Shell Annual Report 2019

FY2019 Annual Report · Shell

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ANNUAL REPORT AND ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2019
ROYAL DUTCH SHELL PLC

CONTENTS

INTRODUCTION
IFC
2

Terms and abbreviations
About this Report

STRATEGIC REPORT
6
8
10
12
19
23
27
37
40
42
45
52
61
70
79
80
84
91

Chair’s message
Chief Executive Officer’s review
Selected financial data
Shell story
Strategy and outlook
Section 172(1) statement
Risk factors
Market overview
Summary of results
Performance indicators
Integrated Gas
Upstream
Oil and gas information
Downstream
Corporate
Liquidity and capital resources
Environment and society
Climate change and energy
transition
Our people

GOVERNANCE
Directors’ Report
104

FINANCIAL STATEMENTS
AND SUPPLEMENTS
174

111
113
115

117
119
122

124
126

128

129
135
139
155
164

The Board of Royal Dutch
Shell plc
Senior Management
Introduction from the Chair
Statement of compliance with the
UK Corporate Governance Code
Governance framework
Board evaluation and activities
Understanding and engaging
with our stakeholders
Workforce engagement
Nomination and Succession
Committee
Safety, environment and
sustainability committee
Audit Committee Report
Directors’ Remuneration Report
Annual Report on Remuneration
Directors’ Remuneration Policy
Other Regulatory and Statutory
Information

Independent Auditor’s Report
related to the Consolidated
and Parent Company Financial
Statements
Consolidated Financial
Statements
Supplementary information
– oil and gas (unaudited)
Parent Company Financial
Statements
Independent Auditors’ Reports
related to the Royal Dutch Shell
Dividend Access Trust Financial
Statements
Royal Dutch Shell Dividend
Access Trust Financial Statements

190

239

257

266

268

ADDITIONAL INFORMATION
Shareholder information
274
279
Non-GAAP measures
reconciliations
Appendix 1: Significant
Subsidiaries and Other Related
Undertakings (Audited)

282

Cover image: The Pecten is the key symbol of the Shell Brand. It is sometimes referred
to as our icon, logo or emblem, and is one of the world’s most recognised symbols. It is an
asset with enormous value, and a key enabler of successful business through our customers,
governments, business partners, contractors and staff. It has been at the core of our
branding for over 100 years.

Design and production: Friend www.friendstudio.com

Print: Tuijtel under ISO 14001

TERMS AND ABBREVIATIONS

Currencies

€

US dollar

euro

sterling

Units of measurement

acre

b(/d)

boe(/d)

kboe(/d)

approximately 0.004 square kilometres

barrels (per day)

barrels of oil equivalent (per day); natural gas
volumes are converted into oil equivalent using
a factor of 5,800 scf per barrel

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

per day

million tonnes per annum

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

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

IPIECA

LTIP

OECD

OML

OPEC

OPL

PSC

PSP

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

International Petroleum Industry Environmental
Conservation Association (global oil and gas
industry association for 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

“Shell’s business strategy provides
the continuity, resilience and growth
we will need to deliver change: to
play an essential role in the move
to a cleaner, lower-carbon world.”

CHAD HOLLIDAY
Chair

“When I look at Shell, I see people
with high hopes and social
commitment. We wholeheartedly
support the goal of the Paris
Agreement.”

BEN VAN BEURDEN
Chief Executive Officer

Shell Annual Report and Accounts 2019ABOUT THIS REPORT

The Royal Dutch Shell plc Annual Report (this Report) serves as the Annual
Report and Accounts in accordance with UK requirements for the year
ended December 31, 2019, 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 190-238), the Parent
Company Financial Statements of Shell (pages 258-265) and the
Financial Statements of the Royal Dutch Shell Dividend Access Trust
(pages 269-271). 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.

The financial statements contained in this Report have been prepared
in accordance with International Financial Reporting Standards (IFRS)
as issued by the IASB. IFRS as defined above includes interpretations
issued by the IFRS Interpretations Committee. Financial reporting
terms used in this Report are in accordance with IFRS.

This Report contains certain following forward-looking Non-GAAP
measures such as cash capital expenditure 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.

The companies in which Royal Dutch Shell plc directly or indirectly own
investments are separate legal entities. 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. “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. “Joint ventures” and “joint operations” are
collectively referred to as “joint arrangements”. Entities over which Shell
has significant influence but neither control nor joint control are referred
to as “associates”. 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, after exclusion of all
third party interest. Shell subsidiaries’ data include their interests
in joint operations.

This Report contains data and analysis from Shell’s 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 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.

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
our Net Carbon Footprint in step with society’s progress towards the
Paris Agreement’s goal of holding the rise in global average temperatures
this century to well below 2°C above pre-industrial levels. Accordingly,
assuming society aligns itself with the Paris Agreement’s goals, we aim to
reduce our Net Carbon Footprint, 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.

Shell’s “Net Carbon Footprint” referred to in this Report 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 such
suppliers and consumers to likewise lower their emissions. The use of the
term Net Carbon Footprint” is for convenience only and not intended to
suggest these emissions are those of Shell or its subsidiaries.

Shell Annual Report and Accounts 2019IntroductionAlso see “Risk factors” on pages 27-36 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, the Shell Sustainability
Report, Tax Contribution Report, Shell Industry Association Report and
our report on Payments to Governments. 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, Tax Contribution Report, Shell Industry Association Report
and our report on Payments to Government.

Shell V-Power and Shell LiveWire are Shell trademarks.

DOCUMENTS ON DISPLAY
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.

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.

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 concerning the financial
condition, results of operations and businesses of Shell. All statements
other than statements of historical fact are, or may be deemed to be,
forward-looking statements. Forward-looking statements are statements
of future expectations that are based on management’s current
expectations and assumptions and involve known and unknown risks
and uncertainties that could cause actual results, performance or events
to differ materially from those expressed or implied in these statements.
Forward-looking statements include, among other things, statements
concerning the potential exposure of Shell to market risks and statements
expressing management’s expectations, beliefs, estimates, forecasts,
projections and assumptions. These forward-looking statements are
identified by their use of terms and phrases such as “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.

Shell Annual Report and Accounts 2019STRATEGIC
REPORT

6
8
10
12
19
23
27
37
40
42
45
52
61
70
79
80
84
91
99

Shell Annual Report and Accounts 2019Strategic Report5

Shell Annual Report and Accounts 2019Strategic ReportCHAIR’S MESSAGE

MORE AND
CLEANER ENERGY

In 2019, we took significant steps to build trust through greater
transparency. We published our Tax Contribution Report, detailing for
the first time the corporate income tax we paid in countries and locations
where we have a taxable presence. In our Industry Associations Climate
Review, we assessed Shell’s alignment with 19 industry associations on
climate change, deciding to leave one of them as a result. In business,
we will only succeed if we stay in step with society and provide products
our customers will buy.

In the coming years, as the urgency around climate change grows, our
customers will want cleaner energy to power their homes, businesses,
and transport. We intend to move with them, investing in power from
natural gas and renewable sources such as wind and solar, building
charging networks for electric cars, developing lower-carbon biofuels
that will not compete with crops for land.

But global demand for energy is still growing, as population increases and
more people seek a better quality of life. Among those seeking to improve
their living standards are almost a billion who have no electricity supply at
all, 2 billion who lack a toilet connected to a proper sewer system, and
785 million – around one-tenth of the world’s population – who have
no easy access to safe drinking water. There is much more to be done,
although we have also seen remarkable progress in improving lives. In
1900, the average newborn baby had a life expectancy of 32 years.
Today, worldwide average life expectancy is 73 years. Access to energy
played a part in this, for example reinforcing advances in health care by
powering life-saving machinery, from refrigerators to store drugs through
to incubators for newborn babies.

As the world seeks to make more progress, renewable sources will meet
a growing share of rising energy demand, but the need for oil and gas
will remain for decades to come. In Shell, as we shape our businesses
to deliver more and cleaner energy, we must also continue to invest
responsibly in developing conventional oil and gas resources. This
generates billions of dollars in revenue, allowing us to reward our investors
with dividends. Crucially, it also provides the financial muscle to invest in
cleaner forms of energy.

COMMUNITIES BENEFITING FROM OIL AND GAS
Building that financial muscle often requires considerable ingenuity. In
the North Sea off Scotland, for instance, we are developing some of
the most difficult natural gas fields, such as Fram, operated by Shell and
owned as a joint venture with Esso. By developing Fram, we can unlock
the full potential of other fields too. Discovered in 1969, Fram was left
undeveloped for more than 50 years because there seemed to be no
cost-effective way to produce its resources. Until now. To keep costs down,
Shell intends to turn a field reaching the last of its gas, Starling, into a
staging post. An underwater pipeline laid in 2019 will start taking 41
million standard cubic feet of natural gas a day, plus condensates,
from Fram to Starling. From Starling, it can flow through an existing
pipeline to our Shearwater platform, before coming ashore at our
St Fergus gas plant.

CHAD HOLLIDAY
Chair

As the world changes, it challenges us all to make choices. We
can stay the same and risk being left behind. Or we can change,
while building on what we know is long-lasting and valuable.

In 2019, people all over the world, many of them very young, demanded
change. They demanded urgent action to protect the climate: change to
our lifestyles, change to how the world produces and uses energy. As John
F. Kennedy said, “Time and the world do not stand still. Change is the law
of life.” He added a vital point for anyone wanting to thrive in such a
world: “Those who look only to the past or the present are certain to
miss the future.”

In business, the smartest way to change is to build on your strengths, not
abandon them. Shell’s business strategy provides the continuity, resilience
and growth we will need to deliver change: to play an essential role in the
move to a cleaner, lower-carbon world. We are working to become one
of the world’s best investment cases. We must also keep making a positive
contribution to people’s lives, to maintain what we call our strong societal
licence to operate. By getting this right, we will seek to thrive through the
transition to a lower-carbon future. We will always abide by our core
values – honesty, integrity, and respect for people. Our belief in trust,
and the need to nurture it, will also stay as strong as ever.

Shell Annual Report and Accounts 2019Strategic Report“Those who look only to
the past or the present are
certain to miss the future.”

– John F. Kennedy

OUR NORTH SEA
OPERATIONS HELP SUPPORT

28,000

JOBS OUTSIDE SHELL

The Shearwater platform in the UK North Sea is now
expected to be able to keep supplying energy into the 2030s.

INVESTING IN POWER FROM
RENEWABLE SOURCES

Shell has invested in the Silicon Ranch Corporation,
a US solar power generator.

HELPING DESIGN WORLD’S FIRST
VESSEL TO TRANSPORT LIQUEFIED
HYDROGEN AT

-253°C

The Suiso Frontier is expected to be the first ship
to transport liquefied hydrogen across oceans.

This should also help secure Shearwater’s future, allowing it to keep
supplying the UK with energy into the 2030s. Local communities stand
to benefit. Our North Sea oil and gas operations employ 1,000 people
directly, but generate economic activity that supports a further 28,000
jobs outside Shell [A].

In Nigeria, gas from our Assa North field, which is expected to start
production around 2022, will improve the reliability of the country’s
electricity supplies. Nearby communities are already benefiting from a
Shell programme that has so far helped more than 11,000 local children
and adults get free health care.

These are just two examples of how Shell delivers the oil and gas needed
to strengthen economies and offer opportunities for local people. But as
we focus on delivering today, we must be sure not to miss the future.

TAPPING THE POTENTIAL OF HYDROGEN
Hydrogen, for example, could play a vital role in helping the move
towards a lower-carbon world. Hydrogen can be extracted using the
electricity generated by wind and solar power. It can then be stored,
ready to be converted back to electricity with only one by-product, water.
Shell is already working to increase the use of hydrogen, for example
with refuelling sites for hydrogen-powered vehicles in Europe and North
America. But we would like to open up more possibilities for using
hydrogen, across heating, power and transport, helping it to become
a significant fuel of the future.

We are contributing to the development of a ship called the Suiso Frontier,
which launched in December 2019, in Kobe, Japan. By 2021 it is expected
to be the world’s first vessel to transport liquefied hydrogen across oceans,
at temperatures of minus-253 Celsius.

Shell is working with Kawasaki Heavy Industries and others to design
the tank holding the liquefied hydrogen and develop further novel
technologies for the ship. Those we have consulted include the USA’s
National Aeronautics and Space Administration (NASA). They know
how to handle liquefied hydrogen. They use it as rocket fuel.

The Suiso Frontier is expected to allow us to develop and demonstrate
the technologies needed for a commercial-scale hydrogen supply chain
by around 2030. It shows the critical importance of technology – one
of Shell’s core strengths – in the energy transition. By building on our
strengths while embracing change as “the law of life”, we can help
address those calls for more urgent action on climate change. With
more and cleaner energy, we can make a better future.

CHAD HOLLIDAY
Chair

[A] University of Strathclyde Fraser of Allander Institute and Aberdeen & Grampian

Chamber of Commerce.

Shell Annual Report and Accounts 2019Strategic ReportCHIEF EXECUTIVE OFFICER’S REVIEW

INVESTING FOR THE FUTURE,
DELIVERING TODAY

SAFETY
I am, however, deeply saddened that seven people died while working for
Shell in 2019. This is unacceptable. Each death inflicts unimaginable grief
on the bereaved family. In Shell, work colleagues mourn. Every person lost
is a tragedy. When it comes to safety, we have much more to do. We have
responded by introducing a new approach alongside our continuing
efforts to review and improve accident-prevention procedures
wherever possible.

Our new approach acknowledges that people occasionally make
mistakes, and that sometimes the dangerous and unexpected happens
even after you follow every safety procedure.

This is not to make excuses. It is to be realistic, and to enable us to do more
about it. We can look more closely at how people perform in the moment
when things go wrong: when they make mistakes, or processes fail. We
can train our people to be even better at dealing with the unexpected.
This is demanding, but we want to get to a place where even if there is
an incident, everyone emerges unhurt. They go home, alive and well,
to their family.

CLIMATE CHANGE
I believe Shell has a constructive approach to the greatest global
challenge of our times. In 2019, many protested about climate change,
sometimes directly targeting Shell. This may feel uncomfortable, but the
spotlight thrown on Shell also gives us an opportunity to explain to a
wider audience how we can be an important part of the solution.
Perhaps this starts with acknowledging our common humanity.
When I look at climate change protesters, I see people who, in the
overwhelming majority, act from a wholly justified determination to
safeguard our planet. I share many of their frustrations that some
things do not seem to be moving fast enough.

I welcome all peaceful efforts to encourage society to shift towards
lower-carbon energy, as it must. And when I look at Shell, I see people
with equally high hopes and social commitment. We wholeheartedly
support the goal of the Paris Agreement to limit the global average
temperature rise to well below two degrees Celsius above pre-industrial
levels. We also know the energy transition is unfolding, and we must
be part of it if we are to survive as a business. As I have often said,
those companies that do not stay in step with society will be left
behind. Those who are not trusted will be left behind too. Shell
must and will be transparent.

In 2019, for example, we published our first Tax Contribution Report,
detailing the corporate income tax we paid in countries and locations
where we have a taxable presence. We also published our Industry
Associations Climate Review, leaving one group because its position
on climate change diverged too much from ours.

BEN VAN BEURDEN
Chief Executive Officer

In a tough year, Shell demonstrated its resilience by delivering
credible results on several fronts. We made progress in the face of
economic headwinds such as low oil and gas prices, limited global
growth, and reduced chemical and refining margins.

Our cash flow from operating activities was strong compared to our
industry peers, at $42.2 billion. We distributed more than $25 billion
to shareholders: $15.2 billion in dividends, and $10.2 billion in share
buybacks. By the end of January 2020, we had delivered $14.75 billion
of our $25 billion buyback programme, which began in 2018.

The headwinds did contribute to some negative factors in our financial
performance. Gearing increased from 20% to 29%, which is equivalent to
25% on an IAS 17 accounting basis. Income was $16.4 billion, down from
$23.9 billion in 2018. Earnings on a current cost of supplies (CCS) basis
were $15.8 billion, down from $24.4 billion in 2018.

Overall, though, Shell’s financial foundations remained strong. We
continued to show financial discipline by limiting our cash capital
expenditure to $24 billion, at the lower end of the range that we
said we would spend. We improved the resilience and quality
of our portfolio by making around $5 billion-worth of divestments.

Shell Annual Report and Accounts 2019Strategic ReportIn 2019, Shell published its first Tax Contribution Report.

Shell UK is working with Forestry and Land Scotland to preserve and
extend the ancient forest of Glengarry, in the Scottish Highlands.

OUR STRATEGY
Shell’s strategy sets out our three clear ambitions: to thrive in the energy
transition, provide a world-class investment case, and sustain a strong
societal licence to operate. In 2019, to help achieve all three ambitions,
we refreshed our strategy to focus more strongly on developing our
Power business.

If the world is to tackle climate change, it must consume more of
its energy in the form of electricity. This is a huge potential growth
opportunity for Shell, one we are well positioned to seize. Shell has the
brand, the global presence, the retail and marketing expertise that you
need when buying and selling electricity and interacting with customers.
We are a worldwide supplier of natural gas, a cleaner alternative to
coal for electricity generation.

We are actively seeking to increase our investments in renewable power.
In 2019, for example, Shell acquired ERM Power, one of Australia’s leading
commercial and industrial electricity retailers.

We continued to work towards delivering on our Net Carbon Footprint
ambition to cut the intensity of the greenhouse gas emissions of the energy
products we sell by around 50% by 2050, and as an interim step by 20%
by 2035.

As part of this ambition, we launched a worldwide programme that uses
trees and other plants to remove carbon dioxide from the atmosphere.
We will be protecting, planting or regenerating forests, grasslands and
wetlands, in what we call our nature-based solutions programme.
Carbon-neutral driving schemes are allied to this. Motorists in the
Netherlands and the UK can now offset their fuel emissions by having
Shell purchase nature-based carbon credits on their behalf.

While investing for the future, we must also meet the energy demand
of today. Our core oil and gas business delivered significant projects
in 2019. In March, production started at our Appomattox floating
production system in the Gulf of Mexico, which is expected to produce
175,000 barrels of oil equivalent a day at its peak. In June, the first
shipment of liquefied natural gas left the Prelude floating liquefied
natural gas facility off Australia.

As we look forward to 2020 and beyond, we must be firm in our belief
that our business strategy is sound and our financial foundations strong.
We believe Shell’s underlying resilience will stand us in good stead for
the challenges to come.

BEN VAN BEURDEN
Chief Executive Officer

Production has started at Shell’s Appomattox deep-water
asset in the US Gulf of Mexico.

Shell Annual Report and Accounts 2019Strategic ReportSELECTED FINANCIAL DATA

The selected financial data set out below are derived, in part, from the “Consolidated
Financial Statements”. These 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

16,432

590

Income for the period ($ million)

Income attributable to non-
controlling interest ($ million)

13,773

Comprehensive income
attributable to Royal Dutch
Shell plc shareholders ($ million)

344,877

Revenue ($ million)

15,842

Income attributable to
Royal Dutch Shell plc
shareholders ($ million)

$ million

Revenue

Income for the period

Income attributable to non-controlling interest

Income attributable to Royal Dutch Shell plc shareholders

Comprehensive income/(loss) attributable to Royal Dutch Shell plc shareholders

2019

2018

2017

2016

2015

344,877

388,379

305,179

233,591

264,960

16,432

23,906

13,435

590

15,842

13,773

554

23,352

24,475

458

12,977

18,828

4,777

202

4,575

(1,374)

2,200

261

1,939

(811)

Consolidated Balance Sheet data

404,336

96,424

657

Total assets ($ million)

Total debt ($ million)

Share capital ($ million)

186,476

Equity attributable to
Royal Dutch Shell plc
shareholders ($ million)

3,987

Non-controlling
interest ($ million)

$ million

Total assets

Total debt

Share capital

2019

2018

2017

404,336

399,194

407,097

96,424

76,824

85,665

657

685

696

2016

411,275

92,476

683

2015

340,157

58,379

546

Equity attributable to Royal Dutch Shell plc shareholders

186,476

198,646

194,356

186,646

162,876

Non-controlling interest

3,987

3,888

3,456

1,865

1,245

Shell Annual Report and Accounts 2019Strategic ReportConsolidated Statement of Cash Flows data

42,178

Cash flow from operating
activities ($ million)

22,971

Capital expenditure ($ million)

15,779

Cash flow from investing
activities ($ million)

15,198

10,188

Cash dividends paid to Royal Dutch
Shell plc shareholders ($ million)

Repurchases of shares ($ million)

$ million

Cash flow from operating activities

Capital expenditure

Cash flow from investing activities

Cash dividends paid to Royal Dutch Shell plc shareholders

Repurchases of shares

2019

42,178

22,971

15,779

15,198

10,188

2018

2017

53,085

35,650

23,011

13,659

15,675

3,947

20,845

8,029

10,877

–

2016

20,615

22,116

30,963

9,677

–

2015

29,810

26,131

22,407

9,370

409

Earnings per share

1.97

1.95

Basic earnings per €0.07 ordinary share ($)

Diluted earnings per €0.07 ordinary share ($)

Basic earnings per €0.07 ordinary share

Diluted earnings per €0.07 ordinary share

2019

1.97

1.95

2018

2.82

2.80

2017

1.58

1.56

2016

0.58

2015

0.31

0.30

Dividend per share

1.88

Dividend per share ($)

Dividend per share

2019

1.88

2018

1.88

2017

1.88

2016

1.88

2015

1.88

8,058.3

8,112.5

Basic weighted average number
of A and B shares (million)

Diluted weighted average number
of A and B shares (million)

Million

Basic weighted average number of A and B shares

Diluted weighted average number of A and B shares

2019

8,058.3

8,112.5

2018

8,282.8

8,348.7

2017

8,223.4

8,299.0

2016

7,833.7

7,891.7

2015

6,320.3

6,393.8

Shell Annual Report and Accounts 2019Strategic ReportSHELL STORY: WHO WE ARE

Shell is a global group of energy and petrochemical companies
with 83,000 employees in more than 70 countries.

We have expertise in the exploration, production, refining and marketing of oil
and natural gas, and the manufacturing and marketing of chemicals.

We use advanced technologies and take an innovative approach to help build
a sustainable energy future. We also invest in power, including from low-carbon
sources such as wind and solar; and new fuels for transport, such as advanced
biofuels and hydrogen.

Our Context

Our Purpose

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, technological changes and the
need to tackle climate change mean there is a transition under
way to a lower-carbon, multi-source energy system with
increasing customer choice.

Our stakeholders include:

Our investor community
Our customers
Our employees/pensioners
Our strategic partners/suppliers
Communities
Governments/NGOs/regulators

See “Section 172(1) statement” on pages 23-26,
“Environment and society” on pages 84-90, “Our people”
on pages 99-101 and “Governance” on pages 104-171.
For more detailed discussions around our context
and stakeholders.

We power progress
together by providing more
and cleaner energy solutions.

See “Strategy and outlook” on page 19 for
more detailed discussion around our purpose.

Our Core Values

Honesty
Integrity
Respect for people

The Shell General Business Principles, Code of Conduct, and Code
of Ethics help everyone at Shell act in line with these values and
comply with relevant laws and regulations. We also strive to build
and maintain a diverse and inclusive culture within our company.

See “Our people” on pages 99-101 for more
detailed discussion around our core values.

Shell Annual Report and Accounts 2019Strategic ReportOur strategic ambitions

Thrive in
the energy
transition

to thrive in the energy transition by responding to
society’s desire for more and cleaner, convenient
and competitive energy;

World-class
investment
case

to provide a world-class investment case. This involves growing
organic free cash flow and increasing returns, all built upon a
strong financial framework and resilient portfolio; and

Strong
licence to
operate

to sustain a strong societal licence to operate and make
a positive contribution to society through our activities.

See “Strategy and outlook” on page 20 for more
detailed discussion around our strategic ambitions.

Our strategy by theme

Core Upstream themes

Leading Transition themes

Emerging Power theme

Deep Water

Integrated Gas

Power

Shales

Oil Products

Conventional
Oil and Gas

Chemicals

See “Strategy and outlook”
on page 21 for more
detailed discussion around
our strategic themes.

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 Annual Report and Accounts 2019Strategic ReportSHELL STORY: WHAT WE DO

We aim to meet the world’s growing need for more and
cleaner energy solutions in ways that are economically,
environmentally and socially responsible.

Our Business
Model

We seek to create shareholder value by:
■ exploring for crude oil and natural

gas worldwide;

■ developing new crude oil and natural
gas supplies from major fields and
extracting bitumen from oil sands;

■

■ cooling natural gas to produce
liquefied natural gas (LNG) and
converting gas to liquids (GTL);
supplying and trading oil, gas and
other energy-related products, such
as electricity and carbon-emissions
rights; and

■ having a portfolio of refineries and

chemical plants producing a wide range
of products including gasoline, diesel,
aviation and marine fuel, lubricants
and petrochemicals.

The integration of our businesses is one
of our competitive advantages, allowing
optimisations across our global portfolio.

See page 16 for more
detailed discussion around
our Business Model.

Our Inputs [A]

Financial

291,142
Average capital employed
($ million)

23,919
Cash capital expenditure ($ million)

Read more in “Performance
indicators” on pages 42-44
and “Non-GAAP measures
reconciliations” on pages 279-280.

Operations

90.8%
Refinery and chemical
plant availability

90%
Project delivery on schedule

99%
Project delivery on budget

Read more in “Performance
indicators” on pages 42-44.

Innovation

962
Investments in research
and development ($ million)

9,449
Patents [B]

Read more in “Technology and
Innovation” on page 18.

[A] In 2019 except stated otherwise.

[B] At 31.12.2019.

Human capital

83,000
Employees [B]

373,000
Training days

Read more in “Our people”
on pages 99-101.

Relationships
Customers
Joint arrangements
Governments relations
Suppliers

>70
Operating countries [B]

Read more in “Section 172(1)
statement” on pages 23-26,
“Environment and society” on
pages 84-90 and “Governance”
on pages 104-171.

Natural resources

11,096
Proved oil and gas reserves
(million boe) [B]

1,338
Oil and gas production available
for sale (million boe)

192
Fresh water withdrawn
(million cubic metres)

Read more in “Oil and gas information”
on pages 61-69 and “Environment
and society” on pages 84-90.

Shell Annual Report and Accounts 2019Strategic Report
Our Outcome and Impact [A]

Thriving in the energy transition

Strong licence to operate

Energy transition and climate change

Environmental impacts

78
Net Carbon Footprint
(grams of CO2 equivalent
per megajoule)

70
Direct greenhouse gas (GHG)
emissions (million tonnes of
CO2 equivalent)

Read more in “Climate change and energy transition” on pages 91-98.

70
Operational spills
of more than 100kg

0.2
Weight of operational spills
(in ‘000 tonnes)

Read more in “Environment and society” on pages 84-90.

World-class investment case

Financial performance

6.7%
Return on average capital
employed (ROACE)

25,386
Shareholder distribution
($ million)

Trust and Transparency

47.5
Brand value ($ billion) [C]

1,686
Shell Global Helpline
(reports to the helpline)

Publication of the first Shell Tax Contribution Report

Read more in “Corporate” on page 79 and “Our people”
on pages 99-101.

Read more in “Performance indicators” on pages 42-44 and
“Non-GAAP measures reconciliations” on pages 279-280.

Health, Safety and Security

Resilience of business model

26,399
Free cash flow ($ million)

29.3%
Gearing [B]

0.9
Total recordable case
frequency (injuries per
million working hours)

130
Operational Tier 1 and 2
process safety events

Read more in “Environment and society” on pages 84-90.

Read more in “Performance indicators” on pages 42-44
and “Liquidity and capital resources” on pages 80-83.

Contribution to countries of operation

Shell Catalysts & Technologies staff in Port Allen, Louisiana, USA.

61.3
Taxes paid and
collected ($ billion)

44.9
Total spend on goods
and services ($ billion)

Read more in “Environment and society” on pages 84-90.

Our people

26.4%

Women in senior
leadership positions [B]

Average employee
engagement score (points)

Read more in “Our people” on pages 99-101.

[A] In 2019 except stated otherwise.

[B] At 31.12.2019.

[C] Source: Brand Finance Global 500 2020 Report.

Shell Annual Report and Accounts 2019Strategic ReportSHELL STORY: WHAT WE DO continued

OUR BUSINESS MODEL
EXPLAINED
Business activities

Exploration
1. Exploring for oil and gas
onshore and offshore

Development and extraction
2. Developing onshore and offshore ﬁelds
3. Producing conventional, deep-water

and shale oil and gas

4. Capturing carbon dioxide and storing

it safely underground

5. Extracting bitumen

Manufacturing and
energy production
6. Upgrading bitumen
7. Reﬁning oil into fuels and

lubricants

8. Producing gas-to-liquids

(GTL) products

9. Producing petrochemicals
10. Producing biofuels
11. Generating renewable power
12. Producing liqueﬁed natural

gas (LNG)

Transport and trading
13. Shipping gas to where it is needed
14. Shipping oil to where it is needed
15. Trading oil and gas
16. Supply and distribution of LNG

for transport applications

17. Regasifying LNG
18. Trading power

Sales and marketing
19. Supplying domestic electricity
20. Supplying products to businesses, including gas

for cooking, heating and electrical power
21. Progressing electric vehicle and hydrogen

refuelling infrastructure

22. Providing mobility solutions for customers,

including fuels and lubricants

23. Supplying aviation fuel

Technical and business services
24. Researching and developing
new technology solutions
25. Managing the delivery of
major projects
26. Providing technical and
supporting services

Shell Annual Report and Accounts 2019Strategic Report

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 21). 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 Leading Transition theme; and New Energies, which
includes the Emerging Power theme.

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 natural gas and low-carbon sources such
as wind and solar.

Upstream

Our Upstream organisation covers the core Upstream themes:
Conventional Oil and Gas, Deep Water and Shales.

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.

Painting Shell’s logo, the Pecten.

Downstream

Our Downstream organisation comprises two strategic themes: Oil
Products and Chemicals, both of which are Leading Transition themes.

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. We also
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 pages 27-36).
Systematic management of 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. We also
provide governance support for our non-Shell-operated
ventures or projects.

Shell Annual Report and Accounts 2019Strategic ReportSHELL STORY: WHAT WE DO continued

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 206-208.

With effect from 2020, our reporting segments were amended with the change in the way the CEO reviews and assesses performance
of the group and consist of Integrated Gas, Upstream, Oil Products, Chemicals and Corporate.

Revenue by business segment
(including inter-segment sales)

Revenue by geographical area
(excluding 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

2019

2018

$ million

2017

Europe

32,674

Asia, Oceania, Africa

4,096

USA

36,770

Other Americas

2019

98,455

139,916

83,212

23,294

2018

118,960

153,716

89,876

25,827

$ million

2017

100,609

114,683

66,854

23,033

Total

344,877

388,379

305,179

7,723

32,469

40,192

41,322

4,280

45,602

9,965

36,448

46,413

43,764

5,031

48,795

9,892

37,841

47,733

293,545

334,680

264,731

1,132

917

1,090

294,677

335,597

265,821

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
27-36). 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 2019, research and development expenses were $962 million,
compared with $986 million in 2018, and $922 million in 2017. 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 9,449 granted
patents and pending patent applications.

Shell Annual Report and Accounts 2019Strategic ReportSTRATEGY AND OUTLOOK

OUR STRATEGY
Shell’s purpose is to power progress
together by providing more and
cleaner energy solutions.

FPSO P68, Offshore Brazil. Photo from Petrobras.

Our strategy is to strengthen our position as a leading energy company
by providing oil, gas and low-carbon energy products and services 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 for years to
come. The world will need to find a way to meet this growing demand,
while transitioning to a lower-carbon energy system to counter climate
change. While liquid and gaseous fuels, including biofuels and hydrogen,
will continue to be an important part of the energy mix, over time
electricity needs to play a bigger part in the world if it is to meet the
goals of the Paris Agreement. Technological advances and the need
to tackle climate change mean there is a transition under way to a
lower-carbon, multi-source energy system with increasing customer
choice. We recognise that the pace and the path forward are
uncertain and so require agile decision-making.

“We know the energy
transition is unfolding, and
we must be part of it if we
are to survive as a business.
Those companies that do
not stay in step with society
will be left behind.”

BEN VAN BEURDEN
Chief Executive Officer

The field of the future: One of Shell’s iShale® well pads is fully solar-powered,
and able to run for 14 days with no sun. Permian Basin, USA.

Shell Annual Report and Accounts 2019Strategic ReportSTRATEGY AND OUTLOOK continued

Our strategic ambitions

Against this backdrop, we have the following strategic ambitions
to guide us in pursuing our purpose:

Thrive in
the energy
transition

to thrive in the energy transition by responding to society’s desire
for more and cleaner, convenient and competitive energy;

World-class
investment
case

to provide a world-class investment case. This involves growing
organic free cash flow and increasing returns, all built upon a
strong financial framework and resilient portfolio; and

Strong
licence to
operate

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 organic free cash flow. By investing in
competitive projects, delivering increases in cash flow from operations,
and driving down costs, we are continually 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 continually assess the external
environment – the markets and 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 regularly
review the markets we operate in, assessing our competitive position
by analysing trends and uncertainties, and the strengths and
weaknesses of our traditional and non-traditional competitors.

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 pages 27-36.

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 2019, the Long-term Incentive Plan (LTIP) included
cash generation, capital discipline, value created for shareholders,
and a measure focused on Shell’s strategic ambition to thrive in
the energy transition.

See the “Directors’ Remuneration Report” on pages 135-138.

Shell Annual Report and Accounts 2019Strategic ReportOur strategic themes

As part of our strategy, we divide our portfolio into strategic
themes, each with distinctive capabilities, growth strategies
and risk management.

Organising our businesses into seven strategic themes has helped us focus our investment priorities and drive delivery of our
long-term ambitions. Due to the evolution of our businesses and the external environment, in 2019 we refreshed the way we
group the strategic themes to better communicate our portfolio strategy and long-term outlook:

Core Upstream themes

Leading Transition themes

Emerging Power theme

Emerging Power theme is focused on
creating business models to support
the evolving customer demands for more
electricity through the energy transition
to a lower-carbon future. Shell aims to
become an integrated power player
and grow, over time, a significant
new business.

Power
■ New sources of
value emerging
■ Returns drive pace

of scaling up

Core Upstream themes are central
to Shell and we will sustain their
strong cash generation through
the coming decades.

Leading transition themes are businesses
where we already have a leading
position in the industry and are critical
for us to capitalise on the energy
transition to a lower-carbon future.

Deep Water
■ Leading portfolio, strong

growth funnel

■ Sustained high-margin

production

Shales
■ Growing production
in high-margin basins
■ Competitive delivery

Conventional
Oil and Gas
■ High-graded portfolio

with longevity

■ Growth potential in deep

resource base

Integrated Gas
■ Extend market leadership
■ Unique portfolio

optimisation capability

Oil Products
■ Most successful mobility
retailer, #1 in lubricants
■ Competitive/high-quality

refining backbone

Chemicals
■ Strong demand growth

despite growing recycling
■ Focus on base, derivative

and performance chemicals

World-class asset
operatorship

Trading optimisation
through integration

Leverage customer
proximity and intimacy

Shell Annual Report and Accounts 2019Strategic ReportSTRATEGY AND OUTLOOK continued

OUTLOOK FOR 2020
AND BEYOND

We continually seek to improve our operating performance and maximise
sustainable organic free cash flow, with an emphasis on health, safety, security,
environment and asset performance, as well as our ethics and compliance principles.
To do this, we are committed to attracting, developing and retaining a diverse,
talented and motivated workforce.

We launched our $25 billion share buyback programme in 2018, and we
have completed about $15 billion of buybacks as of February 20, 2020.
Our intention to complete the $25 billion share buyback programme
remains unchanged, but the pace remains subject to macro conditions
and further debt reduction.

Our cash capital expenditure is expected to be at the lower end of
the $24 billion to $29 billion range in 2020. Following the successful
delivery of our $30 billion divestment programme during 2016-18,
divestments are expected to amount to more than $10 billion over
the 2019-2020 period.

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 the 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. While our ambition is long term, we believe we
must act today if we are to help society progress more quickly. In early
2019 we set an unconditional three-year target to reduce our Net Carbon
Footprint by 2% to 3% compared to 2016. For the 2020 award, the target
range is a 3-4% reduction in our Net Carbon Footprint against the 2016
baseline. It is intended that this target setting will be done annually, with
each year’s target covering either a three-year or five-year period.

Further details are in the “Climate Change
and Energy Transition” on pages 91-98.

Since the start of 2020 there has been a developing outbreak of the
COVID-19 (coronavirus). To date, we have not seen a material impact on
our operations. As a result of COVID-19, we have seen macro-economic
uncertainty with regards to prices and demand for oil, gas and products.
Furthermore, recent global developments and uncertainty in oil supply in
March have caused further volatility in commodity markets. The scale and
duration of these developments remain uncertain but could impact our
earnings, cash flow and financial condition.

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, organic 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 2-3
and “Risk factors” on pages 27-36.

Aerial view of road and Glengarry forest, Scotland, UK.
Forestry and Land Scotland is working with Shell UK to preserve and extend native woodland.

Shell Annual Report and Accounts 2019Strategic ReportSECTION 172(1) STATEMENT

The revised UK Corporate Governance Code (‘2018 Code’) was
published in July 2018 and applies to accounting periods beginning on
or after January 1, 2019. The Companies (Miscellaneous Reporting)
Regulations 2018 (‘2018 MRR’) require Directors to explain how they
considered the interests of key stakeholders and the broader matters set
out in section 172(1) (A) to (F) of the Companies Act 2006 (‘S172’) when
performing their duty to promote the success of the Company under S172.
This includes considering the interest of other stakeholders which will have
an impact on the long-term success of the company. The Board welcomes
the direction of the UK Financial Reporting Council (the ‘FRC’). This S172
statement, which is reported for the first time, explains how Shell Directors:
■ have engaged with employees, suppliers, customers and others; and
■ have had regard to employee interests, the need to foster the

company’s business relationships with suppliers, customers and other,
and the effect of that regards, including on the principal decisions
taken by the company during the financial year.

The Directors recognise how our operations are viewed by different parts
of society and that some decisions they take today may not align with all
stakeholder interests. Given the complexity of the energy transition, the
Directors have taken the decisions they believe best support Shell’s three
strategic ambitions.

S172(1) (B) “THE INTERESTS OF THE
COMPANY’S EMPLOYEES”
The Directors recognise that Shell employees are fundamental and core
to our business and delivery of our strategic ambitions. The success of
our business depends on attracting, retaining and motivating employees.
From ensuring that we remain a responsible employer, from pay and
benefits to our health, safety and workplace environment, the Directors
factor the implications of decisions on employees and the wider
workforce, where relevant and feasible. The Directors recognise
that our pensioners, though no longer employees, also remain
important stakeholders.

The S172 statement focuses on matters of strategic importance to Shell,
and the level of information disclosed is consistent with the size and the
complexity of the business.

More information on this can be found within our report on
workforce engagement on page 124.

GENERAL CONFIRMATION OF DIRECTORS’ DUTIES
Shell’s Board has a clear framework for determining the matters within
its remit and has approved Terms of Reference for the matters delegated
to its Committees. Certain financial and strategic thresholds have been
determined to identify matters requiring Board consideration and
approval. The Manual of Authority sets out the delegation and
approval process across the broader business. More information on
Shell’s Controls and Procedures can be found within the Other regulatory
and statutory information page 168.

When making decisions, each Director ensures that he/she acts in the way
he/she considers, in good faith, would most likely promote the Company’s
success for the benefit of its members as a whole, and in doing so have
regard (among other matters) to:

S172(1) (A) “THE LIKELY CONSEQUENCES
OF ANY DECISION IN THE LONG TERM”
The Directors understand the business and the evolving environment in
which we operate, including the challenges of navigating through the
energy transition. Based on Shell’s purpose to power progress together
by providing more and cleaner energy solutions, the strategy set by the
Board is intended to strengthen our position as a leading energy company
by providing oil, gas and low-carbon energy products and services as
the world’s energy system transforms while keeping safety and social
responsibility fundamental to our business approach. In 2019, to help
achieve all three strategic ambitions, the Board refreshed our strategy
to further focus on developing Shell’s Power business. However, while
investing for the future, the Board also recognise we must meet today’s
energy demand.

As outlined in Our Context in the Shell Story pages 12-18, 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, technological changes and the need to tackle climate change
mean there is a transition under way to a lower-carbon, multi-source
energy system with increasing customer choice. The three strategic
ambitions: thrive in the energy transition, world-class investment case and
strong licence to operate pages 19-21 have been set in that context with
the objective to increase long-term value for shareholders recognising that
the long-term success of our business is dependent on our stakeholders
and the external impact of our business activities on society.

S172(1) (C) “THE NEED TO FOSTER THE COMPANY’S
BUSINESS RELATIONSHIPS WITH SUPPLIERS,
CUSTOMERS AND OTHERS”
Delivering our strategy requires strong mutually beneficial relationships
with suppliers, customers, governments, national oil companies and
joint-venture partners. Shell seeks the promotion and application of
certain general principles in such relationships. The ability to promote
these principles effectively is an important factor in the decision to enter
into or remain in such relationships and this alongside other standards are
described in The Shell General Business Principles, which are reviewed
and approved by the Board periodically. The Board also reviews and
approves Shell’s approach to suppliers which is set out in the Shell
Supplier Principles. The businesses continuously assess the priorities
related to customers and those with whom we do business, and the
Board engages with the businesses on these topics, for example, within
the context of business strategy updates and investment proposals.

Moreover, the Directors receive information updates on a variety of topics
that indicate and inform how these stakeholders have been engaged.
These range from information provided from the Projects & Technology
function (on suppliers and joint-venture partners related to items such as
project updates and supplier contract management topics) to information
provided by the businesses (on customers and joint-venture partners
related to, for example, business strategies, projects and investment
or divestment proposals).

S172(1) (D) “THE IMPACT OF THE COMPANY’S
OPERATIONS ON THE COMMUNITY AND THE
ENVIRONMENT”
This aspect is inherent in our strategic ambitions, most notably on our
ambitions to thrive through the energy transition and to sustain a strong
societal licence to operate. As such, the Board receives information on
these topics to both provide relevant information for specific Board
decisions (e.g. those related to specific strategic initiatives such as the Net
Carbon Footprint ambition, our nature-based solutions programme and
projects, investment or divestment proposals, business strategy reviews
and country entry considerations) and to provide ongoing overviews at
the Shell group level (e.g., regular Safety & Environment Performance
Updates, reports from the Chief Ethics & Compliance Officer and Chief
Internal Auditor). In 2019, certain Board Committees and Non-executive
Directors conducted site visits of various Shell operations and overseas
offices and held external stakeholder engagements, where feasible.
More information on this can be found in Understanding and engaging
with our stakeholders page 122.

Shell Annual Report and Accounts 2019Strategic ReportSECTION 172(1) STATEMENT continued

S172(1) (E) “THE DESIRABILITY OF THE COMPANY
MAINTAINING A REPUTATION FOR HIGH STANDARDS
OF BUSINESS CONDUCT”
Shell aims to meet the world’s growing need for more and cleaner energy
solutions in ways which are economically, environmentally and socially
responsible. The Board periodically reviews and approves clear
frameworks, such as The Shell General Business Principles, Shell’s Code of
Conduct, specific Ethics & Compliance manuals, and its Modern Slavery
Statements, to ensure that its high standards are maintained both within
Shell businesses and the business relationships we maintain. This,
complemented by the ways the Board is informed and monitors
compliance with relevant governance standards help assure its decisions
are taken and that Shell companies act in ways that promote high
standards of business conduct.

S172(1) (F) “THE NEED TO ACT FAIRLY AS BETWEEN
MEMBERS OF THE COMPANY”
After weighing up all relevant factors, the Directors consider which
course of action best enables delivery of our strategy through the
long-term, taking into consideration the impact on stakeholders. In
doing so, our Directors act fairly as between the Company’s members
but are not required to balance the Company’s interest with those of
other stakeholders, and this can sometimes mean that certain
stakeholder interests may not be fully aligned.

CULTURE
The Board recognises that it has an important role in assessing
and monitoring that our desired culture is embedded in the values,
attitudes and behaviours we demonstrate, including in our activities and
stakeholder relationships. The Board has established honesty, integrity
and respect for people as Shell’s core values. The General Business
Principles, Code of Conduct, and Code of Ethics help everyone at
Shell act in line with these values and comply with relevant laws and
regulations. The Shell Commitment and Policy on Health, Safety, Security,
Environment & Social Performance applies across Shell and is designed
to help protect people and the environment. We relentlessly pursue
Goal Zero, our safety goal to achieve no harm and no leaks across all
our operations. We also strive to maintain a diverse and inclusive culture.

The Board considers the Shell People Survey to be one of its principal tools
to measure employee engagement, motivation, affiliation and commitment
to Shell. It provides insights into employee views and has a consistently
high response rate. The Board also utilises this engagement to understand
how survey outcomes are being leveraged to strengthen Shell culture
and values.

STAKEHOLDER ENGAGEMENT (INCLUDING EMPLOYEE
ENGAGEMENT)
The Board recognises the important role Shell has to play in society and is
deeply committed to public collaboration and stakeholder engagement.
This commitment is at the heart of Shell’s strategic ambitions. The Board
strongly believes that Shell will only succeed by working with customers,
governments, business partners, investors and other stakeholders.
Working together is critical, particularly at a time when society, including
businesses, governments and consumers, faces issues as complex and
challenging as climate change.

We continue to build on our long track record of working with others,
such as investors, industry and trade groups, universities, governments,
NGOs and in some instances our competitors through our joint-venture
operations or industry bodies. We believe that working together and
sharing knowledge and experience with others offers us greater insight
into our business. We also appreciate our long-term relationships with
our investors and acknowledge the positive impact of ongoing
engagement and dialogue.

To support strengthening the Board’s knowledge of the significant levels
of engagement undertaken by the broader business, guidance on
information, proposals or discussion items provided to the Board was
updated in 2019 to further promote and focus considerations of the views,
interests and concerns of our stakeholders and how these were considered
by Management. Board minutes have also reflected key points on
stakeholder considerations, where appropriate. Further, the Terms of
Reference for our Safety, Environment and Sustainability Committee
were updated to include, within the Committee’s remit, the review and
consideration of external stakeholder perspectives and how major issues
of public concern that could affect the Shell group’s reputation and licence
to operate were, or are, being addressed.

The Board also engaged with certain stakeholders directly, to understand
their views. More on this engagement is provided in the Understanding
and engaging with our stakeholders on page 122.

Information on how the Directors have engaged with employees can
be found on page 124 and in the Our people section on pages 99-101.
Examples of how Directors have taken the interests of Shell employees
into consideration and the consequent outcome on related decisions
is incorporated in the table below.

PRINCIPAL DECISIONS
In the table below, we outline some of the principal decisions made by the
Board over the year, explain how the Directors have engaged with, or in
relation to, the different key stakeholder groups and how stakeholder
interests were considered over the course of decision-making.

To remain concise, we have categorised our key stakeholders into six
groups. Where appropriate, each group is considered to include both
current and potential stakeholders.

Investor Community
Employees/Workforce/Pensioners
Regulators/Governments/NGOs
Communities
Customers
Suppliers/Strategic Partners

Principal decisions
We define principal decisions taken by the Board as those decisions
in 2019 that are of a strategic nature and that are significant to any
of our key stakeholder groups. As outlined in the FRC Guidance on
the Strategic Report, we include decisions related to capital
allocation and dividend policy.

How were stakeholders considered
We describe how regard was given to likely long-term consequences of
the decision including how stakeholders were considered during the
decision-making process.

What was the outcome
We describe which accommodations/ mitigations were made, if any,
and how Directors have considered different interests and the factors
taken into account.

Shell Annual Report and Accounts 2019Strategic Report
Approval of Shell’s Operating Plan 2020-2022 (OP19)

What was the outcome

The approval of OP19 followed an in-depth review by the Board of proposals on capital allocation, capital
investment outlook, competitive outlook, operating expenses, return on average capital employed and
shareholder distributions. This includes reviews in October 2019 as an advance engagement on OP19
while it was under preparation, and in December 2019 for final approval.

How were stakeholders considered
OP19 discussions included a full review against Shell’s three strategic ambitions: thriving in the energy
transition, world-class investment case, and strong societal licence to operate. The Directors and Executive
Committee balanced the priorities in the operational plan versus the strategy by using feedback received
as part of continuous engagement with investors, discussions with equity and debt market analysts and
commitments made regarding share buybacks, gearing and organic free cash flow.

The plan was discussed extensively and included commitment to continue investing in the energy transition,
which is a reflection of the importance that communities and interest groups were likely to place on key
societal contributions/efforts regarding carbon-neutral offerings for mobility customers, growth in
Nature-Based Solutions, support for Net Carbon Footprint ambition reductions and published
government plans related to the energy transition.

In the assessment, the interests of investors and capital markets received particular focus and featured
heavily in many discussions, and potential differing interests of debt and equity investors was observed.
This was balanced against the importance of the value placed on Shell by society (including communities,
employees, customers, suppliers) for the services provided by the business and the way in which we
conduct business.

Information on employees and our organisational structure featured as part of OP19. The plan maintained
the approach to salaries, benefits, health, worker welfare, focus on employee experience and training.

Metrics agreed within OP19 underpin the 2020 organisational scorecard, against which all employee
bonuses are calculated. Both the Board and the Remuneration Committee discussed these metrics at
length to ensure they are suitably stretching and motivating, support the right culture within the business
and align to the strategic ambitions.

Following the review of the draft plan, the Board requested
further information on specific matters such as capital
allocation, new energies and organisational aspects, several
of which included certain stakeholder groups. Responses were
provided on these items and changes were incorporated
into the plan where appropriate.

The early review of the plan identified weaker macroeconomic
conditions and challenging outlooks. Although an unwelcome
message for stakeholders, this was communicated to the
market at the end of the third quarter and reiterated it in
the fourth quarter results.

The overall outcome of this decision is an operating plan that
the Board believes underpins Shell’s strategic ambitions and
has taken into account different stakeholder views, realising
that not all stakeholder views can nor will completely align
with OP19.

While stakeholder opinion may differ on Shell’s approach,
OP19 is based on the demand for products and services
by society. OP19 supports the Company maintaining a
reputation for high standards of business conduct, Health,
Safety, Security and Environment and maintained the
approach to employee remuneration and benefits to
pensioners. OP19 seeks to reward our investors with
returns and maintaining long-term financial strength
to invest in more and cleaner forms of energy and meet
the current and future needs of society.

Investing in new business and acquisitions

What was the outcome

Over the course of the year, the Board discussed and approved several new opportunities and projects across
the different segments. The Board focused on Power and discussed and approved the continued
implementation of the Power Strategy. It made certain recommendations to Management and appraised
potential investment opportunities which comprised wholly-owned acquisitions and joint-venture opportunities.
The Board receives regular updates and maintains oversight of the operations of the New Energies business
even though many of the investments in this area are below the threshold for Board decision.

How were stakeholders considered
The Board obtained a clearer perspective on the pace of local energy transitions, regulation, changing
customer needs and technology. This enhanced awareness was used to evaluate the possible impact on
stakeholders and risks to its reputation in relation to certain stakeholder groups.

Oil and Gas – During the year Shell has secured new opportunities in a number of regions, some of which
were considered and approved by the Board. The Directors carefully reviewed new significant entries and
risk and rewards of new projects. During these discussions, the Board was cognisant that some stakeholders
may not agree with Shell’s strategy to continue to invest in oil and gas during the energy transition.

Purchase of ERM – Although below the normal threshold of investments for Board approval, the
discussion was the result of earlier Board requests to enhance its understanding of the New Energies
investments, customer demand, the alignment with the Shell strategy and the Board’s commitments to its
stakeholders including investors. During discussions, particular attention was paid to the alignment of
assets owned by ERM with Shell’s overall long-term ambitions, and stakeholder views. The discussions and
considerations for the purchase of this listed entity covered its business model and people, assets and
synergies, fit with the Shell Power strategy and the ability to generate returns while playing a role in the
transition to a lower-carbon future. The Board also reflected on the Shell brand and its ability to retain
ERM customers under new ownership.

