
23,906
458
24,364
11,444
6,798
7,601
(1,479 )
24,779
7,102
39,316
9.4 %
20.3 %
3,666
2017
13,435
(964 )
12,471
5,078
1,551
8,258
(2,416 )
24,006
17,340
38,083
5.8 %
25.0 %
3,664
2016
4,777
(1,085 )
3,692
2,529
(3,674 )
6,588
(1,751 )
79,877
4,984
41,549
3.0 %
29.1 %
3,668
Proved oil and gas reserves at December 31 (million boe)
11,578
[A] Segment earnings are presented on a current cost of supplies basis. See Note 4 to the “Consolidated Financial Statements” on pages 181-184.
[B] See “Non-GAAP measures reconciliations” on pages 263-264.
[C] With effect from 2018, the net debt calculation has been amended. See Note 14 to the “Consolidated Financial Statements” on page 191. Gearing as previously published at December 31, 2017, and at
December 31, 2016, was 24.8% and 28.0% respectively.
12,233
13,248
EARNINGS 2018-2017
Income for the period was $23,906 million in 2018, compared with
$13,435 million in 2017. After current cost of supplies adjustment, total
segment earnings were $24,364 million in 2018, compared with
$12,471 million in 2017.
Earnings on a current cost of supplies basis (CCS earnings) exclude the
effect of changes in the oil price on inventory carrying amounts, after
making allowance for the tax effect. The purchase price of volumes sold in
the period is based on the current cost of supplies during the same period,
rather than on the historic cost calculated on a first-in, first-out (FIFO) basis.
Therefore, when oil prices are decreasing, CCS earnings are likely to be
higher than earnings calculated on a FIFO basis and, when prices are
increasing, CCS earnings are likely to be lower than earnings calculated on
a FIFO basis.
Integrated Gas earnings in 2018 were $11,444 million, compared with
$5,078 million in 2017. The increase was mainly driven by higher realised
oil, gas, and liquefied natural gas (LNG) prices, higher gains on
divestments, increased contributions from LNG trading, the impact of fair
value accounting of commodity derivatives, and higher production. These
effects were partly offset by the absence of a gain from the strengthening
Australian dollar on a deferred tax position in 2017 and by higher
operating expenses. See “Integrated Gas” on pages 29-30.
Upstream earnings in 2018 were $6,798 million, compared with $1,551
million in 2017. The increase was mainly driven by higher realised oil and
gas prices, lower impairment charges, the absence of a charge as a result
of US tax reform legislation in 2017, and lower well write-offs. This was
partly offset by the movements in deferred tax positions, lower gains on
divestments, lower production, and a charge related to the impact of the
weakening Brazilian real on a deferred tax position. See “Upstream” on
pages 36-37.
24
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
Downstream earnings in 2018 were $7,601 million, compared with $8,258
million in 2017. The decrease was mainly driven by higher operating
expenses, unfavourable exchange rate effects, and lower realised base
chemicals and refining margins. This was partly offset by higher realised
marketing margins, lower charges related to provisions, the impact of fair
value accounting of commodity derivatives and higher gains on divestments.
There was also a charge in 2017 as a result of US tax reform legislation.
See “Downstream” on pages 53-54.
Corporate earnings in 2018 were a loss of $1,479 million, compared with a
loss of $2,416 million in 2017. The lower loss was mainly driven by lower
net foreign exchange losses and net interest expense, partially offset by
higher costs. There was also a charge in 2017 as a result of US tax reform
legislation. See “Corporate” on page 61.
EARNINGS 2017-2016
Income for the period was $13,435 million in 2017, compared with $4,777
million in 2016. After current cost of supplies adjustment, total segment
earnings were $12,471 million in 2017, compared with $3,692 million in
2016. BG Group plc (BG) was consolidated within Shell’s results with effect
from February 2016 following its acquisition.
Integrated Gas earnings in 2017 were $5,078 million, compared with
$2,529 million in 2016. The increase was mainly driven by higher realised
oil, gas, and LNG prices, as well as the impact of the strengthening
Australian dollar on a deferred tax position, and lower impairment charges.
These effects were partly offset by the impacts in 2017 of a charge for fair
value accounting of commodity derivatives, a charge as a result of US tax
reform legislation, and by lower liquids production partially offset by higher
LNG liquefaction volumes.
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Upstream earnings in 2017 were $1,551 million, compared with a loss of
$3,674 million in 2016. The improvement was mainly driven by higher
realised oil and gas prices. Higher gains on divestments and lower
depreciation charges were partly offset by higher impairment charges.
Overall, there were higher taxation charges. Beneficial movements in
deferred tax positions were more than offset by a charge in 2017 as a
result of US tax reform legislation and the absence of a gain related to the
impact of a strengthening Brazilian real on a deferred tax position in 2016.
Before taking production into account, our proved reserves increased by
733 million boe in 2018. This comprised increases of 1,337 million boe from
Shell subsidiaries and decreases of 604 million boe from the Shell share of
joint ventures and associates, mainly related to the Groningen field. The
increase from Shell subsidiaries included 997 million boe from revisions and
reclassifications, 474 million boe from extensions and discoveries, and 42
million boe from improved recovery, partly offset by net sales of minerals in
place of 175 million boe.
Downstream earnings in 2017 were $8,258 million, compared with $6,588
million in 2016. The increase was mainly driven by improved refining and
chemicals industry conditions, the impact of fair value accounting of
commodity derivatives, and lower taxation, redundancy and impairment
charges. This was partly offset by lower gains on divestments and higher
depreciation charges.
In 2018, total oil and gas production was 1,388 million boe, of which 1,338
million boe was available for sale and 50 million boe was consumed in
operations. Production available for sale from subsidiaries was 1,179 million
boe and 43 million boe was consumed in operations. The Shell share of the
production available for sale of joint ventures and associates was
159 million boe and 7 million boe was consumed in operations.
Corporate earnings in 2017 were a loss of $2,416 million, compared with a
loss of $1,751 million in 2016. The higher loss was mainly driven by higher
interest expense and net foreign exchange losses, partly offset by lower
operating expenses. There was also a charge in 2017 as a result of US tax
reform legislation.
Accordingly, after taking production into account, our proved reserves
decreased by 655 million boe in 2018, to 11,578 million boe at December
31, 2018, with an increase of 117 million boe from subsidiaries and a
decrease of 771 million boe from the Shell share of joint ventures and
associates.
PRODUCTION AVAILABLE FOR SALE
Oil and gas production available for sale in 2018 was 1,338 million barrels
of oil equivalent (boe), or 3,666 thousand boe per day (boe/d), compared
with 1,338 million boe, or 3,664 thousand boe/d, in 2017. In 2018,
increased production from new field start-ups and ramp-ups, as well as
lower maintenance activity was offset by the impact of divestments and field
declines.
CAPITAL INVESTMENT AND OTHER INFORMATION
Capital investment was $24.8 billion in 2018, compared with $24.0 billion
in 2017.
Divestments were $7.1 billion in 2018, compared with $17.3 billion in 2017.
Operating expenses increased by $1.2 billion in 2018, to $39.3 billion.
Our return on average capital employed (ROACE) increased to 9.4%,
compared with 5.8% in 2017, mainly driven by a higher income in 2018.
Gearing was 20.3% at the end of 2018, compared with 25.0% at the end
of 2017, driven by debt repayments and an increased cash balance in
2018. With effect from 2018, the net debt calculation has been amended
and the prior period comparative has been revised. See Note 14 to the
“Consolidated Financial Statements” on page 191.
SIGNIFICANT ACCOUNTING ESTIMATES AND
JUDGEMENTS
See Note 2 to the “Consolidated Financial Statements” on pages 172-181.
LEGAL PROCEEDINGS
See Note 25 to the “Consolidated Financial Statements” on pages 211-213.
Oil and gas production(cid:3)
available for sale [A]
Crude oil and natural gas liquids
Synthetic crude oil
Bitumen
Natural gas [B]
Total
Of which:
Integrated Gas
Upstream
(cid:3)(cid:3)
2018
1,749
53
—
1,863
3,666
957
2,709
Thousand boe/d
2017
2016
1,730
1,679
91
4
1,839
3,664
146
13
1,830
3,668
887
884
2,777
2,784
[A] See “Oil and gas information” on pages 49-50.
[B] Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.
PROVED RESERVES
The proved oil and gas reserves of Shell subsidiaries and the Shell share of
the proved oil and gas reserves of joint ventures and associates are
summarised in “Oil and gas information” on pages 44-46 and set out in
more detail in “Supplementary information – oil and gas (unaudited)” on
pages 215-226.
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25
Summary of results Continued
SELECTED FINANCIAL DATA
The selected financial data set out below are 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 with this Strategic Report.
Consolidated Statement of Income and of Comprehensive Income data
$ million
Revenue
Income for the period
Income/(loss) attributable to non-controlling interest
2018
2017
2016
2015
2014
388,379
305,179
233,591
264,960
421,105
23,906
13,435
4,777
2,200
14,730
554
458
202
261
(144 )
Income attributable to Royal Dutch Shell plc shareholders
23,352
12,977
4,575
1,939
14,874
Comprehensive income/(loss) attributable to Royal Dutch Shell plc shareholders
24,475
18,828
(1,374 )
(811 )
2,692
Consolidated Balance Sheet data
Total assets
Total debt
Share capital
$ million
2018
2017
2016
2015
2014
399,194
407,097
411,275
340,157
353,116
76,824
85,665
92,476
58,379
45,540
685
696
683
546
540
Equity attributable to Royal Dutch Shell plc shareholders
198,646
194,356
186,646
162,876
171,966
Non-controlling interest
Earnings per share
Basic earnings per €0.07 ordinary share
Diluted earnings per €0.07 ordinary share
Shares
3,888
3,456
1,865
1,245
820
2018
2.82
2.80
2017
1.58
1.56
2016
0.58
0.58
2015
0.31
0.30
2018
2017
2016
2015
$
2014
2.36
2.36
Million
2014
Basic weighted average number of A and B shares
Diluted weighted average number of A and B shares
8,282.8
8,223.4
7,833.7
6,320.3
6,311.5
8,348.7
8,299.0
7,891.7
6,393.8
6,311.6
26
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
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Performance indicators
These indicators enable management to evaluate Shell’s performance
against its strategy and operating plans. Those which are used in the
determination of Executive Directors’ remuneration are asterisked below
and on the following page. See “Directors’ Remuneration Report” on pages
119-147.
FINANCIAL PERFORMANCE INDICATORS
Total shareholder return
*
2018 (4.2)%
2017 30.0%
Total shareholder return (TSR) is the difference between the share price at
the beginning of the year and the share price at the end of the year (each
averaged over 90 days), plus gross dividends delivered during the
calendar year (reinvested quarterly), expressed as a percentage of the
share price at the beginning of the year (averaged over 90 days). The data
used are a weighted average in dollars for A and B shares. The TSRs of
major publicly-traded oil and gas companies can be compared directly,
providing a way to determine how we are performing in relation to our
industry peers.
Cash flow from operating activities ($ million)
*
2018 53,085
2017 35,650
Cash flow 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 our ability to generate cash to service and reduce our
debt and for distributions to shareholders and investments. See “Liquidity
and capital resources” on page 63.
Earnings on a current cost of supplies basis ($ million)
2018 24,364
2017 12,471
Earnings per share on a current cost of supplies basis ($)
2018 2.85
2017 1.46
Earnings on a current cost of supplies basis (CCS earnings) is the income
for the period, adjusted for the after-tax effect of oil-price changes on
inventory. Segment earnings presented on a current cost of supplies basis is
the earnings measure used by the Chief Executive Officer for the purposes
of making decisions about allocating resources and assessing performance.
See “Summary of results” on page 24 and “Non-GAAP measures
reconciliations” on page 263.
CCS earnings per share, which is on a diluted basis above, is calculated by
dividing CCS earnings attributable to shareholders (see “Non-GAAP
measures reconciliations” on page 263) by the average number of shares
outstanding over the year, increased by the average number of dilutive
shares related to share-based compensation plans.
Capital investment ($ million)
2018 24,779
2017 24,006
Capital investment is defined as capital expenditure and investments in joint
ventures and associates, as reported in the “Consolidated Statement of
Cash Flows”, plus exploration expense, excluding exploration wells written
off, new finance leases and investments in Integrated Gas, Upstream and
Downstream equity securities, adjusted to an accruals basis. Capital
investment is a measure used to make decisions about allocating resources
and assessing performance. See “Liquidity and capital resources” on page
63 and “Non-GAAP measures reconciliations” on page 263.
Free cash flow ($ million)
2018 39,426
2017 27,621
*
Gearing
Free cash flow is the sum of “Cash flow from operating activities” and
“Cash flow from investing activities”, which are listed in the “Consolidated
Statement of Cash Flows”. This indicator is used to evaluate cash available
for financing activities, including dividend payments, after investment in
maintaining and growing our business. See “Non-GAAP measures
reconciliations” on page 264.
Return on average capital employed
*
2018 9.4%
2017 5.8%
Return on average capital employed (ROACE) is defined as income for the
period, 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 our utilisation of
the capital that we employ and is a common measure of business
performance. See “Summary of results” on page 24 and “Non-GAAP
measures reconciliations” on page 264.
2018 20.3%
2017 25.0%
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.
With effect from 2018, the net debt calculation includes the fair value of
derivative financial instruments used to hedge foreign exchange and interest
rate risks relating to debt, and associated collateral balances. The inclusion
of these debt-related derivative balances reduces the volatility of net debt
caused by fluctuations in foreign exchange and interest rates, and
eliminates the potential impact of related collateral payments or receipts.
The prior period comparative has been revised to reflect the change in net
debt calculation. Gearing is a measure of the degree to which our
operations are financed by debt. See “Liquidity and capital resources” on
page 62.
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27
Performance indicators Continued
OTHER PERFORMANCE INDICATORS
Production available for sale (thousand boe/d)
2018 3,666
2017 3,664
Upstream and Integrated Gas greenhouse gas intensity
(tonnes of CO2 equivalent/tonne of hydrocarbon
production available for sale)
2018 0.158
2017 0.166
*
*
Production is the sum of all average daily volumes of unrefined oil and
natural gas produced for sale by Shell subsidiaries and Shell’s share of
those produced for sale by joint ventures and associates. 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. See “Summary of results” on page 25.
Upstream/midstream greenhouse gas (GHG) intensity is a measure of GHG
emissions (direct and indirect GHG emissions associated with imported energy,
excluding emissions from exported energy), expressed in metric tonnes of carbon
dioxide (CO2) equivalent, emitted into the atmosphere per metric tonne of
hydrocarbon production available for sale. See “Climate change and energy
transition” on pages 77-78.
LNG liquefaction volumes (million tonnes)
2018 34.3
2017 33.2
*
Refining greenhouse gas intensity
(tonnes of CO2 equivalent/UEDCTM)
2018 1.05
2017 1.14
*
Liquefied natural gas (LNG) liquefaction volumes is a measure of the
operational performance of our Integrated Gas business and LNG market
demand. See “Integrated Gas” on page 29.
Refinery and chemical plant availability
*
2018 91.9%
2017 90.7%
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. This indicator is a measure of the operational excellence of
our Downstream manufacturing facilities. See “Downstream” on page 53.
Project delivery on schedule
2018 75%
2017 86%
Project delivery on budget
2018 97%
2017 93%
*
*
Project delivery reflects our capability to complete major projects on time
and within budget on the basis of targets set in our annual Business Plan.
Project delivery on schedule measures the percentage of projects delivered
on schedule. Project delivery on budget reflects the aggregate cost against
the aggregate budget for those projects.
Total recordable case frequency
(injuries per million working hours)
2018 0.9
2017 0.8
*
Total recordable case frequency (TRCF) is the number of employees and
contract staff injuries requiring medical treatment or time off for every million
hours worked. It is a standard measure of occupational safety. See “Environment
and society” on page 67.
Number of operational Tier 1 and 2 process safety events *
2018 121
2017 166
A Tier 1 process safety event is an unplanned or uncontrolled release of any
material, including non-toxic and non-flammable materials, from a process with
the greatest actual consequence resulting in harm to employees and contract
staff, or a neighbouring community, damage to equipment, or exceeding a
threshold quantity as defined by the API Recommended Practice 754 and
IOGP Standard 456. A Tier 2 process safety event is a release of lesser
consequence. See “Environment and society” on page 67.
Refining GHG intensity is a measure of GHG emissions (direct and indirect
GHG emissions associated with imported energy, excluding emissions from
exported energy), expressed in metric tonnes of CO2 equivalent, emitted into the
atmosphere per unit of Utilized Equivalent Distillation Capacity (UEDCTM).
UEDCTM is a proprietary metric of Solomon Associates. It is a complexity-
weighted normalisation parameter that reflects the operating cost intensity of a
refinery based on size and configuration of its particular mix of process and non-
process facilities. See “Climate change and energy transition” on pages 77-78.
Chemicals greenhouse gas intensity
(tonnes of CO2 equivalent/tonne petrochemicals produced) *
2018 0.96
2017 0.95
Chemicals GHG intensity is a measure of GHG emissions (direct and indirect
GHG emissions associated with imported energy, excluding emissions from
exported energy), expressed in metric tonnes of CO2 equivalent, emitted into the
atmosphere per metric tonne of steam cracker high value petrochemicals
production. The 2017 comparative has been revised to align with the current
definition (previously petrochemical production only). See “Climate change and
energy transition” on pages 77-78.
Proved oil and gas reserves (million boe)
2018 11,578
2017 12,233
Proved oil and gas reserves are the total estimated quantities of oil and gas from
Shell subsidiaries and Shell’s share from joint ventures and associates that
geoscience and engineering data demonstrate, with reasonable certainty, to be
recoverable in future years from known reservoirs, at December 31, under
existing economic conditions, operating methods and government regulations.
Gas volumes are converted into barrels of oil equivalent (boe) using a factor of
5,800 standard cubic feet per barrel. Reserves are crucial to an oil and gas
company, since they constitute the source of future production. Reserves
estimates are subject to change due to a wide variety of factors, some of which
are unpredictable. See “Risk factors” on pages 15-16, “Summary of results” on
page 25, “Oil and gas information” on pages 44-46 and “Supplementary
information – oil and gas (unaudited)” on pages 215-226.
Number of operational spills of more than 100 kilograms
2018 92
2017 104
The operational spills indicator is the number of incidents in respect of activities
where we are the operator in which 100 kilograms or more of oil or oil products
were spilled as a result of those activities and reached the environment. The 2017
number was updated from 99 to reflect the completion of investigations into spills.
See “Environment and society” on page 68.
Direct greenhouse gas emissions
(million tonnes of CO2 equivalent)
2018 71
2017 73
Direct GHG emissions from facilities operated by Shell, expressed in CO2
equivalent. See “Climate change and energy transition” on pages 77-78.
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Integrated Gas
(cid:3)
Key statistics
Segment earnings
Including:
Revenue (including inter-segment sales)
Share of profit of joint ventures and associates
Interest and other income
Operating expenses [A]
Exploration
Depreciation, depletion and amortisation
Taxation charge
Capital investment [A]
Divestments [A]
Oil and gas production available for sale (thousand boe/d)
LNG liquefaction volumes (million tonnes)
[A] See “Non-GAAP measures reconciliations” on pages 263-264
$ million, except where indicated
2018
11,444
2017
5,078
48,617
36,652
2,273
2,230
6,014
208
4,850
2,795
4,460
3,124
957
34.3
1,714
687
5,471
141
4,965
790
3,827
3,077
887
33.2
2016
2,529
29,190
1,116
765
6,479
494
4,509
1,254
26,214
352
884
30.9
OVERVIEW
Our Integrated Gas business manages liquefied natural gas (LNG) activities
and the conversion of natural gas into gas-to-liquids (GTL) fuels and other
products, as well as our New Energies portfolio. It includes natural gas
exploration and extraction, and the operation of upstream and midstream
infrastructure necessary to deliver gas to market. It markets and trades
natural gas, LNG, electricity and carbon-emission rights and also markets
and sells LNG as a fuel for heavy-duty vehicles and marine vessels.
BUSINESS CONDITIONS
Global oil demand grew by 1.2% in 2018, according to the International
Energy Agency’s Oil Market Report published in January 2019, with the
Brent crude oil price averaging $71 per barrel (/b), up $17/b from 2017.
Global gas demand is estimated to have grown by about 3.2% in 2018. A
combination of weather conditions, implementation of new policies such as
the partial substitution of coal by gas-fired power generation in China, and
global economic growth led to an increase in demand in most regions.
Long-term contracted LNG prices in the Asia-Pacific region generally
increased in 2018 as they are predominantly indexed to the price of Japan
Customs-cleared Crude, which has increased in line with global oil prices.
North Asia spot prices (reflected by the Japan Korea Marker) also
increased due to relatively strong demand, particularly from China.
See “Market overview” on pages 21-23.
PRODUCTION AVAILABLE FOR SALE
In 2018, production was 349 million barrels of oil equivalent (boe), or
957 thousand boe per day (boe/d), compared with 324 million boe, or
887 thousand boe/d in 2017. Natural gas production increased by 9%
compared with 2017, mainly due to the stronger operational performance
of our assets, namely higher availability at Pearl GTL in 2018, and improved
performance combined with full year production of all three trains at
Gorgon in Australia, partially offset by the divestment of Bongkot field in
Thailand. Liquids production increased 5%, mainly due to higher availability
at Pearl GTL in Qatar.
Global LNG imports grew by 28 million tonnes (9.6%) in 2018. LNG demand
growth was supported by weather conditions, lower nuclear power
generation and the start-up of new regasification capacity in Asia. China and
India alone increased their regasification capacity by 19% and 33% from
2017 respectively, equal to 21 million tonnes per annum, in total. Supply
growth was primarily driven by the start-up of new projects in Australia, the
USA and Russia. The majority of additional LNG supply was absorbed by
Asia, offsetting declines in the Middle East and North Africa.
LNG LIQUEFACTION VOLUMES
LNG liquefaction volumes of 34.3 million tonnes in 2018 were 3% higher
than in 2017, driven by increased feed gas availability in Atlantic LNG in
Trinidad and Tobago, Queensland Curtis LNG (QCLNG) in Australia and
Oman LNG; less maintenance mainly in Gorgon and QCLNG in Australia;
and incremental volumes from Gorgon with all trains operational for a full
year; partly offset by divestments of our interests in Woodside Petroleum
Limited (Woodside) in 2017 and Malaysia LNG in 2018.
Natural gas prices can vary from region to region.
In the USA, the natural gas price at the Henry Hub averaged $3.1 per
million British thermal units (MMBtu) in 2018, 3% higher than in 2017,
and traded in a range of $2.5-4.9/MMBtu.
In Europe, natural gas prices were higher than in 2017. The average price
at the UK National Balancing Point was $7.9/MMBtu, compared with
$5.8/MMBtu in 2017. At the main continental European gas trading hubs –
in the Netherlands, Belgium and Germany – prices were also stronger, as
reflected by stronger Dutch Title Transfer Facility prices.
LNG sales volumes of 71.21 million tonnes in 2018 were 8% higher than in
2017, driven by our increased LNG purchases from third parties and higher
LNG liquefaction volumes.
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Integrated Gas Continued
EARNINGS 2018-2017
Segment earnings in 2018 were $11,444 million, which included a net gain
of $2,045 million. The net gain primarily reflected gains of $1,937 million on
sale of assets, mainly related to the divestment of assets in Thailand, New
Zealand and India. It also comprised a gain of $481 million related to the
fair value accounting of commodity derivatives and impairment charges of
$371 million related to investments in Trinidad and Tobago and Shell’s
investment in a joint venture.
CAPITAL INVESTMENT AND DIVESTMENTS
Capital investment in 2018 was $4.5 billion, compared with $3.8 billion in
2017.
Divestments in 2018 were $3.1 billion, in line with $3.1 billion in 2017.
PORTFOLIO AND BUSINESS DEVELOPMENT
Key portfolio events in 2018 included the following:
Segment earnings in 2017 were $5,078 million, which included a net
charge of $190 million. The net charge mainly reflected a charge of
$445 million on fair value accounting of commodity derivatives and a
charge of $412 million as a result of US tax reform legislation, partly offset
by a gain of $636 million from the strengthening Australian dollar on a
deferred tax position.
Excluding the net gain and the net charge described above, segment
earnings were $9,399 million in 2018 compared with $5,268 million in 2017.
Earnings were positively impacted by increased contributions from trading and
higher realised oil, gas and LNG prices (around $4,200 million), increased
LNG volumes from various assets across the portfolio (around $615 million).
Earnings were negatively impacted by higher operating expenses (around
$502 million of which $246 million relates to growth of New Energy
activities) and lower dividends due to divestments (around $274 million).
In 2018, the impact of exchange rate movements of the Australian dollar on
deferred tax balances was significantly reduced, as a result of the change
in the fiscal functional currency of a number of Shell entities in Australia to
the US dollar with effect from January 1, 2018.
EARNINGS 2017-2016
Segment earnings in 2017 were $5,078 million, which included a net
charge of $190 million as described above.
Segment earnings in 2016 were $2,529 million, which included a net
charge of $1,171 million. The net charge included impairments of
$451 million, reported mainly in share of profit of joint ventures and
associates, the reassessment of a deferred tax asset in Australia of
$533 million, onerous contract provisions in Europe and the USA of
$390 million, and redundancy and restructuring charges of $245 million,
partly offset by gains on divestments of $212 million and on the accounting
reclassification of Shell’s interest in Woodside in Australia of $479 million
(both reported in interest and other income).
Excluding the net charges described above, segment earnings were
$5,268 million in 2017 compared with $3,700 million in 2016. Earnings were
positively impacted by higher realised oil, gas and LNG prices (around
$1,620 million), lower operating expenses (around $110 million), lower
exploration charges (around $170 million), and lower well write-offs (around
$100 million). Earnings were negatively impacted by a total of around
$230 million from lower liquids production, mainly as a result of the shutdown
at Pearl, partially offset by higher LNG liquefaction volumes across the
portfolio. Other items, which included lower contributions from trading and
higher taxation, had a net negative impact of around $200 million.
(cid:374) In February, we completed the acquisition of First Utility, a leading
independent UK household energy and broadband provider.
(cid:374) In March, we completed the acquisition of a 43.8% interest in Silicon
Ranch Corporation, a developer, owner and operator of solar energy
assets in the USA.
(cid:374) In July, with our partners, we completed the dilution of interests in LNG
Canada to Petronas. As a result, our interest in LNG Canada was
reduced from 50% to 40%.
(cid:374) In August, we acquired ENI’s interest in the North Coast Marine Area
(NCMA) block offshore Trinidad and Tobago, increasing our interest
from 63.2% to 80.5%.
(cid:374) In December, we acquired Total’s 26% interest in the Hazira LNG and
Port venture, increasing our interest from 74% to 100%.
(cid:374) In December, we formed 50/50 joint ventures with EDF Renewables and
EDP Renewables to build wind farms off the coast of New Jersey and
Massachusetts, respectively, in the USA.
In February 2019, we acquired sonnen, a provider of smart energy storage
systems and innovative energy services for households, and Limejump, a UK-
based digital energy-technology company.
The following major milestones were reached in 2018:
(cid:374) In June, the final investment decision was taken on the Borssele III and IV
offshore wind farm projects in the Netherlands (Shell interest 20%).
(cid:374) In October, the final investment decision was taken on LNG Canada
(Shell interest 40%). Construction has started and first LNG is expected
before the middle of the next decade.
(cid:374) In December, wells were opened at the Prelude floating liquified natural
gas (FLNG) facility in Australia (Shell interest 67.5%). During this initial
phase of production, gas and condensate are produced and moved
through the facility. Once this has been completed, the facility will be
prepared for reliable production of LNG and LPG.
We continued to divest selected assets during 2018, including:
(cid:374) In Greece, we sold our 49% interests in Attiki Gas Supply Company S.A.
and Attiki Natural Gas Distribution Company S.A.
(cid:374) In India, we reduced our interest in Mahanagar Gas Limited from 32.5% to 10%.
(cid:374) In Malaysia, we sold our 15% interest in Malaysia LNG Tiga Sdn Bhd to
the Sarawak State Financial Secretary.
(cid:374) In New Zealand, we sold our shares in Shell entities to OMV.
(cid:374) In Thailand, we sold our 22.2% interest in the offshore Bongkot field and
adjoining acreage to PTT Exploration & Production Public Company Limited.
In November 2018, we agreed to sell our interest in the undeveloped Sunrise
gas field in the Timor Sea (Shell interest 26.6%) to the government of Timor-
Leste. The transaction is pending regulatory approval and expected to close
in the first half of 2019.
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BUSINESS AND PROPERTY
Our Integrated Gas business is described below by country.
EUROPE
Gibraltar
We have a 51% interest in the first LNG regasification facility in Gibraltar,
construction of which was completed in 2018.
Netherlands
We have access to import and storage capacity at the GATE LNG terminal
in the Netherlands (Shell capacity rights 1.4 million tonnes per annum,
mtpa), enabling us to supply LNG to marine and road transport customers
in northwest Europe. We are also using the terminal to supply LNG to our
growing truck-refuelling network in the Netherlands.
Norway
Gasnor AS (Shell interest 100%) provides LNG fuel for ships and industrial
customers and has a natural gas pipeline network.
UK
We have a 50% interest in the Dragon LNG regasification terminal,
with long-term arrangements in place governing the use of capacity rights.
Rest of Europe
We also have interests in Cyprus.
ASIA (INCLUDING THE MIDDLE EAST AND RUSSIA)
Brunei
We have a 25% interest in Brunei LNG Sendirian Berhad, which sells most
of its LNG on long-term contracts to customers in Asia.
China
We jointly develop and produce from the onshore Changbei tight-gas field
under a PSC with China National Petroleum Corporation (CNPC). In 2016,
we completed the Changbei I development programme under the PSC and
subsequently handed over the production operatorship to CNPC. In
December 2017, we took the final investment decision on the Changbei II
Phase 1 project, and we expect the drilling programme and construction of
facilities to be completed in 2021. Shell remains the operator of Changbei II.
In 2018, we completed the handover of the Jinqiu block in Sichuan to CNPC.
India
We have a 30% interest in the producing oil and gas field Panna/Mukta.
We also have a 30% interest in the Mid Tapti and South Tapti fields, which
ceased production in the first quarter of 2016.
We decreased our interest in the publicly-listed Mahanagar Gas Limited
from 32.5% to 10%, a natural gas distribution company in Mumbai.
In December, we acquired Total’s 26% interest in the Hazira LNG and Port
venture, increasing our interest from 74% to 100%. The Hazira LNG and
Port venture, located in the state of Gujarat on the west coast, comprises
two companies: Hazira LNG Pvt Ltd, which operates a regasification
terminal; and Hazira Port Pvt Ltd, which manages a cargo port at Hazira.
Indonesia
We have a 35% interest in the INPEX Masela Ltd joint venture which owns
and operates the offshore Masela block. In April 2016, the joint venture
received a notification from the Indonesian government authorities
instructing it to re-propose a plan for the Abadi gas field based on an
onshore LNG project. The partners are preparing a new Plan of
Development for submission to the government of Indonesia in 2019.
Iran
Shell transactions with Iran are disclosed separately. See “Section 13(r) of
the US Securities Exchange Act of 1934 Disclosure” on page 262.
Malaysia
We operate a GTL plant, Shell MDS (Shell interest 72%), adjacent to the
Malaysia LNG facilities. Using Shell technology, the plant converts gas into
high-quality middle distillates, drilling fluids, waxes and specialty products.
In 2018, we sold our 15% interest in Malaysia LNG Tiga Sdn Bhd to the
Sarawak State Financial Secretary.
Oman
We have a 30% interest in Oman LNG LLC, which mainly supplies Asian
markets under long-term contracts. We also have an 11% interest in Qalhat
LNG, which is part of the Oman LNG complex.
Qatar
We operate the Pearl GTL plant (Shell interest 100%) in Qatar under a
development and PSC with the government. The fully-integrated facility has
capacity for production, processing and transportation of 1.6 billion
standard cubic feet per day (scf/d) of gas from Qatar’s North Field. It has
an installed capacity of about 140 thousand boe/d of high-quality liquid
hydrocarbon products and 120 thousand boe/d of natural gas liquids
(NGL) and ethane.
We have a 30% interest in Qatargas 4, which comprises integrated
facilities to produce about 1.4 billion scf/d of gas from Qatar’s North Field,
an onshore gas-processing facility and one LNG train with a collective
production capacity of 7.8 mtpa of LNG and 70 thousand boe/d of
condensate and NGL.
Russia
We have a 27.5% interest in Sakhalin-2, the joint venture with Gazprom, an
integrated oil and gas project located in a subarctic environment.
We have a 50% interest in Salym Petroleum Development N.V., the joint
venture with GazpromNeft, developing the Salym fields in western Siberia,
Khanty Mansiysk Autonomous District, where production was approximately
120 thousand boe/d in 2018.
We have a 50% interest in Khanty-Mansiysk Petroleum Alliance VOF
partnership with GazpromNeft.
With effect from January 1, 2019, Salym and Khanty-Mansiysk Petroleum
Alliance VOF partnership will be reported in the Upstream segment.
Comparative information will not be adjusted.
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Integrated Gas Continued
As a result of European Union and US sanctions prohibiting certain defined
oil and gas activities in Russia, we suspended our support to Salym and
Khanty-Mansiysk Petroleum Alliance VOF partnership in relation to shale oil
activities in 2014. Salym and Khanty-Mansiysk Petroleum Alliance VOF
partnership also suspended any shale oil related activities in 2014.
Singapore
We have a 50% interest in a joint venture with KS Investments (the
investment arm of Keppel Group) that holds a licence to supply LNG fuel
for vessels in the Port of Singapore. We have aggregator licences to import
LNG into Singapore.
A gas sales agreement between Arrow and QCLNG has been signed,
under which gas from Arrow’s Surat Basin fields would flow to the QCLNG
venture, that would then both sell gas to local customers and export it
through its gas plant on Curtis Island.
AFRICA
Egypt
We have interests of 35.5% and 38%, respectively, in trains one and two of
the Egyptian LNG (ELNG) plant. In January 2014, force majeure notices
were issued under the LNG agreements as a result of domestic gas
diversions severely restricting volumes available to ELNG. These notices
remain in place. See “Oil and gas information” on page 45.
Rest of Asia
We also have interests in Myanmar.
OCEANIA
Australia
We have interests in offshore production, LNG liquefaction 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. Woodside
is the operator on behalf of the NWS joint venture, which produced more
than 500 thousand boe/d of gas and condensates in 2018.
We have a 25% interest in the Gorgon LNG joint venture, which is operated by
Chevron. The venture started operating in 2016, producing from the offshore
Gorgon and Jansz-Io fields via a three train 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 and Concerto (Shell interest 67.5% in each).
Our development concept for these fields is based on our floating liquified
natural gas (FLNG) technology. The Prelude FLNG project, at its peak, is
expected to produce about 130 thousand boe/d of gas and NGL, 3.6
mtpa of LNG, 1.3 mtpa of condensate and 0.4 mtpa of liquefied petroleum
gas. During 2018, milestones included starting to commission the facilities
and successful receipt of LNG and propane into the tanks. In December,
wells were opened, entering the start-up phase. Our other interests in the
basin include a joint arrangement, with Shell as the operator, for the Crux
gas and condensate field (Shell interest 82%).
We are also a partner in the Browse joint arrangement (Shell interest 27%)
covering the Brecknock, Calliance and Torosa gas fields, which is operated
by Woodside. In November 2018, we agreed to sell our interest in the
undeveloped Sunrise gas field in the Timor Sea (Shell interest 26.6%) to the
government of Timor-Leste. We are a partner in both Shell-operated and
other exploration joint arrangements in multiple basins, including Bonaparte,
Browse, Exmouth Plateau, Greater Gorgon and Outer Canning.
We have a 50% interest in Arrow, a Queensland-based joint venture with
CNPC. Arrow owns coal-bed methane assets and a domestic power business.
We have a 50% interest in train one and a 97.5% interest in train two of the
Shell-operated QCLNG venture. The two-train liquefaction plant has an
installed capacity of 8.5 mtpa. We also operate the venture’s natural gas
operations, which include wells, compression stations and processing plants,
in Queensland’s Surat Basin. We have interests ranging from 44% to 74%
in 24 field compression stations and six central processing plants. Our
production of natural gas from the onshore Surat Basin supplies the
liquefaction plant and the domestic gas market.
Mozambique
A feasibility study is ongoing for a potential GTL project, under a
memorandum of understanding (MOU) signed with the government of
Mozambique in 2017.
Nigeria
We have a 25.6% interest in Nigeria LNG Ltd, which operates six LNG
trains located on Bonny Island.
Tanzania
We have a 60% interest in, and are the operator of, Blocks 1 and 4
offshore southern Tanzania. The blocks cover approximately 4,000 square
kilometres of the Mafia Deep Offshore Basin and the northern part of the
Rovuma Basin. We continue to develop a potential LNG project with
partners in Block 2 in line with the Block 1 and 4 appraisal programme
agreed with the Tanzanian government. We are engaging with the
government to extend the Block 4 licence. The government has confirmed
that the Block 4 licence, due to initially expire on October 31, 2017,
remains in full force pending the grant of the licence extension.
Rest of Africa
We have a 17.9% share in the West African Gas Pipeline Company Limited
which owns and operates a 678-kilometre pipeline that transports gas from
Nigeria to Ghana, Benin and Togo. We also have interests in Gabon and
Morocco.
NORTH AMERICA
Canada
In 2018, we took the final investment decision on LNG Canada, a liquified
natural gas project in Kitimat, British Columbia. We also completed the
dilution of interest from 50% to 40% in LNG Canada to Petronas. With
LNG Canada’s other joint venture partners also having taken final
investment decisions, construction started in October 2018. First LNG is
expected before the middle of the next decade.
USA
We have offtake rights to 100% of the capacity (2.5 mtpa) of the Kinder
Morgan-owned Elba Island liquefaction plant, which is under construction.
Elba Island also has a regasification terminal in which we have contracted
capacity of 11.6 mtpa.
We have 13.1 mtpa of contracted capacity in the Lake Charles
regasification terminal in Louisiana. We are also evaluating a project to
convert the existing regasification facility owned by Energy Transfer into a
liquefaction plant in which we would have capacity rights.
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SOUTH AMERICA
Bolivia
We have a 100% interest in the La Vertiente, Los Suris and Tarija XX East
blocks and the La Vertiente gas processing plant. We have a 37.5% interest
in the Caipipendi block, where we mainly produce from the Margarita field.
We are also exploring in Caipipendi block. We also have a 25% interest in
the Tarija XX West block where we produce from the Itaú field. We have
the rights to explore and further develop the onshore Huacareta block
(Shell interest 100%) and we are exploring there.
Peru
We have a non-Shell-operated 20% interest in the Peru LNG liquefaction
plant.
investing in renewable natural gas (RNG) for use in natural-gas fuelled
vehicles in the USA and in Europe. RNG is collected from landfill sites, food
waste or manure and then processed until it is fully interchangeable with
conventional natural gas.
In the USA, in August 2018, we announced plans to expand and upgrade
the JC Biomethane plant in Junction City, Oregon, which we acquired in
May 2018.
We are part of a joint-venture, H2 Mobility Germany to install hydrogen
fuelling pumps at around 100 locations across Germany during 2019. Shell
is taking part in several other initiatives to encourage the adoption of
hydrogen-electric energy as a transport fuel.
Trinidad and Tobago
We are the largest shareholder in all four trains at Atlantic LNG. We also
have an interest in three concessions with producing fields – Central Block,
East Coast Marine Area (ECMA) and NCMA blocks. Shell has a 65%
interest in Central Block and 100% interest in ECMA. In August 2018, we
acquired ENI’s interest in the NCMA block, increasing our interest from
63.2% to 80.5%. We also have interests ranging from 35% to 100% in
exploration activities in blocks 5(c), 5(d), 6(d), and Atlantic Area blocks 3,
5, and 6.
Rest of South America
We have a 40% interest in a gas pipeline connecting Uruguay to
Argentina.
TRADING AND SUPPLY
Through our Shell Energy organisation, we market a portion of our share of
equity production of LNG and trade LNG volumes around the world
through our hubs in the UK, Dubai and Singapore. Trading and Supply also
markets and trades natural gas, power and carbon-emission rights mainly in
North America and Europe, of which a portion includes equity volumes from
our upstream operations. We also market gas in Australia and Mexico, and
power in Brazil.
NEW ENERGIES
Our New Energies business explores emerging opportunities linked to the
energy transition and invests in those where we believe sufficient value is
available. We focus on new fuels for transport, such as advanced biofuels,
hydrogen and charging for battery-electric vehicles; and power, including
from low-carbon sources such as wind and solar, as well as natural gas.
Alongside our work in new fuels and power, we are exploring how digital
technologies can best support our activities and customers.
The New Energies portfolio is being built through organic growth and
acquisitions. Most of these opportunities are in business sectors that are
different from Shell’s existing oil and gas businesses but have some
similarities and/or adjacencies to our Downstream and gas and power
trading businesses. New Energies companies are subject to the Shell
Control Framework. Some are not yet in full compliance and we are
working to bring them into compliance with the Shell Control Framework in
a fit-for-purpose manner.
New fuels
We have a demonstration plant at the Shell Technology Centre Bangalore,
India, that demonstrates a technology called IH2 that turns waste feedstock
into transport fuel. The plant is in its final research and development stage,
ahead of potentially scaling up for commercial production. We are also
Shell has also opened 26 hydrogen refuelling sites in Germany, the USA,
the UK and Canada and has announced the construction of four stations in
the Netherlands.
Shell offers fast charging services for electric vehicles (EV) at 26 retail sites
in the Netherlands, China and the UK and is working with IONITY, a joint
venture of automotive manufacturers, to offer 500 high-powered charging
points across 10 European countries.
NewMotion, which we acquired at the end of 2017, operates private
electric charge points in the Netherlands, Germany, France and the UK, for
home and business use.
In January 2019, we acquired Greenlots, a California-based EV charging
company. This acquisition marks Shell’s entry into the US EV market
providing EV charging solutions at scale, including vehicle charging points,
smart software and grid services to commercial and residential customers.
Power
We have interests in five onshore wind power projects in the USA and in
one offshore wind power project – NoordzeeWind (Shell interest 50%) in
the Netherlands. In total, our share of the energy capacity from these
projects is more than 400 megawatts (MW).
In June 2018, the final investment decision was taken on the Borssele III and
IV offshore wind farm projects in the Netherlands (Shell interest 20%). These
wind farms are designed to have a total installed capacity of 731.5 MW. In
December 2018, we formed 50/50 joint ventures with EDF Renewables
and EDP Renewables to build wind farms off the coast of New Jersey and
Massachusetts, respectively. This marks our entry into the US offshore wind
market.
In 2018, we completed the acquisition of a 43.8% interest in Silicon Ranch
Corporation, a developer, owner and operator of solar energy assets in the
USA. In December 2018, a solar park started at Shell Moerdijk, the
Netherlands, providing power to our chemicals plants.
In January 2019, we acquired a 49% interest in Cleantech Solar, which
provides solar power to commercial and industrial customers across South-
East Asia and India.
In February 2018, we completed the acquisition of First Utility, a leading
independent UK household energy and broadband provider. In February
2019, we acquired sonnen, a provider of smart energy storage systems and
innovative energy services for households, and Limejump, a UK-based
digital energy-technology company.
SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
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Integrated Gas Continued
INTEGRATED GAS DATA TABLE
LNG liquefaction volumes
Australia
Brunei
Egypt
Malaysia [B]
Nigeria
Norway
Oman
Peru
Qatar
Russia
Trinidad and Tobago
2018
12.1
1.6
0.3
0.6
5.1
0.1
2.4
0.8
2.3
3.1
5.8
2017
11.1 [A]
Million tonnes
2016
9.5 [A]
1.6
0.2
1.3
5.2
0.1
2.0
0.9
2.4
3.1
5.3
1.6
0.2
1.3
4.5
0.1
2.0
0.9
2.4
3.0
5.4
Total
[A] Includes LNG liquefaction volumes related to our share in equity securities of Woodside, that were disposed of in 2017.
[B] Includes LNG liquefaction volumes related to our share in equity securities of Malaysia LNG Tiga, that were disposed of in 2018.
34.3
33.2
30.9
LNG AND GTL PLANTS AT DECEMBER 31, 2018
LNG liquefaction plants in operation
Location
Shell interest (%)
100% capacity (mtpa)[A]
Europe
Norway
Asia
Brunei
Oman
Qatar
Russia
Oceania
Australia
Africa
Egypt
Nigeria
South America
Peru
Asset
Gasnor
Brunei LNG
Oman LNG
Qalhat LNG
Qatargas 4
Sakhalin LNG
Australia North West Shelf
Gorgon LNG T1
Gorgon LNG T2
Gorgon LNG T3
Queensland Curtis LNG T1
Queensland Curtis LNG T2
Egyptian LNG T1
Egyptian LNG T2
Nigeria LNG
Bergen
Lumut
Sur
Sur
Ras Laffan
Prigorodnoye
Karratha
Barrow Island
Barrow Island
Barrow Island
Curtis Island
Curtis Island
Idku
Idku
Bonny
Peru LNG
Pampa Melchorita
Trinidad and Tobago
Atlantic LNG T1
Atlantic LNG T2/T3
Atlantic LNG T4
[A] As reported by the operator.
[B] Interest, or part of the interest, is held via indirect shareholding.
Point Fortin
Point Fortin
Point Fortin
34
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
100.0
25.0
30.0
11.0 [B]
30.0
27.5
16.7
25.0
25.0
25.0
50.0
97.5
35.5
38.0
25.6
20.0
46.0
57.5
51.1
0.3
7.8
7.1
3.7
7.8
9.6
16.9
5.2
5.2
5.2
4.3
4.3
3.6
3.6
22.0
4.5
3.0
6.6
5.2
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LNG liquefaction plants under construction
Asset
Prelude
Oceania
Australia
North America
Canada
GTL plants in operation
Asia
Malaysia
Qatar
Location
Shell interest (%)
100% capacity (mtpa)
LNG Canada T1-2
Kitimat
Browse Basin
67.5
40.0
3.6
14.0
Asset
Location
Shell interest (%)
100% capacity (b/d)
Shell MDS
Pearl
Bintulu
Ras Laffan
72.0
100.0
14,700
140,000
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SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
35
Upstream
Key statistics
Segment earnings
Including:
Revenue (including inter-segment sales)
Share of profit of joint ventures and associates
Interest and other income
Operating expenses [A]
Exploration
Depreciation, depletion and amortisation
Taxation charge/(credit)
Capital investment [A]
Divestments [A]
Oil and gas production available for sale (thousand boe/d)
[A] See “Non-GAAP measures reconciliations” on pages 263-264.
OVERVIEW
Our Upstream business explores for and extracts crude oil, natural gas and
natural gas liquids. It also markets and transports oil and gas, and operates
infrastructure necessary to deliver them to market. We are also involved
in the extraction of bitumen from mined oil sands and its conversion into
synthetic crude oil.
BUSINESS CONDITIONS
Global oil demand grew by 1.2 million barrels per day (b/d), or 1.2%, to
99.2 million b/d in 2018, according to the International Energy Agency’s
Oil Market Report published in January 2019. Brent crude oil, an
international benchmark, traded between $51 per barrel (/b) and $86/b in
2018, ending the year at the lower price of $51/b. It averaged $71/b for
the year, $17/b higher than in 2017, and $27/b higher than in 2016 when
the average price was at its lowest average level since 2004.
On a yearly average basis, West Texas Intermediate crude oil traded at a
$6/b discount to Brent in 2018, compared with $3/b in 2017. The discount
widened from 2017, reflecting constrained pipeline capacity from the
landlocked Cushing storage hub to the US Gulf Coast. US oil exports
increased from 2017, which helped to limit further widening of the price
differential.
Global gas demand is estimated to have grown by about 3.2% in 2018,
which is higher than the average annual growth rate of 2.4% since the
beginning of the century. A combination of weather conditions,
implementation of new policies such as the partial substitution of coal by
gas-fired power generation in China, and global economic growth led to
an increase in demand in most regions.
In the USA, the natural gas price at the Henry Hub averaged $3.1 per
million British thermal units (MMBtu) in 2018, 3% higher than in 2017, and
traded in a range of $2.5-4.9/MMBtu. There was some downward
pressure on prices due to strong supply growth, which averaged 11% higher
than 2017, helped by higher oil prices and new gas pipeline capacity.
However, gas prices were also supported by a range of factors, such as
below-normal storage inventory levels, and demand growth due to colder
than normal weather in the second half of 2018, the completion of LNG
liquefaction projects, increased exports to Mexico by pipeline, and US
industrial demand.
36
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
2018
6,798
47,733
285
600
12,157
1,132
13,006
8,791
12,525
2,198
2,709
$ million, except where indicated
2017
1,551
40,192
623
1,188
12,656
1,804
17,303
2,409
13,648
11,542
2,777
2016
(3,674 )
32,936
222
839
14,501
1,614
16,779
(938 )
47,507
1,726
2,784
In Europe, natural gas prices were higher than in 2017. The average price at
the UK National Balancing Point (NBP) was 33% higher in 2018. At the main
continental gas trading hubs – in the Netherlands, Belgium and Germany –
prices were also stronger, as reflected by stronger Dutch Title Transfer Facility
(TTF) prices. European gas prices were supported by record prices for carbon
dioxide (CO2) allowances (EUAs) which averaged €16/tCO2 in 2018
compared to €6/tCO2 in 2017, resulting in higher preference for gas over
coal in power generation. Gas prices were also supported by lower nuclear
power output, particularly in Belgium and Spain, lower than normal
temperatures early in the year, and competition from North-East Asian markets
for LNG supplies for storage replenishment ahead of winter.
See “Market overview” on pages 21-23.
PRODUCTION AVAILABLE FOR SALE
In 2018, production was 989 million boe, or 2,709 thousand boe/d,
compared with 1,014 million boe, or 2,777 thousand boe/d in 2017. Liquids
production decreased by 2% and natural gas production decreased by 3%
compared with 2017.
Decreases were mainly due to divestments (around 199 thousand boe/d)
and field declines (around 66 thousand boe/d). Increases were mainly from
new field start-ups and the continuing ramp-up of existing fields (around 173
thousand boe/d), in particular in the Permian Basin in the USA, Lula South in
Brazil, Schiehallion, Loyal and Clair phase 2 in the UK, Kaikias and Stones in
the US Gulf of Mexico, and stronger operational performance, which
contributed additional volumes of around 38 thousand boe/d. Other items
had a net negative impact of around 14 thousand boe/d.
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EARNINGS 2018-2017
Segment earnings in 2018 were $6,798 million, which included a net gain of
$23 million. This included a net gain of $886 million on sale of assets, mainly
related to our divestments in Iraq, Malaysia, Oman and Ireland, as well as a
gain of $149 million related to the fair value accounting of commodity
derivatives. These gains were partly offset by a charge of $561 million related
to the impact of the weakening Brazilian real on a deferred tax position, a net
impairment charge of $350 million mainly related to assets in North America
and deep-water rig joint ventures, and a charge of $90 million related to the
release of historic currency differences.
Segment earnings in 2017 were $1,551 million, which included a net charge
of $1,540 million. The net charge included impairment charges of $2,557
million, mainly related to divestments of our oil sands interests in Canada,
onshore assets in Gabon and our interest in the Corrib gas project in Ireland,
a charge of $1,089 million related to US tax reform legislation, and
redundancy and restructuring charges of $163 million. These charges were
partly offset by gains on divestments of $1,463 million, mainly related to a
package of assets in the UK North Sea, a credit of $772 million mainly
reflecting the release of tax liabilities, and other items with a net positive
impact of $34 million.
Excluding the net gains described above, segment earnings in 2018 were
$6,775 million, compared with $3,091 million in 2017. Earnings benefited
from higher realised oil and gas prices (around $4,770 million) and lower
well write-offs (around $400 million). These impacts were partly offset by the
impact of movements in deferred tax positions (around $1,520 million) and
lower production volumes (around $510 million).
EARNINGS 2017-2016
Segment earnings in 2017 were $1,551 million, which included a net charge
of $1,540 million as described above.
Segment earnings in 2016 were a loss of $3,674 million, which included a net
charge of $970 million. The net charge included impairment charges of
$1,147 million, redundancy and restructuring charges of $654 million; a $235
million provision for onerous drilling rig contracts; $198 million related to the
reassessment of deferred tax positions in Malaysia; and a net charge on fair
value accounting of certain commodity derivatives and gas contracts of $145
million. These charges were partly offset by a gain of $661 million related to
the impact of a strengthening Brazilian real on a deferred tax position,
divestment gains of $645 million, and a credit of $103 million reflecting a
statutory tax rate reduction in the UK.
Excluding the net charges described above, segment earnings in 2017 were
$3,091 million compared with a loss of $2,704 million in 2016, principally as
a result of higher realised oil and gas prices, lower deferred tax positions and
depreciation, partly offset by lower production volumes mainly due to
divestments and higher well write-offs.
CAPITAL INVESTMENT
Capital investment in 2018 was $12.5 billion, compared with $13.6 billion in
2017. Capital investment in 2017 included $1.5 billion related to the
acquisition of a 50% interest in 1745844 Alberta Ltd. (formerly known as
Marathon Oil Canada Corporation). The lower capital investment in 2018
reflected our continuing efforts to improve capital efficiency by pursuing lower-
cost development solutions, partly offset by increased investments in
exploration acreage additions and lease renewals in Nigeria.
DIVESTMENTS
Divestments in 2018 were $2.2 billion, compared with $11.5 billion in 2017.
Divestments in 2018 were mainly the sale of our assets in Iraq (West Qurna 1
field), Ireland (Corrib gas project), Malaysia (North Sabah Enhanced Oil
Recovery (EOR) PSC), Norway (Draugen and Gjøa fields), Oman
(Mukhaizna oil field), the UK (Triton assets) and the USA (non-core net mineral
acres in the Permian Basin).
PORTFOLIO AND BUSINESS DEVELOPMENT
We took the following key portfolio decisions during 2018:
(cid:131) In Argentina, we started developing three blocks in the Vaca Muerta shales
basin – Cruz de Lorena and Sierras Blancas (Shell interest 90%) and
Coiron Amargo Sur Oeste (Shell interest 80%).
(cid:131) In Brazil’s Santos Basin, we signed 35-year PSCs for the Saturno (Shell
interest 50% as operator) and Tres Marias (Shell interest 40%) deep-water
exploration blocks.
(cid:131) Also in Brazil, we won four deep-water blocks in the Campos and Potiguar
basins; we solely secured one exploration block as operator and secured
three blocks in joint-bids (Shell interest 40%).
(cid:131) Additionally, in Brazil, we took the final investment decisions (FID) for the
Berbigão (P68) and Atapu I (P70) floating production, storage and
offloading (FPSO) vessels (Shell interest 25%, subject to unitisation), and
Mero I, located in the Libra block (Shell interest 20%).
(cid:131) In Egypt, we approved the FID for the development of Phase 9B of the
West Delta Deep Marine (WDDM) offshore concession (Shell interest
50%).
(cid:131) In Kazakhstan, we took the FID for the development of the Karachaganak
Gas Debottlenecking project (Shell interest 29.3%).
(cid:131) In Malaysia, we took the FID for the development of the Gorek, Larak and
Bakong gas fields in Block SK408 offshore Sarawak (Shell interest 30%)
and the development of the Pegaga gas field in Block SK320 offshore
Sarawak (Shell interest 20%).
(cid:131) In Mauritania, we signed two PSCs with the government for the exploration
and potential future production of hydrocarbons in the offshore blocks C-10
and C-19 (Shell interest 90% as operator). The blocks, which have a total
area of approximately 23,675 square kilometres, are located in the West
African Atlantic Margin exploration basin.
(cid:131) In Mexico, we won nine deep-water exploration blocks; four blocks on our
own (Shell interest 100%), four with our partner Qatar Petroleum
International Limited (Shell interest 60%), and one with our partner Pemex
Exploración y Producción (Shell interest 50%). The total area of these nine
blocks is 18,996 square kilometres. We will be the operator of all nine
blocks.
(cid:131) In Nigeria, we renewed a number of onshore oil mining leases in the Niger
Delta for 20 years (Shell interest 30%).
(cid:131) Also in Nigeria, we took the FID on Assa North, Gbaran Enwhe and
Gbaran Nodal Compression projects (Shell interest 30%).
(cid:131) In the UK North Sea, we announced the FID for the redevelopment of the
Penguins oil and gas field (Shell interest 50%). The project will use a FPSO
and is expected to have a peak production of around 45 thousand boe/d.
(cid:131) Also in the UK North Sea, we announced FIDs for development of our
operated oil and gas fields – Fram (Shell interest 32%), Arran (Shell interest
44.6%) and Gannet E (Shell interest 50%) along with the Gannet Export
infrastructure investment in the central North Sea and the Shearwater gas
infrastructure hub; and the non-operated Alligin oil field West of Shetland
(Shell interest 50%).
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Upstream Continued
(cid:131) Additionally, in the UK, we acquired a 22.5% non-operated interest in the
P1830 licence and a 30% interest in the P1028 and P1189 licences; P1189
includes the Cambo discovery north-west of Shetland, where the successful
conclusion of well-testing operations on the appraisal well was confirmed.
(cid:131) In the US Gulf of Mexico, we announced the FID to develop the Vito deep-
water field. Vito (Shell interest 63.1%) is expected to reach an average
peak production of 100 thousand boe/d.
In January 2019, we announced the FID for the Basrah Gas Company
Natural Gas Liquids expansion project in Iraq that will increase the capacity
to 1.4 billion scf/d (Shell interest 44%).
In February 2019, we agreed the heads of terms for the resolution of the OML
118 negotiations, including the PSC dispute with the Nigerian National
Petroleum Corporation (NNPC), following which we have a clear commercial
framework for a potential Bonga South West Aparo FID, and announced an
invitation to tender.
We achieved the following operational milestones in 2018:
(cid:131) In Brazil, we announced first production from our fourteenth FPSO (P69), in
Lula Extreme South, which is expected to ramp up to full production
capacity in 2019 (Shell interest 25%, pre-unitisation).
(cid:131) In Nigeria, we announced a notable discovery, Epu Deep, which is a near-
field gas discovery in the greater Gbaran area, onshore Niger Delta. It
was discovered in the Epu Field block OML 28, located beneath the
producing Epu Field in the Central Swamp area of the Niger Delta (Shell
interest 30%).
(cid:131) In the UK, we announced the start-up of the second phase of the Clair field,
with an expected peak production of 106 thousand boe/d (Shell interest
28%).
(cid:131) In the US Permian Basin, we nearly doubled our production in 2018 and
matured an inventory of resources in excess of 1 billion boe that breaks
even at less than $40 per barrel.
(cid:131) In the US Gulf of Mexico, we announced one of our largest exploration
finds in the past decade from the Whale deep-water well (Shell interest
60%). It was discovered in the Alaminos Canyon Block 772, adjacent to
the Shell-operated Silvertip field and approximately 16 kilometres from the
Shell-operated Perdido platform.
(cid:131) Also, in the US Gulf of Mexico, we announced a large deep-water
discovery, in the Dover well (Shell interest 100%). The Dover discovery is
our sixth in the Norphlet geologic play. It is located approximately 21
kilometres from the Appomattox deep-water platform.
(cid:131) We also completed the construction of the Appomattox deep-water
platform in the US Gulf of Mexico. We expect to start production in 2019,
with an expected average peak production of approximately 175,000
thousand boe/d (Shell interest 79%).
(cid:131) Additionally, in the US Gulf of Mexico, we commenced production from
Coulomb phase 2 (Shell interest 100%).
(cid:131) We announced the start of production of Kaikias Phase 1, a subsea
development in the US Gulf of Mexico with an estimated peak production
of 40 thousand boe/d (Shell interest 80%). It will produce oil and gas
through a subsea tie-back to the nearby Shell-operated Ursa production
hub.
In February 2019, we announced the start of production from our fifteenth
FPSO (P67), in Lula North, which is expected to ramp up to full production
capacity in 2019 (Shell interest 25%, pre-unitisation).
38
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
In the Netherlands, the shareholders of the Nederlandse Aardolie
Maatschappij B.V. (NAM) (Shell interest 50%) and the Dutch government
signed a heads of agreement (HoA) that includes measures to support the
reduction of production and to ensure the financial robustness of NAM. As
part of the agreement, NAM’s shareholders have agreed for NAM not to
declare dividends for 2018 or 2019.
We continued to divest selected assets during 2018, including:
(cid:131) In Iraq, we sold our 19.6% interest in the West Qurna 1 field. We also
handed over operations of the Majnoon field to the Iraqi government.
(cid:131) In Ireland, we sold our 45% interest in the Corrib gas project.
(cid:131) In Malaysia, we completed the sale of our 50% interest in the 2011 North
Sabah EOR Production Sharing Contract.
(cid:131) In Norway, we sold our entire 44.6% interest in the Draugen field and
12% interest in the Gjøa field.
(cid:131) In Oman, we sold our 17% interest in the Mukhaizna oil field.
(cid:131) In the UK, we sold our interest in the Triton Cluster, which comprises the
central UK North Sea assets: Bittern (Shell interest 39.6%), Triton FPSO
(Shell interest 26.4%), Gannet E (Shell interest 50%) and Belinda/Evelyn
(Shell interest 100%).
(cid:131) In the US Permian Basin, we divested approximately 10,500 non-core net
mineral acres and primarily undeveloped assets.
In Denmark, we announced the sale of our 36.8% non-operating interest in our
joint venture, the Danish Underground Consortium. The transaction is expected
to complete in 2019, subject to partner and regulatory approvals.
BUSINESS AND PROPERTY
Our subsidiaries, joint ventures and associates 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, state-owned company, government-run oil and gas
company or agency, and the exploration risk usually rests with the
independent oil and gas company. In North America, these agreements may
also be with private parties that own mineral rights. Of these agreements, the
following are most relevant to our interests:
(cid:131) 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, state-owned company or government-run oil and gas
company may sometimes enter into a joint arrangement as a participant
sharing the rights and obligations of the licence but usually without sharing
the exploration risk. In a few cases, the state-owned company, government-
run oil and gas company or agency has an option to purchase a certain
share of production.
(cid:131) Lease agreements, which are typically used in North America and are usually
governed by terms similar to licences. Participants may include governments
or private entities, and royalties are either paid in cash or in kind.
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(cid:131) PSCs entered into with a government, state-owned company 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, state-owned company or government-run oil and gas
company on a fixed or volume/revenue-dependent basis. In some cases,
the government, state-owned company 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 production
normally decreases, and vice versa. Accordingly, its interest in a project
may not be the same as its entitlement.
EUROPE
Denmark
We have a non-operating interest in a producing concession in Denmark
(Shell interest 36.8%). In October 2018, we announced the sale of this non-
operating interest in the Danish Underground Consortium. The transaction is
expected to complete in 2019, subject to partner and regulatory approvals.
Italy
We have a 39% interest in the Val d’Agri producing concession, operated by
ENI.
We also have a 25% interest in the Tempa Rossa concession operated by
Total. The start-up of production at the Tempa Rossa field is expected in 2019.
Netherlands
Shell and ExxonMobil are 50:50 shareholders in Nederlandse Aardolie
Maatschappij B.V. (NAM). An important part of NAM’s gas production
comes from the onshore Groningen gas field, in which NAM holds a 60%
interest. The remaining 40% interest is held by EBN, a Dutch government
entity.
Production from the Groningen field induces earthquakes that cause damage
to houses and other buildings and structures in the region. This has led to
complaints and claims for compensation for damage from the local
community. NAM is working with the Dutch government and other
stakeholders to fulfil its obligations to the residents of the area, which includes
compensation for damage caused by above-mentioned earthquakes.
Since 2013, the Dutch Minister of Economic Affairs and Climate (the Minister)
has set an annual production level for the Groningen field taking into account
all interests, including safety of the residents, security of supply in the domestic
gas market as well as supply commitments in EU member states. Production in
the gas year 2017-2018 (ending October 1, 2018) was capped at 21.6 billion
cubic metres; actual production in this period was 20.1 billion cubic metres.
In March 2018, the Minister announced a government decision to close in the
Groningen field as soon as possible, with production expected to end around
2030, as a base scenario.
Apart from production reductions, over the years, a variety of other
measures have been taken by NAM, the Minister and the government.
NAM funded and led an in-depth study and data acquisition programme
into the earthquakes and its effects. Specific building regulations were
issued and, in 2018, an independent government body was set up to
handle damage claims by the local community. Starting in November 2018,
the Minister has taken over from NAM the duty of care with respect to the
strengthening of buildings and the Minister now decides on the scope and
prioritisation thereof. NAM will pay the costs associated with these
activities. See “Risk Factors” on page 17.
In June 2018, NAM’s shareholders and the Dutch government signed a
Heads of Agreement (HoA) to reduce production from Groningen and to
ensure the financial robustness of NAM to fulfil its obligations. In the HoA,
NAM’s shareholders have agreed not to declare dividends for 2018 and
2019. In September 2018, detailed agreements were signed to further
implement the HoA. As part of these agreements, Shell guarantees the
performance by NAM of the NAM’s payment obligations vis-à-vis the Dutch
government in relation to earthquake-related damages and costs of
strengthening, up to a maximum of 30% in the NAM, which equals Shell’s
indirect interest in the Groningen production system.
The Ministerial production instruction for the Groningen gas field for the gas
year 2018/2019 is to produce a volume of 19.4 billion cubic meters, based
on a year with an average temperature profile. This instruction and the
associated amendments in the Mining Act in effect constitute for NAM a legal
obligation to produce.
NAM also has a 60% interest in the Schoonebeek oil field and operates 25
other hydrocarbon production licences onshore and offshore in the North
Sea.
Norway
We are a partner in 32 production licences on the Norwegian continental
shelf. We are the operator in 13 of these, of which three are producing: the
Gaupe field (Shell interest 60%), the Knarr field (Shell interest 45%), and the
Ormen Lange gas field (Shell interest 17.8%). We have interests in the
producing fields Troll, Kvitebjørn, Sindre and Valemon, where we are not
the operator.
UK
We operate a significant number of our interests on the UK continental shelf
under a 50:50 joint venture agreement with ExxonMobil. In addition to our oil
and gas production from North Sea fields, we have various interests in the
Atlantic Margin area where we are not the operator, principally in the West
of Shetland area (Clair, Shell interest 28%, and Schiehallion, Shell interest
approximately 45%).
In January 2018, we announced the FID for the redevelopment of the Penguins
oil and gas field (Shell interest 50%) in the UK North Sea. Also, in 2018, we
announced FIDs for development of our operated oil and gas fields – Fram
(Shell interest 32%), Arran (Shell interest 44.6%) and Gannet E (Shell interest
50%) along with the Gannet Export infrastructure investment in the central
North Sea and the Shearwater gas infrastructure hub; and a non-operated
Alligin oil field West of Shetland (Shell interest 50%).
In May 2018, we acquired a 22.5% non-operated stake in the P1830 licence
and a 30% stake in the P1028 and P1189 licences. P1189 includes the Cambo
discovery north-west of Shetland and in August 2018 the successful conclusion
SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
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Upstream Continued
of well-testing operations on the appraisal well in the Cambo field was
confirmed.
In September 2018, we sold our interest in the Triton cluster, which comprises
the central UK North Sea assets: Bittern (Shell interest 39.6%), Triton FPSO
(Shell interest 26.4%), Gannet E (Shell interest 50%) and Belinda/Evelyn
(Shell interest 100%).
In November 2018, we announced the start-up of the second phase of the
Clair field, with an expected peak production of 106 thousand boe/d (Shell
interest 28%).
Rest of Europe
We also have interests in Albania, Bulgaria, Germany and Greenland.
ASIA (INCLUDING THE MIDDLE EAST AND RUSSIA)
Brunei
Shell and the Brunei government are 50:50 shareholders in Brunei Shell
Petroleum Company Sendirian Berhad (BSP). BSP has long-term oil and gas
concession rights onshore and offshore Brunei, and sells most of its gas
production to Brunei LNG Sendirian Berhad (see “Integrated Gas” on
page 31), with the remainder (12% in 2018) sold in the domestic market.
In addition to our interest in BSP, we are the operator of the Block A
concession (Shell interest 53.9%), which is under exploration and
development. We have a 35% non-operating interest in the Block B
concession, where gas and condensate are produced from the Maharaja
Lela field.
We also have non-operating interests in deep-water exploration Block CA-2
(Shell interest 12.5%) and in exploration Block N (Shell interest 50%), both
under PSCs.
Iran
Shell transactions with Iran are disclosed separately. See “Section 13(r) of the
US Securities Exchange Act of 1934 Disclosure” on page 262.
Iraq
We have a 44% interest in the Basrah Gas Company, which gathers, treats
and processes associated gas that was previously being flared from the
Rumaila, West Qurna 1 and Zubair fields. The processed gas and associated
products, such as condensate and LPG, are sold to the domestic market and
surplus condensate and LPG are exported. In 2018, Basrah Gas processed
on average around 800 million scf/d of associated gas into dry gas,
condensate and LPG.
In January 2019, we announced the FID for the Basrah Gas Company
Natural Gas Liquids expansion project that will increase the capacity to 1.4
billion scf/d (Shell interest 44%).
In March 2018, we sold our 19.6% interest in the West Qurna 1 field. In June
2018, we handed over operations of the Majnoon field to the Iraqi government.
We have a 16.8% interest in the North Caspian Sea Production Sharing
Agreement which includes the Kashagan field in the Kazakh sector of the
Caspian Sea. 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 oil production
capacity of about 370 thousand b/d by 2019, on a 100% basis, with the
possibility of increases with additional phases of development. Production
started in 2016.
We also have an interest of 55% in the Pearls PSC in the Kazakh sector of the
Caspian Sea. It includes two oil fields, Auezov and Khazar, and covers an
area of around 520 square kilometres.
We also have a 7.4% interest in Caspian Pipeline Consortium, which owns
and operates an oil pipeline running from the Caspian Sea to the Black Sea
across parts of Kazakhstan and Russia.
In 2018, we took the FID for the development of the Karachaganak Gas
Debottlenecking project (Shell interest 29.3%).
Malaysia
We explore for and produce oil and gas offshore Sabah and Sarawak under
17 PSCs, in which our interests range from 20% to 85%.
Offshore Sabah, we operate two producing oil fields (Shell interests ranging
from 29% to 35%). These include the Gumusut-Kakap deep-water field (Shell
interest 29%), where production is via a dedicated floating production system,
and the Malikai deep-water field (Shell interest 35%). We also have a 21%
interest in the Siakap North-Petai deep-water field and a 30% interest in the
Kebabangan field, both operated by third parties. In March 2018, we
completed the sale of our 50% interest in the 2011 North Sabah EOR PSC.
Additionally, we have exploration interests in Blocks SB-J, SB-G, SB-N, SB-3G,
ND-6 and ND-7 PSCs.
Offshore Sarawak, we are the operator of 10 producing gas fields (Shell
interests ranging from 37.5% to 50%). The M3S field (Shell interest 70%),
F23SW field (Shell interest 50%) and Serai field (Shell interest 37.5%)
reached the end of life. F23SW was abandoned successfully in 2018, while
the abandonment for M3S will be completed in 2019 and Serai
abandonment will be completed between 2019 and 2020. Nearly all the
gas produced offshore Sarawak is supplied to Malaysia LNG (we divested
our remaining 15% interest in June 2018) and to our gas-to-liquids plant in
Bintulu. See “Integrated Gas” on page 31.
In 2018, we took the FID for the development of Gorek, Larak and Bakong
gas fields in Block SK408 offshore Sarawak (Shell interest 30%) and the
development of Pegaga gas field in Block SK320 offshore Sarawak (Shell
interest 20%).
We also have a 40% interest in the 2011 Baram Delta EOR PSC and a 50%
interest in Block SK-307, and interests in exploration Blocks SK318, SK320,
SK408 and SK319 (operational extension application submitted to the
regulator).
Kazakhstan
We are the joint operator of the onshore Karachaganak oil and condensate
field (Shell interest 29.3%), where we have a licence to the end of 2037.
Karachaganak produced around 399 thousand boe/d, on a 100% basis,
in 2018.
Oman
We have a 34% interest in Petroleum Development Oman (PDO); the Omani
government has a 60% interest. PDO is the operator of more than 160 oil
fields, mainly located in central and southern Oman, over an area of
76,152 square kilometres. The concession expires in 2044.
40
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In April 2018, we sold our 17% interest in the Mukhaizna oil field.
United Arab Emirates
In Abu Dhabi, we have a 15% interest in the licence of ADNOC Gas
Processing, which expires in 2028. ADNOC Gas Processing exports
propane, butane and heavier-liquid hydrocarbons, which it extracts from the
wet gas associated with the oil produced by ADNOC Onshore.
Rest of Asia
We also have interests in Jordan, Kuwait, the Philippines and Turkey.
AFRICA
Egypt
We have a 50% interest in the Badr Petroleum Company (BAPETCO), a self-
operated joint venture between Shell and the Egyptian General Petroleum
Corporation (EGPC). BAPETCO onshore operations are in the Western
Desert where we have an interest in nine oil and gas producing development
leases, as well as four exploration concessions (North East Obaiyed, North
Matruh, North East El Shawish and North Umbaraka).
We have interests in two gas-producing areas offshore the Nile Delta. We
have a 40% interest in the Rashid Petroleum Company, a self-operated joint
venture between Shell, EGPC and Edison, which operates the Rosetta
concession (Shell interest 80%).
We also have a 25% interest in the Burullus Gas Company (Burullus), a self-
operated joint venture between Shell, EGPC and PETRONAS. Burullus
operates the West Delta Deep Marine concession (Shell interest 50%), which
supplies gas to both the domestic market and the Egyptian LNG plant (see
“Integrated Gas” on page 32).
Also in 2018, we announced a notable near-field exploration gas discovery in
the greater Gbaran area, onshore Niger Delta. It was discovered in the Epu
Field block OML 28, located beneath the producing Epu Field in the Central
Swamp of the Niger Delta (Shell interest 30%).
Offshore
Our main offshore deep-water activities are carried out by Shell Nigeria
Exploration and Production Company Limited (SNEPCO, Shell interest 100%),
which has interests in four deep-water blocks, under PSC terms, in which
production is via two FPSOs – Bonga and Erha. SNEPCO operates OMLs
118 (including the Bonga field FPSO, Shell interest 55%) and 135 (Bolia and
Doro, Shell interest 55%) and has a 43.8% non-operating interest in OML 133
(including the Erha FPSO) and a 50% non-operating interest in oil prospecting
licence (OPL) 245 (Zabazaba, Etan).
We have two non-producing offshore interests OPL 284 (Shell interest 45%)
and OPL 286 (Shell interest 66% as operator).
Authorities in various countries are investigating our investment in Nigerian oil
block OPL 245 and the 2011 settlement of litigation pertaining to that block.
See Note 25 to the “Consolidated Financial Statements” on pages 211-213.
SNEPCO also has an approximate 43% interest in the Bonga South
West/Aparo development via its 55% interest in OML 118. In February 2019,
we agreed the heads of terms for the resolution of the OML 118 negotiations
including the PSC dispute with the NNPC, following which we now have a
clear commercial framework for a potential Bonga South West Aparo FID
and announced an invitation to tender. A timeframe for the FID will be
announced after the commercial framework is agreed.
We also have a 60% interest in the development rights over the Harmattan
Deep discovery and in the Notus discovery offshore the Nile Delta.
SPDC also has three shallow-water licences (OMLs 74, 77 and 79) and a
40% interest in the non-Shell-operated Sunlink joint venture that has one
shallow-water licence (OML 144); all four OMLs expire in 2034.
In April 2018, we approved the FID for the development of Phase 9B of the
WDDM offshore concession (Shell interest 50%).
Nigeria
Our share of production, onshore and offshore, in Nigeria was
255 thousand boe/d in 2018, compared with 266 thousand boe/d in
2017. Security issues, sabotage and crude oil theft in the Niger Delta
continued to be significant challenges in 2018.
Onshore
The Shell Petroleum Development Company of Nigeria Limited (SPDC) is the
operator of a joint venture (Shell interest 30%) that has 17 Niger Delta
onshore oil mining leases (OML). The 20-year renewals of 16 oil mining leases
(OMLs): 17, 20, 21, 22, 23, 25, 27, 28, 31, 32, 33, 35, 36, 43, 45 and 46
were achieved in December 2018. These OMLs expire in October 2038. To
provide funding, alternative funding arrangements, including with commercial
banks, are in place for certain key projects.
SPDC supplies gas to Nigeria LNG Ltd (see “Integrated Gas” on page 32)
mainly through its Gbaran-Ubie and Soku projects.
In 2018, we took the FIDs on Assa North, Gbaran Enwhe and Gbaran Nodal
Compression projects (Shell interest 30%).
In our Nigerian operations, we face various risks and adverse conditions
which could have a material adverse effect on our operational performance,
earnings, cash flows and financial condition (see “Risk factors” on page 17).
There are limitations to the extent to which we can mitigate these risks. We
carry out regular portfolio assessments to remain a competitive player in
Nigeria for the long term. We support the Nigerian government’s efforts to
improve the efficiency, functionality and domestic benefits of Nigeria’s oil and
gas industry, and we monitor legislative developments. We monitor the
security situation and liaise with host communities, governmental and non-
governmental organisations to help promote peace and safe operations. We
continue to provide transparency of spills management and reporting, along
with our deployment of oil-spill response capability and technology. We
execute a maintenance strategy to support sustainable equipment reliability
and have implemented a multi-year programme to reduce routine flaring of
associated gas. See “Climate change and energy transition” on page 77.
Rest of Africa
We also have interests in Algeria, Mauritania, Namibia and Tunisia.
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41
Upstream Continued
NORTH AMERICA
Canada
We have approximately 1,400 mineral leases in Canada, mainly in Alberta
and British Columbia. We produce and market natural gas, natural gas
liquids, synthetic crude oil and bitumen.
Shales
We have approximately 1,200 mineral leases with over 1.7 million net mineral
acres (2017: 2.6 million revised to 2.1 million). During the year, we
relinquished 0.5 million net mineral acres. Our position is primarily in the
Duvernay play in Alberta and the Montney play in British Columbia. Activity
includes drill-to-fill of our existing infrastructure and an investment focus on our
liquid-rich shale acreage.
In 2018, we drilled 70 wells. We have interests in 937 productive wells. We
operate four natural gas processing and extraction plants in Alberta and four
natural gas processing plants in British Columbia.
With the announcement of the FID for LNG Canada in 2018, our
Groundbirch asset is positioned as a possible feedstock to the project.
Bitumen and synthetic crude oil
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. We
have a 50% interest in 1745844 Alberta Ltd. (formerly known as Marathon
Oil Canada Corporation), which holds a 20% interest in the Athabasca Oil
Sands Project.
Carbon capture and storage (CCS)
We operate the Quest CCS project (Shell interest 10%), which captured
and safely stored more than 1 million tonnes of carbon dioxide in 2018.
Offshore
In December 2018, the Sable Offshore Energy project (Shell interest 31.3%)
stopped natural gas production off the coast of Nova Scotia, Canada. A
multi-year decommissioning and restoration phase has begun. We have also
relinquished all our exploration licences off the west coast of British Columbia.
USA
We have approximately 25,000 mineral leases in the USA. We produce oil
and gas in deep water in the Gulf of Mexico, heavy oil in California and oil
and gas from shale in Pennsylvania, Texas and Louisiana. 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 our major production area in the USA and accounts for
around 54% of our oil and gas production in the country. We have an interest
in approximately 264 federal offshore leases and our share of production
averaged 299 thousand boe/d in 2018.
In 2018, we announced one of our largest US Gulf of Mexico exploration
finds in the past decade from the Whale deep-water well (Shell interest 60%
42
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
as operator). It was discovered in the Alaminos Canyon Block 772, adjacent
to our Silvertip field and approximately 16 kilometres from the Shell-operated
Perdido platform.
We are the operator of seven production hubs – Mars A, Mars B, Auger,
Perdido, Ursa, Enchilada/Salsa and Stones – as well as the West Delta 143
Processing Facilities (Shell interests ranging from 38% to 100%). We also have
non-operating interests in Nakika (Shell interest 50%) and Caesar Tonga
(Shell interest 22.5%).
In 2018, we commenced production from Coulomb phase 2 (Shell interest
100% as operator). Coulomb ties into the Nakika non-operated platform.
In April 2018, we announced the FID to develop the Vito deep-water field.
Vito is expected to reach an average peak production of 100 thousand
boe/d (Shell interest 63.1%).
We continued with the development of the Appomattox project, with first oil
expected in 2019. In May 2018, we announced a large exploration discovery
in the Norphlet geologic play from the Dover deep-water well. Dover is
operated by us (100%) and is Shell’s sixth discovery in the Norphlet. The
discovery is located approximately 20 kilometres from the Appomattox
platform.
In May 2018, production started from the Kaikias deep-water project. Kaikias
(Shell interest 80%) is a subsea tie-back to the Shell-operated Ursa platform.
The Kaikias estimated peak production is 40 thousand boe/d.
From November 2017 to July 2018, our production from the Gulf of Mexico
was adversely impacted by the shut-in of the Enchilada/Salsa assets (ESA),
with subsequent impact on Auger and its associated fields (Llano, Macaroni
and Habanero) – all driven by a November 2017 ESA incident involving a
third-party owned and operated gas export pipeline. Production for Auger
and associated fields resumed in May 2018 and production from ESA
resumed in July 2018.
After our acquisition of the Stones FPSO (Shell interest 100%) in January 2018,
we shut it down for maintenance in February and resumed production in June.
Shales
We have approximately 23,000 mineral leases with nearly 1.3 million net
mineral acres. Our activity is focused in the Permian Basin in West Texas and
the Marcellus and Utica plays in Pennsylvania. We also have a non-Shell-
operated interest in the Haynesville shale gas formation in Northern Louisiana.
In 2018, we drilled 340 wells. We have interests in more than 2,300
productive wells and operate seven central processing facilities. The USA
represents 65% of our shales proved reserves and 76% of our shales liquids
proved reserves. In the Permian Basin, we nearly doubled our production in
2018, ending the year with an output of around 147 thousand boe/d and
have matured an inventory of resources in excess of 1 billion boe that breaks
even at less than $40 per barrel.
In April 2018, we sold approximately 10,500 non-core net mineral acres and
associated assets in the Permian Basin.
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2018, as negotiations are in an advanced stage, with a subsequent cash
settlement related to pre-unitisation costs and production expected during
2019. The Sapinhoá unitisation (combined Shell interest unaltered at 30%,
being 1.1% held through the Entorno de Sapinhoá PSC and 28.9% via the BM-
S-9 concession contract) has been in effect since November 2018 and the first
tranche of cash settlement occurred in December 2018. Also, in the Santos
Basin, we hold a 20% non-operator interest in BM-S-50 offshore exploration
block, where the Sagitário prospect was discovered. In addition, we hold a
20% non-operator interest in the Libra block, where commerciality of Mero I
was declared, well tests were initiated and where exploration is ongoing. The
Libra field is also subject to unitisation with adjoining areas, for which a
unitisation agreement is still subject to government approval.
In March 2018, during the fifteenth deep-water bid round, we won two
additional, non-operated, deep-water exploration blocks in the Potiguar Basin
(Shell interest 40%) and in June 2018, we won a PSC to explore the Tres Marias
block at the fourth pre-salt bid round held by the ANP (Shell interest 40%).
The activities of operated and non-operated fields are currently supported by
15 producing deep-water FPSOs, of which the fourteenth (P69) delivered first
oil in October 2018 and fifteenth (P67) in February 2019. Ramp up to full
production capacity is expected during 2019. Two additional FPSOs are
expected to be brought online over the period 2019-2020 (Berbigão (P68)
and Atapu I (P70)).
Rest of South America
We also have interests in Colombia and Uruguay.
TRADING AND SUPPLY
We market and trade crude oil from most of our Upstream operations.
California
We have a 51.8% interest in Aera Energy LLC which operates approximately
15,000 wells in the San Joaquin Valley in California, mostly producing heavy
oil and associated gas.
Alaska
With the exception of two remaining positions in the long-established North
Slope area, we have exited all other leases. We retain a non-operating
interest of 50% in 13 federal leases, operated by ENI. An exploratory drilling
operation for this joint venture was permitted by ENI and is under way. We
continue to evaluate our 18 state leases at nearby Western Harrison Bay,
which have geologic affinity with recent discoveries announced by other
North Slope operators.
Rest of North America
We also have interests in Mexico.
SOUTH AMERICA
Argentina
Shales
We have more than 162 thousand net mineral acres (2017: 260 thousand
revised to 156 thousand) in the Vaca Muerta basin, a liquids and gas-rich play
located in the Neuquén Province. The operated acreage includes blocks in
Cruz de Lorena and Sierras Blancas (Shell interest 90%), Coiron Amargo Sur
Oeste (Shell interest 80%), and Bajada de Añelo (Shell interest 50%). We
have a 45% non-Shell-operated interest in the Rincon La Ceniza and La
Escalonada blocks. We have interests in 36 producing wells and drilled
seven wells in 2018 in our operated acreage. We have a 90% interest in our
operated Sierras Blancas/Cruz de Lorena central processing facility. In
December 2018, we announced the start of the development phase of three
blocks in the Vaca Muerta basin (Cruz de Lorena, Sierras Blancas and Coiron
Amargo Sur Oeste).
Brazil
We operate several producing fields in the Campos Basin, offshore Brazil.
They consist of the Bijupirá and Salema fields (Shell interest 80%) and the BC-
10 field (Shell interest 50%). Our operated portfolio also includes the Gato do
Mato field in the Santos Basin and the adjacent Sul de Gato do Mato area
(Shell interest 80%), for which development options are being evaluated.
Additionally, in the operated portfolio, in the Santos Basin, we have 10
offshore exploration concessions in the Barreirinhas Basin (Shell interests
ranging from 50% to 100%) and a pre-salt PSC for Alto Cabo Frio Oeste
(Shell interest 55% as operator).
In March 2018, during the fifteenth deep-water bid round organised by the
Brazilian National Petroleum Agency (ANP), we secured two exploration
blocks as operator, one in the Potiguar Basin (Shell Interest 100%) and one in
the Campos Basin (Shell Interest 40%). In September 2018, we added the
Saturno block in the fifth pre-salt bid round (Shell interest 50%), in the Santos
Basin.
In our non-operated portfolio, in the Santos Basin, we have a 30% interest in
the BM-S-9, Entorno de Sapinhoá and BM-S-9A blocks with the Sapinhoá
and Lapa fields, as well as 25% interests in the BM-S-11 and BM-S-11A
concessions with the Lula (including Iracema area), Berbigão, Sururu and
Atapú fields, which are accumulations subject to ongoing unitisation
agreements. Lula unitisation impact (Shell interest of 23%, compared to 25%
applicable until the unitisation effective date) was recognised in September
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SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
43
Oil and gas information
Proved developed and undeveloped reserves of Shell subsidiaries and Shell share of joint ventures and associates
Crude oil and
natural gas liquids
(million barrels)
Natural gas
(thousand million scf)
Synthetic crude oil
(million barrels)
Bitumen
(million barrels)
Shell subsidiaries
Increase/(decrease) in 2018:
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases and sales of minerals in place
Total before taking production into account
Production [B]
Total
At January 1, 2018
At December 31, 2018
Shell share of joint ventures and associates
Increase/(decrease) in 2018:
Revisions and reclassifications
Improved recovery
Extensions and discoveries
Purchases and sales of minerals in place
Total before taking production into account
Production [C]
Total
At January 1, 2018
At December 31, 2018 [D]
Total
Increase/(decrease) before taking production into account
Production
Increase/(decrease)
At January 1, 2018
At December 31, 2018
Reserves attributable to non-controlling interest in
Shell subsidiaries at December 31, 2018
2,766
7
836
(599 )
3,011
(3,487 )
(476 )
30,324
29,847
(3,566 )
—
5
(37 )
(3,598 )
(743 )
(4,341 )
10,108
5,768
(587 )
(4,230 )
(4,817 )
40,432
35,615
489
41
329
(73 )
786
(600 )
186
4,300
4,486
(4 )
—
18
—
16
(38 )
(23 )
313
290
802
(639 )
163
4,613
4,776
—
32
—
—
—
32
(20 )
12
649
661
—
—
—
—
—
—
—
—
—
32
(20 )
12
649
661
331
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
(million
boe)[A]
997
42
474
(175 )
1,337
(1,222 )
117
10,177
10,294
(617 )
0
19
(6 )
(604 )
(166 )
(771 )
2,056
1,285
733
(1,388 )
(655 )
12,233
11,578
331
[A] Natural gas volumes are converted into oil equivalent using a factor of 5,800 standard cubic feet (scf) per barrel.
[B] Included 43 million barrels of oil equivalent (boe) consumed in operations (natural gas: 245 thousand million scf; synthetic crude oil: 1 million barrels).
[C] Included 7 million boe consumed in operations (natural gas: 41 thousand million scf).
[D] Includes 110 million boe related to our 36.8 % interest in the Danish Underground Consortium in Denmark. In October 2018, we announced the sale of this interest. The transaction is expected to be
completed in 2019, subject to partner and regulatory approvals.
PROVED RESERVES
The proved oil and gas reserves of Shell subsidiaries and the Shell share of
the proved oil and gas reserves of joint ventures and associates are set out
in more detail in “Supplementary information – oil and gas (unaudited)”
on pages 215-226.
Before taking production into account, our proved reserves increased by
733 million boe in 2018. This comprised of increases of 1,337 million boe
from Shell subsidiaries and of decreases of 604 million boe from the Shell
share of joint ventures and associates
After taking production into account, our proved reserves decreased by
655 million boe in 2018 to 11,578 million boe at December 31, 2018.
(cid:3)
44
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SHELL SUBSIDIARIES
Before taking production into account, Shell subsidiaries’ proved reserves
increased by 1,337 million boe in 2018. This comprised of increases of 786
million barrels of oil and natural gas liquids, 519 million boe (3,011 thousand
million scf) of natural gas and 32 million barrels of synthetic crude oil. The
1,337 million boe increase is the net effect of a net increase of 997 million
boe from revisions and reclassifications, an increase of 42 million boe from
improved recovery, an increase of 474 million boe from extensions and
discoveries, and a net decrease of 175 million boe related to purchases
and sales of minerals in place.
After taking into account production of 1,222 million boe (of which 43
million boe were consumed in operations), Shell subsidiaries’ proved
reserves increased by 117 million boe in 2018 to 10,294 million boe. In
2018, Shell subsidiaries’ proved developed reserves (PD) decreased by 126
million boe to 8,054 million boe, and proved undeveloped reserves (PUD)
increased by 242 million boe to 2,239 million boe.
SHELL SHARE OF JOINT VENTURES AND ASSOCIATES
Before taking production into account, the Shell share of joint ventures and
associates’ proved reserves decreased by 604 million boe in 2018. This
comprised an increase of 16 million barrels of crude oil and natural gas
liquids and a decrease of 620 million boe (3,598 thousand million scf) of
natural gas. The 604 million boe decrease comprises a net decrease of
617 million boe from revisions and reclassifications and an increase of 19
million boe from extensions and discoveries and a net decrease of 6 million
boe related to purchases and sales.
After taking into account production of 166 million boe (of which 7 million
boe were consumed in operations), the Shell share of joint ventures and
associates’ proved reserves decreased by 771 million boe to 1,285 million
boe at December 31, 2018.
In 2018, the Shell share of joint ventures and associates’ PD decreased by
738 million boe to 1,138 million boe and PUD decreased by 34 million boe
to 146 million boe.
PROVED UNDEVELOPED RESERVES
In 2018, Shell subsidiaries and the Shell share of joint ventures and
associates’ PUD increased by 208 million boe to 2,385 million boe. There
were decreases of 702 million boe due to maturation to PD, mainly 218
million boe in Prelude (Australia), 86 million boe in Kolo Creek (Nigeria),
and 398 million boe spread across other fields. These were offset by
increases of 392 million boe due to revisions and net increases of 493
million boe due to extensions and discoveries – mainly in the Permian Basin
(106 million boe), Vito (105 million boe) and Mero (85 million boe) – and
decreases of 18 million boe due to sales of minerals in place and increases
of 43 million boe due to improved recovery spread across other fields.
In addition to the maturation of 702 million boe from PUD to PD, 169 million
boe was matured to PD from contingent resources through PUD as a result
of project execution during the year.
PUD held for five years or more (PUD5+) at December 31, 2018, amounted
to 272 million boe, a decrease of 280 million boe compared with the end
of 2017. These PUD5+ remain undeveloped because development either
requires the installation of compression equipment and the drilling of
additional wells, which will be executed when required to support existing
gas delivery commitments (Russia), or will take longer than five years
because of the complexity and scale of the project (Australia and the UK).
The decrease in PUD5+ during 2018 was driven mainly by changes in
Prelude (Australia), Kolo Creek (Nigeria), Tempa Rossa (Italy), and
Kashagan (Kazakhstan).
The fields with the largest PUD5+ at December 31, 2018, were Jansz-Io and
Gorgon (Australia), Lunskoye (Russia), Clair (UK) and Forcados-Yokri
(Nigeria).
During 2018, we spent $9 billion on development activities related to PUD
maturation.
DELIVERY COMMITMENTS
We sell crude oil and natural gas from our producing operations under a
variety of contractual obligations. Most contracts generally commit us 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, we met our contractual delivery commitments, with
the notable exceptions of Malaysia, Egypt and Trinidad and Tobago. In the
period 2019-2021, we are contractually committed to deliver to third
parties, joint ventures and associates a total of approximately 7,700 billion
scf of natural gas from our subsidiaries, joint ventures and associates. 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.
In the period 2019-2021, we expect to meet our delivery commitments for
almost all the areas in which they are carried, with an estimated 73%
coming from PD, 5% through the delivery of gas that comes available to us
from paying royalties in cash, and 22% from the development of PUD as
well as other new projects and purchases.
The key exceptions are:
(cid:131)
(cid:131)
(cid:131)
Egypt (with a shortfall of 750 billion scf of natural gas), where the
diversion of gas from the offshore West Delta Deep Marine fields to
domestic use is expected to continue in the near future, leaving our
commitment to deliver liquefied natural gas under force majeure; and
Trinidad and Tobago, where PD for most fields fail the economic test
at the yearly average price for natural gas. However, we expect to
cover 85% of our delivery commitments from existing developed
resource volumes, resulting in an expected true shortfall of some 95
billion scf; and
In Malaysia, one of the third-party gas supply lines was under repair
during 2018, with completion expected in the third quarter of 2019.
We expect a contractual shortfall of 35 billion scf in 2019. Force
majeure has been declared, and no penalties have been incurred.
Shell Annual Report_Master Template.indd 45
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SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
45
Oil and gas information Continued
Summary of proved oil and gas reserves of Shell subsidiaries and Shell share of joint ventures and associates
(at December 31, 2018)(cid:3)
(cid:3)
Crude oil and
natural gas liquids
(million barrels)
Natural gas
(thousand million scf)
Synthetic crude oil
(million barrels)
Total
(million boe)[A]
Based on average prices for 2018
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
Total proved undeveloped
Total proved developed and undeveloped
Europe
Asia
Oceania
Africa
North America
USA
Canada
South America
Total
Reserves attributable to non-controlling interest in Shell subsidiaries
[A] Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.
252
1,568
108
335
629
21
633
3,546
125
215
21
85
388
2
394
1,230
377
1,783
129
420
1,017
23
1,027
4,776
—
3,794
14,032
5,844
1,573
1,706
721
1,238
28,908
969
1,180
2,607
971
441
268
271
6,707
4,763
15,212
8,451
2,544
—
2,147
989
1,509
35,615
—
—
—
—
—
—
661
—
661
—
—
—
—
—
—
—
—
—
—
—
—
—
661
—
661
331
906
3,988
1,116
606
923
807
847
9,193
292
419
470
252
464
48
440
2,385
1,198
4,406
1,586
858
1,387
855
1,288
11,578
331
46
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EXPLORATION
In 2018, we made notable discoveries in the US Gulf of Mexico and
Nigeria. In January 2018, we announced one of our largest US Gulf of
Mexico exploration finds in the past decade from the Whale deep-water
well (Shell interest 60% as operator). Other notable discoveries include Epu
Deep (Shell interest 30%), a near-field gas discovery in the greater Gbaran
area in the Niger Delta of Nigeria, and Dover, a large discovery in the
Norphlet geological play in the US Gulf of Mexico (Shell Interest 100% as
operator). Discoveries are being evaluated further in order to establish the
extent of commercially producible volumes.
We continue to strengthen our portfolio in Brazil, Mauritania, Mexico and
the UK. In Brazil, we signed 35-year PSCs for the Saturno (Shell Interest
50% as operator) and Tres Marias (Shell Interest 40%) deep-water
exploration blocks in the Santos Basin. We also won four Brazilian deep-
water blocks in the Campos and Potiguar basin, we secured one
exploration block on our own (Shell interest 100%), and three in joint bids
(Shell interest 40%). Of the newly acquired blocks, we will operate two.
In January 2018, we won nine exploration blocks in the deep-water bid
round in Mexico; four blocks on our own (Shell interest 100%), four with our
partner Qatar Petroleum International Limited (Shell interest 60%), and one
with our partner Pemex Exploración y Producción (Shell interest 50%). The
total area of these nine blocks is 18,996 square kilometres. We will be the
operator of all nine blocks.
In May 2018, in the UK, we acquired a 22.5% non-operated interest in the
P1830 licence and a 30% interest in the P1028 and P1189 licences. P1189
includes the Cambo discovery north-west of Shetland and the successful
conclusion of well-testing operations on the appraisal well in the Cambo field
was confirmed in August 2018.
Additionally, in July 2018, we signed two PSCs with the government of
Mauritania for the exploration and potential future production of
hydrocarbons in the offshore blocks C-10 and C-19 (Shell Interest 90% as
operator). The blocks are located in the West African Atlantic Margin
exploration basin with a total area of approximately 23,675 square
kilometres.
In 2018, we participated in 50 productive exploratory wells (excluding
Shales) with proved reserves allocated (Shell share: 22 wells). In total, the
net undeveloped acreage in our exploration portfolio decreased by around
11 million acres in 2018. The largest contributions were relinquishments and
divestments in Canada, Kenya, New Zealand, Indonesia and Namibia,
offset by new licence entries in Brazil, Mauritania, Mexico, and the UK.
In addition, we participated in 234 Shales productive exploratory wells with
proved reserves allocated (Shell share: 118 wells).
For further information, see ’Supplementary Information – oil and gas
(unaudited)’’ on page 235.
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47
Oil and gas information Continued
LOCATION OF OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
Location of oil and gas exploration and production activities [A] (at December 31, 2018)(cid:3)
Exploration
Development
and/or
production
Shell operator[B]
Europe
Albania
Bulgaria
Cyprus
Denmark
Germany
Greenland
Italy
Netherlands
Norway
UK
Asia
Brunei
China
India
Indonesia
Jordan
Kazakhstan
Malaysia
Myanmar
Oman
Philippines
Qatar
Russia
Turkey
Oceania
Australia
Africa
Algeria
Egypt
Gabon
Mauritania
Morocco
Namibia
Nigeria
Tanzania
Tunisia
North America
Canada
Mexico
USA
South America
Argentina
Bolivia
Brazil
Colombia
Trinidad and Tobago
Uruguay
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
(cid:374)
[A] Includes joint ventures and associates. Where a joint venture or an associate 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.
48
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OIL AND GAS PRODUCTION AVAILABLE FOR SALE
Crude oil and natural gas liquids [A](cid:3)
Thousand barrels
Europe
Denmark
Italy
Norway
UK
Other [B]
Total Europe
Asia
Brunei
Kazakhstan
Malaysia
Oman
Russia
Other [B]
Total Asia
Total Oceania [B]
Africa
Gabon
Nigeria
Other [B]
Total Africa
North America
USA
Canada
Total North America
South America
Brazil
Other [B]
Total South America
2018
Shell share of
joint ventures
and associates
Shell
subsidiaries
2017
Shell share of
joint ventures
and associates
Shell
subsidiaries
2016
Shell share of
joint ventures
and associates
Shell
subsidiaries
13,036
10,921
13,528
31,431
795
69,711
—
—
—
—
1,417
1,417
15,467
8,733
19,529
45,020
860
89,609
—
—
—
—
1,272
1,272
15,423
6,818
21,656
41,426
877
86,200
—
—
—
—
872
872
283
18,738
1,138
15,831
952
17,402
32,432
24,650
76,847
22,003
28,769
—
—
—
29,491
26,574
77,687
—
—
—
10,403
22,049
7,768
30,180
10,899
7,859
21,330
27,241
80,567
22,134
49,128
184,984
36,909
187,119
34,589
201,352
8,883
—
53,102
8,265
61,367
140,035
13,111
153,146
118,681
3,414
122,095
—
—
—
—
—
—
—
—
—
—
—
9,098
9,750
56,337
9,003
75,090
109,430
10,775
120,205
111,093
3,325
114,418
—
—
—
—
—
—
—
—
—
—
—
8,524
12,838
62,739
9,427
85,004
102,795
10,883
113,678
78,477
2,935
81,412
—
—
—
10,966
7,850
36,218
1,268
—
—
—
—
—
—
—
—
—
—
Total
38,358
[A] Reflects 100% of production of subsidiaries except in respect of production-sharing contracts (PSCs), where the figures shown represent the entitlement of the subsidiaries concerned under those contracts.
[B] Comprises countries where 2018 production was lower than 7,300 thousand barrels or where specific disclosures are prohibited.
595,539
576,170
600,186
38,326
35,861
Synthetic crude oil
North America – Canada
Bitumen
North America – Canada
2018
Shell
subsidiaries
19,514
2018
Shell
subsidiaries
—
2017
Shell
subsidiaries
33,183
2017
Shell
subsidiaries
1,681
Thousand barrels
2016
Shell
subsidiaries
53,603
Thousand barrels
2016
Shell
subsidiaries
4,606
SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
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Oil and gas information Continued
Natural gas [A](cid:3)
Europe
Denmark
Germany
Ireland
Netherlands
Norway
UK
Other [B]
Total Europe
Asia
Brunei
China
Kazakhstan
Malaysia
Philippines
Russia
Thailand
Other [B]
Total Asia
Oceania
Australia
New Zealand
Total Oceania
Africa
Egypt
Nigeria
Other [B]
Total Africa
North America
USA
Canada
Total North America
South America
Bolivia
Brazil
Trinidad and Tobago
Other [B]
Total South America
Million standard cubic feet
2018
Shell share of
joint ventures
and associates
2017
Shell share of
joint ventures
and associates
Shell
subsidiaries
2016
Shell share of
joint ventures
and associates
Shell
subsidiaries
—
—
—
52,105
48,002
52,515
—
—
—
47,143
51,483
44,660
—
—
—
Shell
subsidiaries
45,027
40,368
44,833
—
271,303
—
343,126
—
402,759
239,253
82,695
16,422
—
—
—
243,352
174,478
13,125
—
—
—
242,736
190,185
10,076
—
—
—
468,598
271,303
583,577
343,126
586,283
402,759
21,205
42,419
78,575
237,102
44,017
157,476
—
—
—
—
29,880
43,899
80,623
221,590
42,958
158,877
—
—
—
—
26,918
43,699
77,122
221,661
45,070
155,881
—
—
—
—
4,044
136,652
4,052
137,890
4,141
133,396
25,973
—
60,742
—
59,774
—
378,785
117,976
288,728
118,352
383,763
118,366
832,120
412,104
772,472
415,119
862,148
407,643
648,735
18,923
591,860
18,708
418,793
36,704
40,153
—
51,943
—
58,239
—
688,888
18,923
643,803
18,708
477,032
36,704
148,721
232,899
30,669
412,289
355,075
247,890
602,965
55,480
68,865
104,454
8,062
236,861
—
—
—
—
—
—
—
—
—
—
—
—
122,439
236,370
36,187
394,996
286,529
224,529
511,058
59,673
70,100
73,000
8,370
211,143
—
—
—
—
—
—
—
—
—
—
—
—
145,198
184,188
34,901
364,287
309,298
253,509
562,807
67,191
31,020
78,433
7,960
184,604
—
—
—
—
—
—
—
—
—
—
—
—
847,106
Total
[A] Reflects 100% of production of subsidiaries except in respect of PSCs, where the figures shown represent the entitlement of the subsidiaries concerned under those contracts.
[B] Comprises countries where 2018 production was lower than 41,795 million scf or where specific disclosures are prohibited.
3,117,049
3,241,721
702,330
776,953
3,037,161
50
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AVERAGE REALISED PRICE BY GEOGRAPHICAL AREA
Crude oil and natural gas liquids
Europe
Asia
Oceania
Africa
North America – USA
North America – Canada
South America
2018
Shell share of
joint ventures
and associates
64.24
70.66
—
—
—
—
—
2017
Shell share of
joint ventures
and associates
46.88
53.44
—
—
—
—
—
Shell
subsidiaries
50.52
49.08
45.64
53.39
47.23
36.00
48.10
Shell
subsidiaries
38.62
38.11
36.64
42.73
37.50
25.76
38.58
Shell
subsidiaries
68.23
64.06
61.63
71.02
61.87
43.72
62.67
$/barrel
2016
Shell share of
joint ventures
and associates
40.75
43.95
33.76 [A]
—
—
—
—
Total
[A] Included Shell’s 14% share of Woodside Petroleum Limited (Woodside) from January 2016 to April 2016. Woodside is a publicly listed company on the Australian Securities Exchange for which we have
limited access to data; accordingly, the numbers are estimated. The accounting classification of Woodside was changed from an associate to an investment in securities in April 2016.
70.43
63.96
53.23
38.60
49.00
43.58
Synthetic crude oil
North America – Canada
Bitumen
North America – Canada
Natural gas
Europe
Asia
Oceania
Africa
North America – USA
North America – Canada
South America
2018
Shell
subsidiaries
48.90
2018
Shell
subsidiaries
—
2017
Shell
subsidiaries
45.90
2017
Shell
subsidiaries
34.46
$/barrel
2016
(cid:3)(cid:3)
Shell
subsidiaries
37.61
(cid:3)(cid:3)
(cid:3)
$/barrel
2016
Shell
subsidiaries
25.74
(cid:3)
2018
Shell share of
joint ventures
and associates
Shell
subsidiaries
Shell
subsidiaries
2017
Shell share of
joint ventures
and associates
2016
Shell share of
joint ventures
and associates
Shell
subsidiaries
$/thousand scf
7.12
2.99
8.95
3.02
3.12
1.35
3.50
4.06
7.06
4.15
—
—
—
—
5.48
2.84
6.21
2.44
3.00
1.85
2.93 [A]
4.77
5.45
3.11
—
—
—
—
4.75
2.32
5.31
2.33
2.21
1.71
1.83
4.19
4.63
4.33 [B]
—
—
—
—
Total
[A] As revised, following a reassessment.