Eneco – The attempted purchase of Eneco is a clear example of the Board’s reflections on feedback
received from equity and debt market analysts and its statements made regarding the share buybacks,
gearing and organic free cash flow. Further, it reflects Shell’s desire to increase its operations in this area.
Significant engagement was undertaken as part of the bid preparation, which included understanding
customer sentiment, government and local municipality opinion and the ability to retain Eneco employees
following transfer of ownership in the event of a winning bid. The outcome of this engagement was
provided to the Board.

For both proposals, the Board considered the interests of investment partners and potential
organisational cultural differences. Customer relationships, local regulatory knowledge and other
stakeholder relationships including local community views were also discussed. The Board also discussed
how the potential deal(s) could be received by investors and the equity analyst community. The Board
was particularly cognisant that investors would want to understand how acquisitions would fit within the
existing financial framework and the impact if any on: expected outturns, the share buyback programme,
cashflow; and capital investment.

As a result of discussion and decisions in this area, the Board
obtained insights on renewables growth, customers’ priorities
(around price and interest in clean power), as well as
information on anticipated market direction and regulatory
frameworks. The Board also committed a large part of its
annual strategy event and committed further time later in the
years to enhancing its understanding of New Energies and the
opportunities in Power through, for instance, site visits with
companies, governments, regulators, academics and
potential customers. (Read more on page 122)

Oil and Gas – The Board recognises that societal views
vary widely in this area. However, it must also bear in mind
that global demand for energy is still growing. Although
renewable resources will meet a growing share of the rising
energy demand, Shell and other experts believe there
continues to be a need for oil and gas for many years
to come through the energy transition. The Directors
also appreciate that it is this business that provides
the capital to invest in the energy transition.

Purchase of ERM – Following discussion in the early part
of the year, the Board was keen to better understand the
New Energies’ investments, their alignment with the Power
Strategy and the new opportunities being potentially pursued.
It now receives summary information of smaller deals and
clarifications on the strategic and business alignment of the
larger deals. The Directors asked questions and shared their
expertise when provided with these updates.

Eneco – The Eneco discussion covered many Board meetings,
with questions coming from each discussion and further
research and understanding provided back to the Board. As
Management and the Board have been clear that they will
only pursue ambitions in this area at the right cost, the bid
from the Shell consortium was lower than that of its
competitors and therefore unsuccessful.

Shell Annual Report and Accounts 2019Strategic ReportSECTION 172(1) STATEMENT continued

Divestments and exits from markets

What was the outcome

Selected assets were divested in 2019. More information on these can be found further within the Strategic
Report. An example divestment is the sale of the Martinez refinery based in California, which was fully
completed in February 2020.

How were stakeholders considered
Given the size of the Martinez asset, the sale was discussed by the Board. The divestment aligned with
Shell’s strategy to reshape refining efforts towards a smaller, smarter refining portfolio focused on further
integration with Shell Trading hubs, Chemicals, and Marketing.

The Board considered how the Martinez divestment would be received by local communities and the
potential reputational implications. Further, the Board observed that other retained businesses may feel
at risk and more widely considered the potential impact on value chain cash generation.

The future prospects, environment liabilities and the impact on employees were considered by the
Board and included expectations around employee retention by the new buyer. Agreements were put
in place regarding certain employee benefits which would be met by Shell for a period of time following
the divestment.

Announcements and communications relating to divestments
are drafted proactively. The stakeholder engagement plan
included local government and communities. The plan
focused on supporting community confidence in
operations post-divestment.

Engagement related to employees was undertaken, and
agreement was reached regarding certain Shell-paid benefits.

Community concerns regarding Shell’s exit were addressed.

Shareholder Distributions

What was the outcome

Every quarter, the Board assessed the continuation of the share buyback programme as well as the
ongoing payment and rate of dividend per share payable to shareholders.

How were stakeholders considered
A number of metrics underpinned each decision, including the BG intention statement regarding the
equity issued in connection with the combination with the BG Group.

At the time of each decision, the Board received an update on investor views based on equity and debt
market opinions, Executive Committee and Investor Relations engagements, Chair engagements and
rating agency views. Along with the other investor meetings undertaken by the Board and outlined within
the stakeholder engagement section of this report (see page 122), towards the end of the year, the Senior
Independent Director undertook a number of engagements to discuss the proposed remuneration policy,
this provided investors a further opportunity to share views on other matters.

In making decisions, the Board considered investor expectations, the BG intention statement regarding
share buybacks, and the flexibility afforded by Operating Plans, which included known and anticipated
organic free cash flow and were reflective of the actual and expected business performance at the time
of the decisions.

As the macroeconomic environment changed during the year,
further considerations were given to differing stakeholder
opinion and balanced against prior intention statements.
In the later part of the year, as part of the paper requesting
approval for the share buyback and dividend payment, the
Board received potential market reaction from equity and
debt holders on pacing options related to the share
buyback in consideration of the prevailing macroeconomic
environment, including lower oil and gas prices. At the third
quarter results announcement, the Company communicated
the potential impact of these conditions on the pace of the
share buyback programme and gearing reduction.

Shell Annual Report and Accounts 2019Strategic ReportRISK 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.

Further background on each risk is 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 “Other Regulatory and Statutory
Information” pages 168-171.

Risk description

How this risk is managed

We maintain a diversified portfolio to mitigate the impact
of price volatility. 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
prepare annual strategic and financial plans that consider
and analyse the impact of different pricing scenarios on
our businesses and company as a whole. These plans are
appraised regularly throughout the year. We also aim to
maintain a strong balance sheet to provide resilience
against weak market prices.

We are exposed to macroeconomic risks including 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. Furthermore, macroeconomic risks can affect demand for our products.
Government actions may also affect the prices of crude oil, natural gas, oil products and chemicals. This
could happen, for example, by promoting the sale of lower-carbon electric vehicles or even through the
future prohibition of sales of new diesel or gasoline vehicles, such as the prohibition in the United Kingdom
(UK) beginning in 2035. Prices for oil and gas can also move independently of each other. Factors that
influence supply and demand include operational issues, natural disasters, weather, pandemics, such as
the COVID-19 (coronavirus) outbreak, political instability, conflicts, economic conditions and actions by
major oil and gas producing countries. 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. Low oil and gas prices have also 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. Assets have also 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. Also, higher prices can result in more capacity
being built which results in an oversupply of products that can negatively impact our LNG and Chemicals
business. Accordingly, price fluctuations could have a material adverse effect on our earnings, cash
flows and financial condition.

See “Market overview” on page 37.

Our ability to deliver competitive returns and pursue commercial opportunities
depends in part on the accuracy of our price assumptions.

The range of commodity prices used in our project and
portfolio evaluations is subject to a rigorous assessment
of short, medium and long-term market drivers.

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 39.

Our ability to achieve our 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 access to vast 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 20.

We continually assess the external environment – the
markets and 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 maintain business strategies and plans that
focus on actions and capabilities to create and sustain
competitive advantage.

Shell Annual Report and Accounts 2019Strategic ReportRISK FACTORS continued

Risk description

How this risk is managed

We carefully tailor our sales processes against buyers’
perceived expectations to deliver the most competitive
outcomes. As a general principle, the sales processes are
set up so that buyers will acquire the assets including all
related liabilities. For some assets, Shell may agree to
retain certain liabilities, which are closely monitored
and for which appropriate provisions are made.

We continue to explore for, and mature, hydrocarbons
across our Deep Water, Conventional Oil and Gas,
Shales and Integrated Gas strategic themes. We use our
subsurface, project and technical expertise and actively
manage non-technical risks across a diversified portfolio
of opportunities and projects. This is done with an
integrated approach from basin choice through to
development, where we employ a number of
competitive techniques and benchmark our
approach internally and externally.

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. This would result in increased pressure on our cash position and
potential impairments. In some cases, we have also retained certain liabilities following a divestment. Even
in cases where we have not expressly retained certain liabilities, we may still 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 their 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 page 22.

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; potential cost overruns; and
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 determined 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.

Oil and gas production available for sale

Shell subsidiaries

Shell share of joint ventures and associates

Total

Million boe [A]

2019

1,182

156

2018

1,179

159

2017

1,168

170

1,338

[A] Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.

Proved developed and undeveloped oil and gas reserves [A][B]
(at December 31)

Shell subsidiaries

Shell share of joint ventures and associates

Total

Million boe [C]

2019

9,980

1,116

2018

10,294

1,285

2017

10,177

2,056

11,096

11,578

12,233

Attributable to non-controlling interest in Shell subsidiaries

304

331

325

[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 equivalents using a factor of 5,800 scf per barrel.

See “Shell Story” on page 17.

Shell Annual Report and Accounts 2019Strategic ReportRisk description

How this risk is managed

A central group of reserves experts undertake the
primary assurance of the proved reserves bookings.
A multidisciplinary committee reviews and endorses
all major proved reserves bookings. All proved reserves
bookings are reviewed by Shell’s Audit Committee, with
final approval residing with Shell’s Executive Committee.
The Internal Audit function also provides further assurance
through audits of the control framework.

The risk is actively monitored and reviewed by the
Executive Committee. These regular reviews lead
to actions designed to address all the different
components of the risk. Overall the mitigation of the
risk is addressed through our strategy to thrive in the
energy transition. This is made up of three components:
■ reducing the GHG emissions intensity of our operations;
■ demonstrating resilience by adopting the guidance
on disclosure by the Task Force on Climate-related
Financial Disclosures; and

■ working towards our ambition to reduce the Net

Carbon Footprint of the energy products we sell, in
step with society’s drive to reduce GHG emissions.

Please refer to the risk factor “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” for further explanation of how the physical effects
of climate change on our operations and supply chains
are managed.

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 239.

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 above
pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 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 result in suppression
of demand for fossil fuels, either through taxes, fees and/or incentives to promote the sale of lower-carbon
electric vehicles or even through the future prohibition of sales of new diesel or gasoline vehicles, such as
the prohibition in the United Kingdom (UK) beginning in 2035. This could result in lower revenue and, in
the long term, potential impairment of certain assets.

In addition, the 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.

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.

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 capital markets. Additionally, some groups are pressuring commercial
and investment banks from financing fossil fuel companies. Furthermore, according to press reports,
some 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.

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. This could have a material adverse effect on our
earnings, cash flows and financial condition.

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 93.

Shell Annual Report and Accounts 2019Strategic ReportRISK FACTORS continued

Risk description

How this risk is managed

Our business exposes us to risks of social instability, criminality, civil unrest,
terrorism, piracy, cyber-disruption, acts of war and pandemic diseases, such as
the COVID-19 (coronavirus) outbreak, that could have a material adverse effect
on our operations.

As seen in recent years, these risks can manifest themselves in the countries in which we operate and
elsewhere. These risks affect people and assets. Potential risks include: acts of terrorism; acts of criminality
including maritime piracy; cyber-espionage or disruptive cyber-attacks; conflicts including war, civil unrest
and environmental and climate activism (including disruptions by non-governmental and political
organisations); and pandemic diseases, such as the COVID-19 (coronavirus) outbreak.

We seek to obtain the best possible information to enable
us to assess threats and risks. We conduct detailed
assessments for all our sites and activities, and implement
appropriate measures to deter, detect and respond to
security risks. Further mitigations include the strengthening
of the security of sites, reduction of our exposure as
appropriate, journey management, information risk
management as well as crisis management and business
continuity measures. We conduct training and awareness
campaigns for staff and provide travel and health advice
and 24/7 assistance while travelling.

We continuously monitor geopolitical developments and
societal issues relevant to our interests. Our Legal and Tax
functions are organised globally and support the business
lines in ensuring compliance with local laws and fiscal
regulations. Our Government Relations department
engages with governments in countries where we operate
to understand and influence local policies and to
advocate Shell’s position on topics relevant to our
industry. 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 above risks can threaten the safe operation of our facilities and transport of our products, cause
disruption of operational activities, environmental harm, loss of life, injuries and impact the well-being
of our people.

These risks could have a material adverse effect on our earnings, cash flows and financial condition.

See “Environment and society” on page 84.

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 UK left the European Union (EU) on January 31, 2020 and enters into a
period of transition which ends on December 31, 2020. The UK has stated that it will not extend the period
of transition, and has confirmed plans to introduce import controls on EU goods at the border after the
period of transition ends. Whatever the outcome of negotiations, 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 “Other Regulatory and Statutory Information” on page 134.

Shell Annual Report and Accounts 2019Strategic ReportRisk description

How this risk is managed

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 could 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 84.

We have standards and a clear governance structure
to help manage potential impacts. They are defined in
our Health, Safety, Security, Environment and Social
Performance (HSSE & SP) control framework and
supporting guidance documents. The process safety
and HSSE & SP assurance team provides assurance on
the effectiveness of HSSE & SP controls to the Board.
We also routinely prepare and practise our emergency
response to potential incidents such as a spill or a fire.

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. These risks or adverse conditions
could have a material adverse effect on our earnings, cash flows and financial condition.

We test the economic and operational resilience of our
Nigerian projects against a wide range of assumptions
and scenarios. We seek to proportionally share risks and
funding commitments with joint-venture partners. We
monitor the security situation, and liaise with host
communities, governmental and non-governmental
organisations to help promote peaceful and
safe operations.

See “Upstream” on page 57.

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. The gas field is in the process of
being closed down due to gas-production-induced 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. The Government has announced their intent for an accelerated close-down to reduce
Groningen production to zero by mid-2022. The exact date is still to be decided. While we are hopeful
the closing down of the Groningen gas field will reduce the number and strength of earthquakes in the
region, any additional earthquakes and lawsuits could have further adverse impacts on our earnings,
cash flows and financial condition.

See “Upstream” on page 54.

NAM is working with the Dutch government and other
stakeholders to fulfil its obligations to residents of the area,
which include compensation for damage caused by the
earthquakes. Negotiations with the state are ongoing to
determine how the accelerated close-down should be
managed. Specific remediations within the agreed scope
of responsibilities are planned. NAM’s joint-venture
partners will review its financial robustness against
different scenarios for Groningen’s liabilities and costs,
with the objective that the venture can self-fund any
additional expenses and claims.

Shell Annual Report and Accounts 2019Strategic ReportRISK FACTORS continued

Risk description

How this risk is managed

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 continue to develop or deploy technology and new products, or fully
leverage our data effectively in a timely and cost-effective manner, 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 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 technology 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.

Shell’s Technology organisation and the relevant lines
of business work together to determine the content, scope
and budget for developing new technology that supports
our activities. The new technology is developed to ensure
portfolio alignment with Shell’s strategic ambitions and
deployment commitments. A significant proportion of
Shell’s technology contributes to Shell’s New Energies
portfolio and Net Carbon Footprint ambition, and is built
around key relationships with leading academic research
institutes and universities. We also benefit from working
with start-ups. In our Shell GameChanger programme,
we help companies to mature early-stage technologies.
In our Shell Ventures scheme, we invest in and partner
with start-ups and small and medium-sized enterprises that
are in the early stages of developing new technologies.

See “Shell Story” on page 18.

We are exposed to treasury and trading risks, including liquidity risk,
interest rate risk, foreign exchange 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 US dollar. However, to a material extent, we hold
assets and are exposed to liabilities in other currencies. While we undertake some foreign exchange
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 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 80 and Note 19 to the
“Consolidated Financial Statements” on pages 227-231.

We utilise various financial instruments for managing
exposure to foreign exchange and interest rate
movements. Our treasury operations are highly
centralised and seek to manage credit exposures
associated with our substantial cash, foreign exchange
and interest rate positions. Our portfolio of cash
investments is diversified to avoid concentrating risk in
any one instrument, country or counterparty. Other
than in exceptional cases, the use of external derivative
instruments is confined to specialist central treasury
organisations that have appropriate skills, experience,
supervision, control and reporting systems. Credit risk
policies are in place to ensure that sales of products are
made to customers with appropriate creditworthiness,
and include detailed credit analysis and monitoring of
customers against counterparty credit limits. Where
appropriate, netting arrangements, credit insurance,
prepayments and collateral are used to manage
credit risk. We maintain a committed credit facility.
Management believes it has access to sufficient
debt funding sources (capital markets) and to
undrawn committed borrowing facilities to
meet foreseeable requirements.

Shell Annual Report and Accounts 2019Strategic ReportRisk description

How this risk is managed

We are exposed to commodity trading risks, including market and
operational risks.

Commodity trading is an important component of our Upstream, Integrated Gas and Downstream
businesses and is integrated with our supply business. Processing, managing and monitoring a large
number of trading transactions across the world, some of which are complex, exposes us to operational
and market risks, including commodity price risks. We use derivative instruments such as futures and
contracts for differences to hedge market risks. However, we do not hedge all our activities and where
hedging is in place, it may not function as expected. The risk of ineffective controls and oversight of trading
activities and the risk that traders, individually or as a group, could act intentionally outside of the limits
and controls, could have material adverse effect on our earnings, cash flows and financial condition.

See “Liquidity and capital resources” on page 80 and
Note 19 to the “Consolidated Financial Statements” on pages 227-231.

We have substantial pension commitments, funding of which is subject to
capital market risks and other factors.

Liabilities associated with defined benefit pension plans are significant, as can be 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 81.

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. Accordingly, in the event of a material incident, there would
not be any 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 79.

In effecting commodity trades and derivative contracts,
the Company operates within procedures and policies
designed to ensure that risks are managed within
authorised limits. For example, the use of external
derivative instruments is confined to specialist trading
organisations that have appropriate skills, experience,
supervision, control and reporting systems. There is regular
review 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. Our trading
organisation has a compliance manual addressing our
operational risks which all staff are required to follow.

A pensions forum, chaired by the Chief Financial Officer
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. Local trustees manage the
funded defined benefit pension plans, with contributions
paid based on independent actuarial valuations in
accordance with local regulations.

We continuously assess the safety performance of our
operations and make risk mitigation recommendations,
where relevant, to reduce the risk of an accident to as low
as possible. Our insurance subsidiaries are adequately
capitalised and transfer risks to third-party insurers
where economical, effective and relevant.

Shell Annual Report and Accounts 2019Strategic ReportRISK FACTORS continued

Risk description

How this risk is managed

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 or a perceived lack of understanding of
how our operations affect surrounding communities could harm our reputation.

Societal expectations of businesses are increasing, with a focus on business ethics, quality of products,
contribution to society, minimising environmental impacts, and safety. There is increasing focus on the
role of oil and gas in the context of climate change and energy transition.

This could negatively affect our brand, reputation and licence to operate, which could impact our ability
to deliver our strategy, consumer demand for our branded and non-branded products, harm our ability to
secure new resources and contracts, and limit our ability to access capital markets or 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 “Other Regulatory and Statutory Information” on page 167
and “Our people” on page 100.

Many of our major projects and operations are conducted in joint arrangements
or with 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 “Other Regulatory and Statutory Information” on page 169.

We continuously assess and monitor the external
environment for potential risks to our reputation.
We have mitigation plans in place for identified brand
and reputation risks at the Group, country and line of
business level. Our country chairs are responsible for the
implementation of country reputation plans which are
updated annually. We continuously develop and defend
our brand in line with Shell’s purpose and promises, and
target our investments to drive brand differentiation,
relevance and preference.

Shell appoints a Joint Venture Asset Manager, whose
responsibility is to manage performance (create and
protect value for Shell) by influencing operators and
other partners to adapt their operating practices to
appropriately drive value and mitigate identified
risks. An annual assurance review takes place on
the alignment of standards and processes in joint
ventures with the standards applicable to Shell.
Any gaps identified are followed up by the Joint
Venture Asset Manager.

We rely heavily on information technology systems in our operations.

The operation of many of our business processes depends on reliable information technology (IT) systems.
Our IT systems are increasingly concentrated in terms of geography, number of systems, and dependent
on key contractors supporting the delivery of IT services. Shell 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. Breaches have occurred,
including to our UK LiveWIRE application where approximately 196,000 accounts and personal data
were compromised. Where systems, customers’ accounts and data have been compromised, we
undertake to notify all relevant regulators and impacted customers, in accordance with countries’ laws
and regulations, including privacy requirements. 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 pages 79.

We continuously measure and improve our cyber-security
capabilities. To reduce the likelihood of successful
cyberattacks our cyber-security capabilities are
embedded into our IT systems. Our IT landscape
is protected by various detective and protective
technologies. The identification and assessment
capabilities are built into our IT 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 invests constantly in
efforts to embed and improve our controls and monitoring
activities. In case of breaches, all entities, including the
ones not yet fully integrated into Shell’s systems and
processes, are required to report and leverage Shell’s
information security capabilities.

Shell Annual Report and Accounts 2019Strategic ReportRisk description

How this risk is managed

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 where 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. It is also 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 “Other Regulatory and Statutory Information” on page 167.

We maintain an antitrust programme with adequate
resources, a comprehensive governance structure and
established reporting lines. Clear guidance is provided to
staff, which includes requirements in Shell’s Ethics &
Compliance manual, an antitrust specific website, training
modules where completion is monitored and regular
messages from Shell leaders on the importance of
managing antitrust risks. Staff must understand
and comply with the “Protect Shell Policy”, which
explains Shell’s position on managing competitively
sensitive information.

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 where we do business. Shell and its joint ventures and associates have in the past settled
with the US Securities and Exchange Commission regarding 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 Limited’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 100, “Other Regulatory and Statutory Information” on
page 167 and Note 25 to the “Consolidated Financial Statements” on pages 235-237.

We maintain an anti-bribery and anti-money laundering
(ABC/AML) programme with adequate resources, a
comprehensive governance structure and established
reporting lines in place. Clear guidance is provided to
staff, which includes requirements in Shell’s Ethics &
Compliance manual, an ABC/AML specific website,
training modules where completion is monitored and
regular messages from Shell leaders on the importance of
management of ABC/AML risks. As to OPL 245, the 2011
settlement was a fully legal transaction with Eni and the
Federal Government of Nigeria, represented by the most
senior officials of the relevant ministries. We maintain our
view that there is no basis to convict Shell, or any of our
former employees who are also on trial, in Milan.

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
where 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 and harm our reputation. In the past we have
breached the GDPR and some investigations are still ongoing with European regulators. To date no
material fines have been imposed, however, no assurance can be provided that future breaches would
have similar outcomes. 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
entities 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 “Other Regulatory and Statutory Information” on page 167.

We maintain a data privacy programme with adequate
resources, a comprehensive governance structure and
established reporting lines. Clear guidance is provided
to staff, which includes requirements in Shell’s Ethics &
Compliance manual, a data privacy specific website,
training modules where completion is monitored and
regular messages from Shell leaders on the importance of
managing data privacy risks. The requirements for incident
management, set forth in our Binding Corporate Rules
have been revised to comply with reporting requirements
under GDPR, as has our approach to privacy impact
assessments. In 2020 we have established a Privacy by
Design programme to enhance our controls in this area.

Shell Annual Report and Accounts 2019Strategic ReportRISK FACTORS continued

Risk description

How this risk is managed

We continue to develop and maintain a trade compliance
programme with adequate resources, a comprehensive
governance structure and established reporting lines.
Clear guidance is provided to staff, which includes
requirements in Shell’s Ethics & Compliance manual,
a trade compliance specific website, training modules
where completion is monitored and regular messages
from Shell leaders on the importance of managing
trade compliance risks. The effectiveness of the trade
compliance programme is assessed annually (or
more frequently if necessary).

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
countries such as Syria, Venezuela, Russia and Cuba. 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, remain in force. Further restrictions regarding Russia
were introduced by the USA in 2017 and expanded in 2018. Both the EU and the USA introduced sectoral
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. Many other nations are also adopting
trade-control programmes similar to those administered by the EU and the USA. 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, make compliance with all sanctions
complex and at times challenging. Shell has voluntarily self-disclosed potential violations of sanctions in
the past. 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 “Other Regulatory and Statutory Information” on page 167.

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.

Shell Annual Report and Accounts 2019Strategic ReportMARKET 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 27). 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.

GLOBAL ECONOMIC GROWTH
Economic activity is one of the key drivers of demand for oil, natural gas
and oil products. Widespread economic and geopolitical uncertainty
meant the global business environment remained challenging in 2019.
According to the World Economic Outlook released by the International
Monetary Fund (IMF) in January 2020, global economic growth for
2019 is estimated to have fallen to 2.9% from 3.6% in 2018.

A common feature in the weakening of many countries’ GDP was a
slowdown in industrial output. According to the IMF, this slowdown was
caused by weak business confidence amid growing trade-related tensions
between the USA and China. Industrial production also slowed due to
changes in technology and emissions standards leading to a fall in car
production and many potential vehicle buyers delaying their purchase
in favour of a wait-and-see attitude.

The IMF also noted a slowdown in economic growth in China and other
large Asian economies, driven by China’s regulatory efforts to limit its
debt, and exacerbated by increased trade tensions with the USA.

With lingering trade policy and geopolitical uncertainties, the global
economic outlook for 2020 remains precarious. A key uncertainty for
the global economy will be the impact of the COVID-19 (coronavirus)
outbreak in China and elsewhere.

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]

Brent ($/b)

West Texas Intermediate ($/b)

Henry Hub ($/MMBtu)

UK National Balancing Point
(pence/therm)

Japan Customs-cleared Crude ($/b)

2019

2018

2017

2.5

3.1

3.0

[A] Yearly average prices are based on daily spot prices. The 2019 average price for Japan

Customs-cleared Crude excludes December data.

CRUDE OIL
Brent crude oil, an international benchmark, traded between $53 per
barrel (/b) and $75/b in 2019, ending the year at $67/b. Brent crude oil
prices averaged $64/b for the year, 10% (or $7/b) lower than in 2018.

At the beginning of 2019, global oil demand for the year was expected
to grow by 1.4 million barrels per day (b/d). However, as the global
economic environment weakened throughout 2019, global oil demand
growth projections for the full year were adjusted downwards. Year
averaged global oil demand grew by 1.0 million b/d, or 1.0%, to 100.3
million b/d, according to the International Energy Agency’s (IEA) Oil
Market Report published in January 2020. This growth was lower than
the historical average of 1.3 million b/d per year since 2000. Oil demand
growth was driven by non-OECD economies, where demand grew by 1.1
million b/d, while oil demand contracted by 0.1 million b/d in the OECD.
Oil demand growth in 2019 was 0.1 million b/d lower than in 2018,
when it rose by 1.1 million b/d.

Oil supply in 2019 is estimated in the Oil Market Report at 100.3 million
b/d, unchanged compared to 2018. Because oil supply and oil demand
were in balance, we estimate that elevated industry-controlled crude oil
and oil products stocks remained unchanged from 2018. This limited price
increases. Average commercial inventory levels for OECD countries in
November 2019 were estimated at 2,912 million barrels in the Oil Market
Report. This was around 52 million barrels higher than in November 2018,
and about 211 million barrels more than the average for 2014, when Brent
crude oil prices were around $100/b for most of the year.

Non-OPEC supply growth, mostly in the USA, was balanced by lower
OPEC production. The US Energy Information Administration reported
another year of supply growth. US production is estimated to have
averaged 12.3 million b/d in 2019, 1.5 million b/d higher than in 2018,
and 3 million b/d higher than 2017. Supply growth was supported by
continued efficiency gains, and occurred despite lower drilling activity
reflected by a 23% fall in the onshore oil rig count during the year.
Production from other non-OPEC countries increased by 0.5 million
b/d in 2019 and averaged 58.1 million b/d.

For most of 2019, OPEC members and co-operating non-OPEC resource
holders, most notably Russia, continued to cap their overall production at
2018 levels. In December 2019, they decided to further cap production
by 0.5 million b/d becoming effective in 2020. OPEC’s production fell
from 31.9 million b/d in 2018 to 29.9 million b/d in 2019, in part due to
sanctions causing production to fall in Iran and Venezuela. Furthermore,
supply from Venezuela was also affected by a deteriorating
production environment.

On a yearly average basis, West Texas Intermediate (WTI) crude oil
traded at a $7/b discount to Brent crude oil in 2019, compared with $6/b
in 2018. The discount remained broadly unchanged from 2018, reflecting
continued constrained pipeline capacity from the landlocked Cushing
storage hub to the US Gulf Coast, against a backdrop of growing supply
to the hub. According to the US Energy Information Administration, US
crude oil exports increased further to a yearly average of about 3 million
b/d in 2019, up by 1 million b/d from 2018, and peaked above 4 million
b/d by the end of the year. This helped to limit further widening of the
price differential between Brent and WTI.

Shell Annual Report and Accounts 2019Strategic ReportMARKET OVERVIEW continued

Looking ahead, the IMF’s global economic outlook indicates some
increase in global economic growth, which should support oil demand
growth. According to the IEA, near-term global oil demand growth is
projected at around 1.3 million b/d per annum. To keep supply and
demand in balance, demand growth and natural production decline from
existing operations are to be met by supply growth. If OPEC members and
co-operating non-OPEC resource holders continue implementing their
current production agreement successfully, then supply growth would
have to be delivered by non-OPEC countries, most notably the USA.
Markets could tighten and prices could rise if US supply growth slows. The
fall in US drilling activity in 2019 could be a first indicator of moderating
US supply growth. A lack of industry-wide investment in new supply
projects could lead to further market tightening in the next few years,
given the long lead time of many of these projects.

On the other hand, we believe the price environment could weaken if the
impact of the coronavirus grows or recession fears materialise, and/or
OPEC and the non-OPEC resource holders relax their production
agreement. The price environment could also weaken if other non-OPEC
producers, such as US shale producers, effectively deliver more and
cheaper oil to the market.

NATURAL GAS
We estimate global gas demand to have grown by about 2.4% in 2019,
in line with the annual growth rate of 2.5% observed since the start of the
century. Robust demand growth in power generation and industry was
driven by attractive regional spot gas prices that encouraged switching
from competing fuels such as coal and oil. In the key regional markets
of North America, Europe, and Asia-Pacific, attractive prices have
been caused mainly by ample gas supply growth.

In 2019, global liquefied natural gas (LNG) imports grew by 40 million
tonnes, or 13% of the total LNG market. LNG supply growth, mainly in
Australia, the USA and Russia, outpaced demand growth. In 2019,
inventory levels were higher in Asia following mild winter conditions.
LNG imports were down in Japan and South Korea due to milder
weather and higher nuclear utilisation than in 2018. However,
more LNG supply flowed into the European markets.

Natural gas prices can vary from region to region.

In the USA, the natural gas price at the Henry Hub averaged $2.5 per
million British thermal units (MMBtu) in 2019, 19% lower than in 2018. It
traded in a range of $2.0 to 4.1/MMBtu. There was downward pressure
on prices due to a strong gas supply growth of about 8 billion cubic feet
per day, which averaged 10% higher than in 2018. Gas supply growth
was, in part, driven by a growth of associated gas from oil fields, helped
by oil prices above $50/b, and by new gas pipeline capacity. Gas prices
found support from demand growth driven by below-normal storage
inventory levels; an increase in usage of power for cooling due to warmer
than normal weather in the second half of the year; completion of LNG
liquefaction projects; increased exports to Mexico by pipeline; and US
industrial growth.

In Europe, the average price at the UK National Balancing Point (NBP)
was 43% lower in 2019 compared to 2018. At the main continental gas
trading hubs – in the Netherlands, Belgium and Germany – prices were
also lower, as reflected by weaker Dutch Title Transfer Facility (TTF) prices.
European gas prices were lower due to: the rise in LNG volume diverted
from the Asia-Pacific region caused by weaker Asia-Pacific demand
growth; robust supply of pipeline gas, particularly from Russia; well-filled
gas storage inventories; competition with renewables in power
generation; and mild weather.

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 2019 in the Asia-Pacific
region were broadly comparable to 2018 prices as they are
predominantly indexed to oil prices, particularly to the Japan Customs-
cleared Crude (JCC) index which has been generally stable year-on-year.
Meanwhile, delivered North Asia spot prices, reflected by the Japan
Korea Marker, declined by 43% versus 2018 as a result of the
oversupply in the global LNG market.

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 residential and 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. In Europe, we believe gas prices will be increasingly influenced
by the cost of LNG imports from the USA. In the Asia-Pacific region,
long-term gas prices are expected to continue to be strongly
influenced by oil prices and spot prices increasingly by gas
supply and demand fundamentals.

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 27). We determine the range of possible future
crude oil and natural gas prices to be used in project and portfolio
evaluations after a rigorous assessment of short, medium and long-term
market drivers. We consider historical analyses, trends and statistical
volatility, and 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. We
use sensitivity analyses to test the impact of low-price drivers like economic
weakness, and the effect of high-price drivers, such as strong economic
growth and low investment in new production capacity. See also Note 8
to the “Consolidated Financial Statements” on pages 210-213.

Shell Annual Report and Accounts 2019Strategic ReportThe outlook for petrochemical margins in 2020 and beyond depends
on supply and demand balances and feedstock costs. Demand for
petrochemicals is closely linked to economic and trade 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 2-3 and “Risk factors”
on pages 27-36.

REFINING MARGINS

Refining marker average industry gross margins

US West Coast

US Gulf Coast Coking

Rotterdam Complex

Singapore

2019

13.5

4.9

2.3

(0.6)

2018

11.5

7.0

2.5

1.4

$/b

2017

14.0

9.9

4.3

3.6

Industry gross refining margins were lower on average in 2019 than in
2018 in three of the four key refining hubs of Europe, Singapore and the
US Gulf Coast. Only in the US West Coast did gross margins improve due
to, in-part, unplanned outages in the region, which supported product
prices. Globally, year-on-year growth in demand for oil products has
slowed in line with slowing global economic growth. Refinery capacity
additions, especially in the Middle East and Asia, combined with lower
demand growth have led to generally lower refinery utilisations, which
weakened margins. Refinery activity continued to be low in Latin America
amid the ongoing geopolitical uncertainty and poor investment climate.

On January 1, 2020 the new International Maritime Organization
low-sulphur shipping fuel specification came into effect. The refining
industry started to transition to the new specification in the second half of
2019 by building a significant inventory of low-sulphur fuels. The full effects
of the implementation are expected to materialise in 2020.

Refinery margins could weaken in 2020 if the coronavirus materially
impacts global demand for oil products.

PETROCHEMICAL MARGINS

Cracker industry margins [A]

North East/South East Asia naphtha

Western Europe naphtha

US ethane

2019

302

531

445

$/tonne

2017

688

727

471

2018

594

562

412

[A] ICIS data is quoted. Cracker industry margins have been revised from Q1 2018 onwards

due to updated cracker margin calculation methodology by ICIS. Further revisions based on
available market information to external industry data provider up to the end of the period.

In 2019, Chinese GDP growth slowed and there was continued
uncertainty regarding trade and tariffs between the USA and China.
Demand growth in several chemicals end-consumption markets slowed
and, in the automotive sector, demand even contracted. Cracker industry
margins in Asia halved. Cracker margins in Western Europe and the USA
were relatively unchanged versus 2018. West European margins were
supported by a high level of maintenance outages in the first half of 2019,
while in the USA margins were supported by low ethane prices.

Shell Annual Report and Accounts 2019Strategic ReportSUMMARY OF RESULTS

Key statistics

Income for the period

Current cost of supplies adjustment

Total segment earnings [A][B], of which:

Integrated Gas

Upstream

Downstream

Corporate

Capital expenditure

Cash capital expenditure [B]

Capital investment [B]

Operating expenses [B]

Return on average capital employed [B]

Gearing at December 31 [C]

Oil and gas production (thousand boe/d)

Proved oil and gas reserves at December 31 (million boe)

$ million, except where indicated

2019

16,432

(605)

15,827

8,628

4,195

6,277

(3,273)

22,971

23,919

28,788

37,893

6.7%

29.3%

3,665

11,096

2018

23,906

458

24,364

11,444

6,798

7,601

(1,479)

23,011

24,078

24,878

39,316

9.4%

20.3%

3,666

11,578

2017

13,435

(964)

12,471

5,078

1,551

8,258

(2,416)

20,845

21,533

23,655

38,083

5.8%

25.0%

3,664

12,233

[A] Segment earnings are presented on a current cost of supplies basis. See Note 4 to the “Consolidated Financial Statements” on pages 206-208.
[B] See “Non-GAAP measures reconciliations” on pages 279-280.
[C] Gearing at end of 2019 on IAS 17 basis was 25%.

EARNINGS 2019-2018
Income for the period was $16,432 million in 2019, compared with
$23,906 million in 2018. After current cost of supplies adjustment, total
segment earnings were $15,827 million in 2019, compared with
$24,364 million in 2018.

Corporate earnings in 2019 were a loss of $3,273 million, compared
with a loss of $1,479 million in 2018. The higher loss was mainly driven
by the introduction of IFRS 16 and reduced capitalised interest. This
was partly offset by reduced tax credits from financing and one-off
charges. See “Corporate” on page 79.

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 2019 were $8,628 million, compared
with $11,444 million in 2018. The decrease was mainly driven by lower
gains on sale of assets, lower realised oil, LNG and gas prices, higher
impairments, higher operating expenses, negative movements in deferred
tax positions and lower liquids production volumes. These effects were
partly offset by stronger contributions from LNG trading and optimisation,
and gains related to the fair value accounting of commodity derivatives.
See “Integrated Gas” on pages 45-51.

Upstream earnings in 2019 were $4,195 million, compared with $6,798
million in 2018. The decrease is mainly driven by higher impairments, lower
realised oil and gas prices, higher depreciation and higher well write-offs.
This was partly offset by increased gains on sale of assets and higher
volumes. See “Upstream” on pages 52-60.

Downstream earnings in 2019 were $6,277 million, compared with
$7,601 million in 2018. The decrease was mainly driven by lower realised
chemicals, refining and trading margins, legal provisions and lower gains
related to fair value accounting of commodity derivatives. This was partly
offset by higher marketing margins, benefit from foreign exchange,
introduction of IFRS 16 and lower operating costs. See “Downstream”
on pages 70-78.

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.

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 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 45-51.

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 52-60.

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 70-78.

Shell Annual Report and Accounts 2019Strategic ReportCorporate 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 79.

Accordingly, after taking production into account, our proved reserves
decreased by 482 million boe in 2019, to 11,096 million boe at December
31, 2019, with a decrease of 314 million boe from subsidiaries and
a decrease of 169 million boe from the Shell share of joint ventures
and associates.

CASH CAPITAL EXPENDITURE AND OTHER INFORMATION
Cash capital expenditure was $23.9 billion in 2019, compared with $24.1
billion in 2018. Capital investment was $28.8 billion in 2019, compared
with $24.9 billion in 2018.

Operating expenses reduced by $1.4 billion in 2019, to $37.9 billion.

Our ROACE decreased to 6.7%, compared with 9.4% in 2018, mainly
driven by a lower income in 2019.

Gearing was 29.3% at the end of 2019, compared with 20.3% at the end
of 2018, driven by IFRS 16 and a lower cash balance in 2019. Gearing at
the end of 2019 on an IAS 17 basis was 25.0%.

SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS
See Note 2 to the “Consolidated Financial Statements” on pages 195-204.

LEGAL PROCEEDINGS
See Note 25 to the “Consolidated Financial Statements” on pages 235-237.

PRODUCTION AVAILABLE FOR SALE
Oil and gas production available for sale in 2019 was 1,338 million
barrels of oil equivalent (boe), or 3,665 thousand boe per day (boe/d),
compared with 1,338 million boe, or 3,666 thousand boe/d, in 2018.
In 2019, lower production was due to the impact of divestments and
field decline, partly offset by field ramp-ups in North America, Brazil,
Australia and Trinidad and Tobago.

Oil and gas production available for sale [A]

Crude oil and natural gas liquids

Synthetic crude oil

Bitumen

Natural gas [B]

Total

Of which:

Integrated Gas

Upstream

2019

1,823

–

1,790

3,665

922

2,743

Thousand boe/d

2018

1,749

–

1,863

3,666

957

2,709

2017

1,730

1,839

3,664

887

2,777

[A] See “Oil and gas information” on pages 61-69.
[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 61-69 and set out
in more detail in “Supplementary information – oil and gas (unaudited)”
on pages 239-256.

Before taking production into account, our proved reserves increased by
906 million boe in 2019. This comprised increases of 912 million boe from
Shell subsidiaries and decreases of 6 million boe from the Shell share of
joint ventures and associates. The increase from Shell subsidiaries included
a net increase of 785 million boe from revisions and reclassifications, an
increase of 5 million boe from improved recovery, an increase of 276
million from extensions and discoveries and a net decrease of 154 million
boe related to purchases and sales of minerals in place. The decrease of 6
million boe from the Shell share of joint ventures and associates comprises
a net decrease of 13 million boe from revisions and reclassifications, an
increase of 3 million from extensions and discoveries and an increase
of 4 million from improved recovery.

In 2019, 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 1,182
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 156 million boe and 7 million boe was consumed in operations.

Shell Annual Report and Accounts 2019Strategic ReportPERFORMANCE INDICATORS

These indicators enable management to evaluate Shell’s performance against
our strategy and operating plans. Those that are used in the determination
of the Executive Directors’ remuneration are asterisked below and on the
following page. See “Directors’ Remuneration Report” on pages 135-163.

Financial

Total shareholder return (%)*

Return on average capital employed (%)*

0.5 2018: (4.2)

6.7 2018: 9.4

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, thereby providing a way to determine how we are performing
relative to our industry peers.

ROACE is defined as income for the period, adjusted for after-tax interest
expense, as a percentage of the 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 pages 40-41 and
“Non-GAAP measures reconciliations” on pages 279-280.

Cash flow from operating activities ($ million)*

42,178 2018: 53,085

Cash flow from operating activities is the total of all the 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 pages 80-83.

Free cash flow ($ million)*

26,399 2018: 39,426

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 the cash
available for financing activities, including dividend payments, after
investment in maintaining and growing our business.

See “Non-GAAP measures reconciliations” on pages 279-280.

Organic free cash flow ($ million)

20,116 2018: 31,183

Organic free cash flow is defined as free cash flow excluding the
cash flows from acquisition and divestment activities. It is a measure
used by management to evaluate the generation of cash flow
without these activities.

See “Non-GAAP measures reconciliations” on pages 279-280.

Earnings on a current cost of supplies basis
($ million)

15,827 2018: 24,364

Earnings per share on a current cost of supplies
basis ($)

1.88 2018: 2.85

Earnings on a CCS basis is the income for the period, adjusted for the
after-tax effect of oil-price changes on inventory. Segment earnings
presented on a CCS 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 pages 40-41 and
“Non-GAAP measures reconciliations” on pages 279-280.

CCS earnings per share, which is on a diluted basis above, is calculated
by dividing the CCS earnings attributable to shareholders (see “Non-
GAAP measures reconciliations” on pages 279-280) 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)

28,788 2018: 24,878

Capital investment is the sum of capital expenditure, investments in joint
ventures and associates, investments in equity securities, as reported in
the “Consolidated Statement of Cash Flows”, plus exploration expenses
excluding wells written off and leases recognised in the period and other
adjustments. Capital investment is a measure used to make decisions
about allocating resources and assessing performance.

See “Liquidity and capital resources” on pages 80-83 and
“Non-GAAP measures reconciliations” on pages 279-280.

Shell Annual Report and Accounts 2019Strategic ReportFinancial continued

Cash capital expenditure ($ million)

Gearing (%)

23,919 2018: 24,078

29.3 2018: 20.3

Cash capital expenditure is the sum of capital expenditure, investments
in joint ventures and associates, and investments in equity securities,
as reported in the “Consolidated Statement of Cash flows”. It is used to
monitor investing activities on a cash basis, excluding items such as lease
additions that do not necessarily result in cash outflows in the period.

See “Non-GAAP measures reconciliations” on pages 279-280.

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. Gearing at the end of 2019 on an IAS 17 basis was 25.0%. The net
debt calculation includes the fair value of derivative financial instruments
used to hedge foreign exchange, 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. Gearing is
a measure of the degree to which our operations are financed by debt.

See “Liquidity and capital resources” on pages 80-83.

Operational

Production available for sale (thousand boe/d)*

Project delivery on schedule (%)*

3,665 2018: 3,666

90 2018: 75

Production is the sum of all the 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, NGLs, 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 pages 40-41.

LNG liquefaction volumes (million tonnes)*

35.6 2018: 34.3

Project delivery on budget (%)*

99 2018: 97

Project delivery reflects our capability to complete major projects on
time and within budget on the basis of the 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.

LNG liquefaction volumes is a measure of the operational performance
of our Integrated Gas business and LNG market demand.

See “Integrated Gas” on pages 45-51.

Proved oil and gas reserves (million boe)

11,096 2018: 11,578

Refinery and chemical plant availability (%)*

90.8 2018: 91.9

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 pages 70-78.

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
boe using a factor of 5,800 scf/b. Reserves are crucial to an oil and gas
company, as they constitute the source of future production. Reserves
estimates are subject to change owing to a wide variety of factors,
some of which are unpredictable.

See “Risk factors” on pages 27-36,
“Summary of results” on page 40-41,
“Oil and gas information” on pages 61-69 and
“Supplementary information – oil and gas (unaudited)”
on pages 239-256.

Shell Annual Report and Accounts 2019Strategic ReportPERFORMANCE INDICATORS continued

Safety and Environment

Total recordable case frequency
(injuries per million working hours)*

Chemicals GHG intensity (tonnes of CO2
equivalent/tonne petrochemicals produced)*

0.9 2018: 0.9

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 pages 84-90.

Number of operational Tier 1 and 2 process
safety events*

130 2018: 121

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, 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 pages 84-90.

Upstream and Integrated Gas GHG intensity
(tonnes of CO2 equivalent/tonne of hydrocarbon
production available for sale)*

0.17 2018: 0.16

Upstream/midstream 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 hydrocarbon production available for sale.

See “Climate change and energy transition” on pages 91-98.

Refining GHG intensity
(tonnes of CO2 equivalent/UEDC™)*

1.06 2018: 1.05

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 Utilised Equivalent Distillation
Capacity (UEDC™). UEDC™ 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 the size and
configuration of its particular mix of process and non-process facilities.

See “Climate change and energy transition” on pages 91-98.

1.04 2018: 0.96

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.

See “Climate change and energy transition” on pages 91-98.

Number of operational spills of more than 100 kg

70 2018: 93

The operational spills indicator is the number of incidents in respect
of activities where we are the operator in which 100 kg or more of oil
or oil products were spilled as a result of those activities and reached
the environment.

See “Environment and society” on pages 84-90.

Direct GHG emissions
(million tonnes of CO2 equivalent)

70 2018: 71

Direct GHG emissions from facilities operated by Shell, expressed
in CO2 equivalent.

See “Climate change and energy transition” on pages 91-98.

Net Carbon Footprint
(grams of CO2 equivalent per megajoule)*

78 2018: 79

Net Carbon Footprint is a comprehensive measure of the lifecycle carbon
intensity of the energy products we sell. It is a weighted average of the
lifecycle CO2 intensities of different energy products, normalised to the
same point relative to their final end-use. It includes emissions from the
extraction, transportation and processing of crude oil or gas or other
feedstocks, transport of products, and our customers’ emissions from the
use of products we sell. 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.
Emissions compensated through various measures are also included,
such as emissions mitigated by nature-based solutions and carbon
capture and storage technology.

See “Climate change and energy transition” on pages 91-98.

Shell Annual Report and Accounts 2019Strategic ReportINTEGRATED GAS

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 expenditure

Cash capital expenditure [A]

Capital investment [A]

Oil and gas production available for sale (thousand boe/d)

LNG liquefaction volumes (million tonnes)

[A] See “Non-GAAP measures reconciliations” on pages 279-280.

$ million, except where indicated

2019

8,628

2018

11,444

2017

5,078

45,602

48,795

36,770

1,791

263

6,667

281

6,238

2,242

3,851

4,299

6,706

922

35.6

2,273

2,230

6,014

208

4,850

2,795

3,262

3,819

4,259

957

34.3

1,714

687

5,471

141

4,965

790

3,515

3,616

3,921

887

33.2

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 and liquids exploration and extraction, and the operation
of upstream and midstream infrastructure that delivers gas and liquids to
market. It markets and trades natural gas, LNG, electricity and carbon-
emission rights, and markets and sells LNG as a fuel for heavy-duty
vehicles and marine vessels.

PRODUCTION AVAILABLE FOR SALE
In 2019, production was 336 million barrels of oil equivalent (boe), or 922
thousand boe per day (boe/d), compared with 349 million boe, or 957
thousand boe/d in 2018. Natural gas production increased by 3%
compared with 2018, mainly due to field ramp-ups in Australia and
Trinidad and Tobago combined with higher availability at Pearl GTL in
Qatar in 2019, partially offset by divestments. Liquids production
decreased 27%, mainly due to the transfer of the Salym asset in Russia
into the Upstream segment.

BUSINESS CONDITIONS
Global gas demand is estimated to have grown by about 2.4% in 2019
which is in line with the annual growth rate of 2.5% observed since the
start of the century.

Global LNG imports grew by 40 million tonnes in 2019. Significant LNG
supply growth came mainly from Australia, the USA and Russia. In 2019,
inventory levels were higher in Asia following mild winter conditions. LNG
imports were down in Japan and South Korea due to milder weather and
higher nuclear utilisation than in 2018. However, more LNG supply flowed
into the European markets.

LNG LIQUEFACTION VOLUMES
LNG liquefaction volumes of 35.6 million tonnes in 2019 were 4% higher
than in 2018, driven by additional volumes from increased feedgas
availability, mainly from ventures, and new LNG capacity from the Prelude
floating LNG facility in Australia and Elba LNG in USA, partly offset by
the divestment of Malaysia LNG.

LNG sales volumes of 74.45 million tonnes in 2019 were 5% higher than
in 2018, driven by our increased LNG purchases from third parties and
by higher LNG liquefaction volumes.

Natural gas prices can vary from region to region.

In the USA, the natural gas price at the Henry Hub averaged $2.5 per
million British thermal units (MMBtu) in 2019, 19% lower than in 2018 and
traded in a range of $2.0 to 4.1/MMBtu.

In Europe, natural gas prices were lower than in 2018. The average price
at the UK National Balancing Point (NBP) was 35 pence/therm, 43%
lower than in 2018. At the main continental gas trading hubs – in the
Netherlands, Belgium and Germany – prices were also lower, as
reflected by weaker Dutch Title Transfer Facility (TTF) prices.

Long-term contracted LNG prices in the Asia-Pacific region are broadly
comparable to 2018 prices as they are predominantly indexed to oil
prices, particularly to the Japan Customs-cleared Crude (JCC) index
which has been generally stable year-on-year. Meanwhile, North Asia
spot prices, reflected by the Japan Korea Marker (JKM) were $5.55/
mmbtu, 43% lower than 2018 as a result of unprecedented additional
supply of LNG coming on stream.

See “Market overview” on pages 37-40.

EARNINGS 2019-2018
Segment earnings in 2019 were $8,628 million, which included a net
charge of $326 million. The net charge mainly reflected impairment
charges of $890 million mostly in Australia, negative movements in
deferred tax positions of $292 million and write-offs of $131 million
in Australia and Trinidad and Tobago, respectively. These were partly
offset by a gain of $787 million related to the fair value accounting
of commodity derivatives and a gain of $203 million on a sale of
assets in Australia.

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.

Shell Annual Report and Accounts 2019Strategic ReportINTEGRATED GAS continued

Excluding the net charge described above, segment earnings were
$8,955 million in 2019 compared with $9,399 million in 2018. Earnings
were negatively impacted by lower realised oil, LNG and gas prices,
higher operating expenses (of which about 50% relates to New
Energies reflecting underlying business growth), and lower liquids
production volumes, partly offset by significantly stronger
contributions from LNG trading and optimisation.

EARNINGS 2018-2017
Segment earnings in 2018 were $11,444 million, which included a net
gain of $2,045 million as described above.

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 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 Energies 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.

CASH CAPITAL EXPENDITURE AND CAPITAL INVESTMENT
Cash capital expenditure in 2019 was $4.3 billion, compared with $3.8
billion in 2018. Capital investment in 2019 was $6.7 billion, compared
with $4.3 billion in 2018.

We continued to divest selected assets during 2019, including:
In Timor-Leste (East Timor), we sold our 26.6% interest in the
■
undeveloped Sunrise gas field to the Timor-Leste government; and
In India, we sold our 10% interest in Mahanagar Gas Limited.

■

BUSINESS AND PROPERTY
LNG AND GTL
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 and in the Browse Basin. Woodside is the
operator on behalf of the NWS joint venture (Shell interest 16.7%),
which produced more than 480 thousand boe/d of gas and
condensates in 2019.

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 also a partner in the Browse joint arrangement (Shell interest
27%) covering the Brecknock, Calliance and Torosa gas fields, which is
operated by Woodside.

We are the operator of Prelude FLNG (67.5% Shell interest). During 2019,
the facility progressed through the start-up ramp-up phase, with the first
condensate offtake in March 2019, followed by the first LNG offtake in
June 2019 and the first NGL offtake in July 2019. 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%) and other backfill and
contingent resources.

A significant discovery was made at the Bratwurst prospect in
Browse basin, Australia near the Prelude FLNG facility which presents
an opportunity for a future tie-back to Prelude, currently under evaluation,
to maximise the FLNG value.

PORTFOLIO AND BUSINESS DEVELOPMENT
Key portfolio events in 2019 included the following:
■

In December 2018, we formed two joint ventures: with EDF Renewables
to build wind farms off the New Jersey coast; and with EDP
Renewables (EDPR) to build wind farms off Massachusetts, in the USA.
Leases were granted by the authorities for JV with EDF in December
2018 and with EDPR in February 2019. In November, Massachusetts
state authorities selected our JV with EDPR (Shell interest 50%) to
develop and supply 804 MW of clean, renewable energy from
offshore wind to the electricity customers in the state;
In February, we acquired sonnen, a provider of smart energy
storage systems; and
In November, we acquired ERM Power, one of Australia’s leading
commercial and industrial electricity retailers.

■

The following major milestones were reached in 2019:
■

In June, the first shipment of LNG sailed from our Prelude Floating
Liquefied Natural Gas facility (Shell interest 67.5%);
In September, the first of 10 Moveable Modular Liquefaction System
(MMLS) Units started up at Elba Island in Savannah, Georgia,
USA; and
In November, FID was taken for the Barracuda Project (Shell interest
100%), a subsea tie-back of two gas wells to an existing platform on
the East Coast of Trinidad.

■

The Prelude floating liquefied natural gas (FLNG) facility produces
natural gas off the coast of Australia.

The sale of Shell’s interest in the undeveloped Sunrise gas field in the
Timor Sea (Shell interest 26.6%) to the government of Timor-Leste
was completed in 2019.

We are a partner in both Shell-operated and other exploration joint
arrangements in multiple basins, including Browse, Exmouth Plateau,
and Greater Gorgon.

Shell Annual Report and Accounts 2019Strategic ReportWe 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 Queensland Curtis LNG (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.

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, which would then sell gas to local customers and
export it through its gas plant on Curtis Island.

Indonesia
We have a 35% interest in the INPEX Masela Ltd joint venture which
owns and operates the offshore Masela block. In June 2019, the joint
venture received the official approval of Plan of Development (POD) for
the Abadi LNG Project from the Indonesian government authorities. The
government also granted a 20-year extension to the Masela block PSC
in October 2019.

Malaysia
We operate a GTL plant, Shell MDS (Shell interest 72%). Using Shell
technology, the plant converts gas into high-quality middle distillates,
drilling fluids, waxes and specialty products.

Netherlands
We have access to import and storage capacity at the GATE LNG
terminal in the Port of Rotterdam, Netherlands (Shell capacity rights
1.4 million tonnes per annum (mtpa). We are also using the terminal to
supply LNG to our growing truck-refuelling network in the Netherlands.

Brunei
We have a 25% interest in Brunei LNG Sendirian Berhad.

Canada
In 2018, we took FID on LNG Canada, a liquefied natural gas project in
Kitimat, British Columbia, in which we hold a 40% interest. Construction
started in October 2018 and first LNG is expected before the middle
of this decade.

Egypt
We have interests of 35.5% in train one and 38% in train 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 61-68.

Gibraltar
We have a 51% interest in the first LNG regasification facility in Gibraltar.

India
We hold a 100% interest in Shell Energy India Pvt Ltd, which operates a
regasification terminal, and Hazira Port Pvt Ltd, which manages a cargo
port at Hazira, both of which are located in the state of Gujarat on the
west coast.

Nigeria
We have a 25.6% interest in Nigeria LNG Ltd, which operates six
LNG trains located on Bonny Island.

Norway
Gasnor AS (Shell interest 100%) provides LNG fuel for ships and industrial
customers and has a natural gas pipeline network.

Oman
We have a 30% interest in Oman LNG LLC. We also have an 11% indirect
interest in Qalhat LNG.

In February 2019, we signed an Interim Upstream agreement that detailed
a funding and a work programme for 2019 for the development of gas
resources destined for integrated projects to help meet the Sultanate of
Oman’s growing need for energy. The other signatories were Petroleum
Development Oman (PDO), Oman Oil Company (OOC) and Total. The
project covers investments in gas exploration and production. The aim is
to integrate the Shell and OOC share of the upstream project with the
development of a GTL plant currently under discussion, which would be
developed and operated by Shell in partnership with OOC.

Peru
We have a 20% interest in the Peru LNG liquefaction plant.

Operator looking at a vessel at the Shell Hazira port and LNG Terminal, India.

Shell Annual Report and Accounts 2019Strategic ReportUK
We have a 50% interest in the Dragon LNG regasification terminal, with
long-term arrangements in place governing the use of capacity rights.

USA
We have offtake rights via a lease to 100% of the capacity (2.5 mtpa) of
the Kinder Morgan-operated Elba Island liquefaction plant, which consists
of 10 MMLS units. The first three of these units started up in 2019. We also
lease regasification capacity on Elba Island with 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. In March 2019,
we signed a project framework agreement with Energy Transfer to
advance the proposed Lake Charles LNG export project towards a
potential FID. The Lake Charles LNG export project, is planned to have
liquefaction capacity of 16.45 million tons per annum and is a 50:50
venture between the two parties.

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. We also sell trucked
LNG in China, Singapore and Europe.

Other gas and power activities
Bolivia
We hold a 37.5% participating interest in the Caipipendi block, where we
mainly produce from the Margarita and Huacaya gas-condensate fields.
We are also exploring further in the Caipipendi block. We also have a
25% interest in the Petrobras-operated 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% during
exploration), and we are currently exploring there. In August 2019, we
acquired a 15% participating interest in the Repsol-operated Iniguazu
exploration Block. In May 2019, we relinquished the La Vertiente Block
to the government.

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 FID on the Changbei II Phase
1 project. We started drilling activity in early 2019, and remain the
operator of Changbei II.

INTEGRATED GAS continued

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.

Operators at Pearl GTL plant, Qatar.

Russia
We have a 27.5% interest in Sakhalin-2, the joint venture with Gazprom,
an integrated oil and gas project located on Sakhalin island.

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 and market the gas to power plants
and other customers.

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, which had initially been due to
expire on October 31, 2017, remains in full force pending the grant
of the licence extension.

Trinidad and Tobago
We have interests in three concessions with producing fields – Central
Block, East Coast Marine Area (ECMA) and North Coast Marine Area
(NCMA) blocks. We have a 65% interest in Central Block, 100% interest
in ECMA and 80.5% interest in NCMA. We also own 90% interest in
block 22 and 80% in NCMA 4 which include three undeveloped
discoveries. Our interests range from 35% to 100% in exploration
activities in blocks 5(c), 5(d), 6(d), and Atlantic Area blocks 3, 5, and 6.

We are the largest shareholder in all four trains at Atlantic LNG.

Changbei Natural Gas Processing Facility, China.

Shell Annual Report and Accounts 2019Strategic ReportIndia
We had a 30% interest in the producing oil and gas field Panna/Mukta
and a 30% interest in the Mid Tapti and South Tapti fields. Both licences
expired in December 2019 and operatorship was transferred to Oil &
Natural Gas Corporation Limited (ONGC).

In 2019, we divested our 10% interest in Mahanagar Gas Limited,
a natural gas distribution company in Mumbai.

Trading and Supply
Trading and Supply also markets and trades natural gas, power and
carbon-emission rights in multiple markets in North and South America,
Europe, Asia and Australia, of which a portion includes equity volumes
from our upstream operations.

We have set up a power marketing and trading business in Japan which
began trading in 2019.

Shell Greenlots’ EV charging, Columbus USA.

In November 2019, we acquired ERM Power, one of Australia’s leading
commercial and industrial electricity retailers, which builds on Shell Energy
Australia’s existing gas marketing and trading capability.

Other
We have a 17.9% share in the West African Gas Pipeline Company
Limited which owns and operates a 678-kilometre pipeline transporting
gas from Nigeria to Ghana, Benin and Togo.

Power
We began supplying residential customers in the UK for the first time when
we acquired First Utility in 2018. We rebranded First Utility to Shell Energy
Retail in 2019. In November 2019, Shell Energy Retail completed the
acquisition of Hudson Energy Supply UK Limited, which trades as Green
Star Energy for consumers and Hudson Energy for businesses.
Shell Energy Retail supplies 100% renewable electricity via purchase
of certificates, as well as natural gas and smart home technology to
more than 900 thousand homes in the UK.

We own a majority interest in GI Energy, a US company that focuses on
the integration of distributed energy resources. We refer to distributed
energy when customers begin to generate their own power through solar
panels or wind turbines, store it and redistribute it back into the grid.

In 2019, we acquired German company sonnen, which provides battery
storage systems to homes with solar panels. In 2019, we also acquired
energy technology firm Limejump which provides energy storage to
smaller renewable energy generators, allowing them to sell clean
power in real-time to the National Grid.

We have a 40% interest in a gas pipeline connecting Uruguay to
Argentina.

We have a 35% interest in Cyprus block 12, holding the Aphrodite
discovery which is currently under appraisal, a 60% interest in two
deep-water blocks in Colombia, interests in offshore blocks in
Myanmar and one exploration block licence in Namibia.

We also have interests in Gabon and Morocco.

New Energies
Our New Energies business explores emerging opportunities linked to
the energy transition and invests in those where we see sufficient value.
We focus on power, from generation to electric-vehicle charging to
integration with Trading, as well as on new fuels for transport, including
advanced biofuels and hydrogen.

The New Energies portfolio is being built through organic growth and
acquisitions. Most of these opportunities are in 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. Shell-controlled New Energies companies are subject
to the Shell Control Framework. Some are not yet in full compliance
with the Shell Control Framework and we are working to bring them
into compliance with this framework in a fit-for-purpose manner.

Wind turbines at Noordzee Wind Farm, Netherlands.

Shell Annual Report and Accounts 2019Strategic ReportINTEGRATED GAS continued

In the Netherlands we are part of the Blauwwind consortium (Shell
interest 20%) which is developing the Borssele III and IV offshore wind
farms that are designed to have a total installed capacity of 731.5 MW,
enough to power about 825,000 Dutch homes. We have a 50% interest
in the NoordzeeWind joint venture, an offshore wind power project in the
Netherlands with total installed capacity of 108 MW.

In the USA, we have developed and become co-owners of four onshore
wind projects, from California to Texas. In December 2018, we formed
two 50:50 joint ventures: with EDF Renewables to build wind farms off the
New Jersey coast; and with EDPR to build wind farms off Massachusetts.
In November 2019 Massachusetts state authorities selected our JV with
EDPR to develop and supply 804 MW of clean, renewable energy from
offshore wind to electricity customers in the state.

Solar panels at Silicon Ranch, West Virginia, USA.

We own a 43.1% interest in Silicon Ranch Corporation, a developer,
owner and operator of solar energy assets in the USA.

INTEGRATED GAS DATA TABLE

LNG liquefaction volumes

Australia

Brunei

Egypt

Malaysia

Nigeria

Norway

Oman

Peru

Qatar

Russia

Trinidad and Tobago

United States

Total

In 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 2019, we also acquired a 49% interest in ESCO Pacific,
a utility scale solar developer and long-term asset management company
in Australia.

In 2019, we completed the acquisition of EOLFI, a French renewable
energies developer specialising in floating offshore wind projects.

Through our NewMotion subsidiary, Shell is developing other flexible
solutions for EV drivers to charge their vehicles at home or at work.
NewMotion operates around 50 thousand private electric charge
points for homes and businesses in the Netherlands, Germany,
France and the UK.

In 2019, we acquired Greenlots, a California-based company that
provides EV charging posts, charging network software and grid services
across the USA and has growing business in Canada, Thailand, Malaysia
and Singapore.

New fuels for transport
In Bangalore, India, we have built a demonstration plant that is designed
to turn waste into petrol or diesel that can power cars.

In Oregon, USA, we are developing a facility to produce renewable
natural gas (RNG) from organic waste through a process called
anaerobic digestion.

We are part of joint ventures and alliances that have built hydrogen
filling stations for passenger cars in the USA (California), Canada,
Germany and the UK and announced plans to build several stations
in the Netherlands. In California, Shell is also developing filling stations
for hydrogen trucks, in co-operation with Toyota, Kenworth and the
Port of Los Angeles.

2019

12.5

1.6

0.4

–

5.3

0.1

2.6

0.9

2.5

3.0

6.7

0.1

Million tonnes

2017

11.1 [A]

1.6

0.2

2018

12.1

1.6

0.3

0.6 [B]

1.3 [B]

5.1

0.1

2.4

0.8

2.3

3.1

5.8

–

5.2

0.1

2.0

0.9

2.4

3.1

5.3

–

35.6

34.3

33.2

[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.

Shell Annual Report and Accounts 2019Strategic ReportLNG AND GTL PLANTS AT DECEMBER 31, 2019

LNG liquefaction plants in operation

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

Prelude

Queensland Curtis LNG T1

Queensland Curtis LNG T2

Egyptian LNG T1

Egyptian LNG T2

Nigeria LNG

Location

Bergen

Lumut

Sur

Ras Laffan

Prigorodnoye

Karratha

Barrow Island

Browse Basin

Curtis Island

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.

LNG liquefaction plants under construction

North America

Canada

GTL plants in operation

Asia

Malaysia

Qatar

Asset

LNG Canada T1-2

Asset

Shell MDS

Pearl

Point Fortin

Location

Kitimat

Location

Bintulu

Ras Laffan

Shell
interest (%)

100% capacity
(mtpa) [A]

100.0

25.0

30.0

11.0 [B]

30.0

27.5

16.7

25.0

67.5

50.0

97.5

35.5

38.0

25.6

20.0

46.0

57.5

51.1

0.3

7.6

7.1

3.7

7.8

9.6

16.9

15.6

3.6

4.3

3.6

24.1

4.5

3.0

6.6

5.2

Shell
interest (%)

100% capacity
(mtpa)

40.0

14.0

Shell
interest (%)

100% capacity
(b/d)

72.0

100.0

14,700

140,000

Shell Annual Report and Accounts 2019Strategic ReportUPSTREAM

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 expenditure

Cash capital expenditure [A]

Capital investment [A]

Oil and gas production available for sale (thousand boe/d)

[A] See “Non-GAAP measures reconciliations” on pages 279-280.

$ million, except where indicated

2018

6,798

2017

1,551

47,733

40,192

285

600

12,157

1,132

13,006

8,791

12,447

12,582

12,785

2,709

623

1,188

12,656

1,804

17,303

2,409

11,389

11,670

13,160

2,777

2019

4,195

46,413

379

2,180

12,043

2,073

17,003

5,954

10,074

10,277

11,075

2,743

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 1.0 million barrels per day (b/d), or 1.0%, to
100.3 million b/d in 2019, according to the International Energy Agency’s
Oil Market Report published in January 2020. Brent crude oil, an
international benchmark, traded between $53 per barrel (/b) and $75/b
in 2019, ending the year at the lower price of $67/b. It averaged $64/b
for the year, $7/b lower than in 2018.

On a yearly average basis, West Texas Intermediate crude oil traded at a
$7/b discount to Brent in 2019, compared with $6/b in 2018. The discount
remained broadly unchanged from 2018, reflecting continued constrained
pipeline capacity from the landlocked Cushing storage hub to the US Gulf
Coast, against a backdrop of growing supply to the hub. US crude oil
exports increased further to about 3 million b/d in 2019, up by 1 million
b/d from 2018. This helped to limit widening of the price differential
between Brent and WTI.

Global gas demand is estimated to have grown by about 2.4% in 2019,
which is in line with the annual growth rate of 2.5% observed since the
start of the century. Robust demand growth in power generation and
industry was driven by attractive regional spot gas prices that incentivised
switching away from competing fuels such as coal and oil. In the key
regional markets of North America, Europe, and Asia-Pacific, attractive
prices have been caused mainly by ample gas supply growth.

In the USA, the natural gas price at the Henry Hub averaged $2.5 per
million British thermal units (MMBtu) in 2019, 19% lower than in 2018,
and traded in a range of $2.0-4.1/MMBtu. There was some downward
pressure on prices due to strong gas supply growth of about 8 billion cubic
feet per day (cf/d), which averaged 10% higher than 2018. Gas supply
growth was, in part, driven by a growth of associated gas from oil fields,
helped by oil prices above $50/b, and by new gas pipeline capacity.
Gas prices found support from: demand growth driven by below-normal
storage inventory levels; an increase in usage of power for cooling due to
warmer than normal weather in the second half of the year; completion of
LNG liquefaction projects; increased exports to Mexico by pipeline; and
US industrial growth.

In Europe, natural gas prices were lower than in 2018. The average price
at the UK National Balancing Point (NBP) was 43% lower in 2019. At the
main continental gas trading hubs – in the Netherlands, Belgium and
Germany – prices were also lower, as reflected by weaker Dutch Title
Transfer Facility (TTF) prices. European gas prices were lower due to:
the rise in LNG volume diverted from the Asia-Pacific region caused
by weaker Asia-Pacific demand growth; robust supply of pipeline gas,
particularly from Russia; well-filled gas storage inventories; competition
with renewables in power generation; and mild weather.

See “Market overview” on pages 37-39.

PRODUCTION AVAILABLE FOR SALE
In 2019, production was 1,001 million boe, or 2,743 thousand boe/d,
compared with 989 million boe, or 2,709 thousand boe/d in 2018. Liquids
production increased by 8% and natural gas production decreased by 9%
compared with 2018.

Increases were mainly from new field start-ups and the continuing ramp-up
of existing fields (around 190 thousand boe/d), in particular in the Permian
Basin in the USA, in the US Gulf of Mexico (Appomattox, Stones and
Ursa) and in Brazil (Lula and Berbigao). Further increases from moving
Salym from IG to Upstream (around 60 thousand boe/d). Decreases were
mainly from divestments (around 90 thousand boe/d), field declines and
performance maintenance (around 100 thousand boe/d).

EARNINGS 2019-2018
Segment earnings in 2019 were $4,195 million, which included a net
charge of $1,930 million related to impairments, primarily in the US
Appalachia unconventional gas assets and a drilling rig joint venture,
partly offset by a gain of $1,609 million on sale of assets, mainly in
Denmark and the US Gulf of Mexico.

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,
and 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.

Shell Annual Report and Accounts 2019Strategic ReportExcluding the net charge described above, segment earnings in 2019
were $4,744 million, compared with $6,775 million in 2018. Earnings
excluding the net charge were adversely impacted by lower realised oil
and gas prices, higher depreciation as well as higher well write-offs mainly
in Albania and Kazakhstan, partly offset by higher sales volumes
associated with the timing of liftings.

EARNINGS 2018-2017
Segment earnings in 2018 were $6,798 million, which included a net gain
of $23 million as described above.

Segment earnings in 2017 were $1,551 million, which included a net
charge of $1,540 million. This 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. The net charge also involved $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 UK North Sea assets,
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 charges 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).

CASH CAPITAL EXPENDITURE AND CAPITAL INVESTMENT
Cash capital expenditure in 2019 was $10.3 billion, compared with
$12.6 billion in 2018. Capital investment in 2019 was $11.1 billion,
compared with $12.8 billion in 2018.

The lower cash capital expenditure and capital investments in 2019
reflected our continuing efforts to improve capital efficiency by pursuing
lower cost development solutions, the completion of the Appomattox
project, IFRS16 implementation effects and the 2018 impacts of relative
higher spend for lease renewals in Nigeria and additional investments
in exploration acreage.

PORTFOLIO AND BUSINESS DEVELOPMENT
We took the following key portfolio decisions during 2019:
■

In Argentina we won two exploration blocks in the deep-water bid
round (Shell interest 60%);

■

■ Also in Argentina, we agreed a 50:50 partnering with Equinor to jointly
acquire Schlumberger’s 49% interest in the Bandurria Sur block located
in the Vaca Muerta basin (Shell interest 24.5%);
In Brazil, we announced the Final Investment Decision (FID) to contract
the Mero 2 floating production, storage and offloading (FPSO) vessel
to be deployed at the Mero field offshore Santos Basin in Brazil;
In Brunei, we acquired the deep-water exploration Block CA-1 (Shell
interest 86.95%). The deal is expected to complete in 2020;
In Egypt, we announced the intention to sell our onshore upstream
assets in the country;

■

■ Also in Egypt, we were awarded onshore concessions with 100% Shell
interest (West El Fayum, South East Horus, South Abu Sennan) and one
producing concession extension (Bed 2-17);

■ Also in Egypt, we were awarded two concessions in the Red Sea bid
round: Block 4 (Shell interest 70%) and Block 3 as the sole operator.
This is awaiting ratification;
In Kazakhstan, we decided not to progress the Kalamkas-Khazar
projects. These projects were not deemed competitive compared to
other opportunities in our global portfolio;

■

In Malaysia, we took FID on the second phase of the Malikai deep
water development (Shell interest 35%);
In Nigeria, we announced the release of Invitation to Tender (ITT)
to contractors for the development of the Bonga South West Aparo
(BSWA) oil field;
In Oman, our partnership with Oman Oil Company Exploration
production to explore for oil and gas in Block 42 was ratified (Shell
interest 50%);

■ Also in Oman, we signed an Exploration & Production Sharing

Agreement for Block 55 in the southeast of the Sultanate (Shell interest
100%). This agreement is awaiting ratification via Royal Decree;
In São Tomé and Príncipe, in the Gulf of Guinea, we acquired interests
in Block 6 (Shell interest 20%) and Block 11 (Shell interest 30%)
exploration licences;
In South Africa, we entered the frontier deep-water Cape Basin (Shell
interest 40%) and a second block adjacent to our existing acreage in
the Namibian Orange Basin (Shell interest 45%);
In the UK, we announced FID to export gas and oil from the Pierce
field, which is located 165 miles east of Aberdeen (Shell interest
92.5%);
In the US Gulf of Mexico, we announced FID to develop the PowerNap
field (Shell interest 100%);

■

■ Also in the US Gulf of Mexico, we acquired 77 blocks across multiple

■

plays in the Gulf of Mexico Lease Sale 252; and
In the USA, we made a significant discovery at the Blacktip prospect in
the deep-water US Gulf of Mexico (Shell interest 52.4%). Blacktip is our
second significant discovery in the Perdido Corridor and is part of a
continuing exploration strategy to add competitive deep-water options
to extend our heartlands.

In the Netherlands, the Dutch government decided to halt Groningen
production by 2022, eight years earlier than initially planned.

We achieved the following operational milestones in 2019:
■

In deep water off Brazil, we announced first production from two of our
FPSOs: P-67, in Lula North (Shell interest 23%, post-unitisation); and
P-68, in Berbigão (Shell interest 25%, subject to unitisation);
In Italy, the Tempa Rossa oil field started up in December 2019 (Shell
interest 25%);
In Malaysia, we completed phase 2 of the Gumusut-Kakap deep-water
project, drilling four additional subsea wells (Shell interest 29%);
In Malaysia offshore Sarawak, we produced first oil and gas from
the E6 field in SK308 PSC (Shell interest 50%). We also produced
first gas from the Larak field in the SK408 PSC (Shell interest 30%);
In the US Gulf of Mexico, we announced first production from
Appomattox (Shell interest 79%). It is the first commercial discovery
brought into production in the deep-water Norphlet formation in
the US Gulf of Mexico.

■

We continued to divest selected assets during 2019, including:
■

In Canada, we sold our Foothills sour gas plants and the gas fields
which feed them;
In Denmark, we completed the sale of our 36.8% non-operating
interest in our joint venture the Danish Underground Consortium,
for $1.9 billion;
In Norway, we sold 10% of our 12% interest in Nyhamna gas plant;
In the US Gulf of Mexico, we sold our 22.45% non-operating interest
in the Caesar Tonga asset;

■

■ Also in the USA, we sold our non-Shell operated interest in

the Haynesville shale gas formation in Northern Louisiana; and

■ Also in the USA, we sold our Norphlet deep-water gathering

pipeline system in the US Gulf of Mexico.

Shell Annual Report and Accounts 2019Strategic ReportUPSTREAM continued

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:
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;
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. Royalties are either paid in
cash or in kind; and

■

■ 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
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 producing
concession operated by Total.

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 2018-2019 (ending October 1,
2019) was capped at 19.4 billion cubic metres; actual production in this
period was 17.5 billion cubic metres.

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. Dividend payments in 2020 and beyond will only be done if a
solvency ratio of 25% is reached. In September 2018, detailed
agreements were signed to further implement the HoA. As part of these
agreements, Shell guarantees NAM’s payment obligations vis-à-vis the
Dutch government in relation to earthquake-related damages and costs of
strengthening houses, up to a maximum of 30%. This maximum equates to
Shell’s indirect interest in the Groningen production system.

In September 2019, the government issued an update announcing that it
was able to reduce Groningen production faster, stopping production in
2022, eight years earlier than initially planned. Negotiations are ongoing
between the government and the NAM shareholders to discuss the
compensation payable by the government to NAM in order to restore
the balance of the package of arrangements laid down in the 2018 HoA.

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.

Shell Annual Report and Accounts 2019Strategic ReportNorway
We are a partner in 34 production licences on the Norwegian continental
shelf. We are the operator in 14 of these, of which two are producing: 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%).

Brent decommissioning using Allseas Pioneering Spirit, the world’s largest construction vessel.

In June 2019 the “Pioneering Spirit” vessel safely completed the single-lift
removal of the 25,000-tonne Brent Bravo topside from the North Sea.
Brent Bravo is the second of four platforms, after Brent Delta, to be
decommissioned and removed from the Brent oil and gas field. The UK
Government initiated consultation with the other signatories of the OSPAR
Convention on whether to issue derogations for leaving in-situ the footings
of the Brent Alpha steel jacket and each of the gravity-based concrete
installations of Brent Bravo, Brent Charlie and Brent Delta.

In October 2019, we announced FID on a project to enable the export of
gas and oil from the Pierce field, which lies 165 miles east of Aberdeen. It
is a joint venture between Shell (92.52%) and Ithaca (7.48%). The project
includes modifying the FPSO vessel, the Haewene Brim, owned and
operated by Bluewater. Development is expected to take place between
2020 and 2021 and has Oil and Gas Authority (OGA) approval.

Rest of Europe
We also have interests in Albania, Bulgaria and Germany.

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 47), with the remainder (12% in 2019) sold in the domestic market.

In addition to our interest in BSP, 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 interest in the deep-water exploration Block
CA-2 (Shell interest 12.5%), under PSC.

A sale and purchase agreement was signed in October 2019 for the
acquisition of Total E&P Deep Offshore Borneo B.V. and all of its interests
in the deep-water exploration Block CA-1 (interest 86.95%), under PSC.
The deal is expected to complete in 2020.

Over the course of 2019, we have relinquished our interests in the Block
A concession (Shell interest 53.9%) following the drilling of the Rapong
exploration well. Linked to the relinquishment of Block A, we have also
relinquished our interests the adjacent Block N (Shell interest 50%).

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. Any surplus condensate and LPG is exported. In 2019,
Basrah Gas Company processed on average around 850 million scf/d
of associated gas into dry gas, condensate and LPG.

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.

We have an interest in the North Caspian Sea Production Sharing
Agreement (Shell interest 16.8%) 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
around 3,400 square kilometres. Phase 1 development of the field is
expected to lead to plateau oil production capacity of about 63 thousand
boe/d by 2020 (Shell interest), with the possibility of increases with
additional phases of development.

We 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.

Operators at the Karachaganak field in Kazakhstan.

In 2019 we made the decision not to progress the Kalamkas-Khazar
projects. These projects were not competitive enough compared to other
opportunities in Shell’s global portfolio.

Shell Annual Report and Accounts 2019Strategic ReportUPSTREAM continued

Malaysia
We explore for and produce oil and gas offshore Sabah and Sarawak
under 16 PSCs, in which our interests range from 20% to 85%.

Offshore Sabah, we operate two producing oil fields. These include
the Gumusut-Kakap deep-water field (Shell interest 29%), and the
Malikai deep-water field (Shell interest 35%). In August 2019, phase 2
development of the Gumusut-Kakap field successfully achieved first oil and
is expected to add 50 thousand boe/d of extra capacity (Shell interest).
In December 2019, we also took FID on phase 2 of the Malikai project.
The project involves the drilling of two additional oil producing wells and
four water injection wells to enhance Malikai’s expected recoverable oil
volumes. 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. 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 eight producing gas fields
(Shell interest 50%). In June 2019, the Block SK8 PSC expired (Shell equity
37.5%). In 2019, the abandonment of depleted wells for Serai field (Shell
interest 37.5%) and Saderi field (Shell interest 37.5%) were completed. In
December 2019, we signed a binding Heads of Agreement (HOA) for the
extension of the MLNG PSC. Under the terms of the HOA, Shell will
continue to be the PSC operator for F6 and F23 hubs and retains the
operatorship of E8, F13 East and F13 West fields. Shell will also be the
operator for the new exploration acreage and new fields (F22, F27,
Selasih), which will now be part of the MLNG Extension PSC. The key
terms in the HOA will be further detailed in the definitive agreements
expected to be signed in 2020. Nearly all the gas produced offshore
Sarawak is supplied to Malaysia LNG and to our gas-to-liquids plant in
Bintulu. See “Integrated Gas” on page 47.

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
200 oil fields, mainly located in central and southern Oman, over an area
of 90,874 square kilometres. The concession expires in 2044.

In October, we signed an Exploration & Production Sharing Agreement
for Block 55 in the southeast of the Sultanate. Oman Shell now has a
100% working interest and operatorship of Block 55 with a total area
of 7,564 square kilometres. The agreement includes a work programme
of regional studies, seismic acquisition and other potential exploration
activities. This agreement is awaiting ratification via Royal Decree.

Russia
We have a 50% interest in Salym Petroleum Development N.V., the joint
venture with Gazprom Neft, developing the Salym fields in western
Siberia, Khanty Mansiysk Autonomous District.

We and Gazprom Neft each have a 50% interest in Khanty-Mansiysk
Petroleum Alliance VOF partnership through which Shell is a holder
of 50% of shares in JSC Khanty-Mansiysk Petroleum Alliance.

In June 2019, we signed an agreement with Gazprom Neft on the
future sales and purchase of the 50% participation interest in LLC
Meretoyahaneftegaz. This transaction is expected to be completed
in 2020.

With effect from January 1, 2019, Salym and Khanty-Mansiysk Petroleum
Alliance VOF partnership is reported in the Upstream segment.
Comparative information has not been restated.

In May 2019, first oil and gas were successfully achieved from the E6 field
in SK308 PSC (Shell interest 50%) where the field is the first carbonate thin
oil-rim and gas development in Malaysia. First gas was also successfully
achieved from the Larak field in the SK408 PSC (Shell interest 30%) in
December 2019.

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 since 2014. Also, Salym and Khanty-
Mansiysk Petroleum Alliance VOF partnership also suspended any
of their shale oil-related activities since 2014 as well.

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 ten oil and gas producing
concessions, as well as two exploration concessions (North East Obaiyed,
North Matruh). In October 2019, we announced our intention to sell our
onshore upstream assets in Egypt. In December 2019, we were awarded
onshore concessions with 100% Shell interest (West El Fayum, South East
Horus, South Abu Sennan) and one producing concession extension
(Bed 2-17).

We also have interests in the Amended 2011 Baram Delta EOR PSC
(Shell interest 40%) and in Block SK-307 PSC (Shell interest 50%), and
exploration interests in Blocks SK318, SK320, SK408 and SK319.

Malikai deep-water platform, Malaysia.

Shell Annual Report and Accounts 2019Strategic ReportWe 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 47).

We have a 60% interest in the development rights over the Harmattan
Deep discovery and in the Notus discovery offshore the Nile Delta.

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%).

With effect from January 1, 2020, our interest in the offshore Nile Delta
will be reported in the Integrated Gas segment. Comparative information
will not be restated.

Nigeria
Our share of production, onshore and offshore, in Nigeria was 266
thousand boe/d in 2019, compared with 255 thousand boe/d in 2018.
Security issues, sabotage and crude oil theft in the Niger Delta remained
significant challenges in 2019.

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).

SPDC commenced litigation against the Federal Government (FGN), in
the domestic court to challenge the non-renewal of OML 11. In August
2019, the Court ruled in favour of SPDC affirming that the SPDC JV has
fulfilled its obligations under the law for the renewal of OML 11 and
ordered the FGN to renew OML 11 for 20 years. In December 2019, the
court further refused to grant an application by the FGN to suspend the
implementation of the judgement. Though the FGN has appealed the
decision of the Court, SPDC continues to operate the block supported
by the judgement in its favour which remains in force and unimpaired.

SPDC supplies gas to Nigeria LNG Ltd (see “Integrated Gas” on
page 47) mainly through its Gbaran-Ubie and Soku projects.

In 2019, we took the FID on Soku NAG Compressor 2 and Gbaran Single
Wells Hookup (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%). SNEPCO has interests in four deep-water blocks, three of which
are under PSC terms: 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
OML133 (including the Erha FPSO). Separately, SNEPCO holds a 50%
non-operating interest in oil prospecting licence (OPL) 245 (Zabazaba,
Etan) under a production sharing agreement (PSA).

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 235-237.

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 our Nigerian operations, we face various risks and adverse
conditions which could have a significant adverse effect on our operational
performance, earnings, cash flows and financial condition (see “Risk
factors” on page 32). 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
in 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 91-98.

FPSO Bonga, offshore Nigeria.

Rest of Africa
We also have interests in Algeria, Mauritania, Namibia, São Tomé and
Principe, South Africa and Tunisia.

North america
Canada
We have mineral leases mainly in Alberta and British Columbia. We
produce and market natural gas, natural gas liquids, synthetic crude oil
and bitumen.

Shales
We have approximately 1.4 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. Our Groundbirch asset
has the potential to be an integral part of the LNG Canada value chain.

Shell Annual Report and Accounts 2019Strategic ReportUPSTREAM continued

In 2019, we drilled and brought 30 wells onstream. We have interests
in 748 productive wells. In October 2019, we sold our Foothills assets
comprising approximately 400 thousand net acres at Waterton,
Jumping Pound, West Central and Caroline, with associated gas
processing facilities.

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 320 federal offshore leases and our share
of production averaged 359 thousand boe/d in 2019.

In May 2019, we signed an agreement to sell our 22.45% non-operated
interest in the Caesar-Tonga asset in the US Gulf of Mexico to Equinor.
The total consideration for this deal was $965 million in cash. This
was completed on July 1, 2019.

In April 2019, we announced a significant discovery at the Blacktip
prospect in the deep-water US Gulf of Mexico. Blacktip is a Wilcox
discovery in the Perdido thrust belt and was discovered in the Alaminos
Canyon Block 380, approximately 30 miles from the Perdido platform
and Whale discovery. Evaluation is ongoing and appraisal planning
is underway to further delineate the discovery and define
development options.

In May 2019, production started at the Shell-operated Appomattox
floating production system months ahead of schedule. Appomattox (Shell
interest 79%) currently has an expected peak production of 175 thousand
boe/d and is the first commercial discovery now brought into production
in the deep-water Gulf of Mexico Norphlet formation. In August 2019,
we took the FID for the PowerNap deep-water project in the US Gulf of
Mexico. PowerNap (Shell interest 100%), discovered in 2014, is a subsea
tie-back to the Shell-operated Olympus production hub. The project is
expected to start production in late 2021 and expected to produce up
to 35 thousand boe/d at peak rates. In August 2019, the Whale project
moved into the Define phase. The project is 60% Shell and 40% Chevron,
with the exception of the AC815 lease area which is 40% Shell and
60% Chevron.

We are the operator of eight production hubs – Mars A, Mars B, Auger,
Perdido, Ursa, Enchilada/Salsa, Appomattox 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 we continue to produce from Coulomb (Shell interest 100%)
which ties into the Nakika non-operated platform. Our production in
the US Gulf of Mexico assets was adversely impacted by
operational constraints.

Perdido offshore deep-water platform in the Gulf of Mexico.

After selling our Foothills assets, we operate one natural gas
processing facility in Alberta and four natural gas processing
facilities in British Columbia.

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. With effect from January 1,
2020, our interest in the Bitumen and synthetic crude oil will be reported
in the Oil Products segment. Comparative information will not be restated.

Transporting Shell Bitumen.

Carbon capture and storage (CCS)
We operate the Quest CCS project (Shell interest 10%), which captured
and safely stored more than 1.1 million tonnes of carbon dioxide in 2019.

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 and Texas. 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). Our share of
production in the USA was in total 653 thousand boe/d in 2019.

In December 2019, we recognised an impairment, mainly associated
with the US Appalachia unconventional gas assets. We will continue to
regularly review the economic attractiveness of our Shales investments in
light of the macroeconomic environment, which could result in changes
to development plans in the future. See Note 8 Property, plant and
equipment on page 210-213.

Shell Annual Report and Accounts 2019Strategic ReportShales
We have approximately 1.0 million net mineral acres. Our activity is
focused in the Permian Basin in West Texas and the Marcellus and
Utica plays in Pennsylvania.

Operator climbs drilling rig, Permian Basin, West Texas USA.

In 2019, we drilled and brought 271 wells onstream. We have interests in
more than 1,952 productive wells and operate seven central processing
facilities. The USA represents 61% of our shales proved reserves and 80%
of our shales liquids proved reserves. In the Permian Basin, we increased
our production in 2019 by around 40% compared with 2018. In
December 2019, the first integrated iShale® facilities came on stream in
East Slash Ranch of our Permian asset. Comprising two pads with eight
wells in total and a central processing facility, this shale ’field of the future’
brings together more than a dozen iShale technologies, including full
wireless surveillance and controls, low greenhouse gas emissions
technology, multiphase metering, artificial intelligence technologies
and solar-powered facilities.

In February 2019, we sold approximately 27 thousand non-core net
acres, with 61 wells and associated facilities in the Marshlands area
of Pennsylvania.

In February 2019, we also sold 695 non-producing non-core net acres
in the Permian Basin.

In December 2019, we sold our non-Shell-operated interest in the
Haynesville shale gas formation in Northern Louisiana.

California
We have a 51.8% interest in Aera Energy LLC which operates around
15,000 wells in the San Joaquin Valley in California, mostly producing
heavy oil and associated gas.

Alaska
Shell retains two exploration acreage positions in the long-established
North Slope area of Alaska. One is a non-operating interest of 50% in 13
federal leases, operated by ENI. An exploratory drilling operation for this
joint venture is under way after being permitted by ENI. 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 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. In 2019, we
drilled and brought 15 wells onstream. We have interests in 47 producing
wells. We have a 90% interest in our operated Sierras Blancas/Cruz de
Lorena central processing facility.

In December 2019, we agreed a 50:50 partnering with Equinor to jointly
acquire Schlumberger’s 49% interest in the Bandurria Sur block located in
the Vaca Muerta basin (Shell interest 24.5%).

Offshore
In April 2019, we won two frontier exploration blocks in the deep-water
bid round offshore of Argentina. For both blocks, Shell is to be operator
holding 60% of the participating interest, with Qatar Petroleum holding
the remaining 40%.

Brazil
Our share of production in Brazil was in total 383 thousand boe/d
in 2019.

We operate the Bijupirá and Salema (Shell interest 80%) and BC-10 fields
(Shell interest 50%) in the Campos Basin, offshore Brazil. 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. Our operated portfolio also
includes 10 offshore exploration concessions in the Barreirinhas Basin
(Shell interests ranging from 50% to 100%), pre-salt PSCs for Alto Cabo
Frio Oeste (Shell interest 55% as operator) and Saturno (Shell interest
45% as operator) in the Santos Basin, C-M-791 exploration block (Shell
Interest 40%) in the Campos Basis, and one block in the Potiguar Basin
(Shell interest 100%). We have entered into an agreement with Ecopetrol
for the sale of 30% interest in the Gato do Mato field and Sul de Gato do
Mato area, which is still subject to regulatory approvals.

FPSO P68 being towed into position, offshore Brazil.

Shell Annual Report and Accounts 2019Strategic ReportUPSTREAM continued

In October 2019, during the sixteenth deep-water bid round organised
by the Brazilian National Petroleum Agency (ANP), we were granted
exploration and production rights as operator with respect to two
exploration blocks, C-M-659 and C-M-713, in the Campos Basin
(Shell Interest 40%). This is awaiting ratification.

The activities of operated and non-operated fields are currently supported
by 16 producing deep-water FPSOs, of which the fifteenth (P-67) delivered
first oil in February 2019 and the sixteenth (P-68) in November 2019. Two
additional FPSOs are expected to be brought online over the period
2020-2021 (Atapu I (P-70) and Mero1).

In our non-operated portfolio, we have interests in several fields in the
offshore Santos Basin, consisting of 30% interests in BM-S-9, Entorno de
Sapinhoá and BM-S-9A blocks Sapinhoá and Lapa fields. In the Santos
Basin we also have BMS-11A concession with 25% interest in the Berbigão
and Sururu fields, which are accumulations subject to ongoing unitisation
agreements and 4% in the Atapu unit, which has already been subject to
unitisation in effect from September 2019. The non-operated portfolio in
the Santos Basis also includes the BMS-11 concession with the Lula field,
which is partly subject to unitisation that has been in effect since April
2019 (Shell interest 23% in the unit). The Iracema area of the Lula field
(Shell interest of 25%) is not subject to unitisation. Additionally, we also
hold a 20% interest in BM-S-50 offshore exploration block, where the
Sagitário prospect was discovered and we hold a 20% interest in the Libra
block where the commerciality of the Mero field was declared. FPSO
Pioneiro de Libra has been performing extended well tests and operating
early production systems since 2017, and exploration is ongoing in the
Central and South East areas. The Mero field is also subject to unitisation
with adjoining area, for which a unitisation agreement is still subject to
government approval. We announced the final investment decision to
contract the Mero 2 floating production, storage and offloading (FPSO)
vessel to be deployed at the Mero field offshore Santos Basin in Brazil.
The FPSO has the capacity to process up to 180 thousand boe/d (Shell
interest 20%). We also hold one deep-water exploration block in the
Potiguar Basin (Shell interest 40%) and a PSC to explore the Tres
Marias block in the Santos Basin (Shell interest 40%).

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.

Shell markets and trades crude oil.

Shell Annual Report and Accounts 2019Strategic ReportOIL 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)

Total
(million boe) [A]

Shell subsidiaries

Increase/(decrease) in 2019:

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, 2019

At December 31, 2019

Shell share of joint ventures and associates

Increase/(decrease) in 2019:

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, 2019

At December 31, 2019

Total

Increase/(decrease) before taking production into account

Production

Increase/(decrease)

At January 1, 2019

At December 31, 2019

Reserves attributable to non-controlling interest
in Shell subsidiaries at December 31, 2019

444

158

(91)

515

(627)

(112)

4,486

4,374

–

(38)

(7)

290

283

546

(665)

(119)

4,776

4,657

–

2,180

684

(367)

2,500

(3,355)

(855)

29,847

28,992

(224)

–

(218)

(721)

(939)

5,768

4,829

2,282

(4,076)

(1,794)

35,615

33,821

–

(34)

–

(34)

(20)

(54)

661

607

–

(34)

(20)

(54)

661

607

304

–

[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: 247 thousand million scf; synthetic crude oil: 1 million barrels).
[C] Included 7 million boe consumed in operations (natural gas: 42 thousand million scf).

785

276

(154)

912

(1,226)

(314)

10,294

9,980

(13)

–

(6)

(163)

(169)

1,285

1,116

906

(1,388)

(482)

11,578

11,096

304

Shell Annual Report and Accounts 2019Strategic ReportOIL AND GAS INFORMATION continued

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
906 million boe in 2019. This comprised of increases of 912 million boe
from Shell subsidiaries and of decreases of 6 million boe from the Shell
share of joint ventures and associates.

After taking production into account, our proved reserves decreased by
482 million boe in 2019 to 11,096 million boe at December 31, 2019.

SHELL SUBSIDIARIES
Before taking production into account, Shell subsidiaries’ proved reserves
increased by 912 million boe in 2019. This comprised of increases of 515
million barrels of crude oil and natural gas liquids, 431 million boe (2,500
thousand million scf) of natural gas and decrease of 34 million barrels of
synthetic crude oil. The 912 million boe increase is the net effect of a net
increase of 785 million boe from revisions and reclassifications, an
increase of 5 million boe from improved recovery, an increase of 276
million boe from extensions and discoveries, and a net decrease of
154 million boe related to purchases and sales of minerals in place.

After taking into account production of 1,226 million boe (of which 43
million boe were consumed in operations), Shell subsidiaries’ proved
reserves decreased by 314 million boe in 2019 to 9,980 million boe. In
2019, Shell subsidiaries’ proved developed reserves (PD) decreased by
204 million boe to 7,849 million boe, and proved undeveloped reserves
(PUD) decreased by 110 million boe to 2,131 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 6 million boe in 2019.
This comprised an increase of 31 million barrels of crude oil and natural
gas liquids and a decrease of 37 million boe (218 thousand million scf)
of natural gas. The 6 million boe decrease comprises a net decrease
of 13 million boe from revisions and reclassifications and an increase
of 3 million boe from extensions and discoveries and an increase of
4 million boe from improved recovery.

After taking into account production of 163 million boe (of which 7 million
boe were consumed in operations), the Shell share of joint ventures and
associates’ proved reserves decreased by 169 million boe to 1,116 million
boe at December 31, 2019.

The Shell share of joint ventures and associates’ PD decreased by 178
million boe to 960 million boe, and PUD increased by 9 million boe to
156 million boe.

For further information, see “Supplementary Information – oil and gas
(unaudited)” on page 239-249.

PROVED UNDEVELOPED RESERVES
In 2019, Shell subsidiaries and the Shell share of joint ventures and
associates’ PUD decreased by 98 million boe to 2,287 million boe. There
were decreases of 462 million boe due to maturation to PD, mainly 90
million boe in Lula (Brazil), 65 million boe in Appomattox (USA), and 307
million boe spread across other fields. These were offset by increases of
119 million boe due to revisions and net increases of 279 million boe due
to extensions and discoveries – mainly in the Permian Basin (69 million
boe), Mero (60 million boe) and Groundbirch (52 million boe) – and
decreases of 43 million boe due to sales of minerals in place and
increases of 9 million boe due to improved recovery spread across
other fields.

In addition to the maturation of 462 million boe from PUD to PD, 178
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, 2019, amounted
to 258 million boe, a decrease of 14 million boe compared with the end of
2018. 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 2019 was driven mainly by changes in
Clair (UK), Champion (Brunei), and Forcados-Yokri (Nigeria).

The fields with the largest PUD5+ at December 31, 2019, were
Jansz-Io and Gorgon (Australia), Lunskoye (Russia) and Clair (UK).

During 2019, we spent $6.9 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 Egypt, Trinidad and Tobago, and
Malaysia. In the period 2020-2022, we are contractually committed to
deliver to third parties, joint ventures and associates a total of 7,735 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 2020-2022, we expect to meet our delivery commitments
for almost all the areas in which they are carried, with an estimated 75.6%
coming from PD, 5.4% through the delivery of gas that comes available to
us from paying royalties in cash, and 19% from the development of PUD
as well as other new projects and purchases.

The key exceptions are:
■ BG Egypt Development NOV: The government decision to divert gas
from the offshore West Delta Deep Marine fields to domestic use has
caused a tangible shortfall of 806 billion scf (87% of the promised
gas delivery), expected to continue in the near future leaving LNG
gas commitment mostly under force majeure;

■ Trinidad and Tobago (East Coast Marine Area and North Coast

Marine Area), where PD for all fields fail the economic test at the yearly
average price for natural gas. However, we expect to cover 83% of
our delivery commitments from existing developed resource volumes
and new projects, resulting in an expected true shortfall of some
119 billion scf; and
In Malaysia, one of the third-party gas supply lines is under repair
during 2020. Force majeure has been declared, and no penalties
have been incurred.

■

Shell Annual Report and Accounts 2019Strategic ReportSummary of proved oil and gas reserves of Shell subsidiaries and Shell share of joint ventures and associates (at December 31, 2019)

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 2019

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.

167

1,643

106

314

641

675

3,561

119

180

341

358

1,096

286

1,823

121

394

982

1,033

4,657

–

2,615

13,610

5,805

1,523

1,615

781

968

26,917

976

1,208

2,591

1,085

254

499

291

6,904

3,591

14,818

8,396

2,608

1,869

1,280

1,259

33,821

–

607

–

607

–

607

–

607

304

618

3,989

1,107

577

920

757

841

8,809

287

388

462

267

385

409

2,287

905

4,377

1,569

844

1,305

846

1,250

11,096

304

Shell Annual Report and Accounts 2019Strategic ReportOIL AND GAS INFORMATION continued

EXPLORATION
In 2019, we made notable discoveries in the US Gulf of Mexico and
Australia. In April 2019, we announced a significant discovery at the
Blacktip prospect in the Perdido Corridor within the deep-water US Gulf of
Mexico (Shell interest 52.4% as operator). This and other drilling successes
in the US Gulf of Mexico highlight the potential of this area. Further
exploration is planned in 2020.

Also in October, we signed an Exploration & Production Sharing
Agreement for Block 55 in the southeast of the Sultanate. Oman Shell
now has a 100% working interest and operatorship of Block 55 with a
total area of 7,564 square kilometres. The agreement includes a work
programme of regional studies, seismic acquisition and other potential
exploration activities. This agreement is awaiting ratification via
Royal Decree.

We also announced a significant gas discovery at the Bratwurst prospect
in the Browse Basin.

We continue to strengthen our portfolio in the US Gulf of Mexico, Brunei,
Oman, Brazil and Egypt, while opening up new positions in Argentina,
Colombia, São Tomé and Príncipe and South Africa.

In November 2019, we completed a farm-in transaction with Kosmos
Energy, acquiring participating interests in Block 6 (Shell interest 20%)
and Block 11 (Shell interest 30%) exploration licences (together
approximately 14,000 square kilometres) offshore of São Tomé
and Príncipe, representing a new country entry for Shell. Partners in
the blocks are Kosmos Energy (Operator of Block 11), Galp Energia
(Operator of Block 6) and ANP-STP, the national oil company.

In December 2019, we were awarded two concessions in the Red Sea
bid round. The two blocks cover more than 6,000 square kilometres in
an underexplored region of Egypt, south of the Gulf of Suez hydrocarbon
province. Block 4 (Shell interest 70%) is in partnership with Mubadala
Petroleum and Block 3 as the sole operator, with initial exploration
plans being 3D seismic and petroleum system studies. This is
awaiting ratification.

In total, the net undeveloped acreage in our exploration portfolio
increased by around 9 million acres in 2019. The largest contributions
were licence entries in South Africa, Oman, Argentina, Egypt and
Colombia, offset by relinquishments and divestments in Australia,
Myanmar and Gabon.