[B] Included Shell’s 14% share of Woodside from January 2016 to April 2016. Woodside is a publicly listed company on the Australian Securities Exchange for which we have limited access to data;
accordingly, the numbers are estimated. The accounting classification of Woodside was changed from an associate to an investment in securities in April 2016.
3.90 [A]
5.74
4.64
3.16
5.11
4.41
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51
Oil and gas information Continued
AVERAGE PRODUCTION COST BY GEOGRAPHICAL AREA
Crude oil, natural gas liquids and natural gas [A]
Europe
Asia
Oceania
Africa
North America – USA
North America – Canada
South America
2018
Shell share of
joint ventures
and associates
Shell
subsidiaries
2017
Shell share of
joint ventures
and associates
Shell
subsidiaries
Shell
subsidiaries
15.03
6.52
8.41
8.25
12.78
11.58
8.60
6.37
6.24
32.18
—
—
—
—
13.19
7.71
9.24
9.53
16.11
14.53
8.08
5.58
6.87
28.83
—
—
—
—
13.70
6.32
8.87
9.93
21.44
13.59
7.64
$/boe
2016
Shell share of
joint ventures
and associates
5.45 [B]
6.62
16.19 [C]
—
—
—
—
Total
[A] Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.
[B] As revised following a reassessment.
[C] Included Shell’s 14% share of Woodside from January 2016 to April 2016. Woodside is a publicly listed company on the Australian Securities Exchange for which we have limited access to data;
accordingly, the numbers are estimated. The accounting classification of Woodside was changed from an associate to an investment in securities in April 2016.
10.55
10.92
9.66
6.82
6.81
6.57 [B]
Synthetic crude oil
North America – Canada
Bitumen
North America – Canada
2018
Shell
subsidiaries
20.15
2018
Shell
subsidiaries
—
2017
Shell
subsidiaries
23.77
2017
Shell
subsidiaries
16.19
$/barrel
2016
Shell
subsidiaries
26.14
$/barrel
2016
Shell
subsidiaries
14.19
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
52
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Downstream
Key statistics
Segment earnings [A]
Including:
Revenue (including inter-segment sales)
Share of profit of joint ventures and associates [A]
Interest and other income
Operating expenses [B]
Depreciation, depletion and amortisation
Taxation charge [A]
Capital investment [B]
Divestments [B]
Refinery availability (%) [C]
Chemical plant availability (%) [C]
Refinery processing intake (thousand b/d)
Oil products sales volumes (thousand b/d)
Chemicals sales volumes (thousand tonnes)
2018
7,601
340,038
1,785
345
20,743
4,064
1,515
7,564
1,718
91
93
2,648
6,783
17,644
$ million, except where indicated
2017
8,258
2016
6,588
268,979
203,550
1,956
154
19,583
3,877
1,783
6,416
2,703
91
92
2,572
6,599
18,239
2,244
851
19,681
3,681
1,008
6,057
2,889
90
90
2,701
6,483
17,292
[A] See Note 4 to the “Consolidated Financial Statements” on pages 181-184. Segment earnings are presented on a current cost of supplies basis.
[B] See “Non-GAAP measures reconciliations” on pages 263-264.
[C] The basis of calculation differs from that used for the “Refinery and chemical plant availability” measure in “Performance indicators” on page 28, which excludes downtime due to uncontrollable factors
and, in 2017, excludes assets which were not part of Shell’s operational performance metrics because of portfolio activity (Fredericia and former Motiva sites).
OVERVIEW
Our Downstream business is made up of a number of different Oil Products
and Chemicals activities, part of an integrated value chain, that trades and
refines crude oil, and other feedstocks into a range of products which are
moved and marketed around the world for domestic, industrial and transport
use. The products we sell include gasoline, diesel, heating oil, aviation fuel,
marine fuel, biofuel, lubricants, bitumen and sulphur. In addition, we produce
and sell petrochemicals for industrial use worldwide.
Our Oil Products activities comprise Refining and Trading, and Marketing,
referred to as classes of business. Marketing includes Retail, Lubricants,
Business to Business (B2B), Pipelines and Biofuels. Chemicals has major
manufacturing plants, located close to refineries, and its own marketing
network. In Trading and Supply, we trade crude oil, oil products and
petrochemicals, to optimise feedstocks for Refining and Chemicals, to supply
our Marketing businesses and third parties, and for our own profit.
BUSINESS CONDITIONS
Global oil demand grew by 1.2 million barrels per day (b/d), or 1.2%, to
99.2 million b/d, according to the International Energy Agency’s (IEA) Oil
Market Report published in January 2019 (Oil Market Report). Oil demand
growth in 2018 was 0.4 million b/d lower than in 2017.
Industry gross refining margins were lower on average in 2018 than in 2017
in each of the key refining hubs of Europe, Singapore and the USA. Periods
of high crude prices led to reductions in oil products demand. Refinery
capacity additions, especially in the Middle East and Asia, combined with
tempered demand growth have led to generally lower refinery utilisations.
Refinery activity continued to be low in Latin America.
Cracker industry margins fell in all three main regions in 2018. Asian naphtha
cracker margins fell sharply in the fourth quarter, amid continuing concerns
over the potential impact of US tariffs, while US ethane cracker margins
came under pressure from new cracker unit start-ups. Supported by healthy
European demand, European naphtha cracker margins decreased the least
during 2018.
See “Market overview” on page 23.
REFINERY AND CHEMICAL PLANT AVAILABILITY
Refinery availability was 91% in 2018, unchanged from 2017.
Chemicals plant availability was 93% in 2018, compared with 92% in 2017,
benefiting from lower unplanned downtime at three of our sites (Moerdijk,
Pernis and Scotford).
OIL PRODUCTS AND CHEMICALS SALES
Oil products sales volumes increased by 3% in 2018 compared with 2017,
reflecting higher trading volumes and, to a lesser extent, higher marketing
volumes despite the sale of the Downstream Argentina business to Raízen
(volumes reported at 50% Shell share).
Chemicals sales volumes decreased by 3% in 2018 compared with 2017,
principally due to the divestment of assets in Japan and operational issues,
including Rhine water levels affecting supply in Germany and a fire at the
plant in Stanlow in the UK.
EARNINGS 2018-2017
Segment earnings in 2018 of $7,601 million are presented on a current cost
of supplies basis (see “Summary of results” on page 24). Segment earnings
on a first-in, first-out basis were $7,143 million, which were $458 million
lower than on a current cost of supplies basis (2017 first-in, first-out segment
earnings were $964 million higher). See “Non-GAAP measures
reconciliations” on page 263.
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SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
53
Downstream Continued
Segment earnings in 2018 of $7,601 million were 8% lower than in 2017.
Earnings in 2018 included a net gain of $34 million, compared with a net
charge in 2017 of $824 million, described at the end of this section.
changes in the Netherlands and the USA). Other net charges of $47 million
included a one-off gain from the Ontario cap-and-trade scheme and
onerous contracts related to Stanlow.
Excluding the impact of these items, earnings in 2018 were $7,567 million,
compared with $9,082 million in 2017. Refining and Trading accounted for
20% of these 2018 earnings, Marketing for 53% and Chemicals for 27%.
The decrease in Downstream earnings, excluding the net charges, of
$1,515 million (-17%) compared with 2017 was driven by higher operating
costs (around $700 million), adverse foreign exchange effects (around
$530 million), lower base Chemicals margins (around $370 million), and
lower refining margins (around $150 million), partly offset by higher
Marketing margins (around $360 million). Other impacts were a net charge
of around $120 million. Operating costs were higher due to higher
maintenance costs (Chemicals and Refining assets) and higher costs for
Marketing growth opportunities. Chemicals margins were impacted by
higher feedstock costs globally, higher utility costs and new cracker start-ups
in the USA, and operational issues in Europe. Marketing margins benefited
from favourable market conditions at the end of the year. The other net
negative impacts were mainly portfolio effects.
Segment earnings in 2017 included a net charge of $824 million, reflecting
impairment charges of $315 million reported in depreciation (mainly
expenditure at Bukom and charges in relation to the Phenol 3 unit at the
Chemicals cracker at Deer Park), redundancy and restructuring charges of
$200 million, charges of $142 million related to US tax reform legislation and
a tax rate change in France and other net charges of $231 million (mainly
onerous contract provisions in Refining and Trading and a legal provision in
Chemicals). Partly offsetting these impacts were divestment gains of $39
million (including a $546 million net charge from the Motiva transaction,
mainly related to tax, which were more than offset by gains on the sale of
assets in Saudi Arabia, Africa, Australia, Hong Kong and Macau) and a net
gain from fair value accounting of commodity derivatives of $25 million.
EARNINGS 2017-2016
Segment earnings were presented on a current cost of supplies basis which
were $964 million lower in 2017 than on a first-in, first-out basis (2016:
$1,085 million lower).
The decrease in earnings of $1,515 million analysed by class of business
was as follows:
(cid:131)
Refining and Trading earnings were $949 million lower than in 2017,
principally due to higher costs (including impact of a full year of former
Motiva site costs) and adverse currency rate exchange effects.
Realised refining margins were lower, with weaker margins in all
regions except Canada. In the USA, weaker margins were offset by
improved operations, particularly at Deer Park following Hurricane
Harvey in 2017. Canada saw significant margin improvement due to
positive market conditions. Europe suffered a weaker margin
environment although boosted by improved operations at our Pernis
refinery in the Netherlands. Asia suffered a very low margin
environment. Trading earnings were lower than in 2017 from losses
due to weaker trading opportunities.
(cid:131) Marketing earnings were $20 million lower than in 2017. Weaker
Lubricants results were due to higher costs and foreign exchange
effects. Raízen earnings were lower due to lower sugar prices. Other
negative impacts included the absence of one-off tax gains from 2017
and higher pension costs. Partly offsetting these impacts were
improved earnings from our Retail business, benefiting from favourable
market conditions at the end of the year. Results from our Retail China
ventures fell due to a new tax policy.
Chemicals earnings were $546 million lower than in 2017. Results
were impacted by higher feedstock costs in the East, higher utility costs
and cracker start-ups in the USA and operational issues in Europe
(mainly at Stanlow and Rheinland).
(cid:131)
Segment earnings in 2018 included a net gain of $34 million. A number of
offsetting items included charges for impairment of $386 million (mainly
expenditure at Bukom and assets at Stanlow), and costs related to
restructuring of $109 million (a number of initiatives across Downstream)
more than offset by net gains from fair value accounting of commodity
derivatives of $233 million, gains from disposal of assets $225 million
(mainly our Downstream assets in Argentina and other smaller disposals)
and a gain from one-off tax items of $118 million (mainly corporation tax rate
54
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
Segment earnings in 2017 of $8,258 million were 25% higher than in 2016.
Earnings in 2017 included a net charge of $824 million described above.
Earnings in 2016 included a net charge of $655 million, reflecting
redundancy and restructuring charges of $523 million, impairments of
$506 million, a net charge from fair value accounting of commodity
derivatives of $373 million and other net charges of $25 million. These were
partly offset by net gains on divestments of $772 million reported in interest
and other income.
Excluding the impact of these items, earnings in 2017 were $9,082 million,
compared with $7,243 million in 2016. Refining and Trading accounted for
27% of these 2017 earnings, Marketing for 44% and Chemicals for 29%.
The increase in Downstream earnings, excluding the net charges, of
$1,839 million (25%) compared with 2016 was driven by higher realised
refining and trading margins (around $1,230 million), improved chemical
margins (around $870 million), a lower effective tax rate (around $380 million)
and other net negative impacts (around $640 million). Refining and trading
margins were higher in part following the Motiva transaction in May 2017.
Chemicals margins were higher from improved operating performance and the
lower effective tax rate resulting from one-off impacts and a change in the
geographical split of earnings. The other net negative impacts included higher
depreciation charges and costs, following the Motiva transaction, and lower
marketing margins, impacted by a shortage of feedstock from our Pearl gas-to-
liquids (GTL) plant in Qatar to our Lubricants business.
CAPITAL INVESTMENT
Capital investment was $7.6 billion in 2018, compared with $6.4 billion in
2017. Capital investment in Refining was in line with 2017 at $2.4 billion
(including capital investment to our former Motiva assets in both years).
Capital investment in Marketing increased by $0.5 billion to $2.0 billion
(mainly attributable to growth in China, India, Indonesia, Mexico and
Russia). In Chemicals, capital investment increased by $0.7 billion to $3.2
billion (increase mainly from investment in our new cracker facilities in
Pennsylvania).
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DIVESTMENTS
Divestments were $1.7 billion in 2018, compared with $2.7 billion in 2017.
The principal divestments in 2018 were the sale of Downstream businesses
in Argentina to Raízen, the sale of Chemicals assets in Japan and the sale of
an interest in Shell Midstream Partners, L.P. in the USA.
PORTFOLIO AND BUSINESS DEVELOPMENTS
We continued to high-grade our portfolio in 2018, including:
(cid:131) In Argentina, we completed the sale of our Downstream business to Raízen.
The business acquired by Raízen will continue the relationship with Shell
through various commercial agreements, including long-term brand licence
agreements as well as products supply and offtake contracts.
(cid:131) In the USA, Shell Midstream Partners, L.P., sold approximately 36 million
common units for total gross proceeds of $980 million.
(cid:131) In Japan, we sold all our shares in Shell Chemicals Japan Limited to
Uyeno; making Uyeno the branded distributor of Shell Chemicals
products in Japan.
(cid:131) In Pakistan we transferred 29% of our shareholding in Pakistan Refinery
Limited (PKL) to Pakistan State Oil. We retain a shareholding of 4% in the
Karachi Refinery.
We also continued to grow selected parts of our portfolio, including:
(cid:131) In China, the China National Offshore Oil Corporation (CNOOC) and
Shell Nanhai B.V. (Shell) announced the official start-up of the second
ethylene cracker at their Nanhai petrochemicals complex in Huizhou,
Guangdong Province. The new ethylene cracker increases ethylene
capacity at the complex by around 1.2 million tonnes per year, more than
doubling the capacity of the complex, and benefits from integration with
adjacent CNOOC refineries. The new facility will also include a styrene
monomer and propylene oxide (SMPO) plant.
(cid:131) In the USA, we announced the start of production of the fourth alpha
olefins unit at the Geismar chemicals manufacturing site (Shell interest
100%). Start-up operations began in December 2018.
BUSINESS AND PROPERTY
REFINING AND TRADING
Refining
We have interests in 21 refineries worldwide with the capacity to process a
total of 2.8 million barrels of crude oil per day (Shell share). Our refining
capacity is 36% in Europe and Africa, 40% in the Americas and 24% in Asia
and Oceania.
In 2018, we divested our downstream business in Argentina, including the
Buenos Aires Refinery, to Raízen, which is a joint venture between Shell
(50%) and Cosan (50%). We also sold about 29% of our shareholding in
the Karachi Refinery in Pakistan, retaining a 4% shareholding.
Trading and Supply
Through our main trading offices in London, Houston, Singapore, Dubai and
Rotterdam, we trade crude oil, natural gas, LNG, electricity, refined
products, chemical feedstocks and environmental products. Trading and
Supply trades in physical and financial contracts, lease storage and
transportation capacities, and manages shipping and wholesale commercial
fuel activities globally. This includes supplying feedstocks for our refineries
and chemical plants and finished products such as gasoline, diesel and
aviation fuel to our Marketing businesses and customers.
Operating in around 30 countries, with more than 140 Shell and joint
venture terminals, we believe our supply and distribution infrastructure is well
positioned to make deliveries around the world.
Through its Shipping and Maritime business, Trading and Supply has an
interest in around 2,000 Shell-associated vessels and other floating facilities
on any given day, including managing one of the world’s largest fleets of
LNG carriers. Shipping and Maritime enables the Shell Trading organisation
to deliver safely on its contracts. This includes supplying feedstocks for our
refineries and chemical plants and finished products such as gasoline, diesel
and aviation fuel to our Marketing businesses and customers.
Shell Wholesale Commercial Fuels provides transport, industrial and heating
fuels. Our range of products, from reliable main-grade fuels to premium
products, is designed to provide tangible vehicle and business benefits.
MARKETING
Retail
There were more than 44,000 Shell-branded retail stations operating in
over 75 countries at the end of 2018. We operate different models across
these markets, including full ownership of retail stations through to franchise
agreements. Every day, more than 30 million customers pass through these
sites to buy fuel and convenience items, including beverages and snacks,
and services such as car washes.
We have more than 100 years’ experience in fuel development. Aided by
our innovative partnership with Scuderia Ferrari, we have concentrated on
developing fuels with special formulations designed to clean engines and
improve performance. We sold such fuels under the Shell V-Power brand in
63 countries as at the end of 2018. In selected markets, we are increasingly
offering customers lower-carbon energy solutions including biofuels, electric
vehicle charging, hydrogen and various gaseous fuels like LNG.
Lubricants
Across more than 100 countries, we produce, market and sell technically
advanced lubricants for passenger cars, motorcycles, trucks, coaches, and
machinery used in the manufacturing, mining, power generation, agriculture
and construction sectors.
We also manufacture premium lubricants from natural gas using GTL base oils
produced at our Pearl GTL plant in Qatar (see “Integrated Gas” page 31).
We have a global lubricants supply chain with a network of four base oil
manufacturing plants, 31 lubricant blending plants, nine grease plants and
three GTL base oil storage hubs.
Through our marine activities, we primarily provide lubricants, but also fuels
and related technical services, to the shipping and maritime sectors. We
supply around 180 grades of lubricants and six types of fuel to vessels
worldwide, ranging from large ocean-going tankers to small fishing boats.
Business to Business
Our Business-to-Business (B2B) activities encompass the sale of fuels and
speciality products and services to a broad range of commercial customers.
Shell Aviation supplies fuel at about 900 airport locations and operates
across 45 countries (refuelling and lubricants presence).
SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
55
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Downstream Continued
Shell Bitumen supplies over 1,600 customers across 36 countries and
provides enough bitumen to resurface 450 kilometres of road lanes every
day. It also invests in technology research and development to create
innovative products.
DOWNSTREAM BUSINESS ACTIVITIES WITH IRAN,
SUDAN AND SYRIA
IRAN
Shell transactions with Iran are disclosed separately. See “Section 13(r) of
the US Securities Exchange Act of 1934 Disclosure” on page 262.
Shell Sulphur Solutions is a business that manages 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 that
incorporate sulphur, such as fertilisers.
Pipelines
Shell Pipeline Company LP (Shell interest 100%) owns and operates 10 tank
farms across the USA. It transports more than 1.5 billion barrels of crude oil
and refined products a year through about 6,000 kilometres of pipelines in
the Gulf of Mexico and five US states. Our various non-Shell-operated
ownership interests provide about a further 13,000 pipeline kilometres.
We carry more than 40 types of crude oil and more than 20 grades of
gasoline, as well as diesel, aviation fuel, chemicals and ethylene.
Shell Midstream Partners, L.P., a midstream limited partnership, owns,
operates, develops and acquires pipelines and other midstream assets in
the USA. Its assets consist of interests in entities that own crude oil and
refined products pipelines and terminals that serve as key infrastructure to
transport onshore and offshore crude oil production to Gulf Coast and
Midwest refining markets. It also delivers refined products from those
markets to major demand centres. Its assets also include interests in entities
that own natural gas and refinery gas pipelines that transport offshore
natural gas to market hubs and deliver refinery gas from refineries and
plants to chemical sites along the Gulf Coast. Shell controls the general
partner.
Biofuels
Raízen, our joint venture in Brazil (Shell interest 50%), produces ethanol from
sugar cane, with an annual production capacity of more than 2 billion litres;
exports sugar, with an annual production of about 4.2 million tonnes; and
manages a retail network. Raízen opened its first cellulosic ethanol plant at
its Costa Pinto mill in Brazil in 2015, which produced almost 15.5 million
litres in 2018. When fully operational, the mill is expected to produce
around 40 million litres a year of advanced biofuels from sugar-cane
residues.
SUDAN
We ceased all operational activities in Sudan in 2008.
SYRIA
We ceased supplying polyols, via a Netherlands-based distributor, to
private sector customers in Syria in 2018. Polyols are commonly used for the
production of foam in mattresses and soft furnishings.
DOWNSTREAM DATA TABLES
The tables below reflect Shell subsidiaries and instances where Shell owns
the crude oil or feedstocks processed by a refinery. In addition, the tables
include the Buenos Aires refinery on a 50% basis following the sale to
Raízen in October 2018 (100% basis up to that date). Other joint ventures
and associates are only included where explicitly stated.
Oil products – cost of crude oil
processed or consumed [A]
Total
$/barrel
2018
2017
2016 (cid:3)
59.94
46.78
34.47
[A] Includes Upstream and Integrated Gas margins on crude oil supplied by Shell subsidiaries, joint
ventures and associates.
Crude distillation capacity [A](cid:3)
Thousand b/calendar day [B]
Europe
Asia
Oceania
Africa
Americas
2018
2017
970
704
—
82
970
704
—
82
2016
973
808
—
82
1,157
1,176
1,223
Total
[A] Average operating capacity for the year, excluding mothballed capacity.
[B] Calendar day capacity is the maximum sustainable capacity adjusted for normal unit downtime.
2,913
2,932
3,086
CHEMICALS
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 around 6.5 million
tonnes of ethylene a year.
Europe
Asia
Oceania
Africa
Americas
Ethylene capacity [A](cid:3)
Thousand tonnes/year
2018
2017
2016
1,701
1,702
1,702
2,529
1,904
2,222
—
—
—
—
—
—
2,268
2,267
2,235
Total
[A] Includes the Shell share of capacity entitlement (offtake rights) of joint ventures and associates,
which may be different from nominal equity interest. Nominal capacity is quoted at December 31.
6,498
5,873
6,159
Marketing
Each year, we supply about 18 million tonnes of petrochemicals to around
1,000 industrial customers worldwide. Our products are used to make
numerous everyday items, from clothing and cars to detergents and bicycle
helmets.
56
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
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Thousand b/d
Oil product sales volumes [A][B](cid:3)
Thousand b/d
2017
2016
2018
2017
2016
Oil products – crude oil processed [A](cid:3)
Europe
Asia
Oceania
Africa
Americas
(cid:3)(cid:3)
2018
897
545
—
66
892
528
—
54
898
Europe
563
Gasolines
—
68
Kerosines
Gas/Diesel oils
1,041
997
1,088
Fuel oil
Total
[A] Includes natural gas liquids, share of joint ventures and associates and processing for others.
2,549
2,471
2,617
Other products
Refinery processing intake [A](cid:3)
Thousand b/d
Crude oil
Feedstocks
Total
Europe
Asia
Oceania
Africa
Americas
2018
2017
2016
2,434
2,364
2,317
214
208
384
2,648
2,572
2,701
896
543
—
66
892
539
—
54
896
568
—
67
1,143
1,087
1,170
Total
[A] Includes crude oil, natural gas liquids and feedstocks processed in crude distillation units and in
secondary conversion units.
2,572
2,648
2,701
Refinery processing outturn [A](cid:3)
Thousand b/d
Gasolines
Kerosines
Gas/Diesel oils
Fuel oil
Other
2018
2017
2016
966
321
965
284
321
955
290
925
265
334
1,021
326
942
277
386
Total
[A] Excludes own use and products acquired for blending purposes.
2,858
2,769
2,952
323
294
745
178
314
317
272
758
170
362
309
258
765
183
287
1,854
1,879
1,802
373
210
543
407
620
399
216
516
349
536
388
195
519
354
593
2,153
2,016
2,049
—
—
—
—
—
—
42
10
74
2
6
—
23
—
—
—
—
55
—
—
—
23
55
43
13
78
2
6
41
10
66
1
7
134
142
125
1,446
1,415
1,331
236
567
117
276
212
545
92
275
205
540
69
307
2,642
2,539
2,452
2,184
2,174
2,069
750
736
723
1,929
1,897
1,890
704
613
1,216
1,179
607
1,194
Total
Asia
Gasolines
Kerosines
Gas/Diesel oils
Fuel oil
Other products
Total
Oceania
Gasolines
Kerosines
Gas/Diesel oils
Fuel oil
Other products
Total
Africa
Gasolines
Kerosines
Gas/Diesel oils
Fuel oil
Other products
Total
Americas
Gasolines
Kerosines
Gas/Diesel oils
Fuel oil
Other products
Total
Total product sales [C]
Gasolines
Kerosines
Gas/Diesel oils
Fuel oil
Other products
Total
6,483
[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] Includes the Shell share of Raízen’s sales volumes.
[C] Certain contracts are held for trading purposes and reported net rather than gross. The effect in
2018 was a reduction in oil product sales of approximately 458,000 b/d (2017: 596,000 b/d;
2016: 839,000 b/d).
6,783
6,599
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SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
57
Downstream Continued
Chemicals sales volumes [A](cid:3)
Europe
Base chemicals
Intermediates and others
Total
Asia
Base chemicals
Intermediates and others
Total
Oceania
Base chemicals
Intermediates and others
Total
Africa
Base chemicals
Intermediates and others
Total
Americas
Base chemicals
Intermediates and others
Total
Total product sales
Base chemicals
Intermediates and others
Total
[A] Excludes feedstock trading and by-products.
Thousand tonnes
2018
2017
2016
4,069
4,059
3,670
1,994
2,056
2,073
6,063
6,115
5,743
2,140
2,515
2,200
3,082
3,243
2,927
5,222
5,758
5,127
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
22
22
3,842
3,839
4,041
2,517
2,527
2,359
6,359
6,366
6,400
10,051
10,413
9,911
7,593
7,826
7,381
17,644
18,239
17,292
58
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MANUFACTURING PLANTS AT DECEMBER 31, 2018
Refineries in operation
Europe
Denmark
Germany
Netherlands
Asia
Japan
Pakistan
Philippines
Saudi Arabia
Singapore
Africa
South Africa
Americas
Argentina
Canada
Alberta
Ontario
USA
California
Louisiana
Texas
Washington
Location
Asset class
Shell interest (%)
[A]
Thousand barrels/calendar day, 100% capacity [B]
Crude
distillation
capacity
Thermal
cracking/
visbreaking/
coking
Catalytic
cracking
Hydro-
cracking
Fredericia
Miro [C]
Rheinland
Schwedt [C]
Pernis
Mizue (Toa)
[C]
Yamaguchi
[C]
Yokkaichi [C]
Karachi [C]
Tabangao
Al Jubail [C]
Pulau Bukom
Durban [C]
Buenos Aires
[C]
Scotford
Sarnia
Martinez
Convent
Norco
Deer Park
Puget Sound
(cid:404)
(cid:3)(cid:4)
(cid:3)(cid:4)
(cid:4)(cid:3)
(cid:3)
(cid:4)(cid:3)
(cid:4)(cid:3)
(cid:3)(cid:4)
(cid:1740)
(cid:4)(cid:3)
(cid:3)
(cid:3)
(cid:4)
(cid:3)
(cid:3)
(cid:3)(cid:4)
(cid:4)(cid:3)
100
32
100
38
100
2
1
3
4
55
50
100
68
287
325
214
404
64
110
234
43
96
292
463
36
165
39
36
44
40
45
24
—
—
—
31
61
72
23
50
99
18
100
100
100
100
100
50
100
92
73
144
239
229
312
137
—
4
43
—
26
82
23
—
87
—
54
48
38
25
55
—
—
—
34
34
20
—
19
65
83
108
68
52
—
—
80
—
83
—
—
—
—
—
45
55
—
—
74
9
38
49
39
53
—
[A] Shell interest is rounded to the 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.
(cid:374)
Integrated refinery and chemical complex.
(cid:404) Refinery complex with cogeneration capacity.
(cid:1740) Refinery complex with chemical unit(s).
Shell Annual Report_Master Template.indd 59
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SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
59
Downstream Continued
Major chemical plants in operation [A](cid:3)
Europe
Germany
Netherlands
UK
Asia
China
Singapore
Americas
Canada
USA
Location
Ethylene
Thousand tonnes/year, Shell share capacity [B]
Styrene
monomer
Ethylene
glycol
Higher olefins
[C]
Additional
products
Rheinland
Moerdijk
Mossmorran [D]
Stanlow [D] [E]
Nanhai [D]
Jurong Island
Pulau Bukom
Scotford
Deer Park
Geismar
Norco
315
971
415
—
1,100
281
1,148
—
836
—
1,432
—
816
—
—
650
1,069
—
485
—
—
—
—
153
—
—
415
1,159
—
520
—
400
—
—
—
—
315
—
—
—
—
—
965
—
A
A, I
—
I
A, I, P
A, I, P, O
A, I
A, I
A, I
I
A
Total
[A] Major chemical plants are large integrated chemical facilities, typically producing a range of chemical products from an array of feedstocks, and are a core part of our global Chemicals business.
[B] Shell share of capacity of subsidiaries, joint arrangements and associates (Shell and non-Shell-operated), excluding capacity of the Infineum additives joint ventures.
[C] Higher olefins are linear alpha and internal olefins (products range from C6-C2024).
[D] Not operated by Shell.
[E] Our Shell Higher Olefins Plant (SHOP) facilities at Stanlow suffered a fire in August 2018; rebuild was considered uneconomic and the decision was taken in December 2018 to decommission all Shell
units on site.
A Aromatics, lower olefins.
I
P
O Other.
Intermediates.
Polyethylene, polypropylene.
2,647
6,498
3,020
1,280
Other chemical locations [A](cid:3)
Europe
Germany
Netherlands
Americas
Argentina
Canada
USA
[A] Other chemical locations reflect locations with smaller chemical units, typically serving more local markets.
A Aromatics, lower olefins.
I Intermediates.
O Other.
Location
Products
Karlsruhe
Schwedt
Pernis
Buenos Aires
Sarnia
Martinez
Mobile
Puget Sound
A
A
A, I, O
I
A, I
O
A
I
60
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
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Corporate
Earnings
Segment earnings
Comprising:
Net interest and investment expense [A]
Net foreign exchange gains/(losses) [B]
Taxation and other [C]
2018
(1,479 )
(2,192 )
(67 )
780
2017
(2,416 )
(2,413 )
(292 )
289
$ million
2016
(1,751 )
(1,824 )
3
70
[A] Mainly Shell’s interest expense (excluding accretion expense) and interest income, together with the Shell share of joint ventures and associates’ net interest expense, and net gains on sales from Shell
insurance entities’ portfolio of debt securities.
[B] On Shell’s financing activities, together with the Shell share of joint ventures and associates’ net foreign exchange gains/(losses) on financing activities.
[C] Other earnings mainly comprise headquarters and central functions’ costs not recovered from business segments, and net gains on sale of properties.
OVERVIEW
The Corporate segment covers the non-operating activities supporting Shell.
It comprises Shell’s holdings and treasury organisation, its self-insurance
activities and its headquarters and central functions. 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 external capital
markets. It conducts a broad range of transactions – from raising debt
instruments to transacting foreign exchange. Treasury centres in London and
Singapore 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.
EARNINGS 2018-2016
Segment earnings in 2018 were a loss of $1,479 million, compared with a
loss of $2,416 million in 2017 and a $1,751 million loss in 2016.
Net interest and investment expense decreased by $221 million compared
with 2017. This was due to a decrease in interest expense due to more
capitalised interest, coupled with higher interest income from increases to
both cash levels and higher interest rates. In 2017, net interest and
investment expense increased by $589 million compared with 2016.
Interest expense increased due to the inclusion of a full year of interest on
debt assumed on the BG acquisition in 2016, finance leases entered into
during 2017 and higher interest rates (see Note 14 to the “Consolidated
Financial Statements” on page 191).
The Corporate segment includes net foreign exchange gains/(losses) from
financing positions. Net foreign exchange gains/(losses) generally relate to
the impact of changes in exchange rates on non-functional currency loans
and cash balances in operating companies. In 2018, unfavourable
exchange rate movements resulted in a net foreign exchange loss. In 2017
there were exchange rate gains, but these were more than offset by a
charge of $545 million from restructuring of funding in North America.
Taxation and other earnings increased by $491 million in 2018, compared
with 2017, due to increased tax credits from foreign exchange losses, which
were partially offset by increased corporate expenses and depreciation
charges. In 2017, taxation and other earnings increased by $219 million
compared with 2016, due to lower costs incurred in connection with the BG
acquisition and integration in 2017, which were partly offset by a charge in
2017 due to US tax reform legislation.
SELF-INSURANCE
We mainly rely on self-insurance for many of our risk exposures and capital
is set aside to meet self-insurance obligations (see “Risk factors” on page
18). We seek to ensure that the capital held to support the self-insurance
obligations is at a level at least equivalent to what would be held in the
third-party insurance market. Periodically, surveys of key assets are
undertaken that provide risk-engineering knowledge and best practices to
Shell subsidiaries with the aim to reduce their exposure to hazard risks.
Actions identified during these surveys are monitored to completion.
INFORMATION TECHNOLOGY AND CYBER SECURITY
Given our digitalisation efforts and increasing reliance on information
technology (IT) systems for our operations, we continuously monitor external
developments and actively share information on threats and security
incidents. Shell employees and contract staff are subject to mandatory
courses and regular awareness campaigns aimed at protecting us against
cyber threats. We periodically test and adapt cyber-security response
processes and seek to enhance our security monitoring capability.
Given our dependence on IT systems for our operations and the increasing
role of digital technologies across our business, we are aware that cyber-
security attacks could cause significant harm to Shell in the form of loss of
productivity, loss of intellectual property, regulatory fines and/or reputational
damage. As a result, we continuously measure and, where required, further
improve our cyber-security capabilities to reduce the likelihood of successful
cyberattacks. Our cyber-security capabilities are embedded into our IT
systems and our IT landscape is protected by various detective and protective
technologies. The identification and assessment capabilities are built into our
support processes and adhere to industry best practices. The security of IT
services, operated by external IT companies, is managed through contractual
clauses and through formal supplier assurance reports.
Shell is frequently subject to cyberattacks. In 2018, none of these events led
to breaches of our business-critical IT landscape and, as such, did not result
in any material business impact. When significant incidents occur, they are
followed up with a thorough root-cause analysis and, if needed, will result in
appropriate follow-up actions.
See “Risk factors” on page 19.
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SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
61
Liquidity and capital resources
We manage our businesses to deliver strong cash flows to fund investment
for profitable growth. Our aim is that, across the business cycle, “cash in”
(including cash from operations and divestments) at least equals “cash out”
(including capital expenditure, interest and dividends), while maintaining a
strong balance sheet. Our priorities for applying our cash are the servicing
and reduction of debt commitments, payment of dividends, followed by a
balance of capital investment and share buybacks.
FINANCIAL CONDITION AND LIQUIDITY
Strong operational performance in 2018, together with improved commodity
prices and proceeds from our divestment programme, supported the
commencement of a share buyback programme of at least $25 billion, by the
end of 2020, subject to further progress with debt reduction and oil price
conditions. $3.9 billion of share buybacks were completed in 2018. Gearing
was reduced in the year and, at December 31, 2018, was 20.3% (2017:
25.0%). Gearing is a key measure of our capital structure and is defined as net
debt (total debt less cash and cash equivalents) as a percentage of total
capital (net debt plus total equity). With effect from 2018, the net debt
calculation includes the fair value of derivative financial instruments used to
hedge foreign exchange and interest rate risks relating to debt and associated
collateral balances. We believe that this amendment is useful, because it
reduces the volatility of net debt caused by fluctuations in foreign exchange
and interest rates and eliminates the potential impact of related collateral
payments or receipts. Across the business cycle, we aim to manage gearing
within a range of 0-30%. Note 14 to the “Consolidated Financial Statements”
on page 191 provides information on our debt arrangements, including
gearing.
We are affected by the global macroeconomic environment, as well as
financial and commodity market conditions. This exposes us to treasury and
trading risks, including liquidity risk, market risk (interest rate risk, foreign
exchange risk and commodity price risk) and credit risk. See “Risk factors” on
page 18 and Note 19 to the “Consolidated Financial Statements” on pages
202-207. The size and scope of our businesses require a robust financial
control framework and effective management of our various risk exposures.
LIQUIDITY
We satisfy our funding and working capital requirements from the cash
generated from our operations, the issuance of debt and divestments. In
2018, access to the international debt capital markets remained strong,
with our debt principally financed from these markets through central debt
programmes consisting of:
(cid:374) a $10 billion global commercial paper (CP) programme, with maturities
not exceeding 270 days;
Our total debt decreased by $8.8 billion in 2018 to $76.8 billion at
December 31, 2018. The amount excluding finance leases will mature as
follows: 15% in 2019; 9% in 2020; 8% in 2021; 7% in 2022; and 61% in
2023 and beyond. The portion of debt maturing in 2019 is expected to be
repaid from a combination of cash balances, cash generated from
operations, divestments and the issuance of new debt.
In 2018, we issued $3 billion of bonds under our US shelf registration.
Periodically, for working capital purposes, we issued CP. We believe our
current working capital is sufficient for our present requirements.
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.
MARKET RISK AND CREDIT RISK
In the normal course of business, financial instruments of various kinds are used
for the purposes of managing exposure to commodity price, foreign exchange
and interest rate movements. Our treasury and trading operations are highly
centralised and seek to manage credit exposures associated with our
substantial cash, commodity, foreign exchange and interest rate positions. Our
portfolio of cash investments is diversified to avoid concentrating risk in any
one instrument, country, or counterparty. We monitor our investments and
adjust them in light of new market information. Exposure to failed financial and
trading counterparties was not material in 2018. Treasury standards are
applicable to all our subsidiaries, and each subsidiary is required to adopt a
treasury policy consistent with these standards. 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.
PENSION COMMITMENTS
We have substantial pension commitments, the funding of which is subject to
capital market risks (see “Risk factors” on page 18). We address key
pension risks in a number of ways. Principal among these is the Pensions
Forum, chaired by the Chief Financial Officer, which oversees Shell’s input to
pension strategy, policy and operation. The forum is supported by a risk
committee in reviewing the results of assurance processes with respect to
pension risks. In general, local trustees manage the funded defined benefit
pension plans, with contributions paid based on independent actuarial
valuations in accordance with local regulations. Our total employer
contributions to funded and unfunded defined benefit pension plans were
$0.8 billion in 2018 and are estimated to be $0.9 billion in 2019.
(cid:374) a $10 billion US CP programme, with maturities not exceeding 397 days;
(cid:374) an unlimited Euro medium-term note (EMTN) programme (also referred to
Capitalisation table
as the Multi-Currency Debt Securities Programme); and
(cid:374) an unlimited US universal shelf (US shelf) registration.
All these CP, EMTN and US shelf issuances are issued by Shell International
Finance B.V., the issuance company for Shell, with its debt being
guaranteed by Royal Dutch Shell plc (the Company).
We also maintain a committed credit facility, which was increased in September
2018 to $8.8 billion and which expires in 2020. It remained undrawn at
December 31, 2018. This facility and internally available liquidity provide back-up
coverage for our CP programmes. Other than certain borrowing by local
subsidiaries, we do not have any other committed credit facilities.
62
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
Equity attributable to Royal Dutch Shell
plc shareholders
Current debt
Non-current debt
Total debt [A]
$ million
Dec 31, 2018
Dec 31, 2017
198,646
194,356
10,134
11,795
66,690
76,824
73,870
85,665
Total capitalisation
[A] Of total debt, $62.7 billion (2017: $70.1 billion) was unsecured and $14.1 billion (2017:
$15.6 billion) was secured. See Note 14 to the “Consolidated Financial Statements” on
pages 191-193 for further disclosure on debt.
275,470
280,021
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STATEMENT OF CASH FLOWS
Cash flow from operating activities in 2018 was an inflow of $53.1 billion,
compared with $35.7 billion in 2017, mainly due to higher earnings and a
favourable working capital impact. The increase in cash flow from operating
activities in 2017, compared with $20.6 billion in 2016, was mainly due to
higher earnings.
Cash flow from investing activities in 2018 was an outflow of $13.7 billion,
compared with $8.0 billion in 2017. The increased cash outflow was mainly
due to lower proceeds from the sale of assets and securities in 2018. The
decreased cash outflow in 2017 compared with $31.0 billion in 2016 was
mainly due to the acquisition of BG in 2016 and higher proceeds from the
sale of assets in 2017.
Cash flow from financing activities in 2018 was an outflow of $32.5 billion,
compared with outflows of $27.1 billion in 2017 and $0.8 billion in 2016. In
2018, this included payment of dividends to Royal Dutch Shell plc
shareholders of $15.7 billion (2017: $10.9 billion; 2016: $9.7 billion), net
repayment of debt of $8.3 billion (2017: $11.8 billion net repayment of debt;
2016: $11.1 billion net issuance of debt), repurchases of shares of $3.9 billion
and interest paid of $3.6 billion (2017: $3.6 billion; 2016: $2.9 billion).
Cash and cash equivalents were $26.7 billion at December 31, 2018 (2017:
$20.3 billion; 2016: $19.1 billion).
CASH FLOW FROM OPERATING ACTIVITIES
The most significant factors affecting our cash flow from operating activities
are earnings, which are mainly impacted by: realised prices for crude oil,
natural gas and liquefied natural gas (LNG); production levels of crude oil,
natural gas and LNG; refining and marketing margins; and movements in
working capital.
The impact on earnings from changes in market 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
Cash flow information [A](cid:3)
Cash flow from operating activities excluding working capital movements
Integrated Gas
Upstream
Downstream
Corporate
Total
(Increase)/decrease in inventories
(Increase)/decrease in current receivables
Increase/(decrease) in current payables
(Increase)/decrease in working capital
Cash flow from operating activities
Cash flow from investing activities
Cash flow from 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
state-owned oil and gas companies that have limited sensitivity to crude oil
and natural gas 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 our Integrated Gas and Upstream
earnings in that period. In the longer term, replacement of proved oil and gas
reserves will affect our ability to maintain or increase production levels, which
in turn will affect our earnings and cash flows. Changes in any one of a range
of factors derived from either within the industry or the broader economic
environment can influence refining and marketing 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 refiners
and product marketers in adjusting their operations. As a result, margins
fluctuate from region to region and from period to period.
CAPITAL INVESTMENT
The level of capital investment in 2018 and 2017 reflects our discipline, focus
and capital efficiency, which have allowed us to maintain our investment
levels at below the $25-$30 billion range. Capital investment in 2016
included $52.9 billion relating to the acquisition of BG.
Capital investment [A](cid:3)
Integrated Gas
Upstream
Downstream
Corporate
$ million
2018
2017
2016
4,460
3,827
26,214
12,525
13,648
47,507
7,564
6,416
6,057
230
115
99
Total capital investment
[A] See “Non-GAAP measures reconciliations” on page 263.
24,779
24,006
79,877
2018
16.3
21.9
10.8
0.7
49.6
2.8
2.0
(1.3 )
3.4
53.1
(13.7 )
(32.5 )
(0.4)
6.4
20.3
2017 [B]
$ billion
2016 [B]
8.7
16.3
12.6
0.3
37.9
(2.1 )
(2.6 )
2.4
(2.3)
35.7
(8.0 )
(27.1 )
0.6
1.2
19.1
8.0
9.8
10.4
0.9
29.0
(5.7 )
(4.1 )
1.4
(8.4)
20.6
(31.0 )
(0.8 )
(1.5)
(12.7 )
31.8
Cash and cash equivalents at the end of the year
[A] See the “Consolidated Statement of Cash Flows” on page 171.
[B] With effect from 2018, presentation of Cash flow from operating activities has been revised. Prior period comparatives within Cash flow from operating activities have been revised to conform with current
year presentation. Overall, the revisions do not have an impact on the previously published Cash flow from operating activities. See the “Consolidated Statement of Cash Flows”.
26.7
20.3
19.1
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SHELL ANNUAL REPORT AND FORM 20-F 2018 STRATEGIC REPORT
63
Liquidity and capital resources Continued
DIVESTMENTS
In 2018, we continued to divest assets that fail to deliver competitive
performance or no longer meet our longer-term strategic objectives,
including Integrated Gas assets in Thailand, Malaysia and New Zealand,
Upstream assets in Ireland, Iraq, Norway and Oman, as well as
Downstream assets in Argentina. We also sold part of our interest in Shell
Midstream Partners, L.P., while retaining control.
Divestments [A](cid:3)
Integrated Gas
Upstream
Downstream
Corporate
Total
[A] See “Non-GAAP measures reconciliations” on page 263.
$ million
2018
2017
2016
3,124
3,077
352
2,198
11,542
1,726
1,718
2,703 2,889
62
18
17
7,102
17,340 4,984
DIVIDENDS
Our policy is to grow the dollar dividend through time, in line with our view of
our underlying earnings and cashflow. When setting the dividend, the Board
of Directors looks at a range of factors, including the macroeconomic
environment, the current balance sheet and future investment plans. We
returned $15.7 billion to our shareholders through dividends in 2018.
The fourth quarter 2018 interim dividend of $0.47 per share will be payable
to shareholders on the register at February 15, 2019. See Note 23 to the
“Consolidated Financial Statements” on page 211. The Board expects that
the first quarter 2019 interim dividend will be $0.47 per share, equal to the
US dollar dividend for the same quarter in 2018.
PURCHASES OF SECURITIES
At the 2018 Annual General Meeting (AGM), shareholders granted an
authority, which expires at the earlier of the close of business on August 22,
2019, and the end of the 2019 AGM, for the Company to repurchase up to a
maximum of 10% of its issued ordinary shares, excluding treasury shares (834
million ordinary shares). In accordance with this authority, on July 26, 2018,
the Company announced the immediate start of a share buyback programme
of at least $25 billion, by the end of 2020, subject to further progress with
debt reduction and oil price conditions. As at December 31, 2018, 125 million
A ordinary shares with a nominal value of €8.8 million ($10.6 million) (1.52% of
the Company’s total issued share capital at December 31, 2018) had been
purchased and cancelled for a total cost of $3.9 billion including expenses, at
an average price of $31.55 per share. This means that 709 million ordinary
shares could still be repurchased under the current AGM authority at
December 31, 2018. The purpose of the share repurchases in 2018 as well as
in the period ended January 28, 2019, was to reduce the issued share capital
of the Company. A new resolution will be proposed at the 2019 AGM to
renew the authority for the Company to purchase its own share capital, up to
specified limits, for a further year. This proposal will be described in more
detail in the 2019 Notice of Annual General Meeting.
Shares are also purchased by the employee share ownership trusts and
trust-like entities (see the “Directors’ Report” on page 94) to meet delivery
commitments under employee share plans. All share purchases are made in
open-market transactions.
The table below provides information on purchases of shares in 2018, as
well as in the period ended January 31, 2019, by the Company and
affiliated purchasers. Purchases in euros and sterling are converted into
dollars using the exchange rate on each transaction date.
Purchases of equity securities by issuer and affiliated purchasers in 2018 [A](cid:3)
Purchase period
Number
purchased
for employee
share plans
Number(cid:3)
purchased
for cancellation
[C]
A shares
Weighted(cid:3)
average
price ($)[D]
—
—
—
—
—
—
—
—
187,000
283,438
2,922,672
4,493,320
5,098,000
January
February
March
April
May
June
July
August
September
October
November
December
Total 2018
January
Total 2019
[A] Reported as at settlement date.
[B] American Depository Shares.
[C] Under the share buyback programme.
[D] Includes stamp duty and brokers’ commission.
[E] As at January 28, 2019, the end of the second tranche of the share buyback programme.
13,486,592
233,910
268,252
—
—
—
—
—
34,343,523
125,246,754
1,811,707
22,124,641
19,118,621
17,789,837
30,058,425
19,086,716
19,086,716 [E]
35.49
35.50
—
31.70
34.82
—
34.33
32.87
32.76
33.41
30.97
29.42
31.89
29.95
29.95
Number
purchased
for employee
share plans
5,159,100
1,226,154
135,255
—
1,408,045
83,800
—
—
B shares
Weighted(cid:3)
average
price ($)[D]
36.38
36.55
32.20
—
35.97
35.99
—
—
(cid:3)(cid:3)
A ADSs[B]
Weighted(cid:3)
average
price ($)[D]
68.18
—
64.78
—
—
Number
purchased
for employee
share plans
2,916,028
—
94,706
—
—
61,195
67.33
—
—
—
—
99,500
33.76
63,116
66.03
—
—
111,810
8,223,664
—
—
—
—
28.89
36.13
—
—
—
—
603,228
3,738,273
1,854,168
1,854,168
—
—
56.54
66.16
59.21
59.21
64
STRATEGIC REPORT SHELL ANNUAL REPORT AND FORM 20-F 2018
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At December 31, 2018, the Trust had total equity of £nil (2017: £nil; 2016:
£nil), reflecting cash of £3 million (2017: £2 million; 2016: £2 million) and
unclaimed dividends of £3 million (2017: £2 million; 2016: £2 million). The
Trust only records a liability for an unclaimed dividend, and a
corresponding amount of cash, to the extent that dividend cheque
payments have not been presented within 12 months, have expired or have
been returned unpresented.
CONTRACTUAL OBLIGATIONS
The table below summarises our principal contractual obligations at
December 31, 2018, 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 [A]
Operating leases [A]
Less than
1 year
Between
1 and 3
years
Between
3 and 5
years
5 years
and later
Total
9.1
2.1
4.8
11.1
3.9
6.8
8.8
3.6
4.7
33.5 62.6
13.4 22.9
7.9 24.2
Purchase obligations [B]
27.8
22.3
14.1
50.9
115.1
Other long-term
contractual liabilities [C]
—
0.7
0.2
0.9
1.8
31.6
43.7
44.9
106.5 226.7
Total
[A] See Note 14 to the “Consolidated Financial Statements” on pages 191-193. Debt contractual
obligations exclude interest, which is estimated to be $1.8 billion payable in less than one year,
$3.0 billion between one and three years, $2.6 billion between three and five years, and
$14.4 billion in five years and later. For this purpose, we assume that interest rates with respect to
variable interest rate debt remain constant at the rates in effect at December 31, 2018, and that there
is no change in the aggregate principal amount of debt other than repayment at scheduled maturity
as reflected in the table. Finance lease contractual obligations include interest.
[B] As revised, Purchase obligations disclosed in the above table exclude commodity purchase
obligations that are not fixed or determinable and are principally intended to be resold in a short
period of time through sale agreements with third parties. Examples include long-term non-cancellable
LNG and natural gas purchase commitments and commitments to purchase refined products or crude
oil at market prices. Inclusion of such commitments would not be meaningful in measuring liquidity
and cash flow, as the cash outflows generated by these purchases will generally be offset in the
same periods by cash received from the related sales transactions.
[C] Includes all obligations included in “Trade and other payables” in “Non-current liabilities” in 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 17 to the “Consolidated Financial
Statements” on pages 197-200) and obligations associated with decommissioning and restoration
(see Note 18 to the “Consolidated Financial Statements” on page 201).
GUARANTEES AND OTHER OFF-BALANCE SHEET
ARRANGEMENTS
There were no off-balance sheet arrangements at December 31, 2018, or
2017, reasonably likely to have a material effect on Shell.
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. See “Royal Dutch Shell
Dividend Access Trust Financial Statements” on pages 251-255.
The Shell Transport and Trading Company Limited and BG Group Limited
have each issued a dividend access share to Computershare Trustees
(Jersey) Limited (the Trustee). For the years 2018, 2017 and 2016, the Trust
recorded income before tax of £5,328 million, £4,567 million, and
£3,879 million respectively. In each period, this reflected the amount of
dividends received on the dividend access shares.
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Our three Golden Rules require our employees and contract staff to comply
with laws and regulations as well as our standards and procedures, to
intervene in unsafe or non-compliant situations, and to respect our
neighbours.
We expect ventures not operated by us to apply standards and principles
similar to our own. We support these ventures in their implementation of our
HSSE & SP Control Framework, or of a similar framework, and offer to
review the effectiveness of their implementation. Even if such a review is not
carried out, we periodically evaluate HSSE & SP risks faced by the ventures
which we do not operate. If one of these ventures does not meet our
expectations, we work to put plans in place, in agreement with our partners,
to improve performance.
Shell aims to work with suppliers that behave in a safe, economically,
environmentally and socially-responsible manner. Our approach to suppliers
is set out in our Shell General Business Principles and Shell Supplier
Principles. These principles cover expectations in areas such as business
integrity, health and safety, and human rights. Working with suppliers in this
way is central to maintaining a strong societal support for our operations.
SAFETY
Safety is central to the responsible delivery of energy. We develop and
operate our facilities with the aim of preventing any incidents that may harm
our employees, contract staff or nearby communities, or cause damage to
our assets or adversely impact the environment. We manage safety risks
across our businesses through clear standards, controls and compliance
systems, combined with a safety-focused culture. We focus on the three
areas of safety with the highest risks associated with our activities: personal,
process, and transport. We ensure that people responsible for tasks
involving a significant safety hazard have the necessary training and skills.
Safety performance is included in our annual bonus scorecard for all our
employees. Also see “Directors’ Remuneration Report” on page 133.
We continue to strengthen the safety culture and leadership among our
employees and contract staff, with the focus on caring for people. Our
safety goal is to achieve no harm and no leaks across all our operations.
We refer to this as our Goal Zero ambition.
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 employees and
contract staff 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 face disciplinary action up to and
including termination of employment. If contract staff break the Life-Saving
Rules, they can be removed from the worksite.
Environment and society
Environment and society
Our success in business depends on our ability to meet a range of
environmental and social challenges. We must operate safely and manage
the effect our activities can have on neighbouring communities and wider
society. If we fail to do this, we may incur liabilities or sanctions, lose
business opportunities, harm our reputation, or our licence to operate may
be impacted (see “Risk factors” on page 17).
Data in this section are reported on a 100% basis in respect of activities
where we are the operator. Reporting on this operational control basis
differs from that applied for financial reporting purposes in the
“Consolidated Financial Statements” on pages 167-214. Detailed data and
information on our 2018 environmental and social performance will be
published in the Shell Sustainability Report in April 2019.
CONTROL FRAMEWORK
The Shell General Business Principles set out our responsibilities to
shareholders, customers, employees, business partners and society. They set
the standards for the way we conduct business, with integrity and respect
for people, the environment and communities. All ventures that we operate
must conduct their activities in line with our business principles.
We aim to minimise the environmental impact of new projects and existing
operations and we engage with local communities and non-governmental
organisations to understand and respond to their concerns. Shell conducts
an environmental, social and health impact assessment for every major
project. This helps us to understand and manage the effects our projects
could have on the surrounding environment and local communities. We
have standards and a clear governance structure in place to help manage
potential impacts. Our standards are defined in our Health, Safety, Security,
Environment and Social Performance (HSSE & SP) Control Framework
(Control Framework), in line with the Shell Commitment and Policy on
Health, Security, Safety, the Environment and Social Performance and the
Shell Code of Conduct, and are supported by a number of guidance
documents. They apply to every Shell entity, including all employees and
contract staff, and to Shell-operated ventures. The Control Framework
defines standards and accountabilities at each level of the organisation and
sets out the procedures and processes people are required to follow. We
manage HSSE & SP risks to as low as reasonably practicable, which is a
business responsibility supported by the HSSE & SP function. The process
safety and HSSE & SP assurance team provides assurance on the
effectiveness of HSSE & SP controls to the Board.
HSSE & SP Control Framework
Mandatory
HSE Policy & Commitment
HSSE & SP Standards
Manuals
Health
Personal Safety
Process Safety
Security
Environment
Contractor HSSE Mgmt.
Projects
Transport
Product Stewardship
Social Performance
HSSE Management System
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Process safety management is about keeping hazardous substances inside
pipes, tanks and vessels so they do not cause any harm to people or the
environment. It starts at the design and construction stage of our projects and
is implemented throughout the life cycle of these facilities to ensure they are
operated safely, well-maintained and regularly inspected. 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 in the direction of flow to mitigate the
risk of an uncontrolled release of hydrocarbons. We regularly inspect, test
and maintain these barriers to ensure they meet our standards. In the event of
a loss of containment such as a spill or a leak, we employ independent
recovery measures to prevent the release from becoming catastrophic. This
system of barriers and recovery measures is known as a “bow-tie”, a model
that visually represents a system where process safety hazards are managed
through prevention and response barriers. Since 2016, we have been working
on strengthening barriers that involve critical safety tasks carried out by
frontline staff. We have been working on embedding a set of process safety
fundamentals, which provide clear guidelines for good operating practice to
prevent unplanned releases.
Risk management approach
CONTROLS, BARRIERS
RECOVERY MEASURES
Threats
TOP
EVENT
Consequences
We also routinely prepare and practise our emergency response to
potential incidents such as a spill or a fire. This involves working closely with
local services and regulatory agencies to jointly test our plans and
procedures. These tests continually improve our readiness to respond. If an
incident does occur, we have procedures in place to reduce the impact on
people and the environment.
Transporting large numbers of people, products and equipment by road,
rail, sea and air poses safety risks. We develop best-practice standards
within Shell to find ways of reducing travel and transport safety risks, and
work with specialist contractors, industry bodies, non-governmental
organisations and governments.
Shell employees and contractors drove a combined distance of around
600 million kilometres on business in 2018 in more than 60 countries. We
run road safety programmes, such as those that promote safe driving
techniques and behaviour. We require everyone driving more than 7,500
kilometres a year on company business on public roads and those who
drive in road safety high-risk countries to take a defensive driving course.
Outside our operations, we also work to improve road safety in several
communities and countries where we operate.
While we continually work to minimise the likelihood of incidents, some do
occur. Tragically, two contractors lost their lives while working for Shell in
2018. We require all incidents to be investigated to understand the
underlying causes and seek to translate these into improvements in
standards or ways of working that can be applied broadly across similar
facilities in Shell.
As set out in “Performance indicators” on page 28, our total recordable
case frequency (injuries per million working hours) was 0.9 in 2018,
compared with 0.8 in 2017, and there were 121 operational Tier 1 and 2
process safety events in 2018, compared with 166 in 2017. Detailed
information on our 2018 safety performance will be published in the Shell
Sustainability Report in April 2019.
Pakistan
In June 2017, a devastating roll-over incident occurred in Pakistan involving
a road tanker hired by a company that was providing road transport
services to Shell Pakistan Limited, following which people from a nearby
village approached the incident site to collect spilled fuel. Tragically, the
fuel ignited resulting in the loss of more than 200 lives and left many other
people seriously injured.
Following the incident Shell Pakistan Limited provided immediate relief
support, including providing food supplies for 150 affected families for nine
months and medical supplies to hospitals. Shell Pakistan Limited has also
contributed to long-term relief efforts for those impacted. For example, the
CARE Foundation, in partnership with Shell Pakistan Limited, has ‘adopted’
two public schools within the impacted villages to improve infrastructure and
education standards. Shell Pakistan Limited is also working with the
National Rural Support Programme to help restore livelihoods of people in
affected communities, providing vocational training and support for setting
up small businesses.
We finalised our internal investigations in 2018 and we continue to
implement our learnings from the incident. This includes deep reflection by
the Board and Executive Committee, who have initiated several
improvement programmes to be adopted throughout the Shell Group. We
have developed and started the implementation of a road transport
improvement project, specifically targeted at the management of fuel
transport in high-risk countries. We are working with road transport
companies in other locations where factors relevant to the Pakistan incident
may exist and have also started sharing what we have learned with others
in the fuel transport industry.
Shell Pakistan Limited continues to work with regulators, emergency services
and the wider oil and gas industry in Pakistan with a view to improving
safety standards. Shell Pakistan Limited has also required the road transport
companies it hires to improve the safety of their transport fleets and has
ongoing safety engagements with hauliers and their drivers, seeking to help
them to identify and address the risks associated with driving fuel tankers.
This has included emergency-response drills to build and test capability.
Road transportation remains a challenging and complex area for industry
worldwide. Sadly, in October 2018, there was another roll-over incident in
Pakistan involving a customer tanker, which resulted in the death of the relief
driver and a spill. This incident was outside of Shell’s operational control
and outside of our reporting scope. See “Directors’ Remuneration Report”
on page 119.
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Environment and society Continued
ENVIRONMENT
We carefully consider the potential environmental impact of our activities
and how local communities might be affected during the lifetime of our
projects and operations. We seek to comply with environmental
regulations, to continually improve our performance, and to prepare to
respond to future challenges and opportunities. We use external standards
and guidelines, such as those developed by the World Bank and
International Finance Corporation, to inform our approach. We have global
environmental standards, which we believe meet applicable regulatory
requirements and often exceed them. Our standards cover our
environmental performance, including managing emissions of greenhouse
gases (GHG), using energy more efficiently, flaring less gas during oil
production, preventing spills and leaks of hazardous materials, using less
fresh water and conserving biodiversity wherever we operate.
For example, the availability of fresh water is a growing challenge in some
parts of the world. 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. We manage our water use carefully,
and we tailor our use of fresh water to local conditions because water
constraints affect people at the local or regional level. In some cases, we use
alternatives to fresh water in our operations; these include recycled water,
processed sewage water and desalinated water. For example, at our gas-to-
liquids plant in the Qatari desert, we clean and reuse industrial process water.
This means that we reduce our use of the country’s scarce natural water
resources. An assessment of risks to water availability is required to be
undertaken for each of our assets and projects and, in areas of water scarcity,
we develop water-management action plans that identify ways to use less
fresh water, recycle water and closely monitor its use.
In 2018, our intake of fresh water was 199 million cubic metres, about the
same as 2017. Around 90% of our fresh water intake was used for
manufacturing oil products and chemicals, with the balance mainly used for
oil and gas production. Around 40% of freshwater intake was from public
utilities, such as municipal water supplies.
See “Climate change and energy transition” on pages 71-78 for more
information on how we manage our GHG emissions.
SPILLS
Large spills of crude oil, oil products and chemicals associated with our
operations can adversely impact the environment and 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 requirements and
procedures designed to prevent spills.
Our business units are responsible for organising and executing oil-spill
responses in line with Shell guidelines as well as with relevant legal and
regulatory requirements. All our offshore installations have plans in place to
respond to spills. These plans detail response strategies and techniques,
available equipment, and trained personnel and contracts. We are able to
call upon site-managed resources such as containment booms. We are also
able to draw upon the contracted services of oil-spill response organisations
their containment booms, collection vessels, aircraft or other equipment if
required for large spills. We conduct regular exercises that seek to ensure
these plans remain effective. We have further developed our capability to
respond to spills to water and maintain a Global Response Support
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Network comprised of trained staff to support our worldwide response
capability. This is also supported by our global Oil Spill Expertise Centre,
which tests local capability and maintains our capability globally to
respond to a significant spill into a marine environment.
We are a founding member of the Marine Well Containment Company, a
non-profit industry consortium providing a well-containment response system
for the Gulf of Mexico. In addition, we are a founding member of the
Subsea Well Response Project, an industry cooperative effort to enhance
global well-containment capabilities, which has transitioned to Oil Spill
Response Limited, an industry consortium.
We also maintain 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 the initial assessment of incidents and the mobilisation of
resources needed to manage them.
In 2018, the number of operational spills of more than 100 kilograms
decreased to 92 from 104 in 2017 (see “Performance indicators” on page
28). At the time of publication of this Report, there was one spill under
investigation in Nigeria that may result in adjustments.
Spills in Nigeria
Most oil spills in the Niger Delta region of Nigeria continue to be caused
by crude oil theft or sabotage of oil and gas production facilities, as well as
illegal oil refining, including the distribution of illegally refined products. In
2018, close to 90% of the number of oil spills of more than 100 kilograms
from The Shell Petroleum Development Company of Nigeria Limited (SPDC)
joint venture facilities was due to illegal activities by third parties. However,
there are instances where spills occur due to operational reasons.
Irrespective of the cause, SPDC cleans up and remediates areas impacted
by spills originating from its facilities. In the case of operational spills, SPDC
also pays compensation to people and communities impacted by the spills.
Once clean-up and remediation work are completed, the work is inspected
and, if satisfactory, approved and certified by Nigerian regulators.
To reduce the number of operational spills, SPDC is focused on
implementing its ongoing work programme to appraise, maintain and
replace key sections of pipelines and flow lines. Over the last seven years,
approximately 1,300 kilometres of pipelines and flow lines have been
replaced. This is managed through a pipeline and flow line integrity
management system that proactively manages pipeline integrity, puts
barriers in place where necessary, and recommends when and where
pipeline sections should be replaced to prevent failures. In 2018, this
integrity management system was enhanced to manage integrity threats
arising from frequent pipeline sabotage or vandalism.
SPDC continues to undertake initiatives to prevent and minimise spills
caused by theft and sabotage of its facilities in the Niger Delta. In 2018,
SPDC continued on-ground surveillance efforts on the SPDC joint venture’s
areas of operation, including its pipeline network, to mitigate incidences of
third-party interference and ensure that spills are detected and responded
to as quickly as possible. There are also daily overflights of the pipeline
network to identify any new spill incidents or illegal activities. SPDC has
also implemented anti-theft protection mechanisms on key infrastructure,
such as wellheads and manifolds.
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Since 2012, SPDC has worked with the International Union for
Conservation of Nature to enhance remediation techniques and to protect
biodiversity at sites affected by oil spills in SPDC’s areas of operation in the
Niger Delta. Based on this partnership, SPDC has launched further
improvement initiatives to help strengthen its remediation and restoration
efforts.
SPDC also works with a range of stakeholders in the Niger Delta to build
greater trust in spill response and clean-up processes. Local communities
take part in the remediation work for operational spills. In certain instances,
some non-governmental organisations have also participated in joint
investigation visits along with government regulators, SPDC and impacted
communities, to establish the cause and volume of oil spilled.
In addition, SPDC has implemented several initiatives and partnerships to
raise awareness on the negative impact of crude oil theft and illegal oil
refining. Examples include community-based pipeline surveillance and the
promotion of alternative livelihoods through Shell’s flagship youth
entrepreneurship programme, Shell LiveWIRE.
In 2015, SPDC, on behalf of the SPDC joint venture and the Bodo
community, signed a memorandum of understanding (MOU) granting
access to SPDC to begin the clean-up of areas affected by two operational
spills in 2008. The MOU also provided for the selection of two international
contractors to conduct the clean-up and to be overseen by an independent
project director. The clean-up project suffered a delay in 2016 and most of
2017 due to access challenges from the community. After engagement with
the Bodo community and other stakeholders over two years, beginning in
September 2015, and managed by the Bodo Mediation Initiative, the first
phase of clean-up and remediation activities started in September 2017.
The clean-up consists of three phases: 1) removal of free-phase surface oil,
2) remediation of soil, 3) planting of mangroves and monitoring. The first
phase was completed in August 2018 and the contract procurement
process for phase two is expected to be finalised in 2019. Should activities
continue uninterrupted, phase two (soil remediation) is expected to take
approximately two years to complete. However, for it to be successful,
there must be no re-contamination of cleaned-up sites from illegal third-party
activities, such as crude oil theft and illegal refining.
SPDC remains committed to the implementation of the 2011 United Nations
Environmental Programme (UNEP) Report on Ogoniland. Over the last
seven years, SPDC has taken action on all the UNEP recommendations
addressed to it as operator of the joint venture and has already addressed
the majority of these recommendations. Throughout 2018, SPDC
representatives continued to actively support the clean-up process within the
governance framework established in August 2016 by the Nigerian
government to oversee the process. The UNEP report recommended the
creation of an Ogoni Trust Fund (OTF) with an initial capital of $1 billion, to
be co-funded by the Nigerian government, the SPDC joint venture and
other operators in the area. The SPDC joint venture remains fully committed
to contributing its share of $900 million over five years to the OTF and
made available $10 million in early 2017 to help set up the Hydrocarbon
Pollution and Remediation Project (HYPREP), a government-led body to
clean up the contaminated sites in Ogoniland and other Niger Delta areas.
In July 2018, the SPDC joint venture deposited an additional $170 million
into an escrow account to fund HYPREP’s activities, which completes its first-
year contribution of $180 million. HYPREP has issued contract award letters
for phased remediation activities and is aiming for contractors to be in
place in early 2019.
HYDRAULIC FRACTURING
Shale oil and gas continue to play an important role in meeting global
energy demand. Over the last decade, we have expanded our onshore oil
and gas portfolio using advances in technology to access previously
uneconomic tight-oil and tight-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 used since the 1950s. It involves
pumping fluids that are typically around 99.5% water and sand and around
0.5% chemical additives into tight sand or shale rock at high pressure. This
creates thread-like fissures, through which oil and gas can flow.
Shell has developed and publicly shared a set of five global operating
principles that govern the onshore shale oil and gas activities where it
operates and where hydraulic fracturing is used. The principles cover safety,
air quality, water protection and usage, land use and engagement with
local communities. We review our Onshore Operating Principles annually
and update them as new technologies, challenges and regulatory
requirements emerge. We believe we can safely and responsibly explore,
develop and produce shale oil and gas using hydraulic fracturing
technology. We also support appropriate and fit-for-purpose regulations.
Shell strives to minimise the use of water in its shale operations. Depending on
local conditions, we typically use a combination of fresh water, non-potable
groundwater, produced water and waste water. We work to reduce and
ideally eliminate our freshwater intake. We deploy responsible withdrawal
practices when using fresh water. Shell disposes of water safely and in
compliance with applicable laws. Flowback water is typically transferred to a
disposal facility. Meanwhile, we take produced water to a treatment plant for
processing and then reuse it, as much as possible, for additional wells. When
recycling is not reasonably practicable, or volumes exceed our operational
needs, we may store and treat produced water, share it with other producers,
or dispose of it in an environmentally responsible way.
Potable groundwater aquifers are typically isolated from the hydrocarbon-
producing shale formations by several thousand feet of impermeable rock.
However, we often need to drill though potable groundwater aquifers to
reach shale formations. Hence, we design our drilling, hydraulic fracturing
and production activities in a way that maintains isolation from potable
groundwater aquifers. Before we drill a well, we conduct a hazard
assessment to analyse risks to groundwater aquifers, then design and
implement control measures. We employ at least two physical barriers,
consisting of steel casing and cement, between the wellbore and potable
groundwater aquifers. We monitor wellbore integrity before, during and
after hydraulic fracturing and during production. Moreover, we routinely test
groundwater in our assets.
Since 2015, we have worked to reduce the number of chemical additives in
the composition of hydraulic fracturing fluids used in our shale operations.
We support full disclosure of the chemical additives used in hydraulic-
fracturing fluids for Shell-operated wells, as well as regulations that require
suppliers to release information on chemical additives. We have stringent
procedures for handling hydraulic-fracturing chemicals.
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Environment and society Continued
SEISMICITY
As oil and gas fields mature, seismic activity may increase in certain
circumstances based on the unique geology of individual fields. For
example, in recent years, public concern about gas production in
Groningen province in the Netherlands has grown as a result of an
increase in the number of, and energy released by, induced earthquakes in
the area (see “Upstream” on page 39). The Groningen field is operated by
Nederlandse Aardolie Maatschappij B.V. (NAM, Shell interest 50%) and is
one of the largest onshore gas fields in Europe. A range of actions have
been taken to improve safety, liveability and economic prospects in the
region. NAM is working together with all relevant parties to fulfil
commitments to the residents of the area and reinstate governance by the
appropriate authorities.
Overall, the likelihood of induced seismicity due to hydraulic fracturing or
produced water disposal well operations being felt on the surface is
relatively low. However, Shell takes concerns around induced seismicity
seriously and proactively manages the risk in accordance with, and
sometimes beyond, regulatory requirements. We have added induced
seismicity to our Onshore Operating Principles and developed internal
guidelines that are applied to our shale assets. The guidelines outline a risk
assessment process and provide a framework for risk management.
Subsurface and surface conditions vary from basin to basin, which means
that management practices need to reflect the risk profile of each basin and
provide customised responses to the risks. We are supportive of state and
provincial regulations that are fit-for-purpose and science-based.
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 reputation and our ability to do business.
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 unforeseen impacts on the environment. Although
these costs have so far not been material to us, no assurance can be given
that this will always be the case.
SECURITY
Our operations expose us to civil unrest, criminality, terrorism, piracy, acts of
war, cyber disruption and risks of pandemic diseases that could have a
material adverse effect on our business (see “Risk factors” on page 16). We
seek to obtain the best possible information to enable us to assess threats
and risks. We conduct detailed assessments for all sites and activities, and
implement appropriate risk-mitigation measures to detect, deter and
respond to security threats. This includes building strong and open
relationships with government security agencies, the physical hardening of
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sites, journey management, and information risk management. We conduct
training and awareness campaigns, including travel advice and medical
assistance before travel. The identities of our employees and contract staff
and their access to our sites and activities, both physical and logistical, are
consistently verified and controlled. We manage and exercise crisis
response and management plans.
NEIGHBOURING COMMUNITIES
Earning the trust of local communities is essential to the success of our
projects and operations. Our global requirements for social performance
aim to ensure that we operate in a responsible way, by avoiding or
minimising the negative social impacts of our operations. They also help us
maximise the benefits of our activities, such as employment and contractual
opportunities that can support local economies.
Specifically, these requirements set clear rules and expectations for how we
engage with and respect communities that may be impacted by our
operations. We require Shell-operated major projects and facilities to have
a social performance plan that defines actions for managing potential
negative and positive impacts on the communities where they operate.
Integral to these plans is the identification of the social environment, the
stakeholders who may be vulnerable to the operations, and an appropriate
community feedback mechanism for listening and responding to queries, or
resolving complaints, in a timely manner. We have specific requirements in
place to avoid, minimise or mitigate potential impacts on indigenous
peoples’ traditional lifestyles, cultural heritage or involuntary resettlement.
More information can be found at
https://www.shell.com/sustainability/communities/working-with-
communities.html.
HUMAN RIGHTS
Respect for human rights is embedded in our Business Principles and in our
Code of Conduct. Our approach is informed by the Universal Declaration
of Human Rights, the core conventions of the International Labour
Organization and the United Nations’ Guiding Principles on Business and
Human Rights.
We work closely with other companies and non-governmental
organisations to continuously improve the way we apply these principles.
Our focus is on four key areas where respect for human rights is critical to
the way we operate: communities, security, labour rights, and supply chain.
We have systems and processes in place for contracting and procurement,
recruitment and employment, security and social performance. We require
all our companies and our contractors to respect the human rights of our
workforce and our neighbouring communities. More information about our
approach to human rights can be found at
https://www.shell.com/sustainability/transparency/human-rights.html.
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Climate change and energy transition
Shell has long recognised that greenhouse gas (GHG) emissions from the
use of fossil fuels are contributing to the warming of the climate system. In
December 2015, 195 nations adopted the Paris Agreement. We welcomed
the efforts made by governments to reach this global climate agreement,
which entered into force in November 2016. We fully support the Paris
Agreement’s goal to keep the rise in global average temperature this
century to well below two degrees Celsius (2°C) above pre-industrial levels
and to pursue efforts to limit the temperature increase even further to 1.5°C.
In pursuit of this goal, we also support the vision of a transition towards a
net-zero emissions energy system. Shell agrees with the Intergovernmental
Panel on Climate Change (IPCC) 1.5°C special report, which states that in
order to limit warming to 1.5°C above pre-industrial levels, the world
economy would need to transform in a number of complex and connected
ways. Meeting this challenge would require an even more rapid escalation
in the scale and pace of change in the coming decades than was foreseen
in the Paris Agreement.
Society faces a dual challenge: how to transition to a low-carbon energy
future to manage the risks of climate change, while also extending the
economic and social benefits of energy to everyone on the planet. This is
an ambition that requires changes in the way energy is produced, used and
made accessible to more people while drastically cutting emissions.
We believe that the need to reduce GHG emissions, which are largely
caused by burning fossil fuels, will transform the energy system in this
century. This transformation will generate both challenges and opportunities
for our existing and future portfolio.
We welcome and support efforts, such as those led by the Task Force on
Climate-related Financial Disclosures (TCFD), to increase transparency and to
promote investors’ understanding of companies’ strategies to respond to the
risks and opportunities presented by climate change. We believe that
companies should be clear about how they plan to be resilient in the energy
transition. In 2017, we joined the Oil and Gas Preparer Forum, initiated by the
TCFD and convened by the World Business Council for Sustainable
Development. The forum´s objectives are to review the current state of
climate-related financial disclosures, to identify examples of effective
disclosure practices and make proposals on how disclosures may evolve
over time. The Shell Energy Transition Report published in April 2018 (2018
SET report) described the energy transition and considered Shell’s resilience
against future scenarios. The 2018 SET report followed our discussions with
the TCFD about increasing transparency to help investors understand climate-
related risks and opportunities. Our approach to the energy transition as
described in the 2018 SET report, in combination with the Shell Sustainability
Report (April 2019) aims to complement this Report in responding to TCFD
recommendations, including discussing the energy transition and Shell´s
portfolio resilience.
OUR GOVERNANCE AND MANAGEMENT OF CLIMATE
CHANGE RISKS AND OPPORTUNITIES
Climate change and risks resulting from GHG emissions have been
identified as a significant risk factor for Shell and are managed in
accordance with other significant risks through the Board and Executive
Committee. See “Corporate governance” on pages 103-104.
Shell has a climate change risk management structure in place which is
supported by standards, policies and controls.
This includes the work of the Board, which discussed a number of regular
agenda items, among them reporting on environmental topics. Throughout
2018, the Board discussed the businesses’ Net Carbon Footprint ambition.
In addition, some of the Non-executive Directors received dedicated
updates from management and external experts on New Energies, the
various business models, advantages and disadvantages of having positions
along the power value chain, and the opportunities for Shell in the New
Energies area. During the annual dedicated strategy meeting, the Board
debated the longer-term challenges of the future of mobility and the
changing mobility landscape in the context of climate change and energy
transition.
The Board committees (see “Corporate governance” on page 100) play an
important role in assisting the Board with regard to governance and
management of climate change risks and opportunities.
The role of the Corporate and Social Responsibility Committee (CSRC) is to
review and advise the Board on Shell’s strategy, policies and performance
in the areas of safety, environment, ethics and reputation. It regularly
discusses the Company’s approach to combatting climate change. In 2018,
this included the energy transition, GHG emission targets (including advice
to the Remuneration Committee), policy on methane, Shell’s Net Carbon
Footprint and nature-based solutions.
The Remuneration Committee (REMCO) is responsible for determining the
Directors’ Remuneration Policy in alignment with our business strategy. In
2018, activities for REMCO included setting annual bonus performance
measures and targets, for example, by continuing to include GHG intensity
metrics in the scorecard following recommendations by the CSRC
embedding the energy transition into the Chief Executive Officer (CEO) and
Chief Financial Officer’s (CFO) personal performance goals, and discussing
the incorporation of energy transition measures into long-term incentives. In
2018, Shell took a major step forward in delivering our strategy by
announcing plans to link short-term targets to reduce the Net Carbon
Footprint of energy products we sell to executive remuneration. In 2019,
REMCO decided to include an energy transition condition into the 2019
Long-Term Incentive Plan (LTIP) based on recommendations from CSRC. This
condition will include our first three-year target towards achieving our Net
Carbon Footprint ambition along with other measures that will help us to
achieve our strategic ambitions in the long term, related to growth of Shell’s
power business, commercialising opportunities in advanced biofuel
technology and the development of sinks to capture and store carbon. See
“Directors’ Remuneration Report” on pages 119-147. The Shell employee
scorecard structure for determining employees’ annual bonus in 2018 was
consistent with the Executive Directors’ scorecard. The energy transition
condition in the 2019 LTIP will apply to all Senior Executives as well as the
Executive Directors.
The Audit Committee has key responsibilities in assisting the Board in
fulfilling its oversight responsibilities in relation to areas such as the
effectiveness of the system of risk management and internal control. Any
concerns regarding improvement needed are promptly reported to the
Board.
The CEO is the most senior individual with accountability for climate change
risk. We have set up several dedicated climate change and GHG-related
forums at different levels of the organisation where climate change issues
are addressed, monitored and reviewed, and each Shell subsidiary has
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operational responsibility for implementing climate change policies and
strategies.
Climate change management organogram
A senior manager – the Executive Vice President for Safety and Environment
– reporting directly to the Projects & Technology Director is accountable,
among other things, for oversight of GHG issues. This manager´s
department includes the dedicated Group Carbon team, which is
accountable for monitoring and examining the strategic implications of
climate change for Shell and the impact of developments in governmental
policy and regulation. The Group Carbon team is responsible for preparing
proposed policy positions based on analysis within Shell and external input.
The team also provides advice to Shell companies to ensure consistency in
application of our core principles and policy tasks in interactions with
policymakers. Reporting to the same manager is the HSSE & SP Assurance
and Reporting team, which is accountable for the delivery of Shell’s non-
financial reporting and for auditing the businesses´ performance against our
HSSE & SP Control Framework requirements, including climate change risk
management. See “Environment and society” on page 66.
Group Carbon also has oversight of Shell’s GHG management programme
and supports the different lines of business in embedding GHG management
strategies. The team includes GHG project managers to advise the largest
projects in managing GHG-related topics, from both a risk and an opportunity
standpoint. Risk management at an asset or project level is a structured
process of identifying and assessing risks, planning and implementing
responses, monitoring, improving and closing out action items that have an
impact on projects and assets’ objectives and performance. Shell policy
requires these large projects to obtain formal sign-off on abatement plans and
targets.
Further support for embedding GHG management is provided by a global
risk support team for GHG and energy management. This team is a
network of subject-matter experts in GHG topics that works globally and
across our lines of business. Team members are experts in their relevant
disciplines, defining improvement areas globally and capturing and sharing
best practices.
The above-mentioned teams and experts have provided their input to shape
a set of mandatory manuals and complementary guidance documents
which are ultimately based on our HSSE & SP Control Framework. These
documents provide guidance on how to monitor, communicate and report
changes in the risk environment, and how to review the effectiveness of
actions taken to manage the identified risks, including ways to:
(cid:374) ensure consistent assessment of climate risk across Shell;
(cid:374) clarify expectations for risk management and reporting, including roles
and responsibilities;
(cid:374) strengthen decision-making through better visibility and understanding of
the climate risk by line of business; and
(cid:374) enable integration of Shell’s reporting.
For more detail on our definition of risk categories and their relationship to
different time horizons, see page 75.
Board of Royal
Dutch Shell plc [1]
Corporate and
Social Responsibility
Committee (CSRC) [2]
Audit
Committee
(AC) [3]
Remuneration
Committee
(REMCO) [4]
CEO and Executive Committee
Executive Vice President,
Safety & Environment
Vice President, Group Carbon
Businesses and Functions [5]
Most senior individuals
with accountability for
climate change risk
management
EVP Steering Team
Group strategic steer
Safety and Environment
Leadership Team
Operational
implementation steer
[1] Oversight of climate change risk management.
[2] Non-executive Directors appointed by the Board to review and advise
on sustainability policies and practices including climate change.
[3] Non-executive Directors appointed by the Board to oversee the effectiveness
of the system of risk management and internal control.
[4] Non-executive Directors appointed by the Board to set the remuneration
policy in alignment with strategy.
[5] Responsible for implementing Shell’s GHG strategy. They are represented in
the Safety and Environment Leadership Team.
This structured approach supports the prioritisation of risks and opportunities.
We actively monitor the GHG footprint of all our assets, as well as our
products, to quantify future regulatory costs related to GHG or other climate-
related policies. This allows us to effectively prioritise areas of greater concern
and assess mitigation options and the most viable responses. Climate-related
risks are analysed in context of other identified material risks. See “Risk factors”
on pages 15-20.
Our portfolio exposure is reviewed annually against changing GHG
regulatory regimes and physical conditions to identify emerging risks. We
test the resilience of our portfolio against externally published future
pathways, including a low emissions pathway. In 2017, Shell announced a
long-term ambition to reduce the Net Carbon Footprint of its energy
products. This was followed by an announcement, in December 2018, of
our intention to set short-term targets in line with that ambition.
Meeting the Net Carbon Footprint ambition requires evolving our portfolio
over the medium to longer term, to reduce the carbon intensity of the
products that we sell. We plan for this by developing future aspired
portfolio shapes that would meet our ambition and use these to guide
investment decisions. Within the selected portfolio shapes, individual
projects are developed to be as resilient to the future scenarios as possible.
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To assess the resilience of new projects, we consider the potential costs
associated with operational GHG emissions. Consistent with our desire to
stay in step with society’s progress toward the goals of the Paris Agreement,
in 2018, we moved away from using a flat project screening value (PSV) of
$40/tonne of GHG emissions, to country-specific estimates of future
carbon costs. These estimates were developed using the current Nationally
Determined Contributions (NDCs) submitted by countries as part of the
Paris Agreement. Accordingly, we believe they more accurately reflect
society’s current implementation of the Paris Agreement rather than a flat
$40/tonne PSV. By 2050, our estimates for some countries increase to
$85/tonne of GHG emissions.
These are the first NDCs to implement the Paris Agreement and they are
scheduled to be revised at regular intervals. Therefore, as countries update
their NDCs, we expect to update our estimates as well. The United Nations
believes the current NDCs are consistent with limiting the average global
temperature rise to around three degrees Celsius above pre-industrial levels.
In coming decades, we expect countries to tighten these NDCs in order to
meet the goal of the Paris Agreement.
Also, we apply additional sensitivity tests for our high-emitting projects by
using long-term carbon cost estimates consistent with limiting the average
global temperature rise to well below two degrees Celsius.
In addition, projects in the most GHG-exposed asset classes are
benchmarked against GHG intensity targets that reflect standards sufficient
to allow them to compete and prosper in a more GHG-constrained future.
These processes can lead to projects being stopped, designs being
changed, and potential GHG mitigation investments being identified, in
preparation for when regulation would make these investments
commercially compelling. Our approach continues to evolve and become
more sophisticated to reflect our increasing understanding of the shifting
policy landscape and the differing pace of energy transitions underway in
different regions. .
While monitoring emerging climate change plans, we consider the
robustness of our activities against a range of scenarios, as referenced in
the 2018 SET report. We believe our business strategy is resilient to the
envisaged implementation of the Paris Agreement, which is now progressing
through countries’ development of individual plans in their NDCs. The
emissions of energy consumers from their use of Shell energy products are
for a large part covered by these NDCs. The Paris Agreement
acknowledges that emissions will continue and even grow in some parts of
the world. It does not stipulate that emissions must fall in all sectors or
countries simultaneously, or that all actors within the system will reduce their
emissions at the same time or to the same degree. What is important is that
overall emissions fall.
OUR PORTFOLIO AND CLIMATE CHANGE
We are seeking cost-effective ways to manage GHG emissions and see
potential business opportunities in developing such solutions. We seek to
contribute to reducing global GHG emissions in a number of ways:
(cid:374) supplying more natural gas to replace coal for power generation;
(cid:374) progressing carbon capture and storage (CCS);
(cid:374) implementing energy-efficiency measures in our operations where
reasonably practicable;
(cid:374) developing new fuels for transport such as advanced biofuels and
hydrogen;
(cid:374) participating throughout the power value chain with a focus on natural
gas and renewable electricity; and
(cid:374) working with nature-based solutions.
To support this, we continue to advocate the introduction of effective
government-led carbon pricing mechanisms.
While we are committed to reducing our GHG intensity, as energy demand
increases and easily accessible oil and gas resources decline, we may
develop resources that require more energy and advanced technologies to
produce. If our production becomes more energy intensive, this could result
in an associated increase in direct GHG emissions from our upstream
facilities.
Some governments have introduced carbon pricing mechanisms, which we
believe can be an effective measure to reduce GHG emissions across the
economy at lowest overall cost to society, and we expect more
governments to follow. However, we believe measures taken by
governments to control national energy transitions may also have
unintended consequences when prohibition of one technology may support
other substitute technologies that could result in an increase in overall GHG
emissions.
See “Risk factors” on page 16.
NATURAL GAS
According to the IEA, more than 40% of global CO2 emissions in 2015
came from electricity and heat generation. For many countries, using more
gas in power generation instead of coal can make a large contribution, at
lower cost, in meeting their GHG emission reduction objectives. We expect
that, in combination with renewables and the use of CCS, natural gas will
be essential for significantly lowering GHG emissions. Natural gas made
up more than half of Shell’s proved reserves at the end of 2018. As one of
the leaders in liquefied natural gas (LNG), together with our portfolio of
conventional gas assets and our technologies for recovering gas from tight-
rock formations, we can supply natural gas to replace coal for power
generation. Natural gas can also act as a partner for intermittent
renewable energy, such as solar and wind, to maintain a steady supply of
electricity, because gas-fired plants can start and stop relatively quickly.
Methane is a greenhouse gas. When released into the atmosphere, it has a
much higher global warming impact than CO2. Natural gas consists mainly of
methane. Efforts to address climate change therefore require the industry to
reduce both deliberate and unintended methane emissions from the gas value
chain, from production to the final consumer.
The IEA estimates that natural gas operations have an average methane
leakage rate of 1.7%. At this rate, natural gas emits between 45% and 55% less
GHG emissions than coal when burnt at a power plant, but higher levels of
methane emissions would reduce this benefit. We recognise the importance of
reducing methane emissions. Methane from the flaring and venting of gas
(including equipment venting) in our upstream oil and gas operations was the
largest contributor to our reported methane emissions in 2018. We are working
to reduce methane emissions from these sources by reducing the overall level
of flaring and venting. In addition, we continue to implement leak detection and
repair programmes across our sites to identify unintended losses and high-
emission equipment, such as high-bleed pneumatic devices, so they can be
replaced or repaired. We continue to work on confirming that we have
identified all potential methane sources and that we have reported our
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emissions from these sources in line with regulations and industry standards. In
2017, we joined the Climate and Clean Air Coalition Oil & Gas Methane
Partnership. It brings together industry, governments and non-governmental
organisations to improve quantification of methane emissions globally and work
towards reducing them. In November 2017, Shell – along with seven other
energy companies – signed guiding principles for reducing methane emissions
across the natural gas value chain. The principles focus on: continually reducing
methane emissions; advancing strong performance across gas value chains;
improving accuracy of methane emissions data; advocating sound policies and
regulations on methane emissions; and increasing transparency. In 2018, we
succeeded in encouraging a further 10 companies to sign up to them.
In September 2018, Shell announced a target to maintain Shell’s methane
emissions intensity below 0.20% by 2025. This target covers all Upstream and
Integrated Gas oil and gas assets for which Shell is the operator. The intensity
baseline and target are presented as percentage figures, which represent the
estimated amount of methane emissions for Shell’s operated gas and oil
assets as a percentage of the amount of the total gas marketed or, for those
assets that have no marketed gas, the amount of marketed oil and
condensate (e.g. assets that re-inject produced gas). Methane emissions
include those from unintentional leaks, venting and incomplete combustion, for
example in flares and turbines. In 2018, our overall methane intensity was
0.08% for assets with marketed gas and 0.01% for assets without marketed
gas. Asset level intensities ranged from below 0.01% to 0.9%. Our methane
emissions are calculated using the best methods currently available: a
combination of industry standard emission factors (established emissions rates
per throughput or per piece of equipment), engineering calculations and some
actual measurements. There are uncertainties associated with methane
emissions quantification. To reduce these uncertainties, our Upstream and
Integrated Gas businesses are rolling out methane improvement programmes
that focus on further improving data quality and reporting, and on continued
implementation of leak detection and repair programmes and methane
abatement opportunities. By 2025, all Shell-operated assets are expected to
have implemented more robust quantification methodologies. Externally, we
continue to work on new technologies and improved quantification methods
through partnerships and several other initiatives.
Shell is also a member of the Oil and Gas Climate Initiative (OGCI), a CEO-
led initiative to lead the industry’s response to climate change. One of
OGCI’s focus areas is methane management. In September 2018, OGCI
announced a target to reduce the collective average methane intensity of its
members’ aggregated upstream gas and oil operations by one fifth to below
0.25% by 2025, with an ambition to achieve 0.20%, corresponding to a
reduction of one third.
Detailed information on our approach to managing methane emissions and
performance will be published in the Shell Sustainability Report in April 2019.
CARBON CAPTURE AND STORAGE
CCS is a technology used for capturing CO2 before it is emitted into the
atmosphere, then transporting it by pipelines or ships and injecting it into a
deep geological formation for permanent storage. In the IPCC Global
Warming of 1.5°C special report, the middle-of-the-road scenario (P3) shows
cumulative abatement provided by CCS of 687 billion tonnes of CO2 by
2100, compared with 230 million tonnes of man-made CO2 that has been
injected to date, according to the Global CCS Institute (Global Status of
CCS 2018 report). In November 2015, we launched our Quest CCS project
in Canada (Shell interest 10%), which has captured and safely stored more
than 3 million tonnes of CO2 since it began operating. We are involved in a
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CO2 capture test centre in Mongstad, Norway, the Northern Lights CCS
project for capturing and storing industrial CO2, also in Norway, and the
development of the Gorgon CO2 injection project in Australia, which is due to
start up in 2019. We also have technology that can remove both CO2 and
sulphur dioxide from industrial flue gases. It is being used at Boundary Dam, a
third-party coal-fired power plant in Canada.
ENERGY EFFICIENCY
We continue to work on improving energy efficiency at our oil and gas
production facilities, refineries and chemical plants. Measures include our
GHG and energy management programme that focuses on the efficient
operation of existing equipment. This means, for example, using monitoring
systems which give us real-time information that we can use to make energy-
saving changes and identify opportunities for energy-saving investments in
the medium term. Shell’s scorecard incorporates GHG metrics that help
create additional incentives for all our employees to reduce GHG emissions
in our portfolio. Also see “Directors’ Remuneration Report” on page 133.
NEW ENERGIES
Our New Energies business explores emerging opportunities linked to the
energy transition and invests in those where we believe sufficient value is
available. New Energies is an emerging opportunity, in which we plan to
invest on average $1-2 billion a year until 2020 as we look for commercial
investments that build on our strengths in new and fast-growing segments of
the energy industry. We focus on new fuels for transport, such as advanced
biofuels, hydrogen and charging for battery-electric vehicles; and power,
including from low-carbon sources such as wind and solar as well as natural
gas. Alongside our work in new fuels and power, we are exploring how
digital technologies can best support our activities and customers. See
“Integrated Gas” on page 33.
New fuels
We invest in a range of low-carbon technologies and fuels, including
hydrogen and battery-electric vehicle charging. We believe that hydrogen
has the potential to be an important low-carbon transport fuel. We are
involved in several initiatives to encourage the adoption of hydrogen-
electric energy. See “Integrated Gas” on page 33.
Biofuels
We believe that low-carbon biofuels will continue to play a valuable part in
reducing CO2 emissions in the transport sector in the coming decades. The
international market for biofuels has grown over the past decade, driven
largely by the introduction of new energy policies in Europe and the USA
that call for more renewable, lower-carbon fuels for transport. They
represent approximately 4% of global transport fuels today.
In 2018, we used around 9.5 billion litres of biofuel in our gasoline and
diesel blends worldwide to comply with applicable mandates and targets
in the markets where we operate. Through our own long-established
sustainability clauses in supply contracts, we request that the biofuels we
buy are produced in a way that is environmentally and socially responsible
across the life cycle of the production chain.
From cultivation to use, some biofuels emit significantly less CO2 compared
with conventional gasoline. But this depends on several factors, such as
how the feedstock is cultivated and the way biofuels are produced. Other
challenges include concerns over land competing with food crops, labour
rights, and the water used in the production process.
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Where possible, we source biofuels that have been certified against
internationally recognised sustainability standards. Shell supports the
adoption of international sustainability standards, including the Round Table
on Responsible Soy, the Roundtable for Sustainable Palm Oil, and
Bonsucro, a non-profit organisation for sugar cane. We also support the
Roundtable for Sustainable Biomaterials and the International Sustainability
and Carbon Certification scheme, both of which can be used for any
feedstocks. We also continue to work with industry, governments and
voluntary organisations towards the development and adoption of
internationally recognised sustainability standards for biofuels.
Our Raízen joint venture (Shell interest 50%) in Brazil has produced low-
carbon biofuel from sugar cane since 2011. Through our Raízen joint
venture, we produce one of the lowest CO2 biofuels available today.
Raízen produces approximately 2 billion litres of ethanol from sugar cane
annually. Brazilian sugar-cane ethanol can reduce CO2 emissions by
around 70% when compared with conventional gasoline, from cultivation of
the sugar cane to using the ethanol as fuel.
In 2015, Raízen opened its first advanced biofuels plant at the Costa Pinto
mill in Brazil. The technology was first developed from our funding of the
Iogen Energy venture, which was subsequently transferred to Raízen. In
2018, the plant produced 15.5 million litres of cellulosic ethanol from sugar-
cane residues. It is expected to produce 40 million litres a year once fully
operational.
transport and industry, instead of coal and oil, as part of the drive to lower
carbon emissions. To help meet this demand, Shell aims to become an
integrated power player and grow, over time, a material new business.
We are working to deliver more electricity generated by renewable
energy, from developing wind and solar projects to selling electricity
generated by renewable sources. See “Integrated Gas” on page 33.
NATURE-BASED SOLUTIONS
We believe that nature will play an important role in the transition to a
lower-carbon world. Using nature to capture carbon from the atmosphere
presents an immediate opportunity. It can help to bridge the gap until other
low-carbon solutions are deployed at scale, or to compensate for emissions
which cannot be avoided. Nature-based solutions are expected to be one
of Shell´s tools to reduce the Net Carbon Footprint of our energy products
by around half by the middle of the century. Nature-based projects typically
involve the protection or redevelopment of natural ecosystems such as
forests and wetlands, allowing those ecosystems to capture and store more
carbon on our behalf. These projects, which also support local communities
and conserve biodiversity, generate carbon-emission rights that then can be
bought by energy consumers around the world.
OUR STRATEGY ON CLIMATE CHANGE
Our strategy to assess and manage risks and opportunities resulting from
climate change includes consideration of different time horizons and
specific risks:
Outside Brazil, we continue to invest in new ways of producing biofuels
from sustainable feedstocks, such as biofuels made from waste products or
cellulosic biomass. In 2017, we completed construction of a demonstration
plant at the Shell Technology Centre Bangalore, India. The plant
demonstrates a technology called IH2(cid:138) that turns waste feedstock into
transport fuel. The plant can process around five tonnes per day of
feedstock, such as agricultural waste, and aims to demonstrate the
technology for possible scaling up and commercialisation.
(cid:374) societal risk: the potential for a deteriorating relationship with the public,
other companies, and governments in countries where Shell operates;
(cid:374) commercial risk: the potential for structural shifts in demand profiles for
industry products;
(cid:374) regulatory risk: the potential for strengthening of existing and introduction
of new regulations; and
(cid:374) physical risk: the potential impact on our facilities and the communities in
which we operate due to changing physical conditions.
We continue to look for opportunities to invest in third-party technologies
and to collaborate in scaling these up for commercialisation. In 2018, we
announced our support, together with British Airways, for a project led by
Velocys to install a waste-to-renewable jet fuel plant in the UK. If installed, a
plant would use post-recycled waste, destined for landfill or incineration,
and convert it into cleaner-burning, sustainable fuels.
In line with our strategy of developing more sustainable feedstocks for
transport, we are also investing in renewable natural gas (RNG) for use in
natural-gas fuelled vehicles, in the USA and in Europe. RNG is collected
from landfill sites, food waste or manure and then processed until it is fully
interchangeable with conventional natural gas. The use of RNG in natural-
gas vehicles, either in the form of compressed natural gas (CNG) or LNG,
offers customers already using these vehicles an attractive alternative for
lowering their CO2 footprint.
In the USA, in August 2018, we announced plans to expand and upgrade
the JC Biomethane plant in Junction City, Oregon, which we acquired in
May 2018. This will increase the facility’s capacity to produce RNG from
agricultural waste, through a process called anaerobic digestion.
Power
Power is the fastest-growing segment of the energy system. We expect that
people and companies around the world will use more electricity to power
This is how we describe the different time horizons and the relevance for the
identification of risks and business planning:
(cid:374) Short term (up to three years): detailed financial projections are
developed and used to manage performance and expectations on a
three-year cycle. This three-year plan is shared with the Board;
(cid:374) Medium term (three years up to around 10 years): the majority of
production and earnings expected to be generated in this period come
from our existing assets; and
(cid:374) Long term (beyond around 10 years): for this period, the current Shell
portfolio is not representative of our future performance or the potential
risks. Decision making and risk identification on the thematic structure of
the future portfolio are guided by associated emerging questions.
Shell has a rigorous approach to understanding, managing and mitigating
climate risks to its facilities. Shell also requires each business and function to
monitor, communicate and report changes in the risk environment and the
effectiveness of actions taken to manage identified risks on an ongoing
basis. This is outlined in a toolkit for risk management including our Risk
Management Manual and complementary guidance documents that cover
specific aspects such as climate risk.
Each Shell business unit needs to consider the acceptability of climate-
related risks in their portfolios. To ensure that informed judgements are
made, businesses´ senior managers present their current assessments of the
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likelihood of the climate-related risks discussed above materialising and their
potential impact, along with summaries of current mitigation efforts under
way within their business unit. Each risk is then categorised as either
acceptable or as needing improvement.
We aim to reduce the GHG intensity of our portfolio and we continue to
work on improving the energy efficiency of our existing operations. In
addition, and as a better way to inform and drive our investment choices
and adapt our business over time, in November 2017 we announced our
ambition to reduce the Net Carbon Footprint of our energy products in step
with society’s drive to reduce GHG emissions. We aim to reduce the Net
Carbon Footprint of the energy products we sell – expressed in grams of
CO2 equivalent per megajoule consumed – by around half by 2050. As an
interim step, by 2035, and predicated on societal progress, we aim for a
reduction of around 20% compared with our 2016 level. Our approach to
calculating the Net Carbon Footprint covers emissions directly from Shell
operations (including from the extraction, transportation and processing of
raw materials, and transportation of products), those generated by third
parties who supply energy to us for production, and our customers’
emissions from their use of our energy products. Also included are emissions
from elements of this life cycle not owned by Shell, such as oil and gas
processed by Shell but not produced by Shell, or from oil products and
electricity marketed by Shell that have not been processed or generated at
a Shell facility. The calculation also includes biofuels, as well as emissions
that we offset by using CCS or natural carbon sinks, such as forests and
wetlands. Chemicals and lubricants products, which are not used to
produce energy, are excluded from the scope of this ambition.
When selecting our Net Carbon Footprint ambition, we have purposefully
chosen a wide and meaningful frame against which to manage our
performance. The calculation of the Net Carbon Footprint includes not only
emissions from our own operations and those from third parties in parts of our
supply chains that produce and bring energy to the market but also emissions
of our customers from the use of the energy products we sell to them. The
emissions from our operations are important but those of our customers from
their use of the energy products are much larger in proportion.
The diagram below illustrates the scope of the Net Carbon Footprint
calculation:
Scope of our Net Carbon Footprint
Emissions from energy products included within the Net Carbon Footprint framework.
5
5
5
5
Third-party crude
Own Oil &
Gas Extraction
Third-party gas
Renewable
Energy
Third-party products
Refining
Processing
Liquefaction
Gas-to-liquid
Third-party products
5
Processing
Third-party products
2
1
1
2
1
2
Sales
3
4
Oil
Sales
3
3
3
4
4
4
Natural Gas
LNG
GTL
Sales
3
4
Biofuels
and Power
Full life cycle* of our energy
products, including consumption
Net of CO2 sinks
such as CCS, NBS2
1
2
Emissions from bringing own products to market
Emissions from bringing third-party products to market
3
4
Emissions from use of own products
5
Emissions from use of own products
Emissions from use of third-party products
1 The ‘life cycle’ calculation tracks the energy molecules end-to-end but does not include emissions associated with construction or decommissioning of facilities.
2 Nature Based Solutions.
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To meet the decarbonisation goals of the Paris Agreement, society needs
an increasing supply of energy products that produce lower or zero GHG
emissions over their full life cycle, to use those products more efficiently and
to store emissions that cannot be avoided in sinks. Within this framework,
our strategy is to keep increasing the share of such low-carbon energy
products in our portfolio, while also developing carbon sinks. By
broadening our focus to the full life-cycle emissions from the energy
products that we sell to our customers, instead of solely on our operational
emissions, we believe we will be better aligned with societal need and
growing customer demand for more energy with lower life-cycle GHG
emissions. Therefore, our strategy is to reduce our Net Carbon Footprint,
mainly by increasing the proportion of lower-carbon products such as
natural gas, biofuels, electricity and hydrogen in the mix of products we sell
to our customers.
We will publish annual updates on our progress towards lowering the Net
Carbon Footprint of our energy products. See the Shell Sustainability Report
to be published in April 2019 for more information.
Our long-term ambition is to reduce the Net Carbon Footprint of our energy
products to be in line with that of society as a whole by 2050, a stretching
aspiration that aims to ensure that Shell continues to develop a resilient and
relevant portfolio over the coming decades. While this is a long-term
aspiration that will need periodic recalibration in line with the pace of
change in broader society and the wider energy system, it is intended to
help ensure that we remain relevant and are competitively positioned in the
energy transition. This means supplying energy products and services that
our customers need, now and in the future, and developing a resilient
portfolio in line with our purpose of providing more and cleaner energy to
society.
In the period to 2035, we believe that all forms of GHG reduction
measures must be accelerated and increased in scale by society. Major
improvements in energy efficiency and new sources of energy, such as
renewables, combined with the use of cleaner fossil fuels, such as replacing
coal with natural gas, are needed to meet the growing global population’s
energy needs while reducing GHG emissions. In addition, the world will
need significant growth in CCS and sustained reductions in demand.
Massive reforestation is also needed to limit temperature rises to 1.5°C. The
management of GHG emissions is increasingly important to our
shareholders as concerns over climate change lead to tighter environmental
regulations. Policies and regulations designed to limit the increase in global
temperatures to well below 2°C could have a material adverse effect on
Shell – through higher operating costs and reduced demand for some of
our products. We actively monitor and assess these potential developments
and are best able to manage them when local policies provide a stable
and predictable regulatory foundation for our future investments. At this
stage, industry is still facing significant uncertainty about how local
regulatory policies and consumer behaviour will shape the evolution of the
energy system and which technologies and business models will thrive.
In December 2018, we announced our intention to set short-term Net
Carbon Footprint targets. Early 2019, it was decided to set a Net Carbon
Footprint target for 2021 of 2-3% lower than our 2016 Net Carbon
Footprint of 79 grams of CO2 equivalent per megajoule. While we have
received third-party limited assurance on our 2016 Net Carbon Footprint,
we are currently re-evaluating our assurance processes to ensure that we
will be able to obtain third-party assurance in parallel with the projected
timing of our future Net Carbon Footprint disclosures.