For further information, see “Supplementary Information – oil and gas
(unaudited)” on page 239-246.

In 2018, Shell entered into a partnership with Oman Oil Company
Exploration production (Shell interest 50%) to explore for oil and gas in
Block 42, a vast under-explored area of 31,068 square kilometres in the
Al Sharqiyah Governate, Sultanate of Oman. This was ratified by
Royal Decree on January 23, 2019.

In March 2019, the dilution and transfer of operatorship was completed
for two exploration blocks in deep-water Colombia, following these
blocks’ conversion from Technical Evaluation Agreements to Exploration
& Production contracts. For both blocks, Noble Energy becomes the
operator with 40% working interest, with the remaining 60% held by
Shell. The gross area of the COL-3 block is around 4,000 square
kilometres, and the gross area of the GUA OFF-3 block is around
4,800 square kilometres.

In US Gulf of Mexico Lease Sale 252 in March 2019 we acquired 77
blocks across multiple plays in the US Gulf of Mexico. This acquisition
included significant acquisitions close to the 2019 Blacktip discovery
(Shell interest 52.4%), in the underexplored areas of Garden Banks
and in Desoto Canyon south east of the Appomattox production facility.

In April 2019, we won two exploration blocks in the deep-water bid round
in Argentina. These frontier exploration blocks are at the edge of the
continental shelf and have approximate areas of 7,875 square kilometres
and 8,340 square kilometres. For both blocks, we are the operator,
holding 60% of the participating interest, with Qatar Petroleum holding
the remaining 40%.

In South Africa in April 2019, we entered the frontier deep-water Cape
Basin (Shell interest 40%) and a second block next to our existing acreage
in the Namibian Orange Basin (Shell interest 45%).

In October 2019, during the sixteenth deep-water bid round organised
by the Brazilian National Petroleum Agency (ANP), we were granted
exploration and production rights with respect to two exploration blocks,
C-M-659 and C-M-713, as operator in the Campos Basin (Shell Interest
40%). This is awaiting ratification.

Shell Annual Report and Accounts 2019Strategic ReportLOCATION OF OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES

Location of oil and gas exploration and production activities [A] (at December 31, 2019)

Exploration

Development
and/or production

Shell
operator[B]

Europe

Albania

Bulgaria

Cyprus

Germany

Italy

Netherlands

Norway

Asia

Brunei

China

Indonesia

Kazakhstan

Malaysia

Myanmar

Oman

Philippines

Qatar

Russia

Turkey

Oceania

Australia

Africa

Egypt

Mauritania

Morocco

Namibia

Nigeria

São Tomé and Príncipe

South Africa

Tanzania

Tunisia

North America

Canada

Mexico

USA

South America

Argentina

Bolivia

Brazil

Colombia

Trinidad and Tobago

Uruguay

•

[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.

•

Shell Annual Report and Accounts 2019Strategic ReportOIL AND GAS INFORMATION continued

OIL AND GAS PRODUCTION AVAILABLE FOR SALE

Crude oil and natural gas liquids [A]

Europe

Denmark

Italy

Norway

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

Total

2019

2018

2017

Shell
subsidiaries

Shell share of
joint ventures
and associates

Shell
subsidiaries

Shell share of
joint ventures
and associates

Shell
subsidiaries

Shell share of
joint ventures
and associates

Thousand barrels

7,490

9,747

7,025

30,677

723

55,662

196

34,269

21,993

76,493

22,442

28,796

184,189

10,058

–

56,589

7,802

64,391

171,204

11,506

182,710

126,366

3,900

130,266

627,276

–

1,135

20,002

–

9,413

7,709

37,124

–

38,259

13,036

10,921

13,528

31,431

795

69,711

283

32,432

24,650

76,847

22,003

28,769

184,984

8,883

–

53,102

8,265

61,367

140,035

13,111

153,146

118,681

3,414

122,095

600,186

–

1,417

18,738

–

10,403

7,768

36,909

–

15,467

8,733

19,529

45,020

860

89,609

1,138

29,491

26,574

77,687

22,049

30,180

187,119

9,098

9,750

56,337

9,003

75,090

109,430

10,775

120,205

111,093

3,325

114,418

–

1,272

15,831

–

10,899

7,859

34,589

–

38,326

595,539

35,861

[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 2019 production was lower than 10,100 thousand barrels or where specific disclosures are prohibited.

Synthetic crude oil

North America – Canada

Bitumen

North America – Canada

Thousand barrels

2019

2018

2017

Shell
subsidiaries

19,076

19,514

33,183

Thousand barrels

2019

2018

2017

Shell
subsidiaries

–

1,681

Shell Annual Report and Accounts 2019Strategic ReportNatural gas [A]

Europe

Denmark

Germany

Ireland

Netherlands

Norway

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

Total

2019

2018

2017

Shell
subsidiaries

Shell share of
joint ventures
and associates

Shell
subsidiaries

Shell share of
joint ventures
and associates

Shell
subsidiaries

Shell share of
joint ventures
and associates

Million standard cubic feet

–

45,027

40,368

44,833

–

52,105

48,002

52,515

–

244,286

–

271,303

–

343,126

686,956

20,840

–

686,956

20,840

–

244,286

160,648

–

134,807

–

118,253

413,708

–

239,253

82,695

16,422

468,598

21,205

42,419

78,575

237,102

44,017

4,044

25,973

378,785

832,120

648,735

40,153

688,888

148,721

232,899

30,669

412,289

355,075

247,890

602,965

55,480

68,865

104,454

8,062

236,861

–

271,303

157,476

–

136,652

–

117,976

412,104

18,923

–

18,923

–

243,352

174,478

13,125

583,577

29,880

43,899

80,623

221,590

42,958

4,052

60,742

288,728

772,472

591,860

51,943

643,803

122,439

236,370

36,187

394,996

286,529

224,529

511,058

59,673

70,100

73,000

8,370

211,143

–

343,126

158,877

–

137,890

–

118,352

415,119

18,708

–

18,708

–

24,433

41,846

–

182,683

62,174

15,062

326,198

22,185

44,510

84,499

226,277

44,374

4,563

–

407,899

834,307

92,169

234,332

30,266

356,767

389,130

220,005

609,135

48,501

78,526

159,698

8,662

295,387

3,108,750

678,834

3,241,721

702,330

3,117,049

776,953

[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 2019 production was lower than 41,795 million scf or where specific disclosures are prohibited.

Shell Annual Report and Accounts 2019Strategic ReportOIL AND GAS INFORMATION continued

AVERAGE REALISED PRICE BY GEOGRAPHICAL AREA

Crude oil and natural gas liquids

2019

2018

2017

Shell
subsidiaries

Shell share of
joint ventures
and associates

Shell
subsidiaries

Shell share of
joint ventures
and associates

Shell
subsidiaries

Shell share of
joint ventures
and associates

$/barrel

65.11

58.16

51.51

65.39

54.56

36.61

56.68

57.56

58.08

65.25

–

65.05

68.23

64.06

61.63

71.02

61.87

43.72

62.67

63.96

64.24

70.66

–

70.43

50.52

49.08

45.64

53.39

47.23

36.00

48.10

49.00

2019

2018

46.88

53.44

–

53.23

$/barrel

2017

Shell
subsidiaries

50.27

48.90

45.90

2019

2018

$/barrel

2017

Shell
subsidiaries

–

34.46

2019

2018

2017

Shell
subsidiaries

Shell share of
joint ventures
and associates

Shell
subsidiaries

Shell share of
joint ventures
and associates

Shell
subsidiaries

Shell share of
joint ventures
and associates

$/thousand scf

5.59

2.66

8.22

2.92

2.27

1.37

2.33

3.95

4.95

6.34

3.91

–

7.08 [A]

2.99

8.66 [A]

3.02

3.12

1.35

3.50

4.06

7.06

4.15

–

5.80

4.63 [A]

5.74

5.48

2.84

6.21

2.44

3.00

1.85

2.93 [A]

3.90 [A]

4.77

5.45

3.11

–

5.11

Europe

Asia

Oceania

Africa

North America – USA

North America – Canada

South America

Total

Synthetic crude oil

North America – Canada

Bitumen

North America – Canada

Natural gas

Europe

Asia

Oceania

Africa

North America – USA

North America – Canada

South America

Total

[A] As revised, following a reassessment.

Shell Annual Report and Accounts 2019Strategic ReportAVERAGE 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

Total

2019

2018

2017

Shell
subsidiaries

Shell share of
joint ventures
and associates

Shell
subsidiaries

Shell share of
joint ventures
and associates

Shell
subsidiaries

Shell share of
joint ventures
and associates

$/boe

14.14

6.30

9.17

8.44

11.78

11.88

6.26

8.95

5.76

6.17

24.49

–

6.48

15.03

6.52

8.41

8.25

12.78

11.58

8.60

9.66

6.37

6.24

32.18

–

6.81

13.19

7.71

9.24

9.53

16.11

14.53

8.08

10.55

5.58

6.87

28.83

–

6.82

[A] Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.

Synthetic crude oil

North America – Canada

Bitumen

North America – Canada

2019

2018

$/barrel

2017

Shell
subsidiaries

19.29

20.15

23.77

2019

2018

$/barrel

2017

Shell
subsidiaries

–

16.19

Shell Annual Report and Accounts 2019Strategic ReportDOWNSTREAM

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 expenditure

Cash capital expenditure [B]

Capital investment [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)

$ million, except where indicated

2019

6,277

2018

7,601

2017

8,258

294,677

335,597

265,821

1,725

266

18,697

5,413

1,241

8,650

8,926

10,542

2,564

6,561

15,223

1,785

345

20,743

4,064

1,515

7,083

7,408

7,565

2,648

6,783

17,644

1,956

154

19,583

3,877

1,783

5,826

6,090

6,418

2,572

6,599

18,239

[A] See Note 4 to the “Consolidated Financial Statements” on pages 206-208. Segment earnings are presented on a current cost of supplies basis.
[B] See “Non-GAAP measures reconciliations” on pages 279-280.
[C] The basis of calculation differs from that used for the “Refinery and chemical plant availability” measure in “Performance indicators” on page 42, 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 consists of Oil Products and Chemicals
activities. They form part of an integrated value chain that trades and
refines crude oil and other feedstocks into products that 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. We also produce and sell
petrochemicals for industrial use worldwide.

Our Oil Products activities comprise Refining and Trading, and Marketing.
These are referred to as classes of business. Marketing includes Retail,
Lubricants, Business-to-Business (B2B), Pipelines and Biofuels. Chemicals
has major manufacturing plants, which are 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 1.0 million barrels per day (b/d), or 1.0%, to
100.3 million b/d, according to the International Energy Agency’s (IEA)
Oil Market Report published in January 2020. Oil demand growth in
2019 was 0.1 million b/d lower than in 2018.

Industry gross refining margins were lower on average in 2019 than in
2018 in three of the four key refining hubs in Europe, Singapore and the
US Gulf Coast. In the US West Coast gross margins improved, partly due
to product prices being supported by unplanned outages in the region.
Globally, year-on-year growth in demand for oil products has slowed in
line with slowing global economic growth. Refinery capacity additions,
especially in the Middle East and Asia, combined with lower demand
growth have led to generally lower refinery utilisations, which weakened
margins. Refinery activity continued to be low in Latin America amid the
ongoing geopolitical uncertainty and poor investment climate. On
January 1, 2020, the new International Maritime Organization low-
sulphur shipping fuel specification came into effect. The industry has
started preparations but the full effect of the implementation is expected
later in the year.

Cracker industry margins in Asia halved. Cracker margins in Western
Europe and the USA were relatively unchanged versus 2018. West
European margins were supported by a high level of maintenance
outages in the first half of 2019, while in the USA margins were
supported by low ethane prices.

See “Market overview” on page 37.

REFINERY AND CHEMICAL PLANT AVAILABILITY
Refinery availability was 91% in 2019, unchanged from 2018.

Chemicals plant availability was 89% in 2019, compared with 93%
in 2018, due to higher planned downtime in Asia and Europe and the
impact of strike action in the Netherlands.

OIL PRODUCTS AND CHEMICALS SALES
Oil products sales volumes decreased by 3% in 2019 compared with 2018,
reflecting lower trading volumes primarily in Asia and Europe and, to a lesser
extent, impact on marketing volumes due to the sale of the Downstream
Argentina business to Raízen (volumes reported at 50% Shell share).

Chemicals sales volumes decreased by 14% in 2019 compared with
2018, mainly due to lower downstream demand and higher downtime
at some sites.

EARNINGS 2019-2018
Segment earnings in 2019 of $6,277 million are presented on a current
cost of supplies basis (see “Summary of results” on page 40). Segment
earnings on a first-in, first-out basis were $6,883 million, which were
$606 million higher than on a current cost of supplies basis (2018 first-in,
first-out segment earnings were $458 million lower than the current cost
of supplies basis). See “Non-GAAP measures reconciliations” on
page 279-280.

Segment earnings in 2019 of $6,277 million were 17% lower than in
2018. Earnings in 2019 included a net charge of $403 million, compared
with a net gain in 2018 of $34 million, which is described at the end of
this section.

Shell Annual Report and Accounts 2019Strategic ReportExcluding the impact of these items, earnings in 2019 were $6,680 million,
compared with $7,567 million in 2018. Refining and Trading accounted for
19% of these 2019 earnings, Marketing for 70% and Chemicals for 11%.

■ other net charges of $47 million, which included a one-off gain from
the Ontario cap-and-trade scheme and onerous contracts related to
decommissioning of the Stanlow site.

The decrease in Downstream earnings, excluding the net charges, of
$887 million (12%) compared with 2018 was driven by lower Refining
and Trading margins (around $400 million) and lower Chemicals margins
(around $1,500 million). This was partly offset by higher Marketing
margins (around $500 million), benefit from foreign exchange (around
$250 million), lower operating costs (around $130 million) and change
in accounting policy IFRS 16 (around $150 million).

The decrease in earnings of $887 million analysed by class of business
was as follows:
■ Refining and Trading earnings were $279 million lower than in 2018,

principally due to lower realised Refining margins due to adverse price
variance across all regions driven by lower global demand growth and
increase in worldwide refining capacity; and higher maintenance costs.
Partly offsetting this were higher earnings from oil products trading and
optimisation, mainly fuel oil;

■ Marketing earnings were $727 million higher than in 2018. This was
due to stronger unit margins and lower operating expenses in Retail
and Lubricants, better revenue from Retail ventures, and lower pension
costs. Partly offsetting these were lower earnings from Raízen, the joint
venture (Shell interest 50%) in Brazil, due to adverse foreign exchange
and lower fuel margins; and

■ Chemicals earnings were $1,334 million lower than in 2018. Results
were impacted by lower realised base chemicals and intermediate
margins and higher maintenance activities in Asia and Europe,
including the impact of strike action in the Netherlands, partly
offset by lower operating expenses.

Segment earnings in 2019 included a net charge of $403 million.

Offsetting items included:
■

impairment charges of $341 million (mainly expenditure at Bukom
and other assets);

■ costs related to restructuring of $88 million (various initiatives

across Downstream);

■ other net charges of $273 million (mainly legal provision in

Chemicals); and

■ net charge from fair value accounting of commodity derivatives

of $68 million.

The effects of offsetting items were partially countered by:
■ net gains from disposal of assets of $318 million; and
■ gain from one-off tax items of $49 million (tax rate changes in

Alberta, Canada).

Segment earnings in 2018 included a net gain of $34 million.

Offsetting items included:
■ net gains from fair value accounting of commodity derivatives of

$233 million;

■ gains from disposal of assets of $225 million (mainly our

Downstream assets in Argentina and other smaller disposals); and

■ gains from one-off tax items of $118 million (mainly corporation

tax rate changes in the Netherlands and the USA).

The effect of offsetting items was countered by:
■

impairment charge of $386 million (mainly expenditure at Bukom
and on assets at Stanlow);

■ costs related to restructuring of $109 million (various of initiatives

across Downstream); and

EARNINGS 2018-2017
Segment earnings which were presented on a current cost of supplies
basis were $458 million higher in 2018 than on a first-in, first-out basis
(2017: $964 million lower).

Segment earnings in 2018 of $7,601 million were 8% lower than in 2017.
Earnings in 2018 included a net gain of $34 million described above.
Earnings in 2017 included a net charge of $824 million, reflecting
impairment charges of $315 million, 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 (related to onerous contract provision and a legal provision).
These were partly offset by divestment gains of $39 million and net gain
of $25 million from fair value accounting of commodity derivatives.

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), lower
refining margins (around $150 million) and other impacts resulting in a net
charge of around $120 million. This was partly offset by higher marketing
margins (around $360 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.

CASH CAPITAL EXPENDITURE AND CAPITAL INVESTMENT
Cash capital expenditure (cash capex) was $8.9 billion in 2019, compared
with $7.4 billion in 2018. Capital investment was $10.5 billion in 2019
compared to $7.6 billion in 2018.

Cash capex in Refining was in line with 2018 at $2.4 billion. In Chemicals,
cash capex increased by $0.9 billion to $4.1 billion (increase mainly from
investment in our new cracker facilities in Pennsylvania). In Marketing,
cash capex increased by $0.4 billion to $2.2 billion (increase mainly
from investment in a US pipeline project).

Increase in capital investment on account of leases was $1.4 billion
($1.6 billion in 2019 compared with $0.2 billion in 2018) due to
accounting policy change (IFRS 16) implemented in 2019.

PORTFOLIO AND BUSINESS DEVELOPMENTS
We continued to high-grade our portfolio in 2019, including:
■

In the Kingdom of Saudi Arabia, we completed the sale of our 50%
interest in Shell Saudi Arabia (Refining) Limited (SASREF), a joint
venture in Jubail Industrial City, to Saudi Arabian Oil Company
(Saudi Aramco) for $631 million.
In the USA, our subsidiary Equilon Enterprises LLC, doing business as
Shell Oil Products US, announced in June 2019 that we have reached
an agreement for the sale of Martinez Refinery in California to PBF
Holding Company LLC for a $1.0 billion consideration. The sale was
concluded in February 2020 in exchange for $1.2 billion which
includes the refinery and inventory.

■

■ Also in the USA, in March 2020, we announced our intention to sell
the Puget Sound refinery in Washington and Mobile site in Alabama.

Shell Annual Report and Accounts 2019Strategic ReportDOWNSTREAM continued

BUSINESS AND PROPERTY
Refining and trading
Refining
We have interests in 15 refineries worldwide, (after the completion of sale
of Martinez refinery in February 2020), with the capacity to process a
total of 2.5 million barrels of crude oil per day (Shell share). Our refining
capacity is 42% in Europe and Africa, 41% in the Americas and 17% in
Asia and Oceania.

In a growing number of markets, we are offering customers lower-emission
solutions, including biofuels, electric vehicle fast-charging, hydrogen and
various gaseous fuels such as LNG. During 2019, we introduced
carbon-neutral driving in the Netherlands and the UK, through which we
offset customers’ emissions by purchasing carbon credits generated from
projects that plant and protect nature like forests, wetlands and other
natural ecosystems.

In 2019, we concluded the sale of our 50% share of the SASREF
joint venture in Jubail Industrial City, the Kingdom of Saudi Arabia,
to Saudi Aramco.

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 125 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, and manages one of the world’s largest fleets
of LNG carriers. Shipping and Maritime enables the Shell Trading and
Supply 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 fuels for transport, industry
and heating. Our range of products, from reliable main-grade fuels
to premium products, is designed to provide tangible vehicle and
business benefits.

Marketing
Retail
Shell is the world’s largest mobility retailer, by number of sites, with
45,000 service stations operating in close to 80 countries at the end
of 2019. We operate different models across these markets, from full
ownership of retail sites through to brand licensing agreements.

Every day, more than 30 million customers visit these sites to buy fuel,
convenience items, including beverages and fresh food, and services, such
as lubricant changes and car washes. We offer our business customers
Shell Fleet Solutions, a ‘one-stop-shop’ for their mobility and energy
transition needs, providing items including fuel cards, road services and
carbon-neutral offers.

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 62 countries as at the end of 2019.

Shell V-Power brand is sold in 62 countries.

Lubricants
Across more than 150 markets, we produce, market and sell technically
advanced lubricants for passenger cars, motorcycles, trucks, coaches, and
machinery used in 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” on
page 48).

We have a global lubricants supply chain with a network of four base oil
manufacturing plants, 29 lubricant blending plants, nine grease plants
and four 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 210 grades of lubricants and six types of fuel to vessels
worldwide, ranging from large ocean-going tankers to small fishing boats.

Shell lubricant plant, Oman.

Shell Annual Report and Accounts 2019Strategic ReportBusiness-to-Business
Our Business-to-Business (B2B) activities encompass the sale of fuels
and specialty products and services to a broad range of commercial
customers.

Shell Aviation provides fuel and lubricants across more than 60 countries
and supplies fuel at about 900 airports.

Shell Bitumen supplies customers across 52 markets and provides enough
bitumen to resurface 500 kilometres of road lanes every day. It also
invests in technology research and development to create innovative
products.

Shell Sulphur Solutions is a business that manages the complete value
chain of sulphur, from refining to marketing. The business provides sulphur
for use in applications such as fertiliser, mining and chemicals and also
develops new technologies for sulphur that benefit sectors such as
agriculture.

Pipelines
Shell Pipeline Company LP (Shell interest 100%) owns and operates 10
tank farms across the USA. It transports more than 2 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
14,000 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 master 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.

See “Governance – Related Party Transactions” on page 167 and
Note 29 to the “Consolidated Financial Statements” on page 238.

Biofuels
Raízen, our joint venture in Brazil (Shell interest 50%), produces ethanol
from sugar cane, with an annual production capacity of more than 2.5
billion litres; exports sugar, with an annual production of about 3.8 million
tonnes; and manages a retail network. In 2015, Raízen opened its first
cellulosic ethanol plant at its Costa Pinto mill in Brazil, which produced
almost 19.5 million litres in 2019. When fully operational, the mill is
expected to produce around 40 million litres a year of advanced
biofuels from sugar-cane residues.

Raizen Brazil harvesting crops used for the processing of biofuel.

Chemicals
Manufacturing
Our plants produce a range of base chemicals, including ethylene,
propylene and aromatics, and 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.

Marketing
In 2019, we supplied more than 15 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.

DOWNSTREAM BUSINESS ACTIVITIES WITH
SUDAN AND SYRIA
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.

Shell Annual Report and Accounts 2019Strategic ReportDOWNSTREAM continued

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 Al Jubail refinery on a 50% basis until the date of divestment.
Other joint ventures and associates are only included where explicitly stated.

Oil products – cost of crude oil processed or consumed [A]

Europe

Asia

Oceania

Total

2019

54.97

2018

59.94

$/barrel

Africa

2017

46.78

Americas

Total

Oil products – crude oil processed [A]

Thousand b/d

2019

829

498

–

1,004

2,386

2018

897

545

–

1,041

2,549

2017

892

528

–

997

2,471

[A] Includes Upstream and Integrated Gas margins on crude oil supplied by Shell subsidiaries,

[A] Includes natural gas liquids, share of joint ventures and associates and processing for others.

joint ventures and associates.

Crude distillation capacity [A]

Refinery processing intake [A]

Europe

Asia

Oceania

Africa

Americas

Total

Thousand b/calendar day [B]

2019

970

704

–

1,075

2,832

2018

970

704

–

1,157

2,913

2017

970

704

–

1,176

2,932

[A] Average operating capacity for the year, excluding mothballed capacity.
[B] Calendar day capacity is the maximum sustainable capacity adjusted for normal

unit downtime.

Ethylene capacity [A]

Europe

Asia

Oceania

Africa

Americas

Total

Thousand tonnes/year

2019

1,701

2,530

–

2,268

6,499

2018

1,701

2,529

–

2,268

6,498

2017

1,702

1,904

–

2,267

5,873

[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.

Crude oil

Feedstocks

Total

Europe

Asia

Oceania

Africa

Americas

Total

2019

2,342

222

2,564

875

517

–

1,117

2,564

Thousand b/d

2018

2,434

214

2,648

896

543

–

1,143

2,648

2017

2,364

208

2,572

892

539

–

1,087

2,572

[A] Includes crude oil, natural gas liquids and feedstocks processed in crude distillation units and

in secondary conversion units.

Refinery processing outturn [A]

Gasolines

Kerosines

Gas/Diesel oils

Fuel oil

Other

Total

Thousand b/d

2019

2018

2017

952

417

818

223

282

966

321

965

284

321

955

290

925

265

334

2,692

2,858

2,769

[A] Excludes own use and products acquired for blending purposes.

Shell Annual Report and Accounts 2019Strategic ReportOil product sales volumes [A][B]

Europe

Gasolines

Kerosines

Gas/Diesel oils

Fuel oil

Other products

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][D]

Gasolines

Kerosines

Gas/Diesel oils

Fuel oil

Other products

Total

2019

2018

2017

Thousand b/d

334

317

720

138

278

323

294

745

178

314

317

272

758

170

362

1,787

1,854

1,879

408

208

535

330

518

373

210

543

407

620

399

216

516

349

536

2,000

2,153

2,016

–

137

1,419

239

582

120

277

–

134

1,446

236

567

117

276

–

142

1,415

212

545

275

2,637

2,642

2,539

2,207

777

1,907

590

1,079

6,561

2,184

750

1,929

704

1,216

6,783

2,174

736

1,897

613

1,179

6,599

[A] Excludes deliveries to other companies under reciprocal sale and purchase arrangements, that 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 2019 was a reduction in oil product sales of approximately 546,000 b/d (2018: 458,000 b/d;

2017: 596,000 b/d).

[D] Reported volumes in 2019 include the Shell joint ventures sales volumes from key countries.

Shell Annual Report and Accounts 2019Strategic ReportThousand tonnes

2019

2018

2017

3,666

1,872

5,538

1,057

2,848

3,905

–

3,261

2,519

5,780

7,984

7,239

15,223

4,069

1,994

6,063

2,140

3,082

5,222

–

3,842

2,517

6,359

10,051

7,593

17,644

4,059

2,056

6,115

2,515

3,243

5,758

–

3,839

2,527

6,366

10,413

7,826

18,239

DOWNSTREAM continued

Chemicals sales volumes [A]

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.

Shell Annual Report and Accounts 2019Strategic ReportMANUFACTURING PLANTS AT DECEMBER 31, 2019

Refineries in operation

Location

Asset class

Shell interest
(%) [A]

Thousand barrels/calendar day, 100% capacity [B]

Crude
distillation
capacity

Thermal
cracking/
visbreaking/
coking

Catalytic
cracking

Hydro
cracking

Europe

Denmark

Germany

Netherlands

Asia

Philippines

Singapore

Africa

South Africa

Americas

Argentina

Canada

Alberta

Ontario

USA

California

Louisiana

Texas

Washington

Fredericia

Miro [C]

Rheinland

Schwedt [C]

Pernis

Tabangao

Pulau Bukom

Durban [C]

Buenos Aires [C]

Scotford

Sarnia

Martinez [D]

Convent

Norco

Deer Park

Puget Sound

100

287

325

214

405

463

165

144

239

229

312

137

–

108

[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.
[D] The sale of the Martinez refinery was concluded on February 1, 2020.

Integrated refinery and chemical complex.
Refinery complex with cogeneration capacity.
Refinery complex with chemical unit(s).

–

Shell Annual Report and Accounts 2019Strategic Report

DOWNSTREAM continued

Major chemical plants in operation [A]

Europe

Germany

Netherlands

Asia

China

Singapore

Americas

Canada

USA

Total

Location

Rheinland

Moerdijk

Mossmorran [D]

Nanhai [D]

Jurong Island

Pulau Bukom

Scotford

Deer Park

Geismar

Norco

Thousand tonnes/year, Shell share capacity [B]

Ethylene

Styrene
monomer

Ethylene
glycol

Higher
olefins [C]

Additional
products

315

971

415

1,100

281

1,149

–

836

–

1,432

6,499

–

815

–

650

1,069

–

475

–

153

–

415

1,159

–

548

–

400

–

3,009

2,675

–

1,390

–

1,390

A, I

–

A, I, P

A, I, P, O

A, I

[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 C4 to C2024).
[D] Not operated by Shell.

Intermediates.

A Aromatics, lower olefins.
I
P Polyethylene, polypropylene.
O Other.

Other chemical locations [A]

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
O Other.

Intermediates.

Location

Products

Karlsruhe

Schwedt

Pernis

Buenos Aires

Sarnia

Martinez

Mobile

Puget Sound

A, I, O

A, I

Shell Annual Report and Accounts 2019Strategic ReportCORPORATE

Earnings

Segment earnings

Comprising:

Net interest and investment expense [A]

Net foreign exchange losses [B]

Taxation and other [C]

2019

(3,273)

2018

(1,479)

(3,425)

(2,192)

(67)

219

(67)

780

$ million

2017

(2,416)

(2,413)

(292)

289

[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 2019-2017
Segment earnings in 2019 were a loss of $3,273 million, compared with a
loss of $1,479 million in 2018 and a $2,416 million loss in 2017.

Net interest and investment expense increased by $1,233 million
compared with 2018. This was primarily due to the introduction of IFRS 16
(Page 195, Note 2) and reduced capitalised interest. In 2018, net interest
and investment expense decreased by $221 million compared with 2017.
This was due to a decrease in interest expense due to higher capitalised
interest, coupled with higher interest income from increases to both cash
levels and higher interest rates.

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 2019 and 2018,
unfavourable exchange rate movements resulted in a net foreign
exchange loss.

Taxation and other earnings decreased by $561 million in 2019,
compared with 2018, due to reduced tax credits from financing and
one-off charges. In 2018, taxation and other earnings increased by $491
million compared with 2017, due to increased tax credits from foreign
exchange losses, which were partially offset by increased corporate
expenses and depreciation charges.

SELF-INSURANCE
We mainly self-insure our risk exposure, and capital is set aside to meet
self-insurance obligations (see “Risk factors” on page 34). 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 of reducing 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 additionally
through formal supplier assurance reports for critical IT services.

Shell is frequently subject to cyberattacks. In 2019, 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 35.

BRAND VALUE
According to the Brand Finance Global 500 2020 – the annual report
on the world’s most valuable and strongest brands published by leading
brand valuation consultancy Brand Finance at the World Economic Forum
in Davos this January, Shell’s brand value was estimated at $47.5 billion,
up 12% compared to the previous year and 55% versus 2015. The report
also shows Shell’s brand rating strengthening from AAA- to AAA.

Shell Annual Report and Accounts 2019Strategic ReportWe also maintain committed credit facilities, which were increased and
extended in December 2019 with $2 billion now expiring in 2020 and
$8 billion in 2024. Each facility includes two one-year extension options
at the discretion of each lender. Both remained undrawn at December 31,
2019. These facilities 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.

Our total debt increased by $19.6 billion, of which $15.7 billion was due to
the impact of IFRS16, to $96.4 billion at December 31, 2019. The total debt
excluding leases will mature as follows: 15% in 2020; 8% in 2021; 7% in
2022; 7% in 2023; and 63% in 2024 and beyond. The portion of debt
maturing in 2020 is expected to be repaid from a combination of cash
balances, cash generated from operations, divestments and the issuance
of new debt.

In 2019, we issued $4 billion of bonds under our US shelf registration and
€3 billion under our EMTN programme. Periodically, for working capital
purposes, we issued CP. We believe our working capital is sufficient for
current 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
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 227-231. The size and scope of our businesses
require a robust financial control framework and effective management
of our various risk exposures.

We utilise various financial instruments for 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. 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. Credit risk policies are in place
to ensure that sales of products are made to customers with appropriate
creditworthiness, and include detailed credit analysis and monitoring of
customers against counterparty credit limits. Where appropriate, netting
arrangements, credit insurance, prepayments and collateral are used
to manage credit risk. We maintain a committed credit facility.
Management believes it has access to sufficient debt funding sources
(capital markets) and to undrawn committed borrowing facilities to
meet foreseeable requirements.

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. In 2020, our priorities for applying
our cash are expected to be the servicing and reduction of debt
commitments, payment of dividends, followed by a balance of
capital investment and share buybacks.

Shell Pecten flag.

FINANCIAL CONDITION AND LIQUIDITY
Despite weaker commodity prices over the course of 2019, the Shell
Group generated cash flow from operations of $42.2 billion and free cash
flow of $26.4 billion, supporting continued progress of the share buyback
programme which commenced in 2018. $10.2 billion share buybacks were
completed in 2019. Gearing increased to 29.3% at December 31, 2019,
comparable with 25.0% on an IAS 17 basis (2018: 20.3%). Gearing is a
key measure of Shell’s capital structure and across the business cycle,
we aim to return to a gearing level within a range of 15-25%. Note 14
to the “Consolidated Financial Statements” on pages 216-219 provides
information on our debt arrangements, including gearing and net
debt definitions.

LIQUIDITY
We satisfy our funding and working capital requirements from the cash
generated from our operations, the issuance of debt and divestments. In
2019, access to the international debt capital markets remained strong,
with our debt principally financed from these markets through central
debt programmes consisting of:
■ a $10 billion global commercial paper (CP) programme, with

maturities not exceeding 270 days;

■ a $10 billion US CP programme, with maturities not exceeding

397 days;

■ an unlimited Euro medium-term note (EMTN) programme (also

referred to as the Multi-Currency Debt Securities Programme); and

■ 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).

Shell Annual Report and Accounts 2019Strategic ReportPENSION COMMITMENTS
We have substantial pension commitments, the funding of which is subject
to capital market risks (see “Risk factors” on page 33). 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. A risk committee supports the
forum in reviewing the results of assurance processes in respect to
pensions 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 $1.5 billion in 2019 and are estimated to be $0.7 billion in
2020. See Note 17 to the Consolidated Financial Statements at page 223.

Capitalisation table

$ million

December
31, 2019

December
31, 2018

Equity attributable to Royal Dutch Shell plc shareholders

186,476

198,646

Current debt

Non-current debt

Total debt [A]

Total capitalisation

15,064

81,360

96,424

10,134

66,690

76,824

282,900

275,470

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 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 AND CASH CAPITAL EXPENDITURE
The level of capital investment in 2019 and 2018 reflects our discipline,
focus and capital efficiency.

[A] Of total debt, $65.7 billion (2018: $62.7 billion) was unsecured and $30.7 billion (2018:
$14.1 billion) was secured. See Note 14 to the “Consolidated Financial Statements” on
pages 191-194 for further disclosure on debt.

Capital investment [A]

STATEMENT OF CASH FLOWS
Cash flow from operating activities in 2019 was an inflow of $42.2 billion,
compared with $53.1 billion in 2018, mainly due to lower earnings and
an unfavourable working capital impact. The increase in cash flow from
operating activities in 2018, compared with $35.7 billion in 2017, was
mainly due to higher earnings and a favourable working capital impact.

Integrated Gas

Upstream

Downstream

Corporate

2019

6,706

11,075

10,542

465

2018

4,259

12,785

7,565

269

$ million

2017

3,921

13,160

6,418

157

Cash flow from investing activities in 2019 was an outflow of $15.8 billion,
compared with an outflow of $13.7 billion in 2018. The increased cash
outflow was mainly due to lower proceeds from the sale of equity
securities, partly offset by higher proceeds from sale of assets in 2019.
The increased cash outflow in 2018 compared with $8.0 billion in 2017
was mainly due to lower proceeds from the sale of assets and securities
in 2018.

Cash flow from financing activities in 2019 was an outflow of $35.2
billion, compared with outflows of $32.5 billion in 2018 and $27.1 billion
in 2017. In 2019, this included payment of dividends to Royal Dutch Shell
plc shareholders of $15.2 billion (2018: $15.7 billion; 2017: $10.9 billion),
net repayment of debt of $3.4 billion (2018: $8.3 billion; 2017: $11.8
billion), repurchases of shares of $10.2 billion (2018: $3.9 billion) and
interest paid of $4.6 billion (2018: $3.6 billion; 2017: $3.6 billion).

Cash and cash equivalents were $18.1 billion at December 31, 2019
(2018: $26.7 billion; 2017: $20.3 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 LNG; production levels of crude oil,
natural gas and LNG; refining and marketing margins; and movements
in working capital.

Total capital investment

28,788

24,878

26,655

[A] 2018 and 2017 as revised. See “Non-GAAP measures reconciliations” on pages 279-280.

With effect from January 1, 2019, cash capital expenditure was introduced
to monitor investing activities on a cash basis, excluding items such as
lease additions which do not necessarily result in cash outflows in the
period. The capital discipline demonstrated in 2019 allowed us to maintain
our cash capital expenditure in line with the $24-29 billion range.

Cash capital expenditure

Integrated Gas

Upstream

Downstream

Corporate

2019

4,299

10,277

8,926

418

2018

3,819

12,582

7,408

269

$ million

2017

3,616

11,670

6,090

157

Total cash capital expenditure

23,919

24,078

21,533

Shell Annual Report and Accounts 2019Strategic ReportLIQUIDITY AND CAPITAL RESOURCES continued

Cash flow information [A]

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

Cash and cash equivalents at the end of the year

[A] See the “Consolidated Statement of Cash Flows” on page 194.

2019

2018

$ billion

2017

14.8

20.5

11.9

(0.3)

47.0

(2.6)

(0.9)

(1.2)

(4.8)

42.2

(15.8)

(35.2)

0.1

(8.7)

26.7

18.1

16.3

21.9

10.8

0.7

49.7

2.8

2.0

(1.3)

3.4

53.1

(13.7)

(32.5)

(0.4)

6.4

20.3

26.7

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

20.3

DIVIDENDS
Our policy is to grow the dollar dividend per share through time, in line
with our view of our underlying earnings and cash flow. When setting the
dividend, the Board of Directors looks at a range of factors, including the
macroeconomic environment, the current balance sheet, future investment
plans and existing commitments. We returned $15.2 billion to our
shareholders through dividends in 2019.

The fourth quarter 2019 interim dividend of $0.47 per share will be
payable to shareholders on the register at February 14, 2020. See Note
23 to the “Consolidated Financial Statements” on page 235. The Board
expects that the first quarter 2020 interim dividend will be $0.47
per share, equal to the US dollar dividend per share for the same
quarter in 2019.

PURCHASES OF SECURITIES
On July 26, 2018, the Company announced the commencement of a
share buyback programme of at least $25 billion, subject to further
progress with debt reduction and oil price conditions. This was in
accordance with the authority granted by shareholders at the 2018
Annual General Meeting (AGM) for the Company to repurchase up to a
maximum of 10% of its issued ordinary shares, excluding treasury shares
(834 million ordinary shares). At the 2019 AGM, shareholders granted a
renewal of this authority, to repurchase up to a maximum of 815 million
ordinary shares, such authority to expire at the earlier of the close of

business on August 21, 2020 and the end of the 2020 AGM. As at
December 31, 2019, 445 million A shares with a nominal value of €31
million ($38 million) and 16 million B shares with a nominal value of €1
million ($1 million) (5.85% of the Company’s total issued share capital at
December 31, 2019) had been cumulatively purchased and cancelled
since the beginning of this programme, for a total cost of $14.1 billion
including expenses, at an average price of $30.67 per share. As at
December 31, 2019, 647 million ordinary shares could still be repurchased
under the current AGM authority. The purpose of the share repurchases
in 2018 and 2019, and in the period ended January 24, 2020, was to
reduce the issued share capital of the Company. A new resolution will be
proposed at the 2020 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 2020 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 104-171) 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 2019,
and in the period ended January 24, 2020, by the Company and
affiliated purchasers. Purchases in euros and sterling are converted
into dollars using the exchange rate on each transaction date.

Shell Annual Report and Accounts 2019Strategic ReportPurchases of equity securities by issuer and affiliated purchasers in 2019 [A]

A shares

B shares

A ADSs [B]

Purchase period

Number
purchased
for employee
share plans

Number
purchased for
cancellation [C]

Weighted
average
price ($)[D]

Number
purchased
for employee
share plans

Number
purchased for
cancellation [C]

Weighted
average
price ($)[D]

January

February

March

April

May

June

July

August

September

October

November

December

Total 2019

January

Total 2020

–

231,910

–

19,086,716

25,651,490

27,792,913

16,918,437

29,386,861

20,578,030

141,555

29,200,419

–

26,663,906

1,650,000

31,947,755

4,413,134

4,067,133

26,563,443

35,836,732

1,119,733

30,475,077

11,623,465

320,101,779

–

23,206,521 [E]

23,206,521

30.10

31.60

31.38

32.24

31.86

31.97

32.31

28.47

28.63

29.09

29.67

29.00

30.37

29.63

–

95,430

–

20,830

–

709,388

1,933,105

1,628,144

979,363

–

9,701,283

1,787,000

–

4,591,341

5,366,260

16,079,624

–

31.48

–

33.49

–

28.02

27.70

29.06

29.48

28.30

28.28

–

Number
purchased
for employee
share plans

1,854,168

–

83,349

–

Weighted
average
price ($)[D]

59.21

–

63.45

–

30,178

65.95

–

402,032

913,430

1,314,922

200,047

4,798,126

1,003,452

–

58.16

57.98

59.21

57.83

58.95

59.76

[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 24, 2020, the end of the sixth tranche of the share buyback programme.

CONTRACTUAL OBLIGATIONS
The table below summarises our principal contractual obligations at December 31, 2019, by expected settlement period. The amounts presented
have not been offset by any committed third-party revenue in relation to these obligations.

Contractual obligations

Debt [A]

Leases

Purchase obligations [B]

Other long-term contractual liabilities [C]

Total

Less than 1 year

Between
1 and 3 years

Between
3 and 5 years

5 years
and later

10.1

7.3

24.6

–

42.0

9.9

25.1

0.4

45.3

6.5

7.6

18.3

–

32.4

38.7

21.3

48.6

0.7

109.3

$ billion

Total

65.2

46.1

116.6

1.1

229.0

[A] See Note 14 to the “Consolidated Financial Statements”on pages 218-219. Debt contractual obligations exclude interest, which is estimated to be $1.7 billion payable in less than one year,

$3.0 billion between one and three years, $2.6 billion between three and five years, and $14.6 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, 2019, and that there is no change in the aggregate principal amount of debt other than repayment at scheduled maturity
as reflected in the table. Leases definition follows IFRS 16, which was implemented January 1, 2019. Lease contractual obligations include interest.

[B] 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 223-225) and obligations associated with decommissioning and restoration (see Note 18 to the “Consolidated Financial Statements” on page 226).

GUARANTEES AND OTHER OFF-BALANCE SHEET
ARRANGEMENTS
There were no guarantees and other off-balance sheet arrangements
at December 31, 2019, or 2018, that were 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 2019, 2018 and 2017, the
Trust recorded income before tax of £5,484 million, £5,328 million,
and £4,567 million respectively. In each period, this reflected the
amount of dividends received on the dividend access shares.

At December 31, 2019, the Trust had total equity of £nil (2018: £nil;
2017: £nil), reflecting cash of £3 million (2018: £3 million; 2017: £2 million)
and unclaimed dividends of £3 million (2018: £3 million; 2017: £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.

Shell Annual Report and Accounts 2019Strategic ReportENVIRONMENT 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.

HSSE & SP Control Framework

HSSE Policy & Commitment

See “Risk factors” on page 27.

Mandatory

HSSE & SP Standards

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 190-238. Detailed data
and information on our 2019 environmental and social performance is
expected to be published in the Shell Sustainability Report in April 2020.

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,
care and respect for people, the protection of the environment and
mutually beneficial relationships with 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. The definition of major projects considers two categories:
capacity, including consequences from potential incidents; and cost. 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. We are committed to the safety of our people and contractors.
The standards for Health, Safety, Security, Environment and Social
Performance (HSSE & SP) and the scope for application of each of these
standards is specified in the Shell HSSE & SP Control Framework (CF).
The CF is made up of a series of mandatory manuals, which are in line
with the Shell Commitment and Policy on HSSE & SP and the Shell Code
of Conduct. They are supported by a number of guidance documents and
complemented by assurance protocols. The CF applies to every Shell
entity, including all employees and contract staff, and to Shell-operated
ventures. The CF defines standards and accountabilities at each level of
the organisation and sets out the procedures and processes people are
required to follow. We require that all significant HSSE & SP risks
associated with our business activities are assessed and managed to as
low as reasonably practicable. Our HSSE & SP functions provide expert
advice and support for the business. The Process Safety and HSSE & SP
Assurance team provides assurance on the effectiveness of HSSE & SP
controls to the Board.

We expect joint ventures not operated by Shell to apply standards
and principles similar to our own. We support these joint 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 joint ventures does not meet our expectations, we work
to put remedial action plans in place, in agreement with our partners,
to improve performance.

Manuals

Health

Personal Safety

Process Safety

Security

Environment

Contractor HSSE
Management

Projects

Transport

Product
Stewardship

Social
Performance

HSSE Management
System

Guides

Non
Mandatory

Assurance Protocols

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, environment, 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 strive
to help improve safety performance throughout the energy industry
by sharing our safety experience and standards with other operators,
contractors and professional organisations, including the International
Association of Oil & Gas Producers (IOGP) and the Energy Institute.
Shell’s Safety, Environment and Sustainability Committee (SESCo)
reviews and advises the Board on our safety strategy, policies and
performance. Safety performance is included in our annual bonus
scorecard for all our employees.

See also “Directors’ Remuneration Report” on pages 155-163.

Shell Annual Report and Accounts 2019Strategic ReportHow we mitigate
We manage safety risks across our businesses through clear standards,
controls and compliance systems, combined with a safety-focused culture.
We strive to reduce risks and to minimise the potential impact of any
incident. Our standards also apply to any joint ventures we operate.
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, skills and competencies. We employ a large number of
contractors and we work with them to ensure they understand our safety
requirements. Together we build skills and expertise to improve safety
performance. 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.

See also “Control Framework” on page 84.

Personal and process safety
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.

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 safely operated, 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
personal and 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 embedded a set of process safety fundamentals,
which provide clear guidelines for good operating practice to prevent
unplanned releases.

Risk management approach

Threats

TOP
EVENT

Consequences

CONTROLS, BARRIERS

RECOVERY MEASURES

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.

Transport safety
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 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
575 million kilometres on business in 2019 in close to 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.
In addition, we run an annual online defensive driving course for all who
drive on public roads on Shell business. Outside our operations, we also
work to improve road safety in several communities and countries where
we operate. For example, in India, we have rolled out a road safety
campaign that provides truck drivers with free eye tests and free
prescription glasses.

Safety performance
While we continually work to minimise the likelihood of incidents, some do
occur. Regrettably, seven people lost their lives while working for Shell in
2019, compared with two fatalities in 2018.

In 2019, two contractors died in Nigeria when an oil and gas maintenance
vessel they were travelling on capsized in bad weather. A Shell employee
died after falling from height into water while a vessel was being moored
at Shell’s Mormon Island facility in the USA. A Shell employee based at
Convent Refinery in the USA was fatally injured in a collision on the road
when driving from the airport after his return from a business conference.
A Shell employee and a contractor died during a routine and mandatory
test of the lifeboat launch and retrieval capabilities at the Auger
tension-leg platform in the US Gulf of Mexico when the lifeboat
disconnected from the lifting apparatus at height. A roll-over incident
occurred in Pakistan involving a road tanker which led to one contractor
being fatally injured.

Road transportation remains a challenging and complex area for
industries worldwide. After a devastating roll-over incident occurred in
Pakistan in 2017, involving a road tanker hired by a company that was
providing road transport services to Shell Pakistan Limited, Shell Pakistan
has been working with road transport companies it hires, regulators and
emergency services in Pakistan to improve safety standards.

We require incidents to be investigated to understand the underlying
causes, including the technical, behavioural, organisational and human
elements. We share learnings and implement mitigations at the site and
in the country and business where the incident took place. We seek to
translate incident findings into improvements in standards or ways of
working that can be applied broadly across similar facilities in Shell.

Shell Annual Report and Accounts 2019Strategic ReportENVIRONMENT AND SOCIETY continued

In 2019, Shell’s Board and Executive Committee spent considerable time
reflecting on the concerning safety performance, measured by the number
of fatalities, and what needs to change at Shell to prevent fatalities and all
other serious incidents. This included carrying out a full review of Shell’s
safety approach, which covered the effectiveness of current preventative
tools, such as the Life-Saving Rules and Goal Zero ambition.

Since the early 2000s, we made progress in improving the safety of our
operations. This was largely due to a stronger safety culture, guided by
our Goal Zero ambition to achieve no harm and no leaks, more effective
standards, and requirements such as the Life-Saving Rules. Of all the
fatalities in recent years, the vast majority have no link to a breach of the
Life-Saving Rules. But sadly, we have not been able to eliminate all fatal
incidents involving Shell employees and contractors.

We are now building on our current approach to safety with a more
consistent focus on the way people, culture, equipment, work systems and
processes all interact. Many of our fatalities over the last five years were
down to the complex interaction between these elements. We aim to
better understand the gap between how we anticipate work will be done
safely and how the work is actually carried out. We continue to work to
prevent incidents by maintaining safety barriers and providing training,
and we acknowledge that people make mistakes and not all incidents
may be preventable. Therefore, we will focus more on how people can
“fail safely”, and on our response in the moment to avoid the risk of a
serious injury. This approach is a philosophical change, which we will
start to deploy from 2020 onwards for all employees and contractors.

As set out in “Performance indicators” on page 42, our total recordable
case frequency (injuries per million working hours) was 0.9 in 2019,
compared with 0.9 in 2018, and there were 130 operational Tier 1 and
2 process safety events in 2019, compared with 121 in 2018. Detailed
information on our 2019 safety performance is expected to be
published in the Shell Sustainability Report in April 2020.

ENVIRONMENT
We are committed to protecting the environment. For us, being
responsible means understanding the impact Shell can have on the
environment and the communities we share it with – before, during and at
the end of our operations. We aim to make a positive contribution to the
local environments in which we operate and seek to reduce any potential
negative environmental impacts. This is why we set ourselves high internal
environmental standards. These match and, in some cases exceed, local
regulatory requirements. We aim to continually improve our performance,
and to prepare to respond to future challenges and opportunities. We
adhere to external standards and guidelines, such as those developed
by the World Bank and International Finance Corporation, to inform
our approach. For us, protecting the environment also means working
to transform our product mix over time, for example, by expanding the
choice of lower-carbon products we offer customers. Shell’s Safety,
Environment and Sustainability Committee (SESCo) reviews and advises
the Board on our environment strategy, policies and performance.

How we mitigate
Our global environmental 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. When planning new
major projects, we carry out detailed environmental, social and health
impact assessments.

See also “Control Framework” on page 84.

We apply the mitigation hierarchy in our projects and operations to aim
to minimise our impact on the environment as much as possible. When
looking at biodiversity, for example, this means that we first aim to avoid
impacts on biodiversity and ecosystem services. Where avoidance is not
possible, we aim to minimise our impact. Where our operations have
affected biodiversity and the communities who rely on biodiversity for
their livelihoods, we seek to help restore impacted habitats. We look
for opportunities to make a positive contribution to conservation, also
known as net-positive impact, where we operate. For example, the
Shell-operated QGC gas project in Australia manages the Valkyrie
property, an area with a rich ecosystem, as a biodiversity and carbon
offset to compensate for clearing vegetation and habitat for the
development of gas resources. We believe some areas are too sensitive
to enter, so in 2003, we made the commitment that we will not explore
for, or develop, oil and gas resources in natural World Heritage Sites.

Another example of how we apply the mitigation hierarchy involves
water. Ensuring 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. Our QGC project in Australia produces LNG from
natural gas in the water-scarce region of the Surat Basin in Queensland.
Water is produced as a natural by-product during the extraction of gas.
Two water plants treat most of the produced water so that it is suitable for
use by local farmers, industry and town water suppliers. An assessment of
risks to water availability is required for each of our facilities 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 2019, our intake of fresh water was 192 million cubic metres, compared
to 199 in 2018. Around 90% of our fresh water intake was used for
manufacturing oil products and chemicals, with the rest mainly used for
oil and gas production. Around 40% of freshwater intake was from public
utilities, such as municipal water supplies, with the remainder taken from
surface water such as rivers and lakes (around 51%) and groundwater
(around 9%).