OUR PERFORMANCE
Data in this section are reported on a 100% basis in respect of activities
where we are the operator. Reporting on this operational control basis
differs from that applied for financial reporting purposes in the
“Consolidated Financial Statements” on pages 167-214. Detailed data and
information on our 2018 environmental and social performance will be
published in the Shell Sustainability Report in April 2019.
Our direct GHG emissions decreased from 73 million tonnes of CO2
equivalent in 2017 to 71 million tonnes of CO2 equivalent in 2018. The main
contributors to this decrease were divestments (for example in Argentina,
Canada, Gabon, Iraq, Malaysia and the UK). The level of flaring in our
Upstream and Integrated Gas businesses combined decreased by more
than 35%, compared to 2017, primarily as a result of the Majnoon
divestment in Iraq. These decreases were partly offset by inclusion of the
assets previously operated by the Motiva Enterprises LLC joint venture in our
data for the full year in 2018, increased production at our Pearl gas-to-
liquids (GTL) plant in Qatar and the start-up of our Prelude floating liquefied
natural gas asset in Australia.
In 2015, we signed up to the World Bank’s “Zero Routine Flaring by 2030”
initiative. This is an important initiative to ensure that all stakeholders,
including governments and companies, work together to address routine
flaring. Flaring, or burning off, of gas in our Upstream and Integrated Gas
businesses contributed around 7% of our overall direct GHG emissions in
2018. More than 40% of this flaring took place at facilities where there was
no infrastructure to capture the gas produced with oil, known as associated
gas.
Our involvement in Basrah Gas Company (BGC), a non-Shell-operated
joint venture between Shell, South Gas Company and Mitsubishi
Corporation in the south of Iraq, continues to reduce flaring in the country. It
is the largest gas company in Iraq’s history and the world’s largest flaring
reduction project. BGC captures associated gas that would otherwise be
flared from three non-Shell-operated oil fields in southern Iraq (Rumaila,
West Qurna 1 and Zubair). The gathered gas is processed into dry gas,
liquefied petroleum gas (LPG) and condensate. Dry gas is supplied to the
gas network in southern Iraq and then used to generate electricity. LPG and
condensate are delivered to South Gas Company for distribution in the
domestic market and excess production is exported. In 2018, BGC
processed an average of 800 million standard cubic feet of gas per day.
Around 35% of flaring in our Upstream and Integrated Gas facilities in 2018
took place in assets operated by The Shell Petroleum Development Company
of Nigeria Limited (SPDC). Flaring from SPDC-operated facilities fell by more
than 50% between 2014 and 2018. Flaring intensity levels in SPDC decreased
in 2018 compared with 2017, partly due to improved compressor availability
and facility outages in the Western Delta. SPDC continues to make progress
in close collaboration with its joint venture partners and the Federal
Government of Nigeria towards the objective of ending the continuous flaring
of associated gas. Two new gas-gathering projects (Adibawa and Otumara)
came on stream at the end of 2017 and two more (the Forcados Yokri
Integrated Project and Southern Swamp Associated Gas Gathering Solutions)
are expected to be completed in 2019.
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77
Climate change and energy transition Continued
GHG emissions data are provided below in accordance with UK
regulations. GHG emissions comprise CO2, methane, nitrous oxide,
hydrofluorocarbons, perfluorocarbons, sulphur hexafluoride and nitrogen
trifluoride. The data are calculated using locally regulated methods where
they exist. Where there is no locally regulated method, the data are
calculated using the 2009 API Compendium, which is the recognised
industry standard under the GHG Protocol Corporate Accounting and
Reporting Standard. There are inherent limitations to the accuracy of such
data. Oil and gas industry guidelines (IPIECA/API/IOGP) indicate that a
number of sources of uncertainty can contribute to the overall uncertainty of
a corporate emissions inventory.
Greenhouse gas emissions
Emissions (million tonnes of CO2 equivalent)(cid:3)
Direct [A]
Energy indirect [B]
Intensity ratio (tonne/tonne)
All facilities [C]
2018
2017
71
11
73
12
0.24
0.25
[A] Emissions from the combustion of fuel and the operation of facilities, calculated using global
warming potentials from the IPCC’s Fourth Assessment Report.
[B] Emissions from the purchase of electricity, heat, steam and cooling for our own use, calculated
using a market-based method as defined by the GHG Protocol Corporate Accounting and Reporting
Standard.
[C] In tonnes of total direct and energy indirect GHG emissions per tonne of crude oil and
feedstocks processed and petrochemicals produced in Downstream manufacturing, oil and gas
available for sale, LNG and GTL production in Integrated Gas and Upstream. Additional information
by segment will be published on www.shell.com/ghg.
Detailed information on our 2018 GHG emissions will be published in the
Shell Sustainability Report in April 2019 and on www.shell.com/ghg.
The statements in this “Climate change and energy transition” section,
including those related to Net Carbon Footprint, are forward-looking
statements 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 “About this Report” on pages 05-06
and “Risk factors” on page 15-20.
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Our people
Performing competitively in the evolving energy landscape requires
competent and empowered people working safely together across Shell.
We recruit, train and recompense people according to a strategy that aims
to organise our businesses effectively. We accelerate development of our
people; grow and strengthen our leadership capabilities; and enhance
employee performance through strong engagement. Our people are
essential to the successful delivery of the Shell strategy and to sustaining
business performance over the long term.
EMPLOYEE OVERVIEW
The employee numbers presented here are the full-time equivalent number
of people employed by Shell on a full- or part-time basis, working in Shell
subsidiaries, Shell-operated joint operations, non-Shell-operated joint
operations, or seconded to joint ventures and associates.
At December 31, 2018, there were 81,000 Shell employees, compared with
83,000 at December 31, 2017, and 91,000 at December 31, 2016. The
reduction in 2018 was driven by portfolio activities and our continued effort
to improve operational efficiency and to reduce costs. These changes were
partly offset by the insourcing of specific skill sets into the organisation
(predominantly in IT) and other external recruitment to build our talent
pipeline. We continue to leverage and expand capabilities to ensure a
sustainable talent pool.
During 2018, we employed an average of 82,000 people, shown by
geographical area in the table below and by business segment in Note 26
to the “Consolidated Financial Statements” on page 213.
Average number of employees
by geographical area
Europe
Asia
Oceania
Africa
North America
South America
Total
[A] As revised, to align with the current year definition.
Thousand
2018
2017 [A]
2016 [A]
24
28
2
4
21
2
82
25
28
2
5
24
2
86
26
28
2
6
29
4
95
EMPLOYEE COMMUNICATION AND INVOLVEMENT
We strive to maintain a healthy employee and industrial relations
environment in which dialogue between management and our employees –
both directly and, where appropriate, through employee representative
bodies – is embedded in our work practices. On a regular basis,
management engages with our employees through a range of formal and
informal channels, including emails from the Chief Executive Officer,
webcasts, townhalls, team meetings, face-to-face gatherings, breakfast
briefings, interviews, helplines and online publications via our intranet. For
further information on stakeholder engagement, see the Corporate
governance section on pages 98-99.
Strong employee engagement is especially important in maintaining strong
business delivery in times of change. The annual Shell People Survey is one
of the principal tools used to measure employee engagement, motivation,
affiliation and commitment to Shell. It provides insights into employees’
views and has had a consistently high response rate. In 2018, the response
rate was 82%, which was an increase of 2% compared with 2017, and the
average employee engagement score was 77 points out of 100, which was
an increase of one point compared with 2017.
We promote safe reporting of views about our processes and practices. In
addition to local channels, the Shell Global Helpline enables our people
and third parties to report potential breaches of the Shell General Business
Principles and Shell Code of Conduct, confidentially and anonymously, in a
variety of languages. Shell Internal Audit (SIA) is the custodian of the Shell
Global Helpline process in Shell, which is managed by an independent
third party. SIA is accountable for ensuring that the Shell Global Helpline
functions as intended and that all allegations of Code of Conduct breaches
(including bribery and corruption) are investigated and followed up on as
appropriate. The Board has formally delegated the responsibility for
reviewing the functioning of the Shell Global Helpline, and the reports
arising from its operation, to the Audit Committee. The Audit Committee is
also authorised to ensure that arrangements are in place for the
proportionate and independent investigation of reported matters and for
follow-up action.
DIVERSITY AND INCLUSION
Our intention is to sustain a diverse workforce and an inclusive environment
that respects and shows care for all our people and helps improve our
business performance. Our diversity and inclusion (D&I) approach focuses
on talent acquisition, progression, retention, leadership visibility, and on
inclusive culture. Our leaders aim to be role models for D&I and assume
accountability for continuous progress. We believe that diverse teams led
by inclusive leaders are more engaged, and therefore deliver better safety
and business performance. By embedding D&I into our operations, we have
a better understanding of the needs of our people as well as the needs of
our varied customers, partners and stakeholders throughout the world. It
also allows us to benefit from a wider external talent pool for recruitment
purposes.
We provide equal opportunity in recruitment, career development,
promotion, training and rewards for all our people, including those with
disabilities. In 2018, we introduced our workplace accessibility service,
which currently serves 62 locations globally. This service ensures that all
employees have access to reasonable adjustments so that they can work
effectively and productively. In addition, we implemented a global minimum
standard for maternity leave of 16 weeks.
Our focus on workplace inclusion also continues in other areas. For
example, in 2018, we were recognised as one of the top three
organisations in the Workplace Pride global lesbian, gay, bisexual,
transgender and intersexed (LGBTI) inclusive workplace benchmark and
earned a 100% score in the Human Rights Campaign Foundation’s
Corporate Equality Index. In addition, the 2018 Hampton Alexander Review
ranked Shell first out of the Financial Times Stock Exchange (FTSE) 350 Oil
& Gas Industry index companies and seventh out of the FTSE 100 Top 10
Best Performers. We actively monitor representation of women and local
nationals in senior leadership positions and have talent-development
processes to support us in mitigating any biases and delivering a more
diverse representation.
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Our people Continued
In 2018, 46% of our graduate recruits were female. At the end of 2018, the
proportion of women in senior leadership positions was 24% compared with
22% at the end of 2017. “Senior leadership positions” is a Shell measure
based on senior salary group levels and is distinct from the term “senior
manager” in the statutory disclosures set out below.
The workshops focus on values, behaviours, business pressures and
leadership practices. The workshops are part of our wider work to cultivate
a strong corporate culture where impeccable ethics are a matter of
personal pride for every employee, rather than only a compliance issue.
Gender diversity data (at December 31, 2018)(cid:3)
Directors of the Company
Senior managers [A]
Men
55%
73%
6
701
Number
Women
5
264
45%
27%
Employees (thousand)
31%
[A] Senior manager is defined in section 414C(9) of the Companies Act 2006 and, accordingly, the
number disclosed comprises the Executive Committee members who were not Directors of the
Company, as well as other directors of Shell subsidiaries.
69%
56
25
The local national coverage is the number of senior local nationals (both
those working in their respective base country and those expatriated) as a
percentage of the number of senior leadership positions in their base
country.
Local national coverage (at December 31)(cid:3)
(cid:3)
Number of selected key business countries
Greater than 80%
Less than 80%
Total
2018
2017
2016
10
10
20
10
10
20
10
10
20
CODE OF CONDUCT
In line with the UN Global Compact Principle 10 (Businesses should work
against corruption in all its forms, including extortion and bribery), we maintain
a global anti-bribery and corruption/anti-money laundering (ABC/AML)
programme designed to prevent or detect, and remediate and learn from,
potential violations. The programme is underpinned by our commitment to
prohibit bribery, money laundering and tax evasion, and to our Shell General
Business Principles and Code of Conduct.
We do not tolerate the direct or indirect offer, payment, solicitation or
acceptance of bribes in any form. Facilitation payments are also bribes and
are prohibited. The Shell Code of Conduct includes specific guidance for
Shell staff (which comprises employees and contract staff) on requirements to
avoid or declare actual, potential or perceived conflicts of interest, and on
offering or accepting gifts and hospitality.
Communications from leaders emphasise both the importance of these
commitments and compliance with requirements. These are reinforced with
both global and targeted communications to ensure that Shell staff are
frequently reminded of their obligations. Supporting the Code of Conduct,
we have mandatory risk-based procedures and controls that address a
range of compliance risks and ensure we focus resources, reporting and
attention appropriately. By making a commitment to our core values –
honesty, integrity and respect – and following the Code of Conduct, we
protect Shell’s reputation.
In 2018, we introduced mandatory ethical leadership workshops for senior
executives across our global operations, to reinforce and explore the level
of commitment to ethics and compliance expected of leaders at this level.
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As part of our commitment to ethics and compliance, we ensure that our
policies, standards and procedures are communicated to Shell employees
and contract staff and, where necessary and appropriate, to agents and
business partners. Particular areas of focus with third parties include our due
diligence procedures, and clearly articulated requirements (for example,
through the use of standard contract clauses). In addition, we publish our
Ethics and Compliance Manual on shell.com to demonstrate our commitment
in this area.
The Shell Ethics and Compliance Office assists the businesses and functions
with the ABC/AML and other programme implementation, and monitors
and reports on progress. Legal counsel provides legal advice globally and
supports the programme’s implementation. The Shell Ethics and Compliance
Office regularly reviews and revises the ABC/AML and other programmes
to ensure they remain up to date with applicable laws, regulations and best
practices. This includes incorporating results from relevant internal audits,
reviews and investigations.
We have a duty to investigate all good faith allegations of breaches of the
Code of Conduct, however they are raised. We are committed to ensuring
all such incidents are investigated by specialists in accordance with our
Investigation Principles. Violation of the Code of Conduct or its policies can
result in disciplinary action, up to and including contract termination or
dismissal. In some cases, we may report a violation to the relevant
authorities, which could lead to legal action, fines or imprisonment.
Internal investigations confirmed 370 substantiated breaches of the Code
of Conduct in 2018. As a result, we dismissed or terminated the contracts of
a total of 92 employees and contract staff.
EMPLOYEE SHARE PLANS
We have a number of share plans designed to align employees’ interests
with our performance through share ownership. For information on the
share-based compensation plans for Executive Directors, see the “Directors’
Remuneration Report” on pages 119-147.
PERFORMANCE SHARE PLAN, LONG-TERM INCENTIVE PLAN
AND EXCHANGED AWARDS UNDER THE BG LONG-TERM
INCENTIVE PLAN
Conditional awards of the Company’s shares are made under the terms of
the Performance Share Plan (PSP) to around 16,000 employees each year.
Senior executives receive conditional awards of the Company’s shares
under the terms of the Long-term Incentive Plan (LTIP) rather than under the
terms of the PSP. The extent to which the awards vest under both plans is
determined over a three-year performance period, but the performance
conditions applicable to each plan are different. Under the PSP, 50% of the
award is linked to certain of the indicators described in “Performance
indicators” on pages 27-28, averaged over the period. From 2017
onwards, 12.5% of the award is linked to free cash flow (FCF) and the
remaining 37.5% is linked to a comparative performance condition which
involves a comparison with four of our main competitors over the period,
based on three measures. Under the LTIP, from 2017, 25% of the award is
linked to the FCF measure and the remaining 75% is linked to the
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Separately, following the acquisition of BG, certain participants in the BG
Sharesave Scheme chose to roll over their outstanding BG share options
into options over the Company’s shares. The BG option price (at a discount
of 20% to market value) was converted into an equivalent Company option
price at a ratio agreed with Her Majesty’s Revenue and Customs. These
options are normally exercisable after completion of a three-year
contractual savings period.
Strategic Report signed on behalf of the Board
/s/ Linda M. Szymanski
Linda M. Szymanski
Company Secretary
March 13, 2019
comparative performance condition mentioned above. Prior to 2017, 50%
of the PSP award and all of the LTIP award were linked to a comparative
performance condition based on four measures.
Separately, following the BG acquisition, certain employee share awards
made in 2015 under BG’s Long-Term Incentive Plan were automatically
exchanged for equivalent awards over shares in the Company. These
awards either do not have performance conditions or have the same
performance conditions applied as the Company’s LTIP. Awards take the
form of either conditional awards or nil cost options.
Under all plans, 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. In certain circumstances, awards may be
adjusted before delivery or reclaimed after delivery. None of the awards
results in beneficial ownership until the shares vest.
See Note 21 to the “Consolidated Financial Statements” on page 208.
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. In certain circumstances, awards may be
adjusted before delivery or reclaimed after delivery.
GLOBAL EMPLOYEE SHARE PURCHASE PLAN
Eligible employees in participating countries may participate in the Global
Employee Share Purchase Plan. This plan enables them to make
contributions from net pay 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.
UK SHELL ALL EMPLOYEE SHARE OWNERSHIP PLAN
Eligible employees of participating Shell 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. For every six shares purchased by the employee, an
additional free matching share is provided.
UK SHARESAVE SCHEME
Eligible employees of participating Shell companies in the UK have been
able to participate in the UK Sharesave Scheme. Options have been
granted over the Company’s shares at market value on the invitation date.
These options are normally exercisable after completion of a three-year or
five-year contractual savings period. No further grants will be made under
this plan.
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81
Governance
The Board of Royal Dutch Shell plc
CHARLES O. HOLLIDAY
Chair
Tenure
Chair – Four years (appointed Chair May 19, 2015)
On Board – 8.5 years (appointed September 1, 2010)
(see page 98 for further information)
Board Committee membership
Chair of the Nomination and Succession Committee
Outside interests/commitments
Presiding Director of HCA Holdings, Inc. Director of Deere & Company.
Member of the Critical Resource’s Senior Advisory Panel. Member of the
Royal Academy of Engineering.
Age 71
Nationality US citizen
Career
Charles (Chad) Holliday was appointed Chair of the Board of Royal Dutch
Shell plc with effect from May 19, 2015.
GERARD KLEISTERLEE
Deputy Chair and Senior Independent Director
Tenure
8.5 years (appointed November 1, 2010)
Board Committee membership
Chair of the Remuneration Committee and member of the Nomination and
Succession Committee
Outside interests/commitments
Chairman of Vodafone Group plc, Chairman of the Supervisory Board of
ASML Holding N.V.
Age 72
Nationality Dutch
Career
Gerard was President/Chief Executive Officer and Chairman of the Board
of Management of Koninklijke Philips N.V. from 2001 to 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 was Chief Executive Officer of DuPont from 1998 to 2009, and
Chairman from 1999 to 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.
He was a member of the board of Directors of Dell Inc. from 2010 to 2013
and, a member of the Supervisory Board of Daimler AG from 2009 to
2014. From 2014 to 2016, he was a Non-executive Director of IBEX Global
Solutions plc.
Relevant skills and experience
Gerard is a Dutch businessman with a distinguished career with one of the
largest electronics companies in the world. Through a variety of senior roles,
he was responsible for operations in places such as Europe, Taiwan, China
and Hong Kong. Gerard is also currently Chair of Vodafone, one of the
UK’s largest global companies, which provides services to more than 500
million customers.
Gerard’s business experience provides him with a broad and deep
understanding of the geopolitical, strategic and commercial challenges an
evolving business faces. His experience – gained at Philips, Dell and
Vodafone, businesses that have seen significant changes in technology and
consumer behaviour – is a great asset to the Board as Shell transitions to a
lower-carbon energy system.
Gerard is a seasoned leader, making him ideally suited to his position as
our Senior Independent Director, Deputy Chair and Chair of our
Remuneration Committee. He raises the bar on the level of Board debate,
with his insightful, concise and direct questions.
He has previously served as Chairman of the Bank of America Corporation,
The Business Council, Catalyst, the National Academy of Engineering, the
Society of Chemical Industry – American Section and the World Business
Council for Sustainable Development. He is a founding member of the
International Business Council.
Relevant skills and experience
Chad has a distinguished track record as an international businessman. He
was originally appointed to the Board as a Non-executive Director in
September 2010 and, prior to his May 2015 appointment as Chair of the
Board, served as Chair of the Corporate and Social Responsibility
Committee and Member of the Remuneration Committee.
He has a deep understanding of international strategic, commercial and
environmental issues, and gained extensive experience in the areas of safety
and risk management during his time with DuPont. During his time as Chair, he
has been committed to developing and maintaining a strong dialogue with
investors and other key stakeholders and has ensured that their views are
considered during Board discussions and decision-making. He has also
demonstrated a strong commitment to ensuring that the highest standards of
corporate governance, safety, ethics and compliance are maintained. Chad
is a particularly avid advocate of greater diversity, which is reflected in the
Board’s current diversity mix and increased diversity goals across the Shell
Group.
Chad’s performance has been evaluated by the other Directors, led by
Gerard Kleisterlee, Deputy Chair and Senior Independent Director.
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BEN VAN BEURDEN
Chief Executive Officer
JESSICA UHL
Chief Financial Officer
Tenure
Five years (appointed January 1, 2014)
Tenure
Two years (appointed March 9, 2017)
Board Committee membership
N/A
Outside interests/commitments
No external appointments
Age
60
Nationality
Dutch
Board Committee membership
N/A
Outside interests/commitments
No external appointments
Age
51
Nationality
US citizen
Career
Ben was Downstream Director from January to September 2013. Before
that, he was Executive Vice President Chemicals from 2006 to 2012. In this
period, he also served on the boards of a number of leading industry
associations, including the International Council of Chemicals Associations
and the European Chemical Industry Council. Prior to this, he held a number
of operational and commercial roles in both Upstream and Downstream,
including Vice President Manufacturing Excellence. He joined Shell in 1983,
after graduating with a Master’s Degree in Chemical Engineering from Delft
University of Technology, the Netherlands.
Career
Jessica was Executive Vice President Finance for the Integrated Gas
business from January 2016 to March 2017. Previously, she was Executive
Vice President Finance for Upstream Americas from 2014 to 2015, Vice
President Finance for Upstream Americas Unconventionals from 2013 to
2014, Vice President Controller for Upstream and Projects & Technology
from 2010 to 2012, Vice President Finance for the global Lubricants business
from 2009 to 2010, and Head of External Reporting from 2007 to 2009.
She joined Shell in 2004 in finance and business development, supporting
the Renewables business.
Relevant skills and experience
Ben has over 35 years of Shell experience and has built a deep industry
understanding and proven management experience across the technical
and commercial roles which he has undertaken over his career.
Since 2016, Ben has led Shell to deliver strong financial results, total
shareholder returns and earnings per share. Ben has also led Shell through
ending the scrip dividend and the start of a $25 billion share buyback
programme. Under his leadership Shell New Energies has been established
and Shell has announced industry-leading initiatives in response to the
global challenge of the energy transition to a lower-carbon future, including
the introduction of Shell’s Net Carbon Footprint ambition. Shell is now at
the forefront of a cross-industry push to reduce the greenhouse gas impact
of natural gas with the Methane Guiding Principles.
Ben has led the Company to complete the acquisition of BG Group and
fully integrate it into our operations, executed an impressive reshaping of
our portfolio and completed a divestment programme of $30 billion of non-
core assets, making the Shell Group simpler.
Prior to joining Shell, Jessica worked for Enron in the USA and Panama from
1997 to 2003 and for Citibank in San Francisco, USA from 1990 to 1996.
She obtained an MBA at INSEAD in 1997.
Relevant skills and experience
Jessica is a highly regarded executive with a track record of delivering key
business objectives, from cost leadership in complex operations to M&A
delivery. Jessica’s extensive experience combines an external perspective
with 15 years of Shell experience: she has held finance leadership roles in
Europe and the USA, in Shell’s Upstream, Integrated Gas and Downstream
businesses, as well as in Projects & Technology.
Jessica’s tenure as CFO has also been impressive. She was appointed not
long after the BG acquisition, when Shell’s debt, gearing and development
costs were high and when the oil price was still recovering from the lower
levels in 2016. In these challenging conditions, but with great enthusiasm,
clarity and discipline, Jessica has been a leading force in delivering on the
financial promises Shell had made to its shareholders, and with great
success. In 2018 Shell delivered $39 billion in free cash flow ($28 billion in
2017). This made it possible for Shell to decrease its net debt and gearing
and increase shareholder distributions, following the removal of the scrip
dividend, and the start of the share buyback programme.
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The Board of Royal Dutch Shell plc Continued
ANN GODBEHERE
Non-executive Director
Tenure
10 months (appointed May 23, 2018)
Board Committee membership
Member of the Audit Committee
Outside interests/commitments
Non-executive Director of UBS AG and UBS Group AG since 2009 and
2014[A}, respectively, and Rio Tinto plc and Rio Tinto Limited since 2010[B].
Senior Independent Director of Rio Tinto plc, Fellow of the Institute of
Chartered Professional Accountants and a Fellow of the Certified General
Accountants Association of Canada.
[A] On February 25, 2019, UBS AG and UBS Group AG announced that Ann would not seek re-
election at their Annual General Meeting on May 2, 2019, after serving 10 years on the Board.
[B] On Fenruary 27, 2019, Rio Tinto plc and Rio Tinto Limited announced that Ann would not seek re-
election at their Annual General Meeting on April 10, 2019, after serving 9 years on the Board.
EULEEN GOH
Non-executive Director
Tenure
4.5 years (appointed September 1, 2014)
Board Committee membership
Chair of the Audit Committee
Outside interests/commitments
Chairman of SATS Limited. Non-executive Director of CapitaLand Limited,
DBS Bank Limited, DBS Group Holdings Limited and Temasek Trustees Pte
Limited [A]. Trustee of the Singapore Institute of International Affairs
Endowment Fund. Chairman of the Governing Council of the Singapore
Institute of Management and Non-executive Director of Singapore Health
Services Pte Limited, both of which are not-for-profit organisations.
[A] On April 1, 2019, Euleen is retiring from the Board of Temasek Trustees Pte Ltd.
Age
63
Nationality
Canadian and British
Age
63
Nationality
Singaporean
Career
Ann started her career with Sun Life of Canada in 1976 in Montreal,
Canada and joined M&G Group in 1981 where she served as Senior Vice
President and Controller for both life and health and property and casualty
businesses throughout North America. She joined Swiss Re in 1996 and
served as Chief Financial Officer from 2003 to 2007. From 2008 to 2009,
she was interim Chief Financial Officer and an Executive Director of
Northern Rock bank in the initial period following its nationalisation.
She served as a Non-executive Director of Prudential plc from 2007 to
2017 and British American Tobacco plc from 2011 to 2018.
Relevant skills and experience
Ann is a former CFO, a Fellow at the Institute of Chartered Accountants,
and has more than 25 years of experience in the financial services sector.
She has worked her entire career in international business and has lived in
or served on boards in nine countries. Although still in her first year with
Shell, she has been adding exceptional value by bringing both her
experience and new perspective to the Board.
Ann’s highly relevant skills, particularly in investment appraisal and financial
risk management, are a welcome addition to our Board and Audit
Committee. Her long international business career brings with it an
invaluable global perspective and understanding, which is reflected in the
insights and constructive challenges she brings to the boardroom.
As part of her induction, Ann visited our Middle East and US Upstream
operations. These visits, combined with Ann’s unquenchable thirst for
knowledge, greatly increased her understanding of Shell’s businesses,
further strengthening the valuable contributions she had already been
making to the Board. More information on these visits can be found under
Induction and Training within this Report.
Career
Euleen is an Associate of the Institute of Chartered Accountants in England
and Wales, a Fellow of the Singapore Institute of Chartered Accountants
and has professional qualifications in banking and taxation. She held
various senior management positions within Standard Chartered Bank and
was Chief Executive Officer of Standard Chartered Bank, Singapore, from
2001 until 2006.
She has also held non-executive appointments on various boards including
Aviva plc, MediaCorp Pte Limited, Singapore Airlines Limited, Singapore
Exchange Limited, Standard Chartered Bank Malaysia Berhad and Standard
Chartered Bank Thai plc. She was previously Non-executive Chairman of the
Singapore International Foundation and Chairman of International Enterprise
Singapore and the Accounting Standards Council, Singapore.
Relevant skills and experience
Euleen’s current roles as Chair or Board Director of various international
companies provide significant experience in the area of strategy
development and international businesses. She is a champion of diversity
and constructively challenges the Board and management to constantly
raise the bar in this area.
Being based in Singapore and as Chair of the Risk Committee of the largest
bank in South East Asia, Euleen is close to key emerging/growth markets
for our business. Euleen’s risk management expertise has elevated the
Board’s deep deliberations around risk governance. Her extensive travel
arund the world, through her various executive and non-executive roles, has
equipped her with broad geopolitical insight and significant knowledge of
operating in the Asian region.
Euleen leverages her great approachability and financial acumen to pose
probing and insightful questions, both in and beyond the boardroom. This
provides a strong foundation for her role as Chair of our Audit Committee
and contributes to well-rounded and incisive Board discussions.
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CATHERINE J. HUGHES
Non-executive Director
Tenure
1.5 years (appointed June 1, 2017)
Board Committee membership
Member of the Corporate and Social Responsibility Committee and
member of the Remuneration Committee
Outside interests/commitments
Non-executive Director of SNC-Lavalin Group Inc.
Age
56
Nationality
Canadian and French
Career
Catherine was Executive Vice President International at Nexen Inc., from
January 2012 until her retirement in April 2013, where she was responsible
for all oil and gas activities including exploration, production, development
and project activities outside Canada. She joined Nexen in 2009 as Vice
President Operational Services, Technology and Human Resources.
Prior to joining Nexen Inc., she was Vice President Oil Sands at Husky Oil
from 2007 to 2009 and Vice President Exploration & Production Services,
from 2005 to 2007. She started her career with Schlumberger in 1986 and
held key positions in various countries, including Italy, Nigeria, the UK, the
USA and France, and was President of Schlumberger Canada Limited for
five years. She was a Non-executive Director of Statoil from 2013 to 2015.
Relevant skills and experience
Catherine contributes her industry knowledge and ease of engagement
with other Directors and managers in the boardroom. With her 30 years of
oil and gas sector experience, she brings a geopolitical outlook and deep
understanding of the industry. An engineer by training, she has also spent a
significant part of her career working in senior human resources roles. The
Board highly regards her perspectives on our industry and our most
important asset, our people.
ROBERTO SETUBAL
Non-executive Director
Tenure
1.5 years (appointed October 1, 2017)
Board Committee membership
Member of the Audit Committee
Outside interests/commitments
Member of the board of International Monetary Conference (IMC), the
Economic and Social Development Council of the Presidency of Brazil, and
the International Business Council of the World Economic Forum. He is also
President of the Fundação Itaú Social and a Member of the Executive
Committee of the Instituto Itaú Cultural.
Age
64
Nationality
Brazilian
Career
Roberto was Chief Executive Officer and Vice Chairman of the Board of
Directors of Itaú Unibanco Holding S.A. in Sao Paulo, Brazil, until April
2017. At that time, he retired as Chief Executive Officer and currently serves
as Co-Chairman of the Board of Directors. Following a brief period with
Citibank in New York, he joined Banco Itaú in 1984 where he held a
variety of senior roles in investment banking, consumer credit operations
and retail banking before being appointed Chief Executive Officer in 1994.
Following the merger of Banco Itaú and Unibanco, he was appointed to
the position of President and Chief Executive Officer of Itaú Unibanco
Holding S.A. Previoulsy, he was a Non-executive Director of Petrobas S.A.,
President of the IMC and Vice-Chairman of the IIF.
Relevant skills and experience
Roberto brings significant experience in capital markets and financial
services to the Board and has a deep understanding of international
strategic management, commercial operations and risk management. He
was instrumental in designing and then executing a strategy that led to Itaú
becoming the largest bank in Brazil.
Catherine has a strong track record of executing operational discipline with
a focus on performance metrics and a continual drive for excellence. Her
knowledge of the technology underpinning oil and gas operations, logistics,
procurement and supply chains benefits the Board greatly as it considers
various projects and investment or divestment proposals.
She also leverages her industry knowledge – combined with her
commitment to the highest standards of corporate governance and safety,
ethics and compliance – in her membership of our Corporate and Social
Responsibility Committee, while leveraging her human resources experience
in her membership on the Remuneration Committee.
His deep financial knowledge enables him to make robust, demanding and
constructive challenges to our investment considerations and helps to ensure
that projects are aligned with our strategic intent.
Despite spending most of his life in Brazil, Roberto has a strong understanding
of global business. Naturally, he also brings an invaluable perspective and
insight into operating in his native country, a key growth market for Shell. His
contributions also demonstrate his strong advocacy for the highest standards
of corporate governance, ethics and compliance. This, combined with his
experience of operating in challenging markets, helps to deepen the Board’s
analyses of difficult matters with multi-faceted risks.
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The Board of Royal Dutch Shell plc Continued
SIR NIGEL SHEINWALD GCMG
Non-executive Director
Tenure
6.5 years (appointed July 1, 2012)
LINDA G. STUNTZ
Non-executive Director
Tenure
7.5 years (appointed June 1, 2011)
Board Committee membership
Chair of the Corporate and Social Responsibility Committee and member
of the Remuneration Committee
Board Committee membership
Member of the Corporate and Social Responsibility Committee and
member of the Nomination and Succession Committee
Outside interests/commitments
Non-executive Director of Invesco Limited and Raytheon UK. Senior Adviser
to Tanium Inc. and to the Universal Music Group. Visiting Professor and
Council Member of King’s College, London.
Age
65
Nationality
British
Career
Sir Nigel was a senior British diplomat who served as British Ambassador to
the USA from 2007 to 2012, before retiring from the Diplomatic Service.
Prior to this, he served as Foreign Policy and Defence Adviser to the Prime
Minister and as British Ambassador and Permanent Representative to the
Europen Union in Brussels. He joined the Diplomatic Service in 1976 and
served in Brussels, Washington, Moscow and in a wide range of policy
roles in London. Since 2012, he has taken on a number of international
business roles, and supported organisations involved in higher education
and international affairs.
Relevant skills and experience
Sir Nigel’s distinguished track record including three of the most senior
international roles in British public service has given him broad geopolitical
and public policy experience, as well as knowledge of regulatory issues,
communications and stakeholder management. He has a global and
strategic outlook which enables him to identify emerging issues that could
present geopolitical or reputational challenges.
Sir Nigel brings a unique government policy perspective to our strategic
discussions particularly on topics such as the energy transition, which are
strongly influenced by the views of governments and a complex range of
interested parties. His many contributions to the Board on this and other
strategic and operational topics often reflect the interconnections between
geopolitics, business and external stakeholder engagement.
He is used to operating in challenging environments and is committed to
active external engagement. This, and his understanding of public policy and
regulatory issues through his career in government service and membership of
think tank and university boards, makes him well suited to the role of Chair of
our Corporate and Social Responsibility Committee.
Outside interests/commitments
Director of Edison International
Age
64
Nationality
US citizen
Career
Linda is a founding partner of the law firm of Stuntz, Davis & Staffier, P.C., which
is based in Washington, DC[A]. Her law practice included energy and
environmental regulation, as well as matters relating to government support of
technology development and transfer. She was a member of the US Secretary
of Energy Advisory Board from 2015 to 2017, she chaired the Electricity
Advisory Council of the US Department of Energy from 2008 to 2009 and
was a member of the board of Directors of Schlumberger Limited from 1993 to
2010 and Raytheon Company from 2004 to 2015.
From 1989 to 1993, she held senior policy positions at the US Department
of Energy, including Deputy Secretary.
[A] Linda retired from Stuntz, Davis & Staffier, P.C in January 2019.
Relevant skills and experience
Linda’s Harvard legal training and deep practical legal experience bring
unique and valuable expertise in energy-industry and environmental law, as
well as extensive public policy experience, to our Board. This is conveyed
through her in-depth knowledge of the gas and power industries and her
work on issues related to climate change and energy-related measures to
minimise greenhouse gas emissions.
As a board director of publicly traded companies for more than 25 years,
Linda has provided strategic and legal advice to many energy companies
and has substantial experience in overseeing and working with businesses
with operations around the world. She has a broad understanding of
technology and its development/commercialisation within our industry, from
her work with the US government and on the Schlumberger board. She has
significant knowledge and understanding of cyber risks as a result of her
Raytheon and Edison International board service.
Linda’s unique background, coupled with her exceptional ability to frame
clear questions that tackle the key points of complex issues, helps deepen
the Board’s constructive challenges and considerations of critical industry-
related matters, particularly those related to the energy transition.
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GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
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GERRIT ZALM
Non-executive Director
Tenure
Six years (appointed January 1, 2013)
LINDA M. SZYMANSKI
Company Secretary
Tenure
Two years (appointed January 1, 2017)
Board Committee membership
Member of the Audit Committee and member of the Remuneration
Committee
Outside interests/commitments
Director of Moody’s Corporation in April 2018
Age
51
Nationality
US citizen
Career
Linda was General Counsel of the Upstream Americas business and Head
of Legal US, based in the USA, from 2014 to 2016. Previously, she was
Group Chief Ethics & Compliance Officer based in the Netherlands from
2011 to 2014. Since joining Shell in 1995, she has also held a variety of
legal positions in the Shell Oil Company in the USA, including Chemicals
Legal Managing Counsel and other senior roles in employment, litigation,
and commercial practice.
Relevant skills and experience
Linda is our Corporate Secretary and also plays an important role as Shell’s
General Counsel Corporate, overseeing corporate legal teams in the
Netherlands, UK, Switzerland, the USA and Canada.
The various legal roles Linda has undertaken at our headquarters, and in
supporting both the Upstream and Downstream businesses, have provided
her with a strong understanding of our global operations and people. Her
experience of engaging with the Board in previous roles, coupled with her
broad understanding and engagement across Shell’s businesses and
functions, helps to ensure that the right matters come to the Board at the
right time.
Age
66
Nationality
Dutch
Career
Gerrit was an adviser to PricewaterhouseCoopers during 2007, Chairman of
the trustees of the International Accounting Standards Board from 2007 to
2010, and an adviser to Permira from 2007 to 2008. He was Chief Economist
of DSB Bank from July 2007 to January 2008, Chief Financial Officer from
January 2008 to December 2008, and Chairman of the Managing Board of
ABN AMRO Bank N.V. from 2010 to 2016. He was Minister of Finance of the
Netherlands, twice, from 1994 to 2002 and from 2003 to 2007. In between,
he was Chairman of the parliamentary party of the VVD.
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 the Ministry of Economic Affairs. He
studied General Economics at Vrije Universiteit Amsterdam and received an
Honorary Doctorate in Economics from that university.
Relevant skills and experience
An economist by background, Gerrit’s distinguished twelve-year service as
the Minister of Finance to the Netherlands, coupled with his experience
gained from his time with ABN AMRO Bank, brings deep and valuable
understanding of Dutch politics and financial markets to the Board. His
international financial management expertise and strategic development
experience also benefits the Audit Committee.
A highly regarded and seasoned leader in both the public and private
spheres, his significant experience in analysing financial commitments from
both a wider public stakeholder and global business standpoint serves the
Board well, particularly when considering investment proposals. Gerrit
consistently and concisely articulates the logic and reasoning behind his
views, benefitting both the Board and management. His questions often
trigger other analytical questions from fellow Directors, which serves to
deepen and widen Board discussions.
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The Board of Royal Dutch Shell plc Continued
BOARD DIVERSITY
Non-executive Director tenure
Director nationality
Gender diversity
0 to 3 years
4 to 6 years
7 to 9 years
British 9%
Dutch 27%
American 27%
Canadian 18%
Brazilian 9%
Singaporean 9%
Female
Male
Non-executive Director sector experience
Regulatory/Government affairs/Public policy
Oil & gas/Extractives/Energy
Strategy development
89%
56%
100%
Engineering/Industrial
Consumer/Marketing
Accounting and Finance
67%
89%
78%
.
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GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
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Senior Management
The Senior Management of the Company comprises the Executive Directors
and those listed below. All are members of the Executive Committee
(see “Corporate governance” on page 101).
ANDREW BROWN [A]
Upstream Director
JOHN ABBOTT
Downstream Director
Tenure
Five years (appointed October 2013)
Age
58
Nationality
British
Career
John was previously Executive Vice President Manufacturing, responsible for
oil refineries and petrochemicals plants worldwide. He joined Shell in 1981,
and has held various management positions in refining, chemicals and
upstream heavy oil, working in Canada, the Netherlands, Singapore,
Thailand, the UK and the USA.
On April 13, 2018, John was elected as a Non-executive Director of Fiat
Chrysler Automobiles N.V.
HARRY BREKELMANS
Projects & Technology Director
Tenure
Four years (appointed October 2014)
Age
53
Nationality
Dutch
Career
Harry was previously Executive Vice President for Upstream International
Operated based in the Netherlands. He joined Shell in 1990 and has held
various management positions in Exploration and Production, Internal Audit,
and Group Strategy and Planning. From 2011 to 2013, he was Country
Chair – Russia and Executive Vice President for Russia and the Caspian
region.
Tenure
Six years (appointed January 2016 (Upstream International Director from
2012 to 2016))
Age
57
Nationality
British
Career
Andrew was previously 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.
[A] On January 17, 2019, the Company announced that Andrew Brown will step down from the role
of Upstream director on June 30, 2019 and will be replaced with Wael Sawan. Andy will remain
available to Wael and the Executive Committee to assist with transition until September 30, 2019,
and will then leave the company after 35 years’ distinguished service.
RONAN CASSIDY
Chief Human Resources & Corporate Officer
Tenure
Three years (appointed January 2016)
Age
52
Nationality
British
Career
Ronan was previously Executive Vice President Human Resources, Upstream
International. He joined Shell in 1988 and has held various human resources
positions in Upstream and Downstream.
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89
Senior Management Continued
DONNY CHING
Legal Director
Tenure
Five years (appointed February 2014)
Age
54
Nationality
Malaysian
MAARTEN WETSELAAR
Integrated Gas and New Energies Director
Tenure
Three years (appointed January 2016)
Age
50
Nationality
Dutch
Career
Donny was previously General Counsel for Projects & Technology based in
the Netherlands. He joined Shell in 1988 based in Australia and then
moved to Hong Kong and later to London. In 2008, he was appointed
Head of Legal at Shell Singapore, having served as Associate General
Counsel for Gas & Power in Asia-Pacific.
Career
Maarten was previously Executive Vice President of Integrated Gas based in
Singapore. He joined Shell in 1995 and has held various financial,
commercial and general management roles in Downstream, Trading and
Upstream.
WAEL SAWAN
Upstream Director
Tenure
Appointed with effect from July 2019
Age
44
Nationality
Canadian
Career
Wael is currently Executive Vice President Deep water and a member of the
Upstream leadership team. He joined Shell in 1997 and has worked in
Retail and various commercial and New Business Development projects.
Wael has worked in Europe, Africa, Asia and the Americas.
GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
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Directors’ Report
MANAGEMENT REPORT
This Directors’ Report, together with the “Strategic Report” on pages 07-81,
serves as the Management Report for the purpose of Disclosure Guidance
and Transparency Rule 4.1.8R.
with IFRS as issued by the International Accounting Standards Board (IASB).
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:
FINANCIAL STATEMENTS AND DIVIDENDS
The “Consolidated Statement of Income” and “Consolidated Balance
Sheet” can be found on pages 168-169 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 dollars and, at a later date, announces the euro and sterling
equivalent amounts using a market exchange rate. Dividends on Royal
Dutch Shell plc A shares (A shares) are paid by default in euros, although
holders may elect to receive dividends in sterling. Dividends on Royal Dutch
Shell plc B shares (B shares) are paid by default in sterling, although
holders may elect to receive dividends in euros. Dividends on ADSs are
paid in dollars.
[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.
The Directors have announced a fourth-quarter interim dividend as set out in
the table below, payable on March 25, 2019, to shareholders on the
Register of Members at close of business on February 15, 2019. The closing
date for dividend currency elections was March 1, 2019 [A] and the euro
and sterling equivalents announcement date was March 11, 2019.
[A] A different dividend currency election date may apply to shareholders holding shares in a
securities account with a bank or financial institution ultimately through Euroclear Nederland. This
may also apply to other shareholders who do not hold their shares either directly on the Register of
Members or in the corporate sponsored nominee arrangement. Such shareholders can contact their
broker, financial intermediary, bank or financial institution for the election deadline that applies.
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 laws and regulations.
These require the Directors to prepare financial statements for each financial
year. As such, 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
(cid:131) adopt the going concern basis unless it is inappropriate to do so;
(cid:131) select suitable accounting policies and then apply them consistently;
(cid:131) make judgements and accounting estimates that are reasonable and
prudent; and
(cid:131) 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 (the Act) 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 can be found on
pages 82-87, confirms that, to the best of their knowledge:
(cid:131) 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; and
(cid:131) the Management Report 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.
Furthermore, so far as each of the Directors is aware, there is no relevant
audit information of which the auditors are unaware, and each of the
Directors 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.
Dividends
Q1
Q2
Q3
Q4
Total announced in respect of the year
A shares
B shares[A]
A ADSs
B ADSs
$
0.47
0.47
0.47
0.47
1.88
€
0.4011
0.4048
0.4124
0.4181
1.6364
pence
35.18
36.50
36.77
35.94
$
0.47
0.47
0.47
0.47
pence
35.18
36.50
36.77
35.94
144.39
1.88
144.39
€
0.4011
0.4048
0.4124
0.4181
1.6364
$
0.94
0.94
0.94
0.94
3.76
$
0.94
0.94
0.94
0.94
3.76
2018
Amount paid during the year
3.76
[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 243-245.
142.36
142.36
1.6001
1.6001
3.76
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91
The Directors consider it appropriate to continue to adopt the going
concern basis of accounting in preparing the financial statements.
A low oil and gas price environment with $40/b
Brent (2018 real terms)
Directors’ Report Continued
The Directors consider that the Annual Report, including the financial
statements, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess Shell’s
position and performance, business model and strategy.
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.
VIABILITY STATEMENT
The “Strategic Report” includes information about Shell’s strategy, financial
condition, cash flows and liquidity, as well as the factors, including the
principal risks, likely to affect Shell’s future development. “Business overview”
on page 12 describes Shell’s business model, including competitive
advantages and key strengths. The Directors assess Shell’s prospects both at
an operating and strategic level, each involving different time horizons. To this
end, the Directors assess Shell’s portfolio and strategy against a wide range
of outlooks, including assessing the potential impacts of various possible
energy transition pathways and scenarios for changes in societal
expectations in relation to climate change. Shell recognises in its strategy
that the world is transitioning to a lower-carbon energy system (see
“Climate change and energy transition” on pages 71-78). The Risk Factors
section on pages 15-20 provides an overview of the principal risks Shell is
exposed to in its operations.
On an annual basis, the Directors approve a detailed three-year operating
plan, which forecasts Shell’s cash flows and ability to service financing
requirements, pay dividends and fund investing activities during the period.
Shell’s three-year operating plan includes assumptions in relation to internal
and external parameters. Some of the key assumptions include the impact
of commodity prices, exchange rates and schedules of growth programmes.
Considering the degree of change possible in these parameters, Shell has
deemed a three-year period of assessment appropriate for the longer-term
viability statement.
In making the viability assessment, Shell has also considered the financial
impact of each of the following severe but possible scenarios that could
threaten Shell’s viability. In reviewing these stress tests, the Directors have
considered possible mitigation steps and have made certain assumptions
regarding the availability of future funding options, including the ability to
raise future financing in line with the operating plan window.
Scenario
Link to principal
A significant HSSE event
risks
[A]
[B]
[A] and [B]
[B] and [C]
[A]
A significant HSSE event in a low oil and gas price
environment
Sustained impact from politically adverse
developments, lower growth in developing
countries, as well as lower growth in Europe
Unplanned shut down of a major cashgenerating
asset for a year
[A] The nature of our operations exposes us, and the communities in which we work, to a wide range of
health, safety, security and environment risks.
[B] We are exposed to fluctuating prices of crude oil, natural gas, oil products and chemicals.
[C] We are exposed to treasury and trading risks, including liquidity risk, interest rate risk, foreign
exchange risk, commodity price risk and credit risk. We are affected by the global macroeconomic
environment as well as financial and commodity market conditions.
Taking account of Shell’s position and principal risks at December 31, 2018,
the Directors have a reasonable expectation that Shell will be able to
continue in operation and meet its liabilities as they fall due over its three-
year operating plan period.
NON-FINANCIAL INFORMATION STATEMENT
The Non-Financial Information Statement below forms part of the Strategic
Report on pages 07-81.
Non-Financial Information Statement
REPORTING
REQUIREMENT
WHERE TO READ MORE IN
THIS REPORT
Business model
Business overview
PAGE
12-14
Non-financial KPIs
Performance indicators
28
Environmental matters
Environment and society, Climate
change and energy transition
Employees
Our people
Social matters
Environment and society
Respect for human rights
Environment and society
Anti-corruption and
anti-bribery matters
Our people
66-78
79-81
70
70
80
REPURCHASES OF SHARES
At the 2018 Annual General Meeting (AGM), shareholders granted an
authority, which expires on the earlier of the close of business on August 22,
2019, and the end of the 2019 AGM, for the Company to repurchase up to
a maximum of 834 million of its shares (excluding purchases for employee
share plans). In accordance with this authority, on July 26, 2018, we
announced the immediate start of a share buyback programme of at least
$25 billion by the end of 2020 subject to further progress with debt reduction
and oil price conditions.
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During 2018, 125 million A ordinary shares with a nominal value of €8.8
million ($10.6 million) (1.52% of the Company’s total issued share capital at
December 31, 2018) were purchased and cancelled for a total cost of $3.9
billion including expenses, at an average price of $31.55 per share.
The purpose of the shares repurchased in 2018 under the share buyback
programme is to reduce the issued share capital of the Company. This is in
order to offset the number of shares issued under the Scrip Dividend
Programme and to significantly reduce the equity issued in connection with
the Company’s combination with BG Group. The Scrip Dividend
Programme was cancelled with effect from the fourth quarter 2017 interim
dividend. More information can be found at www.shell.com/scrip. From
January 1, 2019, to January 28, 2019, the end of the second tranche of the
share buyback programme, a further 19.1 million A shares (0.23% of the
Company’s total issued share capital at December 31, 2018) were
purchased for cancellation for a total cost of $572 million including
expenses, at an average price of $29.95 per share. This means that 690
million ordinary shares could still be repurchased under the current AGM
authority.
The Board continues to regard the ability to repurchase issued shares in
suitable circumstances as an important part of Shell’s financial management. A
resolution will be proposed at the 2019 AGM to renew the authority for the
Company to purchase its own share capital, up to specified limits, for a further
year. This proposal will be described in more detail in the Notice of Annual
General Meeting.
BOARD OF DIRECTORS
The Directors during the year were Ben van Beurden, Ann Godbehere
(appointed with effect from May 23, 2018), Euleen Goh, Charles O.
Holliday, Catherine J. Hughes, Gerard Kleisterlee, Roberto Setubal, Sir Nigel
Sheinwald, Linda G. Stuntz, Jessica Uhl, Hans Wijers (who stood down on
May 22, 2018), and Gerrit Zalm.
RETIREMENT, REAPPOINTMENT AND APPOINTMENT
OF DIRECTORS
In line with the UK Corporate Governance Code (Code), all Directors will
retire at the 2019 AGM and seek reappointment by shareholders.
Shareholders will also be asked to vote on the appointment of Neil Carson
with effect from June 1, 2019.
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” below.
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” [A], can be found in the “Directors’ Remuneration
Report” on pages 135-136.
[A] “Connected person” has the meaning given to “person closely associated” within the Market
Abuse Regulation.
Changes in Directors’ share interests during the period from December 31,
2018, to March 13, 2019, can be found in the “Directors’ Remuneration
Report” on pages 135-136.
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.
RELATED PARTY TRANSACTIONS
Other than disclosures given in Notes 09 and 27 to the “Consolidated
Financial Statements” on pages 188-189 and 214 respectively, 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.
POLITICAL 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.
RECENT DEVELOPMENTS AND POST-BALANCE SHEET
EVENTS
There are no material recent developments or post-balance sheet events to
report.
The biographies of all current Directors are given on pages 82-87 and
biographies for those seeking appointment or reappointment will also be
included in the Notice of Annual General Meeting. Details of the Executive
Directors’ contracts can be found on pages 145-146 and copies are available
for inspection from the Company Secretary. Furthermore, a copy of the form of
these contracts has been filed with the US Securities and Exchange
Commission and incorporated by reference as an exhibit to this Report.
LIKELY FUTURE DEVELOPMENTS
Information relating to likely future developments can be found in the
“Strategic Report” on pages 07-81.
RESEARCH AND DEVELOPMENT
Information relating to Shell’s research and development, including
expenditure, can be found in “Business overview” on page 12.
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 Code, are available for inspection from the Company Secretary. A
copy of the form of these letters of appointment has also been filed with the
US Securities and Exchange Commission and incorporated by reference as
an exhibit to this Report.
DIVERSITY AND INCLUSION
Information concerning diversity and inclusion can be found in “Our people”
on pages 79-80.
EMPLOYEE COMMUNICATION AND INVOLVEMENT
Information concerning employee communication and involvement can be
found in “Our people” on page 79.
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Directors’ Report Continued
CORPORATE SOCIAL RESPONSIBILITY
A summary of Shell’s approach to corporate social responsibility can be
found in “Environment and society” on pages 66-70 and “Our people” on
pages 79-81. Further details will be available in the Shell Sustainability
Report 2018.
GREENHOUSE GAS EMISSIONS
Information relating to greenhouse gas emissions can be found in “Climate
change and energy transition” on pages 71-78.
FINANCIAL RISK MANAGEMENT, OBJECTIVES
AND POLICIES
Descriptions of the use of financial instruments and Shell’s financial risk
management objectives and policies, and exposure to market risk (including
price risk), credit risk and liquidity risk can be found in Note 19 to the
“Consolidated Financial Statements” on pages 202-207.
AUDITOR
A resolution relating to the appointment of Ernst & Young LLP as auditor for
the financial year 2019 will be proposed at the 2019 AGM.
CORPORATE GOVERNANCE
The Company’s statement on corporate governance is included in the
“Corporate governance” report on pages 95-112 and is incorporated in this
Directors’ Report by way of reference.
ANNUAL GENERAL MEETING
The AGM will be held on May 21, 2019, at the Circustheater, Circusstraat
4, 2586 CW, The Hague, The Netherlands. The Notice of Annual General
Meeting will include details of the business to be put to shareholders at the
AGM.
Signed on behalf of the Board
SHARE CAPITAL
The Company’s issued share capital on December 31, 2018, is set out in Note
8 to the “Parent Company Financial Statements” on pages 243-245. The
percentage of the total issued share capital represented by each class of
share is given below.
/s/ Linda M. Szymanski
Linda M. Szymanski
Company Secretary
March 13, 2019
Share capital percentage
Share class
A ordinary
B ordinary
Sterling deferred
%
54.42
45.58
de minimis
TRANSFER OF SECURITIES
There are no significant restrictions on the transfer of securities.
SHARE OWNERSHIP TRUSTS AND TRUST-LIKE ENTITIES
Shell has three primary employee share ownership trusts and trust-like
entities: a Dutch foundation (stichting) and two US Rabbi Trusts. The shares
held by the Dutch foundation are voted by its Board and the shares in the
US Rabbi Trusts are voted by the Voting Trustee, Newport Trust Company.
Both the Board of the Dutch foundation and the Voting Trustee are
independent of Shell.
The UK Shell All Employee Share Ownership Plan has a separate related
share ownership trust. Shares held by the trust are voted by its trustee,
Computershare Trustees Limited, as directed by the participants.
SIGNIFICANT SHAREHOLDINGS
Information concerning significant shareholdings can be found on page
257.
ARTICLES OF ASSOCIATION
Information concerning the Articles of Association can be found on
pages 104-112.
LISTING RULE INFORMATION [A]
Information concerning the amount of interest capitalised by Shell can be
found in Note 6 to the “Consolidated Financial Statements” on page 184.
[A] This information is given in accordance with Listing Rule 9.8.4R.
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Corporate governance
Dear Shareholders,
First, I would like to take you back to my opening statement at the beginning
of this Report. There, I highlighted the importance of public trust, and the
pages which followed provided more information on how we strive to achieve
this trust. We operate in more than 70 countries, each with their own culture
and expectations. We believe that operating in line with our core principles of
honesty, integrity and respect for people and adhering to the Shell General
Business Principles, Code of Conduct and Code of Ethics, helps everyone
across Shell to do what is right and to comply with the relevant laws and
regulations where they work. This will help us achieve the trust we strive for.
At the beginning of this Report, I also highlighted the importance of
transparency, especially when working to earn trust. In the Governance
section of this report, which starts on page 82, we provide not just the
assurances legislation and regulation require from us, but we also try to
provide a deeper understanding of the composition of our Board through new
disclosure of the attributes each Director brings to our business. Further, we
have enhanced our reporting of the diversity of skills and experience
represented in the boardroom and how the Board was evaluated in 2018. In
addition, we have included a new section on stakeholder engagement, an
area of reporting that we plan to build on in the coming years, information on
our Board activities during the year, the activities of our Committees and a
detailed overview of our control framework.
We provide information on our governance arrangements and how we have
applied the main principles and complied with the relevant provisions set out
in the 2016 UK Corporate Governance Code (the Code) issued by the
Financial Reporting Council (FRC). As I referenced in last year’s report, the
Code was under review by the FRC in 2017/18, and in July 2018 the
outcome of this review was published in the form of the 2018 UK Corporate
Governance Code (the New Code). The New Code applies to company
reporting periods commencing on or after January 1, 2019, and we will report
in accordance with this New Code next year. The New Code reiterates the
importance of the “comply or explain” approach of its application and
recognises that an alternative to complying with a provision may be justified in
particular circumstances based on a range of factors, including the size,
complexity and history of a company. One of the provisions of the New
Code brings a new recommended nine-year limit to the tenure of the Board
Chair. As this is a provision that directly relates to me, our Senior Independent
Director, Gerard Kleisterlee provides a clear explanation of how the Board
proposes to address this on page 98.
Building public trust this year also involved strengthening our public
commitment to the Paris Agreement on climate change. In our joint statement
with institutional investors on behalf of Climate Action 100+, we have
committed to operationalise our ambition of around 50% Net Carbon
Footprint reduction by 2050, through the setting of short-term targets which
will be linked to executive remuneration. Further, as part of our transparency
efforts within remuneration, we have published our CEO Pay Ratio, in line with
new legislation. Although this is not required until 2020, we were keen to
publish this information early. For full details, please see our Directors’
Remuneration Report on page 138.
During the year, the Board spent time on a number of key matters related to
transitioning to a lower-carbon energy system, such as our Sky scenario report
and the Shell Energy Transition report. In addition, the Board discussed Shell’s
Net Carbon Footprint ambition and some of our Non-executive Directors
received dedicated updates from management and external experts on
New Energies, the various business models, advantages and disadvantages
of having positions in various value chains and the opportunities for Shell in this
area. Furthermore, the Board held its annual two-day, strategy-focused
meeting in Italy. External developments – including the energy transition –
and their potentially uncertain impact set the background for this meeting, and
for the critical but exciting decisions Shell will take as we navigate our course.
The decisions this Board will take will be essential in shaping a resilient future
for Shell. Given that and the importance of robust relationships in the
boardroom as we consider and deliberate these matters, we invested time to
strengthen the relationships both among Directors, particularly given new
joiners over the last year, and between the Board and the Executive
Committee. In addition, given the developments in our strategy over the last
few years, this meeting provided an opportunity to take stock of the strategy
and to reflect on and deepen the understanding of that strategy. More
information on this can be found on page 98.
Succession is another key topic that remains a Board priority, and 2018 brought
several changes to the composition of the Board. At the AGM, shareholders
were asked to vote on the appointment of Ann Godbehere as a Non-executive
Director with effect from May 23, 2018. The appointment was overwhelmingly
endorsed by shareholders, and we are delighted with the valuable contributions
she has already made. Hans Wijers stood down from his role as Non-executive
Director at the 2018 AGM, after nine years on the Board, resulting in changes to
our Senior Independent Director, Chair of the Remuneration Committee and
Chair of the Corporate and Social Responsibility Committee.
In January 2019, we announced the intention to propose to this year’s AGM
that Neil Carson be appointed a Non-executive Director of the Company
with effect from June 1, 2019. Neil has a wealth of expertise and brings a
proven track record of utilizing his strong operational exposure, familiarity with
capital-intensive business and a first-class international perspective on driving
value in complex environments. We hope that you support his election. As
with all our appointments, we believe that diversity is a critical factor for
success, but we also recognise it is a continuous journey. Diversity is a key
aspect within our succession planning, and we consistently stress test the talent
pipeline from a diversity perspective. As I reference above, we have
enhanced our reporting on the diversity of skills and experience represented in
the boardroom this year, and this can be found on pages 82-88.
The Board completed its annual performance evaluation in December 2018.
The process was internally facilitated, and we again used the support of an
external consultant to assist with the administration of the process. We built on
last year’s evaluation by conducting the review in three stages, covering our
two-day strategy-focused meeting; a skills and experience evaluation, which
has input into the additional disclosure within our Board diversity overview;
and our Board and Committees. The process again proved to be a valuable
exercise generating reflective discussions and planned actions. You can read
more about the process on pages 100-101.
In addition to leading the process for the Board changes noted above, the
Nomination and Succession Committee also continued its focus on ongoing
succession planning, monitored and reviewed corporate governance
developments and made related recommendations to the Board. There were
numerous corporate governance developments throughout the year, including
the publication of the New Code, which will make 2019 yet another busy
year for our Committees. The Board plans to propose modifications to the
Company’s Articles of Association (the Articles) at the 2019 AGM.
SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
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Corporate governance Continued
The Articles were last updated and approved by shareholders in 2010. The
modifications will primarily reflect developments in best practice and provide
additional clarification and flexibility. The modifications to be proposed have
been reviewed by the Nomination and Sucession Committee. Details of the
modifications will be included in the 2019 Notice of Annual General Meeting.
Finally, we hope this report demonstrates a fair and balanced view of our
governance processes. I would also like to thank my fellow Directors, my
colleagues and our workforce around the world for their considerable efforts.
Chad Holliday
Chair
March 13, 2019
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 Code
issued by the Financial Reporting Council (FRC) (the Code) in April 2016
[A][B]. 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 that
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] A copy of the Code can be found on the FRC’s website (frc.org.uk).
[B] In July 2018, the FRC issued an updated version of the Code which applies to accounting periods
beginning on or after January 1, 2019.
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 US Exchange Act 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 significant ways in which
its corporate governance practices differ from those followed by domestic
US companies under NYSE listing standards (see Section 303A.11 of the
NYSE Listed Company Manual). The Company’s summary of its corporate
governance differences is given below and can be found at
www.shell.com/investor.
NON-EXECUTIVE DIRECTOR INDEPENDENCE
The Board follows the provisions of the Code in determining Non-executive
Director independence, which states that at least half of the Board, excluding
the Chair, 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 at the end of 2018 are independent.
NOMINATING/CORPORATE GOVERNANCE COMMITTEE AND
COMPENSATION COMMITTEE
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 both 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.
AUDIT COMMITTEE
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 US Exchange Act Rule
10A-3 and Sections 303A.06 and 303.07 of the NYSE Listed Company
Manual.
The Company’s Audit Committee is not directly responsible for the
appointment of independent auditors. However, the Company’s Audit
Committee makes recommendations to the Board for it to put to shareholders
for approval in Annual General Meetings. UK legislation provides that it is for
shareholders to agree the appointment, reappointment and removal of the
Company’s independent auditors.
SHAREHOLDER APPROVAL OF SHARE-BASED COMPENSATION
PLANS
The Company complies with the Listing Rules published by the Financial
Conduct Authority (FCA), which require shareholder approval for the
adoption of share-based compensation plans which are either long-term
incentive plans in which one or more Directors can participate or plans
which involve or may involve the issue of new shares or the transfer of
treasury shares. Under the FCA 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 BUSINESS CONDUCT AND 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 concerns to management by
telephone or over the internet without jeopardising their position (see
below).
SHELL GENERAL BUSINESS PRINCIPLES
The Shell General Business Principles define how Shell subsidiaries are
expected to conduct their affairs and are underpinned by the Shell core values
of honesty, integrity and respect for people. 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 are designed to mitigate the risk of damage to our business
reputation and to prevent violations of local and international legislation. They
can be found at www.shell.com/sgbp. See “Risk factors” on page 19.
SHELL CODE OF CONDUCT
Directors, officers, employees and contract staff are required to comply with
the Shell Code of Conduct, which instructs them on how to behave in line with
the Shell General Business Principles. This code clarifies the basic rules and
standards they are expected to follow and the behaviour expected of them.
These individuals must also complete mandatory Code of Conduct training.
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Designated individuals are required to complete additional mandatory
training on antitrust and competition laws, anti-bribery, anti-corruption and anti-
money laundering laws, data protection laws and trade compliance
requirements (see “Risk factors” on page 19). The Shell Code of Conduct 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, third parties with whom Shell has a business
relationship (such as customers, suppliers and agents), and any member of
the public (including shareholders) may raise ethics and compliance
concerns (anonymously if preferred) through the Shell Global Helpline. This
is a worldwide confidential reporting mechanism, operated by an
independent external third party, and is available 24 hours a day, seven
days a week by telephone and at www.shell.com or
https://shell.alertline.eu. Concerns are assessed and managed by a
specialist investigations team under a mandate from the Audit Committee.
BOARD STRUCTURE AND COMPOSITION
During 2018, the Board comprised the Chair; two Executive Directors, namely
the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO); and
eight Non-executive Directors, including the Deputy Chair and Senior
Independent Director.
A list of current Directors, including their biographies, can be found on
pages 82-87. The Board recognises its collective responsibility for the long-
term success of the Company. Generally, it meets eight times a year [A] and
has a formal schedule of matters reserved to it. This includes: overall strategy
and management; corporate structure and capital structure; financial reporting
and control, including approval of the Annual Report and Form 20-F, and
interim dividends; oversight and review of risk management and internal
control; 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.
[A] See page 100 for the number of meetings held in 2018.
ROLE OF DIRECTORS
The roles of the Chair, a non-executive role, and the CEO are separate,
and the Board has agreed their respective responsibilities.
The Chair 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” below) which he does with the assistance of
the Company Secretary. The Company Secretary also advises the Board
on all governance matters.
The CEO 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 101).
NON-EXECUTIVE DIRECTORS
Non-executive Directors are appointed by the Board or by shareholders at
general meetings 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 a minimum of
three months’ notice of termination, 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 Board committee meetings, they are expected to
challenge and help develop proposals on strategy and bring independent
judgement on issues of performance and risk. Generally, prior to each
meeting of the Board, the Chair and the Non-executive Directors meet
without the Executive Directors to discuss, among other things, the
performance of individual Executive Directors. A number of Non-executive
Directors also meet major shareholders periodically.
The role of the Senior Independent Director is to provide a sounding board
for the Chair and to serve as an intermediary for the other Directors when
necessary. The Senior Independent Director is available to shareholders if
they have concerns which contact through the normal channels of Chair,
CEO or CFO has failed to resolve or for which such contact is
inappropriate.
All of the Non-executive Directors are considered by the Board to be
independent.
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 their 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. Further information relating to conflicts of interest can be found
on pages 106-107.
SIGNIFICANT COMMITMENTS OF THE CHAIR
The Chair’s other significant commitments are given in his biography on
page 82.
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 both indemnities
and directors’ and officers’ insurance to the Directors in connection with the
performance of their responsibilities. Copies of these indemnities and the
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Corporate governance Continued
directors’ and officers’ insurance policies are open to inspection. A copy of
the form of these indemnities has been previously filed with the SEC and is
incorporated by reference as an exhibit to this Report.
BOARD ACTIVITIES DURING THE YEAR
The Board generally meets eight times a year. However, in 2018, there
were 10 meetings, nine of which were held in The Hague, the Netherlands
and one in Florence, Italy.
The agenda for each meeting included a number of regular items, including
reports from the CEO, the CFO and other members of the Executive
Committee, from each of the Board committees and from the various
functions, including finance (which includes investor relations), health and
security, human resources, and legal (which includes the Company
Secretary). The Board also considered and approved the quarterly, half-
year and full-year financial results and dividend announcements and, at
most meetings, considered a number of investment, divestment and
financing proposals.
During the year, the Board received reports and presentations on certain
Shell activities (including those in Brazil, Canada, the Netherlands, Nigeria,
Oman, Pakistan and Russia), the New Energies business, digital strategy
and the Shell brand. The Board also spent considerable time discussing
ethics and compliance, including how to continue to build a strong
corporate culture. In addition, it received reports on ethics and compliance,
litigation, risk management and internal control, safety and environmental
performance, senior management succession and corporate governance
developments. The Board continued to receive updates, from a committee
set up in 2017, on matters related to investigations and litigation against the
Company regarding OPL 245, a deep-water block in Nigeria.
Progress against our strategy is closely monitored by the Executive
Committee and discussed at each Board meeting. In addition, each year
the Board holds a strategy-focused meeting, generally over two days, to
discuss and deepen understanding of the individual and holistic elements of
the overall Shell strategy. The meeting is held away from the office to
encourage more relaxed and free-flowing discussions. This also helps to
strengthen the relationship between the Board and Executive Committee. In
2018, the meeting was held in Italy, which enabled the Board to engage
with senior management from Ferrari, which has been a Shell innovation
partner for more than 50 years.
At its strategy meeting, progress was reviewed against our short-term plans
and our vision for the future. The Board debated the business priorities and
longer-term challenges of the evolving mobility landscape. The Non-
executive Directors shared their expertise and provided independent
oversight to the discussion.
As it has in previous years, certain Board Committees and Non-executive
Directors conducted site visits of various Shell operations and overseas
offices (see “Induction and training” below). These visits were designed to
provide Directors with first-hand insights into some key portfolio positions.
Directors also held various workforce engagements in these locations, as
well as external stakeholder engagements.
CHAIR TENURE
Charles O. Holliday (Chad) was appointed as Chair in 2015 after 4.5
years on the Board as a Non-executive Director. He will reach a tenure of
nine years in September 2019.
In January 2019, the New Code came into force and with it came a new
recommended tenure of the chair. The New Code advises that the chair
should not remain in post beyond nine years from the date of first
appointment to the board. However, the New Code pragmatically
acknowledges the situation in which we find ourselves, with a Chair
approaching nine years, and if a clear explanation is provided, the New
Code permits a limited time extension where this would support a
Company’s succession plan and diversity policy, particularly in those cases
where the chair was an existing Non-executive Director on appointment.
The Nomination and Succession Committee, and the Board, have discussed
this New Code requirement at length. In addition, the Company Secretary
engaged with proxy advisory firms and some of our largest investors on the
matter. Furthermore, Gerard Kleisterlee, our Senior Independent Director,
engaged with investors on this topic at our governance event in December
2018 and communicated our preference for Chad Holliday to remain as
Chair until our 2021 AGM.
The Board believes that retaining Chad until then would facilitate more
effective phasing of his succession. An earlier departure would be disruptive
and could leave a significant deficiency in Shell Board experience by
2020, when the current Senior Independent Director (Gerard Kleisterlee)
and longest-serving Director (Linda G. Stuntz) will also have reached a nine-
year tenure.
The Board believes that Chad continues to be a very effective Chair.
Although the Board will continue to assess his objectivity, the Board is
confident that he continues to exercise objective judgment, despite his
tenure approaching nine years. In fact, the Board finds the continuity of his
corporate knowledge and experience essential to complement and support
the new skills and experience of its Director appointments of the last two
years, as well as those that we will need to make in the next two years.
Further, the Board finds that his deep understanding and knowledge of the
Shell Group, coupled with the strong Shell relationships he has established,
enable him to effectively challenge management as well as coach other
Non-executive Directors on the intricacies and nuances of the business,
thereby better equipping them to likewise effectively challenge
management and enhance overall governance. The Board has also
achieved near gender parity and increased diversity under Chad’s
leadership as Chair.
He is well placed to lead the Board through the next two years, which are
critical to succession planning, and to continue the strengthening of diversity
among the Board and Senior Management.
Note: The text relating to Chair tenure is provided by Gerard Kleisterlee, Senior Independent
Director.
STAKEHOLDER ENGAGEMENT
Shell recognises the important role it has to play in society and is deeply
committed to public collaboration and stakeholder engagement. This
commitment is at the heart of one of Shell’s three strategic ambitions: to
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sustain a strong societal licence to operate and contribute to society
through our activities.
a few examples of the ways in which Shell can leverage its position and
share its experience to make a positive contribution to society.
Further insight on our engagement with stakeholders can be found within
our Sustainability Report and our report on payments to governments,
scheduled for publication in April 2019.
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
which they face. For Ann Godbehere, who was appointed to the Board
with effect from May 23, 2018, Director-specific briefing materials were
provided and induction sessions were held with various businesses and
functions. She also participated in separate site visits: she visited our
operations in Qatar, where she met with the Minister of Energy and Industry
and connected with Qatar Shell senior female employees and the senior
leadership team. While in Qatar, Ann also visited Pearl GTL, the world’s
largest gas-to-liquids plant, and the Qatargas 4 gas liquefaction plant.
Throughout the year, regular updates on developments in legal matters,
governance and accounting are provided to all Directors. The Board
regards site visits as an integral part of ongoing Director training. During the
year, Catherine Hughes visited the Shell Scotford Complex in Canada,
which consists of a bitumen upgrader, oil refinery, chemicals plant and a
carbon capture and storage (CCS) facility. She also visited Kitimat, the site
of our project involving the planned construction of a new greenfield gas
liquefaction plant. Our Audit Committee visited our Trading and Supply
operations at our London offices and our Corporate Social Responsibility
Committee (CSRC) visited the Moerdijk chemical complex and our
operations in Nigeria. More information on these visits can be found on
pages 101-102 for the CSRC and pages 113-114 for the Audit Committee.
Additional training is available so that Directors can update their skills and
knowledge as appropriate.
Shell places a high value on collaboration and has a long track record of
working in partnerships with others, be it with investors, industry and trade
groups, universities, governments or NGOs. We believe that our work with
organisations around the world gives us greater insight into our business,
and that sharing knowledge and experience with others contributes to
developing better policies and practices.
Collaboration is particularly critical where society, including businesses,
governments and consumers, faces issues as complex and challenging as
climate change. Shell recognises that it has an important role to play in
collaboration with its stakeholders.
In particular, Shell appreciates the long-term relationship it has with
institutional investors and acknowledges the positive role that can be
played by ongoing engagement and dialogue. In December 2018, Shell
released a joint statement with a leadership group of institutional investors
on behalf of the global investor initiative, Climate Action 100+. The
announcement sets out key steps that Shell has decided to take to
demonstrate alignment with the goals of the Paris Agreement on climate
change: Shell announced that it will operationalise its Net Carbon Footprint
(NCF) ambition by setting NCF-specific short-term targets, and that it will
incorporate a link between the energy transition and the long-term
remuneration of executives.
Shell further built on its Net Carbon Footprint ambition, taking a significant
leadership position within the oil and gas sector with strong support from
stakeholders. The statement is the result of long-term, ongoing engagement
that has helped to inform and refine our strategy. What is clear from the
joint statement is that there is strong support for this level of engagement
with stakeholders and for our commitments as announced in the statement.
Shell also recognises the importance of its other stakeholders, including
employees, customers and suppliers. For many years, the Board has
recognised the importance of engaging with all our stakeholders, the need
to understand and consider their views, and take account of these when
making decisions.
This manifests itself through regular employee engagement in relation to all
aspects of our work, community consultations for projects with potential
social impacts, and Shell’s strong focus on health and safety and
environmental issues. In light of the New Code, the Board will be taking
more concrete actions to assure the views of our stakeholders are
considered in Board discussions and decision-making, as highlighted at the
end of the Board evaluation section.
Shell also works closely with commercial third parties to deliver its strategic
ambitions in mutually beneficial ways. For example, Shell created the
Contractor Safety Leadership initiative to encourage Shell companies and
their contractors to collaborate more effectively to improve safety and
standardise procedures, yielding positive results. Shell is also present on the
Steering Committee of the Permian Road Safety Coalition, an innovative
collaboration of cross-industry efforts to improve road safety. These are just
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99
Corporate governance Continued
ATTENDANCE AT BOARD AND BOARD COMMITTEE MEETINGS
Attendance during 2018 for all Board and Board committee meetings is given in the table below.
Attendance at Board and Board committee meetings [A](cid:3)
Ben van Beurden
Ann Godbehere
Euleen Goh [B]
Charles O. Holliday
Catherine J. Hughes
Gerard Kleisterlee
Roberto Setubal
Sir Nigel Sheinwald
Linda G. Stuntz
Jessica Uhl
Hans Wijers [C]
Audit
Committee
Corporate and
Social Responsibility
Committee
Nomination and
Succession
Committee
Remuneration
Committee
3/3
6/6
6/6
3/3
6/6
6/6
4/4
1/2
7/7
5/5
7/7
1/2
5/5
5/5
5/5
Board
10/10
7/7
9/10
10/10
10/10
10/10
10/10
10/10
10/10
10/10
3/3
Gerrit Zalm [D]
[A] The first figure represents attendance and the second figure the possible number of meetings. For example, [10/10] signifies attendance at [ten] out of [ten] 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.
[B] During 2018, an unscheduled Board meeting was held at short notice. Euleen Goh was unable to attend this meeting due to a clash with scheduled travel arrangements.
[C] Hans Wijers was unable to attend one Nomination Committee meeting held during the year due to a clash with a pre-agreed business commitment.
[D] Gerrit Zalm was asked not to attend an ad-hoc teleconference held in 2018 as the subject of the call was a matter where Gerrit Zalm was subject to certain conditions designed to avoid any actual or
perceived conflicts of interest.
9/10
6/6
5/5
BOARD EVALUATION
The 2018 Board evaluation was facilitated internally, led by the Nomination
and Succession Committee and managed by the Company Secretary. The
review was undertaken in three stages:
Board Evaluation
PHASE 1
PHASE 2
PHASE 3
JUNE
AUGUST
NOVEMBER/
DECEMBER
Review and evaluation
following board
strategy day
Review and evaluation
of board skills and
expertise
Review and evaluation
of board and each
of the committees
At each stage members of the Board completed surveys online using the
Lintstock Review Service platform. Lintstock are a London-based corporate
advisory firm with no other connection with the Company. Separately, and
to obtain additional executive perspectives, the Executive Committee also
completed surveys in Phases One and Three.
(cid:3)
Phase One – Strategy day review
Phase One focused on the effectiveness of the Board’s annual two-day,
strategy-focused meeting, including the agenda and time management at
the event, the quality of materials distributed in advance, and the role of the
Board in determining the strategic plan and overseeing implementation. The
review placed particular focus on the Board’s understanding of the views
and requirements of various stakeholder groups, in the context of Shell’s
strategic plan.
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Phase Two – Skills and experience
Following feedback from investors seeking greater understanding of the
skills and experience represented on the Board, the Board decided to
enhance reporting in this area.
To support this enhanced disclosure, the Board undertook a refreshed
Board skills and experience review, where their skills and experience,
obtained outside of Shell over the duration of each Director’s career, were
updated and ranked against a list of criteria.
The outcome of this review is reflected in the biographical narratives on
pages 82-87, and the enhanced diversity disclosure and skill-set reporting
on page 88.
Phase Three – Board and Committees
Undertaken in November/December and ahead of the final Board meeting
of 2018, the scope of Phase Three was broader, with greater focus on the
effectiveness of the Board, the Chair and each of the Board committees.
Surveys were built around the output of the previous year’s review, and
took into account the trends and themes that emerged from the Strategy
Day Review conducted earlier in the year. The exercise also involved a
review of the induction and ongoing training opportunities available to the
Directors, as well as the individual contribution of each Director.
From the completed surveys, a report was prepared with concise narrative
and supporting graphical data, including a series of key recommendations
and one-page executive summary. The anonymity of all respondents was
ensured throughout the process.
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At its meeting in December, the performance of the Board as a whole and
of the Board committees was discussed by the Nomination and Succession
Committee and subsequently by the full Board. Observations by Executive
Committee members on Board performance, which had been provided in a
separate report, were also discussed. The discussions were led by the Chair
and focussed on matters such as:
(cid:131) Board composition, dynamics, expertise and support;
(cid:131) the Board’s understanding of the views and requirements of investors,
employees, governments, customers and communities;
(cid:131) the management and focus of meetings; and
(cid:131) the capacity of the organisation to deliver Shell’s strategy.
The top priorities for the Board over the coming year were discussed and it
was agreed that they included:
(cid:131) Board composition, Board and senior management succession;
(cid:131) the Board’s understanding of the views of all our stakeholders and, more
explicitly, ensuring these are considered as relevant in the Board’s
discussions and decision-making; and
(cid:131) strengthening the appropriate balance of the Board’s focus on the energy
transition and New Energies business, as well as current operational matters.
After the Chair recused himself from the meeting, the Deputy Chair
discussed the evaluation report on the Chair’s performance. He summarised
the strength of the positive ratings on such items as the Chair’s
communication and relationship with the CEO and other Directors, dealing
with specific Director-related matters, availability outside of Board meetings,
management of Board meetings, and his relationship with major
shareholders and other stakeholders. The CEO and CFO confirmed the
positive feedback received from wider Shell staff on the Chair’s
engagement style as well as his clear respect for the boundary between
executive and non-executive responsibilities. Upon re-joining the meeting,
the Deputy Chair provided a summary of the overview to the Chair.
The 2019 Board evaluation will be externally facilitated.
EXECUTIVE COMMITTEE
The Executive Committee operates under the direction of the CEO in support
of his responsibility for the overall management of Shell’s business. The CEO
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
current composition of the Executive Committee is as follows:
(cid:3)
Executive Committee
Ben van Beurden
Jessica Uhl
John Abbott
Harry Brekelmans
Andrew Brown
Ronan Cassidy
Donny Ching
CEO [A][B]
CFO [A][B]
Downstream Director [B]
Projects & Technology Director [B]
Upstream Director [B][C]
Chief Human Resources & Corporate Officer [B]
Legal Director [B]
Integrated Gas and New Energies Director [B]
Maarten Wetselaar
[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] Wael Sawan will take up the role of Upstream Director and become a member of the Executive
Committee from July 1, 2019, taking over from Andrew Brown. Andrew will remain available to Wael
and the Executive Committee to assist with the transition until September 30, 2019. Note [B] above
will apply to Wael from July 1, 2019.
BOARD COMMITTEES
There are four standing Board committees made up of Non-executive
Directors. These are the:
Audit Committee;
Corporate and Social Responsibility Committee;
(cid:131)
(cid:131)
(cid:131) Nomination and Succession Committee; and
(cid:131)
Remuneration Committee.
Each of these Board committees has produced a report which has been
approved by the relevant chair. A copy of each Committee’s terms of
reference is available from the Company Secretary and can be found at
www.shell.com/investor.
AUDIT COMMITTEE
The Audit Committee Report, which sets out the composition and work of
the Audit Committee during 2018, is on pages 113-118.
CORPORATE AND SOCIAL RESPONSIBILITY COMMITTEE
The members of the Corporate and Social Responsibility Committee are Sir
Nigel Sheinwald (Chair of the Committee with effect from May 23, 2018),
Catherine J. Hughes and Linda Stuntz (appointed with effect from May 23,
2018). Hans Wijers stood down as Chair of the Committee on May 22,
2018. The Committee met six times during the year; the Committee
members’ attendances are shown on page 100.
The role of the CSRC is to review and advise the Board on Shell's strategy,
policies and performance in the areas of safety, environment, ethics and
reputation against the Shell General Business Principles, the Shell Code of
Conduct, and the HSSE & SP Control Framework. Conclusions and
recommendations made by the Committee are reported directly to the
Executive Committee and Board.
The Committee fulfils its responsibilities by reviewing a wide range of areas,
including the management of health, safety, security, environmental and
social impacts of projects and operations. The Committee reviews detailed
reports, papers and internal audits covering these areas, visits Shell
operations around the world, and meets a wide range of staff and
stakeholders. In addition, it provides input into the Shell Sustainability Report
and reviews a draft of the report before publication, with the next
Sustainability Report to be published in April 2019.
In 2018, the CSRC balanced its time between safety, environment, and
ethics, all underpinned by a strong focus on corporate culture and conduct.
The topics discussed in depth included personal and process safety, road
safety, the energy transition and climate change, Shell’s Net Carbon
Footprint ambition, the Company’s environmental and societal licence to
operate, and its ethics programme. The CSRC also discussed Shell’s
operations and the challenges faced in Pakistan, Nigeria and the
Netherlands. In 2018, the Committee held five meetings in person and one
meeting by conference call.
The CSRC conducted two major site visits in 2018. In February, the
Committee visited Nigeria, where over three days they met with Shell staff,
government officials, and representatives from local non-governmental
organisations to gain a deeper understanding of operations in the Niger
Delta.
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In December, the Committee spent a day visiting our Moerdijk facility in the
Netherlands, where they discussed process safety performance and local
site challenges, including our relationship with the local community.
In 2019, the Committee’s focus will include:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
safety, including process safety and road transport;
the environment,(cid:3)including Shell’s role in light of the Paris Agreement
on climate change, providing advice to the Remuneration Committee
on energy transition-related metrics, plastics, and operational
environmental matters;
ethics and compliance, including conduct and culture; and
country focus, including Nigeria, Brazil, Canada (LNG Canada) and
the Netherlands (Groningen). The Committee will visit Singapore in
2019.
NOMINATION AND SUCCESSION COMMITTEE
The members of the Nomination and Succession Committee are Charles O.
Holliday (Chair of the Committee), Linda G. Stuntz and Gerard Kleisterlee
(appointed with effect from May 23, 2018). Hans Wijers stood down as a
member of the Committee on May 22, 2018. The Committee met seven
times during the year; the Committee members’ attendances are shown on
page 100.
The Committee continually reviews the leadership needs of the Company,
based on the skills, experience, diversity and length of tenure on the Board
as a whole, and identifies and nominates suitable candidates for the
Board’s approval to fill vacancies when they arise. In addition, it makes
recommendations on who should be appointed Chair of the Audit
Committee, the Corporate and Social Responsibility Committee and the
Remuneration Committee and, in consultation with the relevant chair,
recommends who should sit on each of 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 of
its appointment processes.
During 2018, the Committee dealt with the appointment of a new Non-
executive Director, Ann Godbehere. As with all appointments to the Board,
the appointment process involved the Committee agreeing on a candidate
profile and, following an interview and benchmarking process, making a
recommendation to the Board. The Board then sought shareholder
approval for the appointment at the 2018 AGM held in May, proposing
that the appointment be effective from May 23, 2018. The appointment was
overwhelmingly endorsed by shareholders.
In addition to continuing its ongoing programme of succession planning for
the Non-executive Directors and in particular for the Deputy Chair and
Senior Independent Director, the Committee also considered the senior
management talent pipeline and scheduled a series of meetings with
prospective candidates with potential future senior leadership appointments
in mind. It also considered any potential conflicts of interest and the
independence of the Non-executive Directors and led the Board evaluation
process.
In accordance with its terms of reference, the Committee monitored and
reviewed corporate governance developments throughout the year. Such
developments were numerous and included UK government proposals
related to matters such as executive pay and the role of employees and
other stakeholders, and a wide-ranging reform of the Code by the FRC. As
referenced by the Chair, the New Code was published by the FRC in 2018,
and the Committee continues to work with the Board to address the new
requirements. The Committee continues to monitor and review these and
other corporate governance developments, as well as considering whether
and how current Company governance matters should be strengthened,
and this is likely to keep the Committee engaged for the remainder of 2019
and beyond.
The Board continues to take the issue of boardroom diversity seriously and
believes maintaining an appropriate level of diversity is key to its effective
performance. Accordingly, the Committee’s focus on diversity has resulted in
strengthening the Board’s composition by gender, nationality, skill set and
industry experience over recent years. Reporting has been enhanced in this
area, on pages 82-88. The New Code requires us to build on this work by
overseeing the development of a diverse pipeline for succession more
broadly. While the Committee continuously strives to improve diversity, as
evidenced on the Board, we recognise that we have more work to do
within senior management [A]. At the end of 2018, 12.5% of our Executive
Committee, about 24% of our senior leadership staff and around half of
Shell’s graduate recruits are female. Additionally, in Shell’s key countries
more than 50% of leaders are local nationals. While we are proud of these
achievements, we will continue to strive for more. How we oversee diversity,
particularly with respect to succession pipelines, will be a focus for the
Committee in the year ahead.
[A] More information on gender diversity is given in “Our people” on pages 79-80.
The Committee was assisted during the year by Russell Reynolds, external
global search firms whose main role was to propose suitable candidates.
Russell Reynolds do not have any connection with the Company other than
that of search consultants.
REMUNERATION COMMITTEE
The Directors’ Remuneration Report, which sets out the composition and
work of the Remuneration Committee, the Directors’ remuneration for 2018
and the Directors’ Remuneration Policy which was approved by
shareholders at the 2017 AGM, is on pages 119-147.
SHAREHOLDER COMMUNICATIONS
The Board recognises the importance of two-way communication with the
Company’s shareholders. The Chair, the Deputy Chair and Senior
Independent Director, the CEO, the CFO and the Executive Vice President
Investor Relations each meet regularly with major shareholders and report
the views of such shareholders to the Board. As well as the Company giving
a balanced report of results and progress at each AGM, all shareholders
have an opportunity to ask questions in person. Shareholders are also free
to contact the Company directly at any time of the year via dedicated
shareholder email addresses or via dedicated shareholder telephone
numbers as given on the inside back cover of this Report. Shell’s website at
www.shell.com/investor contains information for institutional and retail
shareholders alike.
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The Company’s Registrar, Equiniti, operates an internet access facility for
registered 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
service, facilitated by Equiniti, provides a facility for investors to hold their
shares in the Company in paperless form.
RESULTS PRESENTATIONS AND ANALYSTS’ MEETINGS
The planned dates of 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. Generally,
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/investor.
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.
NOTIFICATION OF MAJOR SHAREHOLDINGS
Information concerning notifications of major shareholdings can be found on
page 257.
RESPONSIBILITY FOR PREPARING THE ANNUAL
REPORT AND ACCOUNTS
Information concerning the responsibility for preparing the Annual Report
and Accounts can be found on page 91.
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 (see “Audit Committee Report” on pages 113-118).
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 diagram below illustrates the control framework’s key components:
“Foundations”, “Management Processes” and “Organisation”.
“Foundations” comprises the objectives, principles and rules that underpin
and establish boundaries for Shell’s activities. “Management Processes”
refers to the more significant management processes, including how
strategy, planning and appraisal are used to improve performance and
how risks are to be managed through effective controls and assurance.
“Organisation” sets out how the various legal entities relate to each other
and how their business activities are organised and managed, and how
authority is delegated.
Control framework
External Environment
Shell General Business Principles
Board of Royal Dutch Shell plc,
Chief Executive Officer and Executive Committee
Code of Conduct
Strategy, Planning
and Appraisal
Statement on
Risk Management
Standards
and Manuals
Controls and
Assurance
Businesses and Functions
Legal Entities
Foundations
Management Processes
Organisation
The system of risk management and internal control over financial reporting
is an integral part of the 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. The principal risks faced
by Shell are set out in “Risk factors” on pages 15-20.
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.
Shell has a variety of processes for obtaining assurance on the adequacy
of risk management and internal control and implements a broad array of
measures to manage its various risks which are set out in the relevant
sections of this Report. There are also risks that Shell accepts or does not
seek to fully mitigate. The Executive Committee and the Board regularly
consider group-level risks and associated control mechanisms.
The Company has developed a risk appetite framework that reflects three
distinct lenses: Strategic Risk Appetite, Operational Risk Appetite and
Conduct Risk Appetite. These three lenses aim to capture the range and
variety of risks that the Company will be exposed to, with specific risk
appetite parameters identified and monitored for each lens.
The Strategic Risk Appetite lens is focused on current and future portfolio
considerations, taking into account parameters such as country
concentration or exposure to higher-risk countries. It also considers “long
range” developments to monitor key assumptions or beliefs in relation to
energy markets. The Operational Risk Appetite lens is focused on more
material operational exposures and promotes both a more granular
assessment of key risks that the organisation faces and the purposeful
assessment of risk appetite. The Conduct Risk Appetite lens brings together
a number of leading and lagging risk indicators, which help to provide a
more holistic view of the culture of the organisation.
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The financial framework sets certain boundary conditions in the
consideration of risk appetite, as the financial resilience of the Company
should logically inform the aggregate level of risk appetite that could be
sustained.
Treadway Commission (COSO). On the basis of this evaluation,
management concluded that, at December 31, 2018, the Company’s
internal control over financial reporting and the preparation of the
“Consolidated Financial Statements” was effective.
Shell has a climate change risk management structure in place which is
supported by standards, policies and controls (see “Risk factors” on page
16 and “Climate change and energy transition” on pages 71-78). Climate
change and risks resulting from greenhouse gas emissions have been
identified as significant risk factors for Shell and are managed in
accordance with other significant risks through the Board and Executive
Committee.
Many of our major projects and operations are conducted in joint
arrangements or associates, which may reduce the degree of control and
ability to identify and manage risks (see “Risk factors” on page 19). In each
case, Shell appoints a representative to manage its interests who seeks to
ensure that such projects operate under equivalent standards to Shell.
We operate in more than 70 countries that have differing degrees of
political, legal and fiscal stability. This exposes us to a wide range of
political developments that could result in changes to contractual terms,
laws and regulations. In addition, we and our joint arrangements and
associates face the risk of litigation and disputes worldwide (see “Risk
factors” on page 17). We continuously monitor geopolitical developments
and societal issues relevant to our interests. Employees who engage with
government officials are subject to specific training programmes,
procedures and regular communications, in addition to Shell General
Business Principles and Shell Code of Conduct compliance. We are
prepared to exit a country if we believe we can no longer operate in that
country in accordance with our standards and applicable law, and we
have done so in the past.
The Board confirms that there is a robust process for identifying, evaluating
and managing the principal risks. Further, the Board carries out a robust
assessment of the Company’s emerging risks, the procedures in place to
identify the emerging risks, and how the risks are being managed or
mitigated to the achievement of Shell’s objectives. This has been in place
throughout 2018 and up to the date of this Report and is regularly reviewed
by the Board and accords with the FRC Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting.
MANAGEMENT’S EVALUATION OF DISCLOSURE CONTROLS
AND PROCEDURES OF SHELL
As indicated in the certifications in Exhibits 12.1 and 12.2 of this Report,
Shell’s CEO and CFO have evaluated the effectiveness of Shell’s disclosure
controls and procedures at December 31, 2018. Based on that evaluation,
they concluded that Shell’s disclosure controls and procedures are effective.
Ernst & Young LLP, the independent registered public accounting firm that
audited the “Consolidated Financial Statements”, has issued an attestation
report on the Company’s internal control over financial reporting, as stated
in its report on page 166.
THE TRUSTEE’S AND MANAGEMENT’S EVALUATION OF
DISCLOSURE CONTROLS AND PROCEDURES FOR THE ROYAL
DUTCH SHELL DIVIDEND ACCESS TRUST
The Trustee of the Royal Dutch Shell Dividend Access Trust (the Trustee) and
Shell’s CEO and CFO have evaluated the effectiveness of the disclosure
controls and procedures in respect of the Dividend Access Trust (the Trust)
at December 31, 2018. On the basis of this evaluation, these officers have
concluded that the disclosure controls and procedures of the Trust are
effective.
THE TRUSTEE’S AND MANAGEMENT’S REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING OF THE ROYAL
DUTCH SHELL DIVIDEND ACCESS TRUST
The Trustee and the Company’s management are 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
(2013) issued by COSO. On the basis of this evaluation, the Trustee and
management concluded that, at December 31, 2018, the Trust’s internal
control over financial reporting was effective.
Ernst & Young LLP, the independent registered public accounting firm that
audited the Trust’s financial statements, has issued an attestation report on
the Trustee’s and management’s internal control over financial reporting, as
stated in its report on page 249.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING
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 of Shell or the Trust.
Material financial information of the Trust is included in the “Consolidated
Financial Statements” and is therefore subject to the same disclosure
controls and procedures as Shell. See the “Royal Dutch Shell Dividend
Access Trust Financial Statements” on pages 251-255 for additional
information.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING OF SHELL
Management, including the CEO and CFO, is responsible for establishing
and maintaining adequate internal control over Shell’s financial reporting
and the preparation of the “Consolidated Financial Statements”. It
conducted an evaluation of the effectiveness of Shell’s internal control over
financial reporting and the preparation of the “Consolidated Financial
Statements” based on the Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
ARTICLES OF ASSOCIATION
The following summarises certain provisions of the Articles [A] and of the
applicable corporate legislation, including the Act (the legislation). This
summary is qualified in its entirety by reference to the Articles and the Act.
The information provided under this section is applicable to the Articles,
which were in effect during the 2018 financial year to which this Report
relates. At the 2019 AGM, shareholders will be asked to consider, and if in
agreement, approve the new Articles. An overview of the proposed
changes will be published in the 2019 Notice of AGM.
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A full comparison document highlighting all proposed modifications to the
Articles will be made available at www.shell.com/investor and within the
Annual General Meeting area.
[A] A copy of the Articles has been previously filed with the SEC and is incorporated by reference as
an exhibit to this Report. It can be found at www.shell.com.
MANAGEMENT AND DIRECTORS
The Company has a single-tier Board of Directors headed by a Chair, with
management led by a CEO. See “Board structure and composition” on
page 97.
Number of Directors
The Articles provide that the Company must have a minimum of three and
can have a maximum of 20 Directors (disregarding alternate directors), but
these restrictions can be changed by the Board.
Directors’ shareholding qualification
The Directors are not required to hold any shares in the Company [A].
[A] While the Articles do not require Directors to hold shares in the Company, the Remuneration
Committee believes that Executive Directors should align their interests with those of shareholders by
holding shares in the Company. The CEO is expected to build up a shareholding of seven times his
base salary over five years from appointment and other Executive Directors are expected to build up
a shareholding of four times their base salary over the same period. Non-executive Directors are
encouraged to hold shares with a value equivalent to 100% of their fixed annual fee and maintain
that holding during their tenure. All Directors hold shares and such interests can be found in the
“Directors’ Remuneration Report” on pages 135-136.
Appointment of Directors
The Company can, by passing an ordinary resolution, appoint any willing
person to be a Director.
The Board can appoint any willing person to be a Director. Any Director
appointed in this way must retire from office at the first AGM after his
appointment. A Director who retires in this way is then eligible for
reappointment.
At the general meeting at which a Director retires, shareholders can pass an
ordinary resolution to reappoint the Director or to appoint some other
eligible person in their place.
The only people who can be appointed as Directors at a general meeting
are the following: (i) Directors retiring at the meeting; (ii) anyone
recommended by a resolution of the Board; and (iii) anyone nominated by
a shareholder (not being a person to be nominated), where the shareholder
is entitled to vote at the meeting and delivers to the Company’s registered
office, not less than six but not more than 21 days before the day of the
meeting, a letter stating that he intends to nominate another person for
appointment as a Director and written confirmation from that person that he
is willing to be appointed.
Retirement of Directors
Under the Articles, at every AGM, the following Directors must retire from
office: (i) any Director who has been appointed by the Board since the last
AGM; (ii) any Director who held office at the time of the two preceding
AGMs and who did not retire at either of them; and (iii) any Director who
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.
Notwithstanding the Articles, the Company complies with the Code which
contains, among other matters, provisions regarding the composition of the
Board and re-election of the Directors. As a result, the Company’s current
policy is that Directors are subject to annual re-election by shareholders.
Any Director who retires at an AGM may offer themselves for
reappointment by the shareholders.
Removal of Directors
In addition to any power to remove Directors conferred by the legislation,
the Company can pass a special resolution to remove a Director from
office, even though his time in office has not ended, and can appoint a
person to replace a Director who has been removed in this way by passing
an ordinary resolution.
Vacation of office by Directors
Any Director automatically stops being a Director if: (i) he gives the
Company a written notice of resignation; (ii) he gives the Company a
written notice in which he offers to resign and the Board decides to accept
this offer; (iii) all of the other Directors (who must comprise at least three
people) pass a resolution or sign a written notice requiring the Director to
resign; (iv) he is or has been suffering from mental or physical ill-health and
the Board passes a resolution removing the Director from office; (v) he has
missed Directors’ meetings (whether or not an alternate director appointed
by him attends those meetings) for a continuous period of six months without
permission from the Board and the Board passes a resolution removing the
Director from office; (vi) a bankruptcy order is made against him or he
makes any arrangement or composition with his creditors generally; (vii) he
is prohibited from being a Director under the legislation; or (viii) he ceases
to be a Director under the legislation or he is removed from office under the
Articles. If a Director stops being a Director for any reason, he will also
automatically cease to be a member of any committee or sub-committee of
the Board.
Alternate directors
Any Director can appoint any person (including another Director) to act in
his place as an alternate director. That appointment requires the approval
of the Board, unless previously approved by the Board or unless the
appointee is another Director.
Proceedings of the Board
Meetings of the Board will usually be held in the Netherlands but the Board
may decide in each case when and where to have meetings and how they
will be conducted. The Board can also adjourn its meetings. If no other
quorum is fixed by the Board, two Directors are a quorum. A Directors’
meeting at which a quorum is present can exercise all the powers and
discretions of the Board.
All or any of the Directors can take part in a meeting of the Directors by
way of a conference telephone or any communication equipment which
allows everybody to take part in the meeting by being able to hear each of
the other people at the meeting and by being able to speak to all of them
at the same time. A person taking part in this way will be treated as being
present at the meeting and will be entitled to vote and be counted in the
quorum. Any such meeting will be deemed to take place where the largest
group of Directors participating is assembled or, if there is no such group,
where the Chair of the meeting then is located.
The Board can appoint any Director as Chair or as deputy Chair and can
remove him from that office at any time. Matters to be decided at a
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Directors’ meeting will be decided by a majority vote. If votes are equal,
the Chair of the meeting has a second, casting vote.
The Board will manage the Company’s business. It can use all the
Company’s powers, except where the Articles or the legislation say that
powers can only be used by shareholders voting to do so at a general
meeting. The Board is, however, subject to the provisions of the legislation,
the requirements of the Articles and any regulations laid down by the
shareholders by passing a special resolution at a general meeting.
The Board can exercise the Company’s powers: (i) to borrow money; (ii) to
guarantee; (iii) to indemnify; (iv) to mortgage or charge all or any of the
Company’s undertaking, property and assets (present and future) and
uncalled capital; (v) to issue debentures and other securities; and (vi) to give
security, either outright or as collateral security, for any debt, liability or
obligation of the Company or of any third party. The Board must limit the
borrowings of the Company and exercise all voting and other rights or
powers of control exercisable by the Company in relation to its subsidiary
undertakings so as to ensure that no money is borrowed if the total amount
of the group’s borrowings (as defined in the Articles) then exceeds, or
would as a result of such borrowing exceed, two times the Company’s
adjusted capital and reserves (as defined in the Articles). Shareholders may
pass an ordinary resolution allowing borrowings to exceed such limit.
The Board can delegate any of its powers or discretions to committees of
one or more persons. Any committee must comply with any regulations laid
down by the Board. These regulations can require or allow people who are
not Directors to be members of the committee, and can give voting rights to
such people but there must be more Directors on a committee than persons
who are not Directors and a resolution of the committee is only effective if a
majority of the members of the committee present at the time of the
resolution were Directors.
Fees
The total fees paid to all of the Directors (excluding any payments made
under any other provision of the Articles) must not exceed €4,000,000 a year
or any higher sum decided on by an ordinary resolution at a general meeting.
It is for the Board to decide how much to pay each Director by way of fees.
The Board, or any committee authorised by the Board, can award extra
fees to any Director who, in its view, performs any special or extra services
for the Company. The extra fees can take the form of salary, commission,
profit-sharing or other benefits (and can be paid partly in one way and
partly in another).
The Company can pay the reasonable travel, hotel and incidental expenses
of each Director incurred in attending and returning from general meetings,
meetings of the Board or committees of the Board or any other meetings
which, as a Director, he is entitled to attend. The Company will pay all
other expenses properly and reasonably incurred by each Director in
connection with the Company’s business or in the performance of his duties
as a Director. The Company can also fund a Director’s or former Director’s
expenditure and that of a Director or former Director of any holding
company of the Company for the purposes permitted by the legislation and
can do anything to enable a Director or former Director of the Company or
any holding company of the Company to avoid incurring such expenditure
all as provided in the legislation.
Pensions and gratuities
The Board or any committee authorised by the Board can decide whether
to provide pensions, annual payments or other benefits to any Director or
former Director, or any relation or dependant of, or person connected to,
such a person. The Board can also decide to contribute to a scheme or
fund or to pay premiums to a third party for these purposes. The Company
can only provide pensions and other benefits to people who are or were
Directors but who have not been employed by or held an office or
executive position in the Company or any of its subsidiary undertakings or
former subsidiary undertakings or any predecessor in business of the
Company or any such other company or to relations or dependants of, or
persons connected to, these Directors or former Directors if the shareholders
approve this by passing an ordinary resolution.
Directors’ interests
Conflicts of interest requiring authorisation by Directors
The Board may, subject to the relevant quorum and voting requirements,
authorise any matter which would otherwise involve a Director breaching
his duty under the legislation to avoid conflicts of interest. A Director seeking
authorisation in respect of such a conflict of interest must tell the Board the
nature and extent of his interest in the conflict of interest as soon as possible.
The Director must give the Board sufficient details of the relevant matter to
enable it to decide how to address the conflict of interest, together with any
additional information which it may request.
Any Director (including the relevant Director) may propose that the relevant
Director be authorised in relation to any matter which is the subject of such
a conflict of interest. Such proposal and any authority given by the Board
shall be effected in the same way as any other matter may be proposed to
and resolved upon by the Board except that: (i) the relevant Director and
any other Director with a similar interest will not count in the quorum and will
not vote on a resolution giving such authority; and (ii) the conflicted Director
and any other Director with a similar interest may, if the other members of
the Board so decide, be excluded from any meeting of the Board while the
conflict of interest is under consideration.
Where the Board gives authority in relation to a conflict of interest or where
any of the situations described in (i) to (v) of “Other conflicts of interest”
below applies in relation to a Director: (i) the Board may (whether at the
relevant time or subsequently) (a) require that the relevant Director is
excluded from the receipt of information, the participation in discussion
and/or the making of decisions related to the conflict or the situation and
(b) impose upon the relevant Director such other terms for the purpose of
dealing with the conflict or situation as they think fit; (ii) the relevant Director
will be obliged to conduct himself in accordance with any terms imposed
by the Board in relation to the conflict or situation; (iii) the Board may also
provide that, where the relevant Director obtains (other than through his
position as a Director of the Company) information that is confidential to a
third party, the Director will not be obliged to disclose that information to
the Company, or to use or apply the information in relation to the
Company’s affairs, where to do so would amount to a breach of that
confidence; (iv) the terms of the authority shall be recorded in writing (but
the authority shall be effective whether or not the terms are so recorded);
and (v) the Board may revoke or vary such authority at any time but this will
not affect anything done by the relevant Director prior to such revocation in
accordance with the terms of such authority.