Detailed information on our 2019 environmental performance is expected
to be published in the Shell Sustainability Report in April 2020.

See “Climate change and energy transition” on pages 91
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 wildlife, 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.

Shell Annual Report and Accounts 2019Strategic ReportHow we mitigate
We have requirements and procedures designed to prevent spills. We aim
to design, operate and maintain our facilities so that we avoid spills. To
further reduce the risk of spills, Shell has routine programmes to maintain
and improve the reliability of facilities and pipelines. Our business units
are responsible for organising and executing oil-spill responses in line with
Shell guidelines and 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.

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, and
illegal oil refining, including the distribution of illegally refined products.
In 2019, about 95% of 164 oil spills of more than 100 kilograms from the
Shell Petroleum Development Company of Nigeria Limited (SPDC) joint
venture’s facilities were due to illegal activities by third parties. In 2019, the
volume of crude oil spills caused by sabotage was 2.0 thousand tonnes
(157 incidents), compared to 1.6 thousand tonnes (111 incidents) in 2018.
However, there are instances where spills occur due to operational
reasons. In 2019, SPDC managed to reduce the volume of operational
spills of more than 100 kilograms to about 0.03 thousand tonnes of crude
oil (seven incidents) compared to about 0.4 thousand tonnes of crude oil
(15 incidents) in 2018. This represents a reduction of about 93% in
operational spills weight year-on-year.

We have further developed our ability to respond to spills to water, and
we maintain a Global Response Support Network 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 ability 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 local legal and regulatory
requirements. They also provide for the initial assessment of incidents and
the mobilisation of resources needed to manage them. In the event of spills
on land, businesses are supported by our global Soil & Groundwater
Team whose role is to review and implement appropriate remedies such as
sustainable remediation. The global Soil & Groundwater Team is engaged
throughout the lifecycle of our assets. For example, during acquisition and
divestment of assets, they conduct due diligence to identify land
contamination liabilities. Through research and development initiatives,
the Soil & Groundwater Team collaborates with regulators in developing,
modifying, and applying sustainable remediation techniques.

Spills still occur for reasons such as operational failure, accidents or
unusual corrosion. In 2019, the number of operational spills of more
than 100 kilograms decreased to 70 from 93 in 2018 (see “Performance
indicators” on page 44). The weight of operational spills of oil and oil
products in 2019 was 0.2 thousand tonnes, a decrease from 0.9 thousand
tonnes in 2018. At the time of publication of this report, there was one spill
under investigation in Nigeria that may result in adjustments.

Irrespective of the cause, SPDC works to clean up and remediate areas
impacted by spills originating from its facilities. SPDC succeeded in cutting
the average time to complete recovery of free and/or residual oil from
about 13 days in 2016 to about seven days in 2019. This entails the
average time it takes to safely access an impacted site to commence Joint
Investigation Visits (JIV) with diverse stakeholders including NGOs and
communities, and clean up oil not mixed with water or soil. Clean-up
activities include bio-remediation which stimulates microorganisms that
naturally break down and use carbon-rich oil contamination as a source
of food and energy, ultimately leading to its removal. Once clean-up
and remediation operations are completed, the work is inspected and,
if satisfactory, approved and certified by the Nigerian regulators. In
case of operational spills, SPDC also pays compensation to people
and communities impacted.

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 eight years,
about 1,330 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 threats arising from frequent pipeline
sabotage or vandalism.

SPDC continues to undertake integrated focused initiatives to prevent and
minimise spills caused by theft and sabotage of its facilities in the Niger
Delta. In 2019, SPDC continued on-ground surveillance of the SPDC joint
venture’s areas of operation, including its pipeline network, to mitigate
third-party interference and ensure that spills are detected and responded
to as quickly as possible. There are also daily overflights of the most
vulnerable segments 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. The programme to protect well-heads with steel cages
continues to help deter theft. By end of 2019, 301 cages had been
installed and another 86 units are planned for installation in 2020,
including enhanced CCTV for all installed cages. Only three breaches
out of about 300 registered attempts were successful.

Shell Annual Report and Accounts 2019Strategic ReportENVIRONMENT AND SOCIETY continued

Since 2012, SPDC has worked with the International Union for
Conservation of Nature (IUCN) 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 collaboration, SPDC has
launched further improvement initiatives to help strengthen its remediation
and restoration efforts. In 2019, SPDC and IUCN worked together on the
Niger Delta Biodiversity Technical Advisory Group which also includes
representatives from the Nigerian Conservation Foundation and
Wetlands International, to continue to monitor biodiversity recovery
of remediated sites.

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 members of impacted communities, to establish the cause and
volume of oil spilled.

SPDC has also implemented several initiatives and programmes to raise
awareness of 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, and 3) planting of
mangroves and monitoring. The first phase was completed in August 2018
and the contract procurement process for phase two was finalised in 2019
with four remediation contractors having international technical partners
and two consultancy contractors selected. Mobilisation is expected to
effectively start in 2020. Prior to engagement on the project, 800
community workers were medically checked, tested for swimming ability,
and trained to International Maritime Organization (IMO) Oil Spill
Response Levels 1 and 2. Field remediation activities commenced in
November 2019. Should activities continue uninterrupted, phase two (soil
remediation) is expected to take around 18 months. 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 eight years, SPDC has taken action on all, and completed most, of
the UNEP recommendations addressed specifically to it as operator of the
joint venture. The UNEP report recommended the creation of an Ogoni
Trust Fund (OTF) with $1 billion capital, 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 $900 million as
its share over five years to the Fund. SPDC JV partners contributed the first
instalment of $180 million for the clean-up by July 2018 and released the
second instalment of $180 million in 2019. SPDC assigned a senior
engineer with project management, contracting, and procurement

experience to support and enhance the capability within the
Hydrocarbon Pollution Remediation Project (HYPREP). In November 2018,
HYPREP awarded contracts for the first set of remediation projects. In
March 2019, 21 contractors started operations on 21 lots which add up to
12 of the 67 polluted sites recorded in the UNEP report. At the same time,
medical outreach and livelihood programmes started. The process to
select contractors to work on nine additional polluted sites was completed
in January 2020. Although remediation works continue to progress,
challenges remain. These include re-pollution, lack of contractor funding,
land disputes and security issues in Ogoniland. The UNEP continues to
monitor the success of the clean-up exercise via its observer status at both
the Governing Council and the Ogoni Trust Fund. Its agencies such as
UNDP, UNITAR and UNOPS provide services to HYPREP in the area of
livelihood programmes, training and project services.

HYDRAULIC FRACTURING
Shale oil and gas resources are a critical part of a modern energy system.
These resources are not only abundant and affordable, but offer options
to scale up and down investment in the development of these resources.
According to US Energy Information Administration (EIA) estimates, there
are 7,576.6 trillion cubic feet of unproven technically recoverable wet
shale gas resources and 418.9 billion barrels of unproven technically
recoverable tight oil resources spread across 46 countries. We believe
development of these resources is critical for meeting the energy needs
of growing societies around the world.

The oil and gas industry has used hydraulic fracturing to unlock tight/shale
oil and gas resources in vertical wells for decades. In the past 20 years,
hydraulic fracturing has also been used in horizontal wells to recover
natural gas and oil. The technology has opened up vast resources that
were previously thought to be unrecoverable. Hydraulic fracturing has
been used by the industry in more than 2.5 million oil and gas wells, many
of them in the USA. Hydraulic fracturing involves pumping a fluid that is
typically 99.9% water and sand, and around 0.1% chemical additives into
tight sand or shale rock at high pressure. This creates threadlike fissures –
typically the diameter of a human hair – in the rock, creating space
through which the hydrocarbons can flow more easily.

At Shell, we believe we can explore, develop and produce tight/shale
oil and gas resources safely and responsibly. Our operations are
underpinned by our Principles for Producing Tights/Shale Oil and Gas
(known as Onshore Operating Principles) that provide a framework for
protecting the environment and the communities in which we operate.
Our operating principles cover safety, air quality, water protection and
usage, land use and engagement with local communities. We review
the Onshore Operating Principles annually and update them as new
technologies, challenges and regulatory requirements emerge. We
also support appropriate and fit-for-purpose regulations.

The availability and quality of water, the local environmental conditions
and the regulatory requirements vary from basin to basin. Therefore, we
develop a tailor-made water management strategy for each of our shale
assets, identifying short and long-term water needs, options for water
sourcing, recycling and sharing, options for treatment and disposal, and
options for transportation and storage. We aim to minimise the use of
water in our shale operations. Depending on local hydro-geologic
conditions, we typically use a combination of fresh water, brackish
groundwater, produced water and waste water. We actively strive to
reduce and ideally eliminate our freshwater intake for our drilling and
hydraulic fracturing operations by increasing our recycling capacity
and using municipal water.

Shell Annual Report and Accounts 2019Strategic ReportPotable groundwater aquifers are isolated from the hydrocarbon-
producing shale formations by several thousand feet of impermeable rock.
However, we often need to drill through potable groundwater aquifers
to reach shale formations. Therefore, we design our drilling, hydraulic
fracturing and production activities in a way that aims to maintain
isolation from potable groundwater aquifers. Before we drill a well, we
conduct a hazard assessment to analyse risks to groundwater aquifers
and develop control measures to reduce those risks. When we drill,
we have at least two physical barriers, consisting of steel casing and
cement, between the well bore and potable groundwater aquifers.
We continuously monitor wellbore integrity before, during and after
hydraulic fracturing and during production activities.

Chemical additives are needed in the hydraulic fracturing fluid to carry
sand, reduce friction and prevent the growth of bacteria. Since 2015, we
have optimised the composition of our hydraulic fracturing fluids. As a
result, we have reduced chemical additive volumes by around 50-60%.
Currently, on a volume basis, about 0.1% of our hydraulic-fracturing fluid
is chemical additives. We support full disclosure of the chemical additives
used in hydraulic-fracturing fluids for Shell-operated wells. Find more
information about our water management practices, such as the “Onshore
Operating Principles in Action: Water Fact Sheet”, on our webpage.

SEISMICITY
As oil and gas fields mature, seismic activity may increase in certain
circumstances based on the unique geology of individual fields. For
example, production from the onshore Groningen gas field in the
Netherlands is in the process of being closed down due to earthquakes
induced by the gas production. Some of these earthquakes have caused
damage to houses and other structures in the region, resulting in
complaints, claims and lawsuits from local house owners and residents.
A range of actions have been taken to improve safety, liveability and
economic prospects in the region. The gas field is operated by the
Nederlandse Aardolie Maatschappij B.V. (NAM, Shell interest 50%).
NAM is working with the Dutch government and other stakeholders to
fulfil its obligations to residents of the area, which include compensation
for damage caused by the earthquakes.

See “Upstream” on page 52.

Overall, we believe there is a relatively low likelihood of hydraulic
fracturing or produced water disposal well operations inducing seismicity
that is felt on the surface. Shell, however, still takes precautionary
measures around induced seismicity, 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 we apply to our shale assets. They
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 support
fit-for-purpose, science-based state and provincial regulations. Find more
information about our induced seismicity management practices, such as
the “Onshore Operating Principles in Action: Induced Seismicity Fact
Sheet”, on our webpage.

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 harm our reputation
and ability to do business, and result in significant costs, including
clean-up costs, fines, sanctions and third-party claims.

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 has
environmental impacts that were not assessed, foreseen or determined
to be harmful when originally implemented. While we believe we take
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 criminality, civil unrest, activism, terrorism,
cyber disruption and acts of war that could have a material adverse effect
on our business (see “Risk factors” on pages 27-36). We seek to obtain the
best possible information to enable us to assess threats and risks. This
includes building strong and open relationships with government security
agencies. Mitigation thereafter includes the strengthening of the security
of sites, reduction of our exposure as appropriate, journey management,
information risk management as well as crisis management and business
continuity measures. We conduct training and awareness campaigns for
staff, and provide travel advice and 24/7 assistance while travelling.
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.

CONTRIBUTION TO SOCIETY
In 2019, Shell paid more than $61.3 billion to governments (2018:
$64.1 billion). We paid $7.8 billion in income taxes and $5.9 billion
in government royalties, and collected $47.6 billion in excise duties,
sales taxes and similar levies on our fuel and other products on behalf
of governments. In 2019, Shell spent $44.9 billion (2018: $42.7 billion) on
goods and services from 29,361 suppliers globally. Find more information
about our approach to tax and transparency in the Tax Contribution
Report, and to local content on our webpage.

NEIGHBOURING COMMUNITIES
Engaging with communities is part of our approach to managing human
rights and providing access to remedy. 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.

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 are 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 to avoid, minimise or mitigate potential impacts on indigenous
peoples’ traditional lifestyles, cultural heritage or involuntary resettlement.

Shell Annual Report and Accounts 2019Strategic ReportENVIRONMENT AND SOCIETY continued

We have a network of about 100 community liaison officers (CLO)
installed locally to act as a bridge between local communities and our
businesses. The CLOs man our community centres on workdays, receiving
visitors to listen to questions or complaints. Members of the community
can also contact CLOs via dedicated telephone lines. It is their task to take
any concerns back to the Shell facility and involve people who are best
placed to take action. We are using a tool based on the United Nations
Guiding Principles’ criteria to measure the effectiveness of our operational
community feedback mechanisms.

For example, in Berat, southern Albania, our activities caused traffic to
rise, which resulted in dust pollution and caused health concerns for the
local community. Shell set up a community centre with a CLO who brought
the concerns to the attention of the Shell Upstream Albania leadership
team. Three initiatives were implemented: traffic calming measures, dust
suppression using environmentally friendly chemicals, and increasing the
frequency of watering to mitigate and minimise the impacts of dust. Find
more information about our work with communities on our webpage.

HUMAN RIGHTS
Human rights are fundamental to Shell’s core values of honesty, integrity
and respect for people. Respect for human rights is embedded in our Shell
General 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. Our
joint-venture partners are expected to implement our control
framework or an equivalent.

We work closely with other companies and non-governmental
organisations to improve the way we apply these principles. Our focus
is on four priority areas where respect for human rights is critical to the
way we operate: communities, security, labour rights, and supply chain.
In each of those areas, we have systems in place to identify potential
impacts and to avoid and mitigate them. For example, our HSSE & SP
Control Framework contains our mandatory standards and manuals that
set out how we identify, assess, and manage our impacts on communities
where we operate – including any impact on human rights. We require
all our companies and our contractors to respect the human rights of
our workforce and our neighbouring communities.

One of the Board committees, the Safety, Environment and Sustainability
Committee, has the responsibility to review the standards, policies and
conduct of the Company relating to the application of the Shell General
Business Principles including sustainable development, and review the
effectiveness of the compliance programme, including compliance with
the Code of Conduct which includes Shell’s responsibility to respect
human rights. The overall accountability for sustainability within Shell
lies with the Chief Executive Officer and the Executive Committee. A
cross-functional Human Rights Working Group advises on and supports
the implementation and review of our approach to human rights. The
group includes an external advisor. A steering committee composed of
senior executives oversees the work of the Human Rights Working Group.

Our approach to due diligence is informed by the UN Guiding Principles
on Business and Human Rights. Due diligence in each focus area is
typically exercised in areas where there may be a risk of impact to people,
and is supported by experts internally. We recognise the role of due
diligence in bringing our commitments to life. For example, in our supply
chains, we engage contractors and suppliers deemed to be at higher risk
for labour rights issues to undertake assessments of their management
system prior to the award of a contract. Results of these supplier
assessments are evaluated, and where gaps are found, we may work
with suppliers and contractors to help them implement corrective action.
We may also carry out on-site audits or consider terminating contracts
if serious or persistent shortcomings are found. The most common
shortcomings found during our supplier assessments typically relate to
policy rather than performance gaps in the following areas: freely chosen
employment; child labour avoidance; working hours, wages and benefits;
dormitory, housing and working conditions; humane treatment, equal
opportunities and freedom of association; and supply chain and
performance management. In conjunction with the Shell Supplier
Principles, Shell companies use a joint industry supplier capability
assessment delivered in collaboration with other operators. The sharing
mechanism across the participating parties aims to support the
improvement of working conditions in our companies’ respective
supply chains. Find more information about our approach to human
rights on our webpage.

Shell Annual Report and Accounts 2019Strategic ReportCLIMATE 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 came 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, among other things, changes in the way energy
is produced, stored, used and made accessible to more people while
drastically cutting emissions.

We believe that the need to reduce GHG emissions, will continue to be
an important driver in transforming 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. These examples were summarised and published
in a report, including reflections from investors, in 2018. The Shell Energy
Transition Report (SET report), also published in 2018, 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 (expected to be published in April 2020) and
the Industry Associations Climate Review, aims to provide additional
information to this Report in responding to TCFD recommendations,
including discussing the energy transition and Shell’s portfolio resilience. In
2019, Shell publicly supported the EU Commission’s proposal for the EU to
achieve net-zero emissions by 2050, the UK government’s target of
net-zero emissions by 2050, and the Climate Accord in the Netherlands.

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.

“Other regulatory and statutory information” on page 169.

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 matters
over the year, including environmental topics and investments in new
business areas, for example, in New Energies. In addition, some of the
Non-executive Directors received dedicated updates from management
and external experts on the various business models, opportunities
and risks 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 reviewed Shell’s Integrated
Power strategy from first principles, set against the context of the energy
transition and the external environment, and to see how power can
create value for Shell.

The Board committees play an important role in assisting the Board with
regard to governance and management of climate change risks and
opportunities, as described in “Governance” on page 119.

The role of the Safety, Environment and Sustainability Committee (SESCo)
(formerly 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 against the Shell
General Business Principles, the Shell Code of Conduct, and the HSSE &
SP Control Framework. During 2019, the Committee reviewed its purpose
and updated its terms of reference to ensure it focuses on areas of most
strategic importance to Shell. This resulted in a name change effective
from December 2019. The SESCo’s duties comprise, for example, to review
progress towards meeting Shell’s ambitions regarding climate change, the
energy transition and its Net Carbon Footprint. The Committee also has a
duty to advise the Remuneration Committee on metrics relating to
sustainable development and energy transition. In 2019, the SESCo
balanced its time between a number of topics, with discussion in depth
including the energy transition and climate change, Shell’s Net Carbon
Footprint ambition, and the Company’s environmental and societal licence
to operate. The SESCo conducted one major site visit in Singapore, where
the agenda included reviewing Shell’s developing New Energies
businesses in the country. In 2020, the Committee’s focus will be on safety,
Shell’s policies and commitments related to climate change, environmental
performance – for example, in Nigeria and our Canada LNG project –
and on specific issues such as plastics, methane, and nature-based
solutions. We will continue to advise the Remuneration Committee
on metrics concerning sustainability and energy transition.

Find more information on the SESCo on page 128.

Shell Annual Report and Accounts 2019Strategic ReportCLIMATE CHANGE AND ENERGY TRANSITION continued

The Remuneration Committee (REMCO) is responsible for determining
the Directors’ Remuneration Policy in alignment with our business strategy.
In 2019, following recommendations by SESCo, REMCO continued to
include GHG intensity metrics in annual bonus performance measures
and targets. In December 2018, Shell announced plans to link executive
remuneration to short-term targets to reduce the Net Carbon Footprint
of the energy products we sell, including our customers’ emissions from
their use of our energy products. In 2019, following discussions with major
shareholders and based on recommendations from SESCo, REMCO
decided to add an energy transition condition to the 2019 Long-Term
Incentive Plan (LTIP) award. This condition included our first three-year
target aligned with the trajectory of our long-term Net Carbon Footprint
ambition. It also featured other measures linked to our strategic ambitions,
including the growth of Shell’s power business, the commercialisation of
advanced biofuel technology, and the development of sinks to capture
and store carbon. See “Directors’ Remuneration Report” on pages
155-163. The Shell employee scorecard structure for determining
employees’ annual bonus in 2019 was consistent with the Executive
Directors’ scorecard. The energy transition condition in the 2019 LTIP
awards applies to around 150 Senior Executives as well as the Executive
Directors. The energy transition condition was included again in the 2020
LTIP awards for Executive Directors and Senior Executives, and will be
extended to approximately 16,500 employees across the Group who
receive Performance Share Plan awards. For the 2020 award, the target
range is a 3-4% reduction in NCF against the 2016 baseline NCF (79
grams of CO2 equivalent per megajoule). This target range is aligned with
the trajectory of our NCF ambition as set out in November 2017. The
targets for the other leading energy transition measures are commercially
sensitive, and will be disclosed retrospectively. Annual updates on our
progress in relation to measures will be provided.

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. Each Shell entity
and each Shell-operated venture are responsible for implementing climate
change policies and strategies.

The Executive Vice President Safety & Environment, a senior manager who
reports directly to the Projects & Technology Director, is accountable for
the 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 the application
of our core principles and policy tasks in interactions with policymakers.

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 project managers who
advise the projects on the risks and opportunities of GHG-related issues.
Risk management at an asset or project level is a structured process of
identifying and assessing risks; planning and implementing responses; and
monitoring, improving and closing out action items that have an impact on
projects’ and assets’ objectives and performance. Shell policy requires
these projects to obtain approval on abatement plans and targets
from the Executive Vice President Safety & Environment at defined
project phases.

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, which include climate
change risk management.

See “Environment and society” on pages 84-90.

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 working globally
across our lines of business. Team members are experts in their relevant
disciplines, defining improvement areas and sharing good practices
and experience.

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:
■ ensure consistent assessment of climate risk across Shell;
■ clarify expectations for risk management and reporting, including

■

roles and responsibilities;
strengthen decision-making through better visibility and understanding
of the climate risk by line of business; and

■ enable integration of Shell’s reporting.

For more detail on our definition of risk categories and their relationship
to different time horizons, see page 96.

Climate change management organogram

Board of Royal
Dutch Shell plc [A]

Safety, Environment
and Sustainability
Committee (SESCo) [B]

Audit Committee
(AC) [C]

Remuneration
Committee
(REMCO) [D]

CEO and Executive
Committee

Executive Vice
President, Safety &
Environment

Vice President,
Group Carbon

Businesses and
Functions [E]

Most senior individuals with
accountability for climate
change risk management

EVP Steering Team
Group strategic steer

Safety and Environment
Leadership Team
Operational
implementation steer

[A] Oversight of climate change risk management.
[B] Non-executive Directors appointed by the Board to review and advise on sustainability

policies and practices including climate change.

[C] Non-executive Directors appointed by the Board to oversee the effectiveness of the

system of risk management and internal control.

[D] Non-executive Directors appointed by the Board to set the remuneration policy in

alignment with strategy.

[E] Responsible for implementing Shell’s GHG strategy. They are represented in the Safety

and Environment Leadership Team.

Shell Annual Report and Accounts 2019Strategic ReportThis structured approach supports the prioritisation of risks and
opportunities. We actively monitor the GHG emissions of all our assets,
as well as the lifecycle of 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 27-36.

We review our portfolio annually to identify emerging risks from changing
GHG regulatory regimes and physical conditions. As described in our
Shell Energy Transition Report (2018), we tested the resilience of our
portfolio against externally published future pathways, including a
low-emissions pathway. In 2017, we announced a long-term ambition to
reduce the Net Carbon Footprint of the energy products we sell, in step
with society’s drive to reduce GHG emissions as it moves towards the goal
of the Paris Agreement. 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, and as an interim step,
by 2035, we aim for a reduction of around 20% compared with our 2016
level, both predicated on societal progress. This was followed by an
announcement, in 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 ideas about
how we would like to shape our future portfolio to meet our ambition.
These ideas then guide investment decisions. Within the selected
portfolio mixes, we develop individual projects and aim to make
them as resilient as possible to the future scenarios.

To assess the resilience of new projects, we consider the potential costs
associated with operational GHG emissions. In 2018, to help us stay in
step with society’s progress toward the goals of the Paris Agreement, we
switched from using a flat project screening value (PSV) of $40/tonne of
GHG emissions, to country-specific estimates of future carbon costs. By
2050, our carbon cost estimates for all countries increase to $85/tonne
of GHG emissions. These estimates were developed using the current
Nationally Determined Contributions (NDCs) submitted by countries
as part of the Paris Agreement. They are the first NDCs under the Paris
Agreement and are scheduled to be revised every five years. Therefore,
as countries update their NDCs, we expect to update our estimates too.
Accordingly, we believe they are a more accurate reflection of society’s
current implementation of the Paris Agreement. The UN 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 to meet the goals of
the Paris Agreement. We further test the robustness of our high-emitting
projects by using long-term carbon cost estimates that are consistent
with limiting the average global temperature rise to well below two
degrees Celsius.

Projects under development that are expected to have a material
GHG footprint must meet carbon performance standards or industry
benchmarks to allow them to compete and prosper in a more GHG-
constrained future. These assessments 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 with the shifting policy landscape and the differing pace
of energy transitions in different regions.

While monitoring emerging climate change plans, we considered the
robustness of our activities against a range of scenarios, as referenced in
our 2018 SET report. We believe our business strategy is resilient to the
implementation of the Paris Agreement, which is now progressing through
countries developing their individual NDCs. The emissions from customers
using Shell energy products are largely 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 in line
with our NCF ambition, and we intend to enable customers to make lower-
carbon-intensity choices by bringing lower-carbon-intensity products to
the market aligned with demand. We seek to contribute to reducing
global GHG emissions in a number of ways:
■

supplying more natural gas to replace coal for power generation;

■ developing carbon capture and storage (CCS);
■

implementing energy-efficiency measures in our operations where
reasonably practicable;

■ developing new fuels for transport such as advanced biofuels

and hydrogen;

■ maintaining a focus on using natural gas and renewable electricity

to generate power; and

■ working with nature-based solutions.

To support this, we continue to advocate the introduction of effective
government-led carbon pricing mechanisms.

We are committed to reducing our GHG intensity, but with energy
demand increasing and the number of easily accessible oil and gas
reservoirs declining, 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. We continue to invest in long-range
research and carbon-abatement technologies to provide technical
solutions to address these challenges.

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. We expect more
governments to follow. However, we believe measures taken by
governments to control national energy transitions may also have
unintended consequences. For example, the prohibition of one technology
may encourage other substitute technologies that result in an increase in
overall GHG emissions. See “Risk factors” on page 30.

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 gas
instead of coal in power generation can make a large contribution, at
lower cost, to meeting GHG emission reduction objectives. We expect
that, in combination with renewables and the use of CCS, natural gas will
be essential in significantly lowering GHG emissions. Natural gas made
up more than half of Shell’s proved reserves at the end of 2019. As a
leader in liquefied natural gas (LNG), and with our conventional gas
assets and 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.

Shell Annual Report and Accounts 2019Strategic ReportCLIMATE CHANGE AND ENERGY TRANSITION continued

Methane is a potent 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. Higher
levels of methane emissions, however, would reduce this benefit, and we
recognise the importance of assessing, and where possible, 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 2019. We are working to
reduce methane emissions from these sources by reducing the overall level
of flaring and venting. We also 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 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. Also in 2017, Shell
led the development of a set of non-binding Methane 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. Shell has been involved
in the development of all actions associated with the guiding principles,
including the development of a major global outreach programme.
The objective is to address a gap in knowledge on managing methane
emissions, and thereby provide high-quality educational material and
courses on methane science, methane reduction strategies and planning,
measurement techniques, technology, policy, and where to get guidance
and support. The publicly accessible programme consists of two courses:
an executive course targeting senior managers and executives, and
masterclasses for managers of frontline staff.

Shell is also a member of the Oil and Gas Climate Initiative (OGCI), a
CEO-led effort to lead the industry’s response to climate change. One of
OGCI’s focus areas is methane management. In 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 0.2%, corresponding to a reduction
of one third.

In 2018, Shell announced a target to maintain its methane emissions
intensity below 0.2% by 2025. This target covers all Shell-operated
Upstream and Integrated Gas oil and gas facilities. The baseline and
target intensities are expressed as percentage figures, representing
estimated methane emissions from Shell-operated gas and oil facilities
as a percentage of the total amount of gas marketed, or the quantity of
marketed oil and condensate where facilities have no marketed gas (e.g.
those that re-inject produced gas). Methane emissions include those from
unintentional leaks, venting and incomplete combustion, for example in
flares and turbines. In 2019, our overall methane intensity was 0.08% for

facilities with marketed gas and 0.01% for facilities without marketed gas.
Intensities at facility level ranged from below 0.01% to 1.3%. We believe
our methane emissions are calculated using the best methods currently
available: a combination of industry standard emission factors
(established emission 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 to further enhance data
quality and reporting, continue implementation of leak detection and
repair programmes, and make use of methane abatement opportunities.
By 2025, all Shell-operated facilities 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.

Detailed information on our approach to managing methane emissions
and performance is expected to be published in the Shell Sustainability
Report in April 2020.

CARBON CAPTURE, UTILISATION AND STORAGE
CCS or CCUS 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. This compares with over 260 million tonnes of man-made
CO2 that has been injected to date (Global Status of CCS 2019 report).
By May 2019, our Quest CCS project in Canada (Shell interest 10%),
had captured and safely stored more than 4 million tonnes of CO2 since
it began operating in 2015. The Gorgon CCS project in Australia
(Shell interest 25%, not operated), which started operating in 2019, is
expected to store between 3.4 and 4 million tonnes of CO2 each year.
In Norway, we are involved in the Northern Lights CCS project for
capturing and storing industrial CO2, and in TCM, a CO2 capture
test centre in Mongstad.

As a member of the Oil and Gas Climate Initiative (OGCI), Shell is
participating in its Kickstarter initiative to unlock large-scale investment
in CCUS. The initiative is designed to help decarbonise multiple industrial
hubs around the world, starting with those in the USA, UK, Norway, the
Netherlands and China. The aim is to create the necessary conditions
for a commercially viable, safe and environmentally responsible CCUS
industry. Shell is one of six strategic partners working with OGCI Climate
Investments to possibly develop the UK’s first commercial clean gas power
full-chain CCS project, to be located in Teesside as part of the UK hub.

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 create additional incentives for all our employees to reduce
GHG emissions in our portfolio.

See “Directors’ Remuneration Report” on page 155-163.

Shell Annual Report and Accounts 2019Strategic ReportOur Raízen joint venture (Shell interest 50%, not operated) 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 2019, the plant produced 19.5 million litres of cellulosic ethanol from
sugar-cane residues. It is expected to produce 40 million litres a year
once fully operational.

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® 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.

We continue to look for opportunities to invest in third-party technologies
and to collaborate in scaling these up for commercialisation. In February
2019, Shell became an equal equity partner in a commercial-scale
waste-to-chemicals project called W2C Rotterdam – in partnership with
Air Liquide, Enerkem, Nouryon and the Port of Rotterdam. The partners
plan to build Europe’s first commercial-scale facility for producing
chemicals and biofuels from waste materials which cannot otherwise
be recycled. The facility in the Botlek area of the Port of Rotterdam in
the Netherlands will use Enerkem’s proprietary technology.

Also in 2019, Shell signed an equity investment agreement with PRESPL,
an Indian company specialising in biomass aggregation and processing
for energy production.

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 Europe. RNG is produced
from biogas collected from landfill sites, or via anaerobic digestion of 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 using
these vehicles an attractive way of lowering their CO2 footprint.

In the USA, in May 2018, we acquired the JC Biomethane plant in
Junction City, Oregon. We aim to start production after completing an
expansion of the facility in 2020. This will increase the facility’s capacity
to produce RNG.

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 expects to invest on average $1-2 billion a year
until 2020 in different services and products from a range of cleaner
sources. 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.
Between 2021 and 2025, our investments in power could grow to
$2-3 billion a year on average, if certain financial conditions are met.
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 49.

New fuels
We invest in a range of low-carbon technologies and fuels, including
biofuels, 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 50.

Biofuels
We believe that biofuels can play a valuable role in reducing CO2
emissions from the transport sector over the decades ahead.

In 2019, we used around 10.1 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 throughout the production chain. Currently, most available
biofuels are produced from cereals, vegetable oils and sugar cane. From
cultivation to use, some biofuels can 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 labour rights, the amount of
water used in the production process, and the competing demands
for land use between biofuels and food crops.

Over three-quarters of the biofuels we buy are from North American or
European feedstock producers. In both regions, regulations for agricultural
practices are in place, including considerations for sustainability.

We continue to support the adoption of international sustainability
standards, including the Round Table on Responsible Soy (RTRS),
the Roundtable for Sustainable Palm Oil (RSPO) and Bonsucro, an
organisation for the certification of sugar cane. We also support
the Roundtable for Sustainable Biomaterials and the International
Sustainability and Carbon Certification (ISCC) scheme for feedstocks.
We aim to increase the percentage of certified volumes against these
robust multi-stakeholder standards.

Currently, more than 99% of our purchased volumes of biofuels are
either covered by our supplier-agreed contract sustainability clauses
or certified as sustainable by an independent auditor. We aim to
increase the percentage of certified volumes against robust multi-
stakeholder standards.

Shell Annual Report and Accounts 2019Strategic ReportCLIMATE CHANGE AND ENERGY TRANSITION continued

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 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.

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 covering
specific aspects such as climate risk. The potential, timing, and severity of
the impact of the risks highlighted above are largely dependent on the
geographical location and the asset type.

Each Shell business unit needs to consider the adequate management
of climate-related risks in their portfolios. To ensure informed judgements
are made, businesses’ senior managers present their current assessments
of how likely climate risks are to happen, what their potential impact
would be, and what is being done to mitigate the risk. Each risk is then
categorised as either adequately managed or needing improved
mitigation and this aims to guide their ongoing operations and
maintenance schedules and response planning. In some instances,
Shell may also deploy a risk assessment approach which includes
the work of a team of experts to analyse, for example, the physical
impact of weather and climatic-related issues and the associated
adaptation aspects.

We aim to reduce the GHG intensity of our portfolio and we continue
to work on improving the energy efficiency of our existing operations.
As discussed above, and as a better way to inform and drive our
investment choices and adapt our business over time, in 2017, we
announced our Net Carbon Footprint ambition. 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 deliberately
chosen a wide and meaningful frame against which to manage our
performance. The emissions from our operations are important but those
of our customers from their use of the energy products are much larger in
proportion. More information on our Net Carbon Footprint ambition is
available on our webpage.

See “Integrated Gas” on page 49.

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 our Net Carbon Footprint. 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 can then be bought by energy
consumers around the world. In 2019, we launched a programme to invest
in natural ecosystems as part of our strategy to act on global climate
change. For example, in the UK, we are working with Forestry and Land
Scotland, a government agency, to generate carbon credits by helping
to plant or regenerate around 1 million trees over the next five years.
See the Shell Sustainability Report to be published in April 2020 for
more information.

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:
■ commercial risk: the potential for structural shifts in demand profiles

■

for industry products;
regulatory risk: the potential for strengthening of existing and
introduction of new regulations;

■ physical risk: the potential impact on our facilities and the communities

■

in which we operate due to changing physical conditions; and
societal risk: the potential for a deteriorating relationship with the
public, other companies, and governments in countries where
Shell operates.

This is how we describe the different time horizons and the relevance
for the identification of risks and business planning:
■ 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;

■

■ 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
Long term (beyond around 10 years): for this period, it is expected for
the current Shell portfolio to go through changes and evolution with
the energy transition. Decision-making and risk identification on the
thematic structure of the future portfolio are guided by the pace of
progress of society and in step with society as it moves towards
the goals of the Paris Agreement.

Shell Annual Report and Accounts 2019Strategic ReportThe 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.

Production

Processing

Distribution and sales

Use of our energy

Third-party crude oil

Own oil and
gas production

Third-party gas

Renewable
energy

Gas
production

Renewable
raw materials

Third-party products

Reﬁning

Processing
Liquefaction
Gas-to-liquids

Third-party products

Third-party power

Power plant

Processing

Third-party biofuels

Sales

Oil products

Natural Gas

LNG

GTL

Sales

Power

Sales

Biofuels

Scope includes CO2
sinks such as CCS,
nature-based solutions

Emissions from bringing own products to market

Emissions from bringing third-party products to market

Emissions from use of sold products

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.

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 2020 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.
This is 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,

Shell Annual Report and Accounts 2019Strategic ReportCLIMATE CHANGE AND ENERGY TRANSITION continued

the world will need significant growth in CCS and sustained improvements
in efficiency. 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 believe we 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. In early 2020, it was decided to set a Net
Carbon Footprint target for 2022 of 3-4% lower than our 2016 Net
Carbon Footprint of 79 grams of CO2 equivalent per megajoule. We have
received third-party limited assurance on our Net Carbon Footprint for the
years 2016 to 2019. For 2019, our Net Carbon Footprint was 78 grams of
CO2 equivalent per megajoule. The reduction in our Net Carbon Footprint
was due to an increase in sales of electricity in markets with declining grid
carbon intensity, and growth in customer demand for carbon-neutral
product offerings.

Around 35% of flaring in our Upstream and Integrated Gas facilities in
2019 took place in assets operated by The Shell Petroleum Development
Company of Nigeria Limited (SPDC). Flaring from SPDC-operated facilities
fell by around 20% between 2015 and 2019. Flaring intensity levels in
SPDC in 2019 increased by around 10% compared to 2018. 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,
followed by two more (the Forcados Yokri Integrated Project and
Southern Swamp Associated Gas Gathering Solutions) in 2019.

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

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 191-239. Detailed data
and information on our 2019 environmental and social performance is
expected to be published in the Shell Sustainability Report in April 2020.

Emissions (million tonnes of CO2 equivalent)

Direct [A]

Energy indirect [B]

Intensity ratio (tonne/tonne)

All facilities [C]

2019

2018

0.24

Our direct GHG emissions decreased from 71 million tonnes of CO2
equivalent in 2018 to 70 million tonnes of CO2 equivalent in 2019. The
main contributors to this decrease were divestments (for example in
Argentina, Canada, Norway, Iraq, Malaysia and the UK). The level
of flaring in our Upstream and Integrated Gas businesses combined
increased by around 15%, compared to 2018, primarily as a result of
the start-up of our Prelude floating liquefied natural gas installation in
Australia and higher levels of flaring in Nigeria, partially offset by
our Majnoon divestment in Iraq (mid-2018).

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 8% of our overall direct GHG emissions in
2019. Around 25% of this flaring took place at facilities where there was
no infrastructure to capture the gas produced with oil, known as
associated gas.

[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 our webpage.

Detailed information on our 2019 GHG emissions is expected to
be published in the Shell Sustainability Report in April 2020 and
on our webpage.

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 2-3 and “Risk factors”
on pages 27-36.

Shell Annual Report and Accounts 2019Strategic ReportOUR PEOPLE

Performing competitively in the evolving energy landscape
requires competent and empowered people working safely
together across Shell.

Employees

Region

Training

>70
countries in which we operate

373,000
formal training days for employees
and joint-venture partners

Female employees

31%
female employees

Directors

42%
women on the Board of Directors

Senior leaders

26%
women in senior leadership positions

Experienced hires

We recruit, train and recompense people according to a strategy that
aims to organise our businesses effectively. Our people are essential to
the successful delivery of the Shell strategy and to sustaining business
performance over the long term. We accelerate development of our
people; grow and strengthen our leadership capabilities; and enhance
employee performance through strong engagement.

83,000
employees and a further 4,000 in certain
New Energies and Downstream companies
at December 31, 2019

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, seconded to non-Shell-
operated joint operations, or joint ventures and associates.

At December 31, 2019, there were 83,000 employees in Shell and an
additional 4,000 in certain New Energies and Downstream companies,
compared with 81,000 at December 31, 2018, and 83,000 at December
31, 2017. The net increase in 2019 was driven by accelerated growth of
the Information Technology hub in Bangalore, increased project activity
in Projects & Technology, growth in Lubricants Asia, and growth in
Customer Operations in Downstream Global Commercial. These
changes were partly offset by reductions in Upstream and Integrated
Gas which were driven by portfolio activities and our continued effort
to improve operational efficiency and to reduce costs.

Further statements about employees in this section and data presented
in the tables excludes the 4,000 employees in certain New Energies
and Downstream companies. Note 26 to the “Consolidated Financial
Statements” on page 237 provides the average number of employees
by business segment.

Actual number of employees by geographical area

Europe

Asia

Oceania

Africa

North America

South America

Total

Thousand

2019

2018 [A]

2017 [A]

[A] As revised, numbers have been changed from average number to actual number

to align with current year definition. These numbers exclude the 4,000 employees in
certain New Energies and Downstream companies.

2,800
experienced people joined Shell (32% female)

In 2019, a total of 373,000 formal training days were provided for
employees and joint-venture partners, compared with 315,000 in 2018.
We continue to invest in people and capabilities, and in our continued
focus on safety and personal development.

Operations centre hires

3,600
recruited for Shell Business
Operations centres (51% female)

Graduate hires

500
graduate hires (48% female)

All metrics except for the Employees metric exclude the 4,000 employees
in certain New Energies and Downstream companies.

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 all-staff messages from the Chief Executive
Officer, webcasts, townhalls, team meetings, face-to-face gatherings,
breakfast briefings, interviews with senior management and online
publications via our intranet. For further information on stakeholder
engagement, see the “Governance” section on page 113.

Shell Annual Report and Accounts 2019Strategic ReportOUR PEOPLE continued

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. In 2018, there were 1,584
reported cases via the Shell Global Helpline: 1,232 allegations and 352
inquiries. In 2019, there were 1,686 reported cases via the Shell Global
Helpline: 1,278 allegations and 408 inquiries. 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 appropriately. 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 establish
and monitor the implementation of procedures for the receipt, retention,
proportionate and independent investigation and follow-up action
of reported matters.

Strong employee engagement is especially important in maintaining
strong business delivery in times of change. The 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 2019, the response
rate was 85.5%, which was an increase of 3.5 percentage points
compared to 2018. The average employee engagement score was
78 points out of 100, an increase of one point compared to 2018,
and places us among the leading results across a range of industries.

DIVERSITY AND INCLUSION
Our diversity and inclusion approach focuses on hiring, developing
and retaining the best people.

Embedding the principles of diversity and inclusion in the way we do
business gives us a better understanding of the needs of our people,
partners, suppliers and customers. We believe that a diverse workforce,
and an inclusive and caring environment that respects and nurtures
diverse people, is a way to improve our safety and business performance.

We continue our relentless focus on attracting, developing and promoting
more women, and we are supporting initiatives that encourage girls to
study science, technology, engineering and mathematics. We also do
this by creating a culture of respect and inclusion.

We provide equal opportunity in recruitment, career development,
promotion, training and rewards for all our people. In 2019, Shell joined
the disability campaign The Valuable 500 to eliminate the exclusion
of disabled people worldwide. Since 2018, we have completed the
implementation of workplace accessibility service to 83 locations globally.
The service is designed to ensure that all employees have access to
reasonable physical workplace or other adjustments so that they
can work effectively and productively.

We also run an initiative called I’m Not OK to promote open and honest
conversations about mental health. In 2019, we focused on stigma by
launching an online portal for employees worldwide to share their stories
about the support that helped them most when they struggled. In doing
so, they addressed the issue of stigma by demonstrating that mental
ill-health can happen to anyone irrespective of job, nationality, age,
gender or culture.

Our focus on workplace inclusion also continues in other areas. At Shell,
we support and enable remarkable people from every background, and
strive to be a pioneer of lesbian, gay, bisexual and transgender (LGBT)
inclusion in the workplace. In 2019, we were again recognised in the top

100

tier as a Workplace Pride Advocate in the Workplace Pride global LGBTI
inclusive workplace benchmark and earned a 100% score in the Human
Rights Campaign Foundation’s Corporate Equality Index.

In 2019 the Hampton Alexander Review ranked Shell second out of the
Financial Times Stock Exchange (FTSE) 350 Oil & Gas Industry index
companies and 14th out of the FTSE 100 rankings of Women on Boards
and in Leadership. 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.

In 2019, 48% of our graduate recruits were female. At the end of 2019,
the proportion of women in senior leadership positions was 26.4%, an
increase of 2.4 percentage points compared to end of 2018. “Senior
leadership positions” is a Shell measure based on salary group levels
(circa 1,400 staff) and is distinct from the term “senior manager” in
the statutory disclosures set out below.

Gender diversity data (at December 31, 2019)

Directors of the Company

Senior managers [A]

Employees (thousand)

Men

58%

72%

69%

632

Number

Women

42%

28%

31%

250

[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.

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)

Greater than 80%

Less than 80%

Total

Number of selected key business countries

2019

2018

2017

[A] These numbers exclude the 4,000 employees in certain New Energies and Downstream

companies.

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 conduct business in line with 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

Shell Annual Report and Accounts 2019Strategic Reportare 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 2019, we continued 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.
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.

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 all ethics and
compliance 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 as well as
periodically commissioning external reviews.

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 263 substantiated breaches of the Code
of Conduct in 2019. As a result, we dismissed or terminated the contracts
of a total of 93 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 135-154.

PERFORMANCE SHARE PLAN, LONG-TERM INCENTIVE
PLAN AND EXCHANGED AWARDS UNDER THE BG LONG-
TERM INCENTIVE PLAN
Under the PSP, 50% of the award is linked to certain indicators
described in “Performance indicators” on pages 144, averaged over the
performance period. From 2017 to 2019, 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 performance period, based on three performance
measures. Under the LTIP, awards made in 2017 and 2018, 25% of the
award is linked to the FCF measure and the remaining 75% is linked to
the comparative performance conditions mentioned above. From 2019
onwards, 22.5% of the award is linked to the FCF measure and 10% is

linked to an energy transition measure. The remaining 67.5% is linked
to the comparative performance condition mentioned above.

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. The
outstanding 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
result in beneficial ownership until the shares vest.

See Note 21 to the “Consolidated Financial Statements” on page 232.

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,
one matching share is provided at no cost to the employee.

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. From 2017 no further grants were
made under this plan.

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. Coulter

LINDA M. COULTER
Company Secretary
March 11, 2020

101

Shell Annual Report and Accounts 2019Strategic ReportGOVERNANCE

Directors’ Report
104
111
113
115

The Board of Royal Dutch Shell plc
Senior Management
Introduction from the Chair
Statement of compliance with the
UK Corporate Governance Code
Governance framework
Board evaluation and activities
Understanding and engagement
with our stakeholders
Workforce engagement
Nomination and Succession Committee
Safety, environment and
sustainability committee
Audit Committee Report
Directors’ Remuneration Report
Annual Report on Remuneration
Directors’ Remuneration Policy
Other Regulatory and Statutory Information

117
119
122

124
126
128

129
135
139
155
164

102

Shell Annual Report and Accounts 2019Governance103

Shell Annual Report and Accounts 2019GovernanceTHE BOARD OF ROYAL DUTCH SHELL PLC

Career
Charles (Chad) Holliday was appointed Chair of the Board of Royal Dutch Shell plc with
effect from May 19, 2015.

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 BS 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 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 Safety, Environment
and Sustainability 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. In his role as Chair, Chad is committed to developing and maintaining a strong
dialogue with investors and other key stakeholders and ensures 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 was evaluated by the other Directors, led by Gerard Kleisterlee, Deputy
Chair and Senior Independent Director, in 2019. More information on the external board
evaluation process can be found on page 114.

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 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 China, Europe, Hong Kong, Taiwan. 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 faced by an evolving business. His
experience – gained at Philips, Dell and Vodafone, businesses that have seen significant
changes in technology and consumer behaviour – has been a great asset to the Board
as Shell transitions to a lower-carbon energy system.

CHARLES O. HOLLIDAY
Chair

Tenure

Chair – 4 years and 9 months (appointed Chair
May 19, 2015). On Board – 9 years and 6
months (appointed September 1, 2010)
(see page 113 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 (UK).

Age

Nationality

US citizen

GERARD KLEISTERLEE
Deputy Chair and Senior
Independent Director

Tenure

9 years and 4 months (appointed November 1
2010). On January 29, 2020, the Board announced
that Gerard Kleisterlee would not be seeking
re-election at the 2020 Annual General Meeting.

Board Committee membership

Chair of the Remuneration Committee and member
of the Nomination and Succession Committee

Outside interests/commitments

Chairman of Vodafone Group plc and Chairman of
the Supervisory Board of ASML Holding N.V.

Gerard is a skilled 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.

Nationality

Dutch

Age

104

Shell Annual Report and Accounts 2019GovernanceCareer
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.

Relevant skills and experience
Ben has more than 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. He 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 led the Company through the acquisition and integration of BG Group, executed an
impressive reshaping of our portfolio and completed a divestment programme of $30 billion
of non-core assets, making the Shell Group simpler.

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.

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 a BA from UC
Berkeley in 1989 and 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 mergers and acquisitions delivery.
Jessica’s extensive experience combines an external perspective with more than 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
and Corporate.

BEN VAN BEURDEN
Chief Executive Officer

Tenure

6 years and 2 months (appointed January 1, 2014)

Board Committee membership

N/A

Outside interests/commitments

No external appointments

Age

Nationality

Dutch

JESSICA UHL
Chief Financial Officer

Tenure

3 years (appointed March 9, 2017)

Board Committee membership

N/A

Outside interests/commitments

No external appointments

Age

Nationality

US citizen

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
overseen Shell’s delivery of industry leading cash flow from operating activities (for the 14th
consecutive quarter at the end of 2019) and shareholder distributions ($25 billion in 2019).
Jessica has also been a leading force for transparency in the energy industry, including on
taxes and climate change. Under her tenure, Shell has continued to expand and enhance
disclosures related to climate change in line with the Task Force on Climate-Related
Financial Disclosures principles. Most recently, under her guidance, Shell published
the Tax Contribution Report, which includes country-by-country report data, a standard
set by the Organisation for Economic Co-operation and Development (OECD).

105

Shell Annual Report and Accounts 2019GovernanceTHE BOARD OF ROYAL DUTCH SHELL PLC continued

Career
Neil is a former FTSE 100 chief executive. After completing an engineering degree, Neil
joined Johnston Matthey in 1980 where he held several senior management positions in both
the UK and the US, before being appointed Chief Executive Officer in 2004. Since retiring
from Johnston Matthey in 2014, Neil has focused his time on his non-executive roles.

Relevant skills and experience
Neil is highly experienced, has a broad industrial outlook and a highly commercial approach
with a practical perspective on businesses. He brings a track record of strong operational
exposure, familiarity with capital-intensive business and a first-class international perspective
on driving value in complex environments. Neil was awarded an OBE for services to the
chemical industry in 2016. Neil has leveraged upon his current and past experience in
non-executive positions and, despite being new to the Shell Board, he has already made
significant contributions to Board discussions. He has also provided valuable insight based
on his former executive position and operational experience.

[A] On January 29, 2020, the Board appointed Neil Carson as Chair of the Remuneration Committee with effect from
May 20, 2020. Neil has been a member of this Committee since June 1, 2019 and has previously served on a
Remuneration Committee before joining the Shell Board.

[B] On December 9, 2019 TTE plc announced Neil’s intention to step down as Non-executive Director and Chair of TTE

plc, once his successor has been found.

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, after it acquired the M&G Group, 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.

Ann has also held several non-executive director positions at Prudential plc, British American
Tobacco plc, UBS AG, and UBS Group AG. Most recently, and until May 2019, Ann served
as a Non-executive Director of Rio Tinto plc and Rio Tinto Limited. She was also Senior
Independent Director of Rio Tinto plc.

Relevant skills and experience
Ann is a former CFO, a Fellow at the Institute of Chartered Professional 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. Ann
makes significant contributions and adds exceptional value by bringing both her extensive
experience and a new perspective to Board discussions.

Ann’s 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. Ann was appointed Chair of the Audit Committee on July 1, 2019, and has
made significant contributions in this role. Her highly relevant skills, particularly in investment
appraisal and financial risk management, have been a welcome addition to our Board
and Audit Committee.