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Other conflicts of interest
If a Director knows that he is in any way directly or indirectly interested in a
proposed contract with the Company or a contract that has been entered
into by the Company, he must tell the other Directors of the nature and
extent of that interest in accordance with the legislation. If he has so
disclosed the nature and extent of his interest, a Director can do one or
more of the following: (i) have any kind of interest in a contract with or
involving the Company or another company in which the Company has an
interest; (ii) hold any other office or place of profit with the Company
(except that of auditor) in conjunction with his office of Director for such
period and upon such terms, including as to remuneration, as the Board
may decide; (iii) alone, or through a firm with which he is associated, do
paid professional work for the Company or another company in which the
Company has an interest (other than as auditor); (iv) be or become a
Director or other officer of, or employed by or otherwise be interested in,
any holding company or subsidiary company of the Company or any other
company in which the Company has an interest; and (v) be or become a
Director of any other company in which the Company does not have an
interest and which cannot reasonably be regarded as giving rise to a
conflict of interest at the time of his appointment as a Director of that other
company.
Benefits
A Director does not have to hand over to the Company or its shareholders
any benefit he receives or profit that he makes as a result of any matter
which would otherwise involve a direct breach of his duty under the
legislation to avoid conflicts of interest but which has been authorised or
anything allowed under (i) to (v) of “Other conflicts of interest” above, nor is
any type of contract so authorised or so allowed liable to be avoided.
Quorum and voting requirements
Subject to certain exceptions, a Director cannot vote or be counted in the
quorum on a resolution of the Board relating to appointing that Director to a
position with the Company or a company in which the Company has an
interest or the terms or the termination of the appointment and a Director
cannot vote or be counted in the quorum on a resolution of the Board about a
contract in which he has an interest and, if he does vote, his vote will not be
counted.
The Company can, by ordinary resolution, suspend or relax the provisions
of the relevant article in the Articles to any extent or ratify any contract
which has not been properly authorised in accordance with that relevant
article.
Directors’ indemnities
As far as the legislation allows this, the Company can indemnify any
Director or former Director of the Company, of any associated company or
of any affiliate against any liability and can purchase and maintain
insurance against any liability for any Director or former Director of the
Company, of any associated company or of any affiliate. A Director or
former Director of the Company, of any associated company or of any
affiliate will not be accountable to the Company or the shareholders for
any benefit so provided. Anyone receiving such a benefit will not be
disqualified from being or becoming a Director of the Company.
RIGHTS ATTACHING TO SHARES
The Company can issue shares with any rights or restrictions attached to
them as long as this is not restricted by any rights attached to existing
shares. These rights or restrictions can be decided either by an ordinary
resolution passed by the shareholders or by the Board as long as there is
no conflict with any resolution passed by the shareholders.
Dividends
Currently, only A shares and B shares are entitled to a dividend.
Under the legislation, dividends are payable 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 a fixed
or other dividend on any class of shares on the dates prescribed for the
payments of those dividends and pay interim dividends on shares of any
class of any amounts and on any dates and for any periods which it
decides. Shareholders can declare dividends in accordance with the rights
of shareholders by passing an ordinary resolution, although such dividends
cannot exceed the amount recommended by the Board.
Dividends are payable to persons registered as the holder(s) of shares, or
to anyone entitled in any other way, at a particular time on a particular day
selected by the Board. All dividends will be declared and paid in
proportions based on the amounts paid up on the relevant 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 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
another 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 Dutch Securities Giro Act (“Wet giraal
effectenverkeer”). Alternatively, a dividend can be paid in some other way if
requested in writing by a shareholder (or all joint shareholders) and agreed
with the Company. The Company will not be responsible for a payment which
is lost or delayed. Unless the rights attached to any shares, the terms of any
shares or the Articles say otherwise, a dividend or any other money payable
in respect of a share can be declared and paid in whatever currency or
currencies the Board decides using an exchange rate or exchange rates
selected by the Board for any currency conversions required. The Board can
also decide how any costs relating to the choice of currency will be met. The
Board can offer shareholders the choice to receive dividends and other
money payable in respect of their shares in alternative currencies on such
terms and conditions as the Board may prescribe from time to time. Where
any dividends or other amounts payable on a share have not been claimed,
the Board 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 declared or becoming due for
payment, it will be forfeited and go back to the Company, unless the Board
decides otherwise.
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The Company expects that dividends in respect of B shares will be paid
under the dividend access mechanism described below. Currently, the
Articles provide that if any amount paid by way of dividend by a subsidiary
of the Company is received by the dividend access trustee on behalf of any
holder of B shares and paid by the dividend access trustee to such holder,
the entitlement of such holder of B shares to be paid any dividend declared
pursuant to the Articles will be reduced by the corresponding amount that
has been paid by the dividend access trustee to such holder. If a dividend is
declared pursuant to the Articles and the entitlement of any holder of B
shares to be paid his pro rata share of such dividend is not fully
extinguished on the relevant payment date by virtue of a payment made by
the dividend access trustee, the Company has a full and unconditional
obligation to make payment in respect of the outstanding part of such
dividend entitlement immediately. Where amounts are paid by the dividend
access trustee in one currency and a dividend is declared by the Company
in another currency, the amounts so paid by the dividend access trustee will,
for the purposes of the comparison required by the two immediately
preceding sentences, be converted into the currency in which the Company
has declared the dividend at such rate as the Board shall consider
appropriate. For the purposes of the provisions referred to in this
paragraph, the amount that the dividend access trustee has paid to any
holder of B shares in respect of any particular dividend paid by a subsidiary
of the Company (a “specified dividend”) will be deemed to include: (i) any
amount that the dividend access trustee may be compelled by law to
withhold; (ii) a pro rata share of any tax that the subsidiary paying the
specified dividend is obliged to withhold or to deduct from the same; and
(iii) a pro rata share of any tax that is payable by the dividend access
trustee in respect of the specified dividend.
The Board can offer shareholders of ordinary shares (excluding any
shareholder holding shares as treasury shares) the right to choose to
receive extra ordinary shares, which are credited as fully paid up, instead of
some or all of their cash dividend. Before the Board can do this,
shareholders must have passed an ordinary resolution authorising the Board
to make this offer.
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 shares will have a UK
source for UK and Dutch tax purposes. There will be no Dutch withholding tax
on such dividends. For further details regarding the tax treatment of dividends
paid on the A and B shares and American Depositary Shares (ADSs), refer to
“Shareholder information” on pages 260-261.
Description of dividend access mechanism
The “Shell” Transport and Trading Company, p.l.c., now The Shell Transport
and Trading Company Limited (Shell Transport), and BG Group plc, now BG
Group Limited (BG), have each issued a dividend access share to
Computershare Trustees (Jersey) Limited as Trustee. Pursuant to a declaration
of trust, the Trustee will hold any dividends paid in respect of the dividend
access shares 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
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income earned on unclaimed dividends will be for the account of Shell
Transport and BG and any dividends which are unclaimed after 12 years will
revert to Shell Transport and BG, as appropriate. Holders of B shares will not
have any interest in either dividend access share and will not have any rights
against Shell Transport and BG as issuers of the dividend access shares. 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 shares.
The declaration and payment of dividends on the dividend access shares
will require board action by Shell Transport and BG (as applicable) and
will be subject to any applicable limitations in law or in the Shell Transport
or BG (as appropriate) articles of association in effect. In no event will the
aggregate amount of the dividend paid by Shell Transport and BG 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 (after giving effect to currency
conversions).
In particular, under their respective articles of association, Shell Transport
and BG are each only able to pay a dividend on their respective dividend
access share which represents a proportional amount of the aggregate of
any dividend announced by the Company on the B shares in respect of the
relevant period, where such proportions are calculated by reference to, in
the case of Shell Transport, the number of B shares in existence prior to
completion of the Company’s acquisition of BG (the Acquisition) and, in the
case of BG, the number of B shares issued as part of the Acquisition, in
each case as against the total number of B shares in issue immediately
following completion of the Acquisition.
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 and/or the Board of BG elects to
declare and pay a dividend on their respective dividend access shares to
the Trustee, the holders of B shares will be beneficially entitled to receive
their share of those dividends 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 or BG by way of a dividend on the
dividend access shares 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 shares, 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).
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The Dutch tax treatment of dividends paid under the dividend access
mechanism has been confirmed by the Dutch Revenue Service in 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, and a final
settlement agreement in connection with the Acquisition dated
November 9, 2015. The agreements state, among other things, that
dividend distributions on the dividend access shares by Shell Transport
and/or BG will not be subject to Dutch 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 prior consultation with the Dutch Revenue
Service.
Accordingly, the Company would not expect to issue additional B shares
unless confirmation from the Dutch Revenue Service was 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 Transport or BG,
for any reason and without financial recompense. This might, for instance,
occur in response to changes in relevant tax legislation.
The daily operations of the Trust are administered on behalf of the
Company by the Trustee. Material financial information of the Trust is
included in the “Consolidated Financial Statements” and is therefore subject
to the same disclosure controls and procedures as Shell.
Pre-emption rights
Subject to the Act and the Listing Rules published by the UK‘s Financial
Conduct Authority (FCA), any equity securities allotted by the Company for
cash must first be offered to shareholders in proportion to their holdings. The
Act and the Listing Rules allow for the disapplication of pre-emption rights
which may be waived by a special resolution of the shareholders, either
generally or specifically.
Voting
Currently, only the A and B shares have voting rights.
Changing the rights attached to the shares
The Act provides that the Articles can be amended by a special resolution.
The Articles provide that, if the legislation allows this, 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 relevant
shareholders. 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 relevant 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 proxy, will be a quorum. These provisions are not more
restrictive than required by law in England.
If new shares are created or issued which rank equally with any other
existing shares, the rights of the existing shares will not be regarded as
changed or abrogated unless the terms of the existing shares expressly say
otherwise.
Redemption provisions
The Company’s shares are not subject to any redemption provisions.
Rights attaching to the sterling deferred shares
The sterling deferred shares are (unlike the A and B shares) not ordinary
shares and, therefore, they have different rights and restrictions.
The sterling deferred shares have the following rights and restrictions: (i) on
a distribution of assets of the Company among its shareholders on a
winding-up, the holders of the sterling deferred shares will 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; (ii) save as provided in
(i), the holders of the sterling deferred shares will not be entitled to any
participation in the profits or assets of the Company; (iii) the holders of
sterling deferred shares will not be entitled to receive notice of or to attend
and/or speak or vote (whether on a show of hands or on a poll) at general
meetings of the Company; (iv) the written consent of the holders of three-
quarters in nominal value of the issued sterling deferred shares or the
sanction of a special resolution passed at a separate general meeting of
the holders of the sterling deferred shares is required if the special rights
and privileges attaching to the sterling deferred shares are to be
abrogated, or adversely varied or otherwise directly adversely affected in
any way (the creation, allotment or issue of shares or securities which rank
in priority to or equally with the sterling deferred shares, or of any right to
call for the allotment or issue of such shares or securities, is for these
purposes deemed not to be an abrogation or variation or to have an effect
on the rights and privileges attaching to sterling deferred shares); (v) all
provisions of the Articles relating to general meetings of the Company will
apply, with necessary modifications, to every general meeting of the holders
of the sterling deferred shares; (vi) subject to the legislation, the Company
will have the right at any time to redeem any such sterling deferred shares
(provided that it is credited as fully paid) at a price not exceeding £1 for all
the sterling deferred shares redeemed at any one time (to be paid on such
date as the Board shall select as the date of redemption to such one of the
holders, if more than one, as may be selected by lot) without the
requirement to give notice to the holder(s) of the sterling deferred shares;
(vii) if any holder of a sterling deferred share to be redeemed fails or refuses
to surrender the share certificate(s) or indemnity for such sterling deferred
share or if the holder selected by lot to receive the redemption monies fails
or refuses to accept the redemption monies payable in respect of it, such
sterling deferred share will, notwithstanding the foregoing, be redeemed
and cancelled by the Company and, in the event of a failure or refusal to
accept the redemption monies, the Company will retain such money and
hold it on trust for the selected holder without interest, and, in each case,
the Company will have no further obligation whatsoever to the holder of
such sterling deferred share; and (viii) no sterling deferred share will be
redeemed otherwise than out of distributable profits or the proceeds of
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a fresh issue of shares made for the purposes of the redemption or out of
capital to the extent permitted by the legislation.
by another person on behalf of the person making the transfer, evidence of
the authority of that person to do so.
Calls on shares
The Board can call on shareholders to pay any money which has not yet
been paid to the Company for their shares. This includes the nominal value
of the shares and any premium which may be payable on those shares. The
Board can also make calls on people who are entitled to shares by law.
CREST shares
Registration of a transfer of CREST shares can be refused in the
circumstances set out in the uncertificated securities rules. Transfers cannot
be in favour of more than four joint holders.
Winding-up of the Company
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.
Sinking fund provisions
The shares are not subject to any sinking fund provision under the Articles or
as a matter of the laws of England.
Discriminating provisions
There are no provisions in the Articles discriminating against a shareholder
because of his ownership of a particular number of shares.
Limitations on rights to own shares
There are no limitations imposed by the Articles or the legislation on the
rights to own shares, including the right of non-residents or foreign persons
to hold or vote shares, other than limitations that would generally apply to
all shareholders.
Transfer of shares
There are no significant restrictions on the transfer of shares.
Except as set out below, any shareholder can transfer some or all of his
certificated shares to another person. A transfer of certificated shares must
be made in writing and either in the usual standard form or in any other
form approved by the Board.
Except as set out below, any shareholder can transfer some or all of his
CREST shares to another person. A transfer of CREST shares must be made
through CREST and must comply with the uncertificated securities rules.
The Board can refuse to register the transfer of any shares which are not
fully paid. Further rights to decline registration are as follows:
Certificated shares
A share transfer form cannot be used to transfer more than one class of
share. Each class needs a separate form. Transfers cannot be in favour of
more than four joint holders. The share transfer form must be properly
stamped to show payment of any applicable stamp duty or certified or
otherwise shown to the satisfaction of the Board to be exempt from stamp
duty and must be delivered to the Company’s registered office, or any other
place decided on by the Board. The transfer form must be accompanied by
the share certificate relating to the share being transferred, unless the
transfer is being made by a person to whom the Company was not
required to, and did not send, a certificate. The Board can also ask (acting
reasonably) for any other evidence to show that the person wishing to
transfer the share is entitled to do so and, if the share transfer form is signed
Where a share has not yet been entered on the register, the Board can
recognise a renunciation by that person of his right to the share in favour of
some other person. Such renunciation will be treated as a transfer and the
Board has the same powers of refusing to give effect to such a renunciation
as if it were a transfer.
Partly paid shares
The Articles provide that, if a shareholder fails to pay the Company any
amount due on his partly paid shares, the Board can enforce the
Company’s lien by selling all or any of the partly paid shares in any way
they decide (subject to certain conditions).
Change of control
There are no provisions in the Articles that would delay, defer or prevent a
change of control.
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.
Disputes between a shareholder or ADS 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 behalf of the Company against any or all of its
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/or (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 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
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lawyer. The place of arbitration must be The Hague, the Netherlands; and
the language of the arbitration must be English.
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.
GENERAL 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.
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 are required to call a general meeting once
requests to do so have been received by the Company from shareholders
representing at least 5% of such paid-up capital of the Company as carries
voting rights at general meetings of the Company (excluding any paid-up
capital held as treasury shares) pursuant to Section 303 of the Act. A
request for a general meeting 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 such requests, and on a date not more than 28 days after the
date of the notice convening the meeting, 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 general meeting which must be called for a date not more than
three months after the date upon which the Directors became subject to the
requirement to call a general meeting. 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 of the Company.
Under the Act, the Company is required to give at least 21 clear days’
notice of any AGM or, except where the conditions in Section 307A of the
Act apply, any other general meeting of the Company. In addition, the
Company complies with the Code which currently states that notices of
AGMs should be sent to shareholders at least 20 working days before the
meeting.
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 as well as details of any
arrangements made for those persons not entitled to attend a general
meeting to be able to view and hear the proceedings (making it clear that
participation in those arrangements will not amount to attendance at the
meeting to which the notice relates). 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 practical, be published in a national newspaper in the
Netherlands.
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, if a duly
completed form of proxy has been received by the Company within the
relevant deadlines (in general, where a poll is not demanded, 48 hours (or
such shorter time as the Board decides) before the meeting).
Before a general meeting starts to do business, there must be a quorum
present. Save as in relation to adjourned meetings, a quorum for all
purposes is two people who are entitled to vote. They can be shareholders
who are personally present, proxies for shareholders, or a combination of
both. If a quorum is not present, a chairman of the meeting can still be
chosen and this will not be treated as part of the business of the meeting.
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, or if a quorum ceases to be
present during a general meeting: (i) if the meeting was called by
shareholders, it will be cancelled; (ii) 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) with the time and place
decided upon by the chairman of the meeting; and (iii) one shareholder
present in person or by proxy and entitled to vote will constitute a quorum
at any such adjourned general meeting and any notice of such an
adjourned meeting will say this.
Notice of cancellation of a proxy’s right to vote must be received at the
Company’s registered office (or other place specified by the Company for
receipt) not later than the last time at which a proxy form should have been
received to be valid for use at the meeting or on the holding of the poll at
which the vote was given or the poll taken.
DEEMED DELIVERY OF DOCUMENTS
Under the Articles, if any notice, document or other information is given, sent
or supplied by the Company by inland post, it is treated as being received
the day after it was posted if first class post (or a service similar to first class
post) was used, or 72 hours after it was posted if first class post (or a
service similar to first class post) was not used. If a notice or document is
sent by the Company by airmail, it is treated as being received 72 hours
after it was posted. Any notice, document or other information left at a
shareholder’s registered address or a postal address notified to the
Company in accordance with the Articles by a shareholder or a person
entitled to a share by law is treated as being received on the day on which
it was left.
THRESHOLD FOR DISCLOSURE OF SHARE OWNERSHIP
The Disclosure Guidance and Transparency Rules of the FCA 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
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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.
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 that acquires beneficial ownership of more than 5% of equity
securities registered under the US Securities Exchange Act, and that is not
eligible to file a short-form report, disclose such information to the SEC
within 10 days after the acquisition.
FURTHER INFORMATION
The following information can be found at www.shell.com/investor:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
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/ Linda M. Szymanski
Linda M. Szymanski
Company Secretary
March 13, 2019
As noted in the Articles, 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 may give notice to 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, 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 can decide to restrict the rights relating to the identified
shares and send out a further notice to the shareholder, known as a
restriction notice, which will take effect when delivered. 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) the Board can withhold any dividend or part of a dividend
(including scrip dividend) or other money which would otherwise be
payable in respect of the identified shares without any liability to pay
interest when such money is finally paid to the shareholder; and (ii) the
Board can refuse to register a transfer of any of the identified shares which
are certificated shares unless the Board is satisfied that they have been sold
outright to an independent third party (as specified in the Articles). Once a
restriction notice has been given, the Board is free to cancel it or exclude
any shares from it at any time the Board thinks fit. In addition, the Board
must cancel the restriction notice within seven days of being satisfied that all
of the information requested in the statutory notice has been given. Also,
where any of the identified shares are sold and the Board is satisfied that
they were sold outright to an independent third party, it 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. The Takeover Code requires that an opening position disclosure be
made by: (i) an offeror company after the announcement that first identifies it
as an offeror and after the announcement that first identifies a competing
securities exchange offeror; and (ii) an offeree company after the
commencement of an offer period and, if later, after the announcement that
first identifies any securities exchange offeror. An opening position disclosure
must be made by any person that is interested in 1% or more of any class of
relevant securities of the offeree company or any securities exchange offeror.
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 or any
securities exchange offeror to make a dealing disclosure if the person deals in
any relevant securities of the offeree company or any securities exchange
offeror during an offer period. Where 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, they will normally be
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Audit Committee Report
Dear Shareholders,
I am pleased to present our annual Audit Committee Report 2018. I trust
that this report will provide you with an insight into our work, the matters
handled and the focus of the Audit Committee’s (AC) deliberations during
2018. The AC assists the Board in fulfilling its oversight responsibilities in
areas such as the integrity of financial reporting, the effectiveness of the risk
management and internal control system and related governance and
compliance matters. We are also responsible for making a
recommendation to the Board on the appointment or reappointment of the
external auditor.
In 2018, we discussed a variety of standing matters and areas of special
focus including: plans to implement the new accounting standard IFRS 16
Leases; the impact of the European Union General Data Protection
Regulation (EU GDPR); Shell’s insurance arrangements; and information risk
management. The AC visited the trading and supply office in London, which
was a valuable interactive opportunity enabling us to enhance our
understanding of this area through an open and constructive dialogue with
management in charge of the different functional responsibilities. We
received briefings from the Chief Internal Auditor on the effectiveness of
Shell’s risk management and internal control system and on outcomes of
significant audits and notable control weaknesses, including potential
improvements and mitigating actions agreed with management. Specific
attention was given to topics that we considered particularly significant,
including issues and judgements relating to Shell’s 2018 Consolidated
Financial Statements, as discussed in more detail later in this report together
with how we addressed them. The independence of the external auditor
was monitored in line with Shell’s independence policy regarding the
provision of services by the external auditor.
Ann Godbehere and I were pleased to represent the AC at the Board Day
held in December 2018, where we engaged with some of our major
shareholders to discuss the responsibilities of the AC, its areas of focus in
2018 and 2019 and the coverage provided by internal and external audit.
We considered the appropriateness of the viability statement and
supported the development of Shell’s statement in line with best practice
guidance issued by the UK Financial Reporting Council (FRC). The AC also
noted and considered external commentaries suggesting that viability
statements should be extended beyond a period of three years. We
concluded that the three-year period selected by the Board for the review
of Shell’s prospects, in line with the operating plan, remained suitable. The
factors which we further considered in support of the viability statement are
discussed later in this report.
In May 2018, Linda Stuntz stood down from the AC. I thank Linda for her
service to the AC and for the invaluable input and perspective she provided
as a member. Also in May, we were delighted to welcome Ann
Godbehere to the Board and to the AC.
Euleen Goh
Chair of the Audit Committee
March 13, 2019
COMPOSITION OF THE AUDIT COMMITTEE
During 2018, the members of the AC were Euleen Goh (Chair of the AC),
Roberto Setubal, Linda G. Stuntz (who stood down as a member on May
22, 2018), Gerrit Zalm and Ann Godbehere (appointed as a member with
effect from May 23, 2018), all of whom are financially literate, independent
Non-executive Directors. In respect of the year ended December 31, 2018,
for the purposes of the UK Corporate Governance Code, Euleen Goh and
Ann Godbehere each qualify as: a person with “recent and relevant
financial experience” and competence in accounting; and, for the purposes
of US securities laws, each is an “audit committee financial expert”. The AC
had six meetings during the year; the AC members’ attendances are shown
on page 100. The experience of the AC members outlined on pages 82-87
demonstrates that the AC as a whole has competence relevant to the
sector in which Shell operates, as well as the necessary commercial,
regulatory, financial and audit expertise required to fulfil its responsibilities.
The AC members have gained further knowledge and experience of the
sector as a result of their Board membership and through various site visits
since their respective appointments.
RESPONSIBILITIES
The key responsibilities of the AC are to assist the Board in fulfilling its
oversight responsibilities in relation to: financial reporting; the effectiveness
of the system of risk management and internal control; compliance with
applicable legal and regulatory requirements; monitoring the qualifications,
expertise, resources and independence of both the internal and external
auditors; and assessing the internal and external auditors’ performance and
effectiveness each year. The AC keeps the Board informed of its activities
and recommendations. Where the AC is not satisfied with, or if it considers
that action or improvement is required concerning any aspect of financial
reporting, risk management and internal control, compliance or audit-
related activities, it promptly reports these concerns to the Board.
ACTIVITIES
The AC covers a variety of topics in its meetings. These include both
standing items that the AC considers as a matter of course, typically in
relation to the quarterly unaudited financial statements, control issues,
accounting policies and judgements and reporting matters, and a range of
topics relevant to Shell’s control framework. The AC invites the Chief
Executive Officer, the Chief Financial Officer, the Legal Director, the Chief
Internal Auditor, the Executive Vice President Controller, the Vice President
Accounting and Reporting and the external auditor to attend each meeting.
The Chair of the Board also regularly attends the meetings as an observer.
Other members of management attend when requested. The AC regularly
holds private sessions separately with the external auditor and the Chief
Internal Auditor without members of management, except for the Legal
Director, being present.
During 2018, the AC received comprehensive reports from management
and the internal and external auditors on various topics. In particular, it
discussed with the Chief Financial Officer, the Executive Vice President
Controller, the Vice President Accounting and Reporting, the Chief Internal
Auditor and the external auditor matters that arose on accounting policies,
practices and reporting, and reviewed aggregated whistle-blowing reports,
internal audit reports and analyses of financial reporting matters. The AC
has access to these parties and any members of Shell’s management, as
necessary, to provide in-depth analysis on specific topics or on more
detailed technical matters that may arise.
SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
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Audit Committee Report Continued
In view of the rapidly changing business landscape, the regulatory
environment and the introduction of new technologies and digital
opportunities, the AC continued to focus on the robustness of Shell’s
information risk management, including considering: changes made to
further strengthen access management controls during 2018, security
improvement initiatives, Shell’s cyber monitoring and defence capabilities,
and information security generally. To inform its assessment, the AC and the
Chief Information Officer reviewed the status of information risk
management and determined that the levels of control, activities undertaken
in 2018 and further focus areas are appropriate. The AC also reviewed
assurances for: proved oil and gas reserves; Brent crude oil and Henry Hub
long-term natural gas price assumptions; discount rates used for financial
reporting, particularly with respect to impairment testing (see below in this
report and Note 2 to the “Consolidated Financial Statements” on pages
172-181 for further information); and the effectiveness of financial controls.
The AC discussed future tax-related risks for Shell with the Executive Vice
President Taxation, particularly in relation to the external environment, for
example, implementation of base erosion and profit-shifting measures,
dividend withholding tax in the Netherlands and US tax reform. The AC
discussed with the Chief Ethics and Compliance Officer her annual report
on compliance matters, including regulatory developments and compliance
risks. Following the coming into effect of the EU GDPR in May 2018, which
required Shell companies to update systems, processes, notices and ensure
its contracts contain the appropriate clauses to actively demonstrate
compliance, the Chief Privacy Officer provided the AC with an update on
EU GDPR implementation, compliance monitoring and assurance.
In addition to the items discussed under significant issues on pages 115-116,
the AC also dedicated time to other matters that it deemed relevant and
appropriate, for example: the impact of changes connected with the
adoption of IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from
Contracts with Customers); the impact of the new lease accounting
standard (IFRS 16); and Shell’s insurance arrangements. The AC also
discussed investigations of cases involving ethics and compliance concerns.
The AC discussed management’s findings in such cases to satisfy itself that a
rigorous process had been followed, and, where appropriate, learnings
embedded by management into the systems and controls of the
organisation.
The AC was briefed on litigation matters (see “Corporate governance” on
page 98 and Note 25 to the “Consolidated Financial Statements” on
pages 211-213); impending regulatory requirements (such as the publication
of the FRC’s 2018 UK Corporate Governance Code and other corporate
governance reporting requirements); and market studies into external audit
(namely the UK Competition and Markets Authority’s market study to
consider whether the market for the provision of statutory audits is working
as well as it should and the UK Business, Energy and Industrial Strategy
Committee inquiry on the future of audit).
In May 2018, the AC spent a day at the trading and supply office in
London to deepen its understanding of the challenges faced and
opportunities created by the trading and supply function. The AC was
provided with information on the external environment and the relevant
regulations within which the function operates. The AC engaged with
members of the trading and supply function in in-depth discussions on a
variety of topics including market risk, credit risk, assurance and supervision
and Brexit planning.
114
GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
There was no contact during the year with the FRC Corporate Reporting
Review team. Following the Company’s responses to matters raised by the
review team in 2017, as a result of the FRC’s thematic review of companies’
disclosures of significant accounting judgements and sources of estimation
uncertainty, the Company made the following changes in the 2017 and
2018 Consolidated Financial Statements: disclosed Shell’s Brent crude oil
and Henry Hub long-term natural gas price assumptions; and made a
distinction between key accounting judgements and estimates and other
more generic judgements and estimates applicable to Shell. The AC
discussed with management the Company's responses to matters raised by
the US Securities and Exchange Commission staff in relation to clarifying
aspects of the Proved Undeveloped reserves disclosure in the 2018 Annual
Report and Form 20-F.
The AC discussed the Company’s 2018 Annual Report and Form 20-F, half-
year report and quarterly unaudited financial statements with management
and the external auditor. As requested by the Board, the AC advised the
Board of its view that the 2018 Annual Report and Form 20-F including the
financial statements for the year ended December 31, 2018, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess Shell’s position and performance,
business model and strategy (see the “Directors’ Report” on pages 91-92).
To arrive at this conclusion, the AC critically assessed drafts of the 2018
Annual Report and Form 20-F including the financial statements and
discussed with management the process undertaken to ensure that these
requirements were met. This process included: verifying that the contents of
the 2018 Annual Report and Form 20-F are consistent with the information
shared with the Board and management during the year to support their
assessment of Shell’s position and performance; ensuring that consistent
materiality thresholds are applied for favourable and unfavourable items;
considering comments from the external auditor; and receiving assurance
from the Executive Committee (EC). The AC further reviewed and
considered the Directors’ half-year and full-year statements with respect to
the going concern basis of accounting. As noted in the viability statement,
the Board also reviews the strategic plan which takes account of longer-
term forecasts and a wide range of outlooks. Factors considered included:
the impact of commodity prices; exchange rates; schedules of growth
programmes; the financial framework; Shell’s business portfolio
developments; the project funnel to support future growth; and running
models of the financial impact of certain of Shell’s principal risks
materialising using severe but possible scenarios. The AC analysed the
mitigating measures and sensitivities management had applied to the
modelling of such scenarios when considering the viability statement and
supported its inclusion in the “Directors’ Report” on page 92.
The AC considered and approved the internal audit function’s annual audit
plan. It also reviewed Deloitte LLP’s independent external quality assessment
of the effectiveness of the internal audit function. The AC assessed the
performance of the internal audit function as effective. The AC also
considered the annual external audit plan (including assessing whether the
planned materiality levels and proposed resources to execute the audit
plan were consistent with the audit scope) and approved related
remuneration to ensure that the level of fees would allow an effective and
high-quality audit to be conducted by the external auditor.
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AC EVALUATION
The AC undertakes an annual evaluation of its performance and
effectiveness. As with the Board’s annual performance evaluation for 2018,
the AC’s performance evaluation was facilitated by Lintstock Limited, a
London-based corporate advisory firm. Each AC member responded to a
confidential questionnaire related to the AC’s performance covering
questions relating to: the management of the AC in areas such as the
annual cycle of work, agenda for meetings, and time and input in meetings;
rating the quality of the information provided to the AC; the effectiveness of
the AC’s oversight in areas such as the work of internal and external audit,
the Group’s financial reporting, the system of internal controls and the risk
management policies and practices; rating the AC’s performance in
reviewing and assessing significant accounting and reporting issues; and
generally how to improve the AC’s performance. The AC’s discussion of the
outcomes was assisted by a performance evaluation report produced by
Lintstock, which included comparison of 2018 responses against the
responses submitted by AC members in 2017.
The AC concluded that its performance in 2018 had been effective and that
it fulfilled its role in accordance with its terms of reference, which can be
found at www.shell.com/investor. As part of the evaluation, the AC
discussed the priorities, in addition to the standing items, for its 2019
agenda, including a visit to the finance operations centre in Chennai and
further discussions on IFRS 16 implementation, regulatory developments,
information risk management and new business models and ventures. When
assessing progress against 2017, the AC concluded that 2018 priorities
identified in the 2017 evaluation (including a visit to the trading and supply
office in London and further discussions on Shell’s insurance arrangements,
IFRS 16 implementation, regulatory developments and information risk
management) had all been undertaken by the AC in 2018.
SYSTEM OF RISK MANAGEMENT AND INTERNAL
CONTROL
The AC reviewed the regular reports on risks, controls and assurance,
including the annual assessment of the system of risk management and
internal control, in order to monitor the effectiveness of the procedures for
internal control over financial reporting, compliance and operational
matters. This included the Company’s evaluation of the internal control over
financial reporting as required under Section 404 of the Sarbanes-Oxley
Act.
SIGNIFICANT ISSUES
The AC assessed the following significant issues, including those related to
Shell’s 2018 Consolidated Financial Statements. The AC was satisfied with
how each of the issues below was addressed. As part of this assessment,
the AC received reports, requested and received clarification from
management, and sought assurance and received input from the internal
and external auditors.
(cid:3)
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115
Audit Committee Report Continued
Significant issues
Subject
DISPOSALS
See Notes 5 and 8 to the
“Consolidated Financial
Statements” on pages 184 and
186-188.
IMPAIRMENTS
See Notes 2 and 8 to the
“Consolidated Financial
Statements” on pages 172-181
and 186-188.
Issue
Shell has concluded its 2016-2018 divestment
programme, as part of which several significant disposals
were completed in 2018. Prior to disposal, judgement is
required in determining whether a sale is highly probable.
If it is, the asset should be classified as held for sale,
which is a trigger for impairment testing.
Judgement may also be required when accounting for the
disposal, for example in estimating the amount of any
liabilities retained by Shell.
How the AC addressed the issue
The AC scrutinised the application of the held for sale
classification, as well as the accounting for any ensuing
disposals, including the divestment of Integrated Gas assets
in India and Oman, as well as Upstream assets in Iraq,
Malaysia, Norway, Oman and the UK. Particular attention
was given to the accounting for any retained obligations,
the assumptions used in determining any resulting charges
and the tax treatment.
The carrying amount of an asset should be tested for
impairment when there is a change in circumstances such
as a reduction in performance, other than short term, or
being classified as held for sale.
The oil and gas price outlook was reviewed against market
developments and benchmarks, and the potential impact of
certain price sensitivities were considered. The relevant
discount rates utilised were also reviewed.
Despite oil prices that were higher, on average, in 2018
than in 2017, management decided not to change Shell’s
long-term price forecasts.
The AC satisfied itself with the impairment testing performed
and the impairment charges or reversals recognised in
relation to certain Integrated Gas and Upstream assets.
These charges or reversals were mainly triggered by
market changes, asset performance and project delays.
TAXATION
See Notes 2 and 16 to the
“Consolidated Financial
Statements” on pages 172-181
and 194-197.
The determination of tax assets and liabilities requires the
application of judgement as to the ultimate outcome, which
can change over time depending on facts and
circumstances. In particular, the recognition of deferred tax
assets requires management to make assumptions regarding
future profitability and is therefore inherently uncertain.
The AC conducted an in-depth review of management’s
assessments on certain tax matters. The AC considered tax
exposures, including the recoverability of deferred tax
assets, particularly those associated with 2018 disposals,
and accepted the resulting assessments of the deferred tax
positions.
IMPLEMENTATION OF
IFRS 16
See Note 3 to the
“Consolidated Financial
Statements” on page 181.
CHANGES TO
PRESENTATION OF
CONSOLIDATED STATEMENT
OF CASH FLOWS
CYBER-SECURITY
With effect from January 1, 2019, IFRS 16 Leases will
replace IAS 17 Leases. Under the new standard, all lease
contracts, with limited exceptions, are recognised in the
financial statements by way of right-of-use assets and
corresponding lease liabilities. Shell will apply the
modified retrospective transition approach without
restating comparative information.
The amount of operating lease commitments that will be
recognised on the balance sheet at the date of
application depends on many factors, including the
outstanding lease contracts at that date, the remaining
lease term and the discount rate applied upon transition.
Shell prepares its “Consolidated Statement of Cash
Flows” using the “indirect method”, whereby in
determining cash flow from operating activities (CFFO),
income for the period is adjusted for the effects of non-
cash transactions. The presentation of these non-cash
transactions is not prescribed by IFRS, necessitating
professional judgement.
With effect from January 1, 2018, the reconciliation from
income for the period to CFFO has been revised to
provide better insights. The transparency of the CFFO
excluding working capital measure has been improved
and the working capital measure better correlates with
the balance sheet.
Information on the increasing importance of cyber-security
and Shell’s management of the associated risks was
presented to the AC.
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GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
The AC appraised and approved accounting policy
changes resulting from the implementation of IFRS 16. The
AC reviewed management’s analysis of the adoption
implications for Shell, including key judgements, and
concurred with their recommendations.
The AC analysed the improvement initiative proposed by
management and accepted that the implementation would
deliver greater transparency for all users of Shell’s
“Consolidated Statement of Cash Flows”.
The AC discussed the measures in place to mitigate against
these risks with the Chief Information Officer.
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INTERNAL AUDITOR
The internal audit function is an independent and objective assurance
function which aims to improve Shell’s overall control framework. The
internal audit function assists in the maintenance of a systematic and
disciplined approach to evaluate and improve the design and effectiveness
of Shell’s risk management, control and governance processes. The primary
role of the internal audit function, through its assurance and investigation
activities, is to safeguard value by protecting Shell’s assets, reputation and
sustainability in relation to the organisation's defined goals and objectives.
The AC defines the responsibility and scope of the internal audit function
and approves its annual plan. The Chief Internal Auditor reports functionally
to the Chair of the AC and administratively to the Chief Financial Officer.
The Chair of the AC approves, in consultation with the Chief Financial
Officer, all decisions regarding the performance evaluation, appointment or
removal of the Chief Internal Auditor. A new Chief Internal Auditor was
appointed with effect from September 2018.
The Chief Internal Auditor periodically assesses whether the purpose,
authority, and responsibility of the internal audit function continue to enable
it to accomplish its objectives. The result of this periodic assessment is
communicated to the EC and AC. The Chief Internal Auditor maintains an
internal quality assurance and improvement programme, covering all
aspects of the internal audit activities, to evaluate the conformance of these
activities with the Chartered Institute of Internal Auditors Standards (CIIA
Standards). The programme also assesses the efficiency and effectiveness
of the internal audit activities and identifies opportunities for improvement.
The result of this annual assessment is communicated to the EC and AC and
includes a reconfirmation to the AC of the continued validity of the charter
of the internal audit function, or it proposes an update.
At least every five years, the effectiveness and quality of the internal audit
function is assessed externally and the report shared with the AC. In 2018,
Deloitte LLP carried out such an independent external assessment, the
conclusions of which were discussed with the AC and enabled the AC to
satisfy itself that the quality, experience and expertise of the function
continue to be appropriate for the business. The CIIA’s standard quality
assessment rating scale has three levels: “generally conforms”, “partially
conforms”, and “does not conform”. Based on its assessment, Deloitte
reported to the AC that the Shell internal audit function “generally
conforms”, which means that Deloitte appraised the function to be
operating and performing in accordance with the CIIA Standards and
commented on a number of leading practices including its established data
analytics capability and the depth of business knowledge and expertise in
the internal audit function. The overall assessment shows an improvement
compared to the last independent external quality assessment in 2013.
Further, the AC reviewed and assessed management’s response to
significant findings by the internal audit function, including the
implementation of agreed actions, and concluded that management’s
response properly supported the effective working of the internal audit
function.
EXTERNAL AUDITOR
The AC is responsible for considering whether, in order to ensure continuing
auditor independence, there should be a rotation of the independent
registered public accounting firm, including consideration of the advisability
and potential impact of selecting a different independent public accounting
firm. The Company’s current external auditor, Ernst & Young LLP (EY), was
first appointed at the Annual General Meeting (AGM) in May 2016
following the conclusion of a competitive tender process. The Company has
complied with The Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014 for the 2018 financial year.
At the AGM in May 2018, a resolution to reappoint EY as external auditor
until the conclusion of the next AGM was approved by shareholders. There
are no current plans to retender the appointment. The current external audit
partner is Allister Wilson, who has held this position since EY’s initial
appointment as external auditor in 2016.
During 2018, there was no review of any of EY’s audits of Shell’s
Consolidated Financial Statements by the Audit Quality Review (AQR) team
of the FRC. The AC evaluated the effectiveness of EY and the external audit
process in its third year as auditor, taking into account the results of Shell
management’s internal survey relating to EY’s performance over the
financial year 2018 as well as views and recommendations from
management and the Chief Internal Auditor and its own experiences with
the external auditor. Key criteria of the evaluation included: professionalism
in areas including competence, integrity and objectivity; efficiency, covering
aspects such as service level, cost efficiency and innovation in the audit
process; thought leadership and value added; and compliance with
relevant legislative, regulatory and professional requirements. The AC
concluded that EY had performed effectively.
Following due consideration, the AC will recommend to the Board to
propose to the 2019 AGM that EY be reappointed as the external auditor
of the Company for the year ending December 31, 2019. There are no
contractual obligations that restrict the AC’s ability to make such a
recommendation.
As required under UK and US auditing standards, the AC received a letter
from EY confirming its independence.
EY presented its views on the 2018 Annual Report and Form 20-F, including the
financial statements and internal control over financial reporting for the year
ended December 31, 2018, to the AC and to the Board.
NON-AUDIT SERVICES
The AC updated its independence policy in respect of the provision of
services by the external auditor with effect from January 1, 2017, to
accommodate changes in related standard and regulatory requirements.
This policy, designed to safeguard auditor objectivity and independence,
includes rules relating to the provision of audit services, audit-related
services and other non-audit services, and stipulates which services require
specific prior approval by the AC.
The policy also defines prohibited services that are not to be provided by
the auditor as these represent a risk to external auditor independence.
Prohibited services are any that relate to management decision taking or
any other service that would compromise auditor independence or the
perception thereof. These prohibited services include all services listed as
prohibited in the UK and US auditor independence rules.
SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
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Audit Committee Report Continued
For certain services that are not prohibited, because of the knowledge and
experience of the external auditor and/or for reasons of confidentiality, it
can be more efficient or prudent to engage the external auditor rather than
another party. This is particularly the case in relation to audit-related
assurance services that are closely connected to the audit function where
the external auditor has the benefit of knowledge gained from work already
performed as part of the audit.
Under the policy, the AC will only approve services to be carried out by the
external auditor or its affiliates where such services do not present a conflict
of interest risk in fact or in appearance. The AC reviews quarterly reports
from management on the audit and non-audit services reported in
accordance with the policy or for which specific prior approval from the AC
is being sought. To the extent that the fee value of an additional audit
service contract does not individually exceed $500,000, then no prior
approval of the AC is required. All non-audit services where the fee for each
individual contract exceeds $50,000, including audit-related services,
require individual prior approval by the AC. In each case where the audit
or non-audit service contract does not exceed the relevant threshold, the
matter is subsequently reported at the next quarterly AC meeting.
For UK reporting purposes, the scope of the non-audit services contracted
with the external auditor in 2018 consisted mainly of interim reviews and
other audit-related assurance services. The associated compensation for
these audit-related services and other non-audit services amounted to 9%
and 2%, respectively, of the external auditor’s audit and audit-related
remuneration.
FEES
Note 28 to the “Consolidated Financial Statements” on page 214 provides
a specification of the auditor’s remuneration.
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GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
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Directors’ Remuneration Report
The Directors’ Remuneration Report for the year ended December 31, 2018
sets out the work of the Remuneration Committee (REMCO) in 2018 and
how the policy that was approved by shareholders at the 2017 Annual
General Meeting (AGM) has been implemented. The principles that
underpinned REMCO’s approach are set out on page 125.
2018 ANNUAL GENERAL MEETING
REMCO was disappointed with the level of the support (74.78%) received
in favour of the Annual Report on Remuneration for the year ended
December 31, 2017. Our engagements with shareholders and proxy voting
agencies in 2018 helped us understand the voting outcome.
STATEMENT BY THE CHAIR OF THE REMUNERATION
COMMITTEE
Dear Shareholders,
INTRODUCTION
The year for REMCO started with a disappointing vote on the remuneration
report for 2017, in spite of extensive and constructive engagement with a
large number of our institutional investors. We have since spent
considerable time with shareholders to understand this and learn how to
change our approach for the future.
With respect to company performance we enjoyed a good year, rounding
off a successful post BG acquisition period and delivering on our
commitments. This is reflected in a high vesting percentage for our Long
Term Incentive Plan (LTIP).
We also made good progress through our continued engagement with
shareholders regarding the implementation of a measure for energy transition
progress as part of our LTIP. Given the broad support for our direction of
travel we have decided not to wait for the mandatory policy review of next
year, but rather to start immediately by incorporating an energy transition
metric into the 2019 LTIP. This is a first for our industry, and the design was
strongly influenced by collaboration with some of our major shareholders.
In the sections below, I will cover the following:
Firstly, looking back at 2018 and its outcomes:
(cid:131) 2018 Annual General Meeting – An overview of the voting outcome and
the key learning from our subsequent shareholder engagements.
(cid:131) Reflections on 2018 Performance – An overview of performance on key
components of the 2018 annual bonus scorecard, in particular regarding
safety, cash flow and operations. Insight into the Executive Directors’
individual performance elements taken into account by REMCO and the
resulting annual bonus award.
(cid:131) Long-Term Incentive Plan – A reflection of REMCO’s deliberations when
determining the vesting of the 2016 LTIP award.
(cid:131) CEO Remuneration – A summary of the factors considered by REMCO
in its reflection on the 2018 Single Figure and an indication of several
bonus structure changes that we have brought forward to implement in
2019, in advance of the 2020 policy vote.
Then looking forward at pay in the wider context and our remuneration
approach in 2019 and beyond:
(cid:131) Pay in the Wider Context – In the interests of transparency, we are
publishing the CEO pay ratio in accordance with the new methodology
a year earlier than required and this is summarised in this section together
with information on how all our employees share in our success and our
drive to be internally proportionate while externally competitive.
(cid:131) Remuneration Policy – an update on our progress on the policy review in
advance of the 2020 policy vote and details on the policy changes we
have brought forward for early implementation.
One of the most important points to emerge from these discussions was that
we should have been clearer about why the tragic June 2017 incident in
Pakistan involving a sub-contractor road tanker did not lead to a reduced
bonus outcome. Based on advice from the Corporate and Social
Responsibility Committee (CSRC), REMCO ensures that safety performance is
appropriately considered in remuneration. We consider the wider safety
performance of Shell, as well as the safety measures in the bonus scorecard.
This assessment includes a consideration of what is within Shell’s operational
control. Although devastating, ultimately this tragedy was outside Shell’s
operational control. The Board discussed the Pakistan incident at length and
with so much focus on the incident in our internal discussions, we did not
realise that our decision regarding remuneration needed further clarification in
order to be understood by our shareholders. Our extensive internal
investigations are now complete and, while a Pakistani police investigation is
ongoing, we do not have any new information that would change our
remuneration decisions. Further information on our learnings from this road
tanker incident can be found in the Safety section on page 67.
2018 PERFORMANCE
I would now like to turn to 2018 performance and, in particular, reflect on
the metrics within the annual bonus scorecard.
Firstly, in respect of safety, we set a particularly challenging personal safety
target for 2018. This is evidenced in the outcome, measured by Total
Recordable Case Frequency (TRCF), of zero on the annual bonus scorecard.
It is worth noting that had the target remained unchanged from 2017, our
2018 outcome would have been on target. Despite the TRCF score of zero,
2018 had the second lowest TRCF on record, after Shell’s record low in 2017,
and REMCO noted that the number of cases has halved since 2008. The
tragic deaths of two contractors in Shell-operated ventures was included in the
TRCF outcome. In reflecting on these deaths when determining the 2018
bonus outcome, REMCO decided that because personal safety was already
at zero against a stretching target no further adjustment to the scorecard
outcome was required.
Road transportation remains a challenging and complex area for our
industry worldwide. We were deeply disappointed that, following the June
2017 incident, in October 2018, there was another roll-over incident in
Pakistan involving a customer tanker, which resulted in the death of the relief
driver and a spill. However, as this further incident was also outside the
scope of Shell’s operational control, REMCO has concluded that it will not
be reflected in 2018 pay outcomes.
There was notable improvement in 2018 in operational process safety with
a reduction in the number of Tier 1 and Tier 2 events by 27% compared to
the prior year. It was also encouraging to see good delivery on the
greenhouse gas (GHG) intensity measures with these all at, or better than
target, with a notable reduction in flaring.
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119
Directors’ Remuneration Report Continued
Although the macroeconomic environment remained uncertain in 2018, Shell
produced very strong financial results, with cash flow from operations (CFFO)
of $53 billion. Our strong financial performance allowed Shell to service and
reduce debt, cover the dividend, make capital investments and execute share
buybacks. Our performance relative to our competitors (BP, Chevron,
ExxonMobil and Total) has also been strong, for example, Shell has regularly
outperformed competitors on CFFO since early-2017. Indeed, 2018 saw
significant volatility in oil and gas prices, during which time the underlying
competitiveness of Shell was a key strength. Finally, while that price volatility
also impacts cash flow, it is worth reiterating that REMCO has long had a
policy of not adjusting remuneration measures to take into account changes in
oil and gas prices and currency fluctuations. In our engagements with our
largest shareholders, many have appreciated the transparency this brings.
Project delivery was also strong with delivery ahead of planned budget,
with significant life-cycle cost reductions, particularly driven by the
Appomattox deep-water oil and gas project in the USA where costs were
more than $1 billion below budget, partially offset by delays in schedule of
more than two months on nine out of the 36 projects we track. Refinery and
chemical plant availability was near target. Production was below target,
affected by new field delays as well as operational challenges including
Enchilda/Salsa assets and Auger and its associated fields.
ANNUAL BONUS
Taking into account the 2018 performance context, REMCO approved the
annual bonus scorecard outcome of 1.31 and no discretion was applied.
This brings our ten-year average scorecard outcome to 1.24. The detailed
bonus scorecard breakdown is on page 133.
Shell’s strong financial performance was supported by the operational
performance of Shell’s businesses. LNG liquefication volumes were well
above target, due to better reliability and better feedstock availability.
REMCO also approved an individual performance multiplier of 1.0 for both
the CEO and CFO based on the following factors:
Pay for performance
The following table summarises performance against the individual objectives for the CEO and CFO
KEY GOALS
BEN VAN BEURDEN
JESSICA UHL
Deliver a world-class
investment case
Performance multiplier = 1.0
Performance multiplier = 1.0
Under the CEO’s leadership, Shell continues to transform,
with a clear purpose and well-defined strategic intents that
balance societal progress with performance, to deliver higher
returns. A strong financial performance was delivered: CFFO
was $53 billion, FCF was $39 billion, an all-cash dividend was
paid, gearing was reduced to 20.3%, and the share buyback
programme was started. The $30 billion divestment
programme was also completed and investments have
been made in a disciplined manner.
The CFO demonstrated strong cost and capital discipline
leadership. This was enabled by a consistent focus on the
strategic management of Shell’s Financial Framework during
the year, which has been a key contribution to the health and
success of Shell in 2018. Key milestones included: reduced
gearing, the cancellation of the scrip dividend and start of
the share buyback programme, sustained investment discipline,
reduced costs and a strengthened balance sheet with AA
equivalent credit metrics.
In terms of broader company performance, REMCO
recognised the strategic clarity the CEO has provided around
the purpose and direction of Shell. The CEO set out Shell’s
2020 ambition following the BG acquisition, and the 2018
numbers across all strategic themes show that the strategy
is delivering. Shell delivered on commitments to shareholders
and is on track to achieve its 2020 targets.
The CEO led the operationalisation of Shell’s NCF ambition
through driving internal plans and targets, integrating business
and world-class investment decisions with thriving in the energy
transition, and by preparing the organisation for changing
investor and customer preferences as the transition unfolds.
The CEO continues to lead the way in the energy transition
debate externally, for example, through the first joint statement
with institutional shareholders, encouraging other companies
to adopt the NCF methodology, and shaping the debate on
energy transition with recognised scenario outlooks (Sky).
In terms of HSSE leadership, performance was mixed, which
shows further improvement is required. The 2018 personal
injury rate slightly worsened, following the lowest ever injury
rate on record in 2017, however the long-term trend still shows
improvement with an injury rate reduction of some 50%
compared to 2008. There was notable improvement in 2018
in operational process safety with a reduction in the number
of both Tier 1 and Tier 2 events.
The CEO has also shown leadership and transparency in terms
of Shell as a responsible company with a role to play in society.
In terms of broader company performance, REMCO
recognised the strategic insight the CFO has provided in
terms of effective capital allocation, portfolio and investment
decisions that further Shell’s world-class investment case.
The CFO further matured the internal management systems
relating to carbon dioxide (CO₂) in portfolio, planning and
resource allocation decisions.
The CFO led the publication of the Shell Energy Transition
Report, which is aligned with the Task Force on Climate-related
Financial Disclosures (TCFD) recommendations and sets out
how Shell plans to be resilient to expected changes in the
energy system and how its strategy helps it to thrive as the
world transitions to lower-carbon energy.
The CFO maintained a strong financial disclosure,
reporting and control framework.
In terms of tax transparency, the CFO played a key role
in Shell’s endorsement of the responsible tax principles
set out by the non-profit organisation, The B Team.
Thrive in the
energy transition
Strengthen licence
to operate
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The annual bonus award for the CEO was 131% of the target and 79% of
the maximum opportunity. For the CFO, it was 130% of target and 65% of
the maximum opportunity. REMCO sets the awards based on target and,
as such, considered that the annual bonus outcomes were appropriate for
2018. Further commentary on this for the CEO is provided below in the
section on Remuneration Policy.
(cid:3)
The annual bonus for the Executive Directors is paid 50% in cash and 50%
in shares subject to a three-year holding period, which applies beyond an
Executive Director’s tenure.
LONG-TERM INCENTIVE PLAN
The outcome of the 2016 LTIP over the performance period (financial years
2016 to 2018) was 190%. In this section I would like to set out some context
on our policy, the historical vesting position for the plan and also comment
specifically on performance for the period and the resulting vesting outcome
for the Executive Directors.
One of the features of our pay model is the high proportion of variable pay,
which makes up around 80% of the CEO’s target remuneration package
and around 72% for the CFO. Accordingly, we expect that pay outcomes
will fluctuate based on the performance of the Company over time. Prior to
latest vesting, our 10-year average vesting level was 75%, notably below
the target level of 100% and maximum level of 200%.
As you will see from the following chart, vesting during the last ten years has
ranged from 0% to 175% and we saw a number of recent years of low LTIP
vesting outcomes as Shell went through a transformation following the
acquisition of BG, including the sale of non-core assets. As the benefits of
this transformation start to be realised, we see strong competitive
performance of Shell over the past three years relative to our competitors
(BP, Chevron, ExxonMobil and Total). This will be only the third time since
2009 that the LTIP vesting has been above target (or higher than 50% of
the maximum) and the 10-year average vesting outcome of the LTIP shifts to
89% of target (44.5% of maximum).
LTIP vesting
200%
150%
100%
50%
0%
'07-'09
'08-'10
'09-'11
'10-'12
'11-'13
'12-'14
'13-'15
'14-'16
'15-'17
'16-'18
Target
10 year average: 89% of target
TSR EPS CFFO Production/ROACE
For the 2016 LTIP, Shell’s total shareholder return (TSR), earnings per share (EPS)
and cashflow from operations (CFFO) were highest among our competitors,
while return on average capital employed (ROACE) ranked second highest. The
chart below illustrates this strong relative performance in terms of TSR:
Total shareholder return 2016-2018
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
2016
2017
2018
Royal Dutch Shell
Other oil majors (BP, Chevron, ExxonMobil and Total)
These outcomes reflect the success of Shell’s strategy since 2016 and the
progress made in building a world-class investment case. Over the 2016-
2018 performance period, Shell has delivered on commitments to
strengthen the financial framework; cancelling the Scrip Dividend
Programme and starting the $25 billion share buyback programme ($4.5
billion completed as at January 28, 2019). As well as reshaping the
portfolio with the $30 billion divestment programme completed, $10 billion
of CFFO from new projects realised in 2018 while reducing underlying
operating expenses ($39 billion in 2018). Our operating expenses are
lower than Shell’s standalone costs in 2015, meaning we have fully
absorbed the operating costs of BG and delivered even more cost savings,
which demonstrates the success of the combination. The divestment
programme was designed to high-grade and reshape our portfolio and
strengthen our financial framework. When it started in 2016, the oil price
was below $40 a barrel and market conditions for executing a programme
of this scale were challenging.
This performance is reflected in the LTIP performance measures, with CFFO
measured on a rolling four-quarter basis the highest in absolute terms
among our competitors from the third quarter of 2017. Shell’s EPS
(measured on a diluted current cost of supplies basis) has grown from
$0.60 per share in 2015 to $2.85 in 2018. ROACE has improved as Shell
has divested non-core assets and focused on capital discipline.
After considering the underlying performance of Shell relative to our
competitors over the performance period, REMCO decided it was
appropriate that the 2016 LTIP award vested in accordance with the set
vesting schedule without adjustment.
The table below illustrates the total LTIP vesting that follows this strong
performance of Shell over the past three years relative to our competitors,
strong share price appreciation and the dividend yield.
In 2016, there was some fluctuation in the share price during the period that
REMCO made its remuneration decisions. REMCO paid careful attention to
the share price and determined it was appropriate to grant the 2016 LTIP
award based on a three-month average share price, rather than a share
price at the date of award, in order to moderate this volatility. This reduced
the number of shares awarded.
This vesting takes the CEO’s shareholding to more than 11 times base
salary. The CEO’s vested awards are subject to a two-year holding period,
which he has voluntarily agreed to extend to three years. It is worth noting
that while the CFO received a 2016 LTIP award, she was not an Executive
Director at the time and therefore received a significantly smaller award.
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Directors’ Remuneration Report Continued
2016 LTIP vesting outcome
BEN VAN BEURDEN
Vesting outcome: [A]
236,302 x 190% =
448,974 RDS A Shares
(€9,033,353)
JESSICA UHL
Increase in
share price: [B]
448,974 x €7.215
(€3,239,346)
Accrued dividends: [C]
107,432 A Shares
(€2,936,659)
Total LTIP Vesting: [C][D]
556,406 RDS A Shares
(€15,209,358)
Vesting outcome: [A]
13,800 x 190% =
26,220 RDS.A ADS
($1,190,388)
Increase in
share price: [B]
26,220 x $16.92
($443,642)
Accrued dividends: [C]
6,281 RDS.A ADS
($391,432)
Total LTIP Vesting: [C]
32,501 RDS.A ADS
($2,025,462)
[A] Based on the share price at grant of €20.12 for Ben van Beurden and $45.40 for Jessica Uhl.
[B] Calculated as the share price at vesting date minus the share price at the date of grant for Ben van Beurden €27.335 - €20.12 = €7.215 and for Jessica Uhl: $62.32 – $45.40 = $16.92.
[C] Based on the share price at vesting date of €27.335 for Ben van Beurden and $62.32 for Jessica Uhl.
[D] Vested shares are subject to a two year holding period.
CEO REMUNERATION
REMCO has acted carefully in managing pay over the course of Ben van
Beurden’s service as CEO. With respect to base salary, REMCO has
reduced the starting base salary for the new CEO relative to his
predecessor twice successively in recent history and adapted this annually
in line with base salary movement of the wider Shell workforce, as indicated
in the table on page 137. The variable pay opportunity has remained
broadly unchanged for more than 10 years.
As a consequence of the LTIP vesting in particular, the single figure of
remuneration for the CEO is significantly higher this year than in previous
years. REMCO is sensitive to the wider societal discussions regarding the
level of executive pay and spent a significant amount of time discussing the
high single figure for the CEO in 2018. I want to share with you our reasons
for supporting this outcome
(cid:131)
(cid:131)
The strength of Shell’s financial performance in the performance period and
in accordance with the measures under the LTIP is set out above.
CEO 2018 single figure of remuneration
CEO, Ben van Beurden
In its broader deliberation on the single figure, REMCO also reflected on
Shell’s other achievements in the last three years and the personal
leadership that Ben van Beurden has provided in this period namely:
Completed the acquisition and integration of BG.
Delivered a $30 billion divestment programme, reshaping the portfolio.
(cid:131)
(cid:131)
(cid:131) Overseen several major project investment decisions such as in the
deep-water Gulf of Mexico and LNG Canada at very capital-efficient
unit development costs.
Created a New Energies business, taking Shell further into offshore
wind projects (now also in the USA as well as Europe), electric vehicle
charging, and domestic electricity and gas supply.
Led the sector in framing a methodology for aligning with the Paris
Agreement, including two industry firsts of a) incorporating our
customers’ emissions associated with the energy products we sell and
b) linking nearer-term targets to remuneration.
0
€2m
€4m
€6m
€8m
€10m
€12m
€14m
€16m
€18m
€20m
€22m
Base salary
Pension and benefits
Bonus
LTIP
See single total figure of remuneration on page 131.
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The CEO’s leadership has been critical in building and delivering on a
strategy that is enabling Shell to make such progress in becoming a world-
class investment case.
In light of the above considerations, REMCO determined that not only was
the vesting of the 2016 LTIP award appropriate on the basis of Shell’s
relative performance, but that this was underpinned by the broader
performance of Shell and of the CEO in particular.
REMCO also considered the 2018 annual bonus outcome for the CEO and
noted that while the bonus award of €3,000,000 is 131% of target, it is also 79%
of the maximum opportunity. This is a result of the maximum being less than two
times target. Further information on why this arose is set out in the section below
on Remuneration Policy. REMCO sets the award based on target and, as such,
REMCO determined that the annual bonus outcome was appropriate for 2018.
Going forward, however, REMCO has decided to remove the asymmetry for
the CEO by reducing the target bonus from 150% of salary to 125% of salary.
Overall, REMCO considered that taking into account the historical context
and the volatility in the LTIP vesting, that the overall maximum pay
opportunity for the CEO remains appropriate.
Using this new methodology, the UK CEO pay ratio when compared
against the median employee is 143 (full details can be found on page
138). This is comparable to our global workforce ratio of 149. This global
ratio has increased compared to the 2017 global ratio, largely because of
the vesting level of the 2016 LTIP.
REMCO believes in reward packages that are externally competitive and
internally proportionate, meaning the CEO is the employee with the highest
proportion of variable pay as he has the highest level of responsibility.
Accordingly, in years when that variable pay is high, such as 2018, the ratio
will be high. In years when the variable pay is low, the ratio will follow.
We reviewed Shell’s CEO pay ratio externally against the ratios that we
see in other FTSE 30 companies, which we calculated based on their
disclosed employee numbers and employee costs. We believe our ratio is
consistent with those seen in other FTSE 30 companies, although it is
challenging to draw a meaningful comparison given the different markets
and industries in which they operate. REMCO looks forward to seeing how
this disclosure develops as the new UK reporting requirements take hold.
CEO pay outcomes
30,000
25,000
20,000
0
0
0
€
‘
15,000
10,000
5,000
0
2009
2010
2011
2012
2013
2014[A]
2015
2016
2017
2018
Base salary and benefits
Bonus
LTI
Pension and tax equalisation
[A] Impacted by the increase in pension accrual (€10.7m) calculated under the UK reporting
regulations and tax equalisation (€7.9m) as a result of his promotion and prior assignment to the UK.
PAY IN THE WIDER SHELL CONTEXT
Being able to share in the success of Shell is important across the
workforce. The Executive Directors, Executive Committee and most Shell
employees have the same annual bonus scorecard. That helps drive a
shared culture and alignment with Shell’s purpose, strategy and values and
allows employees to share in the same success as the most senior
employees in Shell. In addition, around 20% of our employees are granted
performance share awards on similar terms to the conditions that also apply
to the Executive Directors through the LTIP. This means that many of our
employees will have a significant variable pay outcome this year.
CEO pay ratio and internal proportionality
We have sought to be transparent about our Executive Directors’ pay and the
wider context. In our 2017 Directors’ Remuneration Report, we published an
illustration of the CEO pay ratio calculated against our global workforce relative
to pay ratios in FTSE 30 companies. We are building on that this year by
voluntarily disclosing a pay ratio calculated in accordance with requirements
introduced by the UK Companies (Miscellaneous Reporting) Regulations.
CEO: Pay ratio
2018 CEO single total figure against actual average
global employee costs
Lower
quartile Median
Lowest CEO pay ratio
Highest CEO pay ratio
Shell minimum pay ratio [A]
Shell 2017 CEO global pay ratio [B]
Shell 2018 CEO global pay ratio [C]
Shell maximum pay ratio [D]
[A] Based on CEO ‘minimum’ pay scenario as disclosed on page 143 compared to the average
global employee cost in 2018.
[B] Based on the 2017 CEO single total figure compared to the average global employee cost
in 2017.
[C] Based on the 2018 CEO single total figure compared to the average global employee cost
in 2018.
[D] Based on CEO ‘maximum’ pay scenario as disclosed on page 143 compared to the average
global employee cost in 2018. The 2018 single figure ratio exceeds this theoretical maximum
as the theoretical maximum excludes share price appreciation and dividends.
Gender Pay
Shell is committed to offering highly competitive reward packages and fair, non-
discriminatory pay practices in every market where we employ people. We see
diversity and inclusion as central to the ongoing success of the Company and
are pleased to see a reduction in the mean gender pay gap for Shell
companies in the UK in 2018, falling from 22.2% in the 2017 report to 18.6% in
the 2018 report, published in accordance with the reporting required under the
UK Equality Act 2010 (Gender Pay Gap Information) Regulations Act 2017.
This improvement reflects the work Shell is doing to encourage greater
diversity. In the last 10 years, the proportion of women occupying senior
leadership roles in the UK has increased from 17.7% in 2008 to 28.1% in
2018. Globally, women hold many senior positions including the role of
CFO, and of Country Chair in the UK, USA and the Netherlands.
SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
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Directors’ Remuneration Report Continued
You will note, that the CFO’s total remuneration for 2018 is significantly
lower than the CEO’s. This is principally because the LTIP grants that are
now vesting were made in 2016, prior to her appointment as CFO and
were accordingly lower in accordance with our principle of internally
proportionate pay that increases with seniority.
been encouraged by the strong support we have received from
shareholders and have accelerated our plans, on this and some other
policy matters, by including an energy transition condition in the
performance conditions for the 2019 LTIP grant. This condition will initially
have a 10% weighting and our intention is to increase this over time.
As a company, we have more work to do. The pay gap will be influenced
by changes to our business in the UK, as well as to our policies, so we do
not expect progress to be linear. However, Shell aims to play a leading
role in closing the gender gap in engineering and technology through the
increased representation of women at all levels in our industry. REMCO has
confidence in the policies Shell is putting in place to achieve that.
REMUNERATION POLICY
REMCO believes that the Company’s strategy should be determined first, and
then a remuneration policy should be set that helps deliver that strategy. Shell
has three strategic ambitions that position it well for the future: to be a world-
class investment case while thriving in the energy transition and maintaining a
strong societal licence to operate. These are inextricably
connected. However, we know that our long-term success depends on our
ability to anticipate and meet future energy needs as the world works to
reduce carbon emissions. REMCO has therefore been working to strengthen
our remuneration arrangements to support this longer-term outlook.
Energy Transition
To date, our Remuneration Policy has reflected Shell’s ambition to thrive
through the transition to lower-carbon energy in the following ways:
(cid:131)
(cid:131)
(cid:131)
The inclusion of GHG intensity measures in the bonus scorecard to
measure performance on the direct and indirect emissions produced
by our operations. These measures already cover around 90% of
Shell’s operated portfolio emissions and the scorecard applies to
around 55,000 employees;
The CEO’s and CFO’s personal performance goals based on
successfully thriving in the transition to lower-carbon energy have been
considered when determining the individual performance factor for
their annual bonuses;
A strong alignment to shareholder interests with a high shareholding
requirement level of 700% for the CEO. In addition, 50% of annual
bonus is delivered in shares to be held for three years, and the LTIP has a
three-year vesting period followed by a three-year holding period.
In 2017, Shell was the first international oil and gas company to set the
ambition to reduce the NCF of the energy products it sells (a carbon
intensity measure that takes into account their full life-cycle emissions
including customers’ emissions associated with using them) in the period to
2050. We will do that in step with society’s drive to meet the goals of the
Paris Agreement on climate change.
In 2018, Shell took a major step forward in delivering our strategy by
announcing plans to link nearer-term targets to reduce the NCF of the
energy products we sell to executive remuneration. We made this
announcement in a joint statement with institutional investors on behalf of
Climate Action 100+, an initiative led by institutional shareholders.
The current shareholder approved Remuneration Policy provides REMCO
with the ability to set performance conditions for LTIP awards. We have
We discussed our approach with our major shareholders and they have
helped shape our decisions, including whether it should be incorporated to
the LTIP or part of a separate plan. We decided to use the existing LTIP
plan to ensure integrated thinking with our world-class investment case
conditions and to avoid the complexity of multiple pay structures.
The energy transition condition will apply to the Executive Directors,
Executive Committee members and around 150 of Shell’s senior executives
in 2019. From 2020, subject to any required staff consultation, we intend to
incorporate the energy transition condition into the performance share
awards made to around 16,000 employees globally.
The energy transition condition will include our first three-year target towards
achieving our ambition to reduce the NCF of the energy products we sell. This
target is set as a range aligned to the NCF reduction trajectory that we
published in 2017. This approach will cover the total emissions associated with
the consumption of the energy products Shell sells, across their full life cycle,
extending the focus well beyond the GHG intensity measure included in the
annual bonus scorecard. The energy transition condition will also include other
measures that will help us achieve our strategic ambitions in the long term,
related to the growth of Shell’s power business, commercialising opportunities in
advanced biofuel technology and the development of systems to capture and
absorb carbon. The measures were chosen in conjunction with the CSRC and
are intended to focus on those elements that will make the most impact in
achieving our ambition. As ever, Shell will exercise prudence and any investment
decisions will have stringent value creation requirements, as does any other
investment. Further information is provided on page 129.
We expect that we will have much to learn about the transition to lower-carbon
energy, as it evolves. There is no right or perfect answer, but it is important that
we start this journey and we will learn more as we proceed. Accordingly,
REMCO expects that the energy transition performance condition will evolve
over time, and that we will use the measures and target as guidance, rather than
applying a formulaic vesting outcome, when making our decisions.
Other Policy Matters
As well as the work on the energy transition, REMCO has continued the
remainder of its work on the new policy to be put to shareholder vote at the
2020 AGM. I want to update you on some of the areas we have discussed
and decisions we have made.
We have heard concerns from some shareholders about the asymmetric annual
bonus structure for the CEO, whereby more than half the maximum bonus (250%
of base) can be earned for on-target performance (150% of base). This is a result
of asymmetry in the bonus structure whereby the maximum award is less than
two times the target award. This asymmetry was created in 2008, when
REMCO increased the target to align to market pay but did not increase the
maximum opportunity, given its desire to exercise restraint on the overall pay
opportunity. Notwithstanding the reasons noted above why this asymmetry
arose, REMCO has determined, having discussed the issue with shareholders,
that the target bonus for the CEO will be reduced from 150% to 125% for the
124
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2019 performance year onwards to reinstate symmetry in the bonus structure.
REMCO considers that the total remuneration opportunity for the CEO remains
competitive. As REMCO believes this is the appropriate decision, and this
change can be made within the existing approved policy, REMCO decided not
to wait until the next policy vote, but to accelerate implementation in the same
way that it has for the energy transition condition in the LTIP.
THIS REPORT
This Directors’ Remuneration Report for 2018 has been prepared in
accordance with relevant UK corporate governance and legal
requirements, in particular Schedule 8 of The Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 (as
amended). The Board has approved this report.
Similarly, REMCO heard shareholder feedback that our annual bonus
structure was too complex. Again, with effect from the 2019 performance
year, REMCO has removed the individual performance multiplier currently
used to reflect the CEO and CFO’s individual performance, thus making
Shell and Executive Director performance inextricably connected. This was
discussed with major shareholders in my November investor roadshow.
This report consists of two further sections:
(cid:131) the Annual Report on Remuneration (describing 2018 remuneration as
well as the planned implementation of the Directors’ Remuneration Policy
in 2019) which will be subject to an advisory vote at the 2019 AGM; and
(cid:131) the Directors’ Remuneration Policy which was approved by
shareholders at the 2017 AGM and is included for reference.
Gerard Kleisterlee
Chair of REMCO
March 13, 2019
In addition to introducing an energy transition performance condition,
REMCO also reviewed the remainder of the performance measures under the
LTIP. As a result of the new condition, the weighting of our other LTIP
measures have been rebalanced. REMCO determined that it would retain the
same vesting structure for the TSR, ROACE growth and CFFO growth
measures in 2019. REMCO noted some shareholder concerns regarding the
level of vesting for threshold performance. We believe that consistently
beating two of the world’s best companies, on a range of key financial
metrics is a good outcome. Our LTIP is designed to be challenging, as
evidenced by the 10-year historic vesting level noted above. We believe the
view that the concept of threshold being a “minimum acceptable level” stems
from plan designs with much wider comparator groups and often with single
focus measures. Further details on Shell’s LTIP can be found at pages 134 and
142-143.
REMCO considered whether the current approach to FCF in the LTIP, where
we measure performance on an absolute basis, remained the correct
measure. This measure was introduced in response to Shell’s specific priorities
to restructure its enlarged portfolio, complete $30 billion of divestments and
reduce debt following the BG deal. When REMCO introduced a FCF
measure into the LTIP in 2017, shareholders advised this be measured on an
absolute basis, in line with the realisation of the divestment programme to
reduce gearing following the BG acquisition. As this is now complete,
REMCO engaged shareholders about whether and how to retain the FCF
measure. A number of shareholders agreed that absolute FCF is a key
measure of the use of capital to drive shareholder value, and a good balance
to relative CFFO, which captures operational outperformance. We therefore
retained absolute FCF as a performance condition in the 2019 LTIP and will
continue to review LTIP measures further for the 2020 policy.
REMCO has further work to do in preparing for the new policy to be put to
shareholder vote at the 2020 AGM and this will continue during 2019.
However, in implementing a set of key decisions in 2019, a year earlier than
planned, REMCO is confident Executive Director pay is well-positioned to
the market and well aligned with shareholder interests.
LOOKING AHEAD
The year ahead promises to be a busy one, as we look to ensure that we
take into account all the evolving UK corporate governance requirements
and finalise our proposals for the 2020 policy review to be put to
shareholders at the 2020 AGM. I look forward to an ongoing dialogue
with our shareholders and will use our engagement sessions as an
opportunity to gather your valuable feedback.
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SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
125
Annual Report on Remuneration
The Annual Report on Remuneration sets out:
(cid:374) REMCO and its responsibilities and activities;
(cid:374) an illustration of Shell’s strategy and link to remuneration and a summary
of remuneration policy implementation in 2018 and 2019;
(cid:374) the statement of the planned implementation of policy in 2019; and
(cid:374) Directors’ remuneration for 2018.
consulting advice to clients. REMCO is satisfied that the advice provided
was objective and independent. The total fees paid to PwC in relation to
the advice were £60,965 (excluding value-added tax). PwC provided other
consultancy and accountancy services to Shell during the year. However,
REMCO is satisfied that this does not compromise the independence of the
advice provided to REMCO on executive remuneration matters.
The base currency in this Annual Report on Remuneration is the euro, as this
is the currency of the base salary of the Executive Directors. Where amounts
are shown in other currencies, an average exchange rate for the relevant
year is used, unless a specific date is stated, in which case the average
exchange rate for the specific date is used.
REMUNERATION COMMITTEE
The following Directors were members of REMCO during 2018:
(cid:131) Gerard Kleisterlee (Chair of REMCO);
(cid:131) Catherine J. Hughes;
(cid:131) Sir Nigel Sheinwald; and
(cid:131) Gerrit Zalm.
Biographies of the current members are given on pages 82-87; REMCO
meeting attendance is given on page 100.
REMCO’s key responsibilities in respect of Executive Directors include:
(cid:131) setting the remuneration policy;
(cid:131) agreeing performance frameworks, setting targets and reviewing
performance;
(cid:131) determining actual remuneration and benefits; and
(cid:131) determining contractual terms.
In addition, REMCO has the responsibility for determining the Chair of the
Board’s remuneration and for recommending and monitoring the level and
structure of remuneration for Senior Management.
REMCO operates within its terms of reference, which are regularly
reviewed. They were last updated on March 13, 2019 and are available at
www.shell.com.
Advice from within Shell on various subjects, including the Executive
Directors’ annual bonus scorecard architecture and the remuneration of
Senior Management, was provided by:
(cid:131) Ben van Beurden, CEO;
(cid:131) Ronan Cassidy, Chief Human Resources & Corporate Officer
and Secretary to REMCO; and
(cid:131) Stephanie Boyde, Executive Vice President Remuneration & HR
Operations.
The Chair of the Board and the CEO were consulted on remuneration
proposals affecting the CEO and the CFO, respectively.
Following a competitive tender process for a shortlist of advisors approved
by REMCO, PwC was selected by management to provide external advice
regarding developments in remuneration market practice and Shell’s
remuneration structures. This selection was on the basis of credentials for
assessing the risk profile of policies and their knowledge of investors’
expectations and international market practice in the oil industry and other
long-term businesses. PwC is a member of the Remuneration Consultants
Group and operates under the group’s Code of Conduct when providing
126
GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
REMCO also met with Andrew Ninian from the Investment Association in July,
for a discussion regarding shareholder views on executive director
remuneration practices and developments. No fee was paid for this meeting.
During 2018, REMCO met five times and its activities included:
(cid:131) setting annual bonus performance measures and targets;
(cid:131) deciding on base salaries for the CEO and the CFO;
(cid:131) determining the 2017 annual bonus outcomes;
(cid:131) determining vesting of the 2015 LTIP award for the CEO and the CFO;
(cid:131) approving the 2017 Directors’ Remuneration Report;
(cid:131) discussing outcome of 2018 AGM voting on remuneration and consulting
with major shareholders;
(cid:131) tracking external developments and assessing their impact on Shell’s
Remuneration Policy;
(cid:131) considering the energy transition in the context of long-term remuneration;
(cid:131)
and
reviewing and considering the Directors’ Remuneration Policy in
preparation for the 2020 AGM vote.
PRINCIPLES
The principles underpinning the Remuneration Committee’s approach to
executive remuneration serve as the foundation for everything we do and
are listed below.
(cid:131) Alignment with Shell’s strategy: the Executive Directors’ compensation
package should be strongly linked to the achievement of stretching
targets that are seen as indicators of the execution of Shell’s strategy.
(cid:131) Pay for performance: the majority of the Executive Directors’
compensation (excluding benefits and pensions) should be linked directly
to Shell’s performance through variable pay instruments.
(cid:131) Competitiveness: remuneration levels should be determined by reference
internally against Shell’s Senior Management and externally against
companies of comparable size, complexity and global scope.
(cid:131) Long-term creation of shareholder value: Executive Directors should align
their interests with those of shareholders by holding shares in Royal Dutch
Shell plc (the Company).
(cid:131) Consistency: the remuneration structure for Executive Directors should
generally be consistent with the remuneration structure for Shell’s Senior
Management. This consistency builds a culture of alignment with Shell’s
purpose and a common approach to sharing in Shell’s success.
(cid:131) Compliance: decisions should be made in the context of the Shell
General Business Principles and Code of Conduct. Additionally, REMCO
should ensure compliance with applicable laws and corporate
governance requirements when designing and implementing policies and
plans.
(cid:131) Risk assessment: the remuneration structures and rewards should meet risk-
assessment tests to ensure that shareholder interests are safeguarded and
that inappropriate actions are avoided.
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Strategy and link to 2018 remuneration
Strategy
How the strategy links to the CEO’s variable pay
Thrive in
the energy
transition
World-class
investment
case
Strong
licence to
operate
CEO INDIVIDUAL
PERFORMANCE
The vision for thriving in the energy transition is led by the CEO and embedded in his individual
performance targets.
LONG-TERM
INCENTIVE PLAN
World-class investment metrics such as cash generation and capital discipline, as well as value
created for shareholders, are included in the LTIP.
ANNUAL BONUS
Licence to operate measures such as operational excellence and sustainable development
are included in the scorecard. These measures are key building blocks to being a world-class
investment and support our journey to thrive in the energy transition.
Target CEO pay mix
Fixed pay 21%
Annual bonus 24%
LTIP 55%
Maximum CEO pay mix
0
0
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Fixed pay 12%
Annual bonus 24%
LTIP 64%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
See “CEO pay scenarios” on page 143.
Remuneration at a glance
2018
2019
2020
2021
2022
2023
FIXED PAY
ANNUAL
BONUS
Base salary:
CEO: €1,527,000
CFO: €995,000
Benefits: Typically include: car allowance,
transport between home and office, and
medical insurance.
Pension: Retirement benefits maintained in
base country pension arrangements.
Base pay:
CEO: €1,557,000 (+2.0%)
CFO: €1,015,000 (+2.0%)
Benefits: No change
Pension: No change
Bonus opportunity as a percentage of salary:
Target: CEO: 150% CFO: 120%
Maximum: CEO: 250% CFO: 240%
Award: CEO: 196% CFO: 156%
Performance measures:
CFFO – 30%
Operational excellence – 50%
Sustainable development – 20%
Subject to malus and clawback
50%
delivered
in cash
50%
delivered
in shares
Target: CEO: 125% (reduced)
CFO: 120%
Maximum: CEO: 250% CFO: 240%
Performance measures: No change
Shares subject to three-year
holding period which applies
beyond an Executive
Director’s tenure
LTIP award as a percentage of salary:
Target: CEO: 340% CFO: 270%
Maximum: CEO: 680% CFO: 540%
Performance measures:
Absolute FCF: 25%
Relative TSR: 25%
Relative ROACE growth: 25%
Relative CFFO growth: 25%
Subject to malus and clawback
LONG-TERM
INCENTIVE
PLAN
LTIP award as a percentage of
salary:
No change
Performance measures:
Absolute FCF: 22.5%
Relative TSR: 22.5%
Relative ROACE growth: 22.5%
Relative CFFO growth: 22.5%
Absolute Energy transition: 10%
Three-year performance period
Vested shares subject to
three-year holding period which
applies beyond
an Executive Director’s tenure
Executive Directors’ shareholding
% of base salary
CEO, Ben van Beurden
CFO, Jessica Uhl
0
100%
200%
300%
400%
500%
600%
700%
Value of shares counting towards guideline at December 31, 2018
Shareholding guideline
2016 LTIP vesting
2016
2017
2018
2019
2020
2021
Performance measures (all relative):
TSR: 30%
EPS growth: 30%
CFFO growth: 20%
ROACE growth: 20%
Award:
Ben van Beurden: 236,302 RDS A shares
1 March 2019 Vesting 190%
TSR: 1st
EPS growth: 1st
CFFO growth: 1st
ROACE growth: 2nd
Subject to malus and clawback
Three-year performance period followed by two-year holding period (voluntarily extended to three years)
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SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
127
Annual Report on Remuneration Continued
STATEMENT OF 2019 PLANNED IMPLEMENTATION OF
POLICY
The Directors’ Remuneration Policy on pages 139-147 took effect from
May 23, 2017 and will be effective until the 2020 AGM. This section
describes elements that apply for 2019, some of which have changed
compared with 2018 within the boundaries of the policy.
COMPARATOR GROUP
The 2019 benchmarking comparator group is unchanged from 2018 and
consists of the other oil majors (BP, Chevron, ExxonMobil, and Total) as well
as a selection of major Europe-based companies.
The comparator companies are reviewed by REMCO as part of the
Remuneration Policy review every three years. The other oil majors are
included in the comparator group as these represent our closest direct
competitors operating in similar market conditions. The Europe-based
companies are selected based on their size, complexity and global reach.
REMCO uses benchmark data from these companies only as a guide to the
competitiveness of the remuneration packages. We do not seek to position
our remuneration at any defined point against the benchmarked positions.
2019 European comparator group
Allianz
AstraZeneca
BAT
Bayer
BHP Billiton
Daimler
Diageo
GlaxoSmithKline
Nestle
Novartis
EXECUTIVE DIRECTORS
Rio Tinto
Roche
Siemens
Unilever
Vodafone
Salaries
Effective from January 1, 2019, the base salaries were set at €1,557,000
(+2.0%) for Ben van Beurden, CEO and at €1,015,000 (+2.0%) for
Jessica Uhl, CFO.
When determining base salaries, REMCO mainly considered: the external
market positioning of the Executive Directors’ compensation packages;
Senior Management salaries; the planned average increases for 2019 for
other employees across three major countries (the Netherlands, the UK and
the USA); the impact of the increase on other elements of the package; the
current economic conditions; and Shell’s own performance.
Annual bonus
There are no changes to the scorecard measures and weightings for 2019.
The measures remain aligned with a number of our performance indicators
set out on pages 27-28, and are comprised of cash flow from operating
activities, operational excellence and sustainable development measures.
Annual bonus scorecard targets are not disclosed prospectively because to
do so in a meaningful manner would require the disclosure of commercially
sensitive information. As in previous years, scorecard targets will be
disclosed in the subsequent Directors’ Remuneration Report when they are
no longer deemed to be commercially sensitive.
This change was discussed with shareholders during 2018 and is intended
to simplify the bonus award structure in response to shareholder feedback.
In addition, the target annual bonus for the CEO has been reduced from
150% to 125% of base salary. The maximum opportunity remains unchanged
and is therefore now mathematically twice the target. This change is
intended to eliminate the asymmetry that existing in the bonus award
structure for the CEO and is discussed in the REMCO Chair’s Statement on
pages 124-125.
As in the prior year, 50% of the annual bonus awarded for the 2019
performance year will be delivered in cash and 50% will be delivered in
shares subject to a three-year holding period which remains in force beyond
an Executive Director’s tenure.
Long-term Incentive Plan
On February 1, 2019, a conditional award of performance shares under the
LTIP was made to the Executive Directors resulting in 194,625 Royal Dutch
Shell plc A shares (A shares) being conditionally awarded to Ben van
Beurden and 49,927 Royal Dutch Shell plc A American Depositary Shares
(A ADSs) to Jessica Uhl. The award had a face value of 340% (maximum
vesting outcome 680%) of the base salary for the CEO and 270%
(maximum vesting outcome 540%) of the base salary for the CFO,
excluding potential share price appreciation and dividends. In making these
awards, REMCO considered the Company’s share price and determined
that there was no significant share price volatility that would require an
adjustment to the size of the awards.
For LTIP awards made in 2019, performance will be assessed over a three-
year period based on four financial measures and a new energy transition
condition. They are also subject to a TSR underpin such that if the TSR
ranking is fourth or fifth, the level of the 2019 award that can vest on the
basis of the other measures will be capped at 50% of the maximum.
Further information on the rationale for the new performance condition is set
out in the REMCO Chair’s statement on page 124 and the remaining
financial measures were rebalanced accordingly. Vested LTIP shares are
subject to a three-year holding period which remains in force beyond an
Executive Director’s tenure.
Relative performance measures:
(cid:131) TSR, calculated in dollars using a 90-day averaging period around the
start and end of the performance period (22.5%);
(cid:131) ROACE growth (22.5%). For this purpose, in order to facilitate the
comparison, the calculation of ROACE differs from that described in
“Performance indicators” on page 27 as there is no adjustment for after-
tax interest expense; and
(cid:131) Cash flow from operating activities growth (22.5%).
The vesting schedule for the relative measures is unchanged from 2018.
Absolute performance measures:
For the 2019 performance year, REMCO has removed the personal
performance element of the annual bonus award for the Executive Directors.
(cid:131) FCF (22.5%);
(cid:131) Energy Transition (10%)
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GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
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FCF
The target for FCF, along with the ranges for threshold and outstanding
performance, will be set by reference to Shell’s annual operating plans, being
the aggregate of our plan FCF targets over the three-year performance
period. Given FCF is heavily influenced by the volatility of oil prices, the
annual operating plans are updated each year to set an annual target to
reflect a changing oil price premise. As a result, FCF targets are set annually
for each annual operating plan and will only be disclosed in aggregate
retrospectively after the three-year period. While consideration has been
given to setting a three-year target at the outset, REMCO has determined that
such an approach would result in adjustments for oil price premise and other
matters at the end of the period, given the unpredictability and volatility in oil
prices. REMCO has a long-standing ‘no adjustments’ policy and therefore
believes a more appropriate target-setting approach is to set the target based
on the aggregation of the annual operating plans.
20% of the maximum available under this measure will be payable for
threshold performance, rising to full vesting of that measure for outstanding
performance. A straight-line vesting schedule will apply for performance
between threshold and outstanding.
Energy transition
This is a new condition introduced for the 2019 award within the
boundaries of the approved policy. The energy transition condition is
focussed on Shell’s strategic ambition to thrive in the energy transition and
supports delivery of Shell’s NCF ambition. The condition will consist of a mix
of measures that set the foundations to contribute to Shell’s strategic
ambitions in the longer term:
(cid:131) Net Carbon Footprint: a target for reducing the NCF of the energy
products Shell sells (a carbon intensity measure that takes into account
their full life-cycle emissions, including customers’ emissions associated
with using them). For the 2019 award, the target is a 2-3% reduction in
NCF from the 2016 baseline NCF, which is disclosed in the 2018
Climate change section on page 77. This target is aligned with the
trajectory of our NCF ambition set out in November 2017;
(cid:131) The growth of our power business: Growth in the use of electricity and
continuing decarbonisation of electricity by shifting to renewables and
gas-fired power generation is recognised as a key lever in all
decarbonisation scenarios. Our ambition to grow the power business is
based on selective investments in generation, as well as in business
models based on reselling power generated by others;
(cid:131) Advanced biofuels technology: Biofuels are expected to play a valuable
role in the changing energy mix and are likely to be the key
decarbonisation levers for sectors that need to continue to use liquid fuels
in the foreseeable future, such as some segments of transport and
industry. For society and for Shell, commercialisation of advanced biofuel
technology is one of the most important steps in energy transition;
(cid:131) The development of systems to capture and absorb carbon: Carbon
capture and storage (CCS) and carbon sinks, such as nature-based
solutions are required as part of the global response to climate change.
Energy transition targets, with the exception of the NCF target, are
considered to be commercially sensitive and will therefore be disclosed
retrospectively. Annual updates on our progress in relation to the measures
will be provided.
The vesting outcome for the part of the award weighted to the energy transition
condition will range from 0% to 200% and will be determined by REMCO in its
sole discretion, after taking advice from the CSRC. In doing so, REMCO will
take into account, in relation to each element, progress over the Performance
Period relative to nearer-term aims in pursuit of the long-term ambition
announced by Shell to reduce the NCF of energy products sold by around half
by 2050, and by around 20% by 2035, in step with society’s drive to meet the
goals of the Paris Agreement. However, it is important to note that performance
against these elements will serve simply as a starting point for REMCO who will
also take into account any other considerations they deem appropriate,
including (without limitation) the relative importance of these elements in
meeting the long-term ambition announced by Shell. For example, REMCO
may decide to allocate a greater emphasis to overall performance in relation
to the NCF than the other three elements.
Adjustment (malus) and recovery (clawback)
Variable pay elements are subject to adjustment (malus) and recovery
(clawback) provisions, which may apply in case of direct responsibility or
supervisory accountability.
REMCO may adjust an award, for example by lapsing part or all of it,
reducing the number of shares which would otherwise vest, by imposing
additional conditions on it, or imposing a new holding period. Award
adjustments may be made as a result of: Shell restating the relevant year(s)’
financial statements due to material non-compliance with any financial
reporting requirement; an individual’s misconduct or misconduct through the
individual’s direction or non-direction, which influenced the measures and
outcomes used in determining the individual’s annual bonus or LTIP
outcome; any material breach of health and safety or environment
regulations; serious reputational damage to Shell; material failure of risk
management; and other exceptional events at the discretion of REMCO.
Adjustment may also apply after employment ends if the individual: (a)
breaches any provision of his/her employment contract which applies after
cessation of employment or any provision of an agreement entered into on
termination of employment; (b) is found to have committed fraud or
dishonesty with respect to Shell; (c) wilfully damaged the assets of or
engaged in misconduct which, in any material respect, is or was injurious to
Shell; (d) wrongfully disclosed or used any proprietary or confidential
information which is related to the business, properties or affairs of Shell and
the release of which is detrimental, in any material respect, to the
competitive position or goodwill of Shell; (e) engaged in any activity which,
in any material respect, reasonably constituted a conflict with the interests of
Shell; or (f) breached any business principle or a term of any code of
conduct applicable to employees or former employees of Shell.
Clawback applies in case of restatement of financial statements due to
material non-compliance with any financial reporting requirement or as a
result of the individual’s misconduct or misconduct through the individual’s
direction or non-direction, which influenced the measures and outcomes
used in determining his/her annual bonus or LTIP outcome.
Pension
Ben van Beurden’s pension arrangements comprise a defined benefit plan
for which the maximum pensionable salary has increased to €96,729 and
a net pay defined contribution pension plan with an employer contribution
of 27% of salary in excess of €96,729. This is the standard contribution
percentage applicable to all of the Company’s participating Netherlands
employees in Ben van Beurden’s age bracket. There are no changes to the
pension plans in which Jessica Uhl participates.
SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
129
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Annual Report on Remuneration Continued
NON-EXECUTIVE DIRECTORS’ FEES
Non-executive Directors’ fees 2018
Chair of the Board
Non-executive Director
Senior Independent Director
Audit Committee
Chair [A]
Member
Corporate and Social Responsibility Committee
Chair [A]
Member
Nomination and Succession Committee
Chair [A]
Member
Remuneration Committee
Chair [A]
Member
€
Other fees
850,000 Non-executive
135,000 Directors
55,000
receive an
additional fee
60,000
of €5,000 for
25,000
any Board
meeting involving
35,000
intercontinental
17,250
travel – except
for one
25,000 meeting
12,000
a year held in a
location other
40,000
than The
17,250 Hague.
[A] The chair of a committee does not receive an additional fee for membership of that committee
The Chair’s fee is determined by REMCO and the annual fee for Charles O. Holliday was set at €850,000 upon appointment in 2015 and will remain
unchanged for 2019. The Chair of the Board does not receive any additional fee for chairing the Nomination and Succession Committee or attending any
other Board committee meeting.
The other Non-executive Directors receive a basic fee. There are additional fees for the Senior Independent Director, a Board committee chair or a Board
committee membership for each committee. Non-executive Directors receive an additional fee of €5,000 for any Board meeting involving intercontinental
travel, except for one meeting a year held in a location other than The Hague. Business expenses (including transport between home and office and
occasional business-required spouse travel) and associated tax are paid or reimbursed by the Company. The Chair has use of Company-provided
accommodation in The Hague.
The Board reviews Non-executive Directors’ fees periodically to ensure that they are aligned with those of other major listed companies using the FTSE 30
and the Europe Comparator group as the primary points of reference. The last review was carried out in 2018 and fees will remain unchanged for 2019.
130
GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
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DIRECTORS’ REMUNERATION FOR 2018
NON-EXECUTIVE DIRECTORS’ REMUNERATION FOR 2018
Single total figure of remuneration for Non-executive Directors (audited)(cid:3)
(cid:3)(cid:3)
€ thousand
Ann Godbehere [B]
Euleen Goh
Charles O. Holliday
Catherine J. Hughes [D]
Gerard Kleisterlee
Roberto Setubal [E]
Sir Nigel Sheinwald
Linda G. Stuntz
Hans Wijers
2018
97
220
850
199
216
190
180
197
93
Fees
2017
N/A
225
850
99
196
50
163
202
237
Taxable benefits[A]
2018
—
—
75 [C]
7
7
—
6
13
1
2017
N/A
—
83
—
—
3
6
—
7
2018
97
220
925
206
223
190
186
210
94
Total
2017
N/A
225
933
99
196
53
169
202
244
177
Gerrit Zalm [F]
[A] UK regulations require the inclusion of benefits where these would be taxable in the UK, on the assumption that Directors are tax residents in the UK. On this premise, the taxable benefits include the cost
of Non-executive Director’s occasional business-required spouse travel. The Company also pays for travel between home and the head office in The Hague, where Board and committee meetings are
typically held, as well as related hotel and subsistence costs. For consistency, these business expenses are not reported as taxable benefits as for most Non-executive Directors this is international travel and
hence would not be taxable in the UK.
[B] Appointed as a Director with effect from May 23, 2018.
[C] Including the use of an apartment (2018: €70,015; 2017: €68,612).
[D] Appointed as a Director with effect from June 1, 2017.
[E] Appointed as a Director with effect from October 1, 2017.
[F] As a result of arrangements related to Gerrit Zalm’s attendance at Board and committee meetings detailed in “Corporate governance” on page 79 of the 2017 Annual Report, his fees for 2017 have
been pro-rated and exclude the period July 1, 2017 to October 24, 2017.
177
117
117
—
—
EXECUTIVE DIRECTORS’ REMUNERATION FOR 2018 (cid:3)
Single total figure of remuneration for Executive Directors (audited)(cid:3)
Ben van Beurden
(cid:3)(cid:3)
€ thousand
Jessica Uhl
Salaries
Taxable benefits
Total fixed remuneration
Annual bonus [A]
LTIP [B]
Total variable remuneration
Total direct remuneration
Pension [C]
Tax equalisation [D]
Total remuneration including pension and tax equalisation
in dollars
2018
1,527
32
1,559
3,000
15,209
18,209
2017
1,490
30
1,520
3,000
4,021
7,021
2018
995
49
1,044
1,550
1,783
3,333
(cid:3)
(cid:3)
19,768 (cid:3)(cid:3)
8,541 (cid:3)(cid:3)
4,376 (cid:3)(cid:3)
369
—
20,138 (cid:3)(cid:3)
23,790
368
—
8,909 (cid:3)(cid:3)
10,067
196
289
4,862 (cid:3)(cid:3)
5,744
2017
796
44
840
1,050
623
1,673
2,513
287
194
2,994
3,383
in sterling
2,625
[A] The full value of the bonus, comprising both the 50% delivered in cash and 50% bonus delivered in shares. For 2018, the market price of A shares on February 21, 2019 (€27.745), was used to determine
the number of shares delivered, resulting in 28,045 A shares for Ben van Beurden and 14,490 A shares for Jessica Uhl. For 2017, 50% of the bonus was delivered in shares and the market price of A shares
on February 22, 2018 (€25.75), was used to determine the number of shares delivered, resulting in 30,102 A shares for Ben van Beurden and 10,536 A shares for Jessica Uhl.
[B] Remuneration for performance periods of more than one year, comprising the value of released LTIP awards. The amounts reported for 2018 relate to the 2016 LTIP award, which vested on March 1, 2019, at the
market price of €27.335 and $62.32 for A shares and A ADSs respectively. The value in respect of the LTIP is calculated as the product of: the number of shares of the original award multiplied by the vesting
percentage; plus accrued dividend shares; and the market price of A shares or A ADSs at the vesting date. The market price of A ADSs is converted into euros using the exchange rate on the respective date. Ben
van Beurden also received a release of 107,791 RDS A shares under the 2016 Deferred Bonus Plan (DBP) on March 1, 2019. The original deferred bonus share awards, which are those represented by the deferred
bonus and dividend shares accrued on these shares are not considered as long-term remuneration as they relate to the 2015 short-term annual bonus value.
[C] For Ben van Beurden, the amount reported for pension consists of a net pay defined contribution amount of €369,400. The amount to be reported for his defined benefit pension accural is zero, calculated in
accordance with UK reporting requirements. For Jessica Uhl, the amount reported for pension consists of a defined contribution amount of €94,050 and a defined benefit pension accrual €102,436.
[D] Includes tax equalisation of pension contributions to foreign pension plan(s), when they are taxable above a certain pensionable salary threshold or once a double tax treaty exemption ceases, under
Dutch law. Tax equalisation is applied for the loss of pension relief for members of a foreign pension plan(s) in their host country.
17,817
4,302
7,811
(cid:3)
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SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
131
Annual Report on Remuneration Continued
NOTES TO THE SINGLE TOTAL FIGURE OF REMUNERATION
FOR EXECUTIVE DIRECTORS TABLE (AUDITED)
Salaries
As disclosed in the 2017 Directors’ Remuneration Report, REMCO set Ben
van Beurden’s base salary for 2018 at €1,527,000 (+2.5% compared with
2017) effective from January 1, 2018, and Jessica Uhl’s base salary at
€995,000 (+1.5% compared with 2017) effective from January 1, 2018.
Taxable benefits
Executive Directors received car allowances or lease cars, transport
between home and office, occasional business-required spouse travel, as
well as employer contributions to life and medical insurance plans.
Annual bonus
The scorecard measures are grouped into three sections: financial,
operational excellence and sustainable development. At the beginning of
the year, REMCO sets a target range and weighting for each measure. The
actual outcome for each measure results in a score of between zero and
two, with a score of one representing “on target”. These scores are
multiplied by the respective weighting of each measure and aggregated,
resulting in a mathematical scorecard outcome of between zero and two.
REMCO may then make an adjustment to the overall scorecard outcome in
view of the wider business performance for the year.
For 2018, the Executive Director’s individual performance was also
considered in determining their annual bonus through the application of a
multiplier between zero and 1.2.
50% of the annual bonus is delivered in shares subject to a three-year
holding period which extends beyond the Executive Directors tenure.
Determination of the 2018 annual bonus
The mathematical scorecard outcome for 2018 was 1.31 and REMCO
approved this outcome without exercising discretion. REMCO’s
considerations in determining this outcome are outlined in the REMCO
Chair’s statement on page 120.
REMCO determined an individual performance factor of 1.0 for the CEO
and a final bonus outcome of €3,000,000 which is 131% of target and 79%
of maximum. REMCO considered that it was comfortable with the outcome
for 2018 in the context of business performance and noted that the higher
percentage of maximum relative to the percentage of target is a
consequence of having capped the maximum bonus opportunity at less
than 50% of the target award. This asymmetry between target and
maximum was created in 2008, when REMCO increased the target to align
to market pay but did not increase the maximum opportunity given its
exercise of restraint on the overall pay opportunity. For 2019, the target has
been reduced to eliminate this asymmetry. Further commentary is provided
in the REMCO Chair’s statement on pages 124-125.
REMCO determined an individual performance factor of 1.0 for the CFO
and determined a final bonus outcome of €1,550,000 which is 130% of
target and 65% of maximum.
The table below summarises the 2018 annual bonus scorecard measures
including their weightings, targets and outcomes. Charts illustrating the
calculation of the final 2018 bonus payable to the CEO and CFO are also
provided.
132
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2018 annual bonus outcome (audited)(cid:3)
Measures
Cash flow from operating activities ($ billion)
Operational excellence
Production (kboe/d)
LNG liquefaction volumes (mtpa)
Refinery and chemical plant availability (%)
Project delivery on schedule (%)
Project delivery on budget (%)
Sustainable development
Total recordable case frequency (injuries/million hours)
Operational Tier 1 and 2 process safety events (number)
Upstream and Integrated Gas GHG intensity (tonnes of
CO² equivalent/tonne of hydrocarbon production
available for sale)(cid:3)
Refining GHG intensity (tonnes CO² equivalent per
Solomon’s Utilized Equivalent Distillation Capacity
(UEDC™))(cid:3)
Chemicals GHG intensity (tonnes CO² equivalent/tonne of
petrochemicals production)(cid:3)
(cid:3)(cid:3)
Mathematical scorecard outcome
2018 bonus outcome calculation
Weight
Target
(% of scorecard)
Threshold
set Outstanding
Result
achieved
Score (0-2)
30%
50%
12.5%
12.5%
12.5%
6.25%
6.25%
20%
5%
5%
36
42
48
53
3,638
3,750
3,863
3,666
32.5
90.1
60
105
0.9
155
33.5
92.1
80
100
0.7
125
34.5
94.1
100
95
0.5
95
34.3
91.9
75
97
0.9
121
2.00
1.04
0.25
1.82
0.90
0.75
1.65
0.95
0.00
1.13
4%
0.172
0.164
0.156
0.158
1.75
4%
1.10
1.05
1.00
1.05
1.00
2%
100%
1.02
0.97
0.92
0.96
1.20
1.31
BEN VAN BEURDEN
Target bonus:
€1,527,000 (base salary)
x 150% =
€2,290,500
JESSICA UHL
Target bonus:
€995,000 (base salary)
x 120% =
€1,194,000
2018 scorecard
result = 1.31
Individual performance
factor = 1.0
€3,000,000 [A]
(196% of base salary)
2018 scorecard
result = 1.31
Individual performance
factor = 1.0
€1,550,000 [A]
(156% of base salary)
[A] Rounded downwards to the nearest €50,000, and half was delivered in shares subject to a three-year holding period which extends beyond the Executive Director’s tenure.
(cid:3)
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SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
133
Annual Report on Remuneration Continued
LTIP vesting
In 2016, Ben van Beurden and Jessica Uhl were each granted a conditional
award of performance shares under the LTIP, with a maximum vesting of two
times the original award, excluding share price appreciation and dividends.
The CEO’s vested awards are subject to a further two-year holding period.
However, he has voluntarily agreed to hold these shares for three years in
accordance with the holding policy introduced with the 2017 remuneration
policy.
For Ben van Beurden, this award was based on 340% of his base salary,
giving a maximum vesting of 680%, excluding share price appreciation and
dividends. Given volatility in the share price in the decision-making period
leading up to the 2016 award, REMCO decided that the share price used
to determine the number of shares awarded should be based on a three-
month average rather than its usual practice of the share price at the date
of award. Ultimately by the time of award, the volatility had diminished with
the difference between the three-month average used and the spot rate
being less than 4%.
Jessica Uhl was granted an award of 13,800 A ADSs prior to her
appointment as an Executive Director.
The LTIP vesting outcome at the end of the performance period (January 1,
2016, to December 31, 2018) is illustrated in the following LTIP vesting
outcome table. REMCO also considered the underlying performance of
Shell and decided to vest 190% of shares under the LTIP, using no
discretion, resulting in 556,406 A shares for Ben van Beurden and 32,501
A ADSs for Jessica Uhl. At vesting, these shares (including accrued dividend
shares) had a value of €15,209,358 and $2,025,462 respectively. In
making their decision, REMCO noted the high value of the vesting, including
share price appreciation and determined that the vesting was warranted as
it reflected Shell’s outstanding performance in the period. It also
considered the impact of share buybacks in 2018 on the vesting outcome of
EPS measure. REMCO noted that the share buybacks had no impact on the
rank order of Shell against the comparator group (BP, Chevron,
ExxonMobil and Total) and determined that it was appropriate for the EPS
measure to vest without adjustment. Further information on REMCO’s
considerations is provided in the REMCO Chair’s statement on pages 121-
122.
LTIP vesting outcome
Measures
TSR
EPS growth [A]
ROACE growth
Cash flow from operating activities growth
Total
Weighting
30%
30%
20%
20%
Rank versus peers
1
1
1
2 3
54
2
3
4 5
32
4 5
21
3 4 5
Vesting
60%
60%
30%
40%
190%
[A] Diluted EPS growth on a current cost of supplies basis.
Pension
Ben van Beurden’s pension arrangements comprise a defined benefit plan
with a maximum pensionable salary of €94,446, and a net pay defined
contribution pension plan with a 2018 employer contribution of 24% of
salary in excess of €94,446 up to April 30, 2018 and 27% from May 1,
2018, when he entered the next age bracket for contribution levels, with the
option to take cash as an alternative to pension contributions (in either case
subject to income tax). The CEO has elected to take his benefit in the form
of contributions throughout 2018. The employer contribution levels are in
line with those applicable to other Netherlands-based employees.
Jessica Uhl is a member of the Shell US retirement benefit arrangements,
which include the Shell Pension Plan, a defined benefit plan, and a defined
contribution plan with an employer contribution of 10% of salary. As for all
other pre-2013 members of the Shell Pension Plan, she has an annual choice
of two accrual formulas with different forms of benefits, one in the form of a
lifetime annuity and the other allows for a lump-sum payment. She elected
to accrue benefits for 2018 under the latter. She also has a deferred Dutch
defined benefit pension plan, as a result of a prior Shell assignment on local
Dutch terms and conditions. The employer contribution levels are lower than
those applicable to other US employees and Jessica Uhl’s bonus is not
pensionable as an Executive Director.
See further details on pension arrangements on pages 137-138.
Scheme interests awarded to Executive Directors in 2018 (audited)
Scheme
Type of
End of
Minimum
performance
(% of shares
€
Potential amount vesting
Maximum performance
interest type
interest awarded
performance period
Target award[A]
awarded)[B]
(% of shares of the target award[A][C])
LTIP
Performance
December 31, 2020 Ben van Beurden: 190,001 A shares, equivalent to
0% Maximum number of shares vesting is 200%
shares
3.4 x base salary or €5,191,800. Jessica Uhl:
of the shares awarded, before dividends,
49,857 A ADS shares, equivalent to 2.7 x base
equivalent to €10,383,600 for Ben van
salary or €2,686,500.
Beurden and €5,373,000 for Jessica Uhl.
[A] The award for Ben van Beurden was based on the closing market price on February 2, 2018, for A shares of €27.325. The award for Jessica Uhl was based on the closing market price on February 2,
2018, for A ADSs of $67.300.
[B] Minimum performance relates to the lowest level of achievement, for which no reward is given.
[C] The equivalent values exclude share price movements and accrued dividend shares.
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The measures and weightings applying to LTIP awards made in 2018 were:
FCF (25%); TSR (25%); ROACE growth (25%) and cash flow from operating
activities growth (25%).
The LTIP will vest on the basis of the absolute performance of FCF and the
ranking of the three relative performance measures, as indicated in the
table below.
2018 LTIP measures and vesting schedule
PERFORMANCE
MEASURE AND
WEIGHTING
Free cash flow
(25%)
LINK TO STRATEGY
Recognition of the importance
of generating cash after net
capital expenditure to service
and reduce debt, pay dividends,
buy back shares and make
future capital investments.
VESTING
SCHEDULE
(% OF INITIAL
LTIP AWARD)
Maximum – 200%
Target – 100%
Threshold – 40%
Below threshold –
0%
TSR (25%)
Assessment of actual wealth
created for shareholders.
ROACE growth
(25%)
Indicator of capital discipline.
1st – 200%
2nd – 150%
3rd – 80%
4th or 5th – nil
Cash flow
from operating
activities
growth (25%)
Source of capital expenditure
commitments which support
sustainable growth based on
portfolio and cost management.
If the TSR ranking is fourth or fifth, the level of the award that can vest on the
basis of the three other measures will be capped at 50% of the maximum.
FCF progress
As the FCF target is set based on the cumulative total of the FCF targets for
the operating plans of the relevant performance periods these targets are
not disclosed at award. Disclosure of the target and progress towards it will
be made public at the end of each year in the performance period.
FCF progress to date on outstanding 2017 LTIP award
At December 31, 2018, FCF performance is above target, at more than $27
billion for 2017 (target $21 billion) and $39 billion for 2018 (target $29
billion). As one year of FCF performance remains, and 75% of the award is
subject to relative performance conditions, this does not reflect the potential
vesting of the award.
FCF progress to date on outstanding 2018 LTIP award
At December 31, 2018, FCF performance, at more than $39 billion for
2018, is above target ($29 billion). As two years of FCF performance
remain, and 75% of the award is subject to relative performance conditions,
this does not reflect the potential vesting of the award.
To deliver the shares under the LTIP, market-purchased shares are used
rather than the issuing of new shares. This approach does not have a
dilutive impact on shareholders.
STATEMENT OF DIRECTORS’ SHAREHOLDING AND
SHARE INTERESTS (AUDITED)
SHAREHOLDING GUIDELINES
REMCO believes that Executive Directors should align their interests with
those of shareholders by holding shares in the Company. The CEO is
expected to build a shareholding with a value of 700% of base salary, and
other Executive Directors 400% of base salary. Only unfettered shares
count. Unvested shares held under DBP and any shares delivered but
subject to holding requirements, also count towards the guidelines. As at
March 4, 2019, Ben van Beurden held shares worth 1,177% of his base
salary. At March 4, 2019, Jessica Uhl held 311% of her base salary and has
until March 2022 to meet her shareholding target. Non-executive Directors
are encouraged to hold shares with a value equivalent to 100% of their
fixed annual fee and maintain that holding during their tenure.
Executive Directors’ shareholding (audited)(cid:3)
(cid:3)
Shareholding guideline
(% of base salary)
Value of shares counting
towards guideline
(% of base salary at
December 31, 2018)[A]
Ben van Beurden
700%
602%
Jessica Uhl
[A] Representing the value of share interests and the estimated after-tax value of DBP shares (not
subject to performance conditions).
400%
157%
DIRECTORS’ SHARE INTERESTS
The interests (in shares of the Company or calculated equivalents) of the
Directors in office during 2018, including any interests of their connected
persons, are set out in the table below.
Directors’ share interests [A] (audited)(cid:3)
(cid:3)(cid:3)
Ben van Beurden
Ann Godbehere
Euleen Goh
Charles O. Holliday
Catherine J. Hughes
Gerard Kleisterlee
Roberto Setubal
Sir Nigel Sheinwald
Linda G. Stuntz
Jessica Uhl
Hans Wijers
January 1, 2018
December 31, 2018
A shares
B shares
A shares
B shares
132,979
— 281,524
—
—
—
4,700 [B]
12,895
— 50,000 [C]
—
—
—
4,700 [B]
12,895
50,000 [C]
4,080 46,904
4,080
46,904
5,254
15,400 [D]
—
—
5,254
15,400 [D]
—
—
—
—
1,124
12,400 [E]
—
—
1,124
12,400 [E]
35,460 [F]
5,251
—
—
61,097 [G]
5,251
—
—
—
2,026
Gerrit Zalm
—
2,026
[A] Includes vested LTIP awards subject to holding conditions. Excludes unvested interests in shares
awarded under the LTIP and DBP.
[B] Interests at May 23, 2018, when she was appointed as a Director. Held as 2,350 ADSs (RDS.B
ADS). Each RDS.B represents two B shares.
[C] Held as 25,000 ADSs (RDS.B ADS). Each RDS.B ADS represents two B shares.
[D] Held as 7,700 ADSs (RDS.A ADS). Each RDS.A represents two A shares.
[E] Held as 6,200 ADSs (RDS.B ADS). Each RDS.B represents two B shares.
[F] Held as 17,730 ADS (RDS.A ADS). Each RDS.A represents two A shares.
[G] Held as 10,941 RDS A shares and 25,078 ADS (RDS.A ADS). Each RDS.A represents two A shares.
The changes in Directors’ share interests during the period from December
31, 2018, to March 13, 2019, were that Ben van Beurden’s interests
increased by 363,171 A shares, as 50% of his 2018 annual bonus was
delivered in shares on February 22, 2019, and the 2016 LTIP and DBP
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Annual Report on Remuneration Continued
awards vested on March 1, 2019. Jessica Uhl’s interests increased by
14,490 A shares, as 50% of her 2018 annual bonus was delivered in shares
on February 22, 2019, and by 19,711 A ADSs as the 2016 LTIP award
vested on March 1, 2019. The value of shares counting towards the
shareholding guideline (as a % of base salary) for the CEO and CFO, were
1,177% and 311%, respectively, at March 4, 2019.
DIRECTORS’ SCHEME INTERESTS
The table below shows the aggregate position for Directors’ interests under
share schemes at December 31. These are A shares for Ben van Beurden. and
A ADSs for Jessica Uhl. During the period from December 31, 2018, to March
13, 2019, scheme interests have changed as a result of the vesting of the 2016
LTIP and DBP awards on March 1, 2019, and the 2019 LTIP awards made on
February 1, 2019, as described on pages 135-136 and 128 respectively.
At March 13, 2019, the Directors and Senior Management (pages 82-90)
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.
Directors’ scheme interests (audited)(cid:3)
Ben van Beurden
715,591
707,727
159,617
226,196
875,208
933,923
LTIP/PSP subject to
performance
conditions[B]
DBP not subject to
performance
conditions[C]
2018
2017
2018
2017
2018
Total
2017
Share plan interests[A]
Jessica Uhl
89,901
[A] Includes unvested long-term incentive awards and notional dividend shares accrued at December 31. Interests are shown on the basis of the original awards. The shares subject to performance conditions
can vest at between 0% and 200%. Dividend shares accumulate each year on an assumed notional LTIP/DBP 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. Shares released during the year
are included in the “Directors’ share interests” table.
[B] Total number of unvested LTIP shares at December 31, including dividend shares accrued on the original LTIP award.
[C] The number of shares deferred from the bonus (original DBP award) and the dividend shares accrued on these at December 31. Delivery of the original DBP award and the related accrued dividend
shares is not subject to performance conditions.
89,901
130,180
130,180
—
—
DILUTION
In any 10-year period, no more than 5% of the issued ordinary share capital
of the Company may be issued or issuable under executive (discretionary)
share plans adopted by the Company, or 10% when aggregated with
awards under any other employee share plan operated by the Company.
To date, no shareholder dilution has resulted from these plans, although it is
permitted under the rules of the plans subject to these limits.
PAYMENTS TO PAST DIRECTORS (AUDITED)
Simon Henry left the Company on June 30, 2017. On March 1, 2019,
Simon Henry’s 2016 LTIP award vested at 190%. The award vested on a
pro-rata basis for the period of employment during the performance period.
The value at vesting of the LTIP shares was £3,920,034.
In addition, on March 1, 2019, Simon Henry’s 2016 DBP award vested and
he received a total of 63,399 RDS B shares, with a value at vesting of
£1,499,069. While the original award of 51,393 RDS B shares was reported
in the 2016 Directors’ Remuneration Report, it is included again here in the
interest of transparency. The remaining 12,006 RDS B shares represent
accrued dividends paid in accordance with the plan and the value of these at
vesting was £238,882.
Payments below €5,000 are not reported as they are considered de minimis.
TSR PERFORMANCE AND CEO PAY
PERFORMANCE GRAPHS
The graphs compare the TSR performance of the Company over the past
nine financial years with that of the companies comprising the Euronext 100
and the FTSE 100 share indices. The Board regards these indices as
appropriate broad market equity indices for comparison, as they are the
leading market indices in the Company’s home markets.
136
GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
Historical TSR performance (RDSA)
Growth in the value of a hypothetical €100 holding over nine years
Euronext 100 comparison based on 30 trading day average values
€275
€250
€225
€200
€175
€150
€125
€100
i
l
g
n
d
o
h
0
0
1
€
l
a
c
i
t
e
h
t
o
p
y
h
f
o
e
u
a
V
l
€75
€50
€25
€0
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec18
RDSA
Euronext 100
Historical TSR performance (RDSB)
Growth in the value of a hypothetical £100 holding over nine years
FTSE 100 comparison based on 30 trading day average values
i
l
g
n
d
o
h
0
0
1
£
l
a
c
i
t
e
h
t
o
p
y
h
f
o
e
u
a
V
l
£275
£250
£225
£200
£175
£150
£125
£100
£75
£50
£25
£0
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
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CEO PAY OUTCOMES
The following table sets out the single total figure of remuneration, and the
annual bonus payout and long-term incentive (LTI) vesting rates compared
with the respective maximum opportunity, for the CEO for the last ten years.
RELATIVE IMPORTANCE OF SPEND ON PAY
Distributions to shareholders by way of dividends and share buybacks and
remuneration paid to or receivable by employees for the last five years are
set out below, together with annual percentage changes.
CEO pay outcomes
Single total
figure of
remuneration
(€000)
Annual bonus
payout
against
maximum
opportunity
LTI vesting
rates against
maximum
opportunity
CEO
Ben van Beurden
20,138
Ben van Beurden
Ben van Beurden
Ben van Beurden
Ben van Beurden
Peter Voser
Peter Voser
Peter Voser
Peter Voser
Peter Voser
8,909
8,593
5,576
24,198
8,456
18,246
9,941
10,611
6,228
Jeroen van der Veer
3,748
79%
81%
66%
98%
94%
44%
83%
90%
100%
50%
66%
95%
35%
42%
8%
49%
30%
88%
30%
75%
0%
0%
Year
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2009
Peter Voser stood down on December 31, 2013 and was succeeded by
Ben van Beurden. Ben van Beurden’s single figure for 2014 was impacted
by the increase in pension accrual (€10.695 million) calculated under the
UK reporting regulations and tax equalisation (€7.905 million) as a result of
his promotion and prior assignment to the UK. Jeroen van der Veer stood
down on July 1, 2009, and Peter Voser took over from that date. Only
remuneration relating to their position as CEO is included.
CHANGE IN REMUNERATION OF CEO AND
EMPLOYEES FROM 2017 TO 2018
The CEO data compares the remuneration of Ben van Beurden for 2018
with 2017. The comparator group consists of local employees in the
Netherlands, the UK and the USA. This is considered to be a suitable
employee comparator group because: these are countries with a significant
Shell employee base; a large proportion of senior managers come from
these countries; and REMCO considers remuneration levels in these
countries when setting base salaries for Executive Directors.
Taxable benefits are those that align with the definition of taxable benefits
applying in the respective country. In line with the “Single total figure of
remuneration for Executive Directors” table, the annual bonus is included in
the year in which it was earned.
Change in remuneration of CEO and employees
Salaries
Taxable benefits [A]
CEO
Employees
2.5%
8.2%
2.3%
24.9%
Annual bonus
18.5%
[A] The increase in taxable benefits is principally due to the buyout of a medical insurance allowance
paid to Netherlands employees who received a one-off payment of €4,935 in 2018.
0.0%
Relative importance of spend on pay
Dividends and share buybacks[A] Spend on pay (all employees)[B]
Year
2018
2017
2016
2015
$ billion
20.2
15.6
15.0
12.0
Annual
change
29%
4%
25%
-18%
$ billion
13.4
14.3
15.7
17.1
Annual
change
-6%
-9%
-8%
5%
14.6
2014
0%
[A] Dividends paid, which includes the dividends settled in shares via our Scrip Dividend Programme,
and repurchases of shares as reported in the “Consolidated Statement of Changes in Equity”.
[B] Employee costs, excluding redundancy costs, as reported in Note 26 to the “Consolidated
Financial Statements”.
16.4
-14%
Spend on pay can be compared with the major costs associated with
generating income by referring to the “Consolidated Statement of Income”.
Over the last five years, the average spend on pay was 5% of the major
costs of generating income. These costs are considered to be the sum of:
purchases; production and manufacturing expenses; selling, distribution and
administrative expenses; research and development; exploration; and
depreciation, depletion and amortisation.
TOTAL PENSION ENTITLEMENTS(cid:3)(AUDITED)
During 2018, Ben van Beurden and Jessica Uhl accrued retirement benefits
under defined benefit plans. The pension accrued under these plans at
December 31, 2018, is set out below. The exchange rates used for
conversion into euros and dollars are at December 31, 2018.
Accrued pension (audited)(cid:3)
(cid:3)
Thousand
Ben van Beurden [A]
Local
€
$
€1,271
€1,271 $1,453
$1,231
$1,231 €1,077
Jessica Uhl [B]
[A] The accrued retirement benefits are disclosed on a per annum basis. The normal retirement age
for Ben van Beurden’s defined benefit pension scheme increased from age 67 to age 68, effective
January 1, 2018, due to changes in Dutch pension regulations. In accordance with all other Dutch
employees similarly affected, his previously accrued pension benefits were adjusted on actuarial
neutral terms to take account of the increase in retirement age. His accrued pension was €1,256,450
at December 31, 2017, after adjustment to take account of the increase in retirement age.
[B] Jessica Uhl has an annual choice of two accrual formulas with different forms of benefits, one in the
form of a lifetime annuity and the other allows for a lump-sum payment. She elected to accrue benefits
for 2018 under the latter and the eventual lump sum benefit is shown. She also has a deferred Dutch
defined benefit pension plan, as a result of a prior Shell assignment on local Dutch terms and
conditions. The age at which Jessica Uhl can receive any pension benefit without an actuarial reduction
under this plan is 60. The value of the deferred pension benefit is €3,252 per annum.
The age at which Ben van Beurden can receive any pension benefit without
actuarial reduction is 68 and for Jessica Uhl this is age 65 (in the US
retirement plans). Any pension benefits on early retirement are reduced
using actuarial factors to reflect early payment. No payments were made in
2018 regarding early retirement or in lieu of retirement benefits.
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SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
137
Annual Report on Remuneration Continued
BEN VAN BEURDEN
Ben van Beurden is a member of the “Stichting Shell Pensioenfonds”, the
pension plan for Shell employees in the Netherlands who joined before July
2013 that provides benefits in defined benefit form. Ben van Beurden is also
a member of the Shell net pay defined contribution pension plan in the
Netherlands with effect from January 1, 2015. The contribution rates for Ben
van Beurden are the same as those applicable to other employees in the
Netherlands in his age bracket.
JESSICA UHL
Jessica Uhl is a member of the Shell US retirement benefit arrangements,
which include the Shell Pension Plan, a defined benefit plan, and the Shell
Provident Fund, a defined contribution plan. The contribution rates for
Jessica Uhl are the same as those applicable to other US employees,
however, unlike other US participants, Jessica Uhl’s pensionable
compensation does not include the annual bonus. She also has a deferred
Dutch defined benefit pension plan, as a result of a prior Shell assignment
on local Dutch terms and conditions.
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. Exceptions to this are considered in
the final year of employment. 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.
STATEMENT OF VOTING AT 2018 AGM
The Company’s 2018 AGM was held on May 22, 2018, in the Netherlands.
The result of the poll in respect of Directors’ remuneration was as follows:
Approval of Directors’ Remuneration Report
Votes
For
Against
Total cast
Number
Percentage
3,886,764,832
74.78%
1,311,138,457
25.22%
5,197,903,289 [A] 100.00%
Withheld [B]
[A] Representing 62.31% of issued share capital.
[B] A vote “withheld” is not a vote under English law and is not counted in the calculation of the
proportion of the votes “for” and “against” a resolution.
41,918,978
The result of the poll in respect of the Directors’ Remuneration Policy
approved at the 2017 AGM was as follows:
Approval of Directors’ Remuneration Policy
Votes
For
Against
Total cast
Number
Percentage
4,064,279,529
92.34%
337,361,835
7.66%
4,401,641,364 [A] 100.00%
Withheld [B]
[A] Representing 53.53% of issued share capital.
[B] A vote “withheld” is not a vote under English law and is not counted in the calculation of the
proportion of the votes “for” and “against” a resolution.
37,303,341
At our May 2018 Annual General Meeting, we received shareholder
support of 74.78% for the Directors’ Remuneration Report for the year
ended December 31, 2017, which followed a vote of 92% support for our
Remuneration Policy the prior year.
138
GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
REMCO was deeply disappointed with this voting outcome and during
2018 engaged with shareholders to understand the reason for the outcome.
Having analysed our voting results, we believe that more than 90% of our
largest shareholders supported the Remuneration Report and this was
reinforced in our engagement with them. No further specific action in
relation to our largest shareholders in relation to this outcome was taken
and we continue to engage with them on a regular basis.
A number of our smaller shareholders voted against the 2017 report and we
met face to face with some of them in our recent shareholder engagement
roadshow. It was clear that when we engage with shareholders, it helps to
create a better understanding of our decisions and we are keen to reach
deeper into our share register to engage with more shareholders on
remuneration matters. For example, the REMCO Chair released a video,
which can be found on the Shell investor relations website, in February 2019
to provide an explanation of some of the work done and decisions made by
REMCO in the year. We will continue to work on ways to achieve this.
We also had a helpful and constructive meeting with the proxy agency that
made an Against recommendation. We appreciate their desire for
improved disclosures and the evolution of their views on our policy structure.
One of the most important points to emerge from these discussions was that we
should have been clearer about why the tragic June 2017 incident in Pakistan
involving a sub-contractor road tanker did not lead to a reduced bonus
outcome. Further comments about this are in the REMCO Chair’s statement.
DIRECTORS’ EMPLOYMENT ARRANGEMENTS AND
LETTERS OF APPOINTMENT
Executive Directors are employed for an indefinite period. Non-executive
Directors, including the Chair, have letters of appointment. Details of
Executive Directors’ employment arrangements can be found in the
Directors’ Remuneration Policy on page 145. Further details of Non-
executive Directors’ terms of appointment can be found in the “Directors’
Report” on page 93 and the “Corporate governance” report on page 97.
COMPENSATION OF DIRECTORS AND SENIOR
MANAGEMENT
During the year ended December 31, 2018, Shell paid and/or accrued
compensation totalling $43 million (2017: $46 million) to Directors and
Senior Management for services in all capacities while serving as a Director
or member of Senior Management, including $3 million (2017: $3 million)
accrued to provide pension, retirement and similar benefits. The amounts
stated are those recognised in Shell’s income on an IFRS basis. See Note
27 to the “Consolidated Financial Statements”. Personal loans or
guarantees were not provided to Directors or Senior Management.
CEO PAY RATIO
The UK Companies (Miscellaneous Reporting) Regulations 2018 introduces
a requirement for certain UK listed companies to publish the ratio of CEO
pay to UK staff pay. Although not required to be published until reporting
on the 2019 financial year, REMCO believes in transparency on
remuneration matters and has chosen to start disclosing from this year:
A
Year
2018
Option [A]
Median pay ratio 75th pay ratio
25th Percentile
pay ratio
202:1
[A] The calculation methodology used is Option A as defined in the Regulations. Under this
approach, the full-time equivalent total remuneration for all UK employees for the relevant financial
year is determined. Using this data, companies will rank the data and identify employees whose
remuneration places them at median, 25th and 75th percentile. Three pay ratios are then calculated
against CEO ‘single figure’ total remuneration.
143:1
92:1
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Directors’ Remuneration Policy
This section describes the Directors’ Remuneration Policy (Policy) as
published in the 2016 Directors’ Remuneration Report which, following
shareholder approval at the 2017 Annual General Meeting (AGM), came
into effect from May 23, 2017, and will be effective until the 2020 AGM,
unless a further policy is proposed by the Company and approved by
shareholders in the meantime.
The Policy has evolved over time, to align with: Shell’s strategy, market
practice and shareholders’ views. A consistent and competitive structure,
which applies across the workforce, is also a core principle. This
consistency allows for a culture of shared purpose and performance.
The Executive Directors’ remuneration structure is made up of a fixed
element of basic pay and the majority of the package is tied to two
variable elements: the annual bonus (50% delivered in shares) and the Long-
term Incentive Plan (LTIP). Variable pay outcomes are conditional on the
successful execution of the operating plan in the short term and financial
out-performance over the longer term. Furthermore, the award of shares
under the bonus and LTIP, along with significant shareholding requirements,
is intended to ensure executives build up a sizeable shareholding stake in
Royal Dutch Shell plc (the Company) and experience the same outcomes
as shareholders.
EXECUTIVE DIRECTORS
Executive Directors’
remuneration policy table
Element
Purpose and link to strategy
Maximum opportunity
Operation and performance measurement
Base salary and
pensionable
base salary
Provides a fixed level of
earnings to attract and retain
Executive Directors.
We have retained a
maximum of €2,000,000,
for both base salary and
pensionable base salary,
in the context of current
peer group base salary
levels.
Benefits
Provides benefits, in line with
those applicable to the
wider workforce, in order to
attract and retain Executive
Directors.
The maximum opportunity
is the cost to the Company
of providing the relevant
benefit as specified in
Shell’s standard policies.
These costs can vary.
Base salary and pensionable base salary (where different) are reviewed annually
with salary adjustments effective from January 1 each year.
In making salary determinations, the Remuneration Committee (REMCO) will
consider:
(cid:131)
(cid:131)
(cid:131)
the market positioning of the Executive Directors’ compensation packages;
comparison with Senior Management salaries;
the employee context, and planned average salary increase for other
employees across three major countries – the Netherlands, the UK and
the USA;
the experience, skills and performance of the Executive Director, or any
change in the scope and responsibility of their role;
general economic conditions, Shell’s financial performance, and
governance trends; and
the impact of salary increases on pension benefits and other elements of
the package.
(cid:131)
(cid:131)
(cid:131)
For Executive Directors employed outside their base country, euro base salaries are
translated into their home currencies for pension plan purposes. Pensionable base
salaries are maintained in line with euro base salaries taking into account exchange
rate fluctuations and other factors as determined by REMCO.
Benefits that Executive Directors typically receive include car allowances and
transport to and from home and office, risk benefits (for example ill-health, disability
or death-in-service), as well as employer contributions to insurance plans (such as
medical). Precise benefits will depend on the Executive Director’s specific
circumstances such as nationality, country of residence, length of service, and family
status. Post-retirement benefits such as healthcare may be applicable under their
country-specific policies. Shell’s mobility policies may apply, such as for relocation
and tax return preparation support, as may tax equalisation related to expatriate
employment prior to Board appointment, or in other limited circumstances to offset
double taxation. REMCO may adjust the range and scope of the benefits offered in
the context of developments for other employees in relevant countries. Personal
loans or guarantees are not provided to Executive Directors.
In relation to the maximum opportunity, and by way of example, maximum relocation
and tax equalisation settlement benefits will be the grossed-up cost of meeting the
specific Executive Director’s costs incurred as a result of appointment and any
associated relocation (in line with Shell’s policy), and will depend on a variety of
factors such as length of service, salary increase on appointment and the tax regime
in place at the time.
SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
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Directors’ Remuneration Policy Continued
Executive Directors’ remuneration policy table (continued)
Element
Purpose and link to strategy
Maximum opportunity
Operation and performance measurement
Annual bonus
Rewards the delivery of
short-term operational
targets as derived from
Shell’s operating plan as
well as individual
contribution to Shell.
To reinforce alignment with
shareholder interests, 50%
is delivered in cash and
50% is delivered in shares.
Shares are subject to a
three-year holding period,
which applies beyond an
Executive Director’s tenure.
Maximum bonus (as a
percentage of base
salary):
(cid:131) Chief Executive Officer
(CEO): 250%
(cid:131) Other Executive
Directors: 240%
(cid:131) Target levels (as a
percentage of base
salary):
(cid:131) CEO: 150%
(cid:131) Other Executive
Directors: 120%
LTIP
Awards may be made up
to a value of 400% of
base salary.
2017 Award levels:
(cid:131) CEO: 340%
(cid:131) Other Executive
Directors: 270%
Awards may vest at up to
200% of the shares
originally awarded, plus
dividends.
Rewards longer-term value
creation linked to Shell’s
strategy. The measures
predominantly focus on
financial growth and
increases in value
compared with the other
oil majors.
To reinforce alignment with
shareholder interests,
shares delivered from
vested LTIP awards are
subject to a three-year
holding period, which
applies beyond an
Executive Director’s tenure.
(cid:131) The bonus is determined by reference to performance from January 1 to December
31 each year.
(cid:131) Annual bonus = base salary x target bonus % x scorecard result (0–2); adjusted for
individual performance with a 0–1.2 multiplier.
(cid:131) Taking the Shell operating plan into consideration, REMCO sets stretching
scorecard targets and weightings which support the delivery of the strategy.
Measures are related to financial performance, operational excellence and
sustainable development. Indicative weightings are 30%, 50% and 20%
respectively. This balance ensures that the achievement of short-term financial
performance does not undermine future shareholder value creation. Stretching
individual targets are also set.
(cid:131) Scorecard targets will be disclosed in a subsequent Directors’ Remuneration Report
when they are no longer deemed to be commercially sensitive.
(cid:131) Individual performance is reflected by adjusting the bonus outcome. Upward
adjustment is capped at 20% and subject to the overall maximum bonus cap. The
CEO’s maximum bonus is asymmetrically capped at 250%. There is no limit to
downward adjustment.
(cid:131) There are no prescribed thresholds or minimum levels of performance that equate
to a prescribed payment under the Policy and this structure can result in no bonus
being awarded.
(cid:131) The annual bonus is subject to malus provisions before it is delivered and to
clawback provisions thereafter.
(cid:131) REMCO retains the ability to adjust performance measure targets and weightings
year by year within the overall target and maximum payouts approved in the
Policy.
(cid:131) Award levels are determined annually by REMCO and are set within the maximum
approved in the Policy.
(cid:131) Awards may vest between 0% and 200% of the initial award level depending on
Shell’s performance on either an absolute basis, or on a relative basis against the
other oil majors.
(cid:131) For 2017, performance is assessed over a three-year period based on absolute
free cash flow (FCF), which is the sum of cash flow from operating activities and
cash flow from investing activities (25%), and the following relative performance
measures: total shareholder return (TSR) (25%), return on average capital
employed (ROACE) growth (25%) and cash flow from operating activities growth
(25%). Each measure can vest independently, but if the TSR measure does not
result in vesting, then the total vesting level will be capped at 50% of the maximum
payout.
(cid:131) Although it is possible for no LTIP shares to vest, on current measures and
weightings, 5% of the maximum LTIP award would vest if there was a threshold
vesting outcome in respect of FCF and no vesting on the other measures.
(cid:131) Additional shares are released representing the value of dividends payable on the
vested shares, as if these had been owned from the award date.
(cid:131) Following payment of taxes, delivered shares from LTIP awards must be held for a
further three years to align with Shell’s longer-term time horizon and strategy.
(cid:131) The LTIP award is subject to malus provisions before it is delivered and to clawback
provisions thereafter.
(cid:131) REMCO may adjust or change the LTIP measures, targets and weightings to ensure
continued alignment with Shell’s strategy.
140
GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
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(cid:3)
Executive Directors’ remuneration policy table (continued)
Purpose and link to strategy
Maximum opportunity
Operation and performance measurement
Element
Pension
Provides a competitive
retirement provision in line
with the individual’s base
country benefits policy, to
attract and retain Executive
Directors.
By reference to pensionable base salary,
pension accrual and contribution rates
and other pensionable elements, as
determined by the rules of the base
country pension plan of which the
Executive Director is a member.
Shareholding Aligns interests of
Executive Directors with
those of shareholders by
creating a connection
between individual wealth
and Shell’s long-term
performance.
Shareholding (% of base salary):
(cid:131) CEO: 700%
(cid:131) Other Executive Directors: 400%
Executive Directors’ retirement benefits are maintained in line with those
of the wider workforce in their base country. Only base salary is
pensionable, unless country plan regulations specify otherwise. The rules
of the relevant plans detail the pension benefits which members can
receive on retirement (including on ill-health), death or leaving service.
REMCO retains the right to amend the form of any Executive Director’s
pension arrangements where appropriate, for example in response to
changes in legislation to ensure the original objective of this element of
remuneration is preserved.
Executive Directors are expected to build up their shareholding to the
required level over a period of five years from appointment and, once
reached, to maintain this level for the full period of their appointment.
The intention is for the shareholding guideline to be reached through
retention of vested shares from share plans. REMCO will monitor
individual progress and retains the ability to adjust the guideline in
special circumstances on an individual basis.
(cid:3)
NOTES TO THE EXECUTIVE DIRECTORS’ REMUNERATION
POLICY TABLE
Benefits
Benefits for Executive Directors deemed taxable in the UK are included as
taxable benefits in the single total figure of remuneration table. These
elements may include transport to and from home and office, the provision
of home security, and occasional business-required spouse travel, which are
generally considered legitimate business expenses rather than components
of remuneration.
Annual bonus
For the 2017 performance year, the scorecard framework will consist of
cash flow from operating activities (30% weight), operational excellence
(50% weight) and sustainable development (20% weight). REMCO believes
it is important for annual variable pay to remain balanced, with operational
and environmental components, complementing the LTIP’s focus on longer-
term financial outcomes. The same annual bonus scorecard approach
applies to Senior Management and other senior executives, supporting
consistency of remuneration and alignment of objectives.
For future years, the specific measures and weightings for the annual bonus
scorecard will be reviewed annually by REMCO and adjusted accordingly
to evolve with Shell’s strategy and circumstances. The annual review will
also consider the scorecard target and outcome history over a decade to
ensure that the targets set remain stretching but realistic. REMCO retains the
right to exercise its judgement to adjust the mathematical bonus scorecard
outcome to ensure that the bonus scorecard outcome for Executive
Directors reflects other aspects of Shell’s performance which
REMCO deems appropriate for the reported year. REMCO is aware that
the simple application of arithmetic performance targets may lead to
anomalies between business performance and shareholder experience and
therefore careful consideration is given to formulaic outcomes. REMCO has
a track record of using its discretion to make downward adjustments where
appropriate.
2017 annual bonus scorecard measures and weightings
PERFORMANCE
MEASURE AND
WEIGHTING
Cash flow from
operating activities
(30%)
LINK TO OPERATING PLAN
This reflects our business performance.
Operational
excellence (50%)
Project delivery: Indicator of our ability to
deliver projects, on time, and on budget.
Operations: Maximising oil and gas production,
LNG liquefaction volumes, and the availability
of refineries and chemical plants are indicators
of the full and effective use of our resources;
which in turn generate cash flow.
Sustainable
development (20%)
Safety and environmental performance are
both core to how we operate.
Safety: Is implicit in all our activities. A safe
work environment has been, and will always be,
an important indicator of Shell’s commitment to
its employees and contractor staff.
Environmental performance: We are managing
Shell’s carbon intensity as part of the long-term
transition to a lower carbon energy system.
Therefore greenhouse gas measures are
now included.
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 individual performance targets. Shell
operates this approach for most of its employees. These individual targets
typically relate to qualitative differentiators not already covered by the
scorecard. Examples for the Executive Directors have included management
of transformative portfolio changes, portfolio development, and
organisational and financial leadership. This individual performance element
preserves consistency with the wider workforce and reinforces and drives a
company-wide culture of performance and behaviour.
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SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
141
Directors’ Remuneration Policy Continued
At the end of the one-year performance period, 50% of the annual bonus is
delivered in cash and 50% is delivered in shares. Shares are subject to a
three-year holding period, which remains in force beyond an Executive
Director’s tenure.
Bonus time horizon
Year 1
Year 2
Year 3
Year 4
Net shares held for three years
Shares
unrestricted
ANNUAL
BONUS
50% delivered
in shares
50% delivered
in cash
Performance
period
Bonus delivered
2017 LTIP measures and vesting schedule
PERFORMANCE
MEASURE AND
WEIGHTING
Free cash flow
(25%)
LINK TO STRATEGY
Recognition of the importance
of generating cash after net
capital expenditure to service
and reduce debt, pay
dividends, buy back shares and
make future capital
investments.
VESTING
SCHEDULE
(% OF INITIAL
LTIP AWARD)
Maximum – 200%
Target – 100%
Threshold – 40%
Below threshold – 0%
TSR (25%)
Assessment of actual wealth
created for shareholders.
ROACE growth
(25%)
Indicator of capital discipline.
1st – 200%
2nd – 150%
3rd – 80%
4th or 5th – nil
Long-term Incentive Plan
The LTIP rewards longer-term performance linked to Shell’s strategy, which
includes cash generation and capital discipline, as well as value created for
shareholders.
Cash flow
from operating
activities
growth (25%)
Source of capital expenditure
commitments which support
sustainable growth based on
portfolio and cost management.
The LTIP measures are predominantly based on relative outperformance
compared with the other oil majors, in line with our strategic intent to be a
leader in the oil and gas industry. For 2017, the measures will consist of
absolute FCF and relative growth compared with our peers based on the
following: TSR, ROACE and cash flow from operating activities. REMCO
will regularly review the measures, weightings and comparator group, and
retains the right to adjust these to ensure that the LTIP continues to serve its
intended purpose and level of challenge.
FCF performance is measured by aggregating annual absolute FCF
performance over the three-year performance period and then comparing
the outcome to the aggregate of our plan FCF targets over three years. The
outstanding (maximum), target and threshold (minimum) levels are declared
at the end of the performance period and will be the aggregate respective
annual outstanding, target and threshold levels for each year of the
performance period. A straight-line vesting schedule will apply for
performance between threshold and outstanding. The target, along with the
ranges for threshold and outstanding performance, is set by reference to
our operating plan and is in line with our cash flow priorities, namely: to
service and reduce debt, pay dividends, buy back shares and make future
capital investments.
For relative measures, we measure and rank growth based on the data
points at the end of the performance period compared with those at the
beginning of the period, using publicly reported data. When comparing
performance against the other oil majors, the relative performance ranking
is as indicated in the table below.
TSR underpin
If the TSR ranking is fourth or fifth, the level of the award that can vest on the
basis of the three other measures will be capped at 50% of the maximum
payout for the LTIP.
Performance outcomes
REMCO retains discretion to adjust the mathematical outcome if it believes
that this is distorted by circumstances which are unrelated to performance,
for example, reporting changes, ranking clustering, or corporate events in
the comparator group. Upward adjustment would only be considered after
consultation with major shareholders. An explanation of any such
adjustment would be set out in the relevant Directors’ Remuneration Report.
LTIP performance is assessed over a three-year period. Vested shares from
the LTIP are subject to a further three-year holding period post vesting,
which remains in force beyond an Executive Director’s tenure. This time
horizon has been extended and is deemed to be suitable for incentive
purposes, but is recognised as short relative to some of Shell’s operations.
However, REMCO believes that it provides for broad alignment with
shareholder interests when coupled with significant shareholding
requirements
LTIP time horizon
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
LONG-TERM
INCENTIVE
PLAN
100%
delivered
in shares
Net shares held for
three years
Shares
unrestricted
Performance period
Shares delivered
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GOVERNANCE SHELL ANNUAL REPORT AND FORM 20-F 2018
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Treatment of outstanding awards
Awards granted prior to the approval and implementation of this Policy
and/or prior to an individual becoming an Executive Director will continue
to vest and be delivered in accordance with the terms of the original award
even if this is not consistent with the terms of this Policy.
As at March 7, 2017, this applies to Executive Directors Ben van Beurden
and Simon Henry who each have outstanding awards under the LTIP and
DBP. Jessica Uhl, who is appointed an Executive Director with effect from
March 9, 2017, has outstanding awards under the LTIP.
Shareholding
REMCO believes significant shareholding by Executive Directors is an
important way of ensuring that shareholders and Executive Directors share the
same priorities. Shareholding is one of Shell’s core remuneration principles as
it creates a balanced connection between individual wealth and Shell’s long-
term performance. This will support effective governance and an ownership
mindset. Significant shareholding requirements reflect the performance
timescales of Shell and are aligned with absolute shareholder return.
The CEO is expected to build up a shareholding of seven times their base
salary over five years from appointment. Other Executive Directors are
expected to build up a shareholding of four times their base salary over the
same period. In the event of an increase to the guideline multiple of salary,
for every additional multiple of salary required, the director will have one
extra year to reach the increased guideline, subject to a maximum of five
years from the date of the change.
The holding periods for LTIP vested shares and shares delivered as part of
the annual bonus continue to apply after Executive Directors leave
employment. This is to ensure departing executives continue to have their
interests aligned with those of shareholders.
DIFFERENCES FOR EXECUTIVE DIRECTORS FROM OTHER
EMPLOYEES
The remuneration structure and approach to setting remuneration levels are
consistent across Shell, with consideration given to location, seniority and
responsibilities. However, a higher proportion of total remuneration is tied to
variable pay for Executive Directors and members of Senior Management.
The salary for each Executive Director is determined based on the
indicators in the “Executive Directors’ remuneration policy table”, which
reflect the international nature of the Executive Directors’ labour market. The
salary for other employees is normally set on a country basis.
Executive Directors are eligible to receive the standard benefits and
allowances provided to other staff. The provisions that are not generally
available for other employees are described in “Benefits”.
The methodology used for determining the annual bonus for Executive
Directors is broadly consistent with the approach for Shell employees
generally. However, the individual performance factor for Executive
Directors is capped at 1.2 and the scorecard used for the majority of Shell
staff may differ in the make-up and weighting of the metrics used. Like
Executive Directors, members of Senior Management receive 50% of their
annual bonus in shares.
Executive Directors are not eligible to receive new awards under employee
share plans other than the LTIP, although awards previously granted will
continue to vest in accordance with the terms of the original award.
Selected employees participate in the Performance Share Plan (PSP). The
operation of the PSP is similar to the LTIP, but currently differs, for example,
in some performance measures and their relative weightings. As at March
2017, around 55,000 employees participate in one or more of Shell’s
global share plans and/or incentive plans, further supporting alignment with
shareholder interests.
Executive Directors’ retirement benefits are maintained in line with those of
the wider workforce in their base country. There are no special pension
arrangements exclusive to Executive Directors.
ILLUSTRATION OF POTENTIAL REMUNERATION OUTCOMES
The charts below represent estimates under three performance scenarios
(“Minimum”, “On-target”, and “Maximum”) of the potential remuneration
outcomes for each Executive Director resulting from the application of 2017
base salaries to awards expected to be made in 2017 in accordance with
the Policy.
Performance scenarios
SCENARIO OUTCOME
Minimum
Fixed remuneration includes 2017 base salaries,
2016 benefits (as reported in the single total figure of
remuneration table), with an estimate for the incoming
CFO, and a projection of 2017 pension for the CEO
and incoming CFO. There is no annual bonus or vesting
of the LTIP award.
On-target
Reflects fixed remuneration, plus on-target 2017 annual
bonus and vesting of LTIP award, as percentages of base
salary, as follows:
Annual
incentive
Long-term
incentive
CEO
150%
CFO
120%
340%
270%
Maximum Reflects fixed remuneration, plus maximum pay-out of
2017 annual bonus and vesting of 200% of original LTIP
award, as percentages of base salary, as follows:
Annual
incentive
Long-term
incentive
CEO
250%
CFO
240%
680%
540%
The majority of Executive Directors’ remuneration is delivered through
variable pay elements, which are conditional on the achievement of
stretching targets.
The scenario charts are based on future Policy award levels and are
combined with projected single total figures of remuneration. The pay
scenarios are forward-looking and only serve to illustrate the future Policy.
SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
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Directors’ Remuneration Policy Continued
For simplicity, the scenarios assume no share price movement and exclude
dividend accrual, for the portion of the bonus paid in shares and the LTIP,
although dividend accrual during the performance and holding period
applies. The scenarios are based on the current CEO (Ben van Beurden)
and incoming CFO (Jessica Uhl) roles.
CEO pay scenarios
CFO pay scenarios
n
o
i
l
l
i
m
€
16
14
12
10
8
6
4
2
0
9.2
55%
24%
21%
1.9
100%
15.7
64%
24%
12%
Minimum
On-target
Maximum
n
o
i
l
l
i
m
€
16
14
12
10
8
6
4
2
0
9.1
58%
26%
16%
55%5.3
50%
22%
28%
On-target
Maximum
1.5
100%
Minimum
Fixed remuneration
Annual incentive
Long-term incentive
Fixed remuneration
Annual incentive
Long-term incentive
NON-EXECUTIVE DIRECTORS
(cid:3)
Non-executive Directors’ remuneration policy table
Fee structure
Approach to setting fees
Other remuneration
Non-executive Directors (NEDs) receive a fixed
annual fee for their directorship. The size of the fee
will differ based on the position on the Board: Chair
of the Board fee or standard Non-executive Director
fee.
Additional annual fee(s) are payable to any director
who serves as Senior Independent Director, a Board
committee chair, or a Board committee member.
A NED receives either a chair or member fee for
each committee. This means that a chair of a
committee does not receive both fees.
The Chair’s fee is determined by
REMCO. The Board determines the
fees payable to NEDs. The maximum
aggregate annual fees will be within
the limit 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.
NEDs receive an additional fee for any Board
meeting involving intercontinental travel – except for
one meeting a year held in a location other than The
Hague.
Business expenses incurred in respect of the performance of their
duties as a NED will be paid or reimbursed by Shell. Such
expenses could include transport between home and office and
occasional business-required spouse travel. Where required, the
Chair is offered Shell-provided accommodation in The Hague.
REMCO has the discretion to offer other benefits to the Chair as
appropriate to their circumstances. Where business expenses or
benefits create a personal tax liability to the director, Shell may
cover the associated tax.
The Chair 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 do not accrue any retirement benefits as a result of their non-
executive directorships with Shell.
NEDs are encouraged to hold shares with a value equivalent to
100% of their fixed annual fee and maintain that holding during their
tenure.
MALUS AND CLAWBACK
Variable pay awards may be made subject to adjustment events. At the
discretion of REMCO, such an award may be adjusted before delivery
(malus) or reclaimed after delivery (clawback) if an adjustment event occurs.
Adjustment events will be specified in award documentation and it is
intended that they will, for example, relate to restatement of financial results
due to: non-compliance with a financial reporting requirement; or
misconduct by an Executive Director or misconduct through their direction or
non-direction. REMCO retains the right to alter the list of adjustment events
in respect of future awards.
In addition, REMCO will retain discretion in assuring itself that there is
satisfactory underlying performance before releasing any variable pay to
Executive Directors and may withhold all or some of the bonus or shares
awarded if it considers that the underlying performance (financial,
environmental, safety or other) of Shell is inadequate.
(cid:3)
(cid:3)
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RECRUITMENT
EXECUTIVE DIRECTORS
REMCO determines the remuneration package for new Executive Director
appointments. These appointments may involve external or internal
recruitment or reflect a change in role of a current Executive Director.
When determining remuneration packages for new Executive Directors,
REMCO will seek a balanced outcome which allows Shell to:
(cid:131) take into account the individual’s current remuneration package and
other contractual entitlements;
(cid:131) seek a competitive pay position relative to our comparator group,
without overpaying;
(cid:131) encourage relocation if required; and
(cid:131) honour entitlements (for example, variable remuneration) of internal
candidates before their promotion to the Board.
(cid:131) REMCO will follow the approach set out in the table below when
determining the remuneration package for a new Executive Director.
(cid:131) attract and motivate candidates of the right quality;
Remuneration package
Component
Approach
Maximum
Ongoing remuneration
The salary, benefits, annual bonus, long-term incentives and pension benefits will be
positioned and delivered within the framework of the Executive Directors’
remuneration policy.
As stated in the “Executive Directors’
remuneration policy table”.
Compensation for the forfeiture of
any awards under variable
remuneration arrangements
Replacement of forfeited
entitlements other than any
awards under variable
remuneration arrangements
To facilitate external recruitment, one-off compensation in consideration for forfeited
awards under variable remuneration arrangements entered into with a previous employer
may be required. REMCO will use its judgement to determine the appropriate level of
compensation by matching the value of any lost awards under variable remuneration
arrangements with the candidate’s previous employer. This compensation may take the
form of a one-off cash payment or an additional award under the LTIP. The compensation
can alternatively be based on a newly created long-term incentive plan arrangement
where the only participant is the new director.
There may also be a need to compensate a new Executive Director in respect of
forfeited entitlements other than any awards under variable remuneration
arrangements. This could include, for example, pension or contractual entitlements,
or other benefits. On recruitment, these entitlements may be replicated within the
Executive Directors’ remuneration policy or valued by REMCO and compensated in
cash.
In cases of internal promotion to the Board, any commitments made which cannot
be effectively replaced within the Executive Directors’ remuneration policy may, at
REMCO’s discretion, continue to be honoured.
Exceptional recruitment incentive Apart from the ongoing annual remuneration package and any compensation in
respect of the replacement of forfeited entitlements, there may be circumstances in
which REMCO needs to offer a one-off recruitment incentive in the form of cash or
shares to ensure the right external candidate is attracted. REMCO recognises the
importance of internal succession planning but it must also have the ability to
compete for talent with other global companies. The necessity and level of this
incentive will depend on the individual’s circumstances.
An amount equal to the value of the
forfeited variable remuneration awards,
as assessed by REMCO. Consideration
will be given to appropriate
performance conditions, performance
periods and clawback arrangements.
An amount equal to the value of the
forfeited entitlements, as assessed by
REMCO.
One times the LTIP award level, subject
to the limits set out in the “Executive
Directors’ remuneration policy table”.
(cid:3)
NON-EXECUTIVE DIRECTORS
REMCO’s approach to setting the remuneration package for NEDs is to
offer fee levels and specific benefits (where appropriate) in line with the
“Non-executive Directors’ remuneration policy table” and subject to the
Articles of Association. NEDs are not offered variable remuneration or
retention awards.
When determining the benefits for a new Chair, the individual circumstances
of the future Chair will be taken into account.
DIRECTORS’ EMPLOYMENT ARRANGEMENTS AND
LETTERS OF APPOINTMENT
Executive Directors are employed for an indefinite period. Executive
Directors with the Netherlands as their base country will be employed on
the basis of a contract of employment governed by Dutch employment
law. For Executive Directors with a base country other than the
Netherlands, REMCO will determine their employment arrangements based
on a number of considerations, including Dutch immigration requirements
and base country retirement benefits. NEDs, including the Chair, have
letters of appointment. Executive Directors’ employment arrangements and
NEDs’ letters of appointment are available for inspection at the AGM or on
request. For further details on appointment and re-appointment of Directors,
see the “Directors’ Report” on page 93.
SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
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Directors’ Remuneration Policy Continued
END OF EMPLOYMENT
EXECUTIVE DIRECTORS
Notice period
Employment arrangements of Executive Directors can generally end by
either the employee or the employer providing one month’s notice, or the
applicable statutory notice period. For example, under Dutch law, the
statutory notice period for the employer will vary in line with the length of
service, with the maximum being four months’ notice. Under Dutch law,
termination payments are not linked to the contract’s notice period.
The Netherlands statutory end-of-employment compensation
With effect from July 1, 2015, new employment legislation in the
Netherlands introduced statutory end-of-employment compensation. Under
this legislation, every termination (other than following retirement or for
cause) of a Dutch employment contract that has continued for a minimum of
two years will give rise to an obligation to pay the departing employee
transition compensation (“transitievergoeding”). The statutory compensation
is capped at one times the annual salary, which is deemed to include
variable pay such as the annual bonus. Executive Directors are expected
not to claim transition compensation or any other applicable statutory
compensation over and above the agreed compensation for loss of office
as set out in the “End of employment” table below.
Outstanding entitlements
In cases of resignation or dismissal for cause, fixed remuneration (base
salary, benefits, and employer pension contributions) will cease on the last
day of employment, variable remuneration elements will generally lapse
and the Executive Director is not eligible for compensation for loss of office.
The information below generally applies to termination of employment by
Shell giving notice, by mutual agreement, or in situations where the
employment terminates because of retirement with Shell consent at a date
other than the normal retirement date, redundancy or in other similar
circumstances at REMCO’s discretion.
End of employment
Provision
Compensation for loss of office For Executive Directors appointed prior to 2011, REMCO may offer a termination payment of up to one times annual pay (base
Policy
salary plus target bonus).
For Executive Directors appointed between January 1, 2011 and December 31, 2016, employment contracts include a cap on
termination payments of one times annual pay (base salary plus target bonus). Delivery of compensation is mitigated by a
contractual obligation for the Executive Director to seek alternative employment and the Company’s ability to implement phased
payment terms.
For Executive Directors appointed on or after January 1, 2017, REMCO may offer a termination payment of up to one times base
salary (target bonus will not be included). However, REMCO may be obligated to pay statutory compensation over and above
the compensation for loss of office to a departing Executive Director who asserts a statutory claim thereto. Delivery of
compensation is mitigated by a contractual obligation for the Executive Director to seek alternative employment and the
Company’s ability to implement phased payment terms.
The reimbursement of standard end-of-employment benefits such as repatriation costs and outplacement support may also be
included, as deemed reasonable by REMCO.
REMCO may adjust the termination payment for any situation where a full payment is inappropriate, taking into consideration
applicable law, corporate governance provisions and the best interests of the Company and shareholders as a whole.
Annual bonus
Any annual bonus in the year of departure is prorated based on service. Depending on the timing of the departure, REMCO may
consider the latest scorecard position or defer payment until the full-year scorecard result is known.
LTIP
DBP shares and bonus delivered in shares represent the bonus which a participant has already earned and carry no further
performance conditions; therefore, these shares will be unrestricted at the conclusion of the normal deferral or holding period
respectively and no proration will apply.
Outstanding awards are prorated on a monthly basis, by reference to the Executive Director’s service within the performance
period. They will generally survive the end of employment and will remain subject to the same vesting performance conditions, and
malus and clawback provisions, as if the Executive Director had remained in employment. The three-year holding period will also
remain in force for any awards made on or after January 1, 2017. If the participant dies before the end of the performance period,
the award will vest at the target level on the date of death. In case of death after the end of the performance period, the award
will vest as described in this Policy.
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ADDITIONAL POLICY STATEMENT
REMCO reserves the right to make payments outside the Policy in limited
exceptional circumstances, such as for regulatory, tax or administrative
purposes or to take account of a change in legislation or exchange
controls, and only where REMCO considers such payments are necessary
to give effect to the intent of the Policy.
Signed on behalf of the Board
/s/ Linda M. Szymanski
Linda M. Szymanski
Company Secretary
March 13, 2019
NON-EXECUTIVE DIRECTORS
No payments for loss of office will be made to NEDs.
CONSIDERATION OF OVERALL PAY AND
EMPLOYMENT CONDITIONS
When setting the Policy, no specific employee groups were consulted.
However, Shell seeks to promote and maintain good relations with
employee representative bodies as part of its employee engagement
strategy, and consults on matters affecting employees and business
performance as required.
When determining Executive Directors’ remuneration structure and
outcomes, REMCO reviews a set of information, including relevant
reference points and trends, which includes internal data on employee
remuneration (for example, employee relations matters in respect of
remuneration and average salary increases applying in the Netherlands,
UK and the USA). During the Policy review, pay and employment conditions
of the wider Shell employee population were taken into account by
adhering to the same performance, rewards and benefits philosophy for the
Executive Directors, as well as overall benchmarking principles. Furthermore,
any potential differences from other employees (see “Differences for
Executive Directors from other employees”) were taken into account when
providing REMCO with advice in the formation of this Policy.
Dialogue between management and staff is important, with the annual Shell
People Survey being one of the principal means of gathering employee
views on a range of matters. The Shell People Survey includes questions
inviting employees’ views on their pay and benefit arrangements. The
Company also encourages share ownership among employees, and many
are shareholders who are able to participate in the vote on the Policy at the
AGM.
REMCO is kept informed by the CEO, the Chief Human Resources &
Corporate Officer and the Executive Vice President Remuneration,
Benefits & Services on the bonus scorecard and any relevant remuneration
matters affecting Senior Management and other senior executives,
extending to multiple levels below the Board.
CONSIDERATION OF SHAREHOLDER VIEWS
REMCO engages with major shareholders on a regular basis throughout
the year and this allows it to hear views on Shell’s remuneration approach
and test proposals when developing or evolving the Policy. Recent
examples of REMCO responding to shareholder views include introducing
greenhouse gas management to variable pay and setting FCF as an
absolute measure in the LTIP performance conditions.
REMCO will review the Policy regularly to ensure it continues to reinforce
Shell’s long-term strategy and remains closely aligned with shareholders’
interests.
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SHELL ANNUAL REPORT AND FORM 20-F 2018 GOVERNANCE
147
Financial Statements and Supplements
Independent Auditor’s Report to the members of Royal Dutch Shell plc
REPORT ON THE FINANCIAL STATEMENTS
1. OUR OPINIONS AND CONCLUSIONS ARISING FROM OUR AUDIT
1.1 Our opinion on the financial statements
In our opinion, the financial statements of Royal Dutch Shell plc (the Parent Company) and its subsidiaries (collectively, Shell):
(cid:131) give a true and fair view of the state of Shell’s and of the Parent Company’s affairs as at December 31, 2018, and of Shell’s and the Parent Company’s
income for the year then ended;
(cid:131) have been properly prepared both in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and
IFRS as issued by the International Accounting Standards Board (IASB); and
(cid:131) have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards Shell’s financial statements, Article 4 of the IAS
Regulation.
1.2 Our opinion on other matters prescribed by the Companies Act 2006
In our opinion:
(cid:131) the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
(cid:131) based on the work undertaken in the course of our audit:
(cid:131)
(cid:131)
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
1.3 Matters on which we are required to report by exception
Our confirmations that we have nothing to report by exception, in relation to those matters where we are required so to report, are set out in sections 8 and
9 below.
1.4 What we have audited
We have audited Royal Dutch Shell plc’s financial statements for the year ended December 31, 2018, which are included in the Annual Report and Form
20-F (the Annual Report) and comprise:
Shell
Parent Company
Consolidated Balance Sheet as at December 31, 2018
Balance Sheet as at December 31, 2018
Consolidated Statement of Income for the year then ended
Statement of Income for the year then ended
Consolidated Statement of Comprehensive Income for the year then ended
Statement of Comprehensive Income for the year then ended
Consolidated Statement of Changes in Equity for the year then ended
Statement of Changes in Equity for the year then ended
Consolidated Statement of Cash Flows for the year then ended
Statement of Cash Flows for the year then ended
Related Notes 1 to 28 to the Consolidated Financial Statements, including a
Related Notes 1 to 14 to the Parent Company Financial Statements
summary of significant accounting policies
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and both IFRS as adopted by the
EU and IFRS as issued by the IASB.
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BASIS FOR OUR OPINION
2.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISA (UK)) and applicable law. Our responsibilities under those
standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report below. We are independent of
Shell and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the
Financial Reporting Council’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained during the planning, execution and conclusion of our audit is sufficient and appropriate to provide a
suitable basis for our opinion.
3. OUR CONCLUSIONS RELATING TO PRINICIPAL RISKS, GOING CONCERN AND VIABILITY STATEMENT
We have nothing to report in respect of the following information in the Annual Report, in relation to which ISA (UK) requires us to report to you whether we
have anything material to add or draw attention to:
(cid:131) the disclosures in the Annual Report set out on pages 15 to 20 that describe the principal risks and cross refer to where there are explanations of how the
risks are being managed or mitigated;
(cid:131) the Directors’ confirmation set out on page 104 in the Annual Report that they have carried out a robust assessment of the principal risks facing the entity,
including those that would threaten its business model, future performance, solvency or liquidity;
(cid:131) the Directors’ statement set out on pages 91 to 94 in the financial statements about whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at
least twelve months from the date of approval of the financial statements;
(cid:131) whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit; or
(cid:131) the Directors’ explanation set out on pages 91 to 94 in the Annual Report as to how they have assessed the prospects of the entity, over what period
they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the
entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
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149
Independent Auditor’s Report to the members of Royal Dutch Shell plc Continued
4. OVERVIEW OF OUR AUDIT APPROACH
UPDATING OUR
UNDERSTANDING
OF SHELL’S
BUSINESS AND ITS
ENVIRONMENT
Our global audit team has deep industry experience through working for many years on the audits of large integrated international oil and gas
companies. Our audit planning started with updating our view on external market factors, for example geopolitical risk, the potential impact of
climate change and energy transition, commodity price risk and major trends in the industry. Building on this knowledge, we updated our
understanding of Shell’s strategy and business model. This was achieved through enquiry, analytical procedures, observation and visiting several of
Shell’s operating units, as well as the review of external data. This understanding of Shell’s business and its environment informed our risk assessment
procedures.
IDENTIFYING AND
ASSESSING THE RISKS
OF MATERIAL
MISSTATEMENT
DETERMINATION OF
MATERIALITY
(SECTION 5)
DETERMINING THE
SCOPE OF OUR AUDIT
(SECTION 6)
The results of our 2017 audit, together with our risk assessment procedures, provide a renewed basis for the identification and assessment of risks
of material misstatement for our 2018 audit. As a result, we made the following changes to our assessment of risks requiring special audit attention:
The estimation of oil and gas reserves, including reserves used in the calculation of depreciation, depletion and amortisation (DD&A),
impairment testing and decommissioning and restoration provisions: We remained of the view that there could be a material error as a result
of the inappropriate estimation of oil and gas reserves, including reserves used in the calculation of DD&A and impairment testing; however,
we have refined the description of the significant risk. Having established the base and opening position in our 2016 and 2017 audits, we
have changed the emphasis of the risk of misstatement to focus the risk on specific in-year significant movements, such as initial recognition of
proved reserves on Final Investment Decisions (FID) or changes in development / economics / drilling, licence renewals or assumed renewals
and other unusual changes that could have a material impact.
The recoverable amount of exploration and production assets, and investments in joint ventures and associates in Upstream and
Integrated Gas segments: The likelihood of the risk of material impairments because of lower oil and gas prices reduced as the oil and gas
price outlook was more positive than in 2016 and 2017. Also, the company demonstrated that the asset carrying values were supported in a
lower price environment. We did not consider that there was a significant risk of a material misstatement in assessing the recoverable amount of
assets because of an overly optimistic price outlook.
Decommissioning and restoration (D&R) provisions: Based on the results of our 2017 audit procedures and the oil price outlook, we did not
expect the cessation of production to be accelerated significantly such that it would impact the estimation of the discounted D&R provision. We
no longer believe there is a high likelihood of a material misstatement in the D&R provisions.
Accounting for assets under Shell’s disposal programme: Our focus in 2017 was on the Canadian oil sands and Motiva transactions. We did
not anticipate disposals in 2018 with a similar level of complexity or size, therefore we no longer believe that a risk exists that requires special
audit attention.
We continue to place special audit attention on: (1) the risk of unrealised trading gains and losses being recognised because of
unauthorised trading activity or deliberate misstatement of the group’s trading position; and (2) the risk of fraud through management
override by way of posting inappropriate journal entries in revenue.
When we established our audit strategy, we determined overall materiality for the financial statements. We considered which earnings, activity or
capital-based measure aligns best with the expectations of those charged with governance at Shell and users of Shell’s financial statements. In doing
so, we applied a ‘reasonable investor perspective’, which reflected our understanding of the common financial information needs of the members
of Shell as a group. We also made judgements about the size of misstatements that would be considered material.
We have refined our approach to calculating overall materiality for 2018. The levels set are as follows:
Planning Materiality: $1,000 million (2017: $800 million);
Performance Materiality: $750 million (2017: $400 million); and
Reporting differences threshold: $50 million (2017: $40 million).
The increase in our planning materiality is primarily driven by higher oil realisations, resulting in higher CCS earnings. The increase in performance
materiality from 50% of planning materiality in 2017 to 75% of planning materiality in 2018 is mainly due to the enhancements of Shell’s system of IT
general controls and our assessment of the likely level of undetected misstatements.
Our assessment of overall materiality for Shell is $1,000 million, which is derived from an average of Shell’s earnings for 2016 and 2017 and on the
estimated result for 2018 on a current cost of supplies basis (CCS earnings), excluding identified items reported by Shell in its quarterly results
announcements, and adjusted for an effective tax rate. We reassessed materiality based on Shell’s actual results for 2018.
CCS earnings by segment are disclosed in Note 4 to the Consolidated Financial Statements.
Prior year comparison: In 2017, the overall materiality for Shell was derived from a three year average of Shell’s CCS earnings excluding identified
items, and adjusted for an effective tax rate, including a forward-looking element.
Our scope is tailored to the circumstances of our audit of Shell and is influenced by our determination of materiality and our assessed risks of material
misstatement.
We performed audits of the complete financial information of 19 operating units and specific audit procedures on an additional 33 operating units. In
selecting the operating units to be brought into audit scope, we assessed the risks of material misstatement of the financial statements based on size,
complexity and risk, including the risk of fraud, and designed and implemented appropriate responses to the assessed risks. We performed
procedures at a further 38 operating units that were specified by the group audit team in response to specific risk factors.
In addition, we performed other group audit procedures at the consolidated level. These procedures are included in Section 6.
We have reassessed our audit scope for 2018. We have adapted our scoping to realise the benefits of the further migration and standardisation of
processes. Our scoping also reflects our reassessment of significant risks. The main changes to our 2018 audit scope are:
reduction of the number of Downstream components due to lower audit risk;
increase in group led centralised procedures;
the integration of the legacy BG Group components and systems; and
reduction of components due to Shell’s disposal programme.
We have identified the following key audit matters that, in our professional judgement, had the greatest effect on our overall audit strategy, the
allocation of resources in the audit and in directing the global audit team’s efforts:
the estimation of oil and gas reserves, including reserves used in the calculation of depreciation, depletion and amortisation;
the recoverable amounts of exploration and production assets, and investments in joint ventures and associates in the
Upstream and Integrated Gas segments;
IDENTIFICATION OF
KEY AUDIT MATTERS
(SECTION 7)
recognition and measurement of deferred tax assets;
revenue recognition relating to unrealised trading gains and losses;
enhancements to Shell’s system of IT general controls; and
the adoption of the new accounting standard ‘IFRS 16 Leases’.
In 2017, our auditor’s report included key audit matters relating to the estimation of decommissioning and restoration provisions, accounting for assets
under Shell’s disposal programme and the impact of the US tax reform. In the current year, we have added the implementation of the new accounting
standard ‘IFRS 16 Leases’.
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5. OUR APPLICATION OF MATERIALITY
The scope of our work is influenced by our view of materiality. As we develop our audit strategy, we determine materiality at the overall level and at the
individual account level (referred to as our ‘performance materiality’ (see below)).
Overall materiality
$1,000 million
Performance materiality
$750 million
Audit Committee
reporting threshold
$50 million
Overall materiality
What we mean
Level set
Our basis for determining
materiality for 2018
We apply the concept of materiality both in planning and performing our audit, as well as in evaluating the effect of identified
misstatements (including omissions) on our audit and in forming our audit opinion. For the purposes of determining whether or not
Shell’s financial statements are free from material misstatement (whether due to fraud or error), we define materiality as the magnitude
of misstatements that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users
of these financial statements. We are required to establish a materiality level for the financial statements as a whole that is appropriate
in the light of Shell’s particular circumstances.
Our overall materiality provides a basis for identifying and assessing the risk of material misstatement and determining the nature and
extent of audit procedures. Our evaluation of materiality requires professional judgement and necessarily takes into account qualitative
as well as quantitative considerations. It also considers our assessment of the expectations of those charged with governance at Shell
and users of Shell’s financial statements. As required by auditing standards, we reassess materiality throughout the duration of the
audit.
Group materiality
We set our preliminary overall materiality for Shell’s Consolidated Financial Statements at $1,000 million (2017: $800 million). We
kept this under review throughout the year and reassessed the appropriateness of our original assessment in the light of Shell’s results
and external market conditions. Based on this review, we did not find it necessary to revise our level of overall materiality.
Parent Company materiality
We determined materiality for the Parent Company to be $2.6 billion (2017: $2.5 billion), which is 1% (2017: 1%) of equity. Equity is an
appropriate basis to determine materiality for an investment holding company and 1% is a typical percentage of equity to use to
determine materiality. Any balances in the parent company financial statements that were relevant to our audit of the consolidated
group were audited using an allocation of group performance materiality.
Our assessment of overall materiality is $1,000 million. This is derived from an average of Shell’s earnings for 2016 and 2017 and on
the estimated result for 2018 on a current cost of supplies basis (CCS earnings), excluding identified items reported by Shell in its
quarterly results announcements, and adjusted for an effective tax rate. The $1,000 million was determined by applying a percentage
to the calculated average CCS earnings. When using an earnings-related measure to determine overall materiality, the norm is to
apply a benchmark percentage of 5% of the pre-tax measure. In setting overall materiality, we applied a more prudent rate that was
below the 5% benchmark. Our overall materiality is less than 3% of the 2018 income before taxation.
In determining materiality, auditing standards require us to use benchmark measures, such as pre-tax income, gross profit and total
revenue. Nevertheless, we have to exercise considerable judgement, including which earnings, activity or capital based measure
aligns best with the expectations of users of Shell’s financial statements and the Audit Committee. In determining the most appropriate
benchmark on which to base our materiality assessment, we have applied a ‘reasonable investor perspective’. This reflects our
understanding of the common financial information needs of Shell’s investors as a group, which we believe is CCS earnings, excluding
identified items. Shell’s quarterly results announcements feature CCS earnings excluding identified items as the primary measure for
earnings.
CCS earnings excluding identified items removes both the effects of changes in oil price on inventory carrying amounts and items
disclosed as identified items that can significantly distort Shell’s results in any one particular year. In our view, the use of CCS earnings
excluding identified items allows investors to understand how management has performed despite the commodity price environment,
as opposed to because of it. Furthermore, analyst forecasts predominantly feature CCS earnings, excluding identified items, as the
basis for earnings. The analyst consensus data supports our judgement that CCS earnings, excluding identified items, is the key
indicator of performance from a reasonable investor perspective.
The identified items, reported by Shell in its quarterly results announcements, were: net divestment gains ($3.3 billion), net impairments ($1.0
billion charge), fair value accounting of commodity derivatives and certain gas contracts ($1.1 billion gain), redundancy and restructuring
($0.2 billion charge), and the aggregate of other individually small items (net $0.1 billion charge).
The identified items excluded in 2017 were: net divestment gains ($1.6 billion), impairments ($3.0 billion charge), fair value accounting of
commodity derivatives and certain gas contracts ($0.3 billion loss), redundancy and restructuring ($0.4 billion charge), impact of exchange
rate movements on tax balances ($0.6 billion gain), impact arising from the US tax reform legislation ($2.0 billion charge) and the
aggregate of other individually small items (net $0.2 billion charge). On the basis of our analysis of these factors, we concluded that we
should focus on Shell’s CCS earnings, excluding identified items reported by Shell in its quarterly results announcements, and adjusted for
an effective tax rate. In 2017, we included a forward-looking element in the calculation of average earnings due to the low oil price
environment. In the current year, however, we have not used a forward-looking view, as the oil price environment is more stable.
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Performance materiality
What we mean
Level set
Having established overall materiality, we determined ‘performance materiality’, which represents our tolerance for misstatement in an
individual account. It is calculated as a percentage of overall materiality in order to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality of $1,000 million for Shell’s
financial statements as a whole.
Once we determined our audit scope, we then assigned performance materiality to our various in-scope operating units. Our in-scope
operating unit audit teams used this assigned performance materiality in performing their group audit procedures. The performance
materiality allocation is dependent on the size of the operating unit, measured by its contribution of earnings to Shell, or other
appropriate metric, and the risk associated with the operating unit.
On the basis of our risk assessment, our judgement was that performance materiality should be 75% (2017: 50%) of our overall
materiality, namely $750 million (2017: $400 million). In assessing the appropriate level, we consider the nature, the number and
impact of the audit differences identified in 2017 as well as the overall control environment. The increase in performance materiality is
mainly due to the enhancements of Shell’s system of IT general controls and our assessment of the likely level of undetected
misstatements.
In 2018, the range of performance materiality allocated to operating units was $113 million to $375 million (2017: $40 million to $260
million). This is set out in more detail in section 6 below.
Audit difference reporting threshold
(cid:3)
What we mean
This is the amount below which identified misstatements are considered to be clearly trivial.
The threshold is the level above which we collate and report audit differences to the Audit Committee. We also report differences
below that threshold that, in our view, warrant reporting on qualitative grounds. We evaluate any uncorrected misstatements against
both the quantitative measures of materiality discussed above and in the light of other relevant qualitative considerations in forming our
opinion.
Level set
We agreed with the Audit Committee that we would report to the Committee all audit differences more than $50 million (2017: $40
million), as well as differences below that threshold that, in our view, warrant reporting on qualitative grounds.
6. OUR SCOPE OF THE AUDIT OF SHELL’S FINANCIAL STATEMENTS
What we mean
We are required to establish an overall audit strategy that sets the scope, timing and direction of our audit, and that guides the
development of our audit plan. Audit scope comprises the physical locations, operating units, activities and processes to be audited
that, in aggregate, are expected to provide sufficient coverage of the financial statements for us to express an audit opinion.
Criteria for determining our
audit scope
Our assessment of audit risk and our evaluation of materiality determined our audit scope for each operating unit within Shell which,
when taken together, enabled us to form an opinion on the financial statements under ISA (UK). Our audit effort was focused towards
higher risk areas, such as management judgements and on operating units that are considered significant based upon size, complexity
or risk.
The factors that we considered when assessing the scope of the Shell audit, and the level of work to be performed at the operating
units that are in scope for group reporting purposes, included the following:
(cid:131)
the financial significance of an operating unit to Shell’s earnings, total assets or total liabilities, including consideration of the
financial significance of specific account balances or transactions;
the significance of specific risks relating to an operating unit: history of unusual or complex transactions, identification of significant
audit issues or the potential for, or a history of, material misstatements;
the effectiveness of the control environment and monitoring activities, including entity-level controls;
our assessment of locations that carry a higher than normal audit risk in relation to fraud, bribery or corruption; and;
the findings, observations and audit differences that we noted as a result of our 2017 audit.(cid:3)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
Selection of in-scope
operating units
We reassessed our audit scope for 2018 compared to 2017. In particular, we considered Shell’s continued enhancement of their
finance function and processes, which included the further standardisation and migration of processes to their business service centres
(BSCs). This enabled us further to centralise our audit procedures and refocus our scope, reducing the audit involvement at a
component level and the number of operating units in our audit scope. Also, our revised scope reflects our view of lower audit risk
within Downstream, an increase in centralised audit procedures, the integration of legacy BG Group components and systems, and
Shell’s disposal programme. We kept our audit scope under review throughout the year to reflect changes in Shell’s underlying
business and risks; however, no significant changes were required.
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Full and specific scope
We selected 52 operating units (2017: 67) across 11 countries (2017: 12) based on their size or risk characteristics. We performed full
scope audits of the complete financial information of 19 operating units (2017: 25). For 33 operating units (2017: 42) we performed
specific scope audit procedures on individual account balances within the operating unit based on their size and risk profiles.
Specified
In addition to the 52 operating units (2017: 67) discussed above, we selected a further 38 operating units (2017: 47) where we
performed procedures at the operating unit level that were specified by the group audit team in response to specific risk factors and in
order to ensure that, at the overall group level, we reduced and appropriately covered the residual risk of error.
In addition, specified procedures were performed at the group level on a further 62 operating units. These procedures included, the
testing of Shell’s centralised activities addressing the implications of significant and complex accounting matters across all operating
units, our centralised revenue and accounts receivable analytics programme, testing controls for the revenue and purchase to pay
processes, including IT general and IT application controls, procedures over investments in securities, segment level impairment reviews,
procedures over the forecasts as they relate to deferred tax assets recoverability and review of pension scheme assumptions.
Group wide procedures
For the remaining 637 operating units (2017: 688) we performed supplementary audit procedures, in relation to Shell’s centralised
group accounting and reporting processes. These included, but were not limited to, Shell’s activities addressing the appropriate
elimination of intercompany balances and, the completeness of provisions for litigation and other claims. We performed testing of both
manual and consolidation journal entries through the year, homogeneous processes and controls at the BSCs, and testing of group
wide IT systems. We performed disaggregated analytical reviews on each financial statement line item and also tested Shell’s
analytical procedures performed at a group, segment and function level.
In addition to this testing, we applied our Risk Scan analytics techniques, which consolidate internal and external data to identify
potential risks of material misstatement. This allowed us to risk rate each of the 637 operating units whereby we identified 155
operating units where we believed that it was appropriate to carry out targeted testing. This included the audit of manual journal
entries and/or the testing of payments to third party vendors to ensure that these had been approved in line with Shell’s policies and
had an appropriate business rationale.
Our coverage by full and specific, specified and group wide procedures is depicted below. The summary is by income statement
accounts and balance sheet sub-totals. The dollar amounts shown for each line item represent 100% of the specific account balance.
The 2017 comparative data is shown below on a basis consistent with the 2017 audit opinion. Overall, our full, specific and specified
procedures accounted for 72% of Shell’s absolute CCS earnings, excluding identified items reported by Shell in its quarterly results
announcements and adjusted for an effective tax rate. The remaining CCS earnings were covered by group wide procedures.
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Income Statement coverage
Revenue
Purchases
0
50
100
150
200
250
300
350
400
USD Billions
2018 - Full and Specific Scope
2018 - Specified Procedures
2018 - Covered by Group Wide Procedures
2017 - Full and Specific Scope
2017 - Specified Procedures
2017 - Covered by Group Wide Procedures
Income Statement coverage
Profit from JVA
Interest and
Other Income
Expenses
Depreciation and
Amortisation
Interest Expense
0
5
10
15
20
25
30
35
40
45
USD Billions
2018 - Full and Specific Scope
2018 - Specified Procedures
2018 - Covered by Group Wide Procedures
2017 - Full and Specific Scope
2017 - Specified Procedures
2017 - Covered by Group Wide Procedures
Balance Sheet coverage
Total Current Assets
Total Non-Current Assets
Total Current Liabilities
Total Non-Current Liabilities
0
50
100
150
200
250
300
350
USD Billions
2018 - Full and Specific Scope
2018 - Specified Procedures
2018 - Covered by Group Wide Procedures
2017 - Full and Specific Scope
2017 - Specified Procedures
2017 - Covered by Group Wide Procedures
Allocation of performance
materiality to the in-scope
operating units
The level of materiality that we applied in undertaking our audit work at the operating unit level was determined by applying a
percentage of our total performance materiality. This percentage is based on the significance of the operating unit relative to Shell as
a whole and our assessment of the risk of material misstatement at that operating unit. In 2018 the range of materiality applied at the
operating unit level was $113 million to $375 million (2017: $40 million to $260 million). The operating units selected, together with
the ranges of materiality applied, were:
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Full scope Segments
Integrated Gas
Upstream
Downstream
Corporate
Full scope Function
Trading and supply
Total full scope
Specific scope Segments
Upstream
Downstream
Corporate
Specific scope Function
Trading and supply
Total specific scope
Total full and specific scope
Countries
Australia, Qatar
Brazil, Nigeria, USA
Germany, USA
UK
UK, USA, UAE, Barbados, Singapore,
the Netherlands
Canada, Kazakhstan, Malaysia, UK
Singapore, USA
The Netherlands, Singapore, UK, USA
UK, USA, UAE, Canada, Singapore
No. of operating
Range of materiality
units
applied $ million
150-225
150-225
150-225
150
281-375
150
150
150
113-150
4
4
3
1
7
19
5
6
11
11
33
52
Integrated group team
structure
Involvement with local EY
teams
The overall audit strategy is determined by the Senior Statutory Auditor, Allister Wilson. During 2018 he visited five countries to meet
with local Ernst & Young (EY) teams and Shell local management (in some cases more than once). The Senior Statutory Auditor is
supported by 26 segment and function partners and associate partners, who are based in the Netherlands and the UK. They are
responsible for directing, supervising and reviewing the work of EY global network firms operating under our instruction (local EY
teams) to evaluate whether:
(cid:131) the work was performed and documented to a sufficiently high standard;
(cid:131) the local EY audit team demonstrated that they had challenged management sufficiently and had executed their audit procedures
with a sufficient level of scepticism; and
(cid:131) there is sufficient appropriate audit evidence to support the conclusions reached.(cid:3)
Shell has centralised processes and controls over key areas within its BSCs. We have a central team who provide direct oversight,
review, and coordination of our BSC audit teams. Our teams performed centralised testing in the BSCs for certain accounts, including
revenue, cash and payroll. In establishing our overall approach to the group audit, we determined the type of work that needed to be
undertaken at each of the operating units or BSCs by the group audit team or by auditors from other local EY teams.
The group audit team performed procedures directly on 62 of the in-scope operating units. For the operating units where the work was
performed by local EY auditors, we determined the appropriate level of involvement of the group audit team to enable us to conclude
that sufficient appropriate audit evidence had been obtained.
The group audit team interacted regularly with the local EY teams during each stage of the audit, were responsible for the scope and
direction of the audit process and reviewed key working papers. This, together with the additional procedures performed at the group
level, gave us sufficient appropriate audit evidence for our opinion on Shell’s Consolidated Financial Statements. We maintained
continuous dialogue with our local EY teams in addition to holding formal meetings quarterly to ensure that we were fully aware of
their progress and results of their audit procedures.
Our local EY partners attended our global team audit planning meeting in November 2017. Also, during 2018, the Senior Statutory
Auditor and other group audit partners and directors visited operating units across seven countries and each of Shell’s BSCs. These
visits included discussing the audit approach with the local EY teams and any issues arising from their work, meetings with local
management, attending planning and closing meetings, and reviewing key audit working papers on risk areas. The visits also promote
deeper engagement with our local EY audit teams, ensuring that a consistent and cohesive audit approach is adopted that drives a
high-quality audit.
Countries visited
Australia, Malaysia, UK, Brazil,
the Netherlands, USA, Nigeria
BSCs
India, Malaysia, Poland, Philippines
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7. OUR ASSESSMENT OF KEY AUDIT MATTERS
As Shell’s auditors, we are required to determine – from the matters communicated by us to the Audit Committee during the year – those matters that
required significant attention from us in performing our audit of Shell’s 2018 Consolidated Financial Statements. In making this determination we took the
following into account:
(cid:131) the risks that we believed were significant to our audit and therefore required special audit consideration;
(cid:131) areas of higher assessed risk of material misstatement that influenced our audit focus;
(cid:131) significant audit judgements relating to areas in Shell’s Consolidated Financial Statements that involved significant management judgement, including
accounting estimates that we identified as having high estimation uncertainty;
(cid:131) the effect on our audit of significant events or transactions that occurred during the period; and
(cid:131) those assessed risks of material misstatement that had the greatest effect on the allocation of resources in the audit and directing the efforts of the audit
team.
On this basis, we have identified the following key audit matters that, in our professional judgement, were of most significance in our audit of Shell’s 2018
Consolidated Financial Statements. These matters included those that had the greatest effect on: the overall strategy; the allocation of resources in the
audit; and directing the efforts of the audit team. The key audit matters have been addressed in the context of the audit of Shell’s Consolidated Financial
Statements and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
The table below describes the key audit matters, a summary of our procedures carried out and our key observations that we communicated to the AC.
.(cid:3)
(cid:3)
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(cid:3)
Our key audit matters
Risk
Our response to the risk
Key observations communicated
to the Shell Audit Committee
The estimation of oil and gas reserves, including reserves used in the calculation of depreciation, depletion and amortisation (DD&A)
In January 2019 we communicated
to the AC that, based on our testing
performed, we had not identified any
significant errors in the oil and gas
reserves estimates and concluded
that the inputs and assumptions used
to estimate proved reserves were
reasonable.
At December 31, 2018, Shell reported 11,578 million
barrels of oil equivalent of proved developed and
undeveloped reserves. (2017: 12,233 million barrels of oil
equivalent).
The estimation of oil and gas reserves and resources is a
significant area of judgement due to the technical
uncertainty in assessing the quantities and complex
contractual arrangements that dictate Shell’s share of
reserves and resources volumes. The estimates are
based on internal or external experts’ assessment of
reserves in place, recovery factors and crude quality.
In-year movements can result from revisions of previous
estimates, reclassifications, improved recovery
assumptions, extensions and discoveries and purchases
and sales.
The risk relates to significant in-year movements, or lack
thereof, in the reserves and resources volumes that
materially impact elements of the financial statements
including DD&A, impairment testing and
decommissioning and restoration provisions. In-year
movements generally arise from new information, for
example additional drilling results, production patterns,
water-cut levels, export facilities and changes in
development plans.
Our reserves team includes auditors with substantial oil and gas
reserves expertise, valuation experience and relevant
qualifications in energy economics.
We carried out the following procedures:
(cid:131) reconfirmed our understanding of Shell’s oil and gas reserves
estimation process;
(cid:131) tested compliance with significant controls in Shell’s oil and
gas reserves control framework;
(cid:131) confirmed that significant additions or reductions in SEC
proved reserves had been made in the period in which the
new information became available;
(cid:131) tested Shell’s internal certification process and controls for
technical and commercial experts responsible for reserves
estimation;
(cid:131) tested the reasonableness of SEC proved undeveloped
reserves recognised. Where volumes recognised remained
undeveloped for more than five years from the date they were
booked, or where development is not expected for at least
five years, we ensured that Shell was still working towards
development by corroborating with future development plans,
including capital expenditure plans as appropriate;
(cid:131) where relevant, tested all inputs in the economic limit test for
reserves determination, and satisfied ourselves that the
economic limit test incorporates (cid:94)(cid:235)(cid:217)(cid:256)(cid:256)(cid:685)(cid:290)(cid:1)(cid:217)(cid:290)(cid:298)(cid:238)(cid:262)(cid:193)(cid:298)(cid:217)(cid:1)(cid:270)(cid:228)(cid:1)(cid:228)(cid:302)(cid:298)(cid:302)(cid:286)(cid:217)(cid:1)(cid:16)(cid:74)(cid:614)(cid:1)
costs to reflect the potential impact of climate change and
energy transition;
(cid:131) where reserves are recognised beyond current licence terms
we obtained evidence to support the assumption that a
licence will be renewed; and
(cid:131) where SEC proved developed reserves were not used for
DD&A purposes, we challenged management’s basis and
obtained sufficient and appropriate evidence to ensure that
the reserves base used was reasonable and better reflected
the expected useful life of the field or facilities.
Our procedures were led by the group audit team, with input
from our teams in Australia, Brazil, Canada, Kazakhstan, the
Netherlands, Malaysia, Nigeria, Norway, Qatar, Russia, the UK
and USA.
Cross-reference: See the AC Report on page 114 for details on how the AC reviewed assurances for proved oil and gas reserves. Also, see Notes 2 and 8 to the “Consolidated Financial Statements”, and
Supplementary information – oil and gas (unaudited) on page 215.
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(cid:3)
Our key audit matters
Risk
Our response to the risk
The recoverable amounts of exploration and production assets, and investments in joint ventures and associates
Key observations communicated
to the Shell Audit Committee
At December 31, 2018, Shell recognised $167 billion of
exploration and production assets within property, plant
and equipment (PP&E) (2017: $172 billion). Shell also
recognised investments in joint ventures and associates of
$25 billion (2017: $28 billion).
Assets’ operational performance and external factors
could have a significant impact on the recoverable
amounts of Shell’s Upstream and Integrated Gas assets.
Assessing the recoverable amount of an asset involves a
significant amount of judgement. The most critical
assumptions in forecasting future cash flows are
management’s view on the long-term oil and gas price
outlook, the discount rate used, future expected
production volumes and capital and operating
expenditure.
Our procedures included testing for indicators of impairment
and reversals of impairment and validating the appropriateness
of the level at which the testing took place.
We confirmed that Shell’s asset impairment methodology was
appropriate. Where impairment assessments were carried out,
we tested the integrity of the models used. For those assets
impaired previously, we evaluated the actual results versus the
assumptions made and considered if reversals were required.
For price assumptions, we corroborated future short and long-term
commodity prices to consensus analysts’ forecasts and those
adopted by other international oil companies; we confirmed prices
were used consistently across Shell and that pricing differentials
were reasonable and appropriate and satisfied ourselves that
Shell’s long-term price assumptions incorporated the potential
impact of climate change and energy transition.
Our oil and gas valuations team tested the reasonableness of
the discount rate used for impairment testing. For cash flow
inputs we:
(cid:131) confirmed that operating expenditure profiles and capital
costs to complete construction could be supported by
approved operator budgets and management forecasts;
(cid:131) confirmed that carbon pricing was included in cash flows,
where applicable;
We reported that, on the basis of our
analysis of future commodity prices
used in the impairment models versus
other international oil companies and
consensus analysts’ forecasts, there is
strong external evidence to support the
reasonableness of Shell’s commodity
price assumptions – both in the short
and long term. We also confirmed that
we were satisfied with Shell’s
approach to estimating future oil and
gas prices was robust and
appropriate.
We confirmed that we were satisfied
that the cash flows used in the
impairment tests had been risked
appropriately and that the discount
rate applied was appropriate.
We concluded that the impairments
and impairment reversals recorded
were appropriately determined.
Where impairment tests were
(cid:131) reconciled reserves volumes in the impairment models and
undertaken and no impairment was
confirmed that the life-of-field assumptions were consistent with
recorded, we performed specific
those applied in the decommissioning and restoration
procedures, including multi-
provision models; and
dimensional sensitivity analysis on the
(cid:131) performed sensitivity analyses on certain key variables in the
key assumptions that drive the
base case cash flow models to understand the impact of
impairment analysis, and concluded
changes in certain assumptions (including oil and gas prices,
that it was reasonable and
production and operating expenditure levels).
supportable not to record an
impairment charge.
We assessed the reasonableness of the basis for the risking of the
cash flows applied to each individual asset. In so doing, we
considered the stage of the life of the asset, country risk and
ensured consistency across similar fields.
Where impairment tests were undertaken, we stress tested the
models using different price scenarios and risked discount rates that
we considered reasonable when taking account of the nature of the
asset, its location, its stage of development and associated risks.
The audit procedures were performed by our group audit team as
well as our local audit teams in Australia, Brazil, Canada,
Kazakhstan, Malaysia, Nigeria, Qatar, the UK and USA, which
covered 79% of PP&E and investments in joint ventures and
associates in Upstream and Integrated Gas segments.
We also performed specified procedures over the recoverability
of investments in joint ventures and associates in Australia, Brazil,
Brunei, Canada, Iraq, the Netherlands, Nigeria, Qatar and
Russia, which covered an additional 10% of investments in joint
ventures and associates in the Upstream and Integrated Gas
segments.
Cross-reference: See the AC Report on page 116 for details on how the AC considered impairments. Also, see Notes 2, 8 and 9 to the “Consolidated Financial Statements”.
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(cid:3)
(cid:3)
Our key audit matters
Risk
Our response to the risk
Recognition and measurement of deferred tax assets (DTAs)
Key observations communicated
to the Shell Audit Committee
At December 31, 2018, Shell recognised gross DTAs
totalling $29 billion (2017: $31 billion), which are
recognised within two balance sheet line items, deferred
tax assets and as an offset against deferred tax liabilities,
depending on the overall tax position in a particular
jurisdiction.
Estimating DTAs requires significant judgement, including
the timing of reversals of deferred tax liabilities (DTL)
and the availability of future profits against which tax
deductions represented by the DTAs can be offset.
A significant proportion of DTA balances is supported
by forecast future taxable profits, which are derived
from Shell’s commodity price assumptions and business
plans. In some cases, the DTA will be utilised in a period
substantially beyond the period of the operating plan.
We considered the expected timing of utilisation of the DTA
We reported our conclusions to the
including the relevant country tax laws that apply to the
January 2019 meeting of the AC that
utilisation of tax losses. This included the ability to carry tax
we had challenged the robustness of
losses forward or back and any restrictions arising from ring
the key management judgements and
confirmed that we were satisfied that
where DTAs recognised are based on
income forecast to arise beyond Shell’s
planning horizon, we consider that
there was sufficient future taxable profit
that is probable to support the DTAs;
however, we noted that a greater
degree of judgement is required in
recognising DTAs beyond Shell’s
planning horizon.
We also reported to the AC that the
DTAs were appropriately recognised
and valued at the year end.
fencing tax losses to particular projects.
Our procedures depended on whether or not the DTAs were
supported by the unwinding of taxable temporary differences,
forecast taxable profits or tax planning opportunities that would
be necessary to utilise tax losses. We assessed whether the
forecast timing of the unwinding of taxable temporary
differences were appropriate after considering the nature of the
temporary difference and the relevant tax law.
For DTAs that are supported by forecast taxable profits or tax
planning opportunities, we:
(cid:131) stress tested the commodity price and/or other key
assumptions that underpin Shell’s assessment of forecast
probable taxable profits;
(cid:131) determined the extent to which sufficient probable taxable
profits would arise in the period within which the related
losses would be available for utilisation, considering for
example limits on the length of time that losses can be
carried forward (applicable to the USA, the Netherlands
and China in particular) or if losses are ring fenced for tax
purposes (including the UK and Nigeria); and
(cid:131) considered whether the tax balances were calculated using
appropriate, and substantively enacted, tax laws and rates.
For the tax planning strategies necessary to justify the
recognition of the DTAs, we considered whether or not the
planning was reasonable and in line with the current tax law,
including satisfying ourselves that sufficient profits would be
available in the appropriate periods.
Our audit procedures over the recognition and valuation of
DTAs were performed by our tax specialist teams in Australia,
Brazil, Canada, Germany, Kazakhstan, Nigeria, Singapore,
Qatar, the UK and USA, which covered 64% of the gross DTA
balance. We also performed specified procedures over the
recognition and valuation of DTAs in Canada, Denmark,
Germany, Kazakhstan, the Netherlands, Norway and the USA,
which covered an additional 22% of the gross DTA balance(cid:17)
Cross-reference: See the AC Report on page 116 for details on how the AC reviewed certain tax matters, in particular the recoverability of deferred tax assets. Also see Notes 2 and 16 to the “Consolidated
Financial Statements”.
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(cid:3)
Our key audit matters
Risk
Our response to the risk
Revenue recognition relating to unrealised trading gains and losses
Key observations communicated
to the Shell Audit Committee
Shell’s Trading and Supply function is integrated within
the Downstream, Integrated Gas and Upstream
segments and is spread across multiple regions. It is
inherently complex and exposes Shell to risks that are
not normally associated with core oil and gas activities.
Whilst trading is not uncommon amongst international
oil and gas companies, it does require a robust internal
control environment.
In our audit we have considered the risk of unrealised
trading gains and losses being recognised because of
unauthorised trading activity or deliberate misstatement
of Shell’s trading positions.
The deliberate misstatement of Shell’s trading positions
or mismarking of positions could result in understated
trading losses, overstated trading profits and/or
individual bonuses being manipulated through
inappropriate inter-period profit/loss allocations.
Our trading audit teams comprise of individuals who have
significant experience of auditing both large commodity trading
organisations and financial institutions.
We confirmed that:
(cid:131) the valuation of derivative
contracts as at December 31,
Our audit procedures focused on:
(cid:131) investigations as to whether or not there were any breakdowns
2018 was appropriate;
(cid:131) our testing – through a
of trading controls or instances of rogue trading reported or
combination of controls testing
known or suspected frauds;
(cid:131) testing controls across the trading and supply function,
including IT general and IT application controls;
and expanded substantive audit
procedures – satisfied us that the
models used to value contracts
(cid:131) independently obtaining confirmation of a sample of open
were appropriate for the
trading positions with brokers and counterparties, or
purposes of the valuations
performing alternative procedures as necessary;
included in Shell’s Consolidated
(cid:131) performing valuation testing of open positions, including
confirming the appropriateness of price curves used;
Financial Statements; and
(cid:131) the unrealised gains and losses
(cid:131) performing independent testing of valuation models, focusing
had been recorded
on validating contract terms and key assumptions; and
(cid:131) testing the completeness of the amounts recorded in the
appropriately; and
(cid:131) our completeness testing did not
financial statements through procedures to detect unrecorded
identify any unrecorded liabilities
liabilities as well as detailed cut-off procedures around sales,
or significant cut-off issues.
purchases, trade receivables and trade payables.
The audit procedures were performed principally by the group
audit team and the UK and US component teams.
In May 2018, the Senior Statutory Auditor and the Audit Partner
responsible for the audit of Shell’s Trading and Supply function
accompanied the AC on its one-day visit of Shell’s Trading and
Supply office in London, and attended all discussions on a wide
range of matters, including the external market and regulatory
environments, market risk, credit risk, assurance and supervision
and Brexit planning.
Cross-reference: See Note 19 to the “Consolidated Financial Statements”.
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(cid:3)
Our key audit matters
Risk
Our response to the risk
Recognition, measurement, presentation and disclosure of leases (IFRS 16)(cid:3)
IFRS 16 is without doubt the most complex new standard
that companies such as Shell have had to implement
since the adoption of IFRS in 2005.
Shell has a significant number of leases that are in
scope for IFRS 16. The key complexities include:
(cid:131) how to apply IFRS 16 to joint arrangements, in
We have audited the impact of the implementation of the new
leasing standard on Shell. Our audit procedures primarily
focused on the following:
(cid:131) assessing the completeness of Shell’s population of operating
leases and that all leases were appropriately uploaded on
Shell’s lease accounting IT application;
particular where the operator enters into a lease on
(cid:131) analysing the accounting for Shell’s complex rig lease
behalf of a joint operation;
structures;
(cid:131) the determination of the appropriate discount rate to
(cid:131) assessing the appropriate incremental borrowing rate to be
be used in capitalising Shell’s operating leases;
(cid:131) assessing the appropriate accounting for complex
lease structures; and
(cid:131) implementing an appropriate system platform that can
accommodate the inevitable volume and complexity
that a company like Shell would require.
Although the standard is being implemented in 2019,
disclosures on the impact are included in these financial
statements.
used in capitalising Shell’s leases;
(cid:131) testing the control framework around the IFRS 16 IT
application adopted by Shell; and
(cid:131) auditing the disclosures provided in the financial statements
on the impact of IFRS 16.
The audit procedures to address this risk were performed
principally by the group audit team.
Key observations communicated
to the Shell Audit Committee
We reported to the Audit
Committee that the key complexities
surrounding the implementation of
IFRS 16 were the determination of
the appropriate discount rates to be
used in calculating Shell’s lease
liabilities and the implementation of
the IT system that supports the
accounting for the large population
of leases. Also, we reported that we
had engaged our oil and gas
valuation specialists to assist in
auditing the discount rates adopted
by Shell.
We reported further that, based on
our audit procedures, we were
satisfied that the overall additional
lease liabilities and right of use
assets as at January 1, 2019, were
within an acceptable range, albeit
the lower end. Accordingly, we
confirmed that the disclosures in
Note 3 to the Consolidated
Financial Statements, on the
adoption of IFRS 16 were
appropriately prepared in
accordance with the standard. Also,
we reported that we were satisfied
with the design and operating
effectiveness of the controls
surrounding the IT system that
records the individual leases,
including the input and output
controls(cid:17)
Cross-reference: See the AC Report on page 116 for details on how the AC considered the IFRS 16 implementation Also, see Note 3 to the “Consolidated Financial Statements”.
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161
Independent Auditor’s Report to the members of Royal Dutch Shell plc Continued
(cid:3)
Our key audit matters
Risk
Our response to the risk
Enhancements to Shell’s system of IT general controls
In 2018, Shell management devoted significant effort to
enhance and standardise Shell’s system of IT general
controls (ITGCs), including the implementation of new
global IT processes.
During any period of significant process change, there is
increased risk to the internal financial control
environment. Consequently, in addition to the inherent
risks associated with auditing the IT systems of a
complex global organisation such as Shell, the audit
team focused its procedures on the risks associated with
the following change programmes:
(cid:131) further standardisation of Shell’s user access
management process; and
(cid:131) implementation of Shell’s enterprise wide IT change
management process.
Our procedures focused on the key IT processes and controls
over IT systems critical to our audit. These included:
management of changes to systems and access to systems; and
IT operations, such as problem and incident management, and
back-up and restore.
We updated our understanding of Shell’s key IT applications
and IT transitions that impacted our financial statement audits by
carrying out walk-through tests. We identified 130 applications
that were critical to our audit and therefore included in our audit
scope. We also assessed the risk associated with any key
business or IT changes and identified and tested application
and IT dependent manual controls that we considered key to
the business processes related to financial reporting.
Our audit approach involved central testing of ITGCs that we
considered important to the financial statements, including:
(cid:131) management of changes to systems;
(cid:131) management of access to systems; and
(cid:131) management of IT operations.
The audit procedures to address this risk were performed
principally by the BSC and group audit teams.
Key observations communicated
to the Shell Audit Committee
Throughout 2018, we communicated to
the AC the progress of our internal
controls testing, including the testing of
ITGCs.
In January 2019, we confirmed that,
through a combination of internal
controls testing supplemented by
targeted substantive audit
procedures, we were satisfied that
we had obtained sufficient and
appropriate audit evidence over
Shell’s management of changes to
systems, management of access to
systems and IT operations for our
financial statement audit.
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8. OTHER INFORMATION
The other information comprises the information included in the Annual Report set out on pages 1 to 147 and 215 to 236 including the Strategic Report,
Governance and Additional Information sections, other than the financial statements and our auditor’s report thereon. The Directors are responsible for the
other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the
financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to address specifically the following items in the other information and to report
as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
(cid:131) Fair, balanced and understandable set out on page 92 – the statement given by the Directors that they consider the Annual Report and financial
statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess Shell’s
performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
(cid:131) Audit Committee reporting set out on page 113 to 118 – the section describing the work of the AC does not appropriately address matters communicated
by us to the AC; or
(cid:131) Directors’ statement of compliance with the UK Corporate Governance Code set out on page 96 – the parts of the Directors’ statement required under
the Listing Rules relating to Shell’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
9. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
In the light of the knowledge and understanding of Shell and the Parent Company, and its environment obtained in the course of our audit, we have not
identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
(cid:131) adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not
visited by us; or
(cid:131) 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
(cid:131) certain disclosures of Directors’ remuneration specified by law are not made; or
(cid:131) we have not received all the information and explanations we require for our audit.
10. RESPONSIBILTIES OF DIRECTORS
As explained more fully in the statement of Directors’ responsibilities set out on page 91, the Directors are responsible for the preparation of the
Consolidated Financial Statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing Shell and the Parent Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate
Shell or the Parent Company or to cease operations, or have no realistic alternative but to do so.
11. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISA (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis
of these financial statements.
12. EXPLANATION AS TO WHAT EXTENT THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING
FRAUD
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain
sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate
responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance of the entity and management.
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163
Independent Auditor’s Report to the members of Royal Dutch Shell plc Continued
Our approach was as follows:
(cid:131) We obtained an understanding of the legal and regulatory frameworks that are applicable to Shell and determined that the most significant are those
that relate to the reporting framework (IFRS, Companies Act 2006, the UK Corporate Governance Code, the US Securities Exchange Act of 1934 and
the Listing Rules of the UK Listing Authority) and the relevant tax compliance regulations in the jurisdictions in which Shell operates. In addition, we
concluded that there are certain significant laws and regulations that may have an effect on the determination of the amounts and disclosures in the
financial statements and those laws and regulations relating to health and safety, employee matters, environmental, and bribery and corruption practices.
(cid:131) We understood how Shell is complying with those frameworks by making enquiries of management, internal audit, those responsible for legal and
compliance procedures and the Company Secretary. We corroborated our enquiries through our review of Board minutes, papers provided to the AC
and correspondence received from regulatory bodies and noted that there was no contradictory evidence.
(cid:131) We assessed the susceptibility of Shell’s Consolidated Financial Statements to material misstatement, including how fraud might occur, by embedding
forensic specialists into our audit team. Our forensic specialists worked with the group audit team to identify the fraud risks across various parts of the
business. In addition, we utilised internal and external information to perform a fraud risk assessment for each of the countries of operation. We
considered the risk of fraud through management override and, in response, we incorporated data analytics across manual journal entries into our audit
approach. We also considered the possibility of fraudulent or corrupt payments made through third parties and conducted detailed analytical testing on
third party vendors in high risk jurisdictions. Where instances of risk behaviour patterns were identified through our data analytics, we performed
additional audit procedures to address each identified risk. These procedures included testing of transactions back to source information and were
designed to provide reasonable assurance that the financial statements were free from fraud or error. We also conducted specific audit procedures in
relation to the risk of bribery and corruption across various countries of operation determined by a risk based process.
(cid:131) Based on the results of our risk assessment we designed our audit procedures to identify non-compliance with such laws and regulations identified above.
Our procedures involved journal entry testing, with a focus on journals meeting our defined risk criteria based on our understanding of the business;
enquiries of legal counsel, group management, internal audit and all full and specific scope management; review of the volume and nature of complaints
received by the whistleblowing hotline during the year and focused testing, as discussed in the key audit matters section 7 above.
(cid:131) If any instance of non-compliance with laws and regulations were identified, these were communicated to the relevant local EY teams who performed sufficient
and appropriate audit procedures supplemented by audit procedures performed at the group level. Where appropriate we consulted our forensic specialists.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
13. OTHER MATTERS WE ARE REQUIRED TO ADDRESS
Following the recommendation of the AC we were re-appointed by the Company’s Annual General Meeting (AGM) on May 22, 2018, as auditor of the
Company to hold office until the conclusion of the next AGM of the Company, and signed an engagement letter on May 22, 2018. Our total uninterrupted
period of engagement is three years covering periods from our appointment through to the period ending December 31, 2018.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to Shell or the Parent Company and we remain independent of Shell
and the Parent Company in conducting the audit.
Our audit opinion is consistent with our additional report to the AC explaining the results of our audit.
14. USE OF OUR REPORT
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members
as a body, for our audit work, for this report, or for the opinions we have formed.
/s/ Allister Wilson (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
March 13, 2019
1. The maintenance and integrity of the Shell website 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 financial statements since they were initially presented on the website.
2. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The report set out above is included for the purposes of Royal Dutch Shell plc’s 2018 Annual Report and Accounts only and does not form part of Royal
Dutch Shell plc’s Annual Report on Form 20-F for 2018.
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Report of Independent Registered Public Accounting Firm
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ROYAL DUTCH SHELL PLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Royal Dutch Shell plc (the Company) as of December 31, 2018 and 2017, the related
consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31,
2018, and the related notes (collectively referred to as the Consolidated Financial Statements). In our opinion, the Consolidated Financial Statements
present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2018 and 2017, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with International Financial Reporting Standards (IFRS)
issued by the International Accounting Standards Board (IASB) and in conformity with IFRS as adopted by the European Union.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 13, 2019, expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
London, United Kingdom
March 13, 2019
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165
Report of Independent Registered Public Accounting Firm Continued
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ROYAL DUTCH SHELL PLC
Opinion on Internal Control over Financial Reporting
We have audited Royal Dutch Shell plc’s (the Company) internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO
criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based
on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Consolidated
Financial Statements of the Company, and our report dated March 13, 2019, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting as set out on
page 104. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
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 (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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/ Ernst & Young LLP
London, United Kingdom
March 13, 2019
1.