NEIL CARSON OBE
Independent Non-executive Director

Tenure

9 months (appointed June 1, 2019)

Board Committee membership

Member of the Safety, Environment and
Sustainability Committee and member of
the Remuneration Committee [A]

Outside interests/commitments

Non-executive Chairman of Oxford Instruments plc
and TT Electronics plc [B]

Age

Nationality

British

ANN GODBEHERE
Independent Non-executive Director

Tenure

1 year and 9 months (appointed May 23, 2018)

Board Committee membership

Chair of the Audit Committee

Outside interests/commitments

Fellow of the Institute of Chartered Professional
Accountants and a Fellow of the Certified General
Accountants Association of Canada.

Age

Nationality

Canadian and British

106

Shell Annual Report and Accounts 2019GovernanceEULEEN GOH
Independent Non-executive Director

Tenure

5 years and 6 months (appointed September 1, 2014)

Board Committee membership

Member of the Nomination and Succession
Committee [A]

Outside interests/commitments

Chairman of SATS Ltd. Non-executive Director of DBS
Bank Ltd and DBS Group Holdings Ltd. 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
Ltd, both of which are not-for-profit organisations.

Age

Nationality

Singaporean

CATHERINE J. HUGHES
Independent Non-executive Director

Tenure

2 years and 9 months (appointed June 1, 2017)

Board Committee membership

Member of the Safety, Environment and
Sustainability Committee and member of
the Remuneration Committee

Outside interests/commitments

Non-executive Director of SNC-Lavalin Group Inc.

Age

Nationality

Canadian and French

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 has held various senior management positions within Standard
Chartered Bank and was Chief Executive Officer of Standard Chartered Bank, Singapore,
from 2001 until 2006. She is also a Fellow of the Singapore Institute of Directors.

She has also held non-executive appointments on various boards including Aviva plc,
MediaCorp Pte Ltd, Singapore Airlines Ltd, Singapore Exchange Ltd, Standard Chartered
Bank Malaysia Berhad, Standard Chartered Bank Thai plc, CapitaLand Ltd and Temasek
Trustees Pte Ltd. 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 of the Board of Directors 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 continue to progress in this area.

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 around 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 uses her financial acumen to pose probing and insightful questions, both in and
beyond the boardroom. This contributes to well-rounded and incisive Board discussions.

[A] On January 29, 2020, the Board appointed Euleen Goh as Deputy Chair and Senior Independent Director with effect

from May 20, 2020.

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
France, Italy, Nigeria, the UK and the USA, and was President of Schlumberger Canada
Ltd 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.

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 uses her industry knowledge – combined with her commitment to the highest
standards of corporate governance and safety, ethics and compliance – in her membership
of our Safety, Environment and Sustainability Committee, while using her human resources
experience in her membership of the Remuneration Committee.

107

Shell Annual Report and Accounts 2019GovernanceTHE BOARD OF ROYAL DUTCH SHELL PLC continued

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. After 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. Previously, he was a Non-executive Director of Petrobas
S.A., President of the IMC and Vice-Chairman of the Institute of International Finance.

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.

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.

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 European Union in Brussels. He joined the Diplomatic Service in 1976
and served in Brussels, Moscow, Washington and in a wide range of policy roles in London.
Since 2012, he has taken on a number of international business roles, and has 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, that 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 Safety, Environment and Sustainability Committee.

ROBERTO SETUBAL
Independent Non-executive Director

Tenure

2 years and 5 months (appointed October 1, 2017)
On March 11, 2020, the Board announced that
Roberto Setubal would not be seeking re-election
at the 2020 Annual General Meeting.

Board Committee membership

Member of the Audit Committee

Outside interests/commitments

Member of the board of the 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

Nationality

Brazilian

SIR NIGEL SHEINWALD GCMG
Independent Non-executive Director

Tenure

7 years and 8 months (appointed July 1, 2012)

Board Committee membership

Chair of the Safety, Environment and Sustainability
Committee and member of the Remuneration
Committee

Outside interests/commitments

Non-executive Director of Invesco Ltd and
Raytheon UK. Senior Adviser to Tanium Inc. and
to the Universal Music Group. Visiting Professor
and Council Member of King’s College, London.

Nationality

British

Age

108

Shell Annual Report and Accounts 2019GovernanceLINDA G. STUNTZ
Independent Non-executive Director

Tenure

8 years and 9 months (appointed June 1, 2011)
On January 29, 2020, the Board announced that
Linda G. Stuntz would not be seeking re-election at
the 2020 Annual General Meeting.

Board Committee membership

Member of the Safety, Environment and
Sustainability Committee and member
of the Nomination and Succession Committee

Outside interests/commitments

Director of Edison International.

Age

Nationality

US citizen

GERRIT ZALM
Independent Non-executive Director

Tenure

7 years and 2 months (appointed January 1, 2013)

Board Committee membership

Member of the Audit Committee and member of
the Remuneration Committee

Outside interests/commitments

Director of Moody’s Corporation inc and
Danske Bank A/S

Age

Nationality

Dutch

Career
Linda retired from her position as founding partner of the law firm of Stuntz, Davis & Staffier,
P.C. in January 2019. 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. Linda was a member of the board of Directors of Schlumberger Ltd from
1993 to 2010 and of Raytheon Company from 2004 to 2015.

From 1989 to 1993, she held senior policy positions at the US Department of Energy, including
Deputy Secretary.

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.

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 the Vrije Universiteit
Amsterdam, from where he also received an honorary doctorate in economics.

Relevant skills and experience
An economist by background, Gerrit’s distinguished 12-year service as the Minister of Finance
to the Netherlands, coupled with his experience gained from his time with ABN AMRO Bank,
brings a 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 a wider public stakeholder and a
global business standpoint serves the Board well, particularly when considering investment
proposals. Gerrit consistently and concisely articulates the logic and reasoning behind his
views, benefiting the Board and management. His questions often trigger other analytical
questions from fellow Directors, which serves to deepen and widen Board discussions.

109

Shell Annual Report and Accounts 2019GovernanceTHE BOARD OF ROYAL DUTCH SHELL PLC continued

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 Company Secretary and plays an important role as Shell’s General Counsel
Corporate, overseeing corporate legal teams in Belgium, Canada, the Netherlands,
Switzerland, the UK and the USA.

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.

LINDA M. COULTER
Company Secretary

Tenure

3 years and 2 months (appointed January 1, 2017)

Age

Nationality

US citizen

BOARD DIVERSITY

Gender diversity

Female

Male

Non-executive Director tenure (years)

0-3

4-6

7-9

10%

30%

20%

42%

58%

Non-executive Director sector experience

Director nationality

Regulatory, Government
affairs, Public policy
Oil & gas, Extractives, Energy

Strategy development

Engineering, Industrial

Consumer, marketing

Accounting and Finance

90%

60%

100%

70%

80%

British

Dutch

American

Canadian

Brazilian

Singaporean

17%

40%

25%

ATTENDANCE
Board meeting attendance for 2019 is provided below in the
table [A]. The Board held eight scheduled meetings in 2019.

[A] For attendance at Committee meetings during the year, please refer to individual

Committee Reports.

[B] Ben van Beurden was not able to attend one Board meeting due to illness.

He reviewed the key agenda topics and had a discussion with the Chair prior to the
Board meeting. He also conveyed his opinions and comments on the matters to be
considered via the Chairman of the Board.

[C] Neil Carson joined the Board in June 2019. Ahead of his appointment, he attended
the Board meeting in May 2019. This is not reflected in the table as his appointment
was not effective until June 1, 2019. Neil was unable to attend the Board meeting in
October due to an immovable commitment which was scheduled prior to his
appointment to the Shell Board.

Board Member

Ben van Beurden[B]

Neil Carson[C]

Ann Godbehere

Euleen Goh

Charles O. Holliday

Catherine J. Hughes

Gerard Kleisterlee

Roberto Setubal

Sir Nigel Sheinwald

Linda G. Stuntz

Jessica Uhl

Gerrit Zalm

Meetings attended

7/8

3/4

8/8

DIRECTOR INDEPENDENCE
All the Non-executive Directors are considered by the Board to be independent in character and judgement. The Chair is not subject to the
Code’s independence test other than on appointment.

110

Shell Annual Report and Accounts 2019GovernanceSENIOR MANAGEMENT

The Senior Management
of the Company comprises
the Executive Directors,
Ben van Beurden and Jessica
Uhl, and those listed below.
All are members of the Executive
Committee (see “Governance
Framework” on page 117).

HARRY BREKELMANS
Projects & Technology Director

Tenure

DONNY CHING
Legal Director

Tenure

5 years and 5 months (appointed October 2014)

6 years and 1 month (appointed February 2014)

Age

Nationality

Dutch

Age

Nationality

Malaysian

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.

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.

RONAN CASSIDY
Chief Human Resources &
Corporate Officer

Tenure

4 years and 2 months (appointed January 2016)

Age

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.

WAEL SAWAN
Upstream Director

Tenure

8 months (appointed July 2019)

Age

Nationality

Lebanese and Canadian

Career
On July 1, 2019, Wael succeeded Andy Brown
as Upstream Director and was appointed
to the Executive Committee.

Wael was previously the Executive Vice
President, Deep Water and a member of the
Upstream Leadership Team. He joined Shell in
1997 and has worked in a variety of roles in
each of Shell’s core business units: Upstream,
Integrated Gas and Downstream.

111

Shell Annual Report and Accounts 2019GovernanceSENIOR MANAGEMENT continued

HUIBERT VIGEVENO
Downstream Director

Tenure

MAARTEN WETSELAAR
Integrated Gas and New
Energies Director

2 months (appointed January 2020)

Tenure

Age

Nationality

Dutch

Career
On January 1, 2020, Huibert succeeded John
Abbott as Downstream Director and was
appointed to the Executive Committee.

Huibert was previously Executive Vice President
Global Commercial. He joined Shell in 1995
and led many Downstream businesses across
Shell in Europe, Africa, North and South
America, and Asia. This included acting as
Executive Chairman of Shell in China, and in
2016 leading the integration of BG Group.

4 years and 2 months (appointed January 2016)

Age

Nationality

Dutch

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.

2019 LEAVERS

JOHN ABBOTT
Downstream Director until December
2019 (appointed October 2013)

ANDREW BROWN
Upstream Director until June 2019
(appointed January 2016)

112

Shell Annual Report and Accounts 2019GovernanceINTRODUCTION FROM THE CHAIR

CHAD HOLLIDAY
Chair

As communicated at the start of this Annual Report, and reflected
in the reported results, 2019 was not an easy year for the sector in
which we operate. The year provided a tough macroenvironment,
lower Liquified Natural Gas (LNG) and gas prices, as well as weaker
realised refining and chemicals margins. As we look forward, we see
continued risk from the difficult-to-predict outcomes of the trade
conflicts in some regions, uncertainties within Europe over post-Brexit
arrangements, the slowdown and vulnerability of some markets
and regional geopolitical tensions. However, we also see robust
economic growth in some regions and stronger than expected
cyclical recoveries.

Society is also changing, which we welcome, accelerating its perspective
on what companies should be doing, increasing the pressure and
encouraging us to rise to the challenges ahead as the world moves to an
environment supported by lower-carbon energy products. Shell agrees
with the importance attached by its stakeholders to the issue of climate
change and Shell’s future success depends on effectively navigating the
risks, opportunities and uncertainties presented by the energy transition.
All businesses, governments, and even individuals must work together
and have a role to play in shifting demand away from carbon-intensive
resources. However, oil and gas will not only be needed by some parts
of society for many decades to come, they are key cash generators
that support our investment through the energy transition and underpin
delivering our ambitions aligned to the goals of the Paris Agreement
while providing a world-class investment case to Shell’s investors.

BOARD LEADERSHIP AND SHELL’S PURPOSE
The UK Corporate Governance Code (the “Code”) provides that
the Board should promote the long-term sustainable success of Shell,
generating value for shareholders and contributing to wider society.
The Board believes that Shell’s efforts give it an effective framework to
play its part in the energy transition as a growing, successful, commercial
organisation. In the Board’s view, this framework will allow Shell to
provide the energy solutions that consumers will want and buy through
this period of uncertain change. The Board also thinks that Shell will be
able to reduce the carbon intensity of the energy products it supplies.

The Code asks us to report on our business purpose, which is provided at
the start of this Report. However, we have carried the concept of purpose
through other reporting areas to provide a further understanding of our
operations and the benefits of particular activities.

The key themes of the Code are used in this Report to form the framework
for articulating our narrative and we have sought to provide a genuine
understanding of how governance supports and protects the business
and our stakeholders.

The impact of the Code on Shell’s existing governance processes and
reporting practices, as well as certain implementation recommendations,
were reviewed and considered by the Nomination and Succession
Committee, at the end of 2018 and over the course of 2019. Its findings
were then discussed and agreed with the Board. Overall, it was
considered that while Shell was already applying the principles and the
spirit of the Code, the Board recognises that enhanced reporting in this
area could help make this clearer for stakeholders. The Board’s approach
to certain provisions (as explained in further detail below) is considered
appropriate, when taking into account circumstances based on a range
of factors that are particular to Shell, including its global nature, size,
complexity and history. To provide greater insight into our current
governance practices, we have highlighted some provisions on page 115,
and signposted where more information can be found in the report and,
where possible, explain how we see our practices evolving over time.

The importance of stakeholder engagement has received greater external
focus in recent years. Given the nature of our business, engagement is
considered key to our operations and has been a key focus for some time.
How and why we engage with our stakeholders is also provided on
page 122. The Board’s discharge of its duty in relation to key stakeholder
interests, including those of our workforce, and an explanation of how
it considered these when making principal decisions is set out on
page 124 in the Strategic Report. Additionally, on page 120 we provide
information on our Board activities and highlight which stakeholder we
considered. We have also enhanced our reporting on our workforce
engagement methods. We believe that constructive relationships built on
mutual respect and transparency helps Shell attract and retain employees
while supporting greater productivity and operational efficiency. Ensuring
that the employee voice is heard in the boardroom in practical ways is key
to understanding the broader impact of business decisions including with
respect to company culture.

The Board clearly recognises the importance of culture and its link to
delivering Shell’s purpose and strategy. Given our culture’s importance it
requires long-term commitment. The Board believes that our people and
safety culture is strong, something we take pride in. Moreover, our culture
reflects the values of the business – honesty, integrity and respect for
people – which underpin all the work we do and is embedded within
our Strategy and Purpose.

DIVISION OF RESPONSIBILITIES
How the Board and its Committees support the business operations is
provided on page 117 with more detail within the Terms of Reference for
each Committee, which are provided on our website. Each year the Board
Committees’ Terms of Reference are reviewed and updated, as required.
This year we have also changed the name of our Corporate Social
Responsibility Committee to the Safety, Environment and Sustainability
Committee (SESCo), reflecting the Committee’s focus on safety and
environmental matters, including climate change and sustainability. The
updates have been made in consideration of external developments.

The importance of independent judgement on the Board is a fundamental
governance principle and one supported by the Board. The Code
provides circumstances that it considers are likely to impair, or could
appear to impair, a Non-executive Director’s independence, and tenure
is one of these. At the time of the 2020 Annual General Meeting (AGM),
Gerard Kleisterlee, Senior Independent Director, will reach a tenure of
nine years since his appointment to the Board by shareholders. However,

113

Shell Annual Report and Accounts 2019GovernanceINTRODUCTION FROM THE CHAIR continued

as he was appointed to the Board by the Directors some seven months
ahead of his first election by shareholders, his independence for the
period of October 2019, to the 2020 AGM requires deeper evaluation
under a new Code provision. Within our statement of compliance
with the Code on page 115 we provide the questions the Board
considered when testing Gerard’s independence.

COMPOSITION, SUCCESSION AND EVALUATION
The Director biographies in this Report provide insight into our Directors’
careers, skills and experience. Further, our Board diversity reporting
extends past gender and nationality, and outlines the varying sector
experience across the Board.

At the 2019 AGM, Neil Carson was elected to the Board by shareholders.
An overview of his induction programme is provided on page 120. At the
end of the 2020 AGM, both Gerard Kleisterlee, Senior Independent
Director, and Linda Stuntz, Independent Non-executive Director will
retire from the Board after nine years of service. They both leave strong
leadership track records, and the Board is deeply grateful for their many
years of dedicated commitment to the business. As we announced on
January 29, 2020, Euleen Goh will become Deputy Chair and Senior
Independent Director when Gerard retires and Neil Carson will
become Chair of our Remuneration Committee.

The Board completed its annual performance evaluation in December
2019, which was facilitated externally. The process again proved to be a
valuable exercise, generating reflective discussions and planned actions.
The process was led by me and undertaken by Independent Board
Evaluation. On page 120 we have sought to provide insight into
the process, the outcome and some of the areas we plan to enhance.

One of the Code provisions introduces a recommended nine-year limit
to the tenure of the Board Chair. As this is a provision directly relating
to me, our Senior Independent Director, Gerard Kleisterlee, provides an
explanation on page 115 of how the Board considered this provision
and when the Board proposes that my tenure concludes.

AUDIT, RISK MANAGEMENT AND INTERNAL CONTROL
The Audit Committee assists the Board in maintaining a sound system of
risk management and internal control and oversight over Shell’s financial
reporting. A variety of standing matters and more specific topics are
discussed by the Audit Committee throughout the year. As part of the
year-end reporting process, the Audit Committee advises the Board on
the adequacy of the system of risk management and internal control in
place, the appropriateness of the viability statement and going concern
basis of accounting. The Audit Committee also advises on whether this
Report, taken as a whole, is fair, balanced and understandable and
provides the information necessary for stakeholders to assess Shell’s
position and performance, business model and strategy. More information
on the Audit Committee’s activities, highlights and priorities can be found
in its report on page 132.

REMUNERATION
In 2020, shareholders will vote on our revised Directors’ Remuneration
Policy. Under the new Policy, we have focused on simplifying remuneration
structures to improve clarity and transparency while maintaining the
existing connection with our business strategy. In keeping with recent
governance developments and societal views, we are placing increasing
emphasis on the discretionary management of pay to ensure reward
outcomes are appropriate. We will also be asking shareholders to vote
on the energy transition metric which links reward with our ambitions
to reduce our Net Carbon Footprint. Further information can be
found on page 163.

Finally, we hope that this new format of document provides a clearer
format for our reporting and enhances the understanding of our
governance processes for our stakeholders. I would also again like
to thank my fellow Directors, my colleagues and our workforce around
the world for their continued and considerable efforts to the success
of the Company.

CHAD HOLLIDAY
Chair
March 11, 2020

CHANGES TO OUR REPORTING
To assist with providing stakeholders greater insight into Board
operations and the governance activities that support the business,
we have chosen to split the UK-governed Annual Report from the
US-governed Form 20-F. The key strategic messages continue to be
provided within both documents. We are now at the start of a journey
with the Annual Report and are seeking to adopt a practical approach
that is more responsive to the requests of our readers. To avoid
duplication, and excessive cross referencing, the Directors’ Report
now spans the governance section of this report from page
104 to page 171. It provides the necessary governance assurances
and confirmations, and focuses on the factors that we believe will be
of most interest to readers and important to the long-term prospects
of Shell.

As society changes we are committed to changing the business to
support it and, with this, become more transparent in our operations
and the information that we share, especially when working to earn
and maintain trust. Building on our disclosures from 2019, such as
our Industry Associations Report, the enhancement of our quarterly
financial disclosures and our Tax Contribution Report (available on the
Shell website). We have also sought to share more information in this
Report on Shell’s ways of working and how the Board operates.

114

Shell Annual Report and Accounts 2019GovernanceSTATEMENT OF COMPLIANCE WITH THE UK
CORPORATE GOVERNANCE CODE

The Board confirms that, throughout the year, the Company has applied
the Principles, both in spirit and in form, and complied with the provisions
set out in the UK Corporate Governance Code issued by the Financial
Reporting Council (FRC) in July 2018 (”the Code”). A copy of the Code
can be found on the FRC’s website: www.frc.org.uk.

Chad will continue to exercise objective judgment, despite his tenure
surpassing nine years. The Board finds that the continuity of his corporate
knowledge and experience is essential to complement and support the
new skills and experience of Director appointments of the last few years,
as well as those that we will need to make in the coming year.

Shell’s governance arrangements have been considered alongside
the Code. The information set out in the Directors’ Report, including the
Board Committee Reports on (pages 126-127, 128, 129-134 and 135-138)
is intended to provide an explanation of how the Principles of the Code
were applied practically throughout the year. We have also chosen to
provide information below where we believe stakeholders may benefit
from a more specific explanation on particular Code provisions.

Chair Tenure (Provision 19)
Note: The text relating to Chair tenure is provided by Gerard Kleisterlee,
Senior Independent Director.
Charles O. Holliday (Chad) was appointed as Chair in 2015 after four
and a half years on the Board as a Non-executive Director. In September
2019, he reached a tenure of nine years.

The provisions of the Code address Chair tenure and provide a limit of
nine years from the date of first appointment to the Board. However, the
Code pragmatically acknowledges that this period can be extended for
a limited time to facilitate orderly, effective succession planning and the
development of a diverse board. In the 2018 Annual Report and Form
20-F we highlighted that Chad’s tenure had been discussed in numerous
shareholder engagements and it was disclosed that shareholders were
supportive of the extension of his tenure to the 2021 AGM. This meets
the Code’s limited exception, particularly as the Chair was an existing
Non-executive Director on appointment. The Board also takes comfort
from the support for Chad’s re-election at the 2019 AGM (96% votes
in favour) and ongoing support from shareholders.

The Board continues to believe that retaining Chad on the Board and
in the position of Chair until the 2021 AGM is right for the business.
The Board is confident that this facilitates more effective phasing of his
succession. As stated last year, and agreed by shareholders, an earlier
departure would be disruptive and could leave a significant deficiency
in Shell’s corporate knowledge when taking into account the forthcoming
departures of other long-serving Directors: both myself and Linda Stuntz.

The Board believes that Chad remains an effective Chair, which was
strongly recognised in the independent evaluation of the Board. Although
the Board will continue to assess his objectivity, the Board is assured that

Chad’s innate understanding and knowledge of the Shell Group, coupled
with the strong Shell relationships he has established, are appreciated and
highly valued by the Board. His skills enable him to effectively challenge
management and coach other, particularly new, Non-executive Directors
on the intricacies and nuances of the business, thereby better equipping
them to effectively challenge management and enhance overall
governance. The Board has also achieved increased diversity under
Chad’s leadership as Chair. Chad’s leadership of the Board through
to 2021 is critical to the Board’s effective succession planning through
the short term.

Director Independence (Provision 10)
As referenced in the Chair’s statement, Gerard Kleisterlee has served on
the Board for more than nine years, having joined in November 2010. The
Board acknowledges the potential impairment of his independence owing
to his length of tenure, as outlined in a Code provision. In the Board’s view,
there has been no notable negative change in Gerard’s performance as
a Director and in his various Board roles in recent years. The Board
continues to regard him as an independent Non-executive Director
and undertook a rigorous evaluation to reach this conclusion.
Gerard did not participate in his own assessment.

The result of this assessment was positive and given that Gerard’s
independence is only questioned by one of the seven parameters
outlined in the Code, the Board has determined that he remains
independent. The Directors have also observed that Gerard continues
to be independent of mind and will. He regularly leverages his deep
understanding and knowledge of the Shell Group and insightful
perspectives based on his corporate memory, coupled with his external
background and knowledge to enrich Board discussions while also
providing objective judgement and effective challenge to management
and the wider Board. Gerard’s fellow Directors have also noted, during
the evaluation, that he uses his skills and experience to assist the Chair
in driving productive discussions and offers considered advice based
on objective judgement. The continuity of his Board tenure, corporate
knowledge and experience has complemented and supported the skills
and experience of relatively newer Director appointments over the years,
including those of the Chief Executive and Chief Financial Officers.

ASSESSING DIRECTOR INDEPENDENCE
The following questions were used to assess Gerard’s independence:
■ Was the Director’s re-election supported at the last AGM? Did the
level of support, or communication from investors ahead of the
AGM indicate concern about the Director’s independence?
■ Have the conferred interests of other Directors or management
unduly influenced behaviour or approach to decision-making?

■ How has any potential influence – as a result of familiarity amongst

Directors and between Directors and management who have
served together for more than the nine years – been avoided?
■ How proactive is the Director? Have they stood themselves apart
from, or avoided, any potential influence when making decisions?

■ Where good working relationships with fellow Directors and

management have been developed, are these strictly professional
and limited to work-related matters only? Are there any known
situations where they have attended the same events in a non-Shell-
related capacity and in what context?

■ Has the Director previously been involved in the industry in which
the Company operates? Is there a network of contacts that could
reduce the ability to be objective or contaminate their views?

■ Are the views and opinions of Directors and management

challenged appropriately and at what frequency?

■ Have there been circumstances when the Board is reaching
consensus, but the Director has not been afraid to speak up
or offer an alternative view?

■ Are boardroom behaviours indicative of a strong culture of

collaboration, but with robust debate, and in a way that means
no one Director dominates discussions?

■ How is the Board satisfied that there is no reliance on one or
certain viewpoints and that there is inclusive, diverse-thinking
boardroom culture?

■ How has performance as a Director and, where relevant,

performance in a particular role or duty changed over recent
years, and since reaching more than nine years of service?

115

Shell Annual Report and Accounts 2019GovernanceSTATEMENT OF COMPLIANCE WITH THE UK
CORPORATE GOVERNANCE CODE continued

Workforce engagement (Provision 5)
Our people are essential to the successful delivery of the Shell strategy,
and the Board recognises the importance of understanding their views
through engagement. However, the size and diversity of our employee
base as well as that of our wider workforce complicates the feasibility of
implementing any of the three specific workforce engagement methods
recommended in the Code. Given the required coverage needed for
a global organisation such as ours, the Board believes that its current
approach to workforce engagement continues to be pragmatic
and effective.

However, the Board has also decided that in 2020 it will increase its
direct engagements when the Board, Committees and individual Directors
visit our sites across the world and its indirect engagements through
enhanced stakeholder engagement information in relevant management
reports. The Board also agreed to keep under review the effectiveness
of the engagements. More information on the current approach and
a description of the channels used by the Board, its Committees, and
the Executive Committee are outlined in “Workforce engagement”
on pages 124-125.

Appointment of independent Non-executive Director
as Senior Independent Director (Provision 12)
Information on the independence of the appointed Senior Independent
Director, at the date of publication, is explained under the “Director
Independence” heading on the previous page. As provided earlier in
this report, Euleen Goh will succeed Gerard in this role following the
2020 AGM, subject to her reappointment by shareholders. Details
on succession planning and the work of the Nomination and
Succession Committee is contained on pages 126-127.

Composition of the Remuneration Committee (Provision
32, independence)
The Remuneration Committee has five Non-executive Directors making
up its membership, four of which are deemed to be independent under the
parameters of the Code, and the fifth (Gerard Kleisterlee) is considered
to be independent by the Shell Board for the reasons provided in its
explanation. Remuneration Committee members have served this
Committee for periods ranging from over two years to just over five years,
the exception being Neil Carson, who joined the Board and Remuneration
Committee on June 1, 2019. As announced on January 29, 2020, Neil
Carson will succeed Gerard in the role of Committee Chair following the
2020 AGM, subject to his reappointment by shareholders. Neil has been
a member of this Committee since June 1, 2019 and has previously served
on a remuneration committee before joining the Shell Board. Having
Gerard remain as Committee Chair beyond his nine-year tenure to the
natural conclusion of his tenure at the 2020 AGM was a practical step
promoting smooth succession. Further details on the composition
of the Remuneration Committee are provided on page 139 of the
Remuneration Committee Report.

Corporate governance requirements outside the UK
In addition to complying with applicable corporate governance
requirements in the UK, the Company complies with the rules of Euronext
Amsterdam as well as Dutch securities laws because of its listing on that
exchange. The Company likewise adheres to 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.

116

Shell Annual Report and Accounts 2019GovernanceGOVERNANCE FRAMEWORK

BOARD OF DIRECTORS

Chair
■ Responsible 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; and

■ Responsible for making sure that there is an adequate induction and training programme followed by all Directors (see page 127

below), with assistance from the Company Secretary.

Board
■ Promotes the long-term sustainable success of the Company, generating value for shareholders and contributing to wider society as

detailed throughout our Strategic Report;

■ Meets eight times a year and has a formal schedule of matters reserved to it;
■ Responsibilities include:

■ Approval of overall strategy and oversight of management;
■ Changes to the corporate and capital structure;
■ Approval of financial reporting and controls (including approval of the Annual Report and Accounts, approval of the Annual Report

on Form 20-F, and interim dividends);

■ Oversight of risk management and internal control;
■ Approval of significant contracts;
■ Determining succession planning and new Board appointments;
■ Remuneration for the Chair and Executive Directors; and
■ Corporate governance matters.

Roles and responsibilities
■ The roles of the Chair, a non-executive role, and the CEO are separate and clearly defined. The Board has agreed their respective

responsibilities and set these out in writing. These are available on request from the Company Secretary.

Board Committees

Audit Committee
■ Carries out certain oversight functions on behalf of the

Board; and

Safety, Environment and
Sustainability Committee [A]
■ Carries out certain oversight functions on behalf of the

■ Assists the Board in fulfilling its responsibilities in relation

Board; and

to internal control and financial reporting.

More information on the Committee’s composition
and its role and activities during the year are on
pages 130-133.

Nomination and Succession Committee
■

Leads the process for appointments to the Board;

■ Recommends Board appointments and re-appointments;
■ Reviews and makes recommendations on succession

planning; and

■ Reviews and makes recommendations on corporate

governance guidelines.

More information on the Committee’s composition,
and its role and activities during the year, including
its recommendations made to the Board on the
application of the Code, are on pages 126-127.

[A] Formerly known as the Corporate and Social Responsibility Committee.

■ Advises the Board on safety, the environment
including climate change, and Shell’s overall
sustainability performance.

More information on the Committee’s composition
and its role and activities during the year are on
page 128.

Remuneration Committee
■ Determines and agrees with the Board the remuneration

policy for the Chair, Executive Directors and senior
management of the Company;

■ Within the terms of such agreed policy, determines

individual remuneration packages for the Chair, and
Executive Directors; and

■ Monitors and makes recommendations regarding the
structures and levels of remuneration structures and
levels for other senior executives, if appropriate.

More information on the Committee’s composition,
and its role and activities during the year are on
page 139.

From time to time the Board may create other special ad-hoc Committees to monitor and/or approve certain matters. One such Committee is the
Nigeria Special Litigation Committee, which among other things, monitors the status of the OPL-245 litigation and investigations. Its members
consist of Linda Stuntz (Chair), Chad Holliday, Euleen Goh and Ann Godbehere.

117

Shell Annual Report and Accounts 2019GovernanceGOVERNANCE FRAMEWORK continued

BOARD OF DIRECTORS continued

Deputy Chair/Senior Independent Director
■ Sounding board for the Chair;
■ Serves as an intermediary for the other Directors and shareholders; and
■

Leads the annual appraisal of the Chair’s performance.

Non-executive Directors
■ Appointed by the Board or by shareholders at general meetings and, in accordance with the Code, seek re-election by shareholders

on an annual basis;
Letters of appointment refer to a specific term of office, the provisions of the Code and the Company’s Articles of Association;

■

■ 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. Through their contribution
to the Board and Board Committee meetings, respectively, they are expected to challenge and help develop proposals on strategy
and bring independent judgement on issues of performance and risk; and

■ Before each Board meeting, the Chair and Non-executive Directors meet without the Executive Directors being present. At these
“pre-meetings”, the Non-executive Directors discuss, among other matters, the performance of individual Executive Directors.
A number of Non-executive Directors also meet major shareholders over the course of the year.

EXECUTIVE MANAGEMENT

Chief Executive Officer
■ Has overall responsibility for the implementation, by the

Executive Committee, of the overall strategy approved by the
Board, the operational management of the Company and the
business enterprise connected with it; and

■ Supported in this by the Executive Committee that he chairs.

Executive Committee
■ Operates under the direction of the Chief Executive Officer

(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; and

■ Executive Committee members are listed in the senior

management biographies on page 111.

GOVERNANCE DOCUMENTS

■ Articles of Association
■ Matters Reserved for the Board
■ Board Committee Terms of Reference
■ Modern Slavery Statement
■ Shell General Business Principles
■ Shell Code of Conduct
■ Code of Ethics for Executive Directors and Senior Financial Officers

Are available on the website
www.shell.com/investor

118

Shell Annual Report and Accounts 2019GovernanceBOARD EVALUATION AND ACTIVITIES

The evaluation of the Board was conducted according to the guidance
in the Code and was facilitated by Ffion Hague at Independent
Board Evaluation. [A]
[A] Ffion Hague and Independent Board Evaluation have no connection or relationship to the

Independent Director. In addition, the Chair received a report on
individual Directors and provided individual feedback to every Director
on their contributions. In January 2020, Gerard led a separate discussion
in relation to the performance of the Chair (in the absence of the Chair).

Company or to any Director.

Board review process

Briefing
and Board
observation

One-to-one
interviews
with Board

Results collated,
reported and
evaluated

Insight
The feedback from Board Directors was positive throughout, with
particular praise for the culture of the Board and the leadership provided
by both the Chair and the Chief Executive Officer. Although areas of
Board work were identified for improvement, the Evaluation Report
clarified that such improvements were to fine-tune versus radically
overhaul the Board’s performance.

Discussion
with Committee
chairs

Board
discussion*

ACTION
PLAN
AGREED

Feedback themes included noting the strength of the relationship between
the Board and management team, the Board process and the Board’s
confidence in the Management.

Stage 1

Stage 2

Stage 3

Note: The above activities were undertaken by Ffion Hague of Independent Board Evaluation.
*Ffion Hague also attended the Board discussion.

Accountability – Board Directors are aware of their accountability to
a range of stakeholders including shareholders, employees, communities
and society at large; and conscious of the societal scrutiny to which
Shell is subject.

Discussion and observation (Stage 1)
A comprehensive brief was given to the assessment team by the Chair
in September 2019. The evaluation team also observed Board and
Committee meetings in October 2019. Copies of all pre-read materials
were provided to the evaluation team, for briefing purposes, ahead of
the meeting.

In October and November 2019, detailed interviews were conducted
with every Director. All participants were interviewed by Ffion according
to a set agenda tailored for the Board. Ffion was supported by her
colleague for each interview. In addition, Ffion interviewed each Executive
Committee member and the Company Secretary.

Analysis (Stage 2)
A report was compiled by the evaluation team based on the information
and views supplied by the Board and other interviewees. All views or
comments quoted in the report were made by participants during
interviews. All recommendations were based on best practice as
described in the Code and other current corporate governance guidelines.

Conclusions (Stage 3)
Draft conclusions were discussed with the Chair and subsequently
discussed with the whole Board at a meeting in December 2019 with Ffion
present. The conclusions of that discussion were recorded in the minutes
of the meeting. Following the Board meeting, Ffion gave feedback to
Committee Chairs on the performance of each Committee and discussed
the report on the Chair’s performance with Gerard Kleisterlee, the Senior

Strategy – The strategy process is highly regarded, and Directors
appreciate the efforts made to keep them updated on key items, for
example, on the science behind climate change, via deep dives into
various new energies, and through the Board’s engagement with external
experts. While the Board appropriately challenges management on
strategic issues, Directors agree that strategy is a key focus for the
business and the Directors feel well informed and engaged on strategic
issues. Going forward, the Board noted the need to further consider
the prioritisation of the approved strategic ambitions and to ensure
that Board time spent on strategic and operational matters was
appropriately balanced.

Governance – Directors note that Shell’s identification and follow-up
of governance and compliance concerns, including with regard to
substance and processes, are dealt with well and thoroughly.

Succession – Succession planning and talent management were
identified by Directors as a clear area of strength. Directors particularly
noted the attention to talent development within the business, evident
in the quality of emerging talent for various roles.

Culture – Board culture was another area of strength highlighted by
Directors, crediting the Chair for setting a strong lead in this respect.
The Board’s values are felt to blend well with the Company’s own
values and Directors actively enjoy their engagement with their
fellow Directors and the business.

119

Shell Annual Report and Accounts 2019GovernanceBOARD EVALUATION AND ACTIVITIES continued

Planned enhancements include
Board Papers – Board papers contain high-quality, data-rich analysis
but could benefit from being shortened and less technical. We will
therefore continue to enhance the information provided to the Board to
ensure the right information is provided in a digestible format while
outlining the necessary facts of a given proposal.

Ongoing training – Induction sessions that combine new and existing
Directors proved valuable. The same applied for visits to key sites, which
also led to increased quality acquaintance time among Directors,
time-efficiency for the management team and further opportunities
for Non-executive Director workforce engagement.

We will look to build on our current processes with the development of
a calendar of Board travel, that all Directors can opt into, aligned to
the Board calendar of forthcoming topics. In addition, details of other
induction sessions, Committee trips and Chair visits will be shared
with Directors enabling them to also attend as appropriate.

Chair
Ongoing performance evaluation – Directors strongly commend
the Chair’s diligence, openness, Board preparation, knowledge of the
business and positive relationship with the Chief Executive Officer. They
also highlight his skill in strengthening individual Director performance
through coaching and feedback, which he provides in real-time via his
regular contact with all Directors between meetings, rather than awaiting
the formal annual process, which many found profiled him as the best
Chair of their Non-executive Director careers. On the improvement side,
Directors relayed to the Chair the organisational feedback they had
received regarding the Chair’s suggestions or questions to the business
sometimes being misinterpreted as instruction requiring specifically
responsive extra work versus simply provoking thought or deepening
Board understanding which was recognised as the likely actual intention.

A few Directors also queried whether deliberations on certain Board
decisions could have been brought forward where feasible. The Chair
fully accepted the feedback and agreed to reflect and act upon it.

BOARD ACTIVITIES
A rolling Board agenda is reviewed at Board meetings, providing effective
forward management of meetings and focused discussions. The agenda
for each Board meeting includes a number of regular and important items,
including reports from the Chief Executive Officer, the Chief Financial
Officer, other Executive Committee members and from each Board
Committees. Further updates are provided from the various business
functions and other key functions, including Investor Relations; Health and
Safety, Security and Environment; HR; and Legal, as well as the Company
Secretary. The Board also considers and approves the quarterly, half-year
and full-year financial results and dividend announcements and, at most
meetings, considers investment, divestment and/or financing proposals.

To enable purposeful debates and/or focus on particular aspects of
agenda topics, including the impact on key stakeholders, Directors have
an opportunity to specify information they require to be provided in
advance of Board meetings.

As in previous years, certain Board Committees and Non-executive
Directors conducted site visits of various Shell operations and overseas
offices. These visits were designed to provide Directors with first-hand
insights into certain key portfolio positions. Directors also held various
workforce engagements in these locations, as well as external stakeholder
engagements, where feasible.

Some of the activities and areas of Board focus from the year, and where
not described in further detail elsewhere in this Report, are summarised in
the table below.

Topic

Discussion/Activity/Updates included

Examples of Outcome/Progress

Stakeholders
considered

Strategy and management

Management Day

■ Reviewed and discuss the communications

for the 2019 Management Day;

■ Reviewed and discussed Messaging to clarify
Shell’s Net Carbon Footprint ambition; and
■ Considered trading, capital efficiency and

supply chain management.

■ Considered feedback from the investor
community regarding progress towards
a world-class investment case; and

■ Feedback from investors on sustainability

of medium-term growth potential.

External business
environment

■ Frequent updates on activity occurring within
industries and political environments in which
Shell operates.

■ Considered potential risks and mitigation,

where possible.

Investor Community

Employees/Workforce/Pensioners

Regulators/Governments/NGOs

Communities

Customers

Suppliers/Strategic Partners

120

Shell Annual Report and Accounts 2019Governance

Topic

Discussion/Activity/Updates included

Examples of Outcome/Progress

Stakeholders
considered

Risk management and internal controls

Safety and
Environment

■

In addition to regular updates from Management
on health, safety, security and the environment,
each Board meeting begins with a reflection or
anecdote from a Director or Executive Committee
member on the topic of values and/or safety.

Risk management
and internal
control

■ Review Risk Report, covering external trends,
proposed changes to the Group’s strategic
and operational risks and deeper analysis
of the Conduct Risk Register.

Board membership and other appointments

■

In Board meetings, Directors use learnings gained
outside Shell to provide perspective and diversity
of thought to Board discussions. At times, the
Executive Directors have also provided practical
commentary and examples of how safety has
permeated Shell culture.

■ Proposed changes.

Board
membership, other
appointments

Talent overview
and senior
succession review

■ Directors’ tenure, external commitments, conflicts

of interests and succession planning.

■ Policy for approving external commitments.
■ Non-executive Director appointments and

changes to Committee membership.

■ RDS Senior Succession and Resourcing Review
covering Executive Director and Executive
Committee (EC) succession, EC direct reports
and the senior executive group.

■ Enhanced insight of Shell talent and

future leaders; and

■ Assurance of robust succession and

contingency plans.

Remuneration Committee updates

Remuneration and
reward matters

■ Reporting and society opinions on executive pay,

implementation of UK Shareholder Rights Directive,
AGM reflections, Remuneration Policy.

Corporate governance matters

Distributions to
shareholders

■ Reviewed dividend payment process in
conjunction with strategic ambition of
world-class investment case; and

■ Discussed the dividend payments that had
remained unclaimed by shareholders for
a period of more than twelve years.

■ The Remuneration Committee accelerated a
planned 2020 policy change which would
withdraw element of CEO and CFO bonuses,
making these effective from 2019, following
consideration of the views of proxy voting firms
and other key stakeholders.

■ Streamlining the dividend payment process

by introducing a US dollar option and moving
to fully electronic settlement in US dollars,
euros and sterling; and

■ Agreed that the payments discussed should

be forfeited (as per the Articles), and donated
to The Shell Foundation.

Governance

■ Ethics and compliance, including how to continue

■ HR strategy on senior succession and regulatory/

to build a strong corporate culture;

legislative disclosures approved; and

■ Senior management succession and corporate

■ New requirements outlined in the Code were

governance developments;

discussed and agreed.

■ Modern Slavery Statement and assurance;
■ The Code, changes to process and reporting;
■ Other regulatory and legislative requirements; and
■ Review and assessment of Shell’s governance

practices against the new Code.

Investor Community

Employees/Workforce/Pensioners

Regulators/Governments/NGOs

Communities

Customers

Suppliers/Strategic Partners

121

Shell Annual Report and Accounts 2019Governance

UNDERSTANDING AND ENGAGING WITH OUR STAKEHOLDERS

Shell’s commitment to public collaboration and stakeholder engagement
is inherent in our three strategic ambitions, most notably in our ambitions
to thrive through the energy transition and sustain a strong societal licence
to operate. Understanding the views and interests of our key stakeholders
is important to the Board, and the Directors have taken steps to consider
stakeholders’ views in Board discussions and decision-making, as
described on page 121. In addition to direct Board engagement,
significant levels of engagement are undertaken by the broader business
ahead of many of Shell projects or activities. This engagement is often
governed by formulated policies, control frameworks, regulation,
legislation and may differ by region.

We have categorised our key stakeholders into six groups. Where
appropriate, each group is considered to include both current and
potential stakeholders. Shell stakeholders include: Investor Community,
Employees/Workforce/Pensioners, Regulators/Governments/NGOs,
Communities, Customers and Suppliers/Strategic Partners.

Site visits
The Chair, certain Board Committees and Non-executive Directors
conduct site visits of various Shell operations and overseas offices.
These visits are designed to provide Directors with first-hand insights into
portfolio positions. Directors also held various workforce engagements
in these locations, as well as external stakeholder engagements.

New Energies, the Energy Transition and the Shell
Power Strategy
During 2019, the Board visited the USA (Colorado and California) and
SESCo visited operations in Singapore to gain a better understanding of
Shell businesses in these countries and elements of the energy transition.
The visits included engagements with different internal and external
stakeholders and interest groups which provided the Directors with
multiple perspectives and considerations on the energy transition
including the impact on communities, companies and Shell itself.

Shareholders
The Board recognises the importance of two-way communication with
the Company’s shareholders. The Chair, the Deputy Chair and Senior
Independent Director, the Chief Executive Officer, the Chief Financial

Officer and the Executive Vice President Investor Relations each meet
regularly with major shareholders and report the views of such
shareholders to the Board. Committee Chairs also seek engagement with
shareholders on significant matters related to their areas of responsibility.
Over the year, the Chair met with 76 major shareholders including at
roadshows. The Deputy Chair, Senior Independent Director and
Remuneration Chair met with 70 shareholders over the course of the year.
A variety of topics were discussed.

Shareholders can also contact the Company directly via a dedicated
email address or via dedicated shareholder telephone numbers, provided
on the inside back cover of this report. Shell’s website also contains
information for institutional and retail shareholders alike.

The Company’s registrar operates an internet access facility for registered
shareholders, providing details of their shareholdings. Facilities are also
provided for shareholders to lodge proxy appointments electronically. The
Corporate Nominee service, facilitated by Equiniti, provides a facility for
investors to hold their shares in the Company in paperless form.

Board Governance Event
In the past, the Board has held a governance event, “Board
Engagement Day” that is attended by Directors including the Chair,
Senior Independent Director, Audit Committee Chair and SESCo Chair.
This is a biennial event providing investors with an overview of the Board’s
roles, activities and its key focus areas including stakeholder engagement.
The last event was in December 2018. The event covered topics relevant to
the Code including stakeholder engagement expectations, Chair tenure
and diversity and inclusion on the Board and in the senior management
talent pipeline. Attendees could also provide feedback to Directors via a
question and answer session, and also informally over refreshments after
the event. The next event is scheduled for the latter part of 2020.

The table below further demonstrates examples of various ways in
which the Board or others (providing feedback to the Board) engaged
with stakeholders during 2019. 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 2020.

Event/Activity

Engagement before event
Annual General Meeting in the Netherlands & Annual shareholder presentation in London [A]
Directors engaged with
investors ahead of the event
on a number of matters,
including those being voted
on at the AGM.

As well as the Company giving a balanced report of results and progress at each AGM, all shareholders
had an opportunity to ask questions in person. Shareholders also engaged with Directors prior to and
after the formal business of the AGM and informally over refreshments.

A separate engagement not part of the AGM was provided in the UK. Shareholders (predominantly retail
investors) heard about the Company’s progress and asked questions in person.

The Responsible Investment Annual Briefing [B]
Directors engaged with
investors ahead of the event on
a number of matters, including
the agenda, which was based
on topics of interest. Additional
speakers from outside Shell,
NGOs and charities also invited.
Engagement with three leading climate scientists
The Board continued to
commit time to this topic
throughout the year. The Chair
engaged with presenters in
preparation for the Board
engagement.

energy transition;

The addition of non-Shell speakers added an interesting perspective and dimension to the presentations
and discussions which covered our three strategic ambitions in the context of sustainable development. The
speakers included representatives from the Human Rights & Business Initiative, the International Union for
the Conservation of Nature, and the World Business Council of Sustainable Development. This event also
served as an excellent opportunity to hear from investors and other stakeholders on Environmental, Social
and Governance issues which is gaining prominence as a topic amongst the stakeholder community.

This engagement increased the Board’s and the Executive Committee’s understanding of the underlying
science of climate change and helped provide a clearer understanding of this key driver of the energy
transition. The engagement included presentations from the scientists and the discussions/presentations:
■ were valuable to leaders that are not deep into the science but are charged with navigating the

■ built further foundations for future updates as the world’s understanding of the science advances

and suggests the best sources of information;

■ described key scientific discovery that is underway that could impact actions by governments,

business and the population overall; and

■ included subjects that often do not make the popular press coverage but could be important to

the organisation.

122

Engagement following event

A number of additional
engagements including
follow-up meetings and
answering of queries.

Following the event, there
were a number of additional
engagements including
follow-up meetings and
presentations
with stakeholders.

The Board recognises the
significance and importance of
this topic to all stakeholders and
Shell’s business operations, both
now and in the future. The Board
reflected on and used learnings
from the session as background
considering short-term and future
investment/divestment decisions,
financial and operational plans.

Shell Annual Report and Accounts 2019GovernanceEvent/Activity

Engagement before event
MD19 [C]
The Board reviewed and
approved the Management
Day 2019 (MD19) material and
outlook and provided feedback
to the CEO and CFO.
Remuneration Committee Chair address
A number of calls with proxy
voting agencies and investors
to engage on potential
Remuneration Policy changes.

Engaged with investors on the progress of delivery of Shell’s 2020 outlook and plans for positioning the
Company for the future of energy, into the next year and further. The session also included presentations
by business Directors and a high-level “question and answer” session. Investors were also provided
with opportunities to pose detailed business-specific questions in “business breakout panels”.

The Chair of the Remuneration Committee/Senior Independent Director provided an update on
remuneration and the Company’s policy via a video published on the Shell website. He had met and
engaged with major investors during a roadshow conducted in November 2019, around choices to be
made as part of the 2020 Remuneration Policy update including proposed changes, use of discretionary
measures and energy transition in remuneration.

The Chair of the Board provided an update on the governance of Shell and key investors had
opportunities to ask questions to the Chair. Key topics included governance, remuneration,
energy transition and business outlook.

Chair Roadshow
A number of preparation
meetings were held to provide
insight into key topics of
interest to the investor
community.
Board visits to Colorado and California
The Board provided guidance
to the planning team ahead of
the visit to formulate the
agenda and ensure that key
areas of interest were
covered.
Audit Committee visit to the finance operations centre in Chennai and the IT Hub in Bangalore
Discussions were held with
Audit Committee members
ahead of the visit to formulate
the agenda and ensure that
key areas of interest were
covered.

In addition to engagements with various different stakeholders and external experts, the Board met with
academics, policy and business leader members of the External Advisory Board, which was established to
provide the business with external perspectives in Power and Mobility domains. The Board also visited the
National Renewable Energy Laboratory to witness the science and engineering of energy efficiency,
sustainable transportation and renewable power technologies. Directors also met with employees and
local stakeholders including government representatives, partners and start-ups which Shell has invested in.

Chennai and Bangalore – Engagements covered presentations from a number of individuals from various
parts of the business, on matters such as data analytics and engineering, market risk, reporting and
analysis and centres of excellence, digitalisation, and the context of the IT hub, local collaboration with
Shell retail operations, process automation and how the business contributes to Shell’s overall strategy on
digitalisation. Further, the Committee received an overview of the Shell India Diversity and Inclusion
Network, and spent time with the women’s network, senior leaders and local employees.

Engagement following event

Roadshows with Executive
Committee Members were
held in London and the US.

Investors were able to liaise
with the Board and discuss their
views and opinions; these views
were shared with the REMCO,
Board and the Chief HR &
Corporate Officer to further
formulate the policy.

Investors were able to engage
with the Chair and there was
also subsequent dialogue with
Investor Relations.

The Committee gained an
understanding of the operations
and met with the local teams in
both regions, gaining a deeper
understanding of the different
processes and challenges the
business and its workforce
faces.

SESCo visit to Singapore
Discussions were held with the
SESCo Committee members
ahead of the visit to formulate
the agenda and ensure that
key areas of interest were
covered.
Director Visits included
Discussions were held with
the respective Directors
ahead of the visit to formulate
the agenda and ensure
that key areas of interest
were covered.

The Committee met and engaged with a range of representatives from the contractor workforce,
communities and social investment partners. Other engagements were held with Shell’s partners in the
energy transition, a women’s network, government and the World Business Council for Sustainable
Development. The Directors also had lunch with frontline staff and extended leadership team members.
Over the course of these various engagements, a range of topics were considered and discussed
including process safety and the environment and societal expectations.

This visit provided Directors with
many insights, including Shell’s
broad and growing capability
in developing cleaner energy
solutions and the energy
transition journey in Singapore.

Shell QGC Midstream operations in Queensland, Australia
The visit included a site tour of the Control room, the LNG plant and the maintenance centre, providing
opportunity to engage with the workforce in each location. The Director also spent time with the local
leadership team, graduates, engineers and others from the broader functions.