2.
The maintenance and integrity of the Shell website are the responsibility of the Directors of Royal Dutch Shell plc; 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 financial statements since they were initially presented on the website.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The reports set out above are included for the purposes of Royal Dutch Shell plc’s 2018 Annual Report on Form 20-F only and do not form part of Royal
Dutch Shell plc’s Annual Report on Accounts for 2018.
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Consolidated Financial Statements
168 Consolidated Statement of Income
168 Consolidated Statement of Comprehensive Income
169 Consolidated Balance Sheet
170 Consolidated Statement of Changes in Equity
171 Consolidated Statement of Cash Flows
172 Notes to the Consolidated Financial Statements
172 Note 1 Basis of preparation
172 Note 2 Significant accounting policies, judgements and estimates
181 Note 3 Changes to IFRS not yet adopted
181 Note 4 Segment information
184 Note 5 Interest and other income
184 Note 6 Interest expense
185 Note 7 Intangible assets
186 Note 8 Property, plant and equipment
188 Note 9 Joint ventures and associates
189 Note 10 Investments in securities
190 Note 11 Trade and other receivables
190 Note 12 Inventories
191 Note 13 Cash and cash equivalents
191 Note 14 Debt and lease arrangements
194 Note 15 Trade and other payables
194 Note 16 Taxation
197 Note 17 Retirement benefits
201 Note 18 Decommissioning and other provisions
202 Note 19 Financial instruments
207 Note 20 Share capital
208 Note 21 Share-based compensation plans and shares held in trust
209 Note 22 Other reserves
211 Note 23 Dividends
211 Note 24 Earnings per share
211 Note 25 Legal proceedings and other contingencies
213 Note 26 Employees
214 Note 27 Directors and Senior Management
214 Note 28 Auditor’s remuneration
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
167
Consolidated Financial Statements Continued
Consolidated Statement of Income
Revenue
Share of profit of joint ventures and associates
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
Total expenditure
Income before taxation
Taxation charge
Income for the period
Income attributable to non controlling interest
Income attributable to Royal Dutch Shell plc shareholders
Basic earnings per share ($)
Diluted earnings per share ($)
Consolidated Statement of Comprehensive Income
Income for the period
Other comprehensive income/(loss), net of tax
Items that may be reclassified to income in later periods:
Currency translation differences
Unrealised gains/(losses) on securities
Debt instruments remeasurements
Cash flow hedging gains/(losses)
Net investment hedging losses
Deferred cost of hedging
Share of other comprehensive (loss)/income of joint ventures and associates
Total
Items that are not reclassified to income in later periods:
Retirement benefits remeasurements
Equity instruments remeasurements
Share of other comprehensive income of joint ventures and associates
Total
Other comprehensive income/(loss) for the period
Comprehensive income/(loss) for the period
Comprehensive income attributable to non-controlling interest
Notes
4
9
5
4
6
16
4
24
24
Notes
4
22
9
9
Comprehensive income/(loss) attributable to Royal Dutch Shell plc shareholders
[A] See Note 2 Significant accounting policies, judgements and estimates regarding the implementation of IFRS 9 Financial Instruments.
$ million
2016
233,591
3,545
2,897
240,033
162,574
28,434
12,101
1,014
2,108
24,993
3,203
234,427
5,606
829
4,777
202
4,575
0.58
0.58
$ million
2016
4,777
703
(214 )
(617 )
(2,024 )
(28 )
(2,180 )
2018
388,379
4,106
4,071
396,556
294,399
26,970
11,360
986
1,340
22,135
3,745
360,935
35,621
11,715
23,906
554
23,352
2.82
2.80
2017
305,179
4,225
2,466
311,870
223,447
26,652
10,509
922
1,945
26,223
4,042
293,740
18,130
4,695
13,435
458
12,977
1.58
1.56
2018
23,906
2017
13,435
(3,172 )
[A]
(15 ) [A]
730
—
(209 ) [A]
(10)
(2,676 )
3,588
(153 ) [A]
193 [A]
3,628
952
24,858
383
24,475
5,156
593
(552 )
—
170
5,367
604
(3,817 )
604
5,971
19,406
578
18,828
(3,817
)
(5,997 )
(1,220 )
154
(1,374 )
168
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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Consolidated Balance Sheet
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Joint ventures and associates
Investments in securities
Deferred tax
Retirement benefits
Trade and other receivables [A]
Derivative financial instruments [A]
Current assets
Inventories
Trade and other receivables [A]
Derivative financial instruments [A]
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Debt
Trade and other payables [A]
Derivative financial instruments [A]
Deferred tax
Retirement benefits
Decommissioning and other provisions
Current liabilities
Debt
Trade and other payables [A]
Derivative financial instruments [A]
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
Notes
Dec 31, 2018
$ million
Dec 31, 2017
7
8
9
10
16
17
11
19
12
11
19
13
14
15
19
16
17
18
14
15
19
16
17
18
20
22
23,586
223,175
25,329
3,074
12,097
6,051
7,826
574
301,712
21,117
42,431
7,193
26,741
97,482
399,194
66,690
2,735
1,399
14,837
11,653
21,533
118,847
10,134
48,888
7,184
7,497
451
3,659
77,813
196,660
685
(1,260 )
16,615
182,606
198,646
3,888
202,534
24,180
226,380
27,927
7,222
13,791
2,799
8,475
919
311,693
25,223
44,565
5,304
20,312
95,404
407,097
73,870
3,447
981
13,007
13,247
24,966
129,518
11,795
51,410
5,253
7,250
594
3,465
79,767
209,285
696
(917 )
16,932
177,645
194,356
3,456
197,812
Total liabilities and equity
[A] With effect from 2018, current and non-current derivative assets and liabilities are no longer presented as part of Trade and other receivables and Trade and other payables, but separately disclosed on
the Consolidated Balance Sheet to provide more insight. Comparatives were revised to align with the current year presentation.
407,097
399,194
Signed on behalf of the Board
/s/ Jessica Uhl
Jessica Uhl
Chief Financial Officer
March 13, 2019
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
169
Consolidated Financial Statements Continued
Consolidated Statement of Changes in Equity
$ million
Equity attributable to Royal Dutch Shell plc shareholders
Share capital
(see Note 20)
Shares
held in trust
Other
reserves
(see Note 22)
(917 )
16,932
Retained
earnings
177,645
Non-
controlling
interest
Total
Total
equity
194,356
3,456
197,812
At January 1, 2018 (as previously published)
Impact of IFRS 9 [A]
At January 1, 2018 (as revised)
Comprehensive income for the period
Transfer from other comprehensive income [B]
Dividends (see Note 23)
Repurchases of shares [C]
Share-based compensation [D] [E]
Other changes in non-controlling interest
At December 31, 2018
At January 1, 2017
Comprehensive income for the period
Dividends (see Note 23)
Scrip dividends (see Note 23)
Share-based compensation
Other changes in non-controlling interest
At December 31, 2017
At January 1, 2016
Comprehensive loss for the period
Dividends (see Note 23)
Scrip dividends (see Note 23)
Shares issued
Share-based compensation
Other changes in non-controlling interest
696
—
696
—
—
—
(11 )
—
—
685
683
—
—
13
—
—
696
546
—
—
17
120
—
—
—
(138 )
88
(50 )
—
(50 )
(917 )
16,794
177,733
194,306
3,456
197,762
—
—
—
—
(343 )
—
(1,260 )
(901 )
—
—
—
(16 )
—
(917 )
(584 )
—
—
—
—
(317 )
—
1,123
(971 )
—
11
(342 )
—
23,352
24,475
971
—
(15,675 )
(15,675 )
(4,519 )
(4,519 )
693
51
8
51
16,615
182,606
198,646
11,298
175,566
186,646
5,851
12,977
18,828
—
(13 )
(204 )
—
(15,628 )
(15,628 )
4,751
(74 )
53
4,751
(294 )
53
16,932
177,645
194,356
(17,186 )
(5,949 )
—
(17 )
33,930
520
—
180,100
162,876
4,575
(1,374 )
(14,959 )
(14,959 )
5,282
—
141
427
5,282
34,050
344
427
383
—
(586 )
—
—
635
3,888
1,865
578
(406 )
—
—
1,419
3,456
1,245
154
(180 )
—
—
—
646
24,858
—
(16,261 )
(4,519 )
8
686
202,534
188,511
19,406
(16,034 )
4,751
(294 )
1,472
197,812
164,121
(1,220 )
(15,139 )
5,282
34,050
344
1,073
At December 31, 2016
[A] See Note 2 Significant Accounting Policies, Judgements and Estimates regarding the implementation of IFRS 9 Financial Instruments.
[B] The transfer mainly relates to the sale of Shell’s shareholding in Malaysia LNG Tiga Sendirian Berhad ($617 million) and the sale of shares in Canadian Natural Resources Limited ($481 million) (see Note
22).
[C] The repurchase of shares recognised through retained earnings includes the aggregate maximum consideration Shell is contractually bound to under the current tranche of the buyback programme, plus
associated stamp duty.
[D] The amendments to IFRS 2 Share-based payment became effective January 1, 2018. Following adoption of the amendments, components of share-based payments (related to tax) that were previously
classified as cash-settled are now classified as equity-settled. This resulted in an increase of $172 million in the share plan reserve within other reserves and a net increase of $125 million in retained earnings
(see Note 22).
[E] Includes a reclassification of $503 million between Other reserves and Retained earnings, which relates to the unwinding of expired share options.
175,566
186,646
188,511
11,298
1,865
(901 )
683
170
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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Consolidated Statement of Cash Flows
Income for the period
Adjustment for:
Current tax
Interest expense (net)
Depreciation, depletion and amortisation
Exploration well write-offs [A]
Net gains on sale and revaluation of non-current assets and businesses
Share of profit of joint ventures and associates
Dividends received from joint ventures and associates
Decrease/(increase) in inventories
Decrease/(increase) in current receivables [A]
(Decrease)/increase in current payables [A]
Derivative financial instruments [A]
Deferred tax, retirement benefits, decommissioning and other provisions [A]
Other [A]
Tax paid
Cash flow from operating activities
Capital expenditure
Acquisition of BG Group plc, net of cash and cash equivalents acquired
Investments in joint ventures and associates
Proceeds from sale of property, plant and equipment and businesses
Proceeds from sale of joint ventures and associates
Interest received
Other
Cash flow from investing activities
Net decrease in debt with maturity period within three months
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 and dividends received
Cash flow from financing activities
Currency translation differences relating to cash and cash equivalents
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Notes
4
16
8
23
$ million
2016
4,777
2,731
2,752
24,993
834
(2,141 )
(3,545 )
3,820
(5,658 )
(4,127 )
1,359
1,461
(1,588 )
(619 )
(4,434)
20,615
(22,116 )
(11,421 )
(1,330 )
2,072
1,565
470
(203)
(30,963)
(360 )
18,144
(6,710 )
(2,938 )
1,110
2018
23,906
10,475
2,878
22,135
449
(3,265 )
(4,106 )
4,903
2,823
1,955
(1,336 )
799
219
921
(9,671 )
53,085
(23,011 )
—
(880 )
4,366
1,594
823
2017
13,435
6,591
3,365
26,223
897
(1,640 )
(4,225 )
4,998
(2,079 )
(2,577 )
2,406
(1,039 )
(4,300 )
(98 )
(6,307 )
35,650
(20,845 )
—
(595 )
8,808
2,177
724
3,449 [B]
1,702 [C]
(8,029 )
(869 )
760
(11,720 )
(3,550 )
293
(13,659 )
(396 )
3,977
(11,912 )
(3,574 )
678
(15,675 )
(584 )
(3,947 )
(1,115)
(32,548 )
(449 )
6,429
20,312
(10,877 )
(9,677 )
(406 )
—
(717 )
(27,086 )
647
1,182
19,130
(180 )
—
(160)
(771)
(1,503)
(12,622 )
31,752
Cash and cash equivalents at end of year
19,130
[A] With effect from 2018 Exploration well write offs, previously presented under Other and changes in current and non current Derivative financial instruments previously presented under Decrease/increases
in current receivables and payables and Other are shown separately. Prior years comparatives within Cash flow from operating activities have been revised to conform with the current year presentation.
Overall, the revisions do not have an impact on the previously published cash flow from operating activities.
[B] Includes $3,307 million from the sale of shares in Canadian Natural Resources Limited, which were received in connection with the oil sands divestment.
[C] Includes $2,635 million from the sale of Shell’s interest in Woodside Petroleum Limited.
26,741
20,312
13
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171
Notes to the Consolidated Financial Statements
1 BASIS OF PREPARATION
The Consolidated Financial Statements of Royal Dutch Shell plc (the Company) and its subsidiaries (collectively referred to as Shell) have been prepared in
accordance with the provisions of the Companies Act 2006 (the Act) and Article 4 of the IAS Regulation, and therefore 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, except for those accounting standards that
were adopted from January 1, 2018 (see Note 2 below).
The Consolidated Financial Statements were approved and authorised for issue by the Board of Directors on March 13, 2019.
2 SIGNIFICANT ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATES
This Note describes Shell’s significant accounting policies, which are those relevant to an understanding of the Consolidated Financial Statements and
includes the measurement bases used in their preparation. It allows an understanding as to how transactions, other events and conditions are reported. It
also describes: (a) judgements, apart from those involving estimations, that management makes in applying the policies that have the most significant effect
on the amounts recognised in the Consolidated Financial Statements; and (b) estimations, including assumptions about the future, that management makes
in applying the policies. The sources of estimation uncertainty that have a significant risk of a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are specifically identified as a significant estimate.
The accounting policies applied are consistent with those of the previous financial years except for the adoption as from January 1, 2018 of IFRS 9 Financial
Instruments (IFRS 9), IFRS 15 Revenue from Contracts with Customers (IFRS 15) and IFRS 2 Share-based payment (IFRS 2) amendments: Classification and
measurement of share-based payment transactions.
IFRS 9 sets out the requirements for recognising and measuring financial assets, financial liabilities and certain contracts to buy or sell non-financial items.
Furthermore, on a prospective basis the standard facilitates use of hedge accounting and results in different income recognition upon the sale of certain
investments in securities. The adoption of IFRS 9 resulted in a decrease of $83 million in equity at January 1, 2018, mainly representing the recognition of
additional provisions for impairment of receivables under the expected credit loss model. In addition, changing the measurement basis from amortised cost
to fair value for certain financial assets resulted in an increase of $33 million in equity at January 1, 2018. Furthermore, a reclassification within equity
between other reserves and retained earnings, primarily representing deferred cost of hedging, was recognised.
IFRS 15 provides a single model of accounting for revenue arising from contracts with customers based on the identification and satisfaction of performance
obligations, and revenue from contracts with customers that is distinguished from other resources. For the adoption of IFRS 15 the modified retrospective
transition approach was applied. Although the accounting for certain contracts, such as those with provisional pricing or take-or pay arrangements, and
underlifts and overlifts, did change, no transition adjustment is presented as the adoption did not have a significant effect on Shell’s accounting or
disclosures.
The amendments to IFRS 2 became effective January 1, 2018. Following adoption of the amendments, components of share-based payments (related to tax)
that were previously classified as cash-settled are now classified as equity-settled. This resulted in an increase of $172 million in the share plan reserve within
other reserves and a net increase of $125 million in retained earnings.
NATURE OF THE CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements are presented in US dollars (dollars) and comprise the financial statements of the Company and its subsidiaries,
being those entities over which the Company has control, either directly or indirectly, through exposure or rights to their variable returns and the ability to
affect those returns through its power over the entities. Information about subsidiaries at December 31, 2018, can be found in Exhibit 8.
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.
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 loans of a long-term investment nature)
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are recognised in income, except when recognised in other comprehensive income in respect of cash flow or net investment 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 sale of all or part of an interest in, or upon liquidation of, an entity, the appropriate portion of
cumulative currency translation differences related to that entity are generally recognised in income.
REVENUE RECOGNITION (from January 1, 2018)
Revenue from sales of oil, natural gas, chemicals and other products is recognised at the transaction price which Shell expects to be entitled to, after
deducting sales taxes, excise duties and similar levies. For contracts that contain separate performance obligations the transaction price is allocated to
those separate performance obligations by reference to their relative standalone selling prices.
Revenue is recognised when control of the products has been transferred to the customer. For sales by Integrated Gas and Upstream operations, this
generally occurs when the product is physically transferred into a vessel, pipe or other delivery mechanism; for sales by refining operations, it is either when
the product is placed onboard a vessel or offloaded from the vessel, depending on the contractually agreed terms; and for 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 hydrocarbon production from properties in which Shell has an interest with partners in joint arrangements is recognised on the basis
of Shell’s volumes lifted and sold. Revenue resulting from the production of oil and natural gas under production-sharing contracts (PSCs) 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 feedstocks for refinery operations are
presented net in the Consolidated Statement of Income.
Revenue resulting from arrangements that are not considered contracts with customers is presented as revenue from other sources.
REVENUE RECOGNITION (prior to January 1, 2018)
Revenue from sales of oil, natural gas, chemicals and 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 Integrated Gas and 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 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 hydrocarbon production from properties in which Shell has an interest with partners in joint arrangements 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 (PSCs) 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 feedstocks for refinery
operations are presented net in the Consolidated Statement of Income.
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.
EXPLORATION COSTS
Hydrocarbon exploration costs are accounted for under the successful efforts method: exploration costs are recognised in income when incurred, except
that exploratory drilling costs, including in respect of operating leases, 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 under way 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.
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[Note 2 continued]
PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
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 PSCs.
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 “Financial instruments (from January 1, 2018)”) as applicable. The accounting for exploration costs is described separately (see “Exploration costs”).
Intangible assets include goodwill, liquefied natural gas (LNG) off-take and sales contracts obtained through acquisition, 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 sale are determined by comparing the proceeds with the carrying amounts of assets sold and are recognised in
income, within interest and other income.
An asset is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use, which is when the
sale is highly probable, and it is available for immediate sale. Assets classified as held for sale are measured at the lower of the carrying amount upon
classification and the fair value less costs to sell.
Depreciation, depletion and amortisation
Property, plant and equipment related to hydrocarbon production activities are in principle depreciated on a unit-of-production basis over the proved
developed reserves of the field concerned, other than assets whose useful lives differ from the lifetime of the field which are depreciated applying the
straight-line method. However, for certain Upstream assets, the use for this purpose of proved developed reserves, which are determined using the SEC-
mandated yearly average oil and gas prices, would result in depreciation charges for these assets which do not reflect the pattern in which their future
economic benefits are expected to be consumed as, for example, it may result in assets with long-term expected lives being depreciated in full within one
year. Therefore, in these instances, other approaches are applied to determine the reserves base for the purpose of calculating depreciation, such as using
management’s expectations of future oil and gas prices rather than yearly average prices, to provide a phasing of periodic depreciation charges that more
appropriately reflects the expected utilisation of the assets concerned.
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.
Property, plant and equipment held under finance leases and capitalised LNG off-take and sales contracts are depreciated or amortised over the term of
the respective contract. Other property, plant and equipment and intangible assets are depreciated or amortised on a straight-line basis over their
estimated useful lives, except for goodwill, which is not amortised. They include refineries and chemical plants (for which the useful life is generally 20
years), retail service stations (15 years), upgraders (30 years) and major inspection costs, which are depreciated over the estimated period before the next
planned major inspection (three to five years).
On classification of an asset as held for sale, depreciation ceases.
Estimates of the useful lives and residual values of property, plant and equipment and intangible assets are reviewed annually and adjusted if appropriate.
Impairment
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. On classification as
held for sale, the carrying amounts of property, plant and equipment and intangible assets are also reviewed. 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 (see “Fair value
measurements”) 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.
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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 losses and reversals are reported within depreciation, depletion and amortisation.
Judgements and estimates
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. 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. Yearly average oil and gas prices are applied in the determination of proved reserves. 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, legislation or development plans.
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 recognised in income in that period.
Judgement is involved in determining when to use an alternative reserves base in order to appropriately reflect the expected utilisation of the assets
concerned (see "Depreciation, depletion and amortisation").
Information about the carrying amounts of exploration and production assets and the amounts charged to income, including depreciation, depletion and
amortisation and the quantitative impact of the use of an alternative reserve base, is presented in Note 8.
Impairment
For the purposes of determining whether impairment of assets has occurred, and the extent of any impairment loss 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.
The determination of cash-generating units requires judgement. Changes in this determination could impact the calculation of value in use and therefore the
conclusion on the recoverability of assets’ carrying amounts when performing an impairment test.
Judgement, which is subject to change as new information becomes available, can be required in determining when an asset is classified as held for sale.
A change in that judgement could result in impairment charges affecting income, depending on whether classification requires a write down of the asset to
its fair value less costs to sell.
Significant estimate
Future price assumptions, presented in Note 8, 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 “Proved oil and gas reserves” above, 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 for
Shell overall.
Changes in assumptions could affect the carrying amounts of assets, and any impairment losses and reversals will affect income.
Information about the carrying amounts of assets and impairments is presented in Notes 7 and 8.
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
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[Note 2 continued]
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 classified as operating leases and the cost is recognised in income on
a straight-line basis, except where capitalised as exploration drilling costs (see "Exploration costs").
JOINT ARRANGEMENTS AND ASSOCIATES
Arrangements under which Shell has contractually agreed to share control (see “Nature of the Consolidated Financial Statements” for the definition of
control) with another party or parties are joint ventures where the parties have rights to the net assets of the arrangement, or joint operations where the
parties have rights to the assets and obligations for the liabilities relating to the arrangement. Investments in entities over which Shell has the right to exercise
significant influence but neither control nor joint control are classified as associates. Information about incorporated joint arrangements and associates at
December 31, 2018, can be found in Exhibit 8.
Investments in joint ventures 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. 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 joint
venture, 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.
Shell recognises its assets and liabilities relating to its interests in joint operations, including its share of assets held jointly and liabilities incurred jointly with
other partners.
INVENTORIES
Inventories are stated at cost or net realisable value, whichever is lower. Cost comprises direct purchase costs (including transportation), and associated
costs incurred in bringing inventories to their present condition and location, and is determined using the first-in, first-out (FIFO) method for oil, gas and
chemicals and by the weighted average cost method for materials.
TAXATION
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 tax 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 and on unused tax losses and credits carried forward.
Deferred tax assets and liabilities are calculated using the enacted or substantively enacted rates that are expected to apply when an asset is realised or a
liability is settled. They are not recognised where they arise on the initial recognition of goodwill or of an asset or liability in a transaction (other than in a
business combination) that, at the time of the transaction, affects neither accounting nor taxable profit, or in respect of taxable temporary differences
associated with subsidiaries, joint ventures and associates where the reversal of the respective temporary difference can be controlled by Shell and it is
probable that it will not reverse in the foreseeable future.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the deductible temporary
differences, unused tax losses and credits carried forward 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 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
offset within fiscal jurisdictions and an intention to settle such balances on a net basis.
Judgements and estimates
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. 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. This requires the application of
judgement as to the ultimate outcome, which can change over time depending on facts and circumstances. Judgements mainly relate to transfer pricing,
including inter-company financing, interpretation of PSCs, expenditure deductible for tax purposes and taxation arising on disposal.
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 assets are likely to reverse, and a judgement as to whether or not there will be sufficient taxable profits available to offset the assets when they do
reverse. This requires assumptions regarding future profitability and is therefore inherently uncertain. To the extent assumptions regarding future profitability
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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.
Taxation information, including charges and deferred tax assets and liabilities, is presented in Note 16. Income taxes include taxes at higher rates levied on
income from certain Integrated Gas and Upstream activities.
RETIREMENT BENEFITS
Benefits in the form of retirement pensions and healthcare and life insurance are provided to certain employees and retirees under defined benefit and
defined contribution plans.
Obligations under defined benefit plans are calculated annually by independent actuaries using the projected unit credit method, which takes into account
employees’ years of service and, for pensions, average or final pensionable remuneration, and are discounted to their present value using interest rates of
high-quality corporate bonds denominated in the currency in which the benefits will be paid and of a duration consistent with the plan obligations. Where
plans are funded, payments are made to independently managed trusts; assets held by those trusts are measured at fair value. Defined benefit plan
surpluses are recognised as assets to the extent that they are considered recoverable, which is generally by way of a refund or lower future employer
contributions.
The amounts recognised in income in respect of defined benefit plans mainly comprise service cost and net interest. Service cost comprises principally the
increase in the present value of the obligation for benefits resulting from employee service during the period (current service cost) and also amounts relating
to past service and settlements or amendments of plans. Plan amendments are changes to benefits and are generally recognised when all legal and
regulatory approvals have been received and the effects have been communicated to members. Net interest is calculated using the net defined benefit
liability or asset matched against the discount rate yield curve at the beginning of each year for each plan. Remeasurements of the net defined benefit
liability or asset resulting from actuarial gains and losses and the return on plan assets excluding the amount recognised in income are recognised in other
comprehensive income.
For defined contribution plans, pension expense represents the amount of employer contributions payable for the period.
Significant judgements and estimates
Defined benefit obligations and plan assets, and the resulting liabilities and assets that are recognised, are subject to significant volatility as actuarial
assumptions regarding future outcomes and market values change. Substantial judgement is required in determining the actuarial assumptions, which vary
for the different plans to reflect local conditions but are determined under a common process in consultation with independent actuaries. The assumptions
applied in respect of each plan are reviewed annually and adjusted where necessary to reflect changes in experience and actuarial recommendations.
Information about the amounts reported in respect of defined benefit pension plans, assumptions applicable to the principal plans and their sensitivity to
changes are presented in Note 17.
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. 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 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. However, where there is no related asset, or the change reduces the carrying amount to nil, the effect, or the amount in excess of the reduction
in the related asset to nil, is recognised in income.
Redundancy provisions are recognised when a detailed formal plan identifies the business or part of the business concerned, the location and number of
employees affected, a detailed estimate of the associated costs and an appropriate timeline, and the employees affected have been notified of the plan's
main features.
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 when virtually certain of realisation.
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[Note 2 continued]
Significant estimates
Estimates of provisions for future decommissioning and restoration costs are recognised and 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.
Information about decommissioning and restoration provisions is presented in Note 18.
FINANCIAL INSTRUMENTS (from January 1, 2018)
Financial assets and liabilities are presented separately in the Consolidated Balance Sheet except where there is a legally enforceable right of offset and
Shell has the intention to settle on a net basis or realise the asset and settle the liability simultaneously.
Financial Assets
Financial assets are classified at initial recognition and subsequently measured at amortised cost, fair value through other comprehensive income or fair
value through profit or loss. The classification of financial assets is determined by the contractual cash flows and where applicable the business model for
managing the financial assets.
A financial asset is measured at amortised cost, if the objective of the business model is to hold the financial asset in order to collect contractual cash flows
and the contractual terms give rise to cash flows that are solely payments of principal and interest. It is initially recognised at fair value plus or minus
transaction costs that are directly attributable to the acquisition or issue of the financial asset. Subsequently the financial asset is measured using the
effective interest method less any impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
All equity instruments and other debt instruments are recognised at fair value. For equity instruments, on initial recognition, an irrevocable election (on an instrument-
by-instrument basis) can be made to designate these as at fair value through other comprehensive income instead of fair value through profit and loss. Dividends
received on equity instruments are recognised as other income in profit or loss when the right of payment has been established, except when the company benefits
from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in other comprehensive income.
Investments in securities
Investments in securities (“securities”) comprise equity and debt securities. Equity securities are carried at fair value. Generally, unrealised holding gains and
losses are recognised in other comprehensive income. On sale, net gains and loses previously accumulated in other comprehensive income are transferred
to retained earnings. Debt securities are generally carried at fair value with unrealised holding gains and losses recognised in other comprehensive income.
On sale, net gains and losses previously accumulated in other comprehensive income are recognised in income.
Impairment of financial assets
The expected credit loss model is applied for recognition and measurement of impairments in financial assets measured at amortised cost or at fair value
through other comprehensive income. The expected credit loss model also is applied for financial guarantee contracts to which IFRS 9 applies and are not
accounted for at fair value through profit or loss. The loss allowance for the financial asset is measured at an amount equal to the 12-month expected credit
losses. If the credit risk on the financial asset has increased significantly since initial recognition, the loss allowance for the financial asset is measured at an
amount equal to the lifetime expected credit losses. Changes in loss allowances are recognised in profit and loss. For trade receivables, a simplified
impairment approach is applied recognising expected lifetime losses from initial recognition.
Significant estimate
Receivables from governments may be large and subject to disputes. Recoverability is subject to uncertainty as to the settlement of amounts including tax,
royalty, cost recovery and associated interest. Information about government receivables is presented in Note 11.
Financial Liabilities
Financial liabilities are measured at amortised cost, unless they are required to be measured at fair value through profit or loss, such as instruments held for
trading, or Shell has opted to measure them at fair value through profit or loss. Debt and trade payables 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 below). Interest expense on debt is accounted for using the effective interest method, and other than interest
capitalised, is recognised in income. For financial liabilities that are measured under the fair value option, the change in the fair value related to own credit
risk is recognised in other comprehensive income. The remaining fair value change is recognised to fair value through profit and loss.
Derivative contracts and hedges
Derivative contracts are used in the management of interest rate risk, foreign exchange risk, commodity price risk, and foreign currency cash balances.
Derivatives that are not closely related to the host contract in terms of economic characteristics and risks of which the host contract is not a financial asset,
are separated from their host contract and recognised at fair value with the associated gains and losses recognised in income.
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Certain derivative contracts qualify and are designated either as a “fair value” hedge of the change in fair value of a recognised asset or liability or an
unrecognised firm commitment or as a “cash flow” hedge for the change in cash flows to be received or paid relating to a recognised asset or liability or a
highly probable forecast transaction.
A change in the fair value of 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 contract 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 (reclassified to the balance sheet); for other
hedged items, the amount in accumulated other comprehensive income is reclassified to income when the hedged transaction affects income.
The effective portion of a change due to retranslation at quarter-end exchange rates in the carrying amount of debt and the principal amount of derivative
contracts used to hedge net investments in foreign operations is recognised in other comprehensive income until the related investment is sold or liquidated;
any ineffective portion is recognised in 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 hedges is also continually assessed and hedge accounting is discontinued when there is a change in the risk
management strategy.
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.
FINANCIAL INSTRUMENTS (prior to January 1, 2018)
Financial assets and liabilities are presented separately in the Consolidated Balance Sheet except where there is a legally enforceable right of offset and
Shell has the intention to settle on a net basis or realise the asset and settle the liability simultaneously.
Financial assets
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 sale, 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.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, including offsetting bank overdrafts, short-term bank deposits, money market funds, reverse
repos and similar instruments that have a maturity of three months or less at the date of purchase.
Trade receivables
Trade receivables are recognised initially at fair value based on amounts exchanged and subsequently at amortised cost less any impairment.
Significant estimate
Receivables from governments may be large and subject to disputes. Recoverability is subject to uncertainty as to the settlement of amounts including tax,
royalty, cost recovery and associated interest. Information about government receivables is presented in Note 11.
Financial liabilities
Debt and trade payables 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 below). Interest expense on debt is accounted for
using the effective interest method and, other than interest capitalised, is recognised in income.
Derivative contracts and hedges
Derivative contracts are used in the management of interest rate risk, foreign exchange risk and commodity price risk, and in the management of foreign
currency cash balances. These contracts are recognised at fair value.
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[Note 2 continued]
Certain derivative contracts qualify and are designated either as a “fair value” hedge of the change in fair value of a recognised asset or liability or an
unrecognised firm commitment or as 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 forecast 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 contract 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
(reclassified to the balance sheet); for other hedged items, the amount in accumulated other comprehensive income is reclassified to income when the
hedged transaction affects income.
The effective portion of a change due to retranslation at quarter-end exchange rates in the carrying amount of debt and the principal amount of derivative
contracts used to hedge net investments in foreign operations is recognised in other comprehensive income until the related investment is sold or liquidated;
any ineffective portion is recognised in 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 hedges is also continually assessed and hedge accounting is discontinued when a hedge ceases to be highly
effective.
Gains and losses on derivative contracts 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 could be transferred at the measurement date, based on the assumption
that such transfers take place between participants in principal markets and, where applicable, taking highest and best use into account.
Judgements and estimates
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, 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.
SHARE-BASED COMPENSATION PLANS
The fair value of share-based compensation expense arising from the Performance Share Plan (PSP) and the Long-term Incentive Plan (LTIP) – Shell’s main
equity-settled plans – is estimated using a Monte Carlo option pricing model and is recognised in income from the date of grant over the vesting period
with a corresponding increase directly in equity. 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. Prior to the adoption of the IFRS 2 amendments, changes in the fair value of share-based compensation for cash-settled plans were
recognised in income with a corresponding change in liabilities.
SHARES HELD IN TRUST
Shares in the Company, which are held by employee share ownership trusts and trust-like entities, are not included in assets but are reflected at cost as a
deduction from equity as shares held in trust.
ACQUISITIONS AND SALES OF INTERESTS IN A BUSINESS
Assets acquired and liabilities assumed when control is obtained over a business, and when an interest or an additional interest is acquired in a joint
operation which is 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. When control is obtained, any non-controlling interest is recognised as the proportionate share of the identifiable net assets. The
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acquisition of a non-controlling interest in a subsidiary and the sale of an interest while retaining control are accounted for as transactions within equity. The
difference between the purchase consideration or sale proceeds after tax and the relevant proportion of the non-controlling interest, measured by reference
to the carrying amount of the interest’s net assets at the date of acquisition or sale, is recognised in retained earnings as a movement in equity attributable
to Royal Dutch Shell plc shareholders.
CONSOLIDATED STATEMENT OF INCOME PRESENTATION
Purchases reflect all costs related to the acquisition of inventories and the effects of the changes therein, and include associated costs incurred in 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 CHANGES TO IFRS NOT YET ADOPTED
IFRS 16 Leases was issued in 2016 to replace IAS 17 Leases and is required to be adopted by 2019. Under the new standard all lease contracts, with
limited exceptions, are recognised in financial statements by way of right-of-use assets and corresponding lease liabilities. Shell will apply the modified
retrospective approach, which means that the cumulative effect of initially applying the standard is recognised at the date of initial application and there is
no restatement of comparative information. Compared with the existing accounting for operating leases, application of the standard will have a significant
impact on the classification of expenditures and consequently the classification of cash flow from operating activities, cash flow from investing activities and
cash flow from financing activities. It will also impact the timing of expenses recognised in the statement of income. No impact is expected in relation to
lease contracts previously classified as finance leases. The adoption of the new standard at January 1, 2019, is expected to have a negligible impact on
equity following the recognition of lease liabilities of approximately $16.0 billion and additional right of use assets of approximately $15.6 billion and
reclassifications mainly related to pre-paid leases and onerous contract provisions previously recognised.
IFRS 17 Insurance contracts was issued in 2017 and will become effective for annual reporting periods beginning on or after January 1, 2021. The IFRS 17
model combines a current balance sheet measurement of insurance contracts with recognition of profit over the period that services are provided. The
general model in the standard requires insurance contract liabilities to be measured using probability-weighted current estimates of future cash flows, an
adjustment for risk, and a contractual service margin representing the profit expected from fulfilling the contracts. Effects of changes in the estimates of future
cash flows and the risk adjustment relating to future services are recognised over the period services are provided rather than immediately in profit or loss.
Shell is in the process evaluating the initial impact of this pronouncement.
4 SEGMENT INFORMATION
General Information
Shell is an international energy company engaged in the principal aspects of the oil and gas industry and reports its business through the segments:
Integrated Gas, Upstream, Downstream, and Corporate.
The Integrated Gas segment covers liquefied natural gas activities and the conversion of natural gas into gas-to-liquids fuels and other products, as well as
the New Energies portfolio. It includes natural gas exploration and extraction and the operation of the upstream and midstream infrastructure necessary to
deliver gas to market. It markets and trades natural gas, LNG, electricity and carbon-emission rights and also markets and sells LNG as a fuel for heavy-duty
vehicles and marine vessels.
Upstream combines the following two operating segments: 1) Upstream, which is engaged in the exploration for and extraction of crude oil, natural gas
and natural gas liquids, and the marketing and transportation of oil and gas, and 2) Oil Sands, which is engaged in the extraction of bitumen from mined oil
sands and conversion into synthetic crude oil. These operating segments have similar economic characteristics because their earnings are significantly
dependent on crude oil and natural gas prices and production volumes.
The Downstream segment is engaged in oil products and chemicals manufacturing, marketing and trading activities, that turns crude oil and other
feedstocks into a range of products which are moved and marketed around the world for domestic, industrial and transport use.
The Corporate segment covers the non-operating activities supporting Shell, comprising Shell’s holdings and treasury organisation, its self-insurance activities
and its headquarters and central functions.
Basis of Segmental Reporting
Sales between segments are based on prices generally equivalent to commercially available prices. Third-party revenue and non-current assets information
by geographical area are based on the country of operation of the group subsidiaries that report this information. Separate disclosure is provided for the
UK as this is Shell’s country of domicile.
Segment earnings are presented on a current cost of supplies basis (CCS earnings), which is the earnings measure used by the Chief Executive Officer for
the purposes of making decisions about allocating resources and assessing performance. 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.
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181
[Note 4 continued]
Information by segment on a current cost of supplies basis is as follows:
2018
CCS earnings
Revenue:
Third party
Inter-segment
Share of profit/(loss) of joint ventures and associates (CCS basis)
Interest and other income, of which:
Interest income
Net gains on sale and revaluation of non-current assets and
Integrated Gas
Upstream
Downstream
Corporate
11,444
6,798
7,601
(1,479)
$ million
Total
24,364
43,764
9,892
334,680
43
388,379 [A]
4,853
37,841
5,358
2,273
2,230
—
285
600
—
1,785
345
—
—
(222 )
896
772
4,121
4,071
772
businesses
2,231
712
302
20
3,265
Depreciation, depletion and amortisation charge, of which:
4,850
13,006
4,064
215
22,135
Impairment losses
Impairment reversals
Interest expense
200
1,065
424
—
1,265
221
609
—
71
7
—
1,696 [B]
1,265 [C]
2,844
3,745
(1,270)
Taxation charge/(credit) (CCS basis)
[A] Includes $3,348 million of revenue from sources other than from contracts with customers, which mainly comprises the impact of fair value accounting of commodity derivatives
[B] Impairment losses comprise Property, plant and equipment ($1,515 million) and Intangible assets ($181 million).
[C] See Note 8.
2,795
8,791
1,515
11,831
$ million
Total
12,471
Integrated Gas
Upstream
Downstream
Corporate
5,078
1,551
8,258
(2,416)
32,674
7,723
264,731
51
305,179
3,978
32,469
4,248
—
2017
CCS earnings
Revenue:
Third party
Inter-segment
Share of profit/(loss) of joint ventures and associates (CCS basis)
1,714
623
1,956
(129 )
4,164
Interest and other income, of which:
Interest income
Net gains on sale and revaluation of non-current assets and
687
1,188
154
437
2,466
—
—
—
677
677
businesses
301
1,189
136
14
1,640
Depreciation, depletion and amortisation charge, of which:
4,965
17,303
3,877
78
26,223
Impairment losses
Impairment reversals
Interest expense
302
4,118
385
10
248
605
744
—
—
—
4,805 [A]
615 [B]
109
2,941
4,042
Taxation charge/(credit) (CCS basis)
[A] Impairment losses comprise Property, plant and equipment ($4,572 million) and Intangible assets ($233 million).
[B] See Note 8.
790
2,409
1,783
(636)
4,346
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2016
CCS earnings
Revenue:
Third party
Inter-segment
Share of profit/(loss) of joint ventures and associates (CCS basis)
Interest and other income, of which:
Interest income
Net gains on sale and revaluation of non-current assets and
Integrated Gas
Upstream
Downstream
Corporate
Total
2,529
(3,674 )
6,588
(1,751 )
3,692
$ million
25,282
3,908
1,116
6,412
201,823
74
233,591
26,524
222
1,727
2,244
—
(182 )
3,400
765
839
851
442
2,897
—
—
—
451
451
businesses
507
867
765
2
2,141
Depreciation, depletion and amortisation charge, of which:
4,509
16,779
3,681
24
24,993
Impairment losses
Impairment reversals
Interest expense
72
1,274
588
—
—
247
852
38
91
6
—
1,940 [A]
38 [B]
2,013
3,203
(938)
1,008
(839 )
485
Taxation charge/(credit) (CCS basis)
[A] Impairment losses comprise Property, plant and equipment ($1,931 million) and Intangible assets ($9 million).
[B] See Note 8.
1,254
Reconciliation of CCS earnings to income for the period
CCS earnings
Current cost of supplies adjustment:
Purchases
Taxation
Share of profit of joint ventures and associates
Income for the period
Information by geographical area is as follows:
2018
Third-party revenue, by origin
Intangible assets, property, plant and equipment,
joint ventures and associates at December 31
[A] Includes $54,659 million that originated from the UK.
[B] Includes $89,811 million that originated from Singapore.
[C] Includes $21,863 million located in the UK.
2017
Third-party revenue, by origin
Intangible assets, property, plant and equipment,
joint ventures and associates at December 31
2018
2017
24,364
12,471
(559 )
116
1,252
(349 )
(15)
(458)
23,906
61
964
13,435
Asia,
Oceania,
Africa
Europe
USA
Other
Americas
$ million
2016
3,692
1,284
(344 )
145
1,085
4,777
$ million
Total
118,960 [A]
153,716 [B]
89,876
25,827
388,379
38,617
[C]
117,127
59,625
56,721
272,090
Europe
Asia,
Oceania,
Africa
USA
Other
Americas
Total
100,609 [A]
114,683 [B]
66,854
23,033
305,179
$ million
41,416[C] [D]
122,345
55,898[D]
58,828
278,487
[A] Includes $49,370 million that originated from the UK.
[B] Includes $62,046 million that originated from Singapore.
[C] Includes $22,734 million located in the UK.
[D] The USA geographical allocation has increased by $1,604 million with a corresponding decrease in Europe.
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183
[Note 4 continued]
2016
Third-party revenue, by origin
Intangible assets, property, plant and equipment,
joint ventures and associates at December 31
Europe
Asia,
Oceania,
Africa
USA
Other
Americas
Total
81,573 [A]
87,635 [B]
44,615
19,768
233,591
$ million
42,265[C] [D]
121,618
62,066[D]
67,371
293,320
[A] Includes $38,490 million that originated from the UK.
[B] Includes $42,533 million that originated from Singapore.
[C] Includes $24,015 million located in the UK.
[D] The USA geographical allocation has increased by $1,636 million with a corresponding decrease in Europe.
5 INTEREST AND OTHER INCOME
Interest income
Dividend income (from investments in equity securities)
Net gains on sale and revaluation of non-current assets and businesses
Net foreign exchange (losses)/gains on financing activities
Other
Total
2018
772
104
3,265
(174 )
104
4,071
2017
677
375
1,640
(453 )
227
$ million
2016
451
264
2,141
343
(302 )
2,466
2,897
In 2018, net gains on sale of non-current assets and businesses arose mainly in respect of gains on the sale of Integrated Gas assets in Thailand, Malaysia,
Oman and New Zealand, as well as Upstream assets in Iraq and Malaysia and a Downstream divestment in Argentina partially offset by a charge related
to the disposal of our Upstream assets in Ireland.
In 2017, net gains on sale of non-current assets and businesses arose mainly in respect of gains on the sale of Upstream assets in the UK and the USA as
well as Downstream assets in Australia and Saudi Arabia, partly offset by a loss on the Motiva transaction. Net foreign exchange losses on financing
activities in 2017 includes a charge of $545 million from the release of cumulative currency translation differences following the restructuring of funding for
our North America businesses.
In 2016, net gains on sale of non-current assets and businesses arose mainly in respect of Upstream assets in North America and Downstream assets in
Denmark and Japan. In addition, in respect of a decrease in Shell’s interest in Woodside Petroleum Limited, a revaluation gain of $293 million was
recognised and a gain of $358 million on the related release of cumulative currency translation differences was recognised in net foreign exchange gains
on financing activities. Other mainly relates to the write down of an investment in securities.
Other net foreign exchange losses of $210 million in 2018 (2017: $47 million; 2016: $49 million) were included in purchases.
6 INTEREST EXPENSE
Interest incurred and similar charges
Less: interest capitalised
Other net losses on fair value hedges of debt
Accretion expense
Total
2018
3,550
(876 )
169
902
3,745
2017
3,448
(622 )
114
1,102
4,042
$ million
2016
2,732
(725 )
4
1,192
3,203
The rate applied in determining the amount of interest capitalised in 2018 was 4% (2017: 3%; 2016: 3%).
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7 INTANGIBLE ASSETS
2018
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
Carrying amount at December 31
2017
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
Carrying amount at December 31
(261 )
39
14,154
605
—
(136 )
23
492
13,662
LNG off-take
Goodwill
and sales contracts
Other
Total
$ million
14,154
10,429
6,106
30,689
331
—
659
(75 )
(72)
(64 )
—
14,338
10,365
492
173
(21 )
(22 )
622
13,716
2,432
925
(64 )
—
3,293
7,072
(253 )
(120 )
6,392
3,585
370
(275 )
(86 )
3,594
2,798
990
(392 )
(192 )
31,095
6,509
1,468
(360 )
(108)
7,509
23,586
$ million
LNG off-take
Goodwill
and sales contracts
Other
Total
13,592
10,429
5,085
29,106
784
—
786
—
—
37
198
1,570
(224 )
237
10,429
6,106
30,689
1,475
957
—
—
2,432
7,997
3,059
612
(241 )
155
3,585
2,521
5,139
1,569
(377 )
178
6,509
24,180
Goodwill at December 31, 2018, principally related to the acquisition of BG Group plc (BG) in 2016, allocated to Integrated Gas ($4,897 million) and
Upstream ($6,013 million) at the operating segment level, and to Pennzoil-Quaker State Company ($1,609 million), a lubricants business in the Downstream
segment based largely in North America. Information on annual impairment testing is included in Note 8.
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185
8 PROPERTY, PLANT AND EQUIPMENT
2018
(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)
$ million
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
Carrying amount at December 31
[A] Includes an impairment reversal for assets in North America.
2017
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
Carrying amount at December 31
[A] $1,065 million has been reclassified from Exploration and evaluation to Production.
Exploration and production
Exploration
and evaluation
Production
Manufacturing,
supply and
distribution
Other
Total
22,510
3,514
(4,443 )
(400)
21,181
292,256
86,948
22,355
424,069
12,596
(19,643 )
(4,828)
280,381
6,438
(667 )
(1,484 )
1,594
(814 )
(1,095)
24,142
(25,567 )
(7,807)
91,235
22,040
414,837
5,060
137,525
44,483
(979 ) [A]
16,551
(608 )
(186 )
3,287
17,894
(19,631 )
(2,753 )
131,692
148,689
4,000
(1,353 )
(912 )
46,218
45,017
10,621
1,095
(756 )
(495 )
10,465
11,575
197,689
20,667
(22,348 )
(4,346 )
191,662
223,175
(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)
$ million
Exploration and production
Exploration
and evaluation
Production
Manufacturing,
supply and
distribution
25,376
2,319
302,532
15,347
77,286
8,148
(5,651 ) [A]
(33,133 ) [A]
(1,427 )
7,510
292,256
2,941
86,948
Other
Total
20,063
425,257
1,352
(655 )
1,595
27,166
(40,866)
12,512
22,355
424,069
133,600
39,673
19,155
(19,615 )
4,385
3,705
(763 )
1,868
9,523
1,016
(701 )
783
189,159
24,654
(23,379)
7,255
5,060
137,525
44,483
10,621
197,689
17,450
154,731
42,465
11,734
226,380
466
22,510
6,363
778
(2,300 )
219
Sales, retirements and other movements in 2018 include sales of interests in Thailand, Ireland, Argentina and Norway. In Thailand, Shell sold its 22.22%
interest in the Bangkot field and adjoining acreage offshore Thailand. In Ireland, Shell sold its 45% interest in the Corrib gas venture. The Buenos Aires
Refinery was sold as part of the Argentina Downstream business together with other businesses, as well as the supply and distribution activities. In Norway,
Shell sold its 44.56% operated interest in the Draugen field and 12% non-operated interest in the Gjøa field.
The carrying amount at December 31, 2018, included $33,451 million (2017: $42,121 million) of assets under construction. This amount excludes exploration
and evaluation assets. The carrying amount at December 31, 2018, also included $705 million of assets classified as held for sale (2017: $986 million).
186
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The carrying amount of exploration and production assets at December 31, 2018, included rights and concessions in respect of proved and unproved
properties of $15,860 million (2017: $14,839 million). Exploration and evaluation assets principally comprise rights and concessions in respect of unproved
properties and capitalised exploration drilling costs.
The carrying amount of assets at December 31, 2018, for which an alternative reserves base was applied in the calculation of the depreciation charge (see
Note 2), was $5,838 million (2017: $18,115 million). If no alternative reserves base had been used, the pre-tax depreciation charge for the year ended
December 31, 2018, would have been $1,003 million higher (2017: $5,558 million, 2016: $9,181 million).
Contractual commitments for the purchase of property, plant and equipment at December 31, 2018, amounted to $4,783 million (2017: $4,504 million).
In addition, Shell has other commitments for future expenditure that, when incurred, are also expected to be recognised as additions to property, plant and
equipment, such as the majority of operating lease payments in respect of drilling and ancillary equipment (see Note 14).
Carrying amount of property, plant and equipment held under finance leases [A](cid:3)
Exploration and production
Manufacturing, supply and distribution
Other
Total
[A] See Note 14.
Impairments
Impairment losses [A]
Exploration and production
Manufacturing, supply and distribution
Other
Total
Impairment reversals [A]
Exploration and production
Manufacturing, supply and distribution
Other
Total
[A] See Note 4.
Dec 31, 2018
6,299
3,149
200
9,648
2018
2017
1,066
441
8
1,515
1,265
—
—
1,265
4,187
376
9
4,572
615
—
—
615
$ million
Dec 31, 2017
8,399
3,151
272
11,822
$ million
2016
1,324
567
40
1,931
—
36
2
38
Impairment losses in 2018 were mainly in Upstream, and principally related to the disposal of Shell’s interests in Norway and Ireland and related to assets
in the Gulf of Mexico. Impairment reversals were mainly related to assets in North America. Impairment losses in 2017 were mainly in Upstream, and
principally related to the disposal of interests in Canada and interests in Ireland classified as held for sale. Impairment losses in 2016 were mainly triggered
by asset performance, disposals and project cancellations. They related primarily in Upstream to shale and deep-water properties in North and South
America and in Downstream to disposals and assets held for sale in the refining portfolio.
For impairment testing purposes, the respective carrying amounts of property, plant and equipment and intangible assets were compared with their value in
use. Cash flow projections used in the determination of value in use were made using management’s forecasts of commodity prices, market supply and
demand, product margins and expected production volumes (see Note 2). These cash flows were adjusted for the risks specific to the assets, and therefore
these risks were not included in the determination of the discount rate applied. The nominal pre-tax rate applied in 2018 was 6% (2017: 6%; 2016: 6%).
Oil and gas price assumptions applied for impairment testing are reviewed and, where necessary, adjusted on a periodic basis. Reviews include
comparison with available market data and forecasts that reflect developments in demand such as global economic growth, technology efficiency, policy
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[Note 8 continued]
measures and, in supply, consideration of investment and resource potential, cost of development of new supply, and behaviour of major resource holders.
The near-term commodity price assumptions applied in impairment testing in 2018 were as follows:
(cid:3)
Commodity price assumptions [A]
Brent crude oil ($/b)
Henry Hub natural gas ($/MMBtu)
[A] Money of the day.
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
2019
65
3.25
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
2020
65
3.50
(cid:3)
(cid:3)
2021
70
3.50
For periods after 2021, the real terms long-term price assumptions applied were $70 per barrel (/b) (2017: $70/b after 2020) for Brent crude oil and
$3.50 per million British thermal units (/MMBtu) (2017: $3.50/MMBtu after 2020) for Henry Hub natural gas.
Capitalised exploration drilling costs
At January 1
Additions pending determination of proved reserves
Amounts charged to expense
Reclassifications to productive wells on determination of proved reserves
Other movements
At December 31
[A] $912 million of capitalised exploration drilling costs has been reclassified from Exploration and evaluation to Production.
2018
6,981
2,588
(449 )
(2,461 )
(30 )
6,629
2017
7,910
1,708
(897 )
(1,894 ) [A]
154
6,981
[A]
Between 1 and 5 years
Between 6 and 10 years
Between 11 and 15 years
Between 16 and 20 years
Total
Number
44
12
4
—
Projects
$ million
3,645
1,059
238
—
Number
180
143
16
3
60
4,942
342
4,942
$ million
2016
7,835
1,762
(834 )
(1,187 )
334
7,910
Wells
$ million
2,670
1,766
441
65
Exploration drilling costs capitalised for periods greater than one year at December 31, 2018, analysed according to the most recent year of activity, are
presented in the table above. They comprise $1,342 million relating to 17 projects where drilling activities were under way or firmly planned for the future
and $3,600 million relating to 43 projects awaiting development concepts.
9 JOINT VENTURES AND ASSOCIATES
Shell share of comprehensive income of joint ventures and associates
2018
2017
$ million
2016
Income for the period
Other comprehensive
Joint
ventures
Associates
Total
Joint
ventures
Associates
Total
Joint
ventures
Associates
Total
1,307
2,799
4,106
2,102
2,123
4,225 2,332
1,213 3,545
income/(loss) for the period
172
11
183
164
6
170
78
(106 )
(28 )
Comprehensive income for the period
1,479
2,810
4,289
2,266
2,129
4,395
2,410
1,107
3,517
Carrying amount of interests in joint ventures and associates
Net assets
Dec
31, 2018
Joint
Joint
$ million
Dec 31, 2017
ventures
Associates
Total
ventures
Associates
Total
14,263
11,066
25,329
15,052
12,875
27,927
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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Transactions with joint ventures and associates
Sales and charges to joint ventures and associates
Purchases and charges from joint ventures and associates
2018
8,270
11,212
2017
13,121
10,680
$ million
2016
24,214
13,859
These transactions principally comprise sales and purchases of goods and services in the ordinary course of business. Related balances outstanding at
December 31, 2018, and 2017, are presented in Notes 11 and 15.
Other arrangements in respect of joint ventures and associates
Commitments to make purchases from joint ventures and associates [A]
Commitments to provide debt or equity funding to joint ventures and associates
[A] Commitments to make purchases from joint ventures and associates mainly relate to contracts associated with raw materials and transportation capacity.
1,254
638
Dec 31, 2018
10 INVESTMENTS IN SECURITIES
Investment in securities
Equity securities:
Equity securities at fair value through other comprehensive income
Debt securities:
Debt securities at amortised cost
Debt securities at fair value through other comprehensive income
Debt securities at fair value through profit and loss
Total
At fair value
Measured by reference to prices in active markets for identical assets
Measured using predominantly unobservable inputs
Total
At cost
Total
Dec 31, 2018
1,823
1,823
1,251
8
953
290
3,074
1,873
1,193
3,066
8
3,074
$ million
Dec 31, 2017
1,371
1,216
$ million
Dec 31, 2017
5,976
1,246
7,222
5,776
1,268
7,044
178
7,222
Equity securities at December 31, 2018, principally comprised interests below 5%, in various investments. Shell’s 8% share in Canadian Natural Resources
Limited and 15% interest in Malaysia LNG Tiga Sendirian Berhad were disposed of in 2018. Their carrying amounts at December 31, 2017, were $3,506
million and $722 million respectively. Debt securities principally comprised a portfolio required to be held by Shell’s internal insurance entities as security for
their activities.
Investments in securities measured using predominantly unobservable inputs [A]
At January 1
Gains/(losses) recognised in other comprehensive income
Other movements
At December 31
[A] Based on expected dividend flows, adjusted for country and other risks as appropriate and discounted to their present value.
[B] Other movements mainly relates to the disposal of the interest in Malaysia LNG Tiga Sendirian Berhad, partly offset by investments made in securities during 2018.
2018
1,268
212
(287 ) [B]
1,193
$ million
2017
1,233
(108 )
143
1,268
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189
11 TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
Amounts due from joint ventures and associates
Prepayments and deferred charges
Total
Dec 31, 2018
$ million
Dec 31, 2017
Current
Non-current
Current
Non-current
27,541
8,543
992
5,355
—
4,823
1,183
1,820
30,721
9,036
868
3,940
42,431
7,826
44,565
—
5,525
1,327
1,623
8,475
The fair value of financial assets included above approximates the carrying amount and was determined from predominantly unobservable inputs.
Other receivables at December 31, 2018, include receivables from certain governments in their capacity as joint arrangement partners, of $1,449 million
(2017: $2,265 million), after provisions for impairments, that are overdue in part or in full. Recoverability and timing thereof is subject to uncertainty,
however, the ultimate risk of default on the carrying amount is considered to be low. Other receivables also include income tax (see Note 16) and other tax
receivables.
Provisions for impairments deducted from trade and other receivables amounted to $790 million at December 31, 2018 (2017: $881 million).
Allowance for expected credit losses - trade receivables
Expected loss rate
Gross carrying amount
Loss allowance provision
Net carrying amount at December 31, 2018
Net carrying amount at December 31, 2017
Not overdue
Overdue
1-30 days
Overdue
31-180 days
Overdue
more than
180 days
$ million
Total
0.0014% -
0.0393% -
0.1752% -
0.7592% -
0.0799%
1.548%
14.8524%
28.037%
25,835
892
541
539
27,807
(2)
25,833
28,719
(2)
890
1,154
(7)
534
480
(12)
527
368
(23)
27,784
30,721
The Company uses a provision matrix to calculate expected credit losses (ECLs) for trade receivables. The provision matrix is initially based on the
Company’s historical observed default rates. The Company will calibrate the matrix to adjust the historical credit loss experience with forward-looking
information.
A loss allowance provision of $243 million was established, in addition to all other impairments to trade receivables as at December 31, 2018, that are
outside of the provision matrix calculations.
12 INVENTORIES
Oil, gas and chemicals
Materials
Total
Dec 31, 2018
19,516
1,601
21,117
$ million
Dec 31, 2017
22,962
2,261
25,223
Inventories at December 31, 2018, include write-downs to net realisable value of $1,473 million (2017: $253 million).
190
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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13 CASH AND CASH EQUIVALENTS
Cash
Short-term bank deposits
Money market funds, reverse repos and other cash equivalents
Total
Dec 31, 2018
4,034
3,655
19,052
26,741
$ million
Dec 31, 2017
4,672
3,996
11,644
20,312
Included in cash and cash equivalents at December 31, 2018, were amounts totalling $257 million (2017: $120 million) subject to currency controls or other
legal restrictions. Information about credit risk is presented in Note 19.
14 DEBT AND LEASE ARRANGEMENTS
DEBT
Debt
Short-term debt
Long-term debt due within 1 year
Current debt
Non-current debt
Total
Net debt
At January 1, 2018
Cash flow
Finance lease additions
Other movements
Currency translation differences and foreign exchange gains/(losses)
At December 31, 2018
At January 1, 2017
Cash flow
Finance lease additions
Other movements
Currency translation differences and foreign exchange gains/(losses)
Dec 31, 2018
$ million
Dec 31, 2017
Debt
(excluding
finance lease
liabilities)
Finance
lease
liabilities
Debt
(excluding
finance lease
liabilities)
Total
Finance
lease
liabilities
693
—
693
1,211
—
Total
1,211
8,419
1,022
9,441
9,500
1,084
10,584
9,112
1,022
10,134
10,711
1,084
11,795
53,686
62,798
13,004
14,026
66,690
76,824
59,430
70,141
14,440
15,524
73,870
85,665
Current
Non-current
Derivative
financial
debt
(11,795 )
10,392
(51 )
(8,939 )
259
(10,134 )
(9,484 )
11,457
(56 )
(13,232 )
(480)
debt
instruments [A]
(73,870 )
(2,418 )
(652 )
9,270
980
(66,690 )
(82,992 )
(113 )
(1,772 )
13,749
(2,742 )
(591 )
446
(261 )
(939 )
(1,345)
(4,045 )
485
(272 )
3,241
Cash and cash
equivalents
(see Note 13)
$ million
Net debt [A]
20,312
6,878
—
(449 )
26,741
19,130
535
—
647
(65,944 )
15,298
(703 )
70
(149 )
(51,428)
(77,391 )
12,364
(1,828 )
245
666
At December 31, 2017
(65,944
[A] With effect from 2018, the net debt calculation includes the fair value of derivative financial instruments used to hedge foreign exchange and interest rate risks relating to debt and associated collateral
balances. Derivative financial instruments at December 31, 2018, includes $72 million representing collateral on debt-related derivatives. Prior year comparatives have been revised to reflect the change in the
net debt calculation.
(73,870 )
(11,795 )
20,312
(591 )
)
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.
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[Note 14 continued]
Gearing, defined as net debt (total debt less cash and cash equivalents) as a percentage of total capital (net debt plus total equity), is a key measure of
Shell’s capital structure. Across the business cycle, management aims to manage gearing within a range of 0-30%. At December 31, 2018, gearing was
20.3% (2017: 25.0%, as revised).
Gearing
Net debt
Total equity
Total capital
Gearing
[A] As revised, following the revision of the net debt calculation from 2018.
$ million, except where indicated
Dec 31, 2018
Dec 31, 2017
51,428
202,534
253,962
20.3 %
65,944 [A]
197,812
263,756 [A]
25.0 % [A]
Management’s priorities for applying Shell’s cash are the servicing and reduction of debt commitments, payment of dividends, followed by a balance of
capital investment and share buybacks. Management’s policy is to grow the dollar dividend through time, in line with its view of Shell’s underlying earnings
and cash flow.
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.
Borrowing facilities and amounts undrawn
CP programmes
EMTN programme
US shelf registration
Committed credit facility
Facility
$ million
Amount undrawn
Dec 31, 2018
Dec 31, 2017
Dec 31, 2018
Dec 31, 2017
20,000
20,000
20,000
19,659
unlimited
unlimited
unlimited
unlimited
N/A
N/A
8,840
8,500
8,840
N/A
N/A
8,500
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 each year, most recently in August 2018. No debt was issued under this programme in 2018
(2017: $nil issued). 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 December 2017. During 2018, debt totalling $3 billion (2017: nil) was issued under the
registration. The committed credit facility is available at pre-agreed margins and expires in 2020. The terms and availability are not conditional on Shell’s
financial ratios or its financial credit ratings.
In addition, other subsidiaries have access to undrawn short-term bank facilities totalling $3,035 million at December 31, 2018 (2017: $3,409 million).
Interest rate swaps have been entered into against certain fixed rate debt affecting the effective interest rate on these balances (see Note 19).
The following tables compare contractual cash flows for debt excluding finance lease liabilities at December 31, with the carrying amount in the
Consolidated Balance Sheet. Contractual amounts reflect the effects of changes in foreign 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.
2018
Bonds
Bank and other borrowings
Total (excluding interest)
Interest
Contractual payments
$ million
Between
Between
Between
Between
Difference
Less than
1 and 2
2 and 3
3 and 4
4 and 5
5 years
from carrying
Carrying
1 year
years
years
years
years
and later
Total
amount
amount
8,163 5,900 4,993 4,458
4,312 33,162 60,988
181 61,169
945
39
209
50
27
359
1,629
—
1,629
9,108
5,939 5,202 4,508 4,339 33,521 62,617
181 62,798
1,780
1,555
1,426
1,319
1,244 14,406 21,730
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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2017
Commercial paper
Bonds
Bank and other borrowings
Total (excluding interest)
Interest
Contractual payments
$ million
Between
Between
Between
Between
Difference
Less than
1 and 2
2 and 3
3 and 4
4 and 5
5 years
from carrying
Carrying
1 year
years
years
years
years
and later
Total
amount
amount
341
—
—
—
—
—
341
5
346
8,989
8,306 5,900 5,047 4,620 35,037 67,899
131 68,030
1,321
43
127
56
180
36
1,763
2
1,765
10,651
8,349 6,027
5,103 4,800 35,073 70,003
138 70,141
1,957
1,688
1,457
1,328
1,221
15,293 22,944
The fair value of debt excluding finance lease liabilities at December 31, 2018, was $64,708 million (2017: $74,650 million), mainly determined from the
prices quoted for those securities.
LEASE ARRANGEMENTS
Finance lease liabilities mainly relate to contracts in Upstream and Integrated Gas for floating production, storage and offloading units, subsea equipment
and power generation. Finance lease liabilities are secured on the leased assets. Operating lease contracts are, in Upstream and Integrated Gas,
principally for drilling and ancillary equipment, service vessels, LNG vessels and land and buildings; in Downstream, principally for tankers, storage capacity
and retail sites; and in Corporate, principally for land and buildings.
The future minimum lease payments for finance and operating leases and the present value of future minimum finance lease payments at December 31,
by payment date are as follows:
2018
Less than 1 year
Between 1 and 5 years
5 years and later
Total
[A] Includes $5,348 million in respect of drilling and ancillary equipment.
2017
Less than 1 year
Between 1 and 5 years
5 years and later
Total
[A] Includes $6,473 million in respect of drilling and ancillary equipment.
[B] Revised following a reassessment of contracts
Future
minimum
lease payments
$ million
Finance leases
Operating leases
Present value
of future minimum
lease payments
Future
minimum lease
payments [A]
Interest
2,061
7,508
1,039
3,391
1,022
4,117
13,370
4,483
8,887
22,939
8,913
14,026
4,784
11,575
7,860
24,219
Future
minimum
lease payments
$ million
Finance leases
Operating leases
Present value
of future minimum
lease payments
Future
minimum lease
payments [A] [B]
Interest
2,274
1,190
8,246
3,887
1,084
4,359
15,043
4,962
10,081
4,909
12,415
7,961
25,563
10,039
15,524
25,285
Future minimum lease payments at December 31, 2018 are stated before deduction of amounts expected to be received under non-cancellable sub-leases
of $273 million (2017: $336 million) in respect of finance leases and $507 million (2017: $300 million) in respect of operating leases.
Operating lease expense in 2018 was $4,354 million (2017: $4,822 million; 2016: $5,063 million).
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
193
15 TRADE AND OTHER PAYABLES
Trade payables
Other payables
Amounts due to joint ventures and associates
Accruals and deferred income
Total
Dec 31, 2018
$ million
Dec 31, 2017
Current
Non-current
Current
Non-current
30,351
5,597
2,851
10,089
—
33,196
—
2,413
33
5,767
3,090
2,021
289
10,426
29
328
48,888
2,735
51,410
3,447
The fair value of financial liabilities included above approximates the carrying amount and was determined from predominantly unobservable inputs.
Other payables include amounts due to joint arrangement partners and in respect of other project-related items.
Information about offsetting, collateral and liquidity risk is presented in Note 19.
16 TAXATION
Taxation charge
Current tax:
Charge in respect of current period
Adjustments in respect of prior periods
Total
Deferred tax:
Relating to the origination and reversal of temporary differences, tax losses
and credits
Relating to changes in tax rates and legislation
Adjustments in respect of prior periods
Total
Total taxation charge
[A] Mainly in respect of the US Tax Cuts and Jobs Act (the Act).
2018
2017
10,415
60
10,475
7,204
(613 )
6,591
1,438
(157 )
(41 )
1,240
11,715
(4,102 )
2,004 [A]
202
(1,896 )
4,695
$ million
2016
3,936
(1,205 )
2,731
(2,688 )
(200 )
986
(1,902 )
829
194
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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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.
Reconciliation of applicable tax charge/(credit) at statutory tax rates to taxation charge
Income before taxation
Less: share of profit of joint ventures and associates
Income before taxation and share of profit of joint ventures and associates
Applicable tax charge/(credit) at statutory tax rates
Adjustments in respect of prior periods
Tax effects of:
Income not subject to tax at statutory rates
Expenses not deductible for tax purposes
(Recognition)/derecognition of deferred tax assets
Deductible items not expensed
Taxable income not recognised
Changes in tax rates and legislation
Other
Taxation charge
2018
35,621
(4,106 )
31,515
11,444
19
(1,783 )
1,379
(381 )
(371 )
312
(157 )
1,253
11,715
2017
18,130
(4,225 )
13,905
4,532
(411 )
(1,852 )
2,423
(957 )
(584 )
251
2,004
(711 )
4,695
$ million
2016
5,606
(3,545 )
2,061
(344 )
(219 )
(1,740 )
2,066
1,575
(516 )
509
(200 )
(302 )
829
The weighted average of statutory tax rates was 36% in 2018 (2017: 33%; 2016: (17)%). Compared to 2017, the increase in the rate reflects a higher
proportion of earnings in the Upstream segment, subject to relatively higher tax rates than earnings in Downstream and Integrated Gas. The negative rate in
2016 (tax credit on pre-tax income) was mainly due to losses incurred in jurisdictions with a higher weighted average statutory tax rate than jurisdictions in
which profits were made.
Other tax-reconciling items include $819 million relating to the impact of movements in the Brazilian real, Australian dollar and Argentinian peso on deferred
tax positions (2017: ($585) million, 2016: ($607) million).
Taxes payable
Income taxes
Sales taxes, excise duties and similar levies
Total
Dec 31, 2018
Dec 31, 2017
$ million
3,990
3,507
7,497
4,062
3,188
7,250
Included in other receivables at December 31, 2018 (see Note 11), was income tax receivable of $1,042 million (2017: $933 million).
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195
[Note 16 continued]
2018 - Deferred tax
$ million
Deferred tax asset
At January 1, 2018
(Charge)/credit to income
Currency translation differences
Other
At December 31, 2018
Deferred tax liability
At January 1, 2018
(Charge)/credit to income
Currency translation differences
Other
At December 31, 2018
Net deferred tax liability at December 31, 2018
Deferred tax asset/liability as presented in the balance
sheet at December 31, 2018
Deferred tax asset
Deferred tax liability
2017 - Deferred tax
Deferred tax asset
At January 1, 2017
(Charge)/credit to income
Currency translation differences
Other
At December 31, 2017
Deferred tax liability
At January 1, 2017
(Charge)/credit to income
Currency translation differences
Other
At December 31, 2017
Net deferred tax asset at December 31, 2017
Deferred tax asset/liability as presented in the balance
sheet at December 31, 2017
Deferred tax asset
Decommissioning
Property,
and credits
Tax losses
and other
plant and
carried
Retirement
provisions
equipment
forward
benefits
6,182
3,379
13,684
3,868
166
(177 )
(269 )
345
(32 )
26
(553 )
(462 )
(502 )
5,902
3,718
12,167
14
(93 )
(479 )
3,310
Other
4,144
119
(42 )
12
Total
31,257
91
(806 )
(1,212 )
4,233
29,330
—
—
—
—
—
(26,904 )
(1,751 )
409
475
(27,771 )
—
—
—
—
—
(742 )
(2,827 )
(30,473 )
180
24
(1,136 )
240
36
(74 )
(1,331 )
469
(735 )
(1,674 )
(2,625 )
(32,070 )
(2,740 )
12,097
(14,837 )
$ million
Decommissioning
Property,
and credits
and other
plant and
carried
Retirement
Tax losses
provisions
equipment
forward
benefits
Other [A]
Total
3,510
16,600
5,053
4,374
37,270
7,733
(1,853 )
269
33
189
49
(369 )
(2,732 )
554
(738 )
(493 )
216
(908 )
(265 )
78
(43 )
6,182
3,379
13,684
3,868
4,144
(5,154 )
1,166
(2,025 )
31,257
—
—
—
—
—
(33,963 )
6,437
(711 )
1,333
(26,904 )
—
—
—
—
—
(582 )
(129 )
(63 )
32
(3,574 )
(38,119 )
742
(70 )
75
7,050
(844 )
1,440
(742 )
(2,827 )
(30,473 )
784
Deferred tax liability
[A] Reclassified from the Other category to Tax losses carried forward to align with current year presentation.
(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:20)(cid:22)(cid:15)(cid:26)(cid:28)(cid:20)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)
(cid:11)(cid:20)(cid:22)(cid:15)(cid:19)(cid:19)(cid:26)(cid:3)(cid:12)(cid:3)
The presentation in the balance sheet takes into consideration the offsetting of deferred tax assets and deferred tax liabilities within the same tax jurisdiction,
where this is permitted. The overall deferred tax position in a particular tax jurisdiction determines if a deferred tax balance related to that jurisdiction is
presented within deferred tax assets or deferred tax liabilities.
Other movements in deferred tax assets and liabilities principally relate to acquisitions, sales of non-current assets and businesses, and amounts recognised
in other comprehensive income, which in 2017 included amounts in respect of the Act.
196
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The amount of deferred tax assets dependent on future taxable profits not arising from the reversal of existing deferred tax liabilities, and which relate to tax
jurisdictions, where Shell has suffered a loss in the current or preceding year, was $9,979 million at December 31, 2018 (2017: $12,452 million). It is
considered probable based on business forecasts that such profits will be available.
Unrecognised taxable temporary differences associated with undistributed retained earnings of investments in subsidiaries, joint ventures and associates
amounted to $3,951 million (2017: $3,746 million).
Unrecognised deductible temporary differences, unused tax losses and credits carried forward amounted to $34,910 million at December 31, 2018 (2017:
$34,773 million) including amounts of $27,604 million (2017: $28,016 million) that are subject to time limits for utilisation of five years or later, or are not
time limited.
17 RETIREMENT BENEFITS
Retirement benefits are provided through a number of funded and unfunded defined benefit plans and defined contribution plans, the most significant of
which are in the Netherlands, UK and USA. Benefits comprise principally pensions; retirement healthcare and life insurance are also provided in certain
countries.
Retirement benefit expense
Defined benefit plans:
Current service cost, net of plan participants’ contributions
Interest expense on obligations
Interest income on plan assets
Other
Total
Defined contribution plans
Total retirement benefit expense
2018
2017
1,494
2,282
(2,087 )
(221 )
1,468
410
1,878
1,500
2,309
(2,019 )
(404 )
1,386
429
1,815
$ million
2016
1,527
2,643
(2,358 )
(116 )
1,696
485
2,181
Retirement benefit expense is presented principally within production and manufacturing expenses and selling, distribution and administrative expenses in
the Consolidated Statement of Income. Interest income on plan assets is calculated using the same rate as that applied to the related defined benefit
obligations for each plan to determine interest expense.
Remeasurements
Actuarial gains/(losses) on obligations:
Due to changes in financial assumptions [A]
Due to experience adjustments [B]
Due to changes in demographic assumptions [C]
Total
Return on plan assets (shortage)/in excess of interest income
Other movements
Total remeasurements
[A] Primarily relates to changes in the discount rate assumptions.
[B] Experience adjustments arise from differences between the actuarial assumptions made in respect of the year and actual outcomes.
[C] Primarily relates to updates in mortality assumptions.
2018
2017
$ million
2016
8,186
(268 )
(459 )
7,459
(2,312 )
66
5,213
(4,495 )
(11,391 )
37
933
(3,525 )
4,942
50
1,467
642
809
(9,940 )
5,106
18
(4,816 )
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197
[Note 17 continued]
Defined benefit plans
Obligations
Plan assets
Net liability
Retirement benefits in the Consolidated Balance Sheet:
Non-current assets
Non-current liabilities
Current liabilities
Total
Dec 31, 2018
Dec 31, 2017
$ million
(91,856 )
85,803
(6,053 )
6,051
(11,653 )
(451 )
(6,053 )
(104,285 )
93,243
(11,042 )
2,799
(13,247 )
(594 )
(11,042 )
Defined benefit plan obligations
$ million, except where indicated
At January 1
Current service cost
Interest expense
Actuarial (gains)/losses
Benefit payments
Other movements
Currency translation differences
At December 31
Comprising:
Funded pension plans
Weighted average duration
Unfunded pension plans
Weighted average duration
Other unfunded plans
Weighted average duration
2018
104,285
1,491
2,282
(7,459 )
(4,435 )
(360 )
(3,948 )
91,856
83,276
17 years
4,359
13 years
4,221
12 years
2017
94,405
1,550
2,309
3,525
(4,579 )
(949 )
8,024
104,285
94,903
19 years
4,824
12 years
4,558
13 years
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FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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Defined benefit plan assets
$ million, except where indicated
At January 1
Return on plan assets (shortage)/in excess of interest income
Interest income
Employer contributions
Plan participants’ contributions
Benefit payments
Other movements
Currency translation differences
At December 31
Comprising:
Quoted in active markets:
Equities
Debt securities
Real estate
Investment funds
Other
Other:
Equities
Debt securities
Real estate
Investment funds
Other
Cash
2018
93,243
(2,312 )
2,087
763
47
(4,123 )
(102 )
(3,800 )
85,803
24 %
53 %
1 %
0 %
1 %
8 %
3 %
6 %
3 %
0 %
1 %
2017
81,276
4,942
2,019
1,804
50
(4,294 )
(245 )
7,691
93,243
32 %
45 %
1 %
1 %
1 %
7 %
3 %
6 %
3 %
1 %
0 %
Long-term investment strategies of plans are generally determined by the relevant pension plan 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. The value of
the plan assets was impacted by the reduced return on investments globally.
Employer contributions to defined benefit pension plans are based on actuarial valuations in accordance with local regulations and are estimated to be
$0.9 billion in 2019.
Additional contributions to the Netherlands defined benefit pension plan would be required if the 12-month rolling average local funding percentage falls
below 105% for six months or more. At the most recent (2018) funding valuation the local funding percentage was above this level. There are no set
minimum statutory funding requirements for the UK plans. Under an agreement with the trustee of the main UK defined benefit plan, Shell will provide
additional contributions if the funding position falls below a certain level, although this is currently not anticipated. For the US plans, under the Pension
Protection Act there are minimum required contribution levels; forecast contributions are expected to exceed these.
The principal assumptions applied in determining the present value of defined benefit obligations and their bases were as follows:
(cid:131) rates of increase in pensionable remuneration, pensions in payment and healthcare costs: historical experience and management’s long-term
expectation;
(cid:131) discount rates: prevailing long-term AA corporate bond yields, chosen to match the currency and duration of the relevant obligation; and
(cid:131) mortality rates: published standard mortality tables for the individual countries concerned adjusted for Shell experience where statistically significant.
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199
[Note 17 continued]
The weighted averages for those assumptions and related sensitivity information at December 31 are presented below. Sensitivity information indicates by
how much the defined benefit obligations would increase or decrease if a given assumption were to increase or decrease with no change in other
assumptions.
Rate of increase in pensionable remuneration
Rate of increase in pensions in payment
Rate of increase in healthcare costs
Discount rate for pension plans
Discount rate for healthcare plans
Expected age at death for persons aged 60:
$ million, except where indicated
Effect of using alternative assumptions
Assumptions used
Increase/(decrease) in defined benefit obligations
2018
2017
Range of assumptions
2018
2017
4.1 %
1.8 %
6.3 %
2.9 %
4.2 %
4.7 %
1.9 %
6.6 %
2.5 %
3.5 %
-1% to +1%
(1,576) to 1,819
(2,150) to 2,782
-1% to +1%
(8,304) to 10,104
(10,120) to 12,662
-1% to +1%
(410) to 496
(451) to 551
-1% to +1%
15,606 to (12,078)
19,042 to (14,567)
-1% to +1%
536 to (436)
599 to (483)
Men
Women
87 years
87 years
-1 year to +1 year
(1,538) to 1,583
(1,906) to 2,022
89 years
89 years
-1 year to +1 year
(1,436) to 1,476
(1,720) to 1,828
200
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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18 DECOMMISSIONING AND OTHER PROVISIONS
At January 1, 2018
Current
Non-current
Additions
Amounts charged against provisions
Accretion expense
Disposals
Remeasurements and other movements
Currency translation differences
At December 31, 2018
Current
Non-current
At January 1, 2017
Current
Non-current
Additions
Amounts charged against provisions
Accretion expense
Disposals
Remeasurements and other movements
Currency translation differences
At December 31, 2017
Current
Non-current
Decommissioning
and restoration
Legal
Environmental
Redundancy
Other
Total
$ million
817
19,767
20,584
418
(497 )
755
(1,781 ) [A]
(1,065 )
(481 )
(2,651 )
876
17,057
17,933
797
24,368
25,165
1,168
(491 )
897
(2,807 )
(4,245 )
897
(4,581 )
817
19,767
20,584
423
1,095
1,518
196
(200 )
17
(14 )
(47 )
(10 )
(58 )
213
1,247
1,460
500
1,066
1,566
390
(327 )
61
(2 )
(190 )
20
(48 )
423
1,095
1,518
287
1,218
1,505
191
(212 )
17
758
560
1,318
535
(504 )
15
(11 )
(3 )
(130 )
(22 )
(167 )
264
1,074
1,338
296
1,186
1,482
496
(173 )
20
(367 )
(35 )
(359 )
491
468
959
831
564
1,395
756
(618 )
13
(4 )
(18 )
(352 )
36
23
287
1,218
1,505
(301 )
91
(77 )
758
560
1,318
1,180
2,326
3,506
1,070
(887 )
48
(49 )
(122 )
(64 )
(4 )
1,815
1,687
3,502
1,360
2,434
3,794
988
(1,207 )
47
(71 )
(178 )
133
(288 )
1,180
2,326
3,506
3,465
24,966
28,431
2,410
(2,300 )
852
(1,858 )
(1,731 )
(612 )
(3,239 )
3,659
21,533
25,192
3,784
29,618
33,402
3,798
(2,816 )
1,038
(2,902 )
(5,266 )
1,177
(4,971 )
3,465
24,966
28,431
[A] Mainly related to disposal of interests in New Zealand and Thailand.
The amount and timing of settlement in respect of these provisions are uncertain and dependent on various factors that are not always within management’s
control. The discount rate applied at December 31, 2018 was 4% (2017: 4%).
Reviews of estimated future decommissioning and restoration costs and the discount rate applied are carried out annually. In 2018, there was a decrease
of $982 million (2017: $3,980 million) in the provision resulting from changes in cost estimates, reported within remeasurements and other movements.
Of the decommissioning and restoration provision at December 31, 2018, an estimated $3,490 million is expected to be utilised between one to five years,
$2,173 million within six to 10 years, and the remainder in later periods.
Other provisions include amounts recognised in respect of employee benefits and onerous contracts.
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19 FINANCIAL INSTRUMENTS
Financial instruments in the Consolidated Balance Sheet includes investments in securities (see Note 10), cash and cash equivalents (see Note 13), debt
(see Note 14) and derivative contracts.
RISKS
In the normal course of business, financial instruments of various kinds are used for the purposes of managing exposure to interest rate, foreign exchange
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
contracts. 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 contracts by most subsidiaries is not permitted by their
treasury policy.
Other than in exceptional cases, the use of external derivative contracts 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.
Market risk
Market risk is the possibility that changes in interest rates, foreign exchange rates or the prices of crude oil, natural gas, LNG, refined products, chemical
feedstocks, power and carbon-emission rights will adversely affect the value of assets, liabilities or expected future cash flows.
Interest rate risk
Most debt is raised from central borrowing programmes. Shell’s policy continues to be to have debt principally denominated in dollars and to maintain a
largely floating interest rate exposure profile; however, Shell has issued a significant amount of fixed rate debt in recent years, taking advantage of
historically low interest rates available in US debt markets. As a result, a substantial portion of the debt portfolio at December 31, 2018, is at fixed rates and
this reduces Shell’s exposure to the dollar LIBOR interest rate.
The financing of most subsidiaries is 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, 2018, (both issued and hedged), and assuming other factors (principally foreign
exchange rates and commodity prices) remained constant and that no further interest rate management action was taken, an increase in interest rates of 1%
would have decreased 2018 income before taxation by $37 million (2017: $174 million, based on the floating rate position at December 31, 2017).
The carrying amounts and maturities of debt and borrowing facilities are presented in Note 14. Interest expense is presented in Note 6.
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 Integrated Gas and
Upstream entities and those with significant cross-border business is the dollar. For Downstream entities, the functional currency is typically the local
currency. Consequently, Shell is exposed to varying levels of foreign exchange risk when an entity enters into transactions that are not denominated in its
functional currency, when foreign currency monetary assets and liabilities are translated at the balance sheet date and as a result of holding net investments
in operations that are not dollar-functional. Each entity is required to adopt treasury policies that are designed to measure and manage its foreign
exchange exposures by reference to its functional currency.
Foreign exchange 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 an entity’s functional currency. Foreign 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.
202
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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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 effects:
10% appreciation against the dollar of:
Canadian dollar
Euro
Australian dollar
Sterling
Increase/(decrease)
in income before taxation
$ million
Increase in net assets
2018
2017
2018
2017
(40 )
65
(109 )
(46 )
(43 )
130
(24 )
(77 )
1,245
1,190
835
779
1,111
1,086
786
632
The above sensitivity information was calculated by reference to carrying amounts of assets and liabilities at December 31 only. The effect on income before
taxation arises in connection with monetary balances denominated in currencies other than an entity’s functional currency; the 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 included in income are presented in Note 5.
Commodity price risk
Certain subsidiaries have a mandate to trade crude oil, natural gas, LNG, refined products, chemical feedstocks, power and carbon-emission rights, and to
use commodity derivative contracts (forwards, futures, swaps and options) as a means of managing price and timing risks arising from this trading activity. In
effecting these transactions, the entities 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. Commodity price risk exposure is monitored, and the acceptable level of
exposure determined, by market risk committees. There is regular reviewing of mandated trading limits by senior management, daily monitoring of market
risk exposure using value-at-risk (VAR) techniques, daily monitoring of trading positions against limits, and marking-to-fair value of trading exposures with a
department independent of traders reviewing the market values applied. 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.
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 potential changes in fair value takes
into account positions, the history of price movements and the correlation of these price movements. Models are regularly reviewed against actual fair value
movements to ensure integrity is maintained. The VAR year-end positions in respect of commodities traded in active markets, which are presented in the
table below, are calculated on a diversified basis in order to reflect the effect of offsetting risk within combined portfolios.
Value-at-risk (pre-tax)
Global oil
North America gas and power
Europe gas and power
Carbon-emission rights
Dec 31, 2018
Dec 31, 2017
$ million
28
11
3
2
25
11
3
1
Credit risk
Policies are in place to ensure that sales of products are made to customers with appropriate creditworthiness. These policies include detailed credit
analysis and monitoring of trading partners against counterparty credit limits. 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 bank deposits, money market funds, reverse repos and
similar instruments. The portfolio of these investments is diversified to avoid concentrating risk in any one instrument, country or counterparty. Management
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203
[Note 19 continued]
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 risk exposure is
monitored and the acceptable level is determined by a credit committee. 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.
Shell routinely enters into offsetting, master netting and similar arrangements with trading and other counterparties to manage credit risk. Where there is a
legally enforceable right of offset under such arrangements and Shell has the intention to settle on a net basis or realise the asset and settle the liability
simultaneously, the net asset or liability is recognised in the Consolidated Balance Sheet, otherwise assets and liabilities are presented gross. These
amounts, as presented net and gross within trade and other receivables, trade and other payables and derivative financial instruments in the Consolidated
Balance Sheet at December 31, were as follows:
2018
Assets:
Gross amounts
before offset
Amounts
offset
Net amounts
as presented
Cash collateral
received/pledged
Other offsetting
instruments
Net amounts
Amounts offset
Amounts not offset
$ million
Within trade receivables
12,697
8,340
4,358
62
221
4,075
Within derivative financial instruments
12,323
6,353
5,970
437
2,653
2,880
Liabilities:
Within trade payables
12,931
8,264
4,667
97
221
4,349
Within derivative financial instruments
12,227
5,044
7,183
1,115
2,653
3,415
2017
Assets:
Gross amounts
before offset
Amounts
offset
Net amounts
as presented
Cash collateral
received/pledged
Other offsetting
instruments
Net amounts
Amounts offset
Amounts not offset
$ million
Within trade receivables
10,642
6,486
4,156
Within derivative financial instruments
6,987
2,387
4,600
42
186
51
4,063
2,326
2,088
Liabilities:
Within trade payables
10,442
6,486
3,956
41
51
3,864
Within derivative financial instruments
7,315
2,392
4,923
300
2,326
2,297
Amounts not offset principally relate to contracts where the intention to settle on a net basis was not clearly established at December 31.
The carrying amount of financial assets pledged as collateral for liabilities or contingent liabilities at December 31, 2018, presented within trade and other
receivables, was $3,094 million (2017: $1,890 million). The carrying amount of collateral held at December 31, 2018, presented within trade and other
payables, was $535 million (2017: $282 million). Collateral mainly relates to initial margins held with commodity exchanges and over-the-counter
counterparty variation margins.
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 foreseeable requirements. Information about
borrowing facilities is presented in Note 14.
DERIVATIVE CONTRACTS AND HEDGES
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.
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Carrying amounts, maturities and hedges
The carrying amounts of derivative contracts at December 31, designated and not designated as hedging instruments for hedge accounting purposes, were
as follows:
2018
Interest rate swaps
Forward foreign exchange contracts
Currency swaps and options
Commodity derivatives
Other contracts
Total
2017
Designated
Not
designated
Total
Designated
Assets
Not
designated
Liabilities
Total
86
3
89
174
14
188
—
331
331
33
264
297
$ million
Net
(99 )
34
186
26
212
1,202
203
1,405
(1,193 )
—
6,864
6,864
—
6,637
6,637
—
271
271
—
56
56
272
7,495
7,767
1,409
7,174
8,583
227
215
(816 )
$ million
Interest rate swaps
—
16
16
165
34
Forward foreign exchange contracts
22
403
425
—
591
Designated
Not
designated
Total
Designated
Not
designated
Total
199
591
Net
(183 )
(166 )
Assets
Liabilities
Currency swaps and options
Commodity derivatives
Other contracts
Total
483
208
691
815
76
891
(200 )
—
4,929
4,929
—
4,428
4,428
501
—
162
162
—
125
125
505
5,718
6,223
980
5,254
6,234
37
(11 )
Net losses before tax on derivative contracts, excluding realised commodity contracts and those accounted for as hedges, were $1,818 million in 2018
(2017: $1,321 million losses; 2016: $414 million gains).
Certain contracts, mainly to hedge price risk relating to forecast commodity transactions which mature in 2019-2021, were designated in cash flow hedging
relationships. The net carrying amount of commodity derivative contracts designated as cash flow hedging instruments at December 31, 2018, was an asset
of $120 million (2017: $620 million liability) (see Note 22), and was presented after the offset of related margin balances maintained with exchanges.
Certain interest rate and currency swaps were designated in fair value hedges, principally in respect of debt for which the net carrying amount of the
related derivative contracts, net of accrued interest, at December 31, 2018, was a liability of $1,242 million (2017: $826 million).
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 derivative contracts, 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 others containing embedded derivatives, which are required to
be recognised at fair value because of pricing or delivery conditions, even though they were entered into to meet operational requirements. These contracts
are expected to mature in 2019-2025, with certain contracts having early termination rights (for either party). Valuations are derived from quoted market
prices.
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205
[Note 19 continued]
The contractual maturities of derivative liabilities at December 31 compare with their carrying amounts in the Consolidated Balance Sheet as follows:
2018
Contractual maturities
$ million
Interest rate swap
101
68
20
1
1
1
Less than
1 year
Between
1 and 2
years
Between
2 and 3
years
Between
3 and 4
years
Between
4 and 5
years
5 years
and later
Difference
from
carrying
amount
[A]
Carrying
amount
(4 )
188
Total
192
Forward foreign exchange contracts
177
(24 )
33
(1 )
(5 )
(15 )
165
132 297
605
265
474
405
198
1,715 3,662 (2,257 ) 1,405
4,733
978
422
213
138
382 6,866
(229 ) 6,637
58
—
—
—
—
—
58
(2 )
56
5,674
1,287
949
618
332 2,083 10,943 (2,360 ) 8,583
Currency swaps and options
Commodity derivatives
Other contracts
Total
[A] Mainly related to the effect of discounting.
2017
Interest rate swap
59
67
56
18
1
3
Less than
1 year
Between
1 and 2
years
Between
2 and 3
years
Between
3 and 4
years
Between
4 and 5
years
5 years
and later
Difference
from
carrying
amount
[A]
(5 )
Total
204
Contractual maturities
Forward foreign exchange contracts
315
37
14
3
2
(39 )
332
259
$ million
Carrying
amount
199
591
Currency swaps and options
Commodity derivatives
Other contracts
Total
[A] Mainly related to the effect of discounting.
541
343
140
304
194
879 2,401
(1,510 )
891
3,002
754
305
122
74
263 4,520
(92 ) 4,428
87
48
—
—
—
—
135
(10 )
125
4,004
1,249
515
447
271
1,106 7,592
(1,358 ) 6,234
Fair value measurements
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:
2018
Interest rate swaps
Forward foreign exchange contracts
Currency swaps and options
Commodity derivatives
Other contracts
Total
Prices in active
markets for identical
assets/liabilities
Other
observable
inputs
Unobservable
inputs
—
—
—
(52 )
—
(52 )
(99 )
34
(1,193 )
431
90
(737 )
—
—
—
(152 )
125
(27 )
$ million
Total
(99 )
34
(1,193 )
227
215
(816 )
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2017
Interest rate swaps
Forward foreign exchange contracts
Currency swaps and options
Commodity derivatives
Other contracts
Total
Prices in active
markets for identical
assets/liabilities
Other
observable
inputs
Unobservable
inputs
—
—
—
36
—
36
(183 )
(166 )
(200 )
302
(97 )
(344 )
Net carrying amounts of derivative contracts measured using predominantly unobservable inputs
At January 1
Net (losses)/gains recognised in revenue
Purchases
Sales
Recategorisations (net)
Currency translation differences
At December 31
$ million
Total
(183 )
(166 )
(200 )
501
37
(11 )
$ million
2017 [A]
468
372
252
(562 )
(248 )
15
297
—
—
—
163
134
297
2018
297
(258 )
461
(540 )
18
(5 )
(27 )
[A] Following a review of fair-valued commodity swaps, options, futures and forwards unobservable inputs in 2018, the movement of net carrying amounts of derivative contracts measured using predominantly
unobservable inputs was revised. This revision did not result in a change in the opening and closing balances. The revised values for 2017 were provided for comparability purposes.
Included in net losses recognised in revenue in 2018 were unrealised net losses totalling $36 million relating to assets and liabilities held at December 31,
2018 (2017: $39 million gains).
20 SHARE CAPITAL
Issued and fully paid ordinary shares of €0.07 each [A](cid:3)
Number of shares
Nominal value ($ million)
At January 1, 2018
Repurchase of shares
At December 31, 2018
At January 1, 2017
Scrip dividends
A
B
A
B
4,597,136,050 3,745,486,731
387
309
(125,246,754 )
—
4,471,889,296 3,745,486,731
4,428,903,813 3,745,486,731
168,232,237
—
(11 )
376
374
13
—
309
309
—
At December 31, 2017
[A] Share capital at December 31, 2018, and 2017, also included 50,000 issued and fully paid sterling deferred shares of £1 each.
4,597,136,050 3,745,486,731
387
309
Total
696
(11 )
685
683
13
696
At the Company’s Annual General Meeting (AGM) on May 22, 2018, 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 €194 million (representing
2,771 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, 2019, and the end of the AGM to be held in 2019, unless previously renewed, revoked or varied by the Company in a general
meeting.
At the May 22, 2018 AGM, shareholders granted the Company the authority to repurchase up to 10% of its issued ordinary shares (excluding any treasury
shares), renewing the authority granted by shareholders at previous AGMs. The authority will expire at the earlier of the close of business on August 22,
2019, and the end of the Company’s AGM to be held in 2019. Ordinary shares purchased by the Company pursuant to this authority will either be
cancelled or held in treasury. Treasury shares are shares in the Company that are owned by the Company itself. The minimum price, exclusive of expenses,
which may be paid for an ordinary share is €0.07. The maximum price, exclusive of expenses, which may be paid for an ordinary share is the higher of: (i)
an amount equal to 5% above the average market value for an ordinary share for the five business days immediately preceding the date of the purchase;
and (ii) the higher of the price of the last independent trade and the highest current independent bid on the trading markets where the purchase is carried
out.
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207
21 SHARE-BASED COMPENSATION PLANS AND SHARES HELD IN TRUST
Share-based compensation expense
Equity-settled
Cash-settled
2018
531
— [A]
2017
422
380
$ million
2016
488
205
Total
693
[A] As from 2018 components of share-based payments (related to tax) that were previously classified as cash-settled are classified as equity-settled (see Note 2). On an incidental basis awards may be cash
settled, where an equity settlement is not possible under local regulations.
802
531
The principal share-based employee compensation plans are the PSP and LTIP. Awards of shares and American Depository Shares (ADSs) of the Company
under the PSP and LTIP are granted upon certain conditions to eligible employees. The actual amount of shares that may vest ranges 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.
Share awards under the PSP and LTIP
Number of A shares
Number of B shares
Number of A ADSs
(million)
(million)
(million)
Weighted average
remaining contractual
life (years)
At January 1, 2018
Granted
Vested
Forfeited
At December 31, 2018
At January 1, 2017
Granted
Vested
Forfeited
At December 31, 2017
33
10
(12 )
(1 )
30
36
10
(12 )
(1 )
33
12
4
(4 )
—
12
12
4
(4 )
—
12
9
3
(4 )
—
8
10
3
(4 )
—
9
0.9
1.0
1.0
0.9
Other plans offer employees opportunities to acquire shares and ADSs of the Company or receive cash benefits measured by reference to the Company’s
share price.
Shell employee share ownership trusts and trust-like entities purchase the Company’s shares in the open market to meet delivery commitments under
employee share plans. At December 31, 2018, they held 19.6 million A shares (2017: 15.2 million), 7.1 million B shares (2017: 2.9 million) and 5.9 million
A ADSs (2017: 5.9 million).
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22 OTHER RESERVES
Other reserves attributable to Royal Dutch Shell plc shareholders
At January 1, 2018 (as previously reported)
Impact of IFRS 9 implementation
At January 1, 2018 (as revised)
Other comprehensive income attributable
to Royal Dutch Shell plc shareholders
Transfer from other comprehensive income
Repurchase of shares
Share-based compensation
At December 31, 2018
At January 1, 2017
Other comprehensive loss attributable
to Royal Dutch Shell plc shareholders
Scrip dividends
Share-based compensation
At December 31, 2017
At January 1, 2016
Other comprehensive loss attributable
to Royal Dutch Shell plc shareholders
Scrip dividends
Shares issued
Share-based compensation
Merger
reserve
37,298
—
37,298
—
—
—
—
37,298
37,311
—
(13 )
—
37,298
3,398
—
(17 )
33,930
—
Share
premium
reserve
Capital
redemption
reserve
154
—
154
—
—
—
—
154
154
—
—
—
154
154
—
—
—
—
84
—
84
—
—
11
—
95
84
—
—
—
84
84
—
—
—
—
Accumulated
other
comprehensive
income
$ million
Total
(22,044 )
16,932
(138 )
(138 )
(22,182 )
16,794
Share plan
reserve
1,440
—
1,440
—
—
—
(342 ) [A(cid:897) [B](cid:3)
1,098
1,644
—
—
(204 )
1,440
1,658
—
—
—
(14 )
1,123
(971 )
—
—
(22,030 )
(27,895 )
5,851
—
—
1,123
(971 )
11
(342 )
16,615
11,298
5,851
(13 )
(204 )
(22,044 )
16,932
(22,480 )
(17,186 )
(5,949 )
(5,949 )
—
—
(17 )
33,930
534
520
At December 31, 2016
[A] Includes a reclassification of $503 million between the Share plan reserve and Retained earnings, which relates to the unwinding of expired share options.
[B] The amendments to IFRS 2 Share-based payment became effective January 1, 2018. Following adoption of the amendments, components of share-based payments (related to tax) that were previously
classified as cash-settled are now classified as equity-settled. This resulted in an increase of $172 million in the share plan reserve and a net increase of $125 million in retained earnings.
(27,895 )
37,311
1,644
154
84
11,298
The merger reserve and share premium reserve were established as a consequence of the Company 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 increase
in the merger reserve in 2016 in respect of the shares issued represents the difference between the fair value and the nominal value of the shares issued for
the acquisition of BG. The capital redemption reserve was established in connection with repurchases of shares of the Company. The share plan reserve is
in respect of equity-settled share-based compensation plans (see Note 21). The movement represents the net of the charge for the year and the release as
a result of vested awards and is after deduction of tax of $71 million in 2018 (2017: $11 million; 2016: $nil).
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
209
[Note 22 continued]
Accumulated other comprehensive income comprises the following:
Accumulated other comprehensive income attributable to Royal Dutch Shell plc shareholders
$ million
Unrealised
gains/(losses)
Debt
instruments
on securities
remeasurements
Cash flow
hedging
gains/(losses)
Deferred
cost of
hedging
Retirement
benefits
Equity
instrument
remeasurements
remeasurements
Total
At January 1, 2018 (as previously reported)
(8,735 )
Currency
translation
differences
Impact of IFRS 9 implementation
At January 1, 2018 (as revised)
Recognised in other comprehensive income
Reclassified to income
Reclassified to the balance sheet
Reclassified to retained earnings
Tax on amounts recognised/reclassified
Total, net of tax
Share of joint ventures and associates
Other comprehensive income/(loss) for the
period
Less: non-controlling interest
Attributable to Royal Dutch Shell plc
shareholders
At December 31, 2018
At January 1, 2017
Recognised in other comprehensive income
Reclassified to income
Reclassified to the balance sheet
Tax on amounts recognised/reclassified
Total, net of tax
Share of joint ventures and associates
Other comprehensive loss for the period
Less: non-controlling interest
Attributable to Royal Dutch Shell plc
shareholders
At December 31, 2017
At January 1, 2016
—
(8,735 )
(3,794 )
651
—
—
(29 )
(3,172 )
(25 )
(3,197 )
185
(3,012 )
(11,747 )
(13,831 )
4,513
610
—
33
5,156
53
5,209
(113 )
5,096
(8,735 )
(12,940 )
1,969
(1,969 )
—
—
—
—
—
—
—
—
—
—
—
—
1,321
796
(211 )
—
8
593
55
648
—
648
1,969
1,409
Recognised in other comprehensive income
(1,023 ) [A]
(204 )
Reclassified to income
Reclassified to the balance sheet
Tax on amounts recognised/reclassified
Total, net of tax
Share of joint ventures and associates
Other comprehensive income/(loss) for the
period
Less: non-controlling interest
Attributable to Royal Dutch Shell plc
shareholders
Reclassification in respect of shares held in trust
(277 )
—
(21 )
(1,321 )
(154 )
(1,475 )
50
(1,425 )
534
At December 31, 2016
[A] Includes losses of $2,024 million arising on net investment hedges.
[B] See Note 19.
[C] Mainly relating to the acquisition of BG.
(13,831 )
1
—
(11 )
(214 )
126
(88 )
—
(88 )
—
1,321
—
(6 )
(6 )
(15 )
—
—
—
—
(15 )
—
(15 )
—
(15 )
(21 )
(633 )
6
(627 )
50
722
(30 )
—
(12 )
730
14
—
(14,645 )
— (22,044 )
(144 )
(144 )
(362 )
95
—
—
58
—
1,975
(138 )
(14,645 )
1,975
(22,182 )
5,213
(147 )
945
—
—
137
—
—
1,468
(30 )
(1,108 )
(971 )
(1,625 )
(6 )
(1,614 )
(209 )
3,725
(1,261 )
(202 )
—
1
193
183
744
(209 )
3,726
(1,068 )
—
—
(13 )
(1 )
(19 )
171
744
(209 )
3,713
(1,069 )
152
117 [B]
(353 )
(10,932 )
906 (22,030 )
(144 )
(467 )
(87 )
(18 )
20
(552 )
63
(489)
—
(489 )
(633 ) [B]
473
(727 )
(939 )
1,044 [C]
5
(617 )
—
(617 )
—
(617 )
—
(144 )
(15,241 )
1,467
—
—
(863 )
604
(1 )
603
(7 )
596
(14,645 )
(11,422 )
(4,816 )
—
—
999
(3,817 )
—
(3,817 )
(2 )
(3,819 )
—
(15,241 )
(27,895 )
6,309
312
(18 )
(802 )
5,801
170
5,971
(120 )
5,851
(22,044 )
(22,480 )
(6,770 )
(1,215 )
1,044
972
(5,969 )
(28 )
(5,997 )
48
(5,949 )
534
(27,895 )
210
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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23 DIVIDENDS
Interim dividends
A shares:
Cash: $1.88 per share (2017: $1.88; 2016: $1.88)
Scrip: none (2017: $1.88; 2016: $1.88 per share)
Total – A shares
B shares:
Cash: $1.88 per share (2017: $1.88; 2016: $1.88)
Scrip: none (2017: $1.88; 2016: $1.88 per share)
Total – B shares
Total
2018
2017
8,605
—
8,605
7,070
—
7,070
15,675
4,919
3,558
8,477
5,958
1,193
7,151
15,628
$ million
2016
4,545
3,491
8,036
5,132
1,791
6,923
14,959
In addition, on January 31, 2019, the Directors announced a further interim dividend in respect of 2018 of $0.47 per A share and $0.47 per B share. The
total dividend is estimated to be $3,848 million and is payable on March 25, 2019, to shareholders on the register at February 15, 2018. The Scrip
Dividend Programme has been cancelled with effect from the fourth quarter 2017 interim dividend.
Dividends on A shares are by default paid in euros, although holders may elect to receive dividends in sterling. Dividends on B shares are by default paid in
sterling, although holders may elect to receive dividends in euros. Dividends on ADSs are paid in dollars.
24 EARNINGS PER SHARE
Income attributable to Royal Dutch Shell plc shareholders ($ million)
Weighted average number of A and B shares used as the basis for determining:
Basic earnings per share (million)
Diluted earnings per share (million)
2018
23,352
8,282.8
8,348.7
2017
12,977
8,223.4
8,299.0
2016
4,575
7,833.7
7,891.7
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. The weighted average number of shares outstanding excludes shares held in trust.
Diluted earnings per share are based on the same income figures. The weighted average number of shares outstanding during the year is increased by
dilutive shares related to share-based compensation plans.
Earnings per share are identical for A and B shares.
25 LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
GENERAL
In the ordinary course of business, Shell subsidiaries are subject to a number of contingencies arising from litigation and claims brought by governmental,
including tax authorities, 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 amounts claimed in relation to such events and, if such claims against Shell were successful, the costs of implementing the remedies sought in the various
cases could be substantial. Based on information available to date and taking into account that in some cases it is not practicable to estimate the possible
magnitude or timing of any resultant payments, management believes that the foregoing are not expected to have a material adverse impact on Shell’s
Consolidated Financial Statements. However, there remains a high degree of uncertainty around these contingencies, as well as their potential effect on
future operations, earnings, cash flows and Shell’s financial condition.
In certain divestment transactions, liabilities related to dismantling and restoration are de-recognised upon transfer of these obligations to the buyer. For
certain of these obligations Shell has issued guarantees to third parties and continues to be liable in case that the primary obligator is not able to meet its
obligation. These potential obligations arising from issuance of these guarantees are assessed to be remote.
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211
[Note 25 continued]
PESTICIDE LITIGATION
Shell Oil Company (SOC), along with another agricultural chemical pesticide manufacturer and several distributors, has been sued by public and quasi-
public water purveyors alleging responsibility for groundwater contamination caused by applications of chemical pesticides. There are approximately 45
such cases currently pending. These suits assert various theories of strict liability and negligence, and seek to recover actual damages, including drinking
well treatment and remediation costs. Most assert claims for punitive damages. While the Company continues to vigorously defend these lawsuits, a new
environmental regulatory standard became effective in the State of California, where a majority of the suits are pending. The new standard requires public
water systems state wide to perform quarterly or monthly sampling of their drinking water sources for a chemical contained in certain pesticides, beginning
in January 2018. Water systems deemed out of compliance with the new five parts per trillion regulatory standard must take corrective action to resolve the
exceedance or take the potable water source out of service. In response to this new regulatory standard, the Company is monitoring the sampling results to
determine the number of wells potentially impacted. Based on the claims asserted and SOC’s track record, with regard to amounts paid to resolve varying
claims, management does not expect the outcome of these lawsuits pending at December 31, 2018, to have a material adverse impact on Shell. However,
there remains a high degree of uncertainty regarding the potential outcome of some of these pending lawsuits, as well as their potential effect on future
operations, earnings, cash flows and Shell’s financial condition.
CLIMATE CHANGE LITIGATION
In the USA, 12 lawsuits have been filed by several municipalities and one state against oil and gas companies, including Royal Dutch Shell plc. The plaintiffs seek
damages for claimed harm to their public and private infrastructure from rising sea levels allegedly due to climate change caused by the defendants’ fossil fuel
products. A similar suit has been filed by a crab fishing industry group claiming harm to their fisheries as a result of alleged ocean-related impacts of climate
change. Management believes the outcome of these matters should be resolved in a manner favourable to Shell, however, there remains a high degree of
uncertainty regarding the ultimate outcome of these lawsuits, as well as their potential effect on future operations, earnings, cash flows and Shell’s financial
condition.
BRAZIL TAX
Pursuant to Law 7.183/2015 issued by the State of Rio de Janeiro (RJ State) and effective March 2016, a value-added levy has been imposed on oil
extraction in the RJ State. The company understands that the obligations arising from this law are not legally sustainable and Shell obtained two separate
favorable injunctions suspending the enforcement of the law in March and October 2016, respectively. Both injunctions remain in effect and the matter is
currently pending before the Tribunal de Justiça do Rio de Janeiro, the local RJ State Court of Appeal. In addition, and as this is an industry-wide issue, the
Brazilian Association of Oil and Gas Exploration and Production Companies, of which Shell is a member of, filed a suit in February 2016 before the
Supremo Tribunal Federal, the Brazilian Supreme Court, challenging the constitutionality of the law. This matter is currently pending with the Supreme
Court. Should Shell be required to pay such a levy, it could result in a total liability of approximately $3 billion as at end 2018.
NIGERIAN LITIGATION
Shell subsidiaries and associates operating in Nigeria are parties to various environmental and contractual disputes brought in the courts of Nigeria,
England and the Netherlands. These disputes are at different stages in litigation, including at the appellate stage, where judgements have been rendered
against Shell entities. If taken at face value, the aggregate amount of these judgements could be seen as material. Management, however, believes that the
outcomes of these matters will ultimately be resolved in a manner favourable to Shell. However, there remains a high degree of uncertainty regarding these
cases, as well as their potential effect on future operations, earnings, cash flows and Shell’s financial condition.
The authorities in various countries are investigating Shell Nigeria Exploration and Production Company Ltd.’s (SNEPCO’s) investment in Nigerian oil block
OPL 245 and the 2011 settlement of litigation pertaining to that block with regard to potential anti-bribery, anti-corruption and anti-money laundering laws.
On January 27, 2017, the Nigeria Federal High Court issued an Interim Order of Attachment for Oil Prospecting Licence 245 (OPL 245), pending the
conclusion of the investigation. SNEPCO applied for and was granted a discharge of this order on constitutional and procedural grounds. Also in Nigeria,
in March 2017 criminal charges alleging official corruption and conspiracy to commit official corruption were filed against SNEPCO, one current Shell
employee and third parties including ENI SpA and one of its subsidiaries. Those proceedings are ongoing. In March 2017, parties alleging to be
shareholders of Malabu Oil and Gas Company Ltd. (Malabu) filed two actions to challenge the 2011 settlement and the award of OPL 245 to SNEPCO
and an ENI SpA subsidiary by the Federal Government of Nigeria. Those proceedings are also ongoing. On May 8, 2018, Human Environmental
Development Agenda (HEDA) sought permission from the Federal High Court of Nigeria to apply for an order to direct the Attorney General of the
Federation to revoke OPL 245 on grounds that the entire Malabu transaction in relation to the OPL is unconstitutional, illegal and void as it was obtained
through fraudulent and corrupt practice. On October 4, 2018, SNEPCO was joined as a defendant in the HEDA action. Those proceedings are ongoing.
In March 2016, the Nigeria House of Representatives (HoR) announced it was going to conduct a third investigation into OPL 245. SNEPCO sought and
was granted an interlocutory injunction preventing the HoR from investigating SNEPCO, as such an investigation was beyond the legal powers of the HoR
and the matter was under judicial consideration. On July 2, 2018, the court issued a decision in favour of SNEPCO granting all the reliefs sought including a
declaration that the HoR does not have powers to investigate the OPL 245 award and a perpetual injunction to restrain the HoR from continuing with the
investigations or compelling SNEPCO’s participation in the investigations. On December 12, 2018, the Federal Republic of Nigeria issued a claim form in
the UK against RDS and six subsidiaries, ENI SpA and two of its subsidiaries, Malabu as well as two other entities for the amount of $1,092 million plus
damages for having participated in a fraudulent and corrupt scheme leading to the acquisition by Shell and ENI corporate defendants in 2011 of OPL 245.
212
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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The Shell entities have yet to be served with the proceedings. On February 14, 2017, Royal Dutch Shell plc received a notice of request for indictment from
the Milan public prosecutor with respect to this matter. On December 20, 2017, Royal Dutch Shell plc along with four former Shell employees including one
former executive were remanded to trial in Milan. On May 14, 2018, a trial commenced in the Court of Milan and is ongoing. On September 18, 2018,
RDS was joined to the proceedings as the civilly responsible party (responsabile civile) for the damages caused by the alleged illegal acts of the four
former Shell employees. Three other Shell entities (Shell UK Ltd, SPDC and SEPA) also joined the proceedings but were denied status as responsabile civile
for their respective former employees at this phase of the proceedings. Based on Shell’s review of the Prosecutor of Milan's file and all the information and
facts currently available to Shell, management does not believe that there is a basis to convict Shell in Milan. Furthermore, management is not aware of any
evidence to convict any former or current Shell employee in Milan. On September 20, 2018, a guilty judgement was filed by the Milan Judge of the
Preliminary Hearing in a separate OPL 245 fast track trial of two individuals, neither of whom worked on behalf of Shell. That decision is under appeal.
In February 2019, we were informed by the Dutch Public Prosecutor’s Office (DPP) that they are nearing the conclusion of their investigation and are
preparing to prosecute Royal Dutch Shell plc for criminal charges directly or indirectly related to the 2011 settlement of disputes over OPL 245 in Nigeria.(cid:3)
Investigations by authorities in other jurisdictions are ongoing(cid:17)(cid:3)(cid:3)
(cid:3)
There remains a high degree of uncertainty around the OPL 245 matters and contingencies discussed above, as well as their potential effect on future
operations, earnings, cash flows and Shell’s financial condition. Accordingly, at this time, it is not practicable to estimate the magnitude and timing of any
possible obligations or payments. Any violation of the US Foreign Corrupt Practices Act or other relevant anti-bribery, anti-corruption or anti-money
laundering legislation could have a material adverse effect on Royal Dutch Shell plc’s earnings, cash flows and financial condition.
26 EMPLOYEES
Employee costs
Remuneration
Social security contributions
Retirement benefits (see Note 17)
Share-based compensation (see Note 21)
Total [A]
[A] Excludes employees seconded to joint ventures and associates.
Average employee numbers
Integrated Gas
Upstream
Downstream
Corporate [A]
2018
10,167
810
1,878
531
13,386
2018
8
14
37
20
Total [B]
[A] Includes all employees working in business service centres irrespective of the segment they support.
[B] Excludes employees seconded to joint ventures and associates (2018: 3,000 employees, 2017: 3,000 employees, 2016: 4,000 employees).
[C] As revised.
79
2017
10,855
844
1,815
802
14,316
2017 [C](cid:3)(cid:3)(cid:3)
8
16
40
19
83
$ million
2016
11,985
867
2,181
693
15,726
Thousand
2016 [C](cid:3)(cid:3)(cid:3)
9
18
46
18
91
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213
27 DIRECTORS AND SENIOR MANAGEMENT
.
Remuneration of Directors of the Company
Emoluments
Value of released awards under long-term incentive plans
Employer contributions to pension plans
2018
12
20
1
2017
11
5
1
$ million
2016
10
8
1
Emoluments comprise salaries and fees, annual bonuses (for the period for which performance is assessed) and other benefits. The value of released
awards under long-term incentive plans for the period is in respect of the performance period ending in that year. In 2018, retirement benefits were accrued
in respect of qualifying services under defined benefit plans by two Directors.
Further information on the remuneration of the Directors can be found in the Directors’ Remuneration Report on pages 119-147.
Directors and Senior Management expense
Short-term benefits
Retirement benefits
Share-based compensation
Termination and related amounts
Total
2018
2017
26
3
14
—
43
23
3
17
3
46
$ million
2016
21
3
15
4
43
Directors and Senior Management comprise members of the Executive Committee and the Non-executive Directors of the Company.
Short-term benefits comprise salaries and fees, annual bonuses delivered in cash and shares (for the period for which performance is assessed), other
benefits and employer social security contributions. Prior to 2017, these included the 50% of annual bonuses delivered in cash, and share-based
compensation included the appropriate proportion of the deferred element (under the Deferred Bonus Plan). Following shareholder approval at the 2017
AGM, the Deferred Bonus Plan has been removed and 50% of the bonus is delivered in shares subject to a three-year holding period.
28 AUDITOR’S 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
Fees in respect of other non-audit services
Total
2018
2017
$ million
2016
31
16
47
5
1
53
27
21
48
4
1
53
32
17
49
2
1
52
In addition, the auditor provided audit services to retirement benefit plans for employees of subsidiaries. Remuneration paid by those benefit plans
amounted to $1 million in 2018 (2017: $1 million, 2016: $1 million).
Classification of auditor’s remuneration under US Securities and Exchange Commission rules
For US reporting purposes, the total auditor’s remuneration of $53 million (2017: $53 million, 2016: $52 million) is categorised as follows: audit $50 million
(2017: $50 million, 2016: $51 million), audit-related $2 million (2017:$2 million, 2016 $1 million), and all other fees $1 million (2017: $1 million, 2016: nil).
214
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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Supplementary information – oil and gas (unaudited)
The information set out on pages 215-236 is referred to as “unaudited” as a means of clarifying that it 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 RESERVES
Proved reserves estimates are calculated pursuant to the US Securities and Exchange Commission (SEC) Rules and the Financial Accounting Standard
Board’s Topic 932. Proved reserves can be either developed or undeveloped. 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 (or could be) taken as royalties in kind. Proved reserves
outside North America include quantities that will be settled as royalties in cash. Proved reserves include certain quantities of crude oil or natural gas that
will be produced under arrangements that involve Shell subsidiaries, joint ventures and associates in risks and rewards but do not transfer title of the
product to those entities.
Subsidiaries’ proved reserves at December 31, 2018, were divided into 78% developed and 22% undeveloped on a barrel of oil equivalent basis. For the
Shell share of joint ventures and associates, the proved reserves at December 31, 2018, were divided into 89% developed and 11% undeveloped on a
barrel of oil equivalent basis.
Proved reserves are recognised under various forms of contractual agreements. Shell’s proved reserves volumes at December 31, 2018, present in
agreements such as production-sharing contracts (PSC), tax/variable royalty contracts or other forms of economic entitlement contracts, where the Shell
share of reserves can vary with commodity prices, were 2,181 million barrels of crude oil and natural gas liquids, and 13,832 thousand million standard
cubic feet (scf) of natural gas.
Proved reserves cannot be measured exactly because estimation of reserves involves subjective judgement (see “Risk factors” on page 16 and our “Proved
reserves assurance process” below). 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 30 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 within Shell. A Vice President with
33 years’ experience in the oil and gas industry currently heads the RAR organisation. He is a member of the Society of Petroleum Engineers. Society of
Petroleum Evaluation Engineers and holds a BA in mathematics from Oxford University and an MEng in Petroleum Engineering from Heriot Watt University.
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, and where all proved reserves bookings are reviewed
by Shell’s Audit Committee. The Internal Audit function also provides secondary assurance through audits of the control framework.
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215
CRUDE OIL, NATURAL GAS LIQUIDS, SYNTHETIC CRUDE OIL AND BITUMEN
Shell subsidiaries’ proved reserves of crude oil, natural gas liquids (NGLs), synthetic crude oil and bitumen at the end of the year; their share of the proved
reserves of joint ventures and associates at the end of the year; and the changes in such reserves during the year are set out on pages 217-219. Significant
changes in these proved reserves are discussed below, where ‘revisions and reclassifications’ are changes based on new information that resulted from
development drilling, production history, and changes in economic factors.
PROVED RESERVES 2018-2017
Shell subsidiaries
Europe
The net increase of 94 million barrels in revisions and reclassifications was mainly in the UK and Denmark.
Asia
The net increase of 227 million barrels in revisions and reclassifications was mainly in Oman and Kazakhstan. The sale of minerals in place of 52 million
barrels occurred in Iraq (West Qurna) and Oman (Mukhaizna).
USA
The net increase of 81 million barrels in revisions and reclassifications was mainly in Mars and Ursa in the Gulf of Mexico. The increase of 179 million
barrels in extensions and discoveries was mainly in Vito in the Gulf of Mexico and in the Permian Basin.
South America
The net increase of 139 million barrels in extensions and discoveries was in Mero (Brazil) and Vaca Muerta (Argentina).
PROVED RESERVES 2017-2016
Shell subsidiaries
Europe
The net increase of 61 million barrels in revisions and reclassifications resulted from field performance studies and development activities in Denmark,
Norway and the UK. The sale of minerals in place of 50 million barrels occurred in the UK.
Asia(cid:3)
The net increase of 153 million barrels in revisions and reclassifications was mainly in Oman and Malaysia. The increase of 95 million barrels in extensions
and discoveries was in Kazakhstan and Malaysia.
USA
The net increase of 235 million barrels in revisions and reclassifications resulted from field performance studies and development activities in respect of
Stones and Mars in the Gulf of Mexico, and the Permian Basin. The increase of 242 million barrels in extensions and discoveries was in the Permian Basin,
and Appomattox and Vicksburg in the Gulf of Mexico.
Canada
The sale of minerals in place of 1,992 million barrels in synthetic crude oil resulted from the sale of our 60% interest in the Athabasca Oil Sands Project
(AOSP) and our in-situ and undeveloped oil sands interests. The purchase of minerals in place of 664 million barrels in synthetic crude oil resulted from the
separate acquisition of a 50% controlling interest in Marathon Oil Canada Corporation, which has a 20% interest in the AOSP.
Shell share of joint ventures and associates
Asia
The net increase of 76 million barrels in revisions and reclassifications was mainly in Brunei.
216
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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Proved developed and undeveloped reserves 2018
Million barrels
Europe Asia Oceania Africa USA
Canada America
Total
North America South
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
NGL
NGL
NGL
NGL
NGL
NGL
Synthetic
crude oil Bitumen
Oil and
Oil and
NGL
NGL
Synthetic
crude oil Bitumen
All
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 joint ventures
and associates
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
356 1,482
94 227
27
3
—
(52 )
(185 )
368 1,502
—
2
—
(14 )
(70 )
132 463 899 22 649
32
81
—
—
—
179
—
—
—
(2 )
(20 )
(61 ) (140 )
661
129 420 1,017
7
—
6
—
—
(13 )
23
14
—
—
—
(8 )
(9 )
18
—
—
—
—
— 946 4,300 649
32
48 489
—
—
41
14
—
—
139 329
—
—
3
—
—
(76 )
—
(20 )
(600 )
—
661
— 1,027 4,486
3
—
(122 )
12 301
(2 )
(2 )
—
—
18
—
—
—
—
—
(37 )
(1 )
9 281
377 1,783
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
129 420 1,017
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
23
—
—
—
—
—
—
—
—
661
—
313
—
—
(4 )
—
—
—
—
—
18
—
—
—
—
—
—
—
(38 )
—
—
—
— 290
— 1,027 4,776
—
—
—
—
—
—
—
—
661
— 4,949
521
—
41
—
329
—
3
—
(76 )
—
(620 )
—
— 5,147
—
313
—
(4 )
—
—
—
18
—
—
—
—
(38 )
—
— 290
— 5,437
Total
Reserves attributable to
non-controlling interest in Shell
subsidiaries at December 31
—
[A] Includes 1 million barrels consumed in operations for synthetic crude oil.
—
—
—
—
—
331
—
—
—
331
—
331
Proved developed reserves 2018
Million barrels
Europe Asia Oceania Africa USA
Canada America
Total
North America South
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
NGL
NGL
NGL
NGL
NGL
NGL
Synthetic
crude oil Bitumen
Oil and
Oil and
NGL
NGL
Synthetic
crude oil Bitumen
All
products
Shell subsidiaries
At January 1
At December 31
Shell share of joint ventures
and associates
At January 1
At December 31
250 1,364
243 1,318
46 373 569
108 335 629
21 649
661
21
— 651 3,274 649
661
— 634 3,288
— 3,923
— 3,949
11 253
8 251
—
—
—
—
—
—
—
—
—
—
—
—
— 264
— 259
—
—
— 264
— 259
Proved undeveloped reserves 2018
Million barrels
Europe Asia Oceania Africa USA
Canada America
Total
North America South
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
NGL
NGL
NGL
NGL
NGL
NGL
Synthetic
crude oil Bitumen
Oil and
Oil and
NGL
NGL
Synthetic
crude oil Bitumen
All
products
Shell subsidiaries
At January 1
At December 31
Shell share of joint ventures
and associates
At January 1
At December 31
106
124
118
185
86 90 330
85 388
21
1
2
—
—
— 295 1,026
— 394 1,199
—
—
— 1,026
— 1,199
1
1
48
30
—
—
—
—
—
—
—
—
—
—
—
—
—
—
49
31
—
—
—
—
49
31
Shell Annual Report_Master Template.indd 217
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
217
[Crude oil, natural gas liquids, synthetic crude oil and bitumen continued]
Proved developed and undeveloped reserves 2017
Million barrels
Europe Asia Oceania Africa USA
Canada America
Total
North America South
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
NGL
NGL
NGL
NGL
NGL
NGL
Synthetic
crude oil Bitumen
Oil and
Oil and
NGL
NGL
Synthetic
crude oil Bitumen
All
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 joint ventures
and associates
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
435 1,386
153
35
95
—
—
(187 )
356 1,482
61
—
—
—
(50 )
(90 )
128 529 491
23 235
38
—
— 242
2
—
(14 )
—
(75 ) (109 )
18 2,014
(3 )
8
—
—
7
—
— 664
— (1,992 )
(34 )
132 463 899 22 649
13
—
—
—
—
(9 )
(11 )
38
—
531
73
30 374
2 992 3,979 2,014
(3 )
2
—
—
—
—
2 664
—
(64 ) (1,992 )
(2 )
(34 )
(2 )
— 946 4,300 649
—
—
(114 )
(595 )
7 256
76
6
3
—
1
—
—
—
—
—
(35 )
(1 )
12 301
368 1,783
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
132 463 899 22 649
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 263
82
—
3
—
1
—
—
—
—
—
(36 )
—
313
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 946 4,613 649
2 5,995
530
2
73
—
374
—
—
666
(2 ) (2,058 )
(631 )
(2 )
— 4,949
263
—
82
—
3
—
1
—
—
—
—
—
(36 )
—
—
313
— 5,262
Total
Reserves attributable to
non-controlling interest in Shell
subsidiaries at December 31
[A] Includes 1 million barrels consumed in operations for synthetic crude oil.
—
—
—
—
—
—
325
—
—
—
325
—
325
Proved developed reserves 2017
Million barrels
Europe Asia Oceania Africa USA
Canada America
Total
North America South
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
NGL
NGL
NGL
NGL
NGL
NGL
Synthetic
crude oil Bitumen
Oil and
Oil and
NGL
NGL
Synthetic
crude oil Bitumen
All
products
Shell subsidiaries
At January 1
At December 31
Shell share of joint ventures
and associates
At January 1
At December 31
257 1,184
250 1,364
36 461 437
46 373 569
14 1,387
21 649
2 543 2,932 1,387
— 651 3,274 649
2 4,321
— 3,923
4 215
11 253
—
—
—
—
—
—
—
—
—
—
—
—
219
—
— 264
—
—
219
—
— 264
Proved undeveloped reserves 2017
Million barrels
Europe Asia Oceania Africa USA
Canada America
Total
North America South
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
NGL
NGL
NGL
NGL
NGL
NGL
Synthetic
crude oil Bitumen
Oil and
Oil and
NGL
NGL
Synthetic
crude oil Bitumen
All
products
Shell subsidiaries
At January 1
At December 31
Shell share of joint ventures
and associates
At January 1
At December 31
178 202
118
106
54
68
92
86 90 330
4
1
627
—
— 449 1,047
— 295 1,026
627
—
— 1,674
— 1,026
3
1
41
48
—
—
—
—
—
—
—
—
—
—
—
—
—
—
44
49
—
—
—
—
44
49
218
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
Shell Annual Report_Master Template.indd 218
18/03/2019 17:19:28
Proved developed and undeveloped reserves 2016
Million barrels
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 joint ventures
and associates
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
Europe Asia Oceania Africa USA
Canada America
North America South
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
NGL
NGL
NGL
NGL
NGL
NGL
Synthetic
crude oil Bitumen
Oil and
Oil and
NGL
NGL
Synthetic
crude oil Bitumen
Total
All
products
417 1,286
100
24
22
—
4
—
175
85
—
(5 )
(201 )
(86 )
435 1,386
1,941
126 579 560 22
33
3
—
—
96
6
—
—
—
(2 )
(56 )
(11 )
18 2,014
17
2
20
—
(5 )
(85 ) (103 )
128 529 491
9
—
—
2
—
(9 )
21
—
—
14
—
1,941
56 3,046
3
33
86 260
4
—
24
—
—
96
—
30
—
—
— 931 1,207
—
(12 )
—
—
(56 )
(576 )
(81 )
(5 )
2 992 3,979 2,014
3 4,990
4 297
24
—
—
126
— 1,207
(12 )
—
(637 )
(5 )
2 5,995
11 290
1
(3 )
—
—
1
—
—
—
—
—
(1 )
(36 )
7 256
442 1,642
12
(11 )
—
—
—
—
(1 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
128 529 491
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
18 2,014
—
313
—
—
—
(13 )
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
(38 )
—
—
—
— 263
2 992 4,242 2,014
313
—
(13 )
—
—
—
1
—
—
—
—
—
—
(38 )
— 263
2 6,258
—
4
—
—
—
—
—
4
—
—
4
Total
Reserves attributable to
non-controlling interest in Shell
subsidiaries at December 31
[A] Includes 2 million barrels consumed in operations for synthetic crude oil.
—
—
Proved developed reserves 2016
Million barrels
Europe Asia Oceania Africa USA
Canada America
Total
North America South
Oil and
Oil and
Oil and
Oil and
Oil and
Oil and
NGL
NGL
NGL
NGL
NGL
NGL
Synthetic
crude oil Bitumen
Oil and
Oil and
NGL
NGL
Synthetic
crude oil Bitumen
All
products
Shell subsidiaries
At January 1
At December 31
Shell share of joint ventures
and associates
At January 1
At December 31
220 972
257 1,184
36 437 455
36 461 437
20 1,405
14 1,387
3
44 2,184 1,405
2 543 2,932 1,387
3 3,592
2 4,321
5 204
4 215
9
—
—
—
—
—
—
—
—
—
—
—
218
—
— 219
—
—
—
—
218
219
Proved undeveloped reserves 2016
Europe Asia Oceania Africa USA
Canada America
Total
Oil and
NGL
Oil and
NGL
Oil and
NGL
Oil and
NGL
Oil and
NGL
Oil and
NGL
Synthetic
crude oil Bitumen
Oil and
NGL
Oil and
NGL
Synthetic
crude oil Bitumen
All
products
North America South
Million barrels
197 314
178
202
90
92
142
68
105
54
2
4
536
627
—
—
12 862
449
1,047
536
627
— 1,398
1,674
—
6
3
86
41
3
—
—
—
—
—
—
—
—
—
—
—
—
—
95
44
—
—
—
—
95
44
Shell subsidiaries
At January 1
At December 31
Shell share of joint ventures
and associates
At January 1
At December 31
(cid:3)
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
219
NATURAL GAS
Shell subsidiaries’ proved reserves of natural gas at the end of the year, their share of the proved reserves of joint ventures and associates at the end of the
year, and the changes in such reserves during the year are set out on pages 222-224. Significant changes in these proved reserves are discussed below.
Volumes are not 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 into oil equivalent using a factor of 5,800 scf per barrel.
PROVED RESERVES 2018-2017
Shell subsidiaries
Europe(cid:3)(cid:3)
The net increase of 1,183 thousand million scf in revisions and reclassifications was mainly in Norway, the UK, Denmark and Germany.
Asia
The net decrease of 483 thousand million scf in revisions and reclassifications was mainly in Qatar, Malaysia and Kazakhstan. The increase of 354
thousand million scf in extensions and discoveries was in Malaysia.
Oceania
The net increase of 1,438 thousand million scf in revisions and reclassifications was mainly in the Surat Basin, Jansz-lo and Gorgon (all Australia).
Africa
The net increase of 896 thousand million scf in revisions and reclassifications was mainly in Gbaran, Assa North, Forcaddos-Yokri (Nigeria) and Sapphire
(Egypt).
USA
The net decrease of 296 thousand million scf in revisions and reclassifications was mainly in Tioga. The increase of 283 thousand million scf in extensions
and discoveries was mainly in the Permian Basin.
Shell share of joint ventures and associates
Europe
The net decrease of 3,653 thousand million scf in revisions and reclassifications was mainly in Groningen (the Netherlands).
Groningen: The decrease of 3,673 thousand million scf is as a result of the Dutch cabinet’s announcement on March 29, 2018, about its aspiration to end
Groningen production by 2030, and an agreement signed by Shell, ExxonMobil and the Dutch government in June 2018. The proved reserves are aligned
with the new regulatory framework and the updated production outlook issued in November 2018 by the Dutch Ministry of Economic Affairs.
PROVED RESERVES 2017-2016
Shell subsidiaries
Europe
The sale of minerals in place of 224 thousand million scf was mainly the UK fields: Elgin-Franklin, Everest, J-Area, Lomond and Erskine.
Asia
The net increase of 979 thousand million scf in revisions and reclassifications resulted from field performance updates and development activities in
Kazakhstan and Malaysia. The increase of 549 thousand million scf in extensions and discoveries was mainly in China and Kazakhstan.
Oceania
The net decrease of 574 thousand million scf in revisions and reclassifications resulted from field performance updates and development activities. There
was a decrease of 958 thousand million scf in the Surat Basin and an increase of 384 thousand million scf from Jansz-lo, Prelude, Gorgon (all Australia)
and Maui (New Zealand). The purchases of minerals in place of 204 thousand million scf were in the Surat Basin.
Africa
The net increase of 287 thousand million scf in revisions and reclassifications resulted from field performance updates and development activities, mainly in
Kolo Creek in Nigeria.
USA
The net increase of 958 thousand million scf in revisions and reclassifications resulted from field performance updates and development activities in Tioga,
East Texas, North Louisiana and the Permian Basin. The increase of 1,163 thousand million scf in extensions and discoveries was mainly in Tioga, the
Permian Basin, and Appomattox and Kaikias in the Gulf of Mexico.
220
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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Canada
The net increase of 412 thousand million scf in revisions and reclassifications resulted from field performance studies and development activities in
Groundbirch, Waterton and Fox Creek. The increase of 205 thousand million scf in extensions and discoveries was in Groundbirch and Fox Creek.
Shell share of joint ventures and associates
Europe
The net decrease of 1,027 thousand million scf in revisions and reclassifications was mainly in the Netherlands, due to further reassessment of Groningen
compression.
Asia
The net increase of 652 thousand million scf in revisions and reclassifications resulted from field performance studies and development activities in Brunei
and Russia.
Shell Annual Report_Master Template.indd 221
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
221
[Natural gas continued]
Proved developed and undeveloped reserves 2018
Thousand million standard cubic feet
North America
South
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
Shell subsidiaries
At January 1
3,100
11,822 7,978 2,082 2,569
1,272
1,501 30,324
Revisions and reclassifications
1,183
(483 )
1,438
896
(296 )
(153 )
181 2,766
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [A]
At December 31
—
—
3
354
—
—
—
—
—
(192 )
(157 )
(232 )
—
—
—
—
—
—
7
7
283
131
65
836
—
(32 )
—
—
14
14
—
(613 )
(494 )
(906 )
(757 )
(434 )
(377 )
(261 )
(258 ) (3,487 )
3,600 10,631 8,427 2,544 2,147
989
1,509 29,847
Shell share of joint ventures and associates
At January 1
5,125 4,964
19
Revisions and reclassifications
(3,653 )
62
25
—
—
—
(37 )
—
5
—
—
—
—
—
—
(273)
(450 )
(20 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 10,108
— (3,566 )
—
—
—
—
—
—
5
—
(37 )
(743)
1,163 4,581
24
—
—
—
— 5,768
4,763
15,212
8,451
2,544
2,147
989
1,509
35,615
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [B]
At December 31
Total
Reserves attributable to non-controlling interest in
Shell subsidiaries at December 31
[A] Includes 245 thousand million standard cubic feet consumed in operations.
[B] Includes 41 thousand million standard cubic feet consumed in operations.
Proved developed reserves 2018
—
—
—
—
—
—
—
—
Thousand million standard cubic feet
North America
South
Shell subsidiaries
At January 1
At December 31
Shell share of joint ventures and associates
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
2,978 11,460 5,026
1,493
1,652
859
1,225 24,693
2,658 10,092 5,820
1,573
1,706
721
1,238 23,808
At January 1
At December 31
5,055 4,275
19
1,136 3,938
24
—
—
—
—
—
—
— 9,349
— 5,099
Proved undeveloped reserves 2018
Shell subsidiaries
At January 1
At December 31
Shell share of joint ventures and associates
At January 1
At December 31
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
Thousand million standard cubic feet
North America
South
122
362 2,952
589
917
413
276 5,631
942
539 2,607
971
441
268
271 6,039
70
689
27
643
—
—
—
—
—
—
—
—
759
—
—
670
222
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
Shell Annual Report_Master Template.indd 222
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Proved developed and undeveloped reserves 2017
Thousand million standard cubic feet
North America
South
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
Shell subsidiaries
At January 1
3,741 11,073 9,051 2,225
675
844
1,650 29,259
Revisions and reclassifications
197
979
(574 )
287
958
412
45 2,304
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [A]
At December 31
—
66
2
549
—
—
—
—
204
(224 )
—
—
—
74
—
—
140
—
1,163
205
6
1,925
—
(7 )
3
43
27
277
(11 )
(6 )
—
(248 )
(616 )
(845 )
(703 )
(423 )
(293 )
(226 )
(227 ) (3,333 )
3,100
11,822 7,978 2,082 2,569
1,272
1,501 30,324
Shell share of joint ventures and associates
At January 1
6,497 4,754
31
Revisions and reclassifications
(1,027 )
652
Improved recovery
Extensions and discoveries
Purchases of minerals in place
Sales of minerals in place
Production [B]
At December 31
Total
—
—
—
—
1
11
—
—
9
—
—
—
—
(345 )
(454 )
(21 )
5,125 4,964
19
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 11,282
—
(366 )
—
—
—
—
1
11
—
—
—
(820 )
— 10,108
8,225 16,786 7,997 2,082 2,569
1,272
1,501 40,432
Reserves attributable to non-controlling interest in
Shell subsidiaries at December 31
[A] Includes 215 thousand million standard cubic feet consumed in operations.
[B] Includes 41 thousand million standard cubic feet consumed in operations.
Proved developed reserves 2017
—
2
—
—
—
—
—
2
Thousand million standard cubic feet
North America
South
Shell subsidiaries
At January 1
At December 31
Shell share of joint ventures and associates
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
3,437 10,569 3,966
1,618
563
458
1,172 21,783
2,978 11,460 5,026
1,493
1,652
859
1,225 24,693
At January 1
At December 31
5,240
4,110
5,055 4,275
31
19
—
—
—
—
—
—
— 9,381
— 9,349
Proved undeveloped reserves 2017
Shell subsidiaries
At January 1
At December 31
Shell share of joint ventures and associates
At January 1
At December 31
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
Thousand million standard cubic feet
North America
South
304
504 5,085
607
112
386
478 7,476
122
362 2,952
589
917
413
276 5,631
1,257
644
70
689
—
—
—
—
—
—
—
—
1,901
—
—
759
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
223
[Natural gas continued]
Proved developed and undeveloped reserves 2016
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 joint ventures and associates
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
3,848
10,692
5,411
2,236
92
—
4
419
(7 )
(615 )
554
10
162
576
—
(177 )
—
—
4,330
—
51
—
2
327
—
754
(95 )
—
200
151
(7 )
955
41
—
180
43
23,939
66
—
3
532
10
551
—
1,734
7,537
(63 )
(269 )
—
(77 )
(196 )
(3,233 )
(921 )
(513 )
(391 )
(328 )
3,741
11,073
9,051
2,225
675
844
1,650
29,259
7,538
5,363
(636 )
(197 )
535
(464 )
—
—
—
—
—
35
—
—
(405 )
(447 )
6,497
10,238
4,754
15,827
—
—
—
—
(40 )
31
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13,436
(1,297 )
—
35
—
—
(892 )
11,282
9,082
2,225
675
844
1,650
40,541
Reserves attributable to non-controlling interest in
Shell subsidiaries at December 31
[A] Includes 197 thousand million standard cubic feet consumed in operations.
[B] Includes 44 thousand million standard cubic feet consumed in operations.
Proved developed reserves 2016
—
3
—
2
—
—
—
5
Thousand million standard cubic feet
North America
South
Shell subsidiaries
At January 1
At December 31
Shell share of joint ventures and associates
Europe
Asia Oceania
Africa
USA
Canada
America
Total
3,471
9,920
1,234
3,437
10,569
3,966
1,386
1,618
572
563
636
458
37
17,256
1,172
21,783
At January 1
At December 31
5,933
5,240
4,301
4,110
420
31
—
—
—
—
—
—
—
—
10,654
9,381
Proved undeveloped reserves 2016
Europe
Asia Oceania
Africa
USA
Canada
America
Total
Thousand million standard cubic feet
North America
South
Shell subsidiaries
At January 1
At December 31
377
304
772
504
4,177
5,085
850
607
Shell share of joint ventures and associates
At January 1
At December 31
1,605
1,257
1,062
644
115
—
—
—
182
112
—
—
319
386
6
478
6,683
7,476
—
—
—
—
2,782
1,901
224
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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STANDARDISED MEASURE OF DISCOUNTED FUTURE CASH FLOWS
The SEC Form 20-F requires the disclosure of a standardised measure of discounted future net 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 those at the end of each
year, currently enacted tax rates and a 10% annual discount factor. In our view, 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. 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.
STANDARDISED MEASURE OF DISCOUNTED FUTURE CASH FLOWS RELATING TO PROVED RESERVES AT DECEMBER 31
2018 – Shell subsidiaries
Future cash inflows
Future production costs
Future development costs
Future tax expenses
Future net cash flows
North America
South
$ million
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
50,392 122,037
72,355
36,080 68,546 34,719
74,417
458,545
18,400 32,773
22,219
13,237 32,533
17,378
42,301
178,842
8,649
12,301
11,598
4,672
11,486 4,674
6,991
60,370
12,603 30,994
5,899
12,805
1,948
3,257
7,764
75,271
10,739 45,969
32,639
5,366 22,578
9,411
17,360
144,062
Effect of discounting cash flows at 10%
3,024 20,957
12,130
572 5,039 6,446
6,048
54,217
Standardised measure of discounted
future net cash flows
7,715 25,012
20,509
4,794
17,539 2,964
11,312
89,845
Non-controlling interest included
—
1
—
—
—
1,638
—
1,639
2018 – Shell share of joint ventures and associates
North America
South
$ million
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
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
5,260
44,327
104
2,712
20,886
1,083
6,726
1,136
7,128
329
9,588
(76 ) 2,759
80
36
1
(13 )
(8 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
49,691
—
23,677
—
7,844
—
8,265
—
9,904
—
2,675
future net cash flows
7,229
[A] While proved reserves are economically producible at the 2018 yearly average price, the standardised measure of discounted future net cash flows was negative for those proved reserves at December
31, 2018, due to addition of overhead, tax and abandonment costs and ongoing commitments post production of proved reserves.
6,829
(5 ) [A]
405
—
—
—
—
2017 – Shell subsidiaries
Future cash inflows
Future production costs
Future development costs
Future tax expenses
Future net cash flows
North America
South
$ million
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
34,902 94,535
51,052
29,276 49,389 32,576
50,620
342,350
15,672 30,894
18,264
11,496 29,505 20,242
30,924
156,997
7,852
12,558
14,062
4,920
14,200
5,115
6,210
64,917
5,747
18,048
1,169
9,064
2,177
2,509
4,888
43,602
5,631 33,035
17,557
3,796
3,507
4,710
8,598
76,834
Effect of discounting cash flows at 10%
825
15,115
5,773
(9 )
(796 )
3,077
2,325
26,310
Standardised measure of discounted
future net cash flows
4,806
17,920
11,784
3,805 4,303
1,633
6,273
50,524
Non-controlling interest included
—
1
—
—
—
870
—
871
Shell Annual Report_Master Template.indd 225
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
225
[Standardised measure of discounted future cash flows continued]
2017 – Shell share of joint ventures and associates
Europe
Asia
Oceania
Africa
North America
Canada
USA
South
America
Total
$ million
Future cash inflows
Future production costs
Future development costs
Future tax expenses
Future net cash flows
22,725
37,954
17,442
17,592
1,051
7,605
1,803
5,172
2,429
7,585
Effect of discounting cash flows at 10%
1,008
1,862
Standardised measure of discounted
69
54
64
—
(49 )
(14 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
60,748
—
35,088
—
8,720
—
6,975
—
9,965
—
2,856
future net cash flows
7,109
[A] While proved reserves are economically producible at the 2017 yearly average price, the standardised measure of discounted future net cash flows was negative for those proved reserves at December
31, 2017, due to addition of overhead, tax and abandonment costs and ongoing commitments post production of proved reserves.
5,723
(35 ) [A]
1,421
—
—
—
—
2016 – Shell subsidiaries
Future cash inflows
Future production costs
Future development costs
Future tax expenses
Future net cash flows
North America
South
$ million
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
33,837 71,019 49,872 26,422
20,239
71,652 41,999 315,040
17,276 25,793 22,842 12,302
17,114
54,966 21,780 172,073
11,630
12,481 16,795 5,533
7,894
11,948 15,053 81,334
824 9,059
1,734 5,427
561
1,327 3,700 22,632
4,107 23,686
8,501
3,160
(5,330 )
(3,423 )
3,411
1,466 39,001
2,129
(1,095 )
11,283
Effect of discounting cash flows at 10%
351 10,663 2,889
(231 )
Standardised measure of discounted
future net cash flows
3,756
13,023
5,612
3,391
(1,907 ) [A]
1,282
2,561 27,718
Non-controlling interest included
(65 )
[A] While proved reserves are economically producible at the 2016 yearly average price, the standardised measure of discounted future net cash flows was negative for those proved reserves at December
31, 2016, due to addition of overhead, tax and abandonment costs and ongoing commitments post production of proved reserves.
(65 ) [A]
—
—
—
—
—
—
2016 – Shell share of joint ventures and associates
North America
South
$ million
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
Future cash inflows
Future production costs
Future development costs
Future tax expenses
Future net cash flows
26,224
28,000
18,163
14,060
1,367
7,588
2,526
3,280
4,168
3,072
Effect of discounting cash flows at 10%
2,363
692
Standardised measure of discounted
88
65
41
—
(18 )
(9 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
54,312
—
32,288
—
8,996
—
5,806
—
7,222
—
3,046
future net cash flows
4,176
[A] While proved reserves are economically producible at the 2016 yearly average price, the standardised measure of discounted future net cash flows was negative for those proved reserves at December
31, 2016, due to addition of overhead, tax and abandonment costs and ongoing commitments post production of proved reserves.
(9 ) [A]
2,380
1,805
—
—
—
—
226
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
Shell Annual Report_Master Template.indd 226
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CHANGE IN STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES
2018
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
2017
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
subsidiaries
Shell share
of joint ventures
and associates
50,524
58,128
15,265
8,936
(3,401 )
(3,876 )
(38,014 )
10,724
7,060
(15,501 )
89,845
7,109
6,156
(1,447 )
532
(20 )
(308 )
(4,858 )
666
994
(1,595 )
7,229
Shell
subsidiaries
Shell share
of joint ventures
and associates
27,718
34,190
13,769
3,901
(2,068 )
(4,823 )
(27,544 )
14,262
3,844
(12,725 )
50,524
4,176
3,952
1,931
79
—
461
(3,652 )
536
630
(1,004 )
7,109
$ million
Total
57,633
64,284
13,818
9,468
(3,421 )
(4,184 )
(42,872 )
11,390
8,054
(17,096 )
97,074
$ million
Total
31,894
38,142
15,700
3,980
(2,068 )
(4,362 )
(31,196 )
14,798
4,474
(13,729 )
57,633
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
227
[Standardised measure of discounted future cash flows continued]
2016
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
subsidiaries
Shell share
of joint ventures
and associates
25,881
(21,506 )
6,175
1,268
24,279
(15,327 )
(19,657 )
15,403
4,376
6,826
27,718
10,963
(6,942 )
(1,328 )
(17 )
—
(150 )
(3,087 )
854
1,363
2,520
4,176
$ million
Total
36,844
(28,448 )
4,847
1,251
24,279
(15,477 )
(22,744 )
16,257
5,739
9,346
31,894
OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES CAPITALISED COSTS
The aggregate amount of property, plant and equipment and intangible assets, excluding goodwill, 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.
[B] Includes reclassification of $1,065 million from Exploration and Evaluation assets to Production assets related to 2017.
2018
265,489
21,256
6,404
293,149
126,641
3,362
3,424
133,427
159,722
$ million
2017
277,067 [B]
22,642 [B]
6,112
305,821
132,823
5,193
3,436
141,452
164,369
228
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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SHELL SHARE OF JOINT VENTURES AND ASSOCIATES
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.
[B] The balance revised to include correction of $1,024 million related to 2017 (2017 balance $42,370 million).
[C] The balance revised to include correction of $20 million related to 2017 (2017 balance $2,657 million).
[D] The balance revised to include correction of $75 million related to 2017 (2017 balance $4,452 million).
[E] The balance revised to include correction of $1,829 million related to 2017 (2017 balance $31,844 million).
[F] The balance revised to include correction of $20 million related to 2017 (2017 balance $20 million).
[G] The balance revised to include correction of $711 million related to 2017 (2017 balance $3,142 million).
2018
44,331
2,591
4,399
51,321
31,702
—
2,586
34,288
17,033
$ million
2017
43,394 [B]
2,637 [C]
4,527 [D]
50,558
30,015 [E]
— [F]
2,431 [G]
32,446
18,112
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 tables below. Finance leases are excluded. Development costs include capitalised asset decommissioning and restoration costs
(including increases or decreases arising from changes to cost estimates or to the discount rate applied to the obligations) and exclude costs of acquiring
support equipment and facilities, but include depreciation thereon.
Development
[A] Comprises Canada, Honduras and Mexico.
[B] Includes $1,581 million of Shales-related exploration activities. In 2018, we participated in 234 Shales productive exploratory wells with proved reserves allocated (Shell share: 118 wells).
2,095
1,452
1,632
4,052
1,102
505
962
SHELL SUBSIDIARIES
2018
Acquisition of properties
Proved
Unproved
Exploration
2017
Acquisition of properties
Proved
Unproved
Exploration
Development
[A] Comprises Canada, Honduras and Mexico.
Europe
Asia Oceania
Africa
USA Other[A]
America
Total
North America
South
$ million
3
2
3
6
384
182
—
—
49
596
76
188
44
44
1,912
—
310
251
—
486
502
646
924
3,468 [B]
11,800
$ million
Europe
Asia
Oceania
Africa
USA Other[A]
America
Total
North America
South
—
—
329
776
—
12
135
840
—
—
38
2,493
10
18
138
371
—
2,246
141
1,354
4,123
320
235
722
19
57
2,275
548
600
2,829
1,671
10,996
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
229
[Oil and gas exploration and production activities costs incurred continued]
2016 [A](cid:3)
Acquisition of properties
Proved
Unproved
Exploration
Development
[A] Includes $44,127 million of related costs incurred on acquisition of BG.
[B] Comprises Canada, Honduras and Mexico.
Europe
Asia Oceania
Africa
USA
Other[B]
America
Total
North America
South
$ million
1,978
4,709
6,917
280
338
—
400
2
34
926
357
247
2,289
1,982
3,352
1,087
132
87
1,043
3,497
—
28,803
43,465
20
415
701
102
574
848
3,051
1,788
14,696
SHELL SHARE OF JOINT VENTURES AND ASSOCIATES
Joint ventures and associates did not incur costs in the acquisition of oil and gas properties in 2018, 2017 or 2016.
2018
Exploration
Development
2017
Exploration
Development
[A] Includes a revision of decommissioning and restoration provisions.
2016
Exploration
Development
Europe
Asia
Oceania
Africa
USA
Canada
America
—
90
229
1,026
14
79
—
—
—
—
—
—
—
—
North America
South
Europe
Asia
Oceania
Africa
USA
Canada
America
3
82
(22 ) [A]
660
8
58
—
—
—
—
—
—
—
—
North America
South
Europe
Asia Oceania
Africa
USA
Canada
America
33
99
57
2,173
101
273
—
—
—
—
—
—
—
—
North America
South
$ million
Total
104
1,334
$ million
Total
93
696
$ million
Total
191
2,545
230
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
Shell Annual Report_Master Template.indd 230
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OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES EARNINGS
The results of operations for oil and gas producing activities are shown in the tables below. Taxes other than income tax include cash-paid royalties to
governments outside North America.
Europe
Asia Oceania
Africa
USA
Other[A]
America
Total
North America
South
$ million
Sales between businesses
6,705
11,284
4,683
3,586
1,875
3,364
1,389
2,401
8,580
14,648
6,072
5,987
2,262
2,143
1,073
1,093
2,573
1,069
1,401
2,165
7,716
9,881
507
1,023
12,724
1,946
7,154
43,074
2,453
8,177
55,798
122
277
841
149
2,684
2,301
947
(180 )
199
78
1,571
(514 )
328
144
83
341
1,394
4,543
609
447
2,288
9,394
3,665
2,419
1,894
2,047
4,851
893
902
550
241
4,543
2,772
1,517
1,344
11,614
4,340
1,340
15,418
2,825
—
2,767
237
3,271
849
114
(346 )
667
949
236
713
(348 )
20,261
1,162
10,641
(1,510 )
9,620
Europe
Asia Oceania
Africa
USA Other[A]
America
Total
North America
South
$ million
1,193
2,708
1,414
7,120
9,061
2,400
1,872
3,218
1,080
339
689
9,295
5,119
2,938
5,245
35,101
8,313
11,769
3,814
5,090
6,199
3,277
5,934
44,396
2,509
2,469
1,110
1,365
2,558
1,571
89
243
556
245
119
42
287
129
98
868
1
142
1,218
1,691
276
12,800
2,841
1,945
SHELL SUBSIDIARIES
2018
Revenue
Third parties
Total
Production costs excluding taxes
Taxes other than income tax
Exploration
Depreciation, depletion and amortisation
Other costs/(income)
Earnings before taxation
Taxation charge/(credit)
Earnings after taxation
[A] Comprises Canada, Honduras and Mexico.
2017
Revenue
Third parties
Sales between businesses
Total
Production costs excluding taxes
Taxes other than income tax
Exploration
Depreciation, depletion and amortisation
2,560
2,892
1,777
1,863
3,410
3,886
3,374
19,762
Other costs/(income)
Earnings before taxation
Taxation (credit)/charge
Earnings after taxation
[A] Comprises Canada, Honduras and Mexico.
(157 )
1,073
3,069
4,534
1,689
2,969
(382 )
1,148
(202 )
145
1,301
(361 )
114
1,050
469
2,312
(849 )
(3,373 )
(1,094 )
4,736
363
(1,486 )
(294 )
2,678
1,380
1,565
1,350
1,662
(1,212 )
(1,887 )
(800 )
2,058
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
231
[Oil and gas exploration and production activities earnings continued]
2016
Revenue
Third parties
Europe
Asia
Oceania
Africa
USA
Other[A]
America
Total
North America
South
$ million
969
2,656
1,069
1,380
643
41
476
7,234
Sales between businesses
5,816
7,284
1,438
3,138
3,960
3,789
2,980
28,405
6,785
9,940
2,507
4,518
4,603
3,830
3,456
35,639
2,565
2,212
805
1,468
3,348
2,230
865
13,493
Total
Production costs excluding taxes
Taxes other than income tax
Exploration
66
250
421
408
Depreciation, depletion and amortisation
3,270
3,304
Other costs/(income)
Earnings before taxation
Taxation charge/(credit)
Earnings after taxation
[A] Comprises Canada, Honduras and Mexico.
1,925
1,606
(1,291 )
1,989
(311 )
(980 )
1,918
71
83
70
1,130
(700 )
1,119
559
560
194
356
70
438
—
291
790
295
1,624
2,108
2,018
4,372
1,953
2,881
18,928
356
126
431
40
680
(173 )
3,734
(3,665 )
(1,324 )
(1,202 )
(4,248 )
(1,351 )
(377 )
(1,032 )
(163 )
(305 )
(2,314 )
(947 )
(170 )
(4,085 )
SHELL SHARE OF JOINT VENTURES AND ASSOCIATES
Oceania included Shell’s 14% share of Woodside from January 2016 to April 2016, when its accounting classification was changed from an associate to
an investment in securities. Woodside is a publicly-listed company on the Australian Securities Exchange for which we have limited access to data;
accordingly, the numbers are estimated.
2018
Third-party revenue
Total
Production costs excluding taxes
Taxes other than income tax
Exploration
Depreciation, depletion and amortisation
Other costs/(income)
Earnings before taxation
Taxation charge
Earnings after taxation
North America
South
$ million
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
1,395
1,395
307
82
5
318
595
5,884
5,884
674
1,259
45
1,016
615
79
79
105
4
—
163
(26)
88
2,275
(167)
7
81
975
1,300
—
(167)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,358
7,358
1,086
1,345
50
1,497
1,184
2,196
982
1,214
232
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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2017
Third-party revenue
Total
Production costs excluding taxes
Taxes other than income tax
Exploration
Depreciation, depletion and amortisation
Other costs/(income)
Earnings before taxation
Taxation charge
Earnings after taxation
2016
Third-party revenue
Total
Production costs excluding taxes
Taxes other than income tax
Exploration
Depreciation, depletion and amortisation
Other costs/(income)
Earnings before taxation
Taxation charge
Earnings after taxation
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
North America
South
$ million
1,646
4,503
1,646
4,503
337
631
7
188
(83)
566
173
393
729
705
57
1,654
511
847
197
650
58
58
93
4
4
40
(60)
(23)
—
(23)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 6,207
— 6,207
—
—
—
—
—
—
—
—
1,159
1,340
68
1,882
368
1,390
370
1,020
$ million
Europe
Asia
Oceania
Africa
USA
Canada
America
Total
North America
South
1,705
1,705
383
706
36
208
(11)
383
91
292
3,708
3,708
705
456
25
1,663
401
458
23
435
197
197
123
7
27
237
(28)
(169)
8
(177)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,610
5,610
1,211
1,169
88
2,108
362
672
122
550
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
233
ACREAGE AND WELLS
The tables below reflect acreage and wells of Shell subsidiaries, joint ventures and associates. The term “gross” refers to the total activity in which Shell
subsidiaries, joint ventures and associates have an interest. The term “net” refers to the sum of the fractional interests owned by Shell subsidiaries plus the
Shell share of joint ventures and associates’ fractional interests. Data below are rounded to the nearest whole number.
Oil and gas acreage (at December 31)(cid:3)
(cid:3)
2018
2017
Thousand acres
2016
Developed
Undeveloped
Developed
Undeveloped
Developed
Undeveloped
Gross
Net
Gross
Net Gross
Net
Gross
Net
Gross
Net
Gross
Net
6,228
1,958
15,443 6,913 6,463 2,071
14,119
6,187
6,556 2,197
18,216
10,241
22,087 7,885 31,676 15,433 25,975 9,139 35,305
18,730
26,003 9,199 58,463
36,298
3,202
1,220
15,662 10,298 3,296
1,255 22,406
13,985
1,939
822 37,876
24,109
4,666 1,940 38,874 22,732 4,663
1,938 33,453
20,811
5,083
2,315
41,517
29,152
1,541
952
2,133
1,635
1,936
1,134
2,718
1,937
2,002
1,197
4,151
2,577
—
—
5,178 3,885
—
—
—
—
—
—
—
—
1,108
752
1,681
1,193
953
651
15,818 [B] 14,468 [B]
976
670 25,253 [C] 18,865 [C]
1,490
710
10,352 6,725
1,302
606 9,338
6,196
1,315
547
17,759
14,643
40,322 15,416 120,999 68,814 44,588 16,794 133,157
82,314
43,874 16,947 203,235
135,885
Europe [A]
Asia
Oceania
Africa
North America – USA
North America – Mexico
North America – Canada
South America
Total
[A] Includes Greenland.
[B] Corrected from 16,714 (15,005 net)
[C] Corrected from 26,149 (19,402 net)
Number of productive wells [A] (at December 31)(cid:3)
Oil
(cid:3)
2018
Gas
Gross
Net Gross
Net
Gross
Oil
Net
Gross
1,077 277 1,201 379
1,156
303
1,235
2017
Gas
Net
392
Gross
1,215
Oil
Net
Gross
2016
Gas
Net
321
1,232
403
7,498 2,750
331
189 9,279 [B] 3,067 [B] 682 [C] 269 [C] 9,157 [D] 3,089 [D] 632 [E] 251 [E]
—
— 3,411 1,924
—
—
3,499
1,926
—
—
3,257
1,734
Europe
Asia
Oceania
Africa
North America – USA
15,224 7,745 1,479 672 15,408
7,817
1,636
478
189
195
132
380
155
180
122
717
662
289
191
127
15,532
7,892
3,046
2,136
North America – Canada
1
1 936 846
South America
119
53
62
41
—
111
—
47
892
794
55
32
283
73
283
28
941
50
781
26
24,397 11,015 7,615 4,183 26,334
Total
5,458
[A] The number of productive wells with multiple completions (more than one formation producing into the same well bore) at December 31, 2018, was 1,132 gross (489 net); 2017: 1,696 gross, corrected
from 1,946 gross (636 net, corrected from 761); 2016: 1,456 gross, corrected from 1,721 gross (554 net, corrected from 686 net).
[B] Corrected from 9,410 (3,132 net).
[C] Corrected from 711 (283 net).
[D] Corrected from 9,261 (3,141 net).
[E] Corrected from 656 (263 net).
11,902
11,389
4,252
8,179
26,922
9,349
234
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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Number of net productive wells and dry holes drilled
2018
2017
Productive
Dry
Productive
Dry
Productive
2016
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
1
9
—
6
104
14
6
140
4
222
41
24
276
53
5
2
10
—
6
4
—
7
29
—
—
—
1
—
—
—
—
3
2
2
9
30
6
52
5
312
63
24
237
56
1
Total
[A] Productive wells are wells with proved reserves allocated. Wells in the process of exploratory drilling are excluded and presented separately below.
698
625
1
1
5
—
3
6
5
—
20
—
4
—
3
—
1
—
8
—
2
—
4
40
—
—
46
10
265
184
15
137
50
3
664
—
4
—
2
2
—
—
8
1
—
—
—
—
—
—
1
Number of wells in the process of exploratory drilling [A](cid:3)
(cid:3)(cid:3)
2018
Wells in the process of
drilling at January 1 and
allocated proved
reserves during the year
Wells in the process
of drilling at January 1
and determined as
dry during the year
At January 1
New wells in the process
of drilling at December 31
At December 31
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Europe
Asia
Oceania
Africa
22
71
11
25
47 [B]
15 [B]
42
27
(1 )
(23 )
(5 )
—
North America – USA
212 [C]
137 [C]
(122 )
North America – Canada
7 [D]
7 [D]
South America
46
20
(7 )
(14 )
Total
[A] Wells in the process of exploratory drilling includes wells pending further evaluation.
[B] Corrected from 50 (17 net).
[C] Corrected from 214 (138 net).
[D] Corrected from 5 (5 net).
447
242
(172 )
—
(8 )
(1 )
—
(68 )
(7 )
(6 )
(90 )
(4 )
(4 )
—
(4 )
(4 )
—
(16 )
(32 )
(2 )
(1 )
—
(3 )
(2 )
—
(7 )
(15 )
2
24
3
9
65
—
20
123
1
9
1
7
29
—
12
59
Net
10
25
15
31
96
—
19
68
45
47
151
—
36
19
366
196
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
235
[Acreage and wells continued]
Number of wells in the process of development drilling
2018
At January 1
At December 31
Europe
Asia
Oceania
Africa
North America – USA
North America – Canada
South America
Total
[A] Corrected from 75 (29 net).
[B] Corrected from 144 (97 net).
[C] Corrected from 12 (3 net).
Gross
7
Net
2
73 [A]
28 [A]
1
—
-—
—
143 [B]
96 [B]
21
18
7 [C]
2 [C]
252
146
Gross
5
36
3
5
64
17
9
139
Net
2
14
1
5
33
17
4
76
In addition to the present activities mentioned above, the following recovery methods are operational in the following countries: water flooding (Brazil
(including water alternating gas), Brunei, Denmark, Egypt, Malaysia, Nigeria, Norway, Oman, Russia, the UK and the USA); gas injection (Brunei,
Kazakhstan, Malaysia, Nigeria and Oman); steam injection (the Netherlands, Oman and the USA), and polymer flooding (Oman).
236
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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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).
238
238
238
239
239
240
240
240
241
241
241
242
243
243
245
245
245
245
246
246
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 Significant accounting policies
Note 3 Interest and other income/expense
Note 4 Investments in subsidiaries
Note 5 Accounts payable and accrued liabilities
Note 6 Taxation
Note 7 Financial instruments
Note 8 Share capital
Note 9 Other reserves
Note 10 Dividends
Note 11 Legal proceedings and other contingencies
Note 12 Directors and Senior Management
Note 13 Related parties
Note 14 Auditor’s remuneration
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
237
Parent Company Financial Statements Continued
Statement of Income
Dividend income
Interest and other income
Administrative expenses
Interest and other expense
Income before taxation
Taxation charge/(credit)
Income for the period
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
Amounts due from subsidiaries
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Accounts payable and accrued 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/ Jessica Uhl
Jessica Uhl
Chief Financial Officer
March 13, 2019
Notes
2018
3
3
6
23,278
141
(43 )
(222 )
23,154
44
23,110
2018
23,110
23,110
$ million
2017
10,958
49
(53 )
(26 )
10,928
(23 )
10,951
$ million
2017
10,951
10,951
$ million
Notes
Dec 31, 2018
Dec 31, 2017
4
6
256,920
256,882
355
598
257,275
257,480
13
9,263
3
9,266
5,022
3
5,025
266,541
262,505
5
5
—
—
4,862
4,862
4,862
332
332
4,333
4,333
4,665
8
9
685
696
235,536
235,366
25,458
261,679
266,541
21,778
257,840
262,505
238
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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Statement of Changes in Equity
At January 1, 2018
Comprehensive income for the period
Dividends
Repurchase of shares
Share-based compensation [A]
At December 31, 2018
At January 1, 2017
Comprehensive income for the period
Dividends
Scrip dividends
Share-based compensation
Notes
Share
capital
Other
reserves
Retained
earnings
$ million
Total
equity
696
235,366
21,778
257,840
—
—
(11 )
—
—
—
11
159
23,110
23,110
(15,675 )
(15,675 )
(4,519 )
764
(4,519 )
923
685
235,536
25,458
261,679
683
235,573
21,088
257,344
—
—
13
—
—
—
(13 )
(194 )
10,951
10,951
(15,628 )
(15,628 )
4,751
616
4,751
422
10
8
9
10
10
9
At December 31, 2017
[A} The amendments to IFRS 2 Share-based payment became effective January 1, 2018. Following adoption of the amendments, components of share-based payments (related to tax) that were previously
classified as cash-settled are now classified as equity-settled. This resulted in an increase of $172 million in the share plan reserve within other reserves and an increase of $150 million in retained earnings.
235,366
21,778
696
257,840
Statement of Cash Flows
Income for the period
Adjustment for:
Dividend income
Tax
Interest income
Interest expense
Share-based compensation
Increase in working capital
Cash flow from operating activities
Dividends received
Interest received
Share-based compensation
Cash flow from investing activities
Cash dividends paid
Shares repurchased
Interest and other expenses paid
Cash flow from financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Notes
2018
23,110
$ million
2017
10,951
(23,278 )
(10,958 )
44
(141 )
156
16
(3,796 )
(3,889 )
(23 )
(24 )
26
25
(333 )
(336 )
23,278
10,958
141
248
23,667
(15,675 )
(3,947 )
(156 )
24
258
11,240
(10,877 )
—
(26 )
(19,778 )
(10,903 )
—
3
3
1
2
3
10
8
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SHELL ANNUAL REPORT AND FORM 20-F 2018 FINANCIAL STATEMENTS AND SUPPLEMENTS
239
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 (the
Act) and with International Financial Reporting Standards (IFRS) as adopted by the European Union. As applied to the Company, 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.
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, except for IFRS 2 Share-based payment where
amendments to the standard were adopted from January 1, 2018.
The Financial Statements were approved and authorised for issue by the Board of Directors on March 13, 2019.
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 167-214. The financial results of the Company
incorporate the results of the Dividend Access Trust (the Trust), the financial statements of which are presented on pages 251-255.
The Company’s principal activity is being the parent company for Shell, as described in Note 1 to the Consolidated Financial Statements.
2 SIGNIFICANT ACCOUNTING POLICIES
The Company’s accounting policies follow those of Shell as set out in Note 2 to the Consolidated Financial Statements. The following are Company-
specific policies.
PRESENTATION AND FUNCTIONAL CURRENCY
The Company’s presentation and functional currency is US dollars (dollars).
INVESTMENTS
Investments in subsidiaries are stated at cost, net of any impairment. Investments are tested for impairment whenever events or changes in circumstances
indicate that the carrying amounts for those investments may not be recoverable. For the purposes of determining whether impairment of investments in
subsidiaries has occurred, and the extent of any impairment loss or its reversal, the key assumptions management uses in estimating risk-adjusted future cash
flows for value-in-use measures include 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. 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.
Changes in economic conditions can also affect the rate used to discount future cash flow estimates. Future price assumptions are presented in Note 8 to
the Consolidated Financial Statements.
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.
DIVIDEND INCOME
Dividends are recognised on a paid basis unless the dividend has been confirmed by a general meeting of Shell Petroleum, in which case income is
recognised on the date at which receipt is deemed virtually certain.
SHARE-BASED COMPENSATION PLANS
The fair value of share-based compensation for equity-settled plans granted to employees of subsidiaries under the Company’s plans is recognised as an
investment in subsidiaries from the date of grant over the vesting period with a corresponding increase in equity. Before the adoption of amendments to
IFRS 2 Share-based payment from January 1, 2018, the changes in the fair value of share-based compensation for cash-settled plans relating to employees
of subsidiaries were recognised as an investment in subsidiaries with a corresponding change in liabilities.
In the year of vesting of a plan, the costs for the actual deliveries are charged to the relevant employing subsidiaries. This is recognised as a realisation 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.
See Note 21 to the Consolidated Financial Statements for information on the Company’s principal plan.
240
FINANCIAL STATEMENTS AND SUPPLEMENTS SHELL ANNUAL REPORT AND FORM 20-F 2018
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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 any current tax receivable or payable (and deferred tax asset or liability) for the
fiscal unit as a whole to the extent such balances have been settled between the Company and other members of the fiscal unit at the balance sheet date.
The Company’s tax charge or credit recognised in income is calculated at the statutory tax rate prevailing in the Netherlands for current tax and statutory
tax rate substantively enacted in the Netherlands for deferred tax.
3 INTEREST AND OTHER INCOME/EXPENSE
Interest and other income:
Interest income
Foreign exchange gains
Total
Interest and other expenses:
Interest expense
Foreign exchange losses
Total
4 INVESTMENTS IN SUBSIDIARIES
At January 1
Share-based compensation
Recovery of vested share-based compensation
At December 31
5 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Amounts due to subsidiaries (see Note 13)
Accruals and other liabilities
Withholding tax payable
Unclaimed dividends
Total
2018
141
—
141
(156 )
(66 )
(222 )
2018
256,882
512
(474 )
$ million
2017
24
25
49
(26 )
—
(26 )
$ million
2017
256,583
779
(480 )
256,920
256,882
Dec 31, 2018
$ million
Dec 31, 2017
Current
Non-current
Current
Non-current
3,934
614
311
3
4,862
—
—
—
—
—
3,859
318
153
3
—
332
—
—
4,333
332
Accruals and other liabilities at December 31, 2018, principally comprise commitments for share repurchases undertaken on the Company’s behalf under
irrevocable, non-discretionary arrangements.
Accruals and other liabilities at December 31, 2017, were principally in respect of cash-settled share-based compensation.
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6 TAXATION
Taxation charge/(credit)
Deferred tax:
Relating to the origination and reversal of temporary differences
Relating to changes in tax rates and legislation
Adjustments in respect of prior periods
Taxation charge/(credit)
2018
33
11
—
44
$ million
2017
—
—
(23 )
(23 )
In 2018, deferred tax relating to changes in tax rates and legislation was in respect of announced reductions in corporation tax rates in the Netherlands.
Reconciliation of applicable tax charge at statutory tax rate to taxation
charge/(credit)
Income before taxation
Applicable tax charge at the statutory tax rate of 25.0% (2017: 25.0%)
Adjustments in respect of prior periods
Tax effects of:
Income not subject to tax at statutory rates
Expenses not deductible for tax purposes
Other
Taxation charge/(credit)
Taxes payable are reported within accounts payable and accrued liabilities (see Note 5).
Deferred tax assets
At January 1
Recognised in income
Other movements
At December 31
2018
23,154
5,789
—
$ million
2017
10,928
2,732
(23 )
(5,820 )
(2,744 )
20
55
44
2018
598
(44 )
(199 )
355
6
6
(23 )
$ million
2017
352
23
223
598
Deferred tax assets are recognised in respect of credits carried forward and in respect of tax losses, amounting to $240 million at December 31, 2018
(2017: $476 million), which are available for relief against future taxable profits for up to nine years from the year in which the losses were incurred.
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7 FINANCIAL INSTRUMENTS
The adoption of IFRS 9 Financial Instruments in 2018 has had no significant impact on the Company’s accounting or disclosures.
Financial assets and liabilities measured at amortised cost in the Company’s Balance Sheet comprise amounts due from subsidiaries (see Note 13) and
certain amounts reported within accounts payable and accrued liabilities (see Note 5). The fair value of financial assets and liabilities at December 31,
2018, and 2017, approximates their carrying amount.
Information on financial risk management is presented in Note 19 to the Consolidated Financial Statements. Foreign currency derivatives are used by the
Company to manage foreign exchange risk, which arises when certain transactions are denominated in a currency that is not the Company’s functional
currency. There were no derivative financial instruments held at December 31, 2018, or 2017.
8 SHARE CAPITAL
Issued and fully paid ordinary shares of €0.07 each [A](cid:3)
(cid:3)(cid:3)
Number of shares
A
B
At January 1, 2018
Repurchase of shares
At December 31, 2018
At January 1, 2017
Scrip dividends
4,597,136,050 3,745,486,731
(125,246,754 )
—
4,471,889,296 3,745,486,731
4,428,903,813 3,745,486,731
168,232,237
—
At December 31, 2017
[A] Share capital at December 31, 2018, and 2017, also included 50,000 issued and fully paid sterling deferred shares of £1 each.
4,597,136,050 3,745,486,731
A
387
(11 )
376
374
13
387
Nominal value ($ million)
B
309
—
309
309
—
309
Total
696
(11 )
685
683
13
696
At the Company’s Annual General Meeting (AGM) on May 22, 2018, 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 €194 million (representing
2,771 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, 2019, and the end of the AGM to be held in 2019, unless previously renewed, revoked or varied by the Company in a general
meeting.
At the May 22, 2018 AGM, shareholders granted the Company the authority to repurchase up to 10% of its issued ordinary shares (excluding any treasury
shares), renewing the authority granted by the shareholders at previous AGMs. The authority will expire at the earlier of the close of business on August
22, 2019, and the end of the AGM of the Company to be held in 2019. Ordinary shares purchased by the Company pursuant to this authority will either
be cancelled or held in treasury. Treasury shares are shares in the Company which are owned by the Company itself. The minimum price, exclusive of
expenses, which may be paid for an ordinary share is €0.07. The maximum price, exclusive of expenses, which may be paid for an ordinary share is the
higher of: (i) an amount equal to 5% above the average market value for an ordinary share for the five business days immediately preceding the date of
the purchase; and (ii) the higher of the price of the last independent trade and the highest current independent bid on the trading venues where the
purchase is carried out.
A shares repurchased in 2018 under the Company’s share buyback programme were all cancelled.
B shares rank equally in all respects with A shares except for the dividend access mechanism described below. The Company, Shell Transport and BG
Group Limited (BG), can procure the termination of the dividend access mechanism at any time. Upon such termination, B shares will form one class with A
shares ranking equally in all respects and 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 A and B shares.
For information on the number of shares in the Company held by Shell employee share ownership trusts and trust-like entities to meet delivery commitments
under employee share plans, see Note 21 to the Consolidated Financial Statements.
DIVIDEND ACCESS MECHANISM FOR B SHARES
General
Dividends paid on A shares have a Dutch source for tax purposes and are subject to Dutch withholding tax.
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[Note 8 continued]
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 shares will have a UK source for UK and Dutch tax purposes. There will be no Dutch withholding
tax on such dividends. From April 2016, there were changes to the taxation of dividends for individual shareholders resident in the UK. The dividend tax
credit was abolished, and a tax-free dividend allowance introduced.
Description of dividend access mechanism
Shell Transport and BG have each issued a dividend access share to Computershare Trustees (Jersey) Limited as Trustee. Pursuant to a declaration of trust,
the Trustee will hold any dividends paid in respect of the dividend access shares 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 BG and any dividends which are unclaimed after 12 years will revert to Shell Transport and BG once forfeited. Holders of B shares will not have any
interest in either dividend access share and will not have any rights against Shell Transport and BG as issuers of the dividend access shares. 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 shares.
The declaration and payment of dividends on the dividend access shares will require board action by Shell Transport and BG (as applicable) and will be
subject to any applicable limitations in law or in the Shell Transport or BG (as appropriate) articles of association in effect. In no event will the aggregate
amount of the dividend paid by Shell Transport and BG 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 (after giving effect to currency conversions).
In particular, under their respective articles of association, Shell Transport and BG are each only able to pay a dividend on their respective dividend
access shares which represents a proportional amount of the aggregate of any dividend announced by the Company on the B shares in respect of the
relevant period, where such proportions are calculated by reference to, in the case of Shell Transport, the number of B shares in existence prior to
completion of the Company’s acquisition of BG and, in the case of BG, the number of B shares issued as part of the acquisition, in each case as against
the total number of B shares in issue immediately following completion of the acquisition of BG.
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 and/or the Board of BG elects to
declare and pay a dividend on their respective dividend access shares to the Trustee, the holders of B shares will be beneficially entitled to receive their
share of those dividends 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 or BG by way of a dividend on the dividend access shares 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 shares, 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 Dutch tax treatment of dividends paid under the dividend access mechanism has been confirmed by the Dutch Revenue Service in 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, and a final settlement agreement
in connection with the acquisition of BG dated November 9, 2015. The agreements state, among other things, that dividend distributions on the dividend
access shares by Shell Transport and/or BG will not be subject to Dutch 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 prior consultation with the Dutch Revenue
Service.
Accordingly, the Company would not expect to issue additional B shares unless confirmation from the Dutch Revenue Service was 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.
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The dividend access mechanism may be suspended or terminated at any time by the Company’s Directors or the Directors of Shell Transport or BG, for
any reason and without financial recompense. This might, for instance, occur in response to changes in relevant tax legislation.
9 OTHER RESERVES
At January 1, 2018
Repurchase of shares
Share-based compensation
At December 31, 2018
At January 1, 2017
Scrip dividends
Share-based compensation
At December 31, 2017
Merger
reserve
234,231
—
—
234,231
234,244
(13 )
—
234,231
Share
premium
reserve
Capital
redemption
reserve
154
—
—
154
154
—
—
154
84
11
—
95
84
—
—
84
Share
plan
reserve
897
—
159
1,056
1,091
—
(194 )
897
$ million
Total
235,366
11
159
235,536
235,573
(13 )
(194 )
235,366
The merger 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. On February 15, 2016, the Company acquired all shares in
BG Group plc by means of a Scheme of Arrangement under Part 26 of the Act, via the issuance of 218.7 million A shares and 1,305.1 million B shares and
cash payments. This resulted in an increase in the merger reserve, representing the difference between the fair value and the nominal value of the shares
issued by the Company.
On January 6, 2006, loan notes were converted into 4,827,974 A shares. The difference between the carrying value of the loan notes and the nominal
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. The share plan reserve is in respect of equity-settled share-based compensation plans (see Note 21 to the Consolidated
Financial Statements) and movement in share-based compensation for the year is the net of the charge to equity, the release as a result of vested awards
and the impact of amendments to IFRS 2 Share-based payment.
10 DIVIDENDS
See Note 23 to the Consolidated Financial Statements.
11 LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
See Note 25 to the Consolidated Financial Statements.
12 DIRECTORS AND SENIOR MANAGEMENT
See Note 27 to the Consolidated Financial Statements for the remuneration of Directors of the Company. In 2018, the Company recognised $24 million
(2017: $25 million) in administrative expenses for the compensation of Directors and Senior Management.
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13 RELATED PARTIES
Information about the Company’s subsidiaries, and whether these are held directly or indirectly, and other related undertakings (all of which are held
indirectly), at December 31, 2018, is set out in Exhibit 8.
Shell Petroleum
Shell Treasury Centre Limited
Shell Corporate Services Switzerland AG
Shell Treasury Luxembourg Sarl
Other
Total
$ million
Amounts due to subsidiaries
(see Note 5)
Amounts due from subsidiaries
2018
2017
—
4,502
9,260
518
—
—
3
—
—
2
2018
550
—
3,384
—
—
9,263
5,022
3,934
2017
672
—
—
3,164
23
3,859
The amount due from Shell Petroleum at December 31, 2018 is $nil (2017: $4,502 million). Interest was calculated at US LIBOR less 0.210% (2017:
US LIBOR less 0.058%) and interest income in 2018 was $134 million (2017: $19 million).
The amount due from Shell Treasury Centre Limited (STCL) comprises call deposits in dollars, sterling and euros. Interest is calculated at US LIBOR less
0.210% (2017: US LIBOR less 0.058%) on dollar balances, at GBP LIBOR less 0.190% (2017: GBP LIBOR less 0.137%) on sterling balances and at Euro
Overnight Index Average (EONIA) less 0% (2017: EONIA less 0.1%) on euro balances, unless this results in a negative interest rate in which case no
interest is earned. Net interest income in 2018 from STCL was $7 million (2017: $5 million).
In 2018, the Company transferred an interest-bearing receivable and an interest-bearing payable at fair value, equal to the carrying amount of the
balances at transfer date, from Shell Treasury Luxembourg Sarl (STLB) to Shell Corporate Services Switzerland AG (SCSS). The net amount due to STLB at
December 31, 2018, is $nil (2017: interest-bearing receivable of €1,289 million and an interest-bearing payable of $4,707 million). Interest on euro
balances was calculated at EONIA less 0% (2017: EONIA less 0.1%) unless this resulted in a negative interest rate in which case no interest was earned.
Interest on dollar balances was calculated at US LIBOR (2017: US LIBOR). Net interest expense on these balances in 2018 was $89 million (2017: $26
million).
The net amount due to SCSS at December 31, 2018, which is repayable on demand, comprises an interest-bearing receivable of €4,690 million (2017:
€nil) and an interest-bearing payable of $8,746 million (2017: $nil). Interest on euro balances is calculated at EONIA less 0% (2017: EONIA less 0.1%)
unless this results in a negative interest rate in which case no interest is earned. Interest on dollar balances is calculated at US LIBOR (2017: US LIBOR).
Net interest expense on these balances in 2018 was $67 million (2017: $nil).
OTHER TRANSACTIONS AND BALANCES
The Company periodically enters into forward and spot foreign currency contracts with Treasury companies, which are subsidiaries. There were no open
foreign currency contracts at December 31, 2018, or 2017.
The Company settles general and administrative expenses of the Trust, including the auditor’s remuneration.
The Company has guaranteed contractual payments totalling $53,357 million at December 31, 2018 (2017: $58,527 million), and related interest,
in respect of listed debt issued by Shell International Finance B.V.
14 AUDITOR’S REMUNERATION
See Note 28 to the Consolidated Financial Statements.
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Independent Auditor’s Report to Computershare Trustees
(Jersey) Limited as Trustee of the Royal Dutch Shell Dividend
Access Trust and the Board of Directors of Royal Dutch Shell plc
TO COMPUTERSHARE TRUSTEES (JERSEY) LIMITED AS TRUSTEE OF THE ROYAL DUTCH SHELL DIVIDEND ACCESS
TRUST AND THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ROYAL DUTCH SHELL PLC
Opinion on the Financial Statements
We have audited the non-statutory financial statements of the Royal Dutch Shell Dividend Access Trust (the Financial Statements) for the year ended
December 31, 2018 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 1 to 8. The financial reporting framework that has been applied in their preparation is
International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and IFRS as issued by the International Accounting Standards
Board (IASB).
In our opinion the Financial Statements:
(cid:131) give a true and fair view of the Royal Dutch Shell Divided Access Trust’s (the Trust) affairs as at December 31, 2018 and of its income for the year then
ended; and
(cid:131) have been properly prepared both in accordance with IFRS as adopted by the EU and IFRS as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)). Our responsibilities under those standards are further
described in the “Auditor’s responsibilities for the audit of the financial statements” section of our report below. We are independent of the Trust in
accordance with the ethical requirements that are relevant to our audit of the Financial Statements in the UK, including the Financial Reporting Council’s
Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
(cid:131) the Trustee of Royal Dutch Shell Dividend Access Trust’s (the Trustee) use of the going concern basis of accounting in the preparation of the Financial
Statements is not appropriate; or
(cid:131) the Trustee has not disclosed in the Financial Statements any identified material uncertainties that may cast significant doubt about the Trust’s ability to
continue to adopt the going concern basis of accounting for a period of at least twelve months from the date of approval of the Financial Statements.
Other information
The other information comprises the information included in the annual report, other than the Financial Statements and our auditor’s report thereon. The
Board of Directors of Royal Dutch Shell plc,(the Directors) are responsible for the other information.
Our opinion on the Financial Statements does not cover the other information and, we do not express any form of assurance conclusion thereon.
In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the
Financial Statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of the Trustee
The Trustee is responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view, and for such internal
control as the Trustee determines is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to
fraud or error.
In preparing the Financial Statements, the Trustee is responsible for assessing the Trust’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless the Trustee either intends to liquidate the Trust or to cease
operations, or have no realistic alternative but to do so. The Trustee is also required to: present fairly the financial position, financial performance and cash
flows of the Trust; select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then
apply them consistently; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
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Independent Auditor’s Report to Computershare Trustees (Jersey) Limited as Trustee of the
Royal Dutch Shell Dividend Access Trust and the Board of Directors of Royal Dutch Shell plc
Continued
information; make judgements that are reasonable; provide additional disclosures when compliance with the specific requirements in IFRS as adopted by
the EU and as issued by the IASB is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the
Trust’s financial position and financial performance; and state whether the Financial Statements have been prepared in accordance with IFRS as adopted
by the EU and as issued by the IASB.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis
of these Financial Statements.
A further description of our responsibilities for the audit of the Financial Statements is located on the
Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Directors as a body, in accordance with our engagement letter dated November 6, 2018. Our audit work has been
undertaken so that we might state to the Trustee and the Directors those matters we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trust and the Trustee and the Directors
as a body, for our audit work, for this report, or for the opinions we have formed.
/s/ Ernst & Young LLP
London
March 13, 2019
1.
2.
The maintenance and integrity of the Shell website are the responsibility of the Directors of Royal Dutch Shell plc; 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 financial statements since they were initially presented on the website.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The report set out above is included for the purposes of Royal Dutch Shell plc’s Annual Report and Accounts for 2018 only and does not form part of Royal
Dutch Shell plc’s Annual Report on Form 20-F for 2018.
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Report of Independent Registered Public Accounting Firm
TO COMPUTERSHARE TRUSTEES (JERSEY) LIMITED AS TRUSTEE OF THE ROYAL DUTCH SHELL DIVIDEND ACCESS
TRUST AND THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ROYAL DUTCH SHELL PLC
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Royal Dutch Shell Dividend Access Trust (the Trust) as of December 31, 2018 and 2017, the related
statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2018, and
the related notes (collectively referred to as the “Financial Statements”). In our opinion, the Financial Statements present fairly, in all material respects, the
financial position of the Trust at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2018, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board and in conformity with IFRS as adopted by the European Union.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Trust’s internal
control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 13, 2019 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the Trustee of the Trust (the Trustee) and the management of Royal Dutch Shell plc (the management).
Our responsibility is to express an opinion on the Trust’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Trust’s auditor since 2016.
London, United Kingdom
March 13, 2019
TO COMPUTERSHARE TRUSTEES (JERSEY) LIMITED AS TRUSTEE OF ROYAL DUTCH SHELL DIVIDEND ACCESS TRUST
AND THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ROYAL DUTCH SHELL PLC
Opinion on Internal Control over Financial Reporting
We have audited Royal Dutch Shell Dividend Access Trust’s (the Trust) internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, the Trust maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Financial
Statements of the Trust, and our report dated March 13, 2019, expressed an unqualified opinion thereon.
Basis for Opinion
The Trustee of the Trust (the Trustee) and the management of Royal Dutch Shell plc (the Management) are responsible for maintaining effective internal
control over financial reporting and for their assessment of the effectiveness of internal control over financial reporting included in the accompanying
Trustee’s and Management’s Report on Internal Control over Financial Reporting set out on page 104. Our responsibility is to express an opinion on the
Trust’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
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Report of Independent Registered Public Accounting Firm Continued
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Definition and Limitations of Internal Control over Financial Reporting
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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) 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 authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized 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/ Ernst & Young LLP
London, United Kingdom
March 13, 2019
1.
2.
The maintenance and integrity of the Shell website are the responsibility of the Directors of Royal Dutch Shell plc; 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 financial statements since they were initially presented on the website.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The report set out above is included for the purposes of Royal Dutch Shell plc’s Annual Report on Form 20-F for 2018 only and do not form part of Royal
Dutch Shell plc’s Annual Report and Accounts for 2018.
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Royal Dutch Shell Dividend Access Trust Financial Statements
252
252
252
253
253
Statement of Income
Statement of Comprehensive Income
Balance Sheet
Statement of Changes in Equity
Statement of Cash Flows
254
Notes to the Royal Dutch Shell Dividend Access Trust Financial Statements
254 Note 1 The Trust
254 Note 2 Basis of preparation
254 Note 3 Significant accounting policies
254 Note 4 Unclaimed dividends
254 Note 5 Capital account
254 Note 6 Distributions made
255 Note 7 Related parties
255 Note 8 Auditor’s remuneration
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251
Royal Dutch Shell Dividend Access Trust Financial Statements Continued
Statement of Income
Dividend income
Income before taxation and for the period
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
Unclaimed dividends
Total liabilities
Equity
Capital account
Revenue account
Total equity
Total liabilities and equity
2018
5,328
5,328
2018
5,328
5,328
2017
4,567
4,567
2017
4,567
4,567
£ million
2016
3,879
3,879
£ million
2016
3,879
3,879
£ million
Notes
Dec 31, 2018
Dec 31, 2017
4
5
3
3
3
3
—
—
—
3
2
2
2
2
—
—
—
2
Signed on behalf of Computershare Trustees (Jersey) Limited
as Trustee of the Royal Dutch Shell Dividend Access Trust
/s/ Karen Kurys
Karen Kurys
March 13, 2019
/s/ Martin Fish
Martin Fish
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Statement of Changes in Equity
At January 1, 2018
Comprehensive income for the period
Distributions made
At December 31, 2018
At January 1, 2017
Comprehensive income for the period
Distributions made
At December 31, 2017
At January 1, 2016
Comprehensive income for the period
Distributions made
At December 31, 2016
Statement of Cash Flows
Income for the period
Adjustment for:
Dividends received
Cash flow from operating activities
Dividends received
Cash flow from investing activities
Cash distributions made
Cash flow from 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
—
—
—
—
—
—
—
—
—
—
—
—
2018
5,328
(5,328 )
—
5,328
5,328
(5,327 )
(5,327 )
1
2
3
Revenue
account
—
5,328
(5,328 )
—
—
4,567
(4,567 )
—
—
3,879
(3,879 )
—
2017
4,567
(4,567 )
—
4,567
4,567
(4,567 )
(4,567 )
—
2
2
£ million
Total
equity
—
5,328
(5,328 )
—
—
4,567
(4,567 )
—
—
3,879
(3,879 )
—
£ million
2016
3,879
(3,879 )
—
3,879
3,879
(3,879 )
(3,879 )
—
2
2
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253
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 and domiciled in Jersey. The Trust is not subject to taxation. The Trustee of the Trust is Computershare Trustees (Jersey)
Limited, registration number 92182 (the Trustee), Queensway House, Hilgrove Street, St Helier, Jersey, JE1 1ES. The Trust was established as part of a
dividend access mechanism.
Shell Transport and BG Group Limited (BG), have each issued a dividend access share to the Trustee. Following the announcement of a dividend by the
Company on the B shares, Shell Transport and BG may declare a dividend on their dividend access shares.
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 shares and to pay such amounts to the B shareholders on the same
pro rata basis. The Trust is not subject to significant market risk, credit risk or liquidity risk.
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 THE 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 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.
The Financial Statements have been prepared under the historical cost convention. The accounting policies described in Note 3 have been applied
consistently in all periods presented.
The Financial Statements were approved and authorised for issue by the Trustee on March 13, 2019.
The financial results of the Trust are included in the Consolidated and Parent Company Financial Statements on pages 167--214 and pages 237-246 respectively.
3 SIGNIFICANT 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 Trust-specific policies. The
adoption of IFRS 9 Financial Instruments in 2018 has had no significant impact on the Trust’s accounting or disclosures.
PRESENTATION AND FUNCTIONAL CURRENCY
The Trust’s presentation and functional currency is sterling. The Trust’s dividend income and dividends paid are principally in sterling.
DIVIDEND INCOME
Dividends on the dividend access shares are recognised on a paid basis unless the dividend has been confirmed by a general meeting of Shell Transport
or BG, in which case income is recognised on the date on which receipt is deemed virtually certain.
DISTRIBUTIONS MADE
Amounts are recorded as distributed once a wire transfer or cheque is issued. To the extent that cheques expire or are returned unpresented, the Trust
records a liability for unclaimed dividends and a corresponding amount of cash.
4 UNCLAIMED DIVIDENDS
Unclaimed dividends of £2,816,655 (2017: £2,302,549) include any dividend cheque payments that have not been presented within 12 months, have
expired or have been returned unpresented. Dividends which are unclaimed after 12 years will revert to Shell Transport and BG once forfeited.
5 CAPITAL ACCOUNT
The capital account is represented by the dividend access share of 25 pence settled in the Trust by Shell Transport and the dividend access share of 10
pence settled in the Trust by BG. There have been no changes in the capital account in the current or prior year.
6 DISTRIBUTIONS MADE
Distributions are made to the B shareholders of the Company in accordance with the Trust Deed. See Note 23 to the Consolidated Financial Statements
for information about dividends per share. Any wire transfers that are not completed are replaced by cheques.
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7 RELATED PARTIES
The Trust received dividend income of £3,470 million (2017: £2,970 million; 2016: £2,533 million) in respect of the dividend access share from Shell
Transport and £1,858 million (2017: £1,597 million; 2016: £1,346 million) in respect of the dividend access share from BG. The Trust made distributions of
£5,328 million (2017: £4,567 million; 2016: £3,879 million) to the B shareholders of the Company.
The Company pays the general and administrative expenses of the Trust, including the auditor’s remuneration.
8 AUDITOR’S REMUNERATION
Auditor’s remuneration for 2018 audit services was £33,750 (2017: £33,750; 2016: £33,750).
.
(cid:3)
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255
Additional Information
Shareholder information
Royal Dutch Shell plc (the Company) was incorporated in England and Wales
on February 5, 2002, as a private company under the Companies Act 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 Legal Entity Identifier (LEI)
issued by the London Stock Exchange is 21380068P1DRHMJ8KU70. 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 JP Morgan Chase Bank, N.A., 383 Madison Avenue, New York,
New York 10179, USA, as depositary (the Depositary), under a deposit
agreement between the Company, the Depositary and the holders of ADSs
[B]. 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 259.
[A] At February 15, 2019, 444,857,258 A ADSs and 323,849,655 B ADSs were outstanding,
representing 20% and 17% of the respective share capital class, held by 5,410 and 926 holders of
record with an address in the USA, respectively. In addition to holders of ADSs, at February 15, 2019,
25,537 A shares and 949,113 B shares of €0.07 each were outstanding, representing 0.000% and
0.011% of the respective share capital class, held by 314 and 3,095 holders of record registered with
an address in the USA, respectively.
[B] JP Morgan Chase Bank, N.A. were appointed as Depository with effect from November 1, 2018,
in succession to The Bank of New York Mellon, 101 Barclay Street, New York, NY 10286, USA.
SHARE CAPITAL
The issued and fully paid share capital of the Company at February 15,
2019, was as follows:
Share capital
Issued and fully paid
Number
Nominal value
Ordinary shares of €0.07 each
A shares
B shares
4,441,269,079 €310,888,836
3,745,486,731 €262,184,071
Sterling deferred shares of £1
each
50,000
£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 2018 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:
(cid:131) 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;
(cid:131) all A and B shares rank equally for all dividends and distributions on
ordinary share capital; and
(cid:131) A and B shares are admitted to the Official List of the UK Financial
Conduct 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.
Listing information
Ticker symbol London
Ticker symbol Amsterdam
Ticker symbol New York (ADS [A])
A shares
RDSA
RDSA
RDS.A
B shares
RDSB
RDSB
RDS.B
At December 31, 2018, trusts and trust-like entities holding shares for the
benefit of employee share plans of Shell held (directly and indirectly)
38 million shares of the Company with an aggregate market value of
$1,128 million and an aggregate nominal value of €3 million.
ISIN Code
CUSIP
SEDOL Number London
SEDOL Number Euronext
GB00B03MLX29 GB00B03MM408
G7690A100
G7690A118
B03MLX2
B03MM40
B09CBL4
B09CBN6
Weighting on FTSE at 31/12/18
6.17%
5.16%
Weighting on AEX at 31/12/18
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.
16.17%
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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.
SIGNIFICANT DIRECT SHAREHOLDINGS
Direct holdings of 3% or more of A and B shares combined held by registered members representing the interests of underlying investors at December 31,
2018, are given below.
Direct shareholdings
Euroclear Nederland
Guaranty (Nominees) Limited
State Street Nominees Limited
Chase Nominees Limited
A shares
B shares
Number
%
Number
%
Number
Total
%
1,795,621,266
40.15
15,022,439
0.40 1,810,643,705
22.03
883,221,124
19.75 635,818,258
16.98 1,519,039,382
18.49
172,015,005
3.85
191,471,980
5.11
363,486,985
60,547,031
1.35 260,984,315
6.97
321,531,346
4.42
3.91
SIGNIFICANT INDIRECT SHAREHOLDINGS
Interests of investors with 3% or more of A and B shares combined at December 31, 2018, are given below.
Indirect shareholdings
BlackRock, Inc.
334,842,363
7.49 256,790,694
6.86
591,633,057
The Capital Group Companies, Inc.
66,006,890
1.48 401,977,309
10.73 467,984,199
The Vanguard Group, Inc.
199,027,711
4.45
132,605,115
3.54 331,632,826
A shares
B shares
Number
%
Number
%
Number
Total
%
7.20
5.70
4.04
NOTIFICATION OF MAJOR SHAREHOLDINGS
The Company did not receive any notifications pursuant to Disclosure Guidance and Transparency Rule (DTR) 5 during the year.
Investor
A shares
B shares
Total[B]
Number
%
Number
%
Number
%
BlackRock, Inc. [A]
[A] The information provided is derived from the most recent notification, received in 2017. This includes the percentage figures shown, which align with the issued capital as at the date of notification.
5.83 495,468,404
6.10 218,422,847
277,045,557
5.97
[B] Excludes financial instruments according to Art. 13(1)(a) of Directive 2004/109/EC (DTR 5.3.1.1 (a)) and financial instruments with similar economic effect according to Art. 13(1)(b) of Directive
2004/109/EC (DTR 5.3.1.1 (b)).
The Company did not receive any notifications pursuant to DTR 5 in the period from December 31, 2018, to February 15, 2019,
(being a date not more than one month prior to the date of the Company’s Notice of Annual General Meeting).
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SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
257
257
Shareholder information Continued
DIVIDENDS
The following tables show the dividends on each class of share and each class of ADS for the years 2014 - 2018.
A and B shares
Q1
Q2
Q3
Q4
Total announced in respect of the year
A shares
Q1
Q2
Q3
Q4
Total announced in respect of the year
Amount paid during the year
[A] Euro equivalent, rounded to the nearest euro cent.
B shares
Q1
Q2
Q3
Q4
Total announced in respect of the year
Amount paid during the year
[A] Sterling equivalent.
A and B ADSs
Q1
Q2
Q3
Q4
Total announced in respect of the year
Amount paid during the year
2018
0.47
0.47
0.47
0.47
1.88
2018
0.40
0.40
0.41
0.42
1.64
1.60
2018
35.18
36.50
36.77
35.94
144.39
142.36
2018
0.94
0.94
0.94
0.94
3.76
3.76
2017
0.47
0.47
0.47
0.47
1.88
2017
0.42
0.39
0.40
0.38
1.59
1.65
2017
37.12
36.28
35.02
33.91
142.33
147.06
2017
0.94
0.94
0.94
0.94
3.76
3.76
2016
0.47
0.47
0.47
0.47
1.88
2016
0.42
0.42
0.44
0.44
1.72
1.70
2016
32.98
35.27
37.16
38.64
144.05
138.19
2016
0.94
0.94
0.94
0.94
3.76
3.76
2015
0.47
0.47
0.47
0.47
1.88
2015
0.42
0.42
0.43
0.42
1.69
1.71
2015
30.75
30.92
31.07
32.78
125.52
123.94
2015
0.94
0.94
0.94
0.94
3.76
3.76
$
2014
0.47
0.47
0.47
0.47
1.88
€ [A]
2014
0.35
0.36
0.38
0.43
1.53
1.42
Pence [A]
2014
28.03
29.09
30.16
31.20
118.48
114.16
$
2014
0.94
0.94
0.94
0.94
3.76
3.72
258
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
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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.
FEES PAID BY HOLDERS OF ADSs
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 260.
PAYMENTS BY DEPOSITARY TO THE COMPANY
J.P. Morgan Chase Bank, N.A., as Depositary, has agreed to share with the
Company portions of certain fees collected, less ADS programme expenses
paid by the Depositary. For example, these expenses include the
Depositary’s annual programme fees, transfer agency fees, custody fees,
legal expenses, 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 and the standard out-of-pocket
maintenance costs for the ADSs. From January 1, 2018, to February 15,
2019, the Company received $2,832,296 from the former depositary and
$nil from the Depositary.
DIVIDEND REINVESTMENT PLAN
Equiniti Financial Services Limited, part of the same group of companies as
the Company’s Registrar, Equiniti Limited, operates a Dividend Reinvestment
Plan (“DRIP”) which enables RDS shareholders to elect to have their
dividend payments used to purchase RDS shares of the same class as those
already held by them. More information can be found
at www.shareview.co.uk/info/drip or by contacting Equiniti.
ABN AMRO Bank N.V. and JP Morgan Chase Bank N.A. also operate
dividend reinvestment options. More information can be found by
contacting the relevant provider.
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:
(cid:131) directly as registered shares either in uncertificated form or in certificated
form in a shareholder’s own name;
(cid:131) indirectly through Euroclear Nederland (in respect of which the Dutch
Securities Giro Act (“Wet giraal effectenverkeer”) is applicable);
(cid:131) through the Royal Dutch Shell Corporate Nominee Service;
(cid:131) through another third-party nominee or intermediary company; and
(cid:131) as a direct or indirect holder of either an A or a B ADS with the
Depositary
AMERICAN DEPOSITARY SHARES
Effective November 1, 2018, J.P. Morgan Chase Bank, N.A. serves as
successor depositary for our ADS programme. A copy of the Form of
Amended and Restated Deposit Agreement with J.P Morgan Chase Bank,
N.A. (“Depositary”) was filed with the SEC as an Exhibit to our Form F-6
filed on October 19, 2018 (“Deposit Agreement”).
The Depositary is the registered shareholder of the shares underlying the
A or B 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 Deposit Agreement 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.
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SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
259
Shareholder information Continued
Persons depositing or withdrawing shares must pay:
$5.00 or less per 100 ADSs (or portion of 100 ADSs)
Registration and transfer fees
Expenses of the Depositary
For:
Issuance of ADSs, including those resulting from a distribution of shares,
rights or other property;
Cancellation of ADSs for the purpose of their withdrawal, including if the
deposit agreement terminates; and
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); and
Converting foreign currency into dollars.
Taxes and other governmental charges the Depositary or the custodian has
to pay on any ADS or share underlying an ADS, for example, share transfer
taxes, stamp duty or withholding taxes
As necessary.
In addition to the above, the Depositary may charge: (i) a dividend fee of
$5.00 or less per 100 ADSs (or portion of 100 ADSs) for cash dividends or
issuance of ADSs resulting from share dividends and (ii) an administrative
fee of $5.00 or less per 100 ADSs (or portion of 100 ADSs) per calendar
year. The Company and Depositary have agreed not to charge these fees
at this time.
EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
Other than restrictions affecting those individuals, entities, government
bodies, corporations or agencies that are subject to European Union (EU)
sanctions, for example, regarding Syria, and those sanctions adopted by
the government of the UK, and the general EU prohibition to transfer funds
to and from North Korea, we are not aware of any other legislative or
other legal provision currently in force in the UK, the Netherlands or arising
under the Articles restricting remittances to holders of the Company’s
ordinary shares who are non-residents of the UK, or affecting the import or
export of capital.
TAXATION
GENERAL
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. Depending on their particular circumstances, non-Dutch
tax-resident holders may be entitled to a full or partial refund of Dutch
withholding tax. The following sets forth the operation of other 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 own tax adviser if they are uncertain as to the tax
treatment of any dividend.
DIVIDENDS PAID ON THE DIVIDEND ACCESS SHARES
There is no Dutch withholding tax on dividends on B shares or B ADSs,
provided that such dividends are paid on the dividend access shares
pursuant to the dividend access mechanism (see “Dividend access
mechanism for B shares” on page 108). Dividends paid on the dividend
access shares are treated as UK-source for tax purposes and there is no UK
withholding tax on them.
In 2018, all dividends with respect to B shares and B ADSs were paid on
the dividend access shares 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 shares 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:
(cid:131)
(cid:131)
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 tax-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 shares pursuant to the dividend
access mechanism), the dividend will typically be subject to withholding tax
at a rate of 15%. Such UK tax-resident holder may be entitled to a credit
(not repayable) for withholding tax against their UK tax liability. However,
260
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
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CAPITAL GAINS TAX
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:
March 31, 1982
July 20, 2005
£
Royal Dutch Petroleum Company
(N.V. Koninklijke Nederlandsche
Petroleum Maatschappij) which ceased
to exist on December 21, 2005
1.1349
17.6625
The “Shell” Transport and Trading
Company, p.l.c. which delisted on
July 19, 2005
1.4502 Not applicable
[A] Restated where applicable to reflect all capitalisation issues since the relevant date. This includes
the change in the capital structure in 2005, when 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, and one share in Royal Dutch
Petroleum Company was exchanged for two Royal Dutch Shell plc A shares and one share in The
“Shell” Transport and Trading Company, p.l.c. was exchanged for 0.287333066 Royal Dutch Shell
plc B shares.
certain corporate shareholders are, subject to conditions, exempt from
UK tax on dividends. Withholding tax suffered cannot be offset against such
exempt dividends. UK tax-resident holders should also be entitled to claim a
refund of one-third of the Dutch withholding tax from the Dutch tax
authorities in reliance on the tax convention between the Netherlands and
the UK. Pension plans meeting certain defined criteria can, however, be
entitled to claim a full refund or exemption at source of the dividend tax
withheld. Also, UK tax-resident corporate shareholders holding at least a
5% shareholding and meeting other defined criteria are exempted at source
from dividend tax.
For holders who are tax-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 holder’s residence.
There may be other grounds on which holders who are tax-resident in the
UK, the USA or any other country can obtain a full or partial refund of the
Dutch withholding tax, depending on their particular circumstances; see
“Taxation: General” above.
DUTCH CAPITAL GAINS TAXATION
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 holder 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 SUCCESSION DUTY AND GIFT TAXES
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.
A gift of shares of a Dutch tax-resident company by an individual who is not
a resident or a deemed resident of the Netherlands is generally not subject
to Dutch gift tax.
UK STAMP DUTY AND STAMP DUTY RESERVE TAX
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.
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.
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SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
261
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 USA by non-
US affiliates of Royal Dutch Shell plc. None of the payments disclosed
below were made in US dollars, nor are any of the balances disclosed
below held in US dollars; however, for disclosure purposes, all have been
converted into US dollars at the appropriate exchange rate. We do not
believe that any of the transactions or activities listed below violated US
sanctions.
In 2018, we settled a receivable of $10.5 million with the National Iranian
Oil Company (NIOC) associated with our previous upstream activities
conducted prior to the imposition of European Union sanctions against a
payable for freight and ancillary services in relation to oil cargoes
purchased in 2016. The net payable of $1.0 million was paid to NIOC in
March 2018.
In 2017, we entered into a technology licence agreement with
Petrochemical Industries Design and Engineering Company (PIDEC) to
provide licence and engineering services to Abadan Oil Refinery Company
(AORC) in relation to Cansolv sulphur dioxide (SO2) scrubbing technology,
as well as a separate end-user licence agreement with AORC for a
continuing licence for the Cansolv SO2 technology once PIDEC’s work at
Abadan has been completed. In addition, a separate agreement was
signed at the same time between Shell, the Iran branch of Shell
Development B.V. (SDI) and PIDEC, for the arrangement of payments due
under the licence and engineering agreement to be made to SDI in Iran. In
2018, these agreements generated gross revenue of $691,768 and an
estimated net profit of $438,131. At December 31, 2018, we have a
receivable outstanding of $691,768. In October 2018, we sent notices of
termination with respect to these two agreements.
In addition, at December 31, 2018, we have a receivable of $1.2 million
outstanding with Hamedan Ibn Sina Petrochemical Company associated
with a technology licence agreement signed in 2016. In October 2018, we
sent notice of suspension with respect to this agreement.
In May 2018, we agreed to extend the term of a memorandum of
understanding (MOU) originally signed in 2016 with the NIOC to cover a
joint review of a number of oil and gas opportunities. This amendment
extends the term of the MOU to August 6, 2018. There was no gross
revenue or net profit associated with this transaction.
In 2018, we received gross revenue of $228,441 into our account at
Karafarin Bank from Bank Mellat in relation to advisory services provided to
Marun Petrochemical Company, pursuant to an advisory agreement
entered into in June 2017. No net profit was associated with these services
in 2018.
In October 2018, we payed $2.1 million to National Iranian Tanker
Company pursuant to a charter party agreement entered into in May 2017.
This payment constituted full settlement of all obligations under the charter
party agreement.
In 2018, we paid $18,812 for the clearance of overflight permits for Shell
aircraft over Iranian airspace, and $6,352 for handling costs, to the Iranian
Civil Aviation Authority. There was no gross revenue or net profit associated
with these transactions. On occasion, our aircraft may be routed over Iran
and therefore these payments may continue in the future.
In 2018, Shell employees met with Iranian officials in Iran. In relation to
these travelling Shell employees, $6,336 was paid to Iranian authorities for
visas and $688 for exit fees; $190 was paid to Bimeh Insurance Company
for travel insurance; and $853 was paid to Iranian airlines for flight tickets.
Additionally, $246 visa costs were incurred by non-US affiliates. We also
discovered $294 in visa costs for Shell employees and $142 visa costs
incurred by non-US affiliates in relation to 2017 that were not previously
disclosed. Using an agent, CIBT Visumdienst B.V, we also paid a $62
consular fee to an Iranian embassy. There was no gross revenue or net
profit associated with these transactions. We have ceased these discussions
and do not expect similar payments in the future.