The visits provided Directors
further opportunity to engage
with the workforce, and gain a
deeper understanding of the
business and its operations.

Houston
The Director attended the Engagement with Emerging Leaders meeting. This is a formal programme
established to develop US-based Senior Executive potential talent. The group meets quarterly with the US
Country Coordination Team and is led by the US Country Chair. These meetings provide an opportunity
for cross-business collaboration and networking. The Director also toured the remote drilling centre and
received an update on how technology has been instrumental in delivering continuous improvement,
optimisation and standardisation for the drilling of wells. Further, they received an overview of the
lubricants business and spent time with global brand managers, marketing and commercial teams.

Permian Basin
The Directors received updates from senior leaders, a tour of the central processing facility, drilling rig
and other operations.

Shell Energy
During their visit, Directors met with Shell Energy CEO and the Executive Team. In addition, Directors toured
the offices meeting several teams, including leaders from customer services, customer experience, continuous
improvement, and telecommunications where they were able to learn more about recent changes to a
customer-centric operating model and growth plans for broadband operations.

[A] The London shareholder meeting was attended by the Chair, CEO and CFO.
[B] Attended by the CEO and Chair of the SESCo, along with the Senior Independent Director.
[C] Attended by CEO and CFO.

123

Shell Annual Report and Accounts 2019GovernanceBoard’s Direct Engagements with the Workforce

Informal Engagement

Chair lunches are held from time to time with a select cross-section of employees in
various regions. The Board has also held an informal drinks/discussion with select
cross-section of employees; for example, to meet future leaders and listen to current
issues, challenges, concerns and opportunities.

Nomination and Succession Committee members meet with various senior leaders
and high-potential individuals throughout the year.

The Chair has commented that his meetings provide great insight into the Shell
culture and our capacity to deliver on our strategy and purpose. He notes that
such direct engagement provides snapshots of employee perspectives across the
various countries and cultures within which Shell operates. Further, he considers
this a helpful method of engaging with high-potential-talent individuals in an
informal environment.

Off-Site Visits

People engagements during Board and/or Committee off-sites.

Meeting talent/leadership teams

Townhall discussions

Company Chair engaging with various individuals by attending team meetings
Country visits (China, India, Japan, Kazakhstan, Kuwait, Malaysia, the Netherlands,
Poland, Singapore, UK and USA).

Through these more formal engagements, the Chair and other Non-executive
Directors (either individually or with their Committees) are able to deepen their
understanding of how the Company’s purpose, strategy and values are embedded
in particular sites and countries. The benefits are mutual as the Board obtains direct
insight into local business operations and projects as well as local strengths and
challenges while our people have an opportunity to better understand the Board
and provide direct feedback on topics of importance to them, their business or
function and/or their location.

Employee Network and Related Sessions

Conducted by Directors with for example, female Directors engaging with Shell
women’s networks.

Shell female employees who have engaged with female Directors informally
(via dinners or through women networks) credit those engagements for not only
providing them Board exposure but also in affording them the opportunity to
communicate about gender-specific topics and to learn from established female
leaders. Directors involved in these engagements likewise note the opportunity to
enrich their understanding of the female perspective within Shell as well as the depth
of Shell talent and effectiveness of Shell’s Diversity and Inclusion initiatives.

Committee Engagement Key:

BOARD
NOMCO

AUDIT

SESCo
EXEC DIRECTORS

WORKFORCE ENGAGEMENT

The publication of the new UK Corporate Governance Code (the
“Code”), and The Companies (Miscellaneous Reporting) Regulations
2018, now require companies to report on their engagement with their
employees and wider workforce. The Code outlines three suggested
workforce engagement approaches. Following an analysis of Shell’s
application of the Code in late 2018 and over the course of 2019, the
Nomination and Succession Committee (NOMCO) and Board reviewed,
considered and discussed Shell Group’s and Board’s existing workforce
engagement. Although the Board and NOMCO recognised merit in each
of the Code’s workforce engagement mechanism proposals, it noted that
boards must consider the size and structure of their business, including its
international workforce scope, and select an approach within that context
that most practically delivers the underlying spirit and ambition of the
Code even if it is not one of the three prescribed approaches. The Code
is also supportive of alternate methods where an explanation is provided.

The Code states that its use of the term ‘workforce’ is not meant to align
with legal definitions of workforce, employee, worker or similar terms.
However, for a global organisation bound by the laws of more than
70 countries, blurring clearly prescribed legal definitions that impact
complex issues (such as local HSSE requirements, work contract terms,
legal accountability, employment rights) or merging two definitions of
the same term could have notable impact on the business, its operations
and its stakeholder relationships (including with suppliers). Therefore,
Shell considers its workforce to be employees of companies in the Shell
Group. However, the Board also engages with others outside of this group
(for example, on site visits), and some of this engagement is shared on
page 122.

Although our reporting and formal engagement focuses predominantly
on our employees, all individuals working on Shell sites (including Shell
offices) are required to undertake certain Shell training (for example,
HSSE and Code of Conduct-related training). Adhering to the Life
Saving Rules (HSSE) and the Code of Conduct compliance obligations is
included within our contracts with suppliers, and the Shell Global Helpline
is available for all workers to report matters of concern.

For many years Shell has recognised the importance of engaging
with its workforce. Engagement is especially important in maintaining
strong business delivery in volatile times of change. We therefore strive
to maintain a dialogue between management and our workforce –
both directly and where appropriate, through representative bodies.
Management regularly engages with the workforce through a range
of formal and informal channels, including via emails from the Chief
Executive Officer and other senior executives, webcasts, townhalls,
team meetings, face-to-face gatherings, breakfast briefings, interviews
with senior management and online publications via our intranet.

The Board considers effective engagement a key element of its
understanding of the Company’s ability to create value as it recognises
that our people are our greatest asset. Workforce views can help inform
the Board on matters such as operational effectiveness, Shell culture,
risk identification and strategy development and delivery.

The Board considers the current workforce engagement approach
effective. The information provided in the table below exemplifies
various methods of Board engagement.

124

Shell Annual Report and Accounts 2019Governance

Formal reports and information updates to the Board

Conduct Risk Dashboard

Provides a consolidated overview of statistics on Code of Conduct violations.
Risk indicators in the Dashboard are potentially linked to organisational culture.
Examples that the Dashboard measures are: the number of terminations as a result
of formally investigated Code of Conduct violations, and the number of overdues
on mandatory Ethics & Compliance training.

A further update on positive culture and identity leadership is scheduled to be
provided, along with an update on conduct risk, to the Board and relevant
Board Committees in 2020.

Speaking Up in Shell

Data and insights are provided from the Global Helpline, Shell Ethics &
Compliance Organisation and the Shell People Survey. The SESCo endorsed the
recommendations with focus on how Speaking Up supports a caring organisation
and encourages staff to come forward to raise a concern in good faith.

The Audit Committee is kept updated when matters highlighted through the Global
Helpline are investigated, and on the associated remediations. For more information
please see page 133 within the Audit Committee report.

Assurance activities

Assurance activities, including items raised by Businesses and Functions (through
the Group Assurance Letters Process) and independent assurance (from Internal
Audit, HSSE, Ethics and Compliance, Reserves Assurance and Reporting), provide
additional comfort to the Board of the commitment to high standards of risk
management and internal control. The assurance activities ensure that work
can be done safely, within regulatory frameworks.

The information provided within these reports further support the Board’s
annual review of the effectiveness of the Group’s system of risk management
and internal control and feed into the Group Scorecard, which staff bonuses
are calculated against.

Other

The Board receives updates on other specific topics. For example, to inform the
Board’s focus on enhancing ethical leadership and assuring ethical decision-making
in the organisation it received updates on the roll out of the Ethical Leadership
Expectations Programme (ELEP).

To better understand the success of the ELEP as reported to the Board, the Chair and
the SESCo Chair attended a three-hour ELEP session themselves alongside Shell
senior executives. The Chair and SESCo Chair shared feedback from the session
in the January 2019 Board meeting with each commending the programme for
authentically promoting open and meaningful dialogue and shared learnings
on the Company’s values and leadership behaviours as well as on the practical
dilemmas and business pressures confronting Shell leadership within those topics.

Committee Engagement Key:

BOARD
NOMCO

AUDIT

SESCo
EXEC DIRECTORS

Shell People Survey (anonymous survey facilitated externally)

Annual Board discussion to keep it fully apprised of employee engagement levels
and quality of leadership across Shell’s workforce, as well as a broad range of
subjects including collaboration, working conditions, the job, people development,
reputation, benefits and rewards, diversity and inclusion, operational excellence,
and responsible business.

The Board considers the Shell People Survey one of its principal tools used to
measure employee engagement, motivation, affiliation and commitment to Shell.
It provides insights into employee views and has a consistently high response rate.
In 2019, the response rate was 85.5%, which was an increase of 3.5% compared
to 2018. The average employee engagement score was 78 points out of 100,
an increase of one point compared to 2018, and among leading results across
a range of industries.

The Board also utilises this engagement to, for example, understand how Shell
is leveraging the survey outcomes in: i) data analytics, for example, to identify
potential correlative relationships between employee engagement and safety or
ethics & compliance incidents; and ii) strengthening Company culture and values.

Senior Succession Resourcing Review

The annual Senior Succession and Resourcing Review focused on the strength of
senior leadership and plans for its development and succession, while highlighting
the breadth, depth and diversity of its pipeline, the developing profile of the
leadership cadre, and recruitment and attrition levels.

The Nomination and Succession Committee noted the disciplined approach to
succession planning and execution, the holistic view taken of leadership and the
high levels of information and transparency underpinning it. It particularly noted
improved focus on performance and on the talent pipeline of high potential
individuals beyond just senior management levels. Along with the results of the
annual Shell People Survey, it provided a deeper understanding of culture,
leadership talent and the strong levels of employee engagement across
the business.

Assessment of key trends and material incidents

Presented by Chief Ethics & Compliance Officer. This is based on the established
channels for staff and others to file complaints or report on suspected breaches
in relation to the Shell General Business Principles (SGBP), the Code of Conduct
or any breaches of law or regulations, including accounting control and
auditing concerns.

The update covers Shell employees and our wider stakeholder base. The Board
(including via the Audit Committee and SESCo) obtains insight into incidents and on
reporting levels and remediation which provide indicators of conduct risks and,
together with the related Board reports noted below, of the strength of embedding
and awareness of the Code of Conduct and SGBP obligations and employees’
comfort levels in raising incidents.

The Shell Control Framework

Significant HSSE, Ethics and Compliance, and more broadly, business control
incidents are brought to the attention of senior management and Board through
regular reporting.

The Board discussed how the organisation could learn more from incidents and
how the business could drive safety performance to the next level. The Board
requested additional information on incidents from both Shell operated and
non-operated ventures and a greater visibility of incidents and investigations.

125

Shell Annual Report and Accounts 2019Governance

NOMINATION AND SUCCESSION COMMITTEE

PURPOSE
The Nomination and Succession Committee (the “Committee”) leads
the process for appointments to the Board and Senior Management [A]
positions, ensures plans are in place for orderly, well planned succession,
and oversees the development of a diverse succession pipeline of
candidates. Further, it reviews the Company’s policy and strategy on
diversity and inclusion, and monitors the effectiveness of diversity
initiatives. It makes recommendations to the Board on corporate
governance guidelines, as referred to in the Chair’s statement.
[A] ”Senior management” refers to the Executive Committee and the Company Secretary.

TALENT MANAGEMENT AND SUCCESSION
The Committee manages Board and Senior Management succession
against clear and agreed selection principles. For Non-executive Director
succession, the Committee adopted in January 2019 a set of revised
Principles for the Strategic Composition of the Board. The principles
include both quantitative and qualitative principles, considering both:
(i) the overall Board composition and diversity of gender, nationality,
background experience and skillsets desired that align with the
Company’s strategy and purpose; and (ii) the values, attitudes, and
behaviours expected. For Senior Management succession, the principles
include process-specific principles, including the identification and
development of succession candidates and the long-term nature of the
succession planning process. Each Committee meeting includes both sets
of principles and, utilising those, the Committee executes changes through
a well-defined and diligent process with overall Board engagement. The
Committee agrees candidate profiles and meets prospective candidates
well ahead of any selection decision being necessary. It also engages the
Board early in the process to ensure all Directors have an opportunity to
meet and assess prospective candidates. Consequently, some of the
leaders whom the Committee and Board have engaged with extensively
in the past are now members of the Board or the Executive Committee.

The Committee maintains short, medium and long-term succession
plans, and thus an overview of potential candidates multiple years
ahead It oversees a continuous and proactive process of planning,
review, engagement and assessment, taking into account the strategic
priorities and main factors affecting the long-term success and future
of the Company and the associated diversity, skillsets and breadth
of perspectives needed to help achieve that in the evolving
business environment.

The Committee is fully engaged with the broader senior succession
and resourcing across Shell, and with the overall end-to-end approach
to talent management that is adopted. This ranges from recruitment to
leadership identification and from leadership development to leadership
appointment, all of which are underpinned by talent priorities and a
commitment to advancing Diversity and Inclusion.

Diversity of leadership
Female representation has steadily improved in recent years. Amongst
overall recruitment, Shell companies consistently recruit 40% females,
and amongst graduates this is approaching 50%. Female representation
in the top 1,400 roles (“Senior Leadership” positions) has been raised by
2.4 percentage points during 2019 to 26.4%, and further improvement is
actively pursued. Nationality diversity, such as Asian and American talent,
continues to advance in a manner reflective of the business outlook. Senior
Leadership is a Shell measure and different from that which we are
required to report under the Code, being female representation in Senior
Management and their direct reports, where the percentage is 28.9%.

CHAD HOLLIDAY
Chair of the Nomination and Succession Committee

Highlights of 2019

■ Appointment of two new Executive Committee members
■ Appointment of new Non-executive Director and continued

discussion on Non-executive Director succession

Priorities for 2020

■ Appointment and onboarding of new Non-executive Directors
■ Continued discussions on Non-executive Director, and Executive

Committee, succession

COMMITTEE ATTENDANCE FOR 2019

Committee member

Member since

Chad Holliday (Chair) May 19, 2015

Euleen Goh

July 1, 2019

Gerard Kleisterlee

May 23, 2018

Linda Stuntz

June 1, 2016

Maximum
possible
meetings

Number of
meetings
attended

% of
meetings
attended

100%

“We know we play a crucial role today in
selecting those who make the future of Shell.
The recognition of that responsibility not only
humbles us but also drives our passion to
entrust that future into the hands and hearts
of those that will safeguard and grow it.”

CHAD HOLLIDAY
Chair

126

Shell Annual Report and Accounts 2019GovernanceThe Committee recognises that improving diversity at each level across
the Shell Group is crucial, and therefore takes an active role in reviewing
diversity objectives and strategies for the group as a whole, and
monitoring the impact of diversity and inclusion initiatives.

More information on diversity within Shell is included within the Our
People section on page 99.

Committee Activity
In addition to its considerations regarding succession, the Committee
made recommendations on corporate governance guidelines, monitored
compliance with corporate governance requirements and made
recommendations on disclosures connected with corporate governance.
The Committee continues to monitor and review this area, as well as
consider whether and how current Company governance matters should
be strengthened. Further insight on some of the Committee’s areas of
consideration in 2019 is provided below.

Succession [A]

Topic of discussion/Example of Board activity

Recommendation

■ Appointment of Neil Carson to the Board; and
■ Changes to the composition of the Board committees.

Review and
oversight

■ Royal Dutch Shell Senior Succession Resourcing review.

Oversight

■ Appointment of Wael Sawan as Upstream Director

(replacing Andrew Brown); and

■ Appointment of Huibert Vigeveno as Downstream

Director (replacing John Abbott).

Governance

Topic of discussion/ Example of Board activity

Governing the
Board and its
committees

Regulation,
legislation and
other governance-
related guidance

■ Reviewed its Principles for the Strategic Composition of

the Board; and

■ Updated its Terms of Reference, and reviewed changes

proposed to the Terms of Reference for other Committees
and the Matters Reserved for the Board.

■ Alignment to the recommendations within the 2018 UK

Corporate Governance Code;

■ Key governance matters impacting the Company’s

external reporting; and

■ Other governance and regulatory changes agreed or
proposed and their impact or potential impact on the
Company, its processes and its reporting.

RDS matters

■ Considered any potential conflicts of interest and the

independence of the Non-executive Directors;

■ Determined who would undertake the 2019 External Board

Evaluation;

■ Reviewed the proposed changes to the Company’s Articles
of Association, subsequently approved by shareholders
at the 2019 AGM; and

■ Reviewed changes proposed to the dividend payment

process (announced December 2019).

[A] The Committee was assisted during the year by Russell Reynolds Associates (“Russell

Reynolds”), an external global search company whose main role was to propose suitable
candidates. Russell Reynolds does not have any connection with the Company other than
that of search consultants. The Chair does not participate in discussions regarding his own
succession. Russell Reynolds is a signatory to The Voluntary Code of Conduct for Executive
Search Firms which aims to improve board diversity.

Director Induction and Training
Following Board appointment, 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 that Shell faces.

As part of the Board evaluation, director induction was a discussion
topic. Directors commented positively on the induction programme and
reported that it is comprehensive, well-organised and fully in line with
their expectations. Directors shared that they have been able not only to
benefit from a comprehensive programme of meetings but also to steer the
programme towards their own personal interests and information needs.

Some of the areas Neil Carson’s induction has covered are
provided below:

Company Operations and Strategy, including:
Strategy & Portfolio; Integrated Gas and New Energies; Downstream,
including Chemicals, Retail and Global Commercial; Upstream; and
Projects and Technology. Time was spent with the EC members managing
these operations and senior leaders from the operations. Further, updates
were provided with regard to the internal governance process, the Shell
Control Framework, the Board’s calendar, minutes from earlier meetings,
Company performance, operating plans and key business
relationships. Neil also met with the Chief Internal Auditor.

The environment in which we operate, including:
Engagements were held with the Chief Ethics and Compliance Officer,
Safety and Environment and senior leaders from the Sustainability
Strategy team, and the Global Business Environment team, which is best
known for developing forward-looking scenarios to support strategic
thinking and direction-setting. Time was also spent with senior leaders
from Investor Relations and Group Reporting and the Chief Human
Resources and Corporate Director, the Legal Director and the
Company Secretary.

Feedback on Board induction
“Given the complexity of the business, I
believe that Director induction takes at least
a year. The sessions with people in the business
benefit from being gradually phased and
aid the absorption of information. Site visits
are incredibly helpful and can be utilised
to a greater extent in the early stages of
the programme.”

NEIL CARSON
Non-executive Director

127

Shell Annual Report and Accounts 2019GovernanceSAFETY, ENVIRONMENT AND SUSTAINABILITY COMMITTEE

PURPOSE
The Committee assists the Board in reviewing the practices and
performance of the Shell Group of companies, primarily with respect
to Safety, Environment including Climate Change, and Sustainability.

OVERVIEW
The Committee assesses Shell’s overall sustainability performance
and provides input into Shell’s annual reporting and disclosures on
sustainability. It also advises the Remuneration Committee on metrics
relating to sustainable development and energy transition that apply
to the Executive Committee scorecard and incentive programme.

The Committee also endorses Shell’s annual HSSE&SP assurance plan and
reviews execution of the plan and audit outcomes.

In addition, it reviews and considers external stakeholder perspectives
in relation to Shell’s business, and reviews how Shell addresses issues
of public concern that could affect its reputation and licence to operate.
Examples include plastic waste, human rights, and ethical conduct
and culture.

In line with the strategic importance of the Committee’s agenda, the
Chair and the Chief Executive Officer regularly attend the Committee
meetings for discussions on specific topics. The Committee appreciated
the assistance throughout the year from the Projects & Technology
Business Director, Harry Brekelmans, who continues to be a strong
champion for sustainability within Shell.

The overall accountability for sustainability within Shell is with the Chief
Executive Officer and the Executive Committee. They are assisted by the
HSSE&SP executive team.

ACTIVITIES
During 2019 the Committee reviewed its purpose and updated its terms
of reference to ensure it focuses on the areas of most strategic importance
to Shell.

It met regularly to review and discuss a range of prioritised topics. These
included the safe and responsible operation of Shell’s facilities,
environmental protection and greenhouse gas emissions, major incidents
that impact safety and environmental performance, progress towards
meeting Shell’s Net Carbon Footprint Ambition and short-term targets,
and climate change and the energy transition.

The topics discussed in greater depth included personal and process
safety, Shell’s Net Carbon Footprint Ambition and the energy transition,
and Shell’s ethics programme. The Committee also reviewed Shell
companies’ operations and the challenges faced in Nigeria.

SITE VISITS
One major site visit was conducted in 2019, which was to Singapore.
Over three days the Committee met with Shell employees, staff,
contractors, Government officials, local community leaders, and
representatives from local non-governmental organisations to gain a
deeper understanding of Shell’s business in Singapore. The Committee
visited refinery operations at Palau Bukom and chemicals operations
at Jurong Island, and reviewed Shell’s developing New Energies
businesses in the country.

SIR NIGEL SHEINWALD GCMG
Chair of the Safety, Environment and Sustainability Committee

COMMITTEE ATTENDANCE FOR 2019

Committee
Member

Member
since

Sir Nigel Sheinwald
(Chair of the Committee)

Neil Carson [A]

July 1, 2012

June 1, 2019

Catherine J. Hughes

November 1, 2017

Linda Stuntz

May 23, 2018

Maximum
possible
meetings

Number of
meetings
attended

% of
meetings
attended

100%

75%

100%

[A] Neil Carson was unable to attend the Committee meeting in October 2019 due to an
immovable commitment which was scheduled prior to him joining the Shell Board.

HIGHLIGHTS OF 2019
During 2019, we reviewed the purpose of the Committee and
transitioned from the Corporate and Social Responsibility Committee
to become the Safety, Environment and Sustainability Committee (the
“Committee”). This sharpened focus will allow the Committee to play
a more influential role in overseeing the practices and performance
of the Company with respect to safety, environment including
climate change, and broader sustainability issues.

FOCUS FOR 2020
In 2020, the Committee will continue with the sharpened focus areas
established last year. The Committee will use site visits to examine Shell’s
approach and performance across these focus areas. The Committee will
also review Shell’s response to developments regarding climate change
and the energy transition.

128

Shell Annual Report and Accounts 2019GovernanceAUDIT COMMITTEE REPORT

ANN GODBEHERE
Chair of the Audit Committee

Focus areas for 2019

■ First-year application of IFRS 16 Leases
■ Shell’s Trading and Supply Control Framework
■ Net Carbon Footprint Assurance and Reporting Framework
■ Oil and Gas Reserves Control Framework

Priorities for 2020

■ Decommissioning
■

Integrated Risk Management

■ New Business Models and Ventures
■ Pensions

“The primary role of the AC is
to assist the Board in fulfilling its
oversight responsibilities in areas
such as the integrity of financial
reporting, the effectiveness of
the risk management framework
and internal control system as
well as consideration of
compliance matters.”

ANN GODBEHERE

Dear Shareholders,

I am pleased to present our Audit Committee Report for 2019, having
assumed chairmanship of the Audit Committee (AC) when Euleen
Goh stepped down in June of last year.

The primary role of the AC is to assist the Board in fulfilling its oversight
responsibilities in areas such as the integrity of financial reporting, the
effectiveness of the risk management framework and internal control
system as well as consideration of compliance matters. We are also
responsible for assessing the quality of the audit performed by and the
independence and objectivity of the external auditor, and making a
recommendation to the Board on the appointment or reappointment
of the external auditor. Further, we oversee the work and quality of
the internal audit function.

I meet regularly with the Chief Financial Officer, EVP Taxation and
Controller, Chief Internal Auditor and the external auditor. Further, these
same individuals attend every AC meeting as well as any other members
of Shell’s management, as necessary, to provide in-depth analysis on
specific topics or on more detailed technical matters that may arise.

Over the course of a year, the AC has a rolling agenda covering a variety
of standing matters such as the control framework for the reporting of
Shell’s oil and gas reserves; information risk management; tax matters;
and 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 matters. Specific attention is given
to topics that we consider particularly significant, including issues and
judgements relating to Shell’s Consolidated Financial Statements, as
discussed in more detail later in this report. In 2019 in addition to standing
matters, the AC addressed a number of areas of special focus including
evaluating the first year of application of the new accounting standard
IFRS 16 Leases; Shell’s Trading and Supply control framework; and the
control framework for the reporting of Shell’s Net Carbon Footprint
ambition. The AC visited Shell’s advanced security operations in the
Netherlands, the finance operations centre in Chennai and the IT Hub in
Bangalore. With these site visits we deepen our understanding of the
operations in the respective locations and how they interface with Shell’s
business functions. The visits also provide the AC with an opportunity to
engage with a cross-section of Shell staff in each location.

In closing I would like to take this opportunity to thank Euleen for her
excellent chairmanship of the AC since 2016 and for the valuable insights
she provided as both a member since September 2014 and as the Chair.

ANN GODBEHERE
Chair of the Audit Committee
March 11, 2020

129

Shell Annual Report and Accounts 2019GovernanceAUDIT COMMITTEE REPORT continued

COMPOSITION AND MEETINGS OF THE AUDIT COMMITTEE
During 2019, the members and meeting attendance of the AC were
as follows:

■ Overseeing compliance with applicable legal and regulatory

requirements, including monitoring ethics and compliance risks;

■ Monitoring the qualifications, expertise, resources and independence

Committee
Member

Member
since

Ann Godbehere
(Chair)

May 23, 2018

Euleen Goh [A]

September 1, 2014

Roberto Setubal

October 1, 2017

Gerrit Zalm

March 8, 2017

Maximum
possible
meetings

Number of
meetings
attended

% of
meetings
attended

100%

[A] Euleen Goh stood down as Chair and a member of the AC on June 30, 2019.

All members of the AC are financially literate, independent Non-executive
Directors. In respect of the year ended December 31, 2019, for the
purposes of the UK Corporate Governance Code, Ann Godbehere
qualifies as: a person with “recent and relevant financial experience”
and competence in accounting; and, for the purposes of US securities
laws, is an “audit committee financial expert”.

The experience of the AC members outlined on page 130 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.

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 financial reporting, control matters, accounting
policies and judgements and reporting matters, and a range of topics
relevant to Shell’s control framework.

The AC invites the Chief Financial Officer, the Legal Director, the Chief
Internal Auditor, the Executive Vice President Taxation and Controller,
the Vice President Accounting and Reporting and the external auditor to
attend each meeting. The Chief Executive Officer attends each meeting
where the quarterly, half-year and year-end results are discussed. The
Chair of the Board also regularly attends the meetings. 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.

RESPONSIBILITIES
The roles and responsibilities of the AC as set out in its Terms of Reference
are reviewed annually, taking into account relevant regulatory changes
and recommended best practice. The key responsibilities of the AC
include, but are not limited to:
■ Evaluating the effectiveness of the system of risk management

and internal control;

■ Reviewing the integrity of the financial statements, including annual

reports, half-year reports, and quarterly financial statements;
■ Reviewing and discussing with management the appropriateness
of judgements involving the application of accounting principles
and disclosure rules;

■ Advising the Board whether the Annual Report is fair, balanced
and understandable and provides the information necessary for
shareholders to assess Shell’s position and performance, business
model and strategy;

■ Reviewing the functioning of the Shell Global Helpline and reports

arising from its operations;

130

of both the internal and external auditor;

■ Assessing the internal and external auditor’s performance and

effectiveness each year; and

■ Recommending to the Board the appointment or reappointment

of the external auditor.

The AC keeps the Board informed of its activities and recommendations
and the Chair of the AC provides an update to the Board after every AC
meeting. The AC promptly reports concerns to the Board if it is not
satisfied with or believes that action or improvement is required
concerning any aspect of financial reporting, risk management and
internal control, compliance or audit-related activities.

A copy of the AC’s Terms of Reference can be found at www.shell.com.

ACTIVITIES
During 2019, the AC received comprehensive reports from management
and the external auditor on a variety of topics related to management
controls and accounting policies, practices and reporting. The AC
also reviewed whistleblowing reports and internal audit reports, and
considered management’s responses and conclusions to the various
findings in these reports.

In addition to the items discussed under significant issues on page 133,
the AC also dedicated time to the following matters during 2019:
■ Trading and Supply’s Control Framework. Following its 2018 visit
to the Trading and Supply office in London and given the growth in this
area, the AC continued to focus on key control matters and
improvements in processes underway within Trading and Supply. The
AC was briefed on various actions which management is undertaking
to further strengthen controls, including system controls and new hires
in the areas of compliance and risk management;

■ Shell’s Net Carbon Footprint Control Framework. Following

Shell’s announcement to link a Net Carbon Footprint target and other
measures to executive remuneration starting in 2019, the AC reviewed
the processes and procedures governing the annual preparation and
assurance of Shell’s Net Carbon Footprint value. The AC considered
the methodology, key aspects of the Net Carbon Footprint model,
important control points, assurance mechanisms to validate the
integrity of the data and disclosure, and the process for managing
and verifying any changes to the model;

■

■ Tax risks. In addition to the regular review of Shell’s tax position, the
AC discussed with management the key tax risks stemming from the
evolving tax landscape, including intensified audit scrutiny and
increasing demands for transparency. The AC also discussed measures
underway in response to these trends and developments, including for
example Shell’s publication of its first Tax Contribution Report in 2019;
Information Risk Management. The Chief Information Officer
briefed the AC on the activities undertaken in 2019 with respect to
information risk management, information security controls, security
improvement initiatives and Shell’s cyber monitoring and defence
capabilities and controls. The AC discussed with the Chief Information
Officer the evolving digital landscape and the steps management is
taking to manage change, including planned activities for 2020; and
■ Oil and Gas Reserves Control Framework. The AC was briefed
on the framework in place to ensure accurate reserve information is
reported in an efficient manner. The AC considered the processes and
controls in place to assure compliance with reporting requirements and
annual updates to maintain a robust framework.

Shell Annual Report and Accounts 2019GovernanceThe AC also reviewed: the year-end reported proved oil and gas reserves,
including management judgements and adjustments made to reflect
changes in geological, technical, contractual and economic information,
the Brent crude oil and Henry Hub natural gas long-term price assumptions;
estimated refining margins; discount rates used for financial reporting,
particularly with respect to impairment testing and decommissioning
and other provisions (see Note 2 to the “Consolidated Financial
Statements” on pages 195-204 for further information); and the
effectiveness of financial controls.

The AC discussed with the Chief Ethics and Compliance Officer his report
on compliance matters, including an overview of the effectiveness of the
Shell ethics and compliance programme in managing ethics and
compliance risk in Shell’s business activities, regulatory developments and
compliance risks. 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 had been embedded by management
into the systems and controls of the organisation.

The AC was briefed on litigation matters (see “Governance Framework”
on page 117 and Note 25 to the “Consolidated Financial Statements”
on pages 235-237); new regulatory requirements, including the UK
Financial Reporting Council’s (FRC’s) 2018 UK Corporate Governance
Code, and various market studies and proposals into the external
audit market. The AC was also briefed on corporate governance
developments, including the EU Sustainable Finance initiatives
and related legislative proposals.

In March 2019, the AC visited the advanced security operations in the
Netherlands and in May 2019, the finance operations centre in Chennai
and the IT Hub in Bangalore. These visits provided the opportunity for the
AC to gain a deeper understanding of the various activities undertaken in
each location including new technologies and digital opportunities, and
how they support Shell’s business activities. Topics discussed during the
site visits included: threat intelligence; incident management; vulnerability
management and forensics; use of data analysis; bots; data engineering;
market risk analyses; impairment analysis process; digitalisation; new
applications/solutions development process; process automation; and
Information Technology General Controls. The AC was provided with
information on the external environment and the relevant regulations
within each location’s operations. During the visits to the Chennai and
Bangalore sites, the AC was also briefed on Shell’s operations in India.

In 2019, the AC updated its Terms of Reference to reflect applicable
provisions from the 2018 UK Corporate Governance Code published
by the FRC, including the Chair’s engagement with the Company’s
Shareholders on significant matters related to the AC’s responsibilities
and the AC’s oversight of the audit tender process. The Terms of Reference
were also updated to reflect the AC’s responsibilities regarding Shell’s
Global Helpline as well as ethics and compliance risks.

As part of a review of Shell’s external reporting, the decision was taken to
produce a separate Annual Report and Form 20-F beginning with fiscal
year 2019. The AC provided its input on the merits of this initiative and
considered the control framework which has been put in place to ensure
the disclosures in both reports comply with relevant requirements.

The AC discussed the Company’s 2019 Annual Report, half-year report
and quarterly unaudited interim financial statements with management
and the external auditor. The AC advised the Board that in its view the

2019 Annual Report including the financial statements for the year
ended December 31, 2019, 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 “Governance” on page 114). To arrive at this conclusion, the AC
critically assessed drafts of the 2019 Annual Report 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 2019 Annual Report 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;
future carbon costs; major agreements such as LNG contract renewals;
planned 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 considered the
mitigating measures and sensitivities that management had applied to
the modelling of such scenarios when evaluating the viability statement.
The AC also considered external commentaries suggesting that viability
statements should be extended beyond a period of three years and
concluded that the three-year period selected by the Board for the review
of Shell’s prospects, in line with the operating plan, remained appropriate.
The AC supported the inclusion of Shell’s viability statement in
“Governance” on page 165 and considered such statement in line
with best practice guidance issued by the FRC.

The AC considered and approved the internal audit function’s annual
audit plan, including focus areas for 2019 comprising of management
controls of IT systems and infrastructure, information and data, operational
assets and businesses, contracting and procurement, resource and project
delivery, and ethics and compliance. The AC also considered and
approved proposed updates to the Shell Internal Audit Charter which
take into account the revised UK Corporate Governance Code and other
regulatory changes. The AC assessed the performance of the internal
audit function under the new Chief Internal Auditor, who was appointed
with effect from September 2018, as effective. The AC also assessed the
performance of the Chief Internal Auditor. With respect to the external
auditor, the AC 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.

SYSTEM OF RISK MANAGEMENT AND INTERNAL
CONTROL
The AC reviewed 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.

131

Shell Annual Report and Accounts 2019GovernanceFrequency

AUDIT COMMITTEE REPORT continued

AUDIT COMMITTEE ACTIVITIES DURING 2019

Activities performed

Reporting

Reviewed Shell’s accounting policies and practices, including compliance with accounting and reporting standards

Reviewed the appropriateness of material judgements and the interpretation and application of accounting principles

Considered the integrity of the year-end financial statements and recommended to the Board whether the audited financial statements should be included in
the Annual and statutory reports

Considered the integrity of the half-yearly report and quarterly financial statements

Reviewed management’s assessment of going concern and longer-term viability and endorsed the annual viability statement

Reviewed Shell’s policies with respect to earnings releases; financial performance information and earnings guidance; oil and gas reserves accounting and
reporting; and significant financial reporting issues

Reviewed the internal controls in relation to financial reporting

Advised the Board of the AC’s view on whether taken as a whole, the Annual Report is fair, balanced and understandable and provides the information
necessary for shareholders to assess Shell’s position and performance, business model and strategy.

Assessed management’s response to significant audit findings and recommendations

Risk Management and Internal Control

Monitored the effectiveness of the Shell’s risk management and internal control system

Received briefings on regulatory developments

Reviewed management's SOX 404 assessment

Discussed the control framework related to Shell’s Net Carbon Footprint

Considered the control framework related to oil and gas reserves

Discussed significant matters arising from the internal audit with the Chief Internal Auditor, management and Ernst & Young LLP (EY)

Evaluated the quality, efficiency and effectiveness of the internal audit function including the competence, qualifications, expertise, compensation and budget

Reviewed and approved the internal audit function’s remit, charter and audit plan

Assessed the performance of the Chief Internal Auditor

Reviewed significant legal matters with Shell’s Legal Director

Discussed and reviewed Finance Group's succession planning

Reviewed the Chief Financial Officer’s significant business and investment transactions for potential conflicts or related party transactions

Assessed the Chief Financial Officer’s performance

Reviewed Shell’s information risk management

Reviewed Shell’s tax function, key tax risks and discussed evolving area of tax transparency

Received briefings regarding Shell’s Trading and Supply control framework

Reviewed and discussed Shell Finance’s IT strategy

External Auditor

Considered the independence of EY

Reviewed and approved the engagement letter for EY's annual audit of the Company's consolidated and parent company financial statements

Approved the remuneration for audit and non-audit services, including pre-approval of permissible non-audit services

Considered the annual external audit plan and monitored the execution and results of the audit

Monitored the qualifications, expertise, resources and independence and objectivity of EY

Reviewed the Company’s representation letter prior to signing by management

Assessed the performance and effectiveness of EY, the audit process, the quality of the audit, the handling of key judgements by EY, and EY’s response
to questions from the AC

Recommended to the Board for the re-appointment of EY to be put to the Company’s shareholders for approval at the Annual General Meeting (AGM)

Compliance and Governance

Monitored the receipt, retention, investigation and follow-up actions of complaints received, including those from the Shell Global Helpline

Reviewed with the Chief Ethics and Compliance Officer the implementation and effectiveness of the Ethics and Compliance programme and function

Discussed compliance with applicable external legal and regulatory requirements

Performed an evaluation of the AC’s performance and effectiveness

Reviewed and updated the AC’s Terms of Reference

Committee Activity Key:

Annually

Quarterly

Periodically

132

Shell Annual Report and Accounts 2019GovernanceSIGNIFICANT ISSUES
The AC assessed the following significant issues, including those related to Shell’s 2019 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 clarifications
from management, and sought assurance and received input from the internal and external auditors.

Significant issues

Subject

DISPOSALS

See Notes 5 and 8 to the
“Consolidated Financial Statements”
on pages 209 and 210-213.

IMPAIRMENTS

See Notes 2 and 8 to the
“Consolidated Financial
Statements” on 198-204
and 210-213.

TAXATION

See Notes 2 and 16 to the
“Consolidated Financial
Statements” on pages
198-204 and 220-222.

FIRST-YEAR APPLICATION
OF IFRS 16

See Note 3 to the
“Consolidated Financial
Statements” on page 204.

DISCOUNT RATE FOR
PROVISIONS

Issue

How the AC addressed the issue

Several significant disposals were completed in 2019. 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.

The carrying amount of an asset should be tested for
impairment when there is an indication of possible change in
carrying value such as a reduction in performance, other than
short term, or being classified as held for sale.

The AC considered the application of the held-for-sale
classification, as well as the accounting for any ensuing
disposals, including the divestment of Upstream assets in
Denmark and US Gulf of Mexico, as well as Downstream
assets in the US and Saudi Arabia. Particular attention was
given to the assessments of any impairment indicators, as well
as the accounting for any retained obligations, together with
the assumptions used in determining any resulting charges
and the tax treatment thereof.

The AC challenged whether there were indicators of
impairment or reversals of previously recorded impairments
and carefully considered the impairment assessments that
were performed. In so doing, the AC reviewed the oil and gas
price and refining margin outlooks against market
developments and benchmarks. The potential impact of
certain price sensitivities was also considered, together with
the relevant discount rates applied. The AC also reviewed
other significant inputs to impairment assessments, including
proved oil and gas reserves. The AC also considered the
potential impact of climate change and energy transition.

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 considered tax exposures, including those
associated with 2019 disposals. The AC also evaluated the
appropriateness of the recognition of deferred tax assets.
The AC deemed the resulting assessments of uncertain tax
exposures and the recognition of deferred tax assets to
be reasonable.

With effect from January 1, 2019, IFRS 16 Leases replaced 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 applied the modified retrospective transition
approach without restating comparative information.

In March 2019, the IFRS Interpretation Committee (IFRIC)
decision on recognition of lease liabilities in unincorporated
joint operations was concluded. During Q2 and Q3 2019
potential exposures were assessed to determine where Shell,
as operator, has primary responsibility for the lease liability
and would therefore be required to recognise these leases.

A review was carried out to consider the discount rate applied
for provisions due to a lower rate for 30-year US Treasury
bonds. Based on management’s review the discount rate for
provisions was lowered from 4% to 3% in 2019. This was
applied to provision balances at December 31, 2019.

In 2018, the AC appraised and approved accounting
policy changes resulting from the implementation of IFRS 16.
In 2019, the AC reviewed management’s analysis of the
first-year application of IFRS 16, including key judgements,
and concurred with their recommendations.

The AC also reviewed the impact of the application of IFRS
16 on the relevant Alternative Performance Measures (APM).
The AC assessed management’s application of the IFRIC’s
decision regarding the recognition of lease liabilities by
a joint operator in relation to its interest in an
unincorporated joint operation.

The AC considered the impact that this change will have in
relation to increasing provisions. There was specific discussion
on the impact to decommissioning and restoration provisions
and corresponding assets.

INTERNAL AUDIT
The internal audit function is an independent and objective assurance
function which supports Shell in improving its overall control framework.
The internal audit function contributes to 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.

The Chief Internal Auditor periodically assesses whether the purpose,
authority, and responsibilities of the internal audit function continue
to enable it to accomplish its objectives. The results of this periodic
assessment are 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. The programme also assesses the efficiency and
effectiveness of the internal audit activities and identifies opportunities for
improvement. The results of this annual assessment are communicated to
the EC and AC and include a reconfirmation to the AC of the continued
validity of the charter of the internal audit function, or proposals for an
update. At least every five years, the effectiveness and quality of the
internal audit function are assessed externally and the report shared
with the AC. An independent assessment of internal audit was
conducted in 2018 and the next such external assessment is
planned to take place in 2023.

133

Shell Annual Report and Accounts 2019Governance
AUDIT COMMITTEE REPORT continued

EXTERNAL AUDITOR
The AC is responsible for considering whether, in order to ensure continuing
auditor quality and/or 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, EY, was
first appointed at the 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 2019 financial year.

At the AGM in May 2019, 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 and will therefore be
rotating off the Shell audit following the 2020 audit engagement. As part
of its annual assessment of EY, the AC discussed the upcoming partner
rotation and measures EY has taken for an orderly transition.

The AC evaluated the objectivity and independence of EY and the quality
and effectiveness of the external audit process. As part of its evaluation,
the AC, considered: (i) the results of Shell management’s internal survey
relating to EY’s performance over the financial year 2019; (ii) views and
recommendations from management and the Chief Internal Auditor; (iii)
EY’s audit quality priorities and actions by EY as part of its sustainable
audit quality programme; and (iv) the AC’s own experiences, including
interactions throughout the year with the external auditor. Key criteria of
the evaluation included: professionalism in areas including competence,
integrity and objectivity; constructive challenge of management and key
judgements; efficiency, covering aspects such as service level and
innovation in the audit process; thought leadership and value added;
and compliance with relevant legislative, regulatory and professional
requirements. Taking into account the above, the AC is satisfied that EY
has continued to provide a high-quality and effective audit in its fourth
year as auditor and maintained its independence and objectivity.

During 2019, there was no review of EY’s audits of Shell’s Consolidated
Financial Statements by the Audit Quality Review (AQR) team of the FRC.

Following due consideration, the AC has recommended to the Board to
propose at the 2020 AGM that EY be reappointed as the external auditor
of the Company for the year ending December 31, 2020. 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.

NON-AUDIT SERVICES
The AC maintains an independence policy in respect of the provision of
services by the external auditor. The AC regularly reviews this policy for
necessary changes in response to changes in related standards and
regulatory requirements. Following the issuance of the Revised Ethical
Standards by the FRC in December 2019, the AC updated its
independence policy to reflect these new standards.

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

134

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.

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 $50,000 (as from March
15, 2020: $100,000), then no prior approval of the AC is required. All
non-audit services where the fee for an individual contract exceeds
$100,000, 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.

The scope of the non-audit services contracted with the external auditor
in 2019 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 4% and 1%,
respectively, of the external auditor’s audit and audit-related
remuneration.

FEES
Note 28 to the “Consolidated Financial Statements” on page 238
provides details of the auditor’s remuneration.

AC EVALUATION
The AC undertakes an annual evaluation of its performance and
effectiveness. Consistent with the Board’s annual performance evaluation
for 2019, the AC’s performance evaluation was facilitated by Independent
Board Evaluation, an independent consulting firm. Each AC member was
interviewed for their views covering topics 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. When assessing progress against 2018, the AC
concluded that 2019 priorities identified in the 2018 evaluation (including
a visit to the finance operations in Chennai and discussions related to the
first-year application of IFRS 16, regulatory developments, information risk
management and the Net Carbon Footprint control framework) had all
been undertaken by the AC in 2019. The AC discussed the outcome of
this review as part of its annual evaluation. The AC concluded that its
performance in 2019 had been effective and that it fulfilled its role in
accordance with its Terms of Reference.

In preparing its workplan for 2020 the AC has agreed the following focus
areas in addition to the standing items: Trading and Supply, regulatory
developments, decommissioning, integrated risk management, new
business models and ventures, pensions and visits to Shell’s operations
in Singapore, Kuala Lumpur, Malaysia, and the finance operations
centre in Krakow, Poland.

Shell Annual Report and Accounts 2019GovernanceDIRECTORS’ REMUNERATION REPORT

GERARD KLEISTERLEE
Chair of the Remuneration Committee

“ Listening to shareholders has
been critical for the REMCO
in shaping our decisions for
2019 and the proposed 2020
remuneration policy”

2019 outcomes

Annual bonus: below-target award, with downward discretion
applied for fatalities.

LTIP: above-target vesting, based on long-term performance.

2020 policy features

Alignment to strategy: formalisation of energy transition
LTIP condition.

Quantum: reduce CEO LTIP grant and increased focus on the
REMCO’s use of discretion to manage Single Figure outcomes.

Simplification: removed individual performance factor and
reduced CEO target bonus.

Dear Shareholders,

I am pleased to present the 2019 Directors’ Remuneration Report.
This includes my last letter as Chair of the Remuneration Committee
(REMCO), our Annual Report on Remuneration and the proposed
Directors’ Remuneration Policy for 2020 onwards.

It has been another busy year for the REMCO and we have appreciated
the ongoing support and engagement of our shareholders as we finalised
our proposals on a revised policy and navigated the requirements of the
new UK Corporate Governance Code.

In preparing the Annual Report on Remuneration for the year ended
December 31, 2018, the REMCO paid particular attention to enhancing
disclosures and explaining its decision making, and it was pleased
with the level of support (89.93%) received in favour.

The outstanding performance, which underpinned the 2018 pay
outcomes, the strong link between pay and performance and the
REMCO’s prudence in managing pay outcomes over the long term was
recognised by many shareholders. Notwithstanding this, a number of
shareholders raised concerns over the absolute quantum of the CEO’s
2018 remuneration. The REMCO has reflected long and hard on this and
quantum has been a matter of careful consideration both in our decisions
for the 2019 remuneration outcome as well as in our proposals for the
2020 policy update, as I hope you will appreciate.

So let me now turn to 2019 performance and the remuneration outcomes.

2019 PERFORMANCE AND REMUNERATION OUTCOMES
Annual Bonus
During 2019 the ambition to thrive in the energy transition was
progressed; the optimisation and marketing capabilities of the Integrated
Gas and Downstream businesses helped deliver above-plan earnings,
and project delivery was strong, reflecting the focus on capital discipline.
However, assessed against the 2019 scorecard targets, a poor
outcome on safety, a difficult macroeconomic environment and areas
of operational challenge meant overall performance was below target.

It is worth reiterating that the REMCO has long had a policy of not
adjusting remuneration measures to take into account changes in oil
and gas prices and currency fluctuations. This means Senior Management
also experience the ups and downs of the macroeconomic environment
impacting our business and shareholders. In our engagements with our
largest shareholders, many have appreciated the transparency this brings.

Financial performance
Cashflow from operations was below the minimum threshold set for
2019. This was driven by challenging macroeconomic conditions, with
lower than anticipated oil and gas prices and very difficult market
conditions for Shell’s Refining and Chemicals businesses. This was
exacerbated by operational issues in parts of the Upstream and
Integrated Gas businesses.

THIS REPORT
This Directors’ Remuneration Report for 2019 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.

Operational performance
■ Production volumes were below target by 2.53%. This was driven by

■

a number of operational issues and delays bringing projects on-stream;
LNG liquefaction volumes were below target by 2.20%, mainly due to
delayed project start-ups and slower ramp-ups;

This report consists of two further sections:
■

the Annual Report on Remuneration (describing 2019 remuneration as
well as the planned implementation of the Directors’ Remuneration Policy
in 2020) which will be subject to an advisory vote at the 2020 AGM; and
the Directors’ Remuneration Policy which will be subject to a binding
shareholder vote at the 2020 AGM.

■

135

Shell Annual Report and Accounts 2019GovernanceDIRECTORS’ REMUNERATION REPORT continued

■ The combined Refinery and Chemicals Availability outcome was above
target by 0.44%, with higher downtime from unplanned events being
more than compensated by lower downtime from planned events; and
■ Combined Project Delivery, which provides an indication of our ability

to deliver projects within budget and schedule, was strong, with
90% of projects on-time and with aggregated costs below budget,
reflecting the focus on capital discipline and project execution.

Sustainable Development
Shell has made significant progress on safety performance over a long
period of time. This is reflected on the scorecard where the targets have
been made more challenging over time, and although the total recordable
case frequency (TRCF) threshold was not met in 2019, the outcome
remains the joint second best on Shell’s record, following the record low in
2017. However, the seven fatalities that occurred under Shell’s operational
control in 2019 are not acceptable and further work on safety is needed.

Performance on the other sustainability metrics was mixed. The process
safety measure in 2019 was below target. Greenhouse gas emissions
were at target for Upstream and Integrated Gas, and Refining. Chemicals
emissions were below target due to a strike at Moerdijk and reliability
issues at Deer Park.

Summary of Scorecard Performance
The mathematical outcome of the annual bonus scorecard was
0.48 and the REMCO determined to reduce the outcome to 0.43 for
Senior Management. This downward discretion was applied as a result
of the increased number of fatalities in 2019. Safety is, and must remain,
Shell’s number one priority. This reduction is based on the REMCO’s
judgment and was not a formulaic adjustment.

Reflecting the collective responsibility of senior executives in the safe
operation of Shell, internally it was decided to apply the downward
discretion to around 150 senior leaders.

This brings the ten-year average scorecard outcome to 1.17. The detailed
bonus scorecard breakdown and further commentary on performance
are on page 142.

Annual Bonus Outcomes
For 2019, to simplify the annual bonus structure following shareholder
feedback, the individual performance multiplier was removed from the
bonus calculation formula for the Executive Directors. Annual bonuses
are determined based solely on business performance. The CEO’s
target bonus was also reduced from 150% to 125%.

Based on the scorecard outcome of 0.43, the annual bonus outcome
for the CEO was €800,000 and for the CFO was €500,000. This
represents 41% of target (21% of maximum) and is a 73% reduction
from 2018 for the CEO and a 68% reduction for the CFO.

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 (LTIP)
While performance in 2019 assessed against our annual bonus scorecard
metrics was below target, on the LTIP we continue to see the impact of the
longer-term efforts to transform Shell to deliver increased shareholder
value and better performance against the comparator companies.

[A] For comparability purposes we calculate ROACE for LTIP purposes on disclosed net income

which is not adjusted for the after-tax interest expense, it therefore differs from disclosed ROACE.

136

60%
Total Shareholder Return 2017 – 2019
50%

40%

30%

20%

10%

-10%

-20%

2017

2018

2019

Royal Dutch Shell

Other oil majors (BP, Chevron, ExxonMobil and Total)

Shell made $61 billion of distributions to shareholders over the
performance period, including dividend payments and share buybacks.
Shell was second on total shareholder return (TSR), by less than 0.4%,
during a period which has recently been challenging for the sector.
Relative CFFO growth was third in the comparator group. Shell generated
$131 billion over the period, ranking first in absolute terms. ROACE of 5.6%
was also improved, with growth ranking first in the comparator group,
reflecting our work to high-grade and reshape the portfolio [A].