In 2018, we provided downstream retail services to the Iranian Embassy in
Switzerland and to the International Islamic Liquidity Management
Corporation in Malaysia. These transactions generated gross revenue of
$4,064 and an estimated net profit of $236 in Switzerland and $979
gross revenue and an estimated net profit of $57 in Malaysia. We have no
contractual agreements with these parties.
We maintain accounts with Karafarin Bank, where our cash deposits
(balance of $5.0 million at December 31, 2018) generated non-taxable
interest income of $0.3 million in 2018, and we paid $351 in bank charges.
We have made payments amounting to $1.4 million through our account in
Karafarin Bank to a variety of non-sanctioned parties.
262
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
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Non-GAAP measures reconciliations
These non-GAAP measures, also known as alternative performance measures,
are financial measures other than those defined in International Financial
Reporting Standards which Shell considers provide useful information.
EARNINGS ON A CURRENT COST OF SUPPLIES BASIS
Segment earnings are presented on a current cost of supplies basis (CCS
earnings), which is the earnings measure used by the Chief Executive
Officer for the purposes of making decisions about allocating resources and
assessing performance. 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.
The current cost of supplies adjustment does not impact Cash flow from
operating activities in the “Consolidated Statement of Cash Flows”.
DIVESTMENTS
Divestments is a measure used to monitor the progress of our divestment
programme. This measure comprises proceeds from sale of property, plant
and equipment and businesses, joint ventures and associates, and other
Integrated Gas, Upstream and Downstream investments in equity securities,
adjusted onto an accruals basis and for any share consideration received
or contingent consideration initially recognised upon the related divestment,
as well as proceeds from sale of interests in entities while retaining control
(for example, proceeds from sale of interests in Shell Midstream Partners,
L.P.).
Divestments reconciliation
$ million
2018
2017
2016
Proceeds from sale of property,
Reconciliation of CCS earnings to
plant and equipment and businesses [A]
4,366
8,808
2,072
income for the period
$ million
Proceeds from sale of joint ventures
Earnings on a current cost of supplies
basis (CCS earnings)
Attributable to non-controlling interest
Earnings on a current cost of supplies
basis attributable to
Royal Dutch Shell plc shareholders
Current cost of supplies adjustment
Non-controlling interest
Income attributable to
Royal Dutch Shell plc shareholders
Non-controlling interest
Income for the period
2018
2017
2016
and associates [A]
1,594
2,177
1,565
Share and contingent consideration [B]
194
3,046
275
24,364
12,471
3,692
Proceeds from sale of interests in entities
(531 )
(390 )
(159 )
while retaining control [C]
Other
Divestments
23,833
12,081
3,533
Of which
(458 )
(23 )
964
(68 )
1,085
(43 )
Integrated Gas
Upstream
Downstream
23,352 12,977
4,575
Corporate
673
278
1,108
275
3,031 [D]
(36 )
7,102 17,340
4,984
3,124
3,077
352
2,198
11,542
1,726
1,718
2,703
2,889
62
18
17
[A] Included within Cash flow from investing activities in the “Consolidated Statement of Cash Flows”.
[B] With effect from 2017, this is valued at the date of the related divestment. In future periods, the
proceeds from any disposal of shares received as divestment consideration, and proceeds from
realisation of contingent consideration, will be included in Cash flow from investing activities. In 2017,
it mainly comprised $2,829 million for shares in Canadian Natural Resources Limited (CNRL)
received as partial consideration in the oil sands divestment. In 2018, these shares were sold for
$3,307 million.
[C] Included within “Change in non-controlling interest” in Cash flow from financing activities in the
“Consolidated Statement of Cash Flows”.
[D] Includes proceeds of $2,635 million from the sale of shares in Woodside Petroleum Limited.
554
458
23,906 13,435
202
4,777
CAPITAL INVESTMENT
Capital investment is a measure used to make decisions about allocating
resources and assessing performance.
Capital investment reconciliation
$ million
Capital expenditure [A]
Capital investment related to the
2018
2017
2016
23,011 20,845 22,116
acquisition of BG Group plc
—
— 52,904
Investments in joint ventures
and associates [A]
Exploration expense,
excluding exploration wells written off
Finance leases
Other
Capital investment
Of which
Integrated Gas
Upstream
Downstream
Corporate
880
595
1,330
889
1,048
1,274
452
(453 )
2,343
(90 )
24,779 24,006 79,877
1,074
444
4,460
3,827 26,214
12,525 13,648 47,507
6,416 6,057
99
7,564
230
115
[A] Included within Cash flow from investing activities in the “Consolidated Statement of Cash Flows”.
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SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
263
Non-GAAP measures reconciliations Continued
OPERATING EXPENSES
Operating expenses is a measure of Shell’s cost management performance,
comprising items from the “Consolidated Statement of Income” as follows.
Operating expenses
$ million
2018
2017
2016
Production and manufacturing expenses
26,970 26,652 28,434
Selling, distribution and
administrative expenses
Research and development
Total
Of which
Integrated Gas
Upstream
Downstream
Corporate
11,360
10,509
986
922
12,101
1,014
39,316
38,083
41,549
6,014
5,471
12,157
12,656
20,743
19,583
402
373
6,479
14,501
19,681
888
RETURN ON AVERAGE CAPITAL EMPLOYED
Return on average capital employed (ROACE) measures the efficiency of
our utilisation of the capital that we employ. 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.
Calculation of return on average capital
employed
Income for the period
Interest expense after tax
$ million
2018
2017
2016
23,906
13,435
4,777
2,513
2,995
2,730
Income before interest expense
26,419
16,430
7,507
Capital employed – opening
283,477 280,988 222,500
Capital employed – closing
279,358 283,477 280,988
Capital employed – average
281,417 282,233 251,744
ROACE
9.4%
5.8%
3.0%
FREE CASH FLOW
Free cash flow is used to evaluate cash available for financing activities,
including dividend payments, after investment in maintaining and growing
our business. It is defined as follows.
Free cash flow
$ million
2018
2017
2016
Cash flow from operating activities
53,085 35,650 20,615
Cash flow from investing activities
(13,659)
(8,029) (30,963)
Free cash flow
39,426 27,621 (10,348)
264
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Index to the Exhibits
Exhibit No. Description
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 US Securities and Exchange Commission on October 28, 2011).
Page
1.2
2.1
2.2
4.1
4.2
4.3
4.4
7.1
7.2
8.1
12.1
12.2
13.1
99.1
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 US Securities and Exchange Commission on October 28, 2011).
Amended and Restated Dividend Access Trust Deed dated December 22, 2015, (incorporated by reference to Exhibit 2 to the
Annual Report for the fiscal year ended December 31, 2015, on Form 20-F (File No. 001-32575) of Royal Dutch Shell plc filed with
the US Securities and Exchange Commission on March 10, 2016).
Senior Debt Securities Indenture among Shell International Finance B.V., as issuer, Royal Dutch Shell plc, as guarantor, and
Deutsche Bank Trust Company Americas, as trustee, dated June 27, 2006, (incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form F-3ASR (No. 333-222005) of Royal Dutch Shell plc filed with the US Securities and Exchange
Commission on December 12, 2017.
Shell Provident Fund Regulations and Trust Agreement, as amended (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 US 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 US Securities and Exchange
Commission on March 13, 2006).
Form of contract of employment for Executive Directors (incorporated by reference to Exhibit 4.5 to the Annual Report for fiscal
year ended December 31, 2013, on Form 20-F (File No. 001-32575) of Royal Dutch Shell plc filed with the US Securities and
Exchange Commission on March 13, 2014).
Form of Letter of appointment for Non-executive Directors.
Calculation of Return on Average Capital Employed (ROACE) (incorporated by reference to page 263 herein).
Calculation of gearing (incorporated by reference to page 27 and Note 14 to the Consolidated Financial Statements on
page 191 herein).
Significant Shell subsidiaries at December 31, 2018.
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 Ernst & Young LLP, London, United Kingdom.
99.2
Consent of Ernst & Young LLP, London, United Kingdom, relating to the Royal Dutch Shell Dividend Access Trust.
101
Interactive data files.
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SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
265
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/ Ben van Beurden
Ben van Beurden
Chief Executive Officer
March 13, 2019
266
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Exhibit 8.1
SIGNIFICANT SUBSIDIARIES AND OTHER RELATED UNDERTAKINGS (AUDITED)
Significant subsidiaries and other related undertakings at December 31, 2018, are set out below. Significant subsidiaries are shaded and each meets the
threshold specified under Rule 1-02(w) of Regulation S-X. Shell’s percentage of share capital is shown to the nearest whole number. All subsidiaries have
been included in the “Consolidated Financial Statements” on pages 167-214, and those held directly by the Company are marked with the footnote [a]. A
number of the entities listed are dormant or not yet operational. Entities that are proportionately consolidated are identified by the footnote [b]. Shell-owned
shares are ordinary (voting) shares unless identified with one of the following annotations against the company name: [c] Membership interest; [d]
Partnership capital; [e] Non-redeemable; [f] Ordinary, Membership interest; [g] Ordinary, Non-redeemable; [h] Ordinary, Partnership capital; [i] Ordinary,
Redeemable; [j] Ordinary, Redeemable, Non-redeemable; and [k] Redeemable, Non-redeemable.
Company by country of incorporation
Address of registered office
ARGENTINA
O & G Developments Ltd S.A.
Av. Pte. Roque Sáenz Pena 788, 4th floor, Buenos Aires, 1383
AUSTRALIA
Arrow Energy Holdings Pty Ltd
Level 39, 111 Eagle Street, Brisbane, QLD 4000
Austen & Butta Pty Ltd
BC 789 Holdings Pty Ltd
BG CPS Pty Limited
BNG (Surat) Pty Ltd
Condamine 1 Pty Ltd
Condamine 2 Pty Ltd
Condamine 3 Pty Ltd
Condamine 4 Pty Ltd
Shell House, 562 Wellington Street, Perth, WA 6000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Condamine Power Station Pty Ltd
Level 30, 275 George Street, Brisbane, QLD 4000
Fuelink Pty Ltd
New South Oil Pty Ltd
North West Shelf LNG Pty Ltd
OME Resources Australia Pty Ltd
Shell House, 562 Wellington Street, Perth, WA 6000
Level 30, 275 George Street, Brisbane, QLD 4000
Shell House, 562 Wellington Street, Perth, WA 6000
Level 30, 275 George Street, Brisbane, QLD 4000
Petroleum Resources (Thailand) Pty. Limited
Level 30, 275 George Street, Brisbane, QLD 4000
Provident & Pensions Holdings Proprietary Limited
Shell House, 562 Wellington Street, Perth, WA 6000
Pure Energy Resources Pty Limited
Level 30, 275 George Street, Brisbane, QLD 4000
QCLNG Operating Company Pty Ltd [i]
Level 30, 275 George Street, Brisbane, QLD 4000
QCLNG Pty Ltd
QGC (B7) Pty Ltd
QGC (Exploration) Pty Ltd
QGC (Infrastructure) Pty Ltd
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
QGC Common Facilities Company Pty Ltd
Level 30, 275 George Street, Brisbane, QLD 4000
QGC Holdings 2 Pty Ltd
QGC Holdings 3 Pty Ltd
QGC Holdings 4 Pty Ltd
QGC Holdings 5 Pty Ltd
QGC Holdings 6 Pty Ltd
QGC Holdings 7 Pty Ltd
QGC Holdings 8 Pty Ltd
QGC Holdings 9 Pty Ltd
QGC Midstream Holdings Pty Ltd
QGC Midstream Investments Pty Ltd
QGC Midstream Land Pty Ltd
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
QGC Midstream Limited Partnership
Level 42, Bourke Place, 600 Bourke Street, Melbourne, VIC 3000
QGC Midstream Services Pty Ltd
QGC Northern Forestry Pty Ltd
QGC Pty Limited
QGC Sales Qld Pty Ltd
QGC Train 1 Pty Ltd
QGC Train 1 Tolling Pty Ltd
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
QGC Train 1 UJV Manager Pty Ltd
Level 30, 275 George Street, Brisbane, QLD 4000
QGC Train 2 Pty Ltd
QGC Train 2 Tolling No.2 Pty Ltd
QGC Train 2 Tolling Pty Ltd
QGC Train 2 UJV Manager Pty Ltd
QGC Upstream Finance Pty Ltd
QGC Upstream Holdings Pty Ltd
QGC Upstream Investments Pty Ltd
QGC Upstream Limited Partnership
Queensland Gas Company Pty Ltd
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 42, Bourke Place, 600 Bourke Street, Melbourne, VIC 3000
Level 30, 275 George Street, Brisbane, QLD 4000
SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
%
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
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Company by country of incorporation
Address of registered office
Roma Petroleum Pty Limited
SASF Pty Ltd
SGA (Queensland) Pty Ltd
SGAI Pty Limited
Shell Australia FLNG Pty Ltd
Level 30, 275 George Street, Brisbane, QLD 4000
Shell House, 562 Wellington Street, Perth, WA 6000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Shell House, 562 Wellington Street, Perth, WA 6000
Shell Australia Lubricants Production Pty Ltd
Shell House, 562 Wellington Street, Perth, WA 6000
Shell Australia Pty Ltd
Shell House, 562 Wellington Street, Perth, WA 6000
Shell Australia Services Company Pty Ltd
Shell House, 562 Wellington Street, Perth, WA 6000
Shell Custodian Pty Ltd
Shell Development (PSC19) Pty Ltd
Shell Development (PSC20) Pty Ltd
Shell Energy Australia Pty Ltd
Shell House, 562 Wellington Street, Perth, WA 6000
Shell House, 562 Wellington Street, Perth, WA 6000
Shell House, 562 Wellington Street, Perth, WA 6000
Level 30, 275 George Street, Brisbane, QLD 4000
Shell Energy Holdings Australia Limited
Shell House, 562 Wellington Street, Perth, WA 6000
Shell Energy Investments Australia Pty Ltd
Shell House, 562 Wellington Street, Perth, WA 6000
Shell Global Solutions Australia Pty Ltd
Shell House, 562 Wellington Street, Perth, WA 6000
Shell New Energies Australia Pty Ltd
Level 30, 275 George Street, Brisbane, QLD 4000
Shell Tankers Australia Pty Ltd
Shell House, 562 Wellington Street, Perth, WA 6000
Starzap Pty Ltd
Sunshine 685 Pty Limited
Sunshine Gas Pty Limited
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Level 30, 275 George Street, Brisbane, QLD 4000
Trident LNG Shipping Services Pty Ltd
Shell House, 562 Wellington Street, Perth, WA 6000
Trident Shipping Services Pty Ltd
Shell House, 562 Wellington Street, Perth, WA 6000
Walloons Coal Seam Gas Company Pty Limited [i]
Level 30, 275 George Street, Brisbane, QLD 4000
AUSTRIA
Salzburg Fuelling GmbH
Shell Austria Gesellschaft mbH
Shell Brazil Holding GmbH
Shell China Holding GmbH
Innsbrucker Bundesstrasse 95, Salzburg, 5020
Tech Gate, Donau-City-Str. 1, Vienna, 1220
Tech Gate, Donau-City-Str. 1, Vienna, 1220
Schulhof 6/1, Vienna, 1010
TBG Tanklager Betriebsgesellschaft m.b.H.
Rettenlackstrasse 3, Salzburg, 5020
Transalpine Ölleitung in Österreich GmbH
Kienburg 11, Matrei in Osttirol, 9971
BAHAMAS
Shell E & P Ireland Offshore Inc.
P.O. Box N4805, St. Andrew's Court, Frederick Street Steps, Nassau
BARBADOS
Shell Trinidad and Tobago Resources SRL
One Welches, Welches, St. Thomas, BB22025
Shell Western Supply and Trading Limited
GTC Corporate Services Limited, Sassoon House, Shirley Street & Vctoria Avenue, Nassau
BELGIUM
Belgian Shell S.A.
Cantersteen 47, Brussels, 1000
CRI Catalyst Company Belgium N.V.
Pantserschipstraat 331, Gent, 9000
Ethyleen Pijpleiding Maatschappij (Belgie) N.V.
Kantersteen 47, Brussels, 1000
New Market Belgium S.A.
The New Motion Belgium Sprl
BERMUDA
Cantersteen 47, Brussels, 1000
Regentlaan 37-40, Brussels, 1000
Egypt LNG Shipping Limited
Clarendon House, 2 Church Street, Hamilton, HM 11
Gas Investments & Services Company Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Kuwait Shell Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Pecten Middle East Services Company Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Pecten Somalia Company Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Qatar Shell GTL Limited
4th Floor, Cedar House, 41 Cedar Ave, Hamilton, HM 12
Sakhalin Energy Investment Company Ltd
Clarendon House, 2 Church Street, Third Floor, Hamilton, HM 11
Shell Australia Natural Gas Shipping Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Shell Bermuda (Overseas) Limited
Shell Deepwater Borneo Limited
Shell EP International Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Shell Exploration and Production Guyana Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Shell Holdings (Bermuda) Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Shell International Trading Middle East Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Shell Markets (Middle East) Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Shell Mexico Exploration and Production Investment Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Shell Offshore Central Gabon Ltd
Shell Oman Trading Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Shell Overseas Holdings (Oman) Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
Shell Petroleum (Malaysia) Ltd
Shell Saudi Arabia (Refining) Limited
Shell South Syria Exploration Limited
Shell Trading (M.E.) Private Limited
Shell Trust (Bermuda) Limited
Shell Trust (U.K. Property) Limited
Solen Insurance Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
E2
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
33
100
100
100
50
19
100
100
100
100
100
100
100
100
25
85
100
100
100
100
28
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Shell Annual Report_Master Template.indd 2
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Company by country of incorporation
Address of registered office
Solen Life Insurance Limited
3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12
BRAZIL
BG Comercio e Importacao Ltda.
Av. República do Chile 330, 23º andar, Torre 2, Centro, Rio de Janeiro, 20031-170
BG do Brasil Ltda.
BG Petroleo & Gas Brasil Ltda
Fusus Comercio e Participacoes Ltda.
Icolub - Industria de Lubrificantes S.A.
Marlim Azul Energia S.A.
Av. República do Chile 330, 23º andar, Torre 2, sala 2309, Centro, Rio de Janeiro, 20031-170
Av. República do Chile 330, 23º andar (parte) - Torre 2, sala 2309, Centro, Rio de Janeiro, 20031-170
Calcada das Orquideas 40, 1 E 2 Andares, Centro Comercial 1, Alphaville, Barueri - SP, 06453-017
Praia Intendente Bittencourt, 2 (Parte), Ilha do Governador, Rio de Janeiro, 21930-030
Av. Paulista, 1274, 8º andar, Conjunto 23, Sala B, Bela Vista, São Paulo, 01310-100
Novus Industria De Lubrificantes Ltda
Praia Intendente Bittencourt nº 2 a 8N, Ribeira, Rio de Janeiro, 21930-030
Pecten do Brasil Servicos de Petroleo Ltda
Av.das Americas 4200, Bloco 6, 4th Floor (parte), Barra da Tijuca, Rio de Janeiro, 22640-102
Raizen Combustíveis S.A.
Raizen Energia S.A.
Seapos Ltda.
Shell Brasil Participações Ltda.
Shell Brasil Petroleo Ltda.
Shell Energy do Brasil Ltda
BRUNEI
Victor Civita, 77, Block 1, Edifice: Rio Office Park, 4 floor, Barra da Tijuca, Rio de Janeiro, 22775-044
Av. Brigadeiro Faria Lima, 4100, 11th floor, part V, Itaim Bibi, São Paulo, 04538-132
Av.das Americas 4200, Bloco 6, sala 301 (parte), Barra da Tijuca, Rio de Janeiro, 22640-102
Av. Brigadeiro Faria Lima, 3311, Conj 81 Sala 02, Itam Bibi, São Paulo, 04538-133
Av.das Americas 4200, Bloco 6, salas 101, 201, 301, 401, 501, Barra da Tijuca, Rio de Janeiro, 22640-102
Av.das Americas 4200, Bloco 6, sala 501 (parte), Barra da Tijuca, Rio de Janeiro, 22640-102
Brunei LNG Sendirian Berhad
Lumut, Seria, KC2935
Brunei Shell Marketing Company Sendirian Berhad
Brunei Shell Petroleum Company, Sendirian Berhad, Seria, KB2933
Brunei Shell Petroleum Company Sendirian Berhad
Jalan Utara, Panaga, Seria, KB2933
Brunei Shell Tankers Sendirian Berhad
Jalan Utara, Panaga, Seria, KB2933
Shell Borneo Sendirian Berhad
c/o BSP Head Office, NDCO Block, Ground Floor, Jalan Utara, Panaga Seria, KB 3534
BULGARIA
Shell Bulgaria Ead
CAMBODIA
48, Sitnyakovo Blvd., Serdika Offices, 8th floor, Sofia, 1505
Angkor Resources Company Limited
186C, Street No 155, N/A - Tuol Tumpung Muoy, Chamkamorn, Phnom Penh
CANADA
10084751 Canada Limited
1745844 Alberta Ltd.
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
3095381 Nova Scotia Company
Suite 1300, 1969 Upper Water Street, Purdy's Wharf Tower II, Halifax, Nova Scotia, B3J 3R7
6581528 Canada Ltd.
7026609 Canada Inc.
7645929 Canada Limited
Alberta Products Pipe Line Ltd.
BG Canada Ltd.
BlackRock Ventures Inc.
Cansolv Technologies Inc.
Coral Cibola Canada Inc.
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
5305 McCall Way N.E., Calgary, Alberta, T2E 7N7
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
Criterion Catalysts & Technologies Canada, Inc.
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
FP Solutions Corporation
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
LNG Canada Development Inc. [b]
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
Sable Offshore Energy Inc.
1701 Hollis Street, Suite 1400, Halifax, Nova Scotia, B3J 3M8
SCL Pipeline Inc.
SFJ Inc.
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
199 Bay Street, Suite 5300, Commerce Court West, Toronto, Ontario, M5L 1B9
Shell Americas Funding (Canada) Limited
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
Shell Canada BROS Inc.
Shell Canada Energy [c]
Shell Canada Limited
Shell Canada OP Inc.
Shell Canada Products
Shell Canada Resources [c]
Shell Canada Services Limited
Shell Chemicals Canada [c]
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
Shell Energy Merchants Canada Inc.
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
Shell Energy North America (Canada) Inc.
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
Shell Global Solutions Canada Inc.
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
Shell Quebec Limitée
Shell Trading Canada [c]
400 boul de Maisonneuve Ouest, Montreal, Quebec, H3A 1L4
400 4th Avenue S.W., Calgary, Alberta, T2P 0J4
Sun-Canadian Pipe Line Company Limited
830 Highway No. 6 North, Flamborough, Ontario, L0R 2H0
Trans-Northern Pipelines Inc.
45 Vogel Road, Suite 310, Richmond Hill, Ontario, L4B 3P6
CAYMAN ISLANDS
Beryl North Sea Limited
BG Egypt S.A.
Sterling Trust (Cayman) Limited, Whitehall House, 238 North Church Street, P.O. Box 1043, George Town, KY1-1102
5th Floor, Bermuda House, Dr. Roy's Drive, George Town, Grand Cayman, KY1-1102
BG Exploration and Production India Limited
Campbells, Floor 4, Willow House, Cricket Square, Grand Cayman, KY1-9010
Gas Resources Limited
Schiehallion Oil & Gas Limited
Shell Bolivia Corporation
Caribbean Management Ltd, 5th Floor, Bermuda House, 36C Dr. Roy's Drive, Grand Cayman, KY1-1102
Sterling Trust (Cayman) Limited, Whitehall House, 238 North Church Street, P.O. Box 1043, George Town, KY1-1102
Zephyr House, 122 Mary Street, P.O. Box 2570, George Town, Grand Cayman, KY1-1103
Shell North Sea Holdings Limited
Maples Corporate Services Limited, Ugland House, P.O. Box 309, Grand Cayman, KY1-1104
SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
%
100
100
100
100
100
100
30
99
100
50
50
100
100
100
100
25
50
50
25
100
100
49
100
50
100
100
100
100
20
100
100
100
100
100
33
40
33
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
45
33
100
100
100
100
100
100
100
E3
Shell Annual Report_Master Template.indd 3
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Company by country of incorporation
Address of registered office
CHILE
Shell Chile S.A.
CHINA
C/O Carey y Cia Abogados, Miraflores 222, Piso 28, Santiago
Beijing Shell Petroleum Company Ltd.
Unit 1101-1104, level 11, Building 1, No. 19 Chaoyang Park Road, Chaoyang District, Beijing, 100125
Cansolv Technologies (Beijing) Company Limited
Unit 09, Level 31, No. 16 Building, No. 1 Jian Guo Men Wai Avenue, Chaoyang District, Beijing, 100004
Chongqing Doyen Shell Petroleum and Chemical Co. Ltd.
No. 196, Shuang Yuan Street, Beibei Zone, Chongqing, 400700
CNOOC and Shell Petrochemicals Company Limited
Dayawan Petrochemical Industrial Park, Huizhou, Guangdong, 516086
Fujian Xiangyu and Shell Petroleum Company Limited
Unit 604, 6/F, Building C, No. 3 Yunan Fourth Road, FTPZ Xiamen Sub-zone (Tariff-free Zone), Xiamen, 361000
Hangzhou Natural Gas Company Limited
10/F, Meiqi Mansion, No. 30 Tianmushan Road, Hangzhou, 310007
Infineum (China) Co. Ltd.
No. 1 Dongxin Road, Jiangsu Yangtze River International, Chemical Industry Park, Zhangjiagang, Jiangsu
Jiangsu Shell Energy Company Limited
Room 1001, 10/F, Unit 3, No. 198 Hexi Street, Jianye District, Nanjing, 210019
Shell (Beijing) Real Estate Consulting Ltd.
Unit 01, 32/F, No. 16 Building, No. 1 Courtyard, Jian Guo Men Wai Avenue, Chaoyang District, Beijing, 100004
Shell (China) Limited
30/F Unit 01-02, No. 16 Building, No. 1 Courtyard, Jian Guo Men Wai Avenue, Chaoyang District, Beijing, 100004
Shell (China) Projects & Technology Limited
Unit 01-08, Level 31, No. 16 Building, No. 1 Jian Guo Men Wai Avenue, Chaoyang District, Beijing, 100004
Shell (Shanghai) Petroleum Company Limited
Room 522, The British Road No. 38, China (Shanghai) Pilot Free Trade Zone, Shanghai, 200131
Shell (Shanghai) Technology Limited
Building 4, Jin Chuang Building, No. 4560, Jin Ke Road, Pilot Free Trade Zone, Shanghai
Shell (Tianjin) Lubricants Company Limited
North to Gang Bei Road and east to Hai Gang Road, Nangang Industrial Zone, Tianjin Economic-Technological
Development Area, Tianjin, 300280
Shell (Tianjin) Oil and Petrochemical Company Limited
No. 286 Nansan Road, Tianjin Harbour Nanjiang Dev. Zone, Tanggu, Binhai NewDistrict, Tianjin, 300452
Shell (Zhejiang) Petroleum Trading Limited
No. 1 Wangjiaba, Xinmiaozhi Village, Puyuan Town, Tongxiang, Jiaxing, Zhejiang, 314502
Shell (Zhuhai) Lubricants Company Limited
Nanjin Wan, Gaolan Dao, Zhuhai Harbour Industrial Zone, Guangdong, 519050
Shell Energy (China) Limited
Room 530, 5th Floor, Building 1, No. 239 Gang'ao Road, China (Shanghai) Free Trade Zone, Shanghai, 200137
Shell North China Petroleum Group Co., Ltd.
5th Floor, Administrative Commission Building, Wuqing Development Area, No.18, Fuyuan Road, Wuqing District,
Tianjin, 300203
Shell Petroleum (Taizhou) Company Limited
Room 2027, No. 103 Tongxin North Road, Jinqing Town, Luqiao District, Taizhou, Zhejiang, 318059
Shell Road Solutions (Zhenjiang) Co. Ltd
No. 68 Xianiejia, Dagang, Zhenjiang New District, Zhenjiang, 212132
Shell Road Solutions Xinyue (Foshan) Co. Ltd.
Baisha, Hekou, Sanshui District, Foshan, Guangdong, 528133
Sinopec and Shell (Jiangsu) Petroleum Marketing Company Limited
No. 100, Xingang Dadao, Nanjing Economic and Technological Development Zone, Nanjing, Jiangsu, 210000
Suzhou Liyuan Retail Site Management Co., Ltd.
No. 358 Zhuhui Road, Suzhou, 215000
Yanchang and Shell (Guangdong) Petroleum Co., Ltd.
39th Floor as Planning-designed (41st Floor as Self-designated), Leatop Plaza, No. 32 East Zhujiang Road, Zhujiang
Yanchang and Shell (Sichuan) Petroleum Company Limited
23F, Yanlord Square, Section 2, Renmin South Road, Chengdu, Sichuan, 610016
Yanchang and Shell Petroleum Company Limited
19F, Building C, City Gateway, No. 1 Jinye Road, Hi-Tech Zone, Xi'an, 710075
Zhejiang Shell Fuels Company Limited
Room 2103, North Tower, Yefeng Modern Center, No. 161, Shaoxing Road, Xiacheng District, Hangzhou City
New Town, Tianhe District, Guangzhou
Zhejiang Shell Oil and Petrochemical Company Limited
The Port of Zhapu, Jiaxing Municipality, Zhejiang, 314201
(Zhejiang Province), 310004
Zhejiang Transfar and Shell Energy Company Limited
Rm 1503, Building 2, Plaza of ZBA, No. 939 Minhe Road, Ningwei Street, Xiaoshan District, Hangzhou, Zhejiang,
COLOMBIA
Hangzhou, 311215
C.I. Shell Comercializadora Colombia, S.A.S
Calle 90 No. 19 - 41, Oficina 702- Edificio Quantum, Bogotá, 452
Shell Colombia S.A.
COOK ISLANDS
Calle 90 No. 19 - 41, Oficina 702- Edificio Quantum, Bogotá, 452
Branstone (International) Limited [i]
Bermuda House, Tutakimoa Road, Rarotonga
CÔTE D'IVOIRE
Cote d'Ivoire GNL
CYPRUS
14, Blvd Carde, Imm. Les Heveas, Plateau, Abidjan, BP V 194
Rosneft-Shell Caspian Ventures Limited [g]
Metochiou str, 37, Agios Andreas, Nicosia, CY-1101
CZECH REPUBLIC
Shell Czech Republic a.s.
DENMARK
A/S Dansk Shell
Antala Staska 2027/77, Praha 4, 140 00
Egeskovvej 265, Fredericia, 7000
Shell EP Holdingselskab Danmark ApS
Midtermolen 3, 4, Copenhagen, 2100
Shell Olie-og Gasudvinding Danmark Pipelines ApS
Midtermolen 3, 4, Copenhagen, 2100
TetraSpar Demonstrator ApS
Bredgade 30, København K, 1260
EGYPT
Alam El Shawish Petroleum Company [b]
127 Abdel Aziz Fahmy St., Heliopolis, P.O. Box 5958, Cairo, 5958
Badr Petroleum Company [b]
Burullus Gas Company S.A.E. [b]
127 Abdel Aziz Fahmy St., Heliopolis, P.O. Box 5958, Cairo, 5958
28 Road 270, Maadi, Cairo
El Behera Natural Gas Liquefaction Company S.A.E.
City of Rashid, El Behera Governorate
IDKU Natural Gas Liquefaction Company S.A.E.
City of Rashid, El Behera Governorate
Obaiyed Petroleum Company [b]
127 Abdel Aziz Fahmy St., Heliopolis, P.O. Box 5958, Cairo, 5958
Rashid Petroleum Company S.A.E. [b]
38 Street No. 270, Maadi, Cairo
Shell Egypt Trading
Shell Lubricants Egypt
Business View Building, No. 79, 90 Street (South), Fifth Settlement- New Cairo, Cairo, 11835
Business View Building, No. 79, 90 Street (South), Fifth Settlement- New Cairo, Cairo, 11835
Sitra Petroleum Company [b]
127 Abdel Aziz Fahmy St., Heliopolis, P.O. Box 5958, Cairo, 5958
The Egyptian LNG Company S.A.E.
City of Rashid, El Behera Governorate
The Egyptian Operating Company for Natural Gas Liquefaction
City of Rashid, El Behera Governorate
Projects S.A.E.
E4
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
%
100
49
100
49
50
49
25
50
100
100
100
100
100
100
100
100
100
100
100
49
100
100
60
40
50
49
45
45
100
100
49
100
100
100
13
49
100
100
100
100
33
20
50
25
36
38
50
40
100
100
50
36
36
Shell Annual Report_Master Template.indd 4
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Company by country of incorporation
Address of registered office
Tiba Petroleum Company [b]
127 Abdel Aziz Fahmy St., Heliopolis, P.O. Box 5958, Cairo, 5958
West Sitra Petroleum Company [b]
127 Abdel Aziz Fahmy St., Heliopolis, P.O. Box 5958, Cairo, 5958
FINLAND
Shell Aviation Finland Oy
Teknobulevardi 3-5, Vantaa, 01530
FRANCE
Avitair SAS
Tour Pacific, 11/13 Cours Valmy - La Défense, Puteaux, 92800
Groupement d'Exploitation du Dépôt de Réception Chennevières
Chemin de Livry, Dépôt de Chennevières, Chennevières-lès-Louvres, 95380
[b] [c]
Groupement Pétrolier Aviation SNC
Aéroport Roissy Charles de Gaulle, Zone de Frêt 1, 3 Rue des Vignes, Tremblay-en-France, 93290
Infineum France
Service Aviation Paris SNC
Shell Retraites SAS
Chemin départemental 54, Berre-L'Etang, 13130
Orly Sud No. 144 - Bat. 438, Orly Aerogares, 94541
Tour Pacific, 11/13 Cours Valmy - La Défense, Puteaux, 92800
Société de Gestion Mobilière et Immobilière SAS
Tour Pacific, 11/13 Cours Valmy - La Défense, Puteaux, 92800
Société des Pétroles Shell SAS
Ste du Pipeline Sud Européen S.A.
The New Motion France SAS
GERMANY
Tour Pacific, 11/13 Cours Valmy - La Défense, Puteaux, 92800
7-9, Rue des Freres Morane, Paris Cedex 15, 75738
15 Avenue du Centre, Guyancourt, 78280
AGES Maut System GmbH & Co. KG
Berghausener Straße 96, Langenfeld, 40764
BEB Erdgas und Erdoel GmbH & Co. KG [b]
Riethorst 12, Hannover, 30659
BEB Holding GmbH [b]
Caffamacherreihe 5, Hamburg, 20355
Carissa Einzelhandel- und Tankstellenservice GmbH & Co. KG
Willinghusener Weg 5 D-E, Oststeinbek, 22113
Carissa Verwaltungsgesellschaft mbH
Suhrenkamp 71 - 77, Hamburg, 22335
CRI Catalyst Leuna GmbH
CRI Deutschland GmbH
Deutsche Infineum GmbH & Co. KG
Deutsche Shell GmbH
Deutsche Shell Holding GmbH
Am Haupttor, Bau 8322, Leuna, 06237
Am Haupttor, Bau 8322, Leuna, 06237
Neusser Landstraße 16, Köln, 50735
Suhrenkamp 71 - 77, Hamburg, 22335
Suhrenkamp 71 - 77, Hamburg, 22335
Deutsche Transalpine Oelleitung GmbH
Paul Wassermann Str. 3, Munich, 81829
Erdoel-Raffinerie Deurag-Nerag GmbH
Riethorst 12, Hannover, 30659
euroShell Deutschland GmbH & Co. KG
Suhrenkamp 71 - 77, Hamburg, 22335
euroShell Deutschland Verwaltungsgesellschaft mbH
Suhrenkamp 71 - 77, Hamburg, 22335
FBG Ferngasbeteiligungsgesellschaft mbH
Suhrenkamp 71 - 77, Hamburg, 22335
H2 Mobility Deutschland GmbH and Co. KG
Linienstrasse 160, Berlin, 10115
H2 Mobility Deutschland Verwaltungs GmbH
Linienstrasse 160, Berlin, 10115
HPRDS und SPNV Deutschland Oil GmbH & Co. KG
Suhrenkamp 71 - 77, Hamburg, 22335
HPRDS und SPNV Deutschland Verwaltungsges. mbH
Suhrenkamp 71 - 77, Hamburg, 22335
Infineum Deutschland Verwaltungsgesellschaft mbH
Neusser Landstraße 16, Köln, 50735
Mineraloelraffinerie Oberrhein Verwaltungs GmbH
DEA-Scholven-Str., Karlsruhe, 76187
Nord-West Oelleitung GmbH [b]
Zum Oelhafen 207, Wilhelmshaven, 26384
Oberrheinische Mineraloelwerke GmbH [b]
DEA-Scholven-Str., Karlsruhe, 76187
OLF Deutschland GmbH [b]
PCK Raffinerie GmbH [b]
Rheinland Kraftstoff GmbH
Suhrenkamp 71 - 77, Hamburg, 22335
Passower Chaussee 111, Schwedt/Oder, 16303
Auf dem Schollbruch 24-26, Gelsenkirchen, 45899
Rhein-Main-Rohrleitungstransportgesellschaft mbH [b]
Godorfer Hauptstrasse 186, Köln, 50997
Shell Deutschland Additive GmbH
Shell Deutschland Oil GmbH
Shell Energy Deutschland GmbH
Suhrenkamp 71 - 77, Hamburg, 22335
Suhrenkamp 71 - 77, Hamburg, 22335
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Erdgas Beteiligungsgesellschaft mbH
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Erdgas Marketing GmbH & Co. KG
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Erdoel und Erdgas Exploration GmbH
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Exploration and Development Libya GmbH I
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Exploration and Production Colombia GmbH
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Exploration and Production Libya GmbH
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Exploration et Production du Maroc GmbH
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Exploration New Ventures One GmbH
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Exploration und Produktion Deutschland GmbH
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Global Solutions (Deutschland) GmbH
Hohe-Schaar-Straße 36, Hamburg, 21107
Shell Hydrogen Deutschland GmbH
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Offshore Exploration und Produktion Deutschland GmbH
Suhrenkamp 71 - 77, Hamburg, 22335
Shell PrivatEnergie GmbH
Shell Tunisia Offshore GmbH
Suhrenkamp 71 - 77, Hamburg, 22335
Suhrenkamp 71 - 77, Hamburg, 22335
Shell Verwaltungsgesellschaft für Erdgasbeteiligungen mbH
Suhrenkamp 71 - 77, Hamburg, 22335
SPNV Deutschland Beteiligungsges. mbH
Suhrenkamp 71 - 77, Hamburg, 22335
The New Motion Deutschland GmbH
c/o Mindspace, Friedrichstraße 68, Berlin, 10117
Tiramizoo GmbH
Prannerstr. 2-4, Munich, 80333
Wasserbeschaffungsverband Wesseling-Hersel
Bruehler Str. 95, Wesseling
GIBRALTAR
Shell LNG Gibraltar Limited
57/63 Line Wall Road, P.O. Box 199, Gibraltar
SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
%
26
50
100
100
11
20
50
33
100
100
100
21
100
25
50
50
100
100
100
100
50
100
100
19
50
100
100
100
28
28
100
90
50
32
20
42
50
38
100
63
100
100
100
100
75
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
21
35
51
E5
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Company by country of incorporation
Address of registered office
GREECE
Shell & MOH Aviation Fuels A.E.
151 Kifisias Ave., Marousi, Athens, 15124
GREENLAND
Shell Greenland A/S
GUAM
Shell Guam Inc.
HONG KONG
AFSC Operations Limited
AFSC Refuelling Limited
Branstone Company Limited
Fulmart Limited
Hong Kong Response Limited
Ocean Century Tf Limited [i]
Aqqusinersuaq 48A, P.O. Box 1728, Nuuk, 3900
643 Chalan San Antonio, Suite 100, Tamuning, GU 96911
3 Scenic Road, Chek Lap Kok, Lantau
3 Scenic Road, Chek Lap Kok, Lantau
35/F AIA Kowloon Tower, Landmark East, 100 How Ming Street, Kwun Tong (Kowloon)
35/F AIA Kowloon Tower, Landmark East, 100 How Ming Street, Kwun Tong (Kowloon)
Esso Tsing Yi Terminal, Lot 46 Tsing Yi Road, Tsing Yi Island, New Territories
35/F AIA Kowloon Tower, Landmark East, 100 How Ming Street, Kwun Tong (Kowloon)
Shell Developments (HK) Limited [i]
35/F AIA Kowloon Tower, Landmark East, 100 How Ming Street, Kwun Tong (Kowloon)
Shell Hong Kong Limited
Shell Korea Limited
Shell Macau Limited
HUNGARY
35/F AIA Kowloon Tower, Landmark East, 100 How Ming Street, Kwun Tong (Kowloon)
35/F AIA Kowloon Tower, Landmark East, 100 How Ming Street, Kwun Tong (Kowloon)
35/F AIA Kowloon Tower, Landmark East, 100 How Ming Street, Kwun Tong (Kowloon)
Shell Hungary Trading close Company Limited by shares
Bocskai út 134-146., Budapest, 1113
INDIA
BG India Energy Private Limited
3-C World Trade Tower, New Barakhamba Lane, New Delhi, 110001
BG India Energy Services Private Limited
3-C World Trade Tower, New Barakhamba Lane, New Delhi, 110001
BG India Energy Solutions Private Limited
3-C World Trade Tower, New Barakhamba Lane, New Delhi, 110001
BG LNG Regas India Private Limited
3-C World Trade Tower, New Barakhamba Lane, New Delhi, 110001
Hazira LNG Private Limited
Hazira Port Private Limited
101-103 Abhijeet-II, Mithakhali Circle, Ahmedabad 380 006, Gujarat, 380006
101-103 Abhijeet-II, Mithakhali Circle, Ahmedabad 380 006, Gujarat, 380006
Pennzoil Quaker State India Limited
Plot No. T-5, MIDC, Taloja Industrial Area, Tal-Panvel, Raigad District, Maharashtra (Mumbai), 410208
Shell Energy Marketing and Trading India Private Limited
2nd floor, Campus 4A, RMZ Millenia Business Park II, 143 Dr MGR Road, Kandhanchavady, Perungudi, Chennai, TN 600096
Shell India Markets Private Limited
2nd floor, Campus 4A, RMZ Millenia Business Park II, 143 Dr MGR Road, Kandhanchavady, Perungudi, Chennai, TN 600096
Shell MRPL Aviation Fuels and Services Limited
102, Prestige Sigma, Vittal Mallya Road, Bangalore, 560001
INDONESIA
PT. Gresik Distribution Terminal
PT. Shell Indonesia
PT. Shell Manufacturing Indonesia
PT. Shell Solar Indonesia
IRAQ
Basrah Gas Company
IRELAND
Talavera Office Park 22-26th Floor, Jl. Letjen. TB Simatupang Kav. 22-26, Jakarta Selatan, Jakarta, 12430
Talavera Office Park 22-26th Floor, Jl. Letjen. TB Simatupang Kav. 22-26, Jakarta Selatan, Jakarta, 12430
Talavera Office Park 22-26th Floor, Jl. Letjen. TB Simatupang Kav. 22-26, Jakarta Selatan, Jakarta, 12430
Talavera Office Park 22-26th Floor, Jl. Letjen. TB Simatupang Kav. 22-26, Jakarta Selatan, Jakarta, 12430
Khor Al Zubair, Basrah
Asiatic Petroleum Company (Dublin) Limited
1st Floor, Temple Hall, Temple Road, Blackrock, Co. Dublin, A94 K3K0
Irish Shell Trust Designated Activity Company
1st Floor, Temple Hall, Temple Road, Blackrock, Co. Dublin, A94 K3K0
Shell and Topaz Aviation Ireland Limited
Suite 7 Northwood House, Northwood Business Park, Santry, Dublin, 9
ISLE OF MAN
Petrolon Europe Limited
Petrolon International Limited
First Names House, Victoria Road, Douglas, IM2 4DF
First Names House, Victoria Road, Douglas, IM2 4DF
Shell Marine Personnel (I.O.M.) Limited
Euromanx House, Freeport, Ballasalla, IM9 2AP
Shell Ship Management Limited
Euromanx House, Freeport, Ballasalla, IM9 2AP
ITALY
Alle S.R.L.
Aquila S.p.A.
BG Italia Power S.p.A.
Brindisi LNG S.p.A.
Infineum Italia S.R.L.
Shell Energy Italia S.R.L.
Via Vittor Pisani 16, Milano, 20124
Via Vittor Pisani 16, Milano, 20124
Via Tortona 25, Milano, 20144
Via Tortona 25, Milano, 20144
Strada di Scorrimento 2, Vado Ligure (SA), 17047
Via Vittor Pisani 16, Milano, 20124
Shell International Exploration and Development Italia S.p.A.
Piazza dell'Indipendenza 11/B, Rome, 00185
Shell Italia E&P S.p.A.
Shell Italia Holding S.p.A.
Shell Italia Oil Products S.R.L.
Piazza dell'Indipendenza 11/B, Rome, 00185
Via Vittor Pisani 16, Milano, 20124
Via Vittor Pisani 16, Milano, 20124
Societa Italiana per l'Oleodotto Transalpino S.p.A.
Via Muggia #1, San Dorligo della Valle, Trieste, 34147
Societa' Oleodotti Meridionali S.p.A.
Via Emilia 1, San Donato Milanese, 20097
JAPAN
Brunei Energy Services Company Ltd.
Sakhalin LNG Services Company Ltd.
1-8-2 Marunouchi, Chiyoda-ku, Tokyo, 100-0005
2-3, Kanda, Awaji-cho, Chiyoda-ku, Tokyo, 101-0063
Shell Japan Limited
JERSEY
Morzine Limited
16F Pacific Century Place, 1-11-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6216
Ogier House, The Esplanade, St. Helier, JE4 9WG
Shell Service Station Properties Limited
Queensway House, Hilgrove Street, St. Helier, JE1 1ES
LUXEMBOURG
E6
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
%
51
100
100
11
11
100
100
25
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
100
100
44
100
100
50
100
100
100
100
100
100
100
100
50
100
100
100
100
100
19
30
25
50
100
33
100
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Company by country of incorporation
Address of registered office
Shell Finance Luxembourg Sarl
Shell Luxembourgeoise Sarl
Shell Treasury Luxembourg Sarl
MACAU
7, Rue de l'Industrie, Bertrange, Luxembourg, L-8069
7, Rue de l'Industrie, Bertrange, Luxembourg, L-8005
7, Rue de l'Industrie, Bertrange, Luxembourg, L-8069
Shell Macau Petroleum Company Limited
876 Avenida da Amizade, Edificio Marina Gardens, Room 310, 3rd Floor
MALAYSIA
Bonuskad Loyalty Sdn. Bhd. [i]
Level 8, Symphony House, Block D13, Pusat Dagangan Dana 1, Jalan PJU 1A/46, Petaling Jaya/Selangor Darul
IOT Management Sdn. Bhd.
Lot 7689 and Lot 7690, Section 64, Kuching Town Land District, Jalan Pending, Kuching, Sarawak, 93450
Kebabangan Petroleum Operating Company Sdn. Bhd. [b]
Suite 13.03, 13 Floor, Menara Tan & Tan, 207 Tun Razak, Kuala Lumpur/Federal Territory, 50400
Ehsan, 47301
P S Pipeline Sendirian Berhad
P S Terminal Sendirian Berhad
Pertini Vista Sdn. Bhd.
Provista Ventures Sdn. Bhd.
Sarawak Shell Berhad
Shell Business Service Centre Sdn. Bhd.
Shell Global Solutions (Malaysia) Sdn. Bhd.
Shell Malaysia Trading Sendirian Berhad
Shell MDS (Malaysia) Sendirian Berhad
Shell New Ventures Malaysia Sdn. Bhd. [i]
Shell People Services Asia Sdn. Bhd.
Shell Sabah Selatan Sendirian Berhad
Shell Timur Sdn. Bhd.
Level 30, Tower 1, Petronas Twin Towers, KLCC, Kuala Lumpur/Federal Territory, 50088
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue Bandar Utama, Petaling Jaya/Selangor Darul Ehsan, 47800
Shell Treasury Malaysia (L) Limited
Kensington Gardens, No. U1317, Lot 7616, Jalan Jumidar Buyong, Labuan F.T., 87000
Tanjung Manis Oil Terminal Management Sdn. Bhd.
Lot 7689 and Lot 7690, Section 64, Kuching Town Land District, Jalan Pending, Kuching, Sarawak, 93450
MAURITIUS
BG Mauritius LNG Holdings Ltd
BG Mumbai Holdings Limited
6th Floor, Tower A, 1 Cybercity, Ebene, 72201
6th Floor, Tower A, 1 Cybercity, Ebene, 72201
Pennzoil Products International Company
33 Edith Cavell Street, Port Louis, 11324
MEXICO
BG Group Mexico Exploration, S.A. de C.V.
Av. Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
México, 11000
BG Group Mexico Services, S.A. de C.V.
Av. Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
México, 11000
Comercial Importadora S. de R.L. de C.V.
Guillermo González Camarena 400, Centro Ciudad Santa Fe Alvaro, Ciudad de México, 01210
Concilia Asesores y Servicios S. de R.L. de C.V.
Guillermo González Camarena 400, Centro Ciudad Santa Fe Alvaro, Ciudad de México, 01210
Gas Del Litoral, S. de R.L. de C.V.
Av. Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
Shell Exploración y Extracción de México, S.A. de C.V.
Av. Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
México, 11000
México, 11000
Shell México Gas Natural, S. de R.L. de C.V.
Av. Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
Shell México, S.A. de C.V.
Av. Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
México, 11000
Shell Servicios México, S.A. de C.V.
Av. Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
México, 11000
Shell Trading México, S. de R.L. de C.V.
Av. Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
México, 11000
NETHERLANDS
México, 11000
Amsterdam Schiphol Pijpleiding Beheer B.V.
Amsterdamseweg 55, 1182 GP Amstelveen, P.O. Box 75650, Luchthaven Schiphol, 1118 ZS
Attiki Gas B.V.
B.R.E. B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Lelystad, Deventer, 7425 SB
B.V. Dordtsche Petroleum Maatschappij
Carel van Bylandtlaan 30, The Hague, 2596 HR
B.V. Petroleum Assurantie Maatschappij
Carel van Bylandtlaan 30, The Hague, 2596 HR
BG Gas Atlantic Holdings B.V.
BG Gas Brazil E&P 12 B.V.
BG Gas Brazil Holdings B.V.
BG Gas Brazilian Investment B.V.
BG Gas Global Holdings B.V.
BG Gas International B.V.
BG Gas International Holdings B.V.
BG Gas Netherlands Holdings B.V.
BG Gas Sao Paulo Investments B.V.
BJS Oil Operations B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
BJSA Exploration and Production B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Blauwwind Management II B.V.
Schaardijk 211, Rotterdam, 3063 NH
Caspi Meruerty Operating Company B.V.
Prins Bernhardplein 200, 1097JB Amsterdam, Amsterdam
Chosun Shell B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
%
100
100
100
100
33
7
30
50
35
100
100
100
100
100
100
72
100
100
100
70
100
14
100
100
100
100
100
50
50
75
100
100
100
100
100
40
100
100
100
100
100
100
100
100
100
100
100
100
100
80
100
20
40
100
E7
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Company by country of incorporation
Address of registered office
Cicerone Holding B.V.
ELLBA B.V. [b]
ELLBA C.V. [b] [d]
Euroshell Cards B.V.
Gasterra B.V.
Guara B.V.
Iara B.V.
Infineum Holdings B.V.
Integral Investments B.V.
Herikerbergweg 238, Amsterdam, 1101 CM
Vondelingenweg 601, Vondelingenplaat, Rotterdam, 3196 KK
Vondelingenweg 601, Vondelingenplaat, Rotterdam, 3196 KK
Weena 70, Rotterdam, 3012 CM
P.O. Box 477, Groningen, 9700 AL
Weena 722, Rotterdam, 3014 DA
Weena 762, 9e verdieping, kamer A, Rotterdam, 3014 DA
Herikerbergweg 238, Amsterdam, 1101 CM
Carel van Bylandtlaan 30, The Hague, 2596 HR
Jordan Oil Shale Company B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Karachaganak Petroleum Operating B.V.
Strawinskylaan 1345, Amsterdam, 1077 XX
Lapa Oil & Gas B.V.
Libra Oil & Gas B.V.
Weena 762, 9e verdieping, kamer A, Rotterdam, 3014 DA
Weena 762, Rotterdam, 3014 DA
LNG Shipping Operation Services Netherlands B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Loyalty Management Netherlands B.V.
Polaris Avenue 81, P.O. Box 2047, 2130 GE, Hoofddorp, 2132 JH
Maasvlakte Olie Terminal C.V. [d]
Europaweg 975, Maasvlakte, Rotterdam, 3199 LC
Multi Tank Card B.V.
Antareslaan 39, P.O. Box 3068, 2130 KB, Hoofddorp, 2132 JE
N.V. Rotterdam-Rijn Pijpleiding Maatschappij [b]
Butaanweg 215, Vondelingplaat-Rotterdam, 3196 KC
Nederlandse Aardolie Maatschappij B.V.
Schepersmaat 2, Assen, 9405 TA
Netherlands Alng Holding Company B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Noordzeewind B.V.
Noordzeewind C.V. [d]
2e Havenstraat 5b, Ijmuiden, 1976 CE
2e Havenstraat 5b, Ijmuiden, 1976 CE
North Caspian Operating Company N.V. [b]
Strawinskylaan 1725, Amsterdam, 1077 XX
Paqell B.V.
Raffinaderij Shell Mersin N.V.
RESCO B.V.
Reactorweg 301, unit 1.3, Utrecht, 3542 AD
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Rub' Al-Khali Gas Development B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Salym Petroleum Development N.V. [b]
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Abu Dhabi B.V.
Shell Additives Holdings (I) B.V.
Shell Additives Holdings (II) B.V.
Shell Albania Block 4 B.V.
Shell and Vivo Lubricants B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Asset Management Company B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Bab Gas Development B.V.
Shell Brazil Holding B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Business Development Central Asia B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Caspian B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Caspian Pipeline Holdings B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Chemicals Europe B.V.
Shell Chemicals Ventures B.V. [k]
Shell China B.V.
Shell China Holdings B.V.
Shell Deepwater Tanzania B.V.
Shell Development Iran B.V.
Weena 70, Rotterdam, 3012 CM
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Downstream Services International B.V.
Weena 70, Rotterdam, 3012 CM
Shell E and P Offshore Services B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Egypt N.V. [e]
Shell Energy Europe B.V.
Shell EP Holdings (EE&ME) B.V.
Shell EP Middle East Holdings B.V.
Shell EP Russia Investments (III) B.V.
Shell EP Russia Investments (V) B.V.
Shell EP Somalia B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell EP Wells Equipment Services B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (79) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (82) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (84) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (87) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (88) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (89) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (90) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (91) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (LI) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (LIX) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (LVII) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (LXI) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (LXII) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
E8
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
%
51
50
50
100
25
30
25
50
100
100
29
30
20
100
40
16
30
56
50
100
50
50
17
50
100
100
100
50
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Shell Annual Report_Master Template.indd 8
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Company by country of incorporation
Address of registered office
Shell Exploration and Production (LXIV) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (LXV) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (LXVI) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (LXXI) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (LXXV) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production (XL) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production Holdings B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production Investments B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production Mauritania (C10) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production Mauritania (C19) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production Services (RF) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production South Africa B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production Ukraine I B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production Ukraine Investments (I) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production Ukraine Investments (II) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration and Production Ukraine Investments (IV) B.V. Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration Company (RF) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration Company (West) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration Company B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Exploration Venture Services B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Finance (Netherlands) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Gas & Power Developments B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Gas (LPG) Holdings B.V.
Shell Gas B.V.
Shell Gas Iraq B.V.
Shell Gas Nigeria B.V.
Shell Gas Venezuela B.V.
Shell Generating (Holding) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Global Solutions (Eastern Europe) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Global Solutions International B.V.
Kessler Park 1, Rijswijk, 2288 GS
Shell Global Solutions Services B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Information Technology International B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Integrated Gas Oman B.V.
Shell International B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell International Exploration and Production B.V.
Carel van Bylandtlaan 16, The Hague, 2596 HR
Shell International Finance B.V. [a]
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Internationale Research Maatschappij B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Internet Ventures B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Iraq Petroleum Development B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Iraq Services B.V.
Shell Kazakhstan B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Kazakhstan Development B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Kuwait Exploration and Production B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell LNG Port Spain B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Lubricants Supply Company B.V.
Weena 70, Rotterdam, 3012 CM
Shell Manufacturing Services B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Mozambique B.V.
Shell MSPO 2 Holding B.V.
Shell Namibia Upstream B.V.
Shell Nanhai B.V.
Shell Nederland B.V.
Shell Nederland Chemie B.V. [i]
Shell Nederland Raffinaderij B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Vondelingenweg 601, Vondelingenplaat, Rotterdam, 3196 KK
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Chemieweg 25, P.O. Box 6060, Moerdijk, 4780 LN
Vondelingenweg 601, Vondelingenplaat, Rotterdam, 3196 KK
Shell Nederland Verkoopmaatschappij B.V.
Weena 70, Rotterdam, 3012 CM
Shell New Energies NL B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Offshore (Personnel) Services B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Offshore North Gabon B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Offshore Services B.V.
Shell OKLNG Holdings B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Olie - OG Gasudvinding Danmark B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Olie OG Gas Holding B.V. [k]
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Oman Exploration and Production B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Overseas Investments B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Pensioenbureau Nederland B.V.
Postbus 157, The Hague, 2501 CD
Shell Petroleum N.V. [a]
Shell Philippines Exploration B.V.
Shell Project Development (VIII) B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
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Company by country of incorporation
Address of registered office
Shell RDS Holding B.V.
Shell Sakhalin Holdings B.V.
Shell Sakhalin Services B.V.
Shell Salym Development B.V.
Shell Services Oman B.V.
Shell Shared Services (Asia) B.V.
Shell South Africa Upstream B.V.
Shell TapUp B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Hofplein 20, Rotterdam, 3032 AC
Shell Technology Ventures Fund 1 B.V.
Strawinskylaan 3127 8e etage, Amsterdam, 1077 ZX
Shell Trademark Management B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Trading Rotterdam B.V.
Shell Trading Russia B.V.
Shell Upstream Albania B.V.
Weena 70, Rotterdam, 3012 CM
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Upstream Development B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Upstream Indonesia Services B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Shell Upstream Spain B.V.
Shell Upstream Turkey B.V.
Shell Ventures B.V.
Shell Ventures Investments B.V.
Shell Western LNG B.V.
Shell Windenergy Netherlands B.V.
Shell Windenergy NZW I B.V.
Snijders Olie B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Carel van Bylandtlaan 30, The Hague, 2596 HR
Weena 70, Rotterdam, 3012 CM
Syria Shell Petroleum Development B.V. [j]
Carel van Bylandtlaan 30, The Hague, 2596 HR
Tamba B.V.
Carel van Bylandtlaan 30, The Hague, 2596 HR
Tankstation Exploitatie Maatschappij Holding B.V.
Weena 70, Rotterdam, 3012 CM
The New Motion B.V.
Tupi B.V.
Rigakade 20, Amsterdam, 1013 BC
Wilhelminatoren, Wilhelminaplein 14, Rotterdam, 3072
Waalbrug Exploitatie Maatschappij B.V.
Henri Berssenbruggestraat 9, Deventer, 7425 SB
Zeolyst C.V.
NEW ZEALAND
Oosterhorn 36, Farmsum, 9936 HD
Energy Finance NZ Limited
Energy Holdings Offshore Limited
Level 10, ASB Tower, 2 Hunter Street, P.O. Box 1873, Wellington, 6011
Level 10, ASB Tower, 2 Hunter Street, P.O. Box 1873, Wellington, 6011
Shell (Petroleum Mining) Company Limited
Level 10, ASB Tower, 2 Hunter Street, P.O. Box 1873, Wellington, 6011
Shell Energy Asia Limited
Shell Investments NZ Limited
Southern Petroleum No Liability
NIGERIA
Level 10, ASB Tower, 2 Hunter Street, P.O. Box 1873, Wellington, 6011
Level 10, ASB Tower, 2 Hunter Street, P.O. Box 1873, Wellington, 6011
Level 10, ASB Tower, 2 Hunter Street, P.O. Box 1873, Wellington, 6011
All on Partnerships for Energy Access Limited by Guarantee
44 Bourdillon Road, Ikoyi, Lagos
BG Exploration and Production Nigeria Limited
Eko Nominees Limited, 252E Muri Okunola Street, Victoria Island, Lagos
BG Upstream A Nigeria Limited
Delta Business Development Limited
Nigeria LNG Limited
NLNG Ship Manning Limited
Eko Nominees Limited, 252E Muri Okunola Street, Victoria Island, Lagos
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Corporate Office, Intels Aba Road Estate, Km16 Aba Expressway, Port Harcourt, 500211
Corporate Office, Intels Aba Road Estate, Km16 Aba Expressway, Port Harcourt, 500211
Shell Exploration and Production Africa Limited
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Business Operations Limited
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Closed Pension Fund Administrator Ltd
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Exploration and Production Company Ltd
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Exploration and Production Echo Limited
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Exploration Properties Alpha Limited
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Exploration Properties Beta Limited
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Exploration Properties Charlie Limited
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Gas Ltd (SNG)
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Infrastructure Development Limited
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Offshore Prospecting Limited
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Oil Products Limited (SNOP)
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Ultra Deep Limited
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Nigeria Upstream Ventures Limited
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
Shell Thrift & Loan Fund Trustees Nig Ltd
Freeman House, 21/22 Marina, P.M.B. 2418, Lagos
The Shell Petroleum Development Company of Nigeria Limited
Shell Industrial Area, Port Harcourt, Rivers State, P.O. Box 263, Port Harcourt
NORWAY
A/S Norske Shell
Tankvegen 1, Tananger, 4056
Aviation Fuelling Services Norway AS
Bygg 6, Drammensveien 134, Oslo, 0277
Gasnor AS
Ormen Lange Eiendom DA
Shell Marine Products AS
Technology Centre Mongstad DA
Vestprosess DA
Helganesvegen 59, Karmoy, 4262 Avaldsnes
Nyhamna, Aukra, 6480
Karenslyst Allé 2, Oslo, 0278
Mongstad 71A, Mongstad, 5954
Forusbeen 50, Stavanger, 4035
E10
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
%
100
100
100
100
100
100
100
100
52
100
100
100
100
100
100
100
100
100
100
100
100
100
100
65
50
100
100
25
100
50
100
100
100
100
100
100
100
100
100
100
26
20
100
100
100
100
100
100
100
100
100
100
100
100
100
100
99
100
100
50
100
18
100
8
8
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Company by country of incorporation
Address of registered office
OMAN
Oman LNG LLC
Petroleum Development Oman LLC
Shell Development Oman LLC
P.O. Box 560, Mina Al Fahal, Muscat, 116
P.O. Box 81, Mina Al Fahal, Muscat, 113
P.O. Box 74, Mina Al Fahal, Muscat, 116
Shell Oman Marketing Company SAOG
P.O. Box 38, Mina Al Fahal, Muscat, 116
PAKISTAN
Pak Arab Pipeline Company Limited
Pakistan Energy Gateway Limited
Shell Pakistan Limited
PERU
Shell GNL Peru S.A.C.
Shell Operaciones Peru S.A.C.
PHILIPPINES
House No. 2-B, Nazimuddin Road, F-8/1, Islamabad, 75400
E110, Khayaban E Jinnah, Lahore Cantonement, Punjab, Cantonement, 54810
Shell House, 6 Ch. Khaliquzzaman Road, Karachi, 75530
Calle Dean Valdivia 111, Oficina 802, San Isidro, Lima, Lima 27
Calle Dean Valdivia 111, Oficina 802, San Isidro, Lima, Lima 27
Bonifacio Gas Corporation
2nd Floor, Bonifacio Tech. Center, 31st Street cor. 2nd Avenue, Crescent Park West, Bonifacio Global City, Taguig,
Kamayan Realty Corporation
NDC Bldg., 116 Tordesillas St., Salcedo Village, Makati City, Metro Manila, 1227
Pilipinas Shell Petroleum Corporation
Shellhouse, 156 Valero Street, Salcedo Village, Brgy. Bel-Air, Makati City, Metro Manila, 1227
Shell Chemicals Philippines, Inc.
Shellhouse, 156 Valero Street, Salcedo Village, Brgy. Bel-Air, Makati City, Metro Manila, 1227
Shell Gas and Energy Philippines Corporation
Shellhouse, 156 Valero Street, Salcedo Village, Brgy. Bel-Air, Makati City, Metro Manila, 1227
Metro Manila
Shell Gas Trading (Asia Pacific), Inc.
Shell Solar Philippines Corporation
Tabangao Realty, Inc.
POLAND
First Utility Poland Sp. z o.o.
Shell Polska Sp. z o.o.
PORTUGAL
Subic Bay Free Port Zone, Olangapo City, 2200
Shellhouse, 156 Valero Street, Salcedo Village, Brgy. Bel-Air, Makati City, Metro Manila, 1227
Shellhouse, 156 Valero Street, Salcedo Village, Brgy. Bel-Air, Makati City, Metro Manila, 1227
Al. Pokuju 5, Krakow, 31-548
ul. Bitwy Warszawskiej 1920 r. nr 7A, Warsaw, 02-366
Shell Madeira Praia Formosa - Instalações, Comércio e
Av. dos Combatentes da Grande Guerra nº 17, Freguesia de S. Juliao, Setúbal, 2900-329
Distribuição de Combustíveis S.A
PUERTO RICO
Station Managers of Puerto Rico, Inc.
P.O. Box 186, Yabucoa, PR 00767-0186
QATAR
Qatar Liquefied Gas Company Limited (4)
P.O. Box 22666, Doha
Qatar Shell Research & Technology Centre QSTP-LLC
Qatar Science & Technology Park Tech1, Office 101, P.O. Box 3747, Doha
Qatar Shell Service Company W.L.L.
Al Mirqab Tower, West Bay, P.O. Box 3747, Doha
RUSSIA
Khanty-Mansiysk Petroleum Alliance Closed Joint Stock Company
24 A Yakubovicha ul., Saint Petersburg, 190000
[b]
Limited Liability Company "Shell Neft"
24 Bld D Smolnaya street, Moscow, 125445
Limited Liability Company "Shell Neftegaz Development (V)"
Novinsky blvd, 31, Moscow, 123242
LLC Shell NefteGaz Development
Syriaga Neftegaz Development LLC
SAINT KITTS AND NEVIS
Novinsky blvd, 31, Moscow, 123242
Novinsky blvd, 31, Moscow, 123242
Shell Oil & Gas (Malaysia) LLC
Morning Star Holdings Limited, Main Street, Suite 556, Charlestown, Nevis, West Indies
SAINT LUCIA
BG Atlantic 1 Holdings Limited
BG Atlantic 2/3 Holdings Limited
BG Atlantic 4 Holdings Limited
BG Central Holdings Limited
BG West Indies No. 2 Limited
SAUDI ARABIA
Mercury Court, Choc Estate, Castries
Mercury Court, Choc Estate, Castries
Mercury Court, Choc Estate, Castries
Mercury Court, Choc Estate, Castries
Mercury Court, Choc Estate, Castries
Al Jomaih and Shell Lubricating Oil Co.Ltd.
P.O. Box 41467, Riyadh, 11521
Peninsular Aviation Services Company Limited
P.O. Box 6369, Jeddah, 21442
Saudi Aramco Shell Refinery Company [b]
P.O. Box 10088, Madinat Al-Jubail Al-Sinaiyah, Al Jubail, 31961
Shell Global Solutions Saudi Arabia LLC
P.O. Box 16996, Riyadh, 11474
SINGAPORE
BG Asia Pacific Holdings Pte. Limited
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
BG Asia Pacific Services Pte. Ltd.
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
BG Exploration & Production Myanmar Pte. Ltd.
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
BG Insurance Company (Singapore) Pte Ltd
10 Collyer Quay, #10-01 Ocean Financial Centre, Singapore, 049315
BG Myanmar Pte. Ltd.
BG Oil Marketing Pte Ltd
Connected Freight Pte. Ltd.
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
CRI/Criterion Marketing Asia Pacific Pte Ltd
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
Ellba Eastern (Pte) Ltd
Fuelng Pte. Ltd
Infineum Singapore Pte Ltd
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
50 Gul Road, Singapore, 629351
31 International Business Park, #04-08, Creative Resource, Singapore, 609921
QPI and Shell Petrochemicals (Singapore) Pte Ltd
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
%
30
34
100
49
20
33
76
100
100
24
22
55
100
100
100
100
40
100
100
100
100
30
100
100
50
100
100
100
100
90
100
100
100
100
100
50
25
50
100
100
100
100
100
100
100
100
100
100
50
50
51
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Company by country of incorporation
Address of registered office
Shell Chemicals Seraya Pte. Ltd.
Shell Eastern Petroleum (Pte) Ltd [i]
Shell Eastern Trading (Pte) Ltd [i]
Shell Gas Marketing Pte. Ltd.
Shell India Ventures Pte. Ltd.
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
Shell Integrated Gas Thailand Pte.Limited
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
Shell International Shipping Services (Pte) Ltd
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
Shell Myanmar Energy Pte. Ltd.
Shell Myanmar Petroleum Pte. Ltd.
Shell Pulau Moa Pte Ltd
Shell Seraya Pioneer (Pte) Ltd
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
Shell Singapore Trustees (Pte) Ltd
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
Shell Tankers (Singapore) Private Limited
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
Shell Treasury Centre East (Pte) Ltd
Singapore Lube Park Pte. Ltd. [b]
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
160 Tuas South Avenue 5, Singapore, 637364
Sirius Well Manufacturing Services Pte. Ltd. [b]
The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588
SLOVAKIA
SHELL Slovakia s.r.o.
SLOVENIA
Shell Adria d.o.o.
SOUTH AFRICA
Einsteinova 23, Bratislava, 851 01
Bravnicarjeva ulica 13, Ljubljana, 1000
Bituguard Southern Africa (Pty) Ltd
Twickenham, The Campus, 57 Sloan Street, Epsom Downs, Bryanston, 2021
Blendcor (Pty) Ltd. [b]
Sekelo Oil Trading (Pty) Limited
Honshu Road, Durban, 4001
Suite OE/1, The Nautica, The Waterclub, Beach Road, Granger Bay, Cape Town, 8001
Shell & BP South African Petroleum Refineries (Pty) Limited [b]
Reunion, Durban, 4001
Shell Downstream South Africa (Pty) Ltd
Twickenham, The Campus, 57 Sloan Street, Epsom Downs, Bryanston, 2021
Shell Global Customer Services Centre Cape Town (Pty) Ltd
10 Rua Vasco de Gama, Foreshore, Cape Town, 8000
Shell South Africa Energy (Pty) Ltd
Twickenham, The Campus, 57 Sloan Street, Epsom Downs, Bryanston, 2021
Shell South Africa Exploration (Pty) Limited
Twickenham, The Campus, 57 Sloan Street, Epsom Downs, Bryanston, 2021
Shell South Africa Holdings (Pty) Ltd
Twickenham, The Campus, 57 Sloan Street, Epsom Downs, Bryanston, 2021
STISA (Pty) Limited
SOUTH KOREA
Suite OE/2, The Nautica, The Waterclub, Beach Road, Granger Bay, Cape Town, 8001
Hankook Shell Oil Company
No. 250, Sinsun-ro, Nam-gu, Busan, 48561
Hyundai and Shell Base Oil Co., Ltd
640-6, Daejuk-ri, Daesan-eup, Seosan-shi, Chungchongnam-do, 356-713
SPAIN
BG Energy Iberian Holdings, S.L.
Shell & Disa Aviation España, S.L.
Shell España, S.A.
Shell Spain LNG, S.A.U.
SUDAN
Paseo de la Castellana, 257-6º, Madrid, 28046
Rio Bullaque, 2, Madrid, 28034
Paseo de la Castellana, 257-6º, Madrid, 28046
Paseo de la Castellana, 257-6º, Madrid, 28046
Shell (Sudan) Petroleum Development Company Limited
Shell House, P.O. Box 320, Khartoum
SWEDEN
A Flygbränslehantering Aktiebolag
BG International Services AB
Gothenburg Fuelling Company AB
Malmö Fuelling Services AB
Shell Aviation Sweden AB
Stockholm Fuelling Services AB
SWITZERLAND
Bully 1 (Switzerland) GmbH
Bully 2 (Switzerland) GmbH
Saraco SA
Shell (Switzerland) AG
Shell Brands International AG
Shell Corporate Services Switzerland AG
Shell Finance Switzerland AG
Shell Holdings Switzerland AG
Shell Lubricants Switzerland AG
Shell Trading Switzerland AG
Shell Treasury Company Switzerland AG
P.O. Box 135, Stockholm-Arlanda, 190 46
Deloitte, P.O. Box 450, Östersund, 831 26
P.O. Box 2154, Gothenburg, 438 14
Sturup Flygplats, P.O. Box 22, Malmö, 230 32
Gustavslundsvägen 22, Bromma, 16751
P.O. Box 85, Stockholm-Arlanda, 190 45
Dorfstrasse 19a, Baar, 6340
Dorfstrasse 19a, Baar, 6340
Route de Pré-Bois 17, Cointrin, 1216
Baarermatte, Baar, 6340
Baarermatte, Baar, 6340
Baarermatte, Baar, 6340
Baarermatte, Baar, 6340
Baarermatte, Baar, 6340
Steigerhubelstrasse 8, Bern, 3008
Baarermatte, Baar, 6340
Baarermatte, Baar, 6340
SOGEP Sociéte Genevoise des Pétroles SA
Route de Vernier 132, Vernier, 1214
Solen Versicherungen AG
Baarermatte, Baar, 6340
Stazioni Autostradali Bellinzona SA
Autostrada A2 (direzione Gottardo), Hotel Bellinzona Sud, Monte Carasso, 6513
UBAG - Unterflurbetankungsanlage Flughafen Zürich AG
Zwüscheteich, Rümlang, 8153
SYRIA
Al Badiah Petroleum Company
Al Furat Petroleum Company
TAIWAN
Damascus New Sham Western Dummar, Island No 1 - Property 2299, P.O. Box 7660, Damascus
Damascus New Sham Western Dummar, Island No 1 - Property 2299, P.O. Box 7660, Damascus
E12
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
44
50
100
100
36
36
43
36
72
100
100
100
100
72
54
40
100
50
100
100
100
25
100
33
33
100
25
50
50
20
100
100
100
100
100
100
100
100
34
100
50
20
22
20
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Company by country of incorporation
Address of registered office
CPC Shell Lubricants Co. Ltd
Shell Taiwan Limited
TANZANIA
No 2, Tso-Nan Road, Nan-Tze District, P.O. Box 25-30, Kaohsiung, 811
International Trade Building, Room 2001, 20th Floor, 333, Keelung Road Section 1, Taipei, 110
Fahari Gas Marketing Company Limited
1st Floor Kilwa House, Plot 369, Toure Drive, Oyster Bay, P.O. Box 105833, Dar es Salaam
Mzalendo Gas Processing Company Limited
1st Floor Kilwa House, Plot 369, Toure Drive, Oyster Bay, P.O. Box 105833, Dar es Salaam
Ruvuma Pipeline Company Limited
1st Floor Kilwa House, Plot 369, Toure Drive, Oyster Bay, P.O. Box 105833, Dar es Salaam
Tanzania LNG Limited
THAILAND
1st Floor Kilwa House, Plot 369, Toure Drive, Oyster Bay, P.O. Box 105833, Dar es Salaam
Pattanadhorn Company Limited
10 Soonthornkosa Road, Klongtoey, Bangkok, 10110
Sahapanichkijphun Company Limited
10 Soonthornkosa Road, Klongtoey, Bangkok, 10110
Shell Global Solutions (Thailand) Limited
10 Soonthornkosa Road, Klongtoey, Bangkok, 10110
Shell Global Solutions Holdings (Thailand) Limited
10 Soonthornkosa Road, Klongtoey, Bangkok, 10110
Thai Energy Company Limited
Unitas Company Limited
TRINIDAD AND TOBAGO
BG 2/3 Investments Limited
Point Fortin LNG Exports Limited
Shell Gas Supply Trinidad Limited
Shell LNG T&T Ltd
Shell Manatee Limited
10 Soonthornkosa Road, Klongtoey, Bangkok, 10110
10 Soonthornkosa Road, Klongtoey, Bangkok, 10110
5 Saint Clair Avenue, Saint Clair, Port of Spain
5 Saint Clair Avenue, Saint Clair, Port of Spain
5 Saint Clair Avenue, Saint Clair, Port of Spain
5 Saint Clair Avenue, Saint Clair, Port of Spain
5 Saint Clair Avenue, Saint Clair, Port of Spain
Shell Trinidad Central Block Limited
5 Saint Clair Avenue, Saint Clair, Port of Spain
Shell Trinidad Ltd
Shell Energy House, 5 St. Clair Avenue, Port of Spain
Shell Trinidad North Coast Limited
5 Saint Clair Avenue, Saint Clair, Port of Spain
The International School of Port of Spain Limited
1 International Drive, Westmoorings
TRINLING Limited
TUNISIA
5 Saint Clair Avenue, Saint Clair, Port of Spain
Amilcar Petroleum Operations S.A.
Immeuble Mezghenni, Rue du Lac Windermere BP36, Les Berges du Lac, Tunis, 1053
Shell Tunisia LPG S.A.
Tunisian Processing S.A.
TURKEY
Ambarli Depolama Hizmetleri Ltd. Sti.
Cekisan Depolama Hizmetleri Ltd. Sti.
Marmara Depoculuk Hizmetleri A.S.
Samsun Akaryakit VE Depolama A.S.
Shell & Turcas Petrol A.S.
Shell Enerji A.S.
Shell Petrol A.S.
UK
Alie Investments Limited
Angkor Shell Limited
Applied Blockchain Ltd
Autogas Limited
BG Atlantic Finance Limited
BG Central Holdings Limited
BG Cyprus Limited
BG Delta Limited
BG Employee Shares Trustees Limited
BG Energy Capital Plc
BG Energy Holdings Limited
BG Energy Marketing Limited
BG Energy Trading Limited
BG Equatorial Guinea Limited
BG Exploration and Production Limited
BG Gas Marketing Limited
BG Gas Services Limited
BG Gas Supply (UK) Limited
BG General Holdings Limited
BG General Partner Limited
BG Global Employee Resources Limited
BG Global Energy Limited
BG Great Britain Limited
BG Group Company Secretaries Limited
BG Group Employee Benefit Trust Limited
Immeuble Rue du Lac Windermere, Les Berges du Lac, Tunis, 1053
Immeuble Rue du Lac Windermere, Les Berges du Lac, Tunis, 1053
Yakuplu Mah. Gencosman Cad. No:7, Beylikduzu, Istanbul, 34524
Yakuplu Mah. Gencosman Cad. No:3, Beylikduzu, Istanbul, 34524
Sultankoy Mahallesi Maltepe Sokak No:66, Marmara Ereglisi, Tekirdag, 59750
Dilovasi Organize Sanayi Bolgesi 1.Kisim, 1004 Sokak No:10, Dilovasi, Kocaeli
Gulbahar Mah.Salih Tozan Sok., Karamancilar Is Merkezi B Blok No:18, Esentepe, Sisli, Istanbul, 34394
Gulbahar Mah.Salih Tozan Sok., Karamancilar Is Merkezi B Blok No:18, Esentepe, Sisli, Istanbul, 34394
Gulbahar Mah.Salih Tozan Sok., Karamancilar Is Merkezi B Blok No:18, Esentepe, Sisli, Istanbul, 34394
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Level 39, One Canada Square, London, E14 5AB
Athena House, Athena Drive, Tachbrook Park, Warwick, CV34 6RL
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
BG Group Employee Shares Trustees Limited
Shell Centre, London, SE1 7NA
BG Group Limited
BG Group Pension Trustees Limited
BG Group Trustees Limited
BG Intellectual Property Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
%
51
100
53
53
53
100
42
42
48
49
100
42
100
81
100
100
100
100
100
100
25
100
50
100
100
35
35
32
35
70
100
70
100
100
27
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
E13
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Company by country of incorporation
Address of registered office
BG International Limited
BG Iran Limited
BG Karachaganak Limited
BG Karachaganak Trading Limited
BG Kenya L10A Limited
BG Kenya L10B Limited
BG LNG Investments Limited
BG Mongolia Holdings Limited
BG Netherlands
BG Netherlands Financing Unlimited
BG Norge Exploration Limited
BG Norge Limited
BG North Sea Holdings Limited
BG OKLNG Limited
BG Overseas Holdings Limited
BG Overseas Investments Limited
BG Overseas Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
BG Pension Funding Scottish Limited Partnership [l]
50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ
BG Rosetta Limited
BG Singapore Limited
BG South Asia LNG Limited
BG South East Asia Limited
BG Subsea Well Project Limited
BG Tanzania Holdings Limited
BG Trinidad LNG Limited
BG UK Capital II Limited
BG UK Capital Limited
BG UK Holdings Limited
Brazil Shipping I Limited
Brazil Shipping II Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
British Pipeline Agency Limited
5-7 Alexandra Road, Hemel Hempstead, Herts, HP2 5BS
CRI Catalyst Company Europe Limited
CRI/Criterion Catalyst Company Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Dragon LNG Group Limited [b]
Main Road, Waterston, Milford Haven, Pembrokeshire, SA73 1DR
DSX Trading Limited
Eastham Refinery Limited [b]
Enterprise Oil Limited
Enterprise Oil Middle East Limited
Enterprise Oil Norge Limited
Enterprise Oil Operations Limited
Enterprise Oil U.K. Limited
Farepilot Limited
Shell Centre, London, SE1 7NA
8 York Road, London, SE1 7NA
8 York Road, London, SE1 7NA
8 York Road, London, SE1 7NA
8 York Road, London, SE1 7NA
8 York Road, London, SE1 7NA
8 York Road, London, SE1 7NA
Shell Centre, London, SE1 7NA
First Telecommunications Limited
Columbus House, Westwood Business Park, Coventry, CV4 8HS
First Utilities Limited
First Utility Limited
Gainrace Limited
Columbus House, Westwood Business Park, Coventry, CV4 8HS
Columbus House, Westwood Business Park, Coventry, CV4 8HS
8 York Road, London, SE1 7NA
Gatwick Airport Storage and Hydrant Company Limited
8 York Road, London, SE1 7NA
Glossop Limited
GOGB Limited
8 York Road, London, SE1 7NA
8 York Road, London, SE1 7NA
Heathrow Airport Fuel Company Limited
Building 1204, Sandringham Road, Heathrow Airport, Hounslow, Middlesex, TW6 3SH
Heathrow Hydrant Operating Company Limited
Building 1204, Sandringham Road, Heathrow Airport, Hounslow, Middlesex, TW6 3SH
Impello Limited
Columbus House, Westwood Business Park, Coventry, CV4 8HS
International Inland Waterways, Limited
8 York Road, London, SE1 7NA
Karachaganak Project Development Limited [b]
Shell Centre, London, SE1 7NA
Khmer Shell Limited
Kite Power Systems Limited
Lensbury Limited
Machine Max Limited
Shell Centre, London, SE1 7NA
146 New London Road, Chelmsford, Essex, CM2 0AW
Broom Road, Teddington, Middlesex, TW11 9NU
Shell Centre, London, SE1 7NA
Manchester Airport Storage and Hydrant Company Limited
50 Broadway, London, SW1H 0BL
Maritime Association for Risk Mitigation & Safety Limited
Shell Centre, London, SE1 7NA
Methane Services Limited
Murphy Schiehallion Limited
Octane Properties Limited
Private Oil Holdings Oman Limited
Sabah Shell Petroleum Company Limited
Saxon Oil Limited
Saxon Oil Miller Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
8 York Road, London, SE1 7NA
Shell Centre, London, SE1 7NA
8 York Road, London, SE1 7NA
8 York Road, London, SE1 7NA
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
50
100
50
100
100
100
100
100
87
100
100
100
100
13
100
100
14
10
100
100
38
100
25
100
56
25
100
100
100
100
85
100
100
100
[l] Established by BG Group plc and the BG Trustee in 2013 as part of funding agreements associated with the BG pension schem e. Under the exemption conferred by Regulation 7 of the Partnerships (Accounts) Regulations 2008, the accounts
of this partnership have not been appended to Shell’s Consolidated Financial Statements and have not been filed at the Companies House.
E14
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
Shell Annual Report_Master Template.indd 14
18/03/2019 17:20:53
Company by country of incorporation
Address of registered office
Schooner Trustees Limited
SELAP Limited
SF Investment Management Limited
Shell Aircraft Limited
Shell Arabia Car Service Limited
Shell Aviation Limited
Shell Centre, London, SE1 7NA
8 York Road, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Business Development Middle East Limited
Shell Centre, London, SE1 7NA
Shell Caribbean Investments Limited
Shell Centre, London, SE1 7NA
Shell Chemical Company of Eastern Africa Limited
Shell Centre, London, SE1 7NA
Shell Chemicals (Hellas) Limited
Shell Chemicals Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Chemicals Support Services Asia Limited
Shell Centre, London, SE1 7NA
Shell Chemicals U.K. Limited
Shell China Exploration and Production Company Limited
Shell Clair UK Limited
Shell Club Corringham Limited
Shell Company (Hellas) Limited
Shell Company (Pacific Islands) Limited
Shell Corporate Director Limited
Shell Corporate Secretary Limited
Shell Direct (U.K.) Limited
Shell Distributor (Holdings) Limited
Shell Employee Benefits Trustee Limited
Shell Energy Europe Limited
Shell Energy Investments Limited
Shell Energy Supply UK LTD.
Shell EP Offshore Ventures Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Exploration and Production Tanzania Limited
Shell Centre, London, SE1 7NA
Shell Gas Holdings (Malaysia) Limited
Shell Hasdrubal Limited
Shell Holdings (U.K.) Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Information Technology International Limited
8 York Road, London, SE1 7NA
Shell International Gas Limited
Shell International Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell International Petroleum Company Limited
Shell Centre, London, SE1 7NA
Shell International Trading and Shipping Company Limited
80 Strand, London, WC2R 0ZA
Shell Malaysia Limited
Shell Marine Products Limited
Shell New Energies UK Limited
Shell Overseas Holdings Limited
Shell Overseas Services Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Pension Reserve Company (SIPF) Limited
Shell Centre, London, SE1 7NA
Shell Pension Reserve Company (SOCPF) Limited
Shell Centre, London, SE1 7NA
Shell Pension Reserve Company (UK) Limited
Shell Centre, London, SE1 7NA
Shell Pensions Trust Limited
Shell Property Company Limited
Shell QGC Holdings Limited [i]
Shell QGC Midstream 1 Limited [i]
Shell QGC Midstream 2 Limited
Shell QGC Upstream 1 Limited
Shell QGC Upstream 2 Limited
Shell Research Limited
Shell Response Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
80 Strand, London, WC2R 0ZA
Shell Shared Service Centre - Glasgow Limited
Shell Centre, London, SE1 7NA
Shell Subsidiary Distributors Pension Trustee Limited
Shell Centre, London, SE1 7NA
Shell Supplementary Pension Plan Trustees Limited
Shell Centre, London, SE1 7NA
Shell Tankers (U.K.) Limited
Shell Trading International Limited
Shell Treasury Centre Limited
Shell Treasury Dollar Company Limited
Shell Treasury Euro Company Limited
Shell Treasury UK Limited
Shell Trinidad 5(A) Limited
Shell Trinidad and Tobago Limited
Shell Trinidad Block E Limited
Shell Trustee Solutions Limited
Shell Tunisia Upstream Limited
Shell U.K. Limited
3 Savoy Place, London, WC2R 0DX
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
1 Altens Farm Road, Nigg, Aberdeen, AB12 3FY
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
E15
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Company by country of incorporation
Shell U.K. North Atlantic Limited
Shell U.K. Oil Products Limited
Address of registered office
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Upstream Overseas Services (I) Limited
Shell Centre, London, SE1 7NA
Shell Ventures New Zealand Limited
Shell Ventures U.K. Limited
Shell-Mex and B.P. Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Stansted Fuelling Company Limited
Exxonmobil House, Ermyn Way, Leatherhead, KT22 8UX
Steama Company Limited
STT (Das Beneficiary) Limited [a]
Synthetic Chemicals (Northern) Limited
Telegraph Service Stations Limited
Pannone Corporate Llp, 378-380 Deansgate, Castlefield, Manchester, M3 4LY
Shell Centre, London, SE1 7NA
8 York Road, London, SE1 7NA
8 York Road, London, SE1 7NA
The Anglo-Saxon Petroleum Company Limited
Shell Centre, London, SE1 7NA
The Asiatic Petroleum Company Limited
Shell Centre, London, SE1 7NA
The Consolidated Petroleum Company Limited
Shell Centre, London, SE1 7NA
The Consolidated Petroleum Supply Company Limited
Shell Centre, London, SE1 7NA
The Mexican Eagle Oil Company Limited
8 York Road, London, SE1 7NA
The New Motion EVSE Limited
The Shell Company (W.I.) Limited
The Shell Company of Hong Kong Limited
The Shell Company of India Limited
The Shell Company of Nigeria Limited
The Shell Company of Thailand Limited
4th Floor, Davidson Building, 5 Southampton Street, London, WC2E 7HA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
The Shell Company of The Philippines Limited
Shell Centre, London, SE1 7NA
The Shell Company of Turkey Limited
The Shell Company of West Africa Limited
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
The Shell Marketing Company of Borneo Limited
Shell Centre, London, SE1 7NA
The Shell Petroleum Company Limited
Shell Centre, London, SE1 7NA
The Shell Transport and Trading Company Limited
Shell Centre, London, SE1 7NA
Thermocomfort Limited
UK Shell Pension Plan Trust Limited
8 York Road, London, SE1 7NA
Shell Centre, London, SE1 7NA
United Kingdom Oil Pipelines Limited [b]
5-7 Alexandra Road, Hemel Hempstead, Herts, HP2 5BS
Walton-Gatwick Pipeline Company Limited [b]
5-7 Alexandra Road, Hemel Hempstead, Herts, HP2 5BS
West London Pipeline and Storage Limited [b]
5-7 Alexandra Road, Hemel Hempstead, Herts, HP2 5BS
Wonderbill Limited
Woodlea Limited
UKRAINE
Shell Centre, London, SE1 7NA
Shell Centre, London, SE1 7NA
Shell Ukraine Exploration and Production I LLC
4 Mykoly Grinchenka street, Kiev, 03038
UNITED ARAB EMIRATES
Abu Dhabi Gas Industires Limited (GASCO)
P.O. Box 665, Abu Dhabi
Emdad Aviation Fuel Storage FZCO
Emdad Aviation Fuel Storage FZCO, P.O. Box 261781, Jebel Ali, Dubai
Sharjah Fuelling Services Company Ltd.
P.O. Box 4225, Sharjah, 4225
URUGUAY
BG (Uruguay) S.A.
Dinarel S.A.
Gasoducto Cruz del Sur S.A.
USA
Aera Energy LLC [b]
Aera Energy Services Company
Airbiquity Inc.
Alba Mobility LLC [c]
La Cumparsita, 1373 4th Floor, Montevideo, 11200
La Cumparsita, 1373 4th Floor, Montevideo, 11200
La Cumparsita, 1373 4th Floor, Montevideo, 11200
10000 Ming Avenue, Bakersfield, CA 93311
10000 Ming Avenue, Bakersfield, CA 93311
1011 Western Avenue, Suite 600, Seattle, WA 98104
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Amberjack Pipeline Company LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Asset Management and Power Services LLC
2441 High Timbers Drive, Suite 220, The Woodlands, TX 77380
Atlantic 1 Holdings LLC [c]
Atlantic 2/3 Holdings LLC [c]
Atlantic 4 Holdings LLC [c]
RL & F Service Corp, 920 N King St Floor 2, New Castle, Wilmington, DE 19801
RL & F Service Corp, 920 N King St Floor 2, New Castle, Wilmington, DE 19801
RL & F Service Corp, 920 N King St Floor 2, New Castle, Wilmington, DE 19801
Atlantic Shores Offshore Wind, LLC [c]
Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808
Au Energy, LLC
Baconton Power LLC [c]
41805 Albrae Street, Fremont, CA, 94538
1499 38th Boulevard N.W., Cairo, GA 31728
Bengal Pipeline Company LLC
Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808
BG Alaska E&P, Inc.
BG Brasilia, LLC [c]
BG Energy Finance, Inc.
BG Energy Merchants, LLC [c]
BG Gulf Coast LNG, LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
BG Lake Charles Operations, LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
BG LNG Services, LLC [c]
BG LNG Trading, LLC
BG North America, LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
E16
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
%
100
100
100
100
100
60
14
30
100
100
100
100
100
50
50
100
100
100
100
100
100
100
75
100
100
100
100
100
100
100
48
52
38
87
100
100
15
32
49
100
50
40
52
50
26
100
29
50
46
58
51
50
50
35
29
100
100
100
100
100
100
100
100
100
Shell Annual Report_Master Template.indd 16
18/03/2019 17:20:54
Company by country of incorporation
Address of registered office
BG US Gathering Company, LLC [c]
BG US Production Company, LLC [c]
BG US Services, Inc.
Brazil Crude Services, LLC [c]
Brazos Wind Ventures, LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Caesar Oil Pipeline Company, LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Colbea Enterprises, LLC
Colonial Pipeline Company
2050 Plainfield Pike, Cranston, RI 02921
Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808
Concha Chemical Pipeline LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Crestwood Permian Basin LLC
CRI Catalyst Company LP [d]
CRI Sales and Services Inc.
CRI U.S. LP [d]
CRI Zeolites Inc.
CRI/Criterion, Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Criterion Catalyst Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Criterion Catalysts & Technologies L.P. [d]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Deer Park Refining Limited Partnership [b] [d]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Distributed Generation Solutions LLC
2441 High Timbers Drive, Suite 220, The Woodlands, TX 77380
Endymion Oil Pipeline Company, LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Enterprise Oil North America Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
EPP LLC [c]
Equilon Enterprises LLC [c]
Explorer Pipeline Company
Gaviota Terminal Company [d]
GI Endurant LLC [b]
GI Energy Storage LLC [c]
Husk Power Systems, Inc.
Infineum USA Inc.
Infineum USA L.P. [h]
Jiffy Lube International, Inc.
Lake Charles Exports, LLC [c]
Laurentide E&P, LLC [c]
LOCAP LLC
LOOP LLC
Maple Power Holdings LLC
Mars Oil Pipeline Company LLC [c]
Mattox Pipeline Company LLC [c]
Mayflower Wind Energy LLC [b] [c]
MP2 Energy LLC [d]
MP2 Energy NE LLC [c]
MP2 Energy NY LLC [c]
C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
150 N. Dairy Ashford, Houston, TX 77079
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
1900 East Linden Avenue, Linden, NJ 07036
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Bechtel Enterprises, 12011 Sunset Hills Road, Reston, VA 20190
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201
C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201
C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201
MP2 Energy Retail Holdings LLC [c]
C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201
MP2 Energy Texas LLC [c]
MP2 Generation LLC [c]
C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201
C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201
MP2 Mesquite Creek Wind LLC [c]
C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201
Mpower2 LLC [c]
Nedpower Mount Storm LLC [c]
Noble Assurance Company
Odyssey Pipeline L.L.C. [c]
Oryx Caspian Pipeline, L.L.C. [c]
Pacwest Energy, LLC.
Pecten Arabian Company
C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
3450 E. Commercial Ct., Meridian, ID 83642
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Pecten Brazil Exploration Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Pecten Midstream LLC [c]
Pecten Orient Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Pecten Orient Company LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Pecten Producing Company
Pecten Trading Company
Pecten Victoria Company
Pecten Yemen Masila Company
Pennzoil-Quaker State Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Pennzoil-Quaker State International Corporation
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Pennzoil-Quaker State Nominee Company
The Corporation Trust Company of Nevada, 311 South Division Street, Carson City, NV 89703
Peru LNG Company LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Poseidon Oil Pipeline Company, LLC
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Power Limited Partnership [d]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Proteus Oil Pipeline Company, LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
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E17
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Company by country of incorporation
Address of registered office
Quaker State Investment Corporation
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
RDK Ventures, LLC
Rilette Springs, LLC [c]
4080 West Jonathan Moore Pike, Columbus, IN 47201
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
RK Caspian Shipping Company, LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
S T Exchange, Inc.
Salamander Solutions Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
San Pablo Bay Pipeline Company LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Sand Dollar Pipeline LLC [c]
SCOGI GP [d]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell (US) Gas & Power M&T Holdings, Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell California Pipeline Company LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Catalysts Ventures Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Chemical Appalachia LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Chemical LP [d]
Shell Chemicals Arabia L.L.C. [c]
Shell Communications, Inc.
Shell Deepwater Royalties Inc.
Shell Downstream Inc.
Shell Energy Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Energy Holding GP LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Energy North America (US), L.P. [d]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Energy Resources Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell EP Holdings Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Expatriate Employment US Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Exploration & Production Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Exploration Company Inc.
Shell Frontier Oil & Gas Inc.
Shell Gas Gathering Corp. #2
Shell Global Solutions (US) Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell GOM Pipeline Company LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Gulf of Mexico Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Information Technology International Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell International Exploration and Production Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Leasing Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Marine Products (US) Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Midstream LP Holdings LLC [c]
Shell Midstream Operating LLC [c]
Shell Midstream Partners GP LLC [c]
Shell Midstream Partners, L.P. [h]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell NA Gas & Power Holding Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell NA LNG LLC [c]
Shell New Energies US LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell North America Gas & Power Services Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Offshore and Chemical Investments Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Offshore Inc.
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Offshore Response Company LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Oil Company
Shell Oil Company Investments Inc.
Shell Oil Products Company LLC [c]
Shell Onshore Ventures Inc.
Shell Petroleum Inc.
Shell Pipeline Company LP [d]
Shell Pipeline GP LLC [c]
Shell Rail Operations Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Retail and Convenience Operations LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell RSC Company
Shell Thailand E&P Inc.
Shell Trademark Management Inc.
Shell Trading (US) Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Trading North America Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Trading Risk Management, LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Trading Services Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Transportation Holdings LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Shell Treasury Center (West) Inc.
Shell US E&P Investments LLC [c]
Shell US Gas & Power LLC [c]
Shell US Hosting Company
Shell Ventures LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
E18
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
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Shell Annual Report_Master Template.indd 18
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Company by country of incorporation
Address of registered office
Shell WindEnergy Inc.
Shell WindEnergy Services Inc.
Ship Shoal Pipeline Company [d]
Silicon Ranch Corporation [c]
SOI Finance Inc.
SOPC Holdings East LLC [c]
SOPC Holdings West LLC [c]
SOPC Southeast Inc.
SWEPI LP [d]
Tejas Coral GP, LLC [c]
Tejas Coral Holding, LLC [c]
Tejas Power Generation, LLC [c]
Texas Petroleum Group LLC
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
150 N. Dairy Ashford, Houston, TX 77079
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
11111 Wilcrest Green, Suite 100, Houston, TX 77042
Texas-New Mexico Pipe Line Company
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Valley Camp Coal Company
Three Wind Holdings, LLC [c]
TMR Company
Tri Star Energy LLC
Triton Diagnostics Inc.
Triton Terminaling LLC [c]
Triton West LLC [c]
True North Energy LLC
URSA Oil Pipeline Company LLC [c]
West Shore Pipe Line Company
Zeolyst International
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
1740 Ed Temple Blvd, Nashville, TN 37208
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
10346 Brecksville Rd, Brecksville, OH 44141
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808
(Mail address) 910 Louisiana Street, 29th Floor, Houston, TX 77002
Zydeco Pipeline Company LLC [c]
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801
VENEZUELA
Shell Venezuela Productos, C.A.
Av. Orinoco, Edificio Centro Empresarial Premium, Piso 2, Oficina 2-B, Urb. Las Mercedes, Caracas, Miranda, 1060
Shell Venezuela, S.A.
Sucre Gas, S.A.
VIETNAM
Shell Vietnam Ltd
ZIMBABWE
Av. Orinoco, Edificio Centro Empresarial Premium, Piso 2, Oficinas 2-A y 2-B, Urb. Las Mercedes, Caracas, Miranda, 1060
Av. Leonardo Da Vinci, Edificio PDV Servicios, Caracas, Distrito Capital
Go Dau Industrial Zone, Phuoc Thai Commune, Long Thanh District, Dong Nai Province
Central African Petroleum Refineries (Private) Limited
Block 1, Tendeseka Office Park, CNR Samora Machel Avenue, Renfrew Road, Harare
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19
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30
100
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SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
E19
Exhibit 12.1
I, Ben van Beurden, certify that:
1. I have reviewed this Annual Report on Form 20-F of Royal Dutch Shell plc (the Company);
2. Based on my knowledge, this 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 this report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 this 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:
(a) 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 this report is being prepared;
(b) 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;
(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this 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; and
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):
(a) 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, summarize and report financial information; and
(b) 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/ Ben van Beurden
Ben van Beurden
Chief Executive Officer
March 13, 2019
E20
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
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Exhibit 12.2
I, Jessica Uhl, certify that:
1. I have reviewed this Annual Report on Form 20-F of Royal Dutch Shell plc (the Company);
2. Based on my knowledge, this 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 this report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 this 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:
(a) 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 this report is being prepared;
(b) 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;
(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this 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; and
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):
(a) 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, summarize and report financial information; and
(b) 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/ Jessica Uhl
Jessica Uhl
Chief Financial Officer
March 13, 2019
(cid:3)
SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
E21
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Exhibit 13.1
In connection with the Annual Report on Form 20-F of Royal Dutch Shell plc, a public limited company organized under the laws of England and Wales (the
Company), for the year ended December 31, 2018, 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 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/ Ben van Beurden
Ben van Beurden
Chief Executive Officer
/s/ Jessica Uhl
Jessica Uhl
Chief Financial Officer
March 13, 2019
E22
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
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Exhibit 99.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement on Form F-3 (No. 333-222005) and the Registration Statements on Form S-8
(No. 333-126715, 333-141397, 333-171206, 333-192821, 333-200953, 333-215273, 333-222813, and 333-228137) of Royal Dutch Shell plc of our
reports dated March 13, 2019, with respect to the Consolidated Financial Statements and the effectiveness of internal control over financial reporting of
Royal Dutch Shell plc, included in the Annual Report on Form 20-F for the year ended December 31, 2018.
/s/ Ernst & Young LLP
Ernst & Young LLP
London, United Kingdom
March 13, 2019
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SHELL ANNUAL REPORT AND FORM 20-F 2018 ADDITIONAL INFORMATION
E23
Exhibit 99.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement on Form F-3 (No. 333-222005) and the Registration Statements on Form S-8
(No. 333-126715, 333-141397, 333-171206, 333-192821, 333-200953, 333-215273, 333-222813, and 333-228137) of Royal Dutch Shell plc of our
reports dated March 13, 2019, with respect to the Royal Dutch Shell Dividend Access Trust Financial Statements and the effectiveness of internal control
over financial reporting of the Royal Dutch Shell Dividend Access Trust, included in the Annual Report on Form 20-F for the year ended December 31, 2018.
/s/ Ernst & Young LLP
Ernst & Young LLP
London, United Kingdom
March 13, 2019
E24
ADDITIONAL INFORMATION SHELL ANNUAL REPORT AND FORM 20-F 2018
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Notes
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Notes
Shell Annual Report_Master Template.indd 26
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INTENTIONALLY LEFT BLANK
INTENTIONALLY LEFT BLANK
FINANCIAL CALENDAR IN 2019
The Annual General Meeting will be held on May 21, 2019.
Results announcements
Interim dividend timetable
Announcement date
Ex-dividend date [D]
Record date
2018 Fourth
quarter [A]
2019 First
quarter [B]
2019 Second
quarter [B]
2019 Third
quarter [B]
January 31
May 2
August 1
October 31
January 31 [C] May 2
August 1
October 31
February 14
May 16
August 15
November 14
February 15
May 17
August 16
November 15
Closing of currency election date [E]
March 1
Pounds sterling and euro equivalents announcement date March 11
Payment date
March 25
June 3
June 11
June 24
September 2
November 29
September 9
December 5
September 23 December 18
[A] In respect of the financial year ended December 31, 2018.
[B] In respect of the financial year ended December 31, 2019.
[C] The Directors do not propose to recommend any further distribution in respect of 2018.
[D] The New York Stock Exchange (NYSE), with effect from September 5, 2017, reduced the standard settlement cycle in accordance with the SEC amendments to Exchange
Act Rule 15c6-1(a). Under these rules, regular settlement will occur on a T+2 basis for trades occurring on or after the SEC’s implementation date of September 5, 2017. As a
result RDS A ADSs and RDS B ADSs traded on the NYSE markets will now settle in line with RDS A shares and RDS B shares traded on European markets, who moved to a T+2
settlement basis for trades in 2014, resulting in the same ex-dividend date for RDS A shares, RDS B shares, RDS A ADSs and RDS B ADSs. Record dates will not change.
The timings of these are detailed above.
[E] A different currency election date may apply to shareholders holding shares in a securities account with a bank or financial institution ultimately through Euroclear
Nederland. This may also apply to other shareholders who do not hold their shares either directly on the Register of Members or in the corporate sponsored nominee
arrangement. Shareholders can contact their broker, financial intermediary, bank or financial institution for the election deadline that applies.
REGISTERED OFFICE
Royal Dutch Shell plc
Shell Centre
London SE1 7NA
United Kingdom
SHAREHOLDER RELATIONS
Royal Dutch Shell plc
Carel van Bylandtlaan 30
2596 HR The Hague
The Netherlands
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
+31 (0)70 377 1365
+31 (0)70 377 4088
or
Royal Dutch Shell plc
Shell Centre
London SE1 7NA
United Kingdom
+44 (0)20 7934 3363
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
150 N Dairy Ashford
Houston, TX 77079
USA
+1 832 337 2034
royaldutchshell.shareholders@shell.com
ir-europe@shell.com
www.shell.com/shareholder
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
For online information about your holding
and to change the way you receive your
company documents:
www.shareview.co.uk
AMERICAN DEPOSITARY
SHARES (ADSS)
JPMorgan Chase Bank, N.A.
P.O. Box 64504
St. Paul, MN 55164-0504
USA
Overnight correspondence to:
JPMorgan Chase Bank, N.A.
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
USA
+1 888 737 2377 (USA only)
+1 651 453 2128 (International)
jpmorgan.adr@eq-us.com
www.adr.com/shareholder
REPORT ORDERING
www.shell.com/order
Annual Report/20-F service for
US residents
+1 888 301 0504
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