On free cash flow (FCF), Shell exceeded the three-year cumulative
target of $85 billion with total FCF over the period of $93.4 billion.

These outcomes continue to reflect the success of Shell’s strategy since
2016 and the progress made in building a world-class investment case.
Over the 2017-2019 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 ($14.75 billion completed as at January 22, 2020).

After taking account of the outcome of the performance metrics, as well as
considering the wider performance of Shell over the performance period,
the final vesting outcome of the 2017 LTIP award was approved at 147%.

This brings the ten-year average vesting outcome to 104%. This is broadly
aligned with our target grant, although there have been a number of high
and low-vesting outcomes over the past 10 years. The REMCO believes
this illustrates the fundamental effectiveness of the LTIP and the close
alignment between pay and performance the current LTIP structure
has provided over a long period of time.

LTIP Vesting

200

150

100

'08-'10

'09-'11

'10-'12

'11-'13

'12-'14

'13-'15

'14-'16

'15-'17

'16-'18

'17-'19

TSR
EPS/FCF
CFFO
Production/ROACE

Target
10 year average:
104% of target

Shell Annual Report and Accounts 2019Governance

CEO Single Figure Outcomes
The REMCO considered the quantum of the Single Figure outcome
(€9,963,670 for the CEO) and in finalising their remuneration decisions
for 2019, considered a range of factors, further details of which are
provided on page 144. These included both Shell’s and personal
performance in 2019, in the period 2017-2019 and the internal relativity
of remuneration compared to the variable pay outcomes for employees.

The REMCO noted that it had already reduced the CEO’s target bonus
for 2019 from 150% to 125% and the quantum of award was further
adjusted downwards on a discretionary basis given the seven fatalities
in the year. It recognised the strong competitive results from 2017-2019,
but also reflected on the challenging 2019 performance, partly driven
by difficult macroeconomic conditions, related to lower cash flow,
operational challenges and safety. The REMCO also noted the reductions
in annual bonus and LTIP outcomes and that the CEO’s overall
remuneration was 51% lower than in 2018, and was satisfied that the
Single Figure represented an appropriate and competitive level of
remuneration within the bounds of the shareholder-approved policy.

CEO’s single figure outcomes over last 10 years

)
d
n
a
s
u
o
h
t

€
(

30,000

25,000

20,000

15,000

10,000

5,000

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Base Salary and benefits
Bonus
Long-term incentive plan
Pension and tax equalisation

PAY IN A WIDER CONTEXT
The REMCO believes that there should be alignment between pay
structures for the Executive Directors and employees. This is important,
both to reinforce a common commitment to Shell’s strategic goals and to
give employees the opportunity to share in Shell’s success. The majority
of Shell’s employees share the same scorecard as the Executive Directors.
In addition, around 16,500 of Shell’s employees are granted performance
share awards on terms that are broadly similar to the conditions that also
apply to the Executive Directors through the LTIP.

The ratio of the CEO’s pay to the median UK worker is 87. The global
pay ratio, calculated by comparing the CEO single figure to the average
employee headcount cost, is 75. These numbers have significantly
decreased from 2018, where the average pay ratio was 143 compared
to the UK median ratio and 149 in comparison to the global employee
ratio. The principal reasons for the changes are the decrease in the CEO’s
single figure from 2018, balanced by the reduction in the variable pay
outcomes for all employees, and the acquisition of First Utility
(now Shell Energy Retail).

The REMCO noted that even with the exceptional CEO pay outcome
in 2018 based on strong company performance, our pay ratio was
consistent with the pay ratios seen in other major FTSE 30 companies.
The REMCO is cautious about drawing any direct conclusions from the
comparison of ratios, given the differences in industry and employee
profile between companies.

CEO: Pay ratio

2019 CEO single total figure against actual average global employee costs

Lower
quartile

Median
of FTSE 30

1 Shell minimum pay ratio [A]
2 Shell 2018 global pay ratio [B]
3 Shell 2019 global pay ratio [C]
4 Shell maximum pay ratio [D]

[A] Based on CEO ‘minimum’ pay scenario as disclosed on page 160 compared to the

average global employee cost in 2019.

[B] Based on the 2018 CEO single total figure compared to the average global employee

cost in 2018.

[C] Based on the 2019 CEO single total figure compared to the average global employee

cost in 2019.

[D] Based on CEO ‘maximum’ pay scenario (excluding the 50% share price appreciation)
as disclosed on page 160 compared to the average global employee cost in 2019.

Shell’s gender pay gap for 2019, published in accordance with the reporting
required under the UK Equality Act 2010 (Gender Pay Gap Information)
Regulations, increased slightly from 18.6% to 18.7%. This increase is primarily
due to the effect of including employees from Shell’s acquisition of First Utility
in the calculation for the first time. On a like-for-like basis, it would have been
15.1%, an improvement of 3.5 percentage points. Shell’s goal is to ensure the
equal participation of women and men in all areas of work, at all levels and
locations ensuring equal access to the same recognition, reward and career
progression opportunities. As 2019 illustrates, these changes will be
influenced by changes in our business and may be non-linear. However,
the REMCO has confidence in the policies Shell has to increase the
representation of women at all levels in the organisation.

2020 REMUNERATION POLICY
I would now like to turn to the remuneration policy that will be voted
on at the 2020 AGM.

The REMCO has spent time considering the alignment of remuneration
policies to Shell’s strategic goals, listening to shareholder views, gathering
input on executive pay market developments, and reflecting on wider
societal trends in developing the revised policy. I have had the opportunity
to meet with many shareholders personally during this process and want
to thank them for expressing their point of view. The various perspectives
they have provided have helped shape a number of key decisions.
Notably, this feedback has been critical in shaping our development
of the Energy Transition metric and our intended response to managing
the issue of quantum.

In our policy deliberations, we have been guided by three objectives:

Strategy should be set first, and then the remuneration policies designed
to support the achievement of those strategic goals. This is our overriding
imperative: the decisions we make as the REMCO must be tightly and
inextricably linked to Shell’s strategy.

137

Shell Annual Report and Accounts 2019Governance
DIRECTORS’ REMUNERATION REPORT continued

As you know, in a first for our industry and following extensive
collaboration with shareholders, we incorporated an energy transition
measure to our LTIP from 2019, again adopting early a change originally
intended for the 2020 policy. That condition continues to feature in
the policy, and it remains the REMCO’s intent to increase its weighting
over time.

The REMCO reflected carefully on the matter of pensions. It is already
a long-standing remuneration policy that pensions for Shell’s Executive
Directors are aligned with those of employees in their home country and
we are proposing to continue this policy.

The CEO participates in the mainstream Shell Netherlands pension
arrangements on the same terms as all other members. It is a feature of
Netherlands pension schemes that the contribution rate increases with
age and this is a requirement of Dutch pension legislation. As the CEO is
near the top of the ladder based on age, his contribution rate is 27%. The
REMCO is aware that this may appear high by UK standards of pension
contribution. However, this is the standard contribution rate applicable
to all employees of his age in this plan, and we believe that this is
aligned with the spirt of recent developments in corporate governance
regarding pension provision. Jessica Uhl also participates in the pension
arrangements applicable to employees in her home country (USA). The
only difference in her arrangements in comparison to other employees
is that her bonus is non-pensionable. This is in accordance with UK
corporate governance best practice. Further information on pensions
is provided on page 145.

We are proposing a number of other changes to simplify the policy
and to ensure it remains aligned with shareholder interests and
developing corporate governance best practice. These changes
include increasing the CFO’s shareholding requirement, introducing
a post-employment shareholding requirement and extending our
malus and clawback provisions.

A summary of the changes from the existing policy are set out on
page 145. Having consulted with shareholders on these changes
through the course of the last two years, I am confident of your support.

LOOKING AHEAD
The 2020 AGM will be my last as the REMCO Chairman, as I will be
stepping down from the RDS Board following the meeting. It has been
a privilege to chair the REMCO over a period which has seen a great
deal of change, both for Shell and in the executive remuneration
landscape. I believe that the proposed 2020 remuneration policy
will provide strong support in achieving Shell’s strategic ambitions
and I wish my successor, Neil Carson, every success for the future.

GERARD KLEISTERLEE
Chair of the REMCO
March 11, 2020

Second, we must maintain a package that is externally competitive
and ensures the business can attract and retain the management talent
capable of ensuring the ongoing success of Shell and delivering a high
level of returns for shareholders while navigating through the complexity
of the energy transition.

Finally, there must be internal proportionality. The policies we enact for the
Executive Directors should be, as far as possible, consistent and aligned
with the approach to managing remuneration across the Shell Group.

The REMCO believes the existing structures remain robust and consistent
with these objectives. The annual bonus and the LTIP are closely aligned
with Shell’s strategy: incentivising outperformance of our closest
competitors on a number of key financial metrics; the delivery of the annual
operational business plan; and progressing the ambition to thrive in the
energy transition. While variable pay outcomes have fluctuated over time,
the 10-year average vesting outcomes are close to target, demonstrating
the effectiveness of these structures in delivering pay for performance over
the long term. In discussions with shareholders there was a clear preference
for maintaining a strong and direct link between reward and performance.
Structures which potentially reduced this link, such as restricted shares,
received limited support from shareholders in consultation.

Quantum
There is good support for target reward levels, but some shareholders
raised concerns regarding pay quantum at the extremes of performance
and this has been a key issue for the REMCO when considering the 2020
policy. In 2019, we reviewed a range of alternative reward structures that
might moderate high pay outcomes while keeping target pay competitive.
Following extensive consultation with shareholders, we concluded that
changing reward design is not the best way to address quantum if it
means making compromises on the alignment between pay and
performance in the delivery of strategy. This also allows for alignment
between reward structures for Executive Directors and employees. The
REMCO also considered whether a cap on remuneration levels was
appropriate. The REMCO believes it is important to maintain flexibility in
order to respond to changing business requirements and/or governance
developments if required. The introduction of an arbitrarily defined cap
may adversely affect that flexibility and, given the good alignment
between pay and performance, would be an unnecessary policy feature.
Also some shareholders are of the view that strong performance should be
rewarded with strong variable pay outcomes. Accordingly, we have
sought ways to manage quantum outcomes within the existing tried and
tested performance framework.

Proposals
Under the proposed policy, we are:
■

■

reducing the CEO’s target bonus from 150% to 125% (a change
already implemented in 2019);
reducing the maximum LTIP opportunity from 800% of base salary
to 600%. In doing so we will reduce the 2020 target LTIP grant
level for the CEO from 340% to 300%; and
introducing a greater emphasis on discretionary management of
remuneration outcomes for the CEO. From now on the REMCO will,
based on the formulaic Single Figure outcome, undertake a further and
final review of the CEO’s and company’s overall performance and be
prepared to adjust the Single Figure in order to ensure that the highest
variable pay outcomes are only achieved for the highest quality of
performance across all significant areas of activity. It is not expected
that this discretion would be applied upwards, and any discretion
would be disclosed and explained to shareholders.

138

Shell Annual Report and Accounts 2019GovernanceANNUAL REPORT ON REMUNERATION

The Annual Report on Remuneration sets out

■ The REMCO’s responsibilities and activities, page 139;
■ Remuneration at a glance, page 140;
■ Directors’ remuneration for 2019, page 141; and
■

the statement of the planned implementation of policy
in 2020, page 152.

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
Biographies are given on pages 104-110; and REMCO meeting
attendance is set out below:

Committee Member

Member since

Mr. Gerard Kleisterlee
(Chair)

21 May 2014

Mr. Neil Carson [A]

01 June 2019

Mrs. Catherine Hughes 26 July 2017

Sir Nigel Sheinwald

24 May 2017

Mr. Gerrit Zalm

21 May 2014

Maximum
possible
meetings

Number of
meetings
attended

% of
meetings
attended

100%

67%

100%

[A] Neil Carson was unable to attend the meeting in October due to an immovable

commitment, which was scheduled prior to his appointment to the Shell Board.

The REMCO’s key responsibilities include determining:

Senior Management

Executive
Directors

Executive
Committee

Company
Secretary

Performance Framework

Remuneration policy

Actual remuneration and benefits

Annual Bonus and Long-Term Incentive
Measures and Targets

In addition, the REMCO has the responsibility for determining the Chair
of the Board’s remuneration. The REMCO monitors the level and structure
of remuneration for senior executives below Senior Management and
makes recommendations if appropriate to ensure consistency and
alignment with Shell’s remuneration objectives. The REMCO reviews
workforce remuneration and related policies and the alignment of
incentives and rewards with culture, taking these into account when
setting the policy for Executive Director remuneration.

In exercising its responsibilities, the REMCO takes into account a variety
of stakeholder considerations.

The REMCO operates within its Terms of Reference, which are reviewed
annually. They were last updated on March 13, 2019 and are available
at www.shell.com.

Advice from within Shell was provided by:
■ Ben van Beurden, CEO;
■ Ronan Cassidy, Chief Human Resources and Corporate Officer

and Secretary to the REMCO; and

■ Stephanie Boyde, Executive Vice President Remuneration and

HR Operations.

The Chair of the Board was consulted on remuneration proposals affecting
the CEO, and the CEO was consulted on proposals relating to the CFO
and Senior Management.

During 2019, the REMCO met five times and its activities included:
■

setting annual bonus and long-term incentive plan performance
measures and targets, including considering the energy transition
in the context of long-term remuneration;

■ deciding on 2018 annual bonus outcomes, 2019 base salaries, 2019

target bonuses and 2019 LTIP awards for Senior Management;

■ determining vesting of the 2016 LTIP award for Senior Management;
■ approving the 2018 Directors’ Remuneration Report;
■ carefully deliberating on quantum for the CEO;
■ preparing for shareholder consultation;
■ developing the Directors’ Remuneration Policy in preparation

for the 2020 AGM vote; and

■ monitoring external developments and assessing their impact

on Shell’s Remuneration Policy.

In 2019, PWC provided an update to advice first provided in 2018
regarding market practice in relation to remuneration developments
and Shell’s remuneration structures. PWC were appointed by the REMCO
to provide this advice on the basis of their credentials for assessing the risk
profile of remuneration policies and their knowledge of shareholder
expectations and international market practice in the oil industry and long-
term businesses. PWC is a member of the Remuneration Consultants
Group and operates under the group’s Code of Conduct when providing
advice. PWC provides other consultancy and accountancy services to
Shell. However, the REMCO is satisfied that the advice provided on
executive remuneration matters was objective and independent. The total
fees paid to PWC in relation to this advice were £10,000 (excluding VAT).

PRINCIPLES
The principles that underpin the REMCO’s approach to executive
remuneration are set out on page 155.

The REMCO considered the provisions of the new UK Corporate
Governance code, and has sought to reflect the principles of clarity,
simplicity, risk management, predictability, proportionality and alignment
to culture in deciding 2019 pay outcomes and developing 2020 policy.

Shell has a consistent global reward and performance philosophy that sets
clear expectations of employees. Through the annual bonus scorecard
and the LTIP, remuneration is clearly aligned to Shell’s operating plan and
strategic ambitions and the same measures apply to Senior Management
and to a significantly broader employee base. This provides alignment
throughout the organisation to Shell’s culture and strategy. The annual
operating plan translates into targets on the annual bonus scorecard and
a quarterly update on performance against scorecard targets is provided
to employees. Similarly the LTIP is largely based on outperforming the
competition, and regular updates on Shell’s performance against
competitors is provided to employees. In reviewing the Directors’
Remuneration Policy, the REMCO sought to make changes that help to
simplify remuneration structures (for example, removing the individual
performance factor for Executive Directors) and giving more transparent
outcomes (for example, removing the bonus asymmetry from the CEO’s
remuneration structure). To assist in the mitigation of reputational risk and
ensure proportionality, the powers of the REMCO to apply malus and
clawback and make discretionary adjustments to variable pay outcomes
have been expanded, with the intention that the REMCO will use
discretion to ensure the highest pay outcomes are delivered only
for outstanding performance.

139

Shell Annual Report and Accounts 2019Governance
ANNUAL REPORT ON REMUNERATION continued

REMUNERATION AT A GLANCE

2019

FIXED PAY AND SHAREHOLDING

ANNUAL BONUS

LONG TERM INCENTIVE PLAN

Base salary

2019 annual bonus

2017 – 2019 LTIP vesting outcome

€1,557,000
Ben van Beurden (CEO)

€1,015,000
Jessica Uhl (CFO)

Pension
Executive directors participate in the same home
country pension arrangements as other employees

Benefits
Typically include car allowance, transport
between home and office, and medical insurance

Shareholding
Target levels, % of base salary at 31 December 2019

700%
CEO

400%
CFO

Actual levels, % of base salary at 31 December 2019

1,136%
CEO

265%
CFO

€800,000
CEO (73% reduction
from 2018)

€500,000
CFO (68% reduction
from 2018)

€7,191,223
CEO (53% reduction
from 2018)

$4,357,430
CFO (115% increase
from 2018)

2019 bonus scorecard outcome

Mathematical outcome
0.48
Given safety outcomes in 2019, including
seven fatalities, this was reduced to:

0.43
No individual performance factor used in
bonus calculation

Bonus Delivery

50%

delivered
in cash

50%

delivered
in shares

Shares are subject to a 3-year holding period which
extends beyond an Executive Directors’ tenure

Vesting outcome
Measures Outcome

TSR

CFFO

ROACE
growth

FCF

1 2 3 4 5

Vesting

38%

20%

50%

39%

147%
(out of a 200% maximum)

Shares are subject to a 3-year holding period which
extends beyond an Executive Directors’ tenure

2020

FIXED PAY AND SHAREHOLDING

ANNUAL BONUS

LONG TERM INCENTIVE PLAN

Target % of base salary

Target awards % of base salary

Base salary

€1,588,000
CEO

€1,035,000
CFO

Pension
No change from 2019

Benefits
No change from 2019

Shareholding
Target levels, % of base salary 2020

700%
CEO

500%
CFO (increased
from 400%)

Actual levels, % of base salary 5 March 2020

1,090%
CEO

467%
CFO

140

Target

125%
CEO

Maximum

250%
CEO

120%
CFO

240%
CFO

Scorecard architecture

20%

30%

Target

300%

CEO (reduced from
340% in 2019)

Maximum

600%

CEO (reduced from
680% in 2019)

270%
CFO

540%
CFO

Performance conditions

10%

22.5%

50%

22.5%

Operational Excellence
(Project delivery 12.5%, Production 12.5%,
LNG liquefaction volumes 12.5%,
OP/CH availability 12.5%)

Operational Cash flow

Sustainable Development
(GHG 10%, TRCF 5%,
Tier 1 & 2 Process Safety 5%)

22.5%

TSR

ROACE

Cash from operating activities

FCF

Energy transition (new from 2019)

Shell Annual Report and Accounts 2019GovernanceDIRECTORS’ REMUNERATION FOR 2019

Single total figure of remuneration for Non-executive Directors (audited)

Neil Carson [B]

Ann Godbehere [C]

Euleen Goh

Charles O. Holliday [D]

Catherine J. Hughes

Gerard Kleisterlee

Roberto Setubal

Sir Nigel Sheinwald

Linda G. Stuntz

Gerrit Zalm

Fees

2019

178

201

850

200

242

190

187

189

177

2018

N/A

220

850

199

216

190

180

197

177

Taxable benefits[A]

2019

–

2018

N/A

–

€ thousand

2018

N/A

220

925

206

223

190

186

210

177

Total

2019

178

201

921

200

242

192

187

197

177

[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 partner travel. Shell 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 June 1, 2019.
[C] Appointed as Director with effect from May 23, 2018
[D] Including the use of a Shell provided apartment whilst in the Hague (2019: €70,624; 2018: €70,015)

Single total figure of remuneration for Executive Directors (audited)

Salaries [A]

Taxable benefits [B]

Total fixed remuneration

Annual bonus [C]

LTIP [D]

Total variable remuneration

Total direct remuneration

Pension [E]

Tax equalisation [F]

Total remuneration including pension and tax equalisation

in dollars

in sterling

Ben van Beurden

Jessica Uhl

€ thousand

2019

1,557

1,577

800

7,191

7,991

9,568

395

9,963

11,155

8,746

2018

1,527

1,559

3,000

15,209

18,209

19,768

369

–

20,138

23,790

17,817

2019

1,015

1,066

500

3,903

4,403

5,469

261

275

6,005

6,724

5,271

2018

995

1,044

1,550

1,783

3,333

4,376

196

289

4,862

5,744

4,302

[A] As disclosed in the 2018 Directors’ Remuneration Report, the REMCO set Ben van Beurden’s base salary for 2019 at €1,557,000 (+2.0% compared with 2018) effective from January 1, 2019,

and Jessica Uhl’s base salary at €1,015,000 (+2.0% compared with 2018) effective from January 1, 2019.

[B] Executive Directors received car allowances, transport between home and office, occasional business-required partner travel, as well as employer contributions to life and medical insurance plans.
[C] The full value of the bonus, comprising both the 50% delivered in cash and 50% bonus delivered in shares. For 2019, the market price of A shares on February 21, 2020 (€22.735), was used to

determine the number of shares delivered, resulting in 9,521 A shares for Ben van Beurden and 5,951 A shares for Jessica Uhl. For 2018, 50% of the bonus was delivered in shares and 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.
[D] Remuneration for performance periods of more than one year, comprising the value of released LTIP awards. The amounts reported for 2019 relate to the 2017 LTIP award, which vested on March
4, 2020, at the market price of €19.986 and $45.21 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 57,980 RDS A shares under the 2017 Deferred Bonus Plan (DBP) on March 4, 2020. 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 2016 short-term
annual bonus value. Share price appreciation accounted for -€1,603,428 on the LTIP and -€317,962 on the DBP for Ben van Beurden and -$521,010 on the LTIP for Jessica Uhl.

[E] For Ben van Beurden, the amount reported for pension consists of a net pay defined contribution amount of €395,060. The amount to be reported for his defined benefit pension accrual is

0 calculated in accordance with UK reporting requirements. For Jessica Uhl, the amount reported for pension consists of a defined contribution amount of €102,709 and a defined benefit pension
accrual €158,012.

[F] 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.

141

Shell Annual Report and Accounts 2019Governance
ANNUAL REPORT ON REMUNERATION continued

Notes to the single total figure of remuneration
for executive directors table (audited)
Annual bonus
The Annual bonus operated in line with the policy as disclosed on
page 156.

After reviewing the mathematical scorecard outcome, and considering
the context of wider company performance for the year, the REMCO
exercised discretion to adjust the scorecard result downwards to 0.43.
This downwards adjustment was to reflect the seven fatalities under
Shell operational control during the year.

Determination of the 2019 annual bonus
The table below summarises the 2019 annual bonus scorecard measures
including their weightings, targets and outcomes. The mathematical
scorecard outcome for 2019 was 0.48. Please refer to pages 135-136
for a commentary on the scorecard outcome.

Accordingly, the REMCO determined a final bonus outcome of €800,000
for the CEO which is 41% of target and 21% of maximum. This is a 73%
reduction from 2018. The REMCO determined a final bonus outcome
of €500,000 for the CFO which is 41% of target and 21% of maximum.
This is a 68% reduction from 2018.

2019 annual bonus outcome (audited) [A][B]

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)

Refining GHG intensity (tonnes CO2 equivalent per Solomon’s
Utilized Equivalent Distillation Capacity (UEDC™))

Chemicals GHG intensity (tonnes CO2 equivalent/tonne of
petrochemicals production)

Mathematical scorecard outcome

Adjusted scorecard outcome

Weight
(% of scorecard)

30%

50%

12.5%

6.25%

20%

100%

Threshold

Target set

Outstanding

3,647

35.3

88.4

105

0.9

145

3,760

36.4

90.4

100

0.7

115

3,873

37.4

92.4

100

0.5

Result
achieved

3,665

35.6

90.8

0.9

130

0.176

0.168

0.160

0.168

1.11

1.10

1.06

1.00

1.01

0.90

1.06

1.04

Score (0-2)

0.72

0.16

0.23

1.20

1.50

1.10

0.59

–

0.50

1.00

0.60

0.48

0.43

[A] These metrics measure the effectiveness with which we operate our assets and portfolio base, assessed against our operational business plan. Shell’s longer-term strategic ambitions are measured

in the LTIP metrics.

[B] Scorecard targets are based on Shell’s annual operating plan and increase or decrease year-on-year. In 2019, target refinery and chemical plant availability was lower and target GHG emission

intensities higher than 2018, due to planned business activities, reflecting scheduled maintenance and expected market conditions, and portfolio developments.

[C] In external disclosure, we may use an alternative performance measure, i.e. CFFO excluding Working Capital, to describe the cash flow generation from our operations without the effect of

working capital changes.

2019 bonus outcome calculation

Ben van Beurden

Target bonus:

€1,557,000 (base salary)
x 125% = €1,946,250

2019 scorecard
result 0.43

€800,000 [A]
(51% of base salary)
73% reduction from 2018

Jessica Uhl

Target bonus:

€1,015,000 (base salary)
x 120% = €1,218,000

2019 scorecard
result 0.43

€500,000 [A]
(49% of base salary)
68% reduction from 2018

[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.

142

Shell Annual Report and Accounts 2019GovernanceLTIP Vesting
In 2017, Ben van Beurden was granted a conditional LTIP award of 340%
(max 680%) of base salary and Jessica Uhl an award of 270% (max
540%) excluding share price movement and dividends.

In making the vesting decision, the REMCO considered Shell’s
performance over the three-year vesting period. The REMCO noted the
strong performance of Shell relative to both the other oil majors and the
wider oil and gas sector in generating shareholder returns, in particular
the $61 billion distributed to shareholders in the form of dividends and
share buybacks. This strong relative performance led to a very close TSR
outcome, with Shell ranking second by a difference of less than 0.4%.
Cash performance was also strong with CFFO leading the comparator
group on absolute CFFO generated, and FCF was well above the
cumulative target set for the three-year performance cycle. ROACE has
also improved, reflecting the focus on capital discipline. The REMCO also
took account of the fact that Shell’s competitors are some of the strongest
companies in the industry and achieving relative outperformance is
challenging.

The REMCO also took account of share price at grant (€25.47 for the
CEO and $51.74 for the CFO) and at vest when making the vesting
decision. As the share price at grant was only 2% higher from the
three-month average share price leading up to grant, the REMCO
was comfortable that there were no notable windfall gains arising
from the LTIP vesting.

Accordingly, the REMCO determined that the LTIP should vest without
discretionary adjustment at 147%. This is illustrated opposite.

2017 LTIP vesting outcome – performance metrics

Shell

Comparator oil majors

Measures

Relative TSR

Target

Outcome

25%

Relative ROACE
growth

25%

Vesting

38%

50%

Relative cash flow
from operating
activities growth

Absolute FCF
■ Maximum $100bn
■ Target $85bn
■ Threshold $76bn

25%

20%

39%

25%

26.4

39.4

27.6

2017 2018 2019

The CEO’s and CFO’s vested awards are subject to a further three-year
holding period which extends beyond executive director tenure.

Total

100%

147%
(out of a 200% maximum)

2017 LTIP vesting outcome

Ben van Beurden

Vesting outcome: [A]

198,900 x 147% =
292,383 RDS A Shares
(€7,446,995)

Change in
share price: [B]

292,383 x -€5.484
(-€1,603,428)

Accrued dividends: [C]

67,430 RDS A Shares
(€1,347,656)

Total LTIP Vesting: [C][D]

359,813 RDS A Shares
(€7,191,223)
53% reduction
from 2018

Jessica Uhl

Vesting outcome: [A]

54,277 x 147% =
79,787 RDS.A Shares
($4,128,189)

Change in
share price: [B]

79,787 x -$6.53
(-$521,010)

Accrued dividends: [C]

16,595 RDS.A ADS
($750,251)

Total LTIP Vesting: [C][D]

96,382 RDS.A ADS
($4,357,430)

115% increase
from 2018 [E]

[A] Based on the share price at grant of €25.47 for Ben van Beurden and $51.74 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 €19.986 – €25.47 = -€5.484 and for Jessica Uhl: $45.21 – $51.74 = -$6.53
[C] Based on the share price at vesting date of €19.986 for Ben van Beurden and $45.21 for Jessica Uhl.
[D] Vested shares are subject to a two year holding period.
[E] Jessica Uhl's LTIP awards which vested in 2018 was made prior to appointment as CFO and were lower in accordance with our principle of internally proportionate

pay that increases with seniority. The awards which vested in respect of 2019 were the ﬁrst granted following promotion to CFO.

143

Shell Annual Report and Accounts 2019Governance

ANNUAL REPORT ON REMUNERATION continued

Overall pay outcome
In determining the final pay outcomes, the REMCO also considered the personal performance of the Executive Directors.

Personal performance 2017 – 2019

Key Goals

Ben van Beurden

Deliver a
world-class
investment case

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. Over the 2017 – 2019 performance period, financial
performance was strong: CFFO was $131 billion, FCF was $93 billion, an all-cash
dividend was paid, and the share buyback programme was started ($14.75 billion
completed as at January 22, 2020). The $30 billion divestment programme was
also completed (in 2018) and investments have been made in a disciplined manner.

In terms of broader company performance, the REMCO recognised the strategic
clarity the CEO has provided around the purpose and direction of Shell. Shell has
delivered on its commitments to shareholders to date and remains committed to its
intent to achieve 2020 targets. Albeit this timeframe is less certain given prevailing
weak macroeconomic conditions and challenging outlook.

Thrive in the
energy transition

The CEO continued to lead 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.

Strengthen licence
to operate

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. He has been instrumental in galvanising coalitions
to start action on sectoral decarbonisation. His personal role, for example in the
Aviation Clean Skies Initiative, is recognised by both customers and external
stakeholders. His interventions have helped in shifting the climate agenda towards
the practical measures that will be needed for creating sustained demand for
lower carbon products. Shell set and disclosed NCF reduction targets. The
CEO extended this measure to the remuneration of 16,500 Shell employees
through the Performance Share Plan (PSP).

In terms of HSSE leadership, performance was mixed, which shows further
improvement is required. The 2019 personal injury rate was flat to 2018,
following the lowest ever injury rate on record in 2017. The fatalities in Shell-
operated ventures in 2019 are unacceptable and provide a stark reminder of the
need for an ongoing focus on safety. In 2018, there was a notable improvement
in operational process safety, with a reduction in the number of both Tier 1 and
Tier 2 events. This, however, deteriorated in 2019.

In 2019, Shell published the Industry Associations Climate Review, which assesses
alignment with 19 industry associations on climate-related policy and decided not
to renew Shell’s membership of one association as a result.

Jessica Uhl

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, which
has been a key contribution to the health and success of
Shell in the period under review. Key milestones included: 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.
The introduction of publication of a quarterly update enhances
disclosures and increases transparency.

In terms of broader company performance, the 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.

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. In 2019, Shell published its
inaugural Tax Contribution Report marking an important
step towards greater transparency around Shell’s
approach to paying taxes to governments.

The REMCO considered the quantum of the Single Figure outcomes, and,
noting that the CEO’s overall remuneration was 51% lower than in 2018,
was satisfied that they represent a fair level of remuneration, taking into
account the strong competitive performance from 2017 to 2019 and the
significant bonus reduction in 2019 reflecting the number of fatalities
and safety challenges as well as the lower cash flow and
operational challenges.

■

the final scorecard outcome including the downwards discretion
applied to the final vesting outcome;
the final LTIP vesting outcome;
the internal relativity of remuneration compared to the variable
pay outcomes for the general workforce based on the group
scorecard and Performance Share Plan; and
the personal performance of the executive directors.

In finalising its remuneration decisions for 2019, the REMCO considered
a range of factors, including:
■ Shell’s performance in 2019 and over the LTIP performance

period 2017-2019;

■ potential risk adjustment considerations, including safety, ethics and
compliance and feedback from the Audit and Safety, Environment
and Sustainability Committees;

After reflecting on the above factors, the REMCO was satisfied that
the remuneration policies had operated as intended.

144

Shell Annual Report and Accounts 2019GovernancePension
Ben van Beurden’s pension arrangements comprise a defined benefit
plan with a maximum pensionable salary of €96,729; and a net pay
defined contribution pension plan with a 2019 employer contribution
of 27% of salary in excess of €96,729. He has the option to take cash
as an alternative to pension contributions (in either case subject to
income tax) and elected to take his benefit in the form of contributions
throughout 2019.

The employer contribution levels are in line with those applicable to other
Netherlands-based employees. Under the Dutch pension regulations
applicable to the pension arrangement in which he participates, the
contribution rate increases with age and is shown below.

At December 31, 2019 the average contribution rate for NL employees
who participate in the net pay defined contribution pension arrangement
on the same terms as Ben van Beurden was 22%. For reference, in the UK,
the average employer contribution rate to the Shell UK defined
contribution plan is 20%.

Shell Netherlands Pension Stichting Net pay
defined contribution ladder

Age

Employer contribution

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 where she receives an employer contribution of
10% of salary. This is the same as the average employer contribution rate
for US employees at December 31, 2019, which was also 10%. 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 allowing for a lump-sum payment.
She elected to accrue benefits for 2019 under the former. Approximately
10,000 out of 17,000 Shell US employees have the option of choosing
between the two formulas. These arrangements are the same for all
employees who joined Shell US at the same time as Jessica Uhl. The
difference in pension provision for Jessica Uhl, compared to employees
who joined pre-2013, is that her bonus is not pensionable as an Executive
Director while for other relevant US employees the bonus is pensionable.
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 REMCO believe these arrangements are aligned with the recent
corporate governance developments in the UK which emphasise
Executive Directors’ pension arrangements being the same for the
general employee population.

15 – 19

20 – 24

25 – 29

30 – 34

35 – 39

40 – 44

45 – 49

50 – 54

55 – 59

60 – 64

65 – 67

6.30%

7.54%

8.99%

10.44%

12.31%

14.38%

17.07%

19.77%

23.29%

(2019 rate for Mr van Beurden)

27.02%

30.13%

Scheme interests awarded in 2019

Scheme interests awarded to Executive Directors in 2019 (audited)

Scheme interest type

LTIP

Type of interest
awarded

End of
performance
period

Performance
shares

December
31, 2021

Target award [A]

Ben van Beurden: 194,625 A shares,
equivalent to 3.4 x base salary or
€5,293,800. Jessica Uhl: 49,927
A ADS shares, equivalent to 2.7
x base salary or €2,740,500.

Potential amount vesting

Minimum
performance
(% of shares
awarded) [B]

Maximum performance
(% of shares of the
target award) [A]

Maximum number of shares
vesting is 200% of the shares
awarded, before dividends.

[A] The award for Ben van Beurden was based on the closing market price on February 1, 2019, for A shares of €27.20. The award for Jessica Uhl was based on the closing market price on

February 1, 2019, for A ADSs of $62.84.

[B] Minimum performance relates to the lowest level of achievement, for which no reward is given.

145

Shell Annual Report and Accounts 2019GovernanceANNUAL REPORT ON REMUNERATION continued

The measures and weightings applying to LTIP awards made in 2019
were: energy transition (10%), FCF (22.5%), TSR (22.5%), ROACE
growth (22.5%) and cashflow from operating activities growth (22.5%).

■

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.

Absolute measures
Energy Transition
The energy transition condition is focused on Shell’s strategic ambition
to thrive in the energy transition and supports delivery of Shell’s Net
Carbon Footprint (NCF) ambition.

This measure was introduced to the LTIP in 2019 under the existing
remuneration policy, in advance of the 2020 policy vote. The
condition consists of a mix of leading and lagging measures
that set the foundations to contribute to Shell’s strategic ambitions
in the longer term. These will comprise:
Lagging measure – a measure of our progress in meeting our ambition
■ 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).

Leading measures – the levers we will use to drive future NCF reduction
■ 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, and in business models
based on reselling power generated by others;

■ 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; and

Operation of energy transition measures in the 2019 LTIP

Targets have been set for each element. Progress in the energy transition
is not expected to be linear as it will reflect the pace of change of society
as a whole and the speed at which Shell progresses its strategic business
objectives. Therefore, most of the targets have been set as ranges. 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 first update on progress is provided at page 147.

The vesting outcome for the part of the award weighted to the energy
transition condition ranges from 0% to 200% of grant. The REMCO, at its
sole discretion, will determine vesting outcomes after taking into account
achievement against the target ranges and feedback from the Safety,
Environment and Sustainability Committee (SESCo). In doing so, the
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. The
starting point for determining the vesting outcome will be scoring how
many of the targets have been met for each of the four areas. One out
of four will equal 40%, two will equal 100%, three will equal 150% and
200% will be achieved for scoring four out of four. However, it is important
to note that performance against these elements will serve simply as a
starting point for the REMCO, which will also take into account any other
considerations it deems appropriate, including (without limitation) the
relative importance of these elements in meeting the long-term ambition
announced by Shell. For example, the REMCO may decide to allocate
a greater emphasis to overall performance in relation to the NCF than
the other three elements. The REMCO believes this approach is

Lagging – NCF reduction target
■ Measured against 2016 base year

2019 – 2021 performance period
■ Target range 2-3% reduction

Leading - Drive future NCF reduction
■ Growing our power business
■ Advanced biofuels technology
■ Systems to capture and absorb carbon

■ Target ranges
■ Commercially sensitive
■ Disclosed retrospectively

Thrive in
the energy
transition

Energy transition vesting (basis for the Remuneration Committee’s decision) [A]

4/4 targets
200%

3/4 targets
150%

1/4 targets
40%

2/4 targets
100%

■ 10% weighting in 2019: expect to increase over time
■ Combination of leading and lagging measures
■ Targets set as ranges
■ Commercially sensitive targets so will be disclosed

retrospectively. Annual updates on progress relating
to the measures will be provided

[A] The vesting schedule for the energy transition metric will be based on how many of the four targets are met. 1/4 will equal 40% vesting, 2/4 100%, 3/4 150%, 4/4 200%.
The Remuneration Committee may take into account other appropriate considerations, after taking advice from the Safety, Environment and Sustainability Committee.
For example, increasing the weighting of NCF relative to the other performance conditions in making its vesting discretion. Any use of discretion will be disclosed and explained.

146

Shell Annual Report and Accounts 2019Governance

appropriate to reflect the uncertainties around the speed and direction of
progress in the energy transition. The application of any discretion will be
fully disclosed and explained by the REMCO.

If the TSR ranking is fourth or fifth, the level of the award that can
vest on the basis of the other measures will be capped at 50% of
the maximum.

FCF
The FCF performance condition supports our strategic ambition of being
a world-class investment case, and the delivery of our cash flow priorities,
namely: to service and reduce debt, pay dividends, buy back shares
and make future capital investments.

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
and gas 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,
the REMCO has determined that such an approach would require
adjustments for oil and gas price premise and other matters at the end of
the period, given the unpredictability and volatility in oil and gas prices.
The 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.

The amounts payable under this measure will range from 20% of the
available maximum, for threshold performance, to full vesting for
outstanding performance. A straight-line vesting schedule will apply
for performance between threshold and outstanding.

Relative measures
The relative measures support our strategic ambition of being a world-
class investment by measuring our performance on a number of key
financial metrics against the other oil majors.

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.
■ TSR, calculated in dollars using a 90-day averaging period around

the start and end of the performance period;

■ ROACE growth. For this purpose, in order to facilitate the comparison,
the calculation of ROACE differs from that described in “Performance
indicators” on page 42 as there is no adjustment for after-tax interest
expense; and

■ cash flow from operating activities growth.

Each relative measure can vest independently with the amounts
payable ranging from 0% to 200%, in accordance with the following
vesting schedule:
■ Ranking first equals 200% vesting for the element of the LTIP weighted

to that metric;

■ Ranking second equals 150% vesting for the element of the LTIP

weighted to that metric;

■ Ranking third equals 80% vesting for the element of the LTIP weighted

to that metric; and

■ 0% vesting for the element weighted to that metric for ranking fourth

or fifth.

Performance update on absolute measures
FCF progress to date on outstanding 2018 LTIP award
At December 31, 2019, FCF performance is above target, with an
above-target outcome for 2018 of $39 billion (target $29 billion) and
below target for 2019 of $26.4 billion (target $35 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 2019 LTIP award
At December 31, 2019, FCF performance, $26.4 billion for 2019, is below
target ($35 billion). As two years of FCF performance remain, and 77.5%
of the award is subject to relative and the energy transition performance
conditions, this does not reflect the potential vesting of the award.

Energy Transition progress to date on outstanding
2019 LTIP award
The target for the 2019 LTIP grant was a 2-3% reduction from 2016
NCF (79 grams of CO2 equivalent per megajoule). We have received
third-party limited assurance on our Net Carbon Footprint for the years
2016 to 2019. For 2019, our Net Carbon Footprint was 78 grams of
CO2 equivalent per megajoule.

The targets for the other energy transition metrics are considered
commercially sensitive and will not be disclosed until the end of the
performance period. Examples of initiatives to progress our ambitions
in the energy transition which the REMCO will take into account in
determining the vesting outcome of the 2019 LTIP award, include: the
acquisition of ERM Power Ltd (a large Australian business utility), and the
WeForest and Forestry and Land Scotland NBS projects.

Statement of Directors’ shareholding and
share interests (audited)
Shareholding guidelines
The REMCO believes that Executive Directors should align their interests
with those of shareholders by holding shares in Royal Dutch Shell plc (the
Company). The CEO is expected to build a shareholding with a value of
700% of base salary, and the CFO 400% of base salary (increased to
500% from 2020).

Only unfettered shares count. Unvested shares held under the DBP and
any shares delivered but subject to holding requirements, also count
towards the guidelines. As at March 5, 2020, Ben van Beurden held
shares worth 1,090% of his base salary. At March 5, 2020, Jessica Uhl
held 467% of her base salary and has until March 2022 to meet her
current shareholding target and January 2024 to meet her revised
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.

For 2020 the shareholding requirement will be extended to apply
post-employment such that the Executive Director will be required to
maintain their shareholding requirement, or the number of shares actually
held if this is less than the shareholding requirement, for a period of two
years post-employment.

147

Shell Annual Report and Accounts 2019GovernanceANNUAL REPORT ON REMUNERATION continued

Executive Directors’ shareholding (audited)

Shareholding guideline
(% of base salary)

Value of shares counting
towards guideline
(% of base salary at
December 31, 2019)[A]

Ben van Beurden

Jessica Uhl

700%

400%

1,136%

265%

[A] Representing the value of share interests and the estimated after-tax value of DBP shares

(not subject to performance conditions).

Directors’ share interests
The interests (in shares of the Company or calculated equivalents) of the
Directors in office during 2019, including any interests of their connected
persons, are set out in the table below.

At March 5, 2020, the Directors and Senior Management
(pages 104-112) 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. These shareholdings are
not considered sufficient to affect the independence of the Directors.

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,
2019, to March 5, 2020, scheme interests have changed as a result of the
vesting of the 2017 LTIP and DBP awards on March 4, 2020, and the
2020 LTIP awards made on January 31, 2020, as described on pages 143
and 145-147 respectively.

Directors’ share interests (audited)

Directors’ scheme interests (audited)

January 1, 2019

December 31, 2019

A shares

B shares

A shares

B shares

Executive directors [A]

Ben van Beurden

281,524

Jessica Uhl

61,097 [B]

Non-executive directors

Neil Carson

Ann Godbehere

Euleen Goh

Charles O. Holliday

Catherine J. Hughes

Gerard Kleisterlee

–

4,080

5,254

Roberto Setubal

15,400 [G]

Sir Nigel Sheinwald

Linda G. Stuntz

–

4,700 [D]

12,895

50,000 [E]

46,904

–

1,124

12,400 [H]

–

4,700 [D]

12,895

50,000 [E]

51,904 [F]

647,426

116,168 [C]

16,000

–

4,080

5,254

15,400 [G]

–

1,124

12,400 [H]

Gerrit Zalm

2,026

–

2,026

–

[A] Includes vested LTIP awards subject to holding conditions. Excludes unvested interests

in shares awarded under the LTIP and DBP.

[B] Held as 10,941 RDS A shares and 25,078 ADS (RDS.A ADS). Each RDS.A represents

two A shares.

[C] Held as 26,590 RDS A shares and 44,789 ADS (RDS.A ADS). Each RDS.A represents

two A shares.

[D] Held as 2,350 ADSs (RDS.B ADS). Each RDS.B represents two B shares.
[E] Held as 25,000 ADSs (RDS.B ADS). Each RDS.B represents two B shares.
[F] Held as 46,904 RDS B shares and 2,500 ADS (RDS.B. ADS). Each RDS.B represents

two B shares.

[G] Held as 7,700 ADSs (RDS.A ADS). Each RDS.A represents two A shares.
[H] Held as 6,200 ADSs (RDS.B ADS). Each RDS.B represents two B shares.

Following the vesting of the 2017 LTIP and DBP awards, and delivery
of the 2019 bonus in shares, Ben van Beurden’s share interests increased
by 233,519 RDS A shares, and Jessica Uhl’s by 5,951 RDS A shares and
58,456 RDS.A ADS.

In addition, Ben van Beurden sold 14,510 RDS A shares on January 31,
2020. He also pledged 105,000 RDSA shares as collateral against a
mortgage provided by Van Lanschot N.V. who adjusted their risk premium
associated with the mortgage.

The value of shares counting towards the shareholding guideline (as a
percentage of base salary) for the CEO and CFO, were 1,090% and
467%, respectively, at March 5, 2020.

Share plan interests [A]

LTIP/PSP subject
to performance
conditions [B]

DBP not subject
to performance
conditions [C]

Total

2019

2018

2019

2018

2019

2018

Ben van Beurden 660,814 715,591

56,783 159,617 717,597 875,208

Jessica Uhl

173,509 130,180

–

– 173,509 130,180

[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.

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 4, 2020,
Simon Henry’s 2017 DBP award vested and he received a total of 31,140
RDS B shares, with a value at vesting of £539,158. While the original
award of 25,339 RDS B shares was reported in the 2017 Directors’
Remuneration Report, it is included again here in the interest
of transparency. The remaining 5,801 RDS B shares represent
accrued dividends paid in accordance with the plan and the value
of these at vesting was £100,439.

Payments below €5,000 are not reported as they are considered
de minimis.

148

Shell Annual Report and Accounts 2019Governance
TSR performance and CEO pay
Performance graphs
The graphs compare the TSR performance of Royal Dutch Shell plc over the past ten 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 Royal Dutch Shell plc’s home markets.

Historical TSR performance (RDSA)
Value of Hypothetical €100 Holding

Historical TSR performance (RDSB)
Value of Hypothetical £100 Holding

€250

€225

€200

€175

€150

€125

€100

€75

€50

€25

€0

£250

£225

£200

£175

£150

£125

£100

£75

£50

£25

£0

Dec-09 Dec-10

Dec-11

Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

Dec-09 Dec-10

Dec-11

Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

RDSA

Euronext 100

RDSB

FTSE 100

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.

CEO pay outcomes

Year

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

CEO

Ben van Beurden

Ben van Beurden [A]

Peter Voser

Single total figure
of remuneration (€000)

Annual bonus payout
against maximum opportunity

LTI vesting rates
against maximum opportunity

9,963

20,138

8,909

8,593

5,576

24,198

8,456

18,246

9,941

10,611

21%

79%

81%

66%

98%

94%

44%

83%

90%

100%

74%

95%

35%

42%

49%

30%

88%

30%

75%

[A] 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.

Change in remuneration of Directors and employees
from 2018 to 2019
As Royal Dutch Shell plc does not have any direct employees, the table
below compares the remuneration of the Directors of Royal Dutch Shell plc
with an employee comparator group consisting of local employees in the
Netherlands, the UK and the USA. The local employee population of
these countries 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 the
REMCO considers remuneration levels in these countries when setting

Change in remuneration of directors and employees

base salaries for Executive Directors. For the purposes of comparison,
the change in employee remuneration is calculated by reference to
the change in salary scale, benefits and annual bonus for a notional
employee in each of the base countries not by reference to the actual
change in pay for a group of employees.

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.

Executive Directors

Non-executive directors

RDS
employees

UK, US & NL
employees

Salaries

Taxable benefits[A]

Annual bonus

N/A

CEO

2.0%

3.3%

-8.0% -36.4%

CFO

2.0%

4.9%

3.9%

82.6%

0.0%

12.2%

-4.1%

CJH

0.0%

-94.7%

0.0%

-6.3% -100.0%

-39.0% -100.0% 100.0%

-62.2% -73.3% -67.7%

–

0.0%

–

[A] The reduction in taxable benefits for employees 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,

which was not received in 2019. For the CEO, benefits are lower in 2019 due to the medical allowance, which he also received, and lower commuting and business required partner travel costs.

149

Shell Annual Report and Accounts 2019GovernanceANNUAL REPORT ON REMUNERATION continued

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.

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.
Any pension benefits on early retirement are reduced using actuarial
factors to reflect early payment. No payments were made in 2019
regarding early retirement or in lieu of retirement benefits.

Relative importance of spend on pay

Dividends and
share buybacks [A]

Spend on pay
(all employees) [B]

$ billion

Annual
change

$ billion

25.4

20.2

15.6

15.0

12.0

26%

29%

25%

-18%

13.2

13.4

14.3

15.7

17.1

Annual
change

-1.3%

-6%

-9%

-8%

Please refer to page 145 for further details. (Pension)

External appointments
The Executive Directors held no external appointments in 2019.

Statement of voting at 2019 AGM
Shell’s 2019 AGM was held on May 21, 2019, in the Netherlands. The
result of the poll in respect of Directors’ remuneration was as follows:

Approval of Directors’ Remuneration Report

Year

2019

2018

2017

2016

2015

Votes

For

Against

Total cast

Withheld [B]

Number

Percentage

4,357,260,297

488,139,305

4,845,399,602 [A]

130,596,261

89.93%

10.07%

100.00%

[A] Representing 59.71% 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.

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

Withheld [B]

Number

Percentage

4,064,279,529

337,361,835

4,401,641,364 [A]

37,303,341

92.34%

7.66%

100.00%

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 161.

Further details of Non-executive Directors’ terms of appointment can be
found in the”Other regulatory and statutory information” on page 170
and the “Governance Framework” report on page 118.

Local

€

[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

€ 1,285

$1,441

proportion of the votes “for” and “against” a resolution.

[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”.

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 (audited)
During 2019, Ben van Beurden and Jessica Uhl accrued retirement benefits
under defined benefit plans. The pension accrued under these plans at
December 31, 2019, is set out below. The exchange rates used for
conversion into euros and dollars are at December 31, 2019.

Accrued pension (audited)

Thousand

Ben van Beurden [A]

Jessica Uhl [B]

$1,247

€ 1,112

$1,247

[A] The accrued benefits are disclosed on a per annum basis.
[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 up to 2018 under the former and the eventual lump sum benefit is shown. In
2019, she elected to accrue benefits as a lifetime annuity, the value of this accrued benefit at
December 31, 2019 was $3,932 per annum plus a lump sum of $98,281. 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 €3,369 per annum.

150

Shell Annual Report and Accounts 2019Governance
Compensation of directors and senior management
During the year ended December 31, 2019, Shell paid and/or accrued
compensation totalling $38 million (2018: $43 million) to Directors and
Senior Management for services in all capacities while serving as a
Director or member of Senior Management, including $3 million (2018:
$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
Shell has chosen to use option A to calculate the CEO pay ratio in
accordance with guidance from the UK government that this is the
preferred approach and provides the statistically most accurate method
for identifying the ratios. Under option A, a comparable single figure for
all UK employees has been calculated in order to identify the employee
whose pay and benefits are at the 25th, 50th and 75th percentiles for
comparison with the CEO. Employee pay has been calculated based
on the total pay and benefits paid in respect of 2019 for all employees
who were employed on 31 December 2019. For part-time workers and
joiners in the year, pay and benefits have been annualised based on
the proportion of their working time in the UK during the year. This
is calculated with an approach consistent with the methodology for
determining those employees’ 2019 annual bonuses. The REMCO
believes that this provides a fair and reasonable calculation of the
pay ratios for Shell employees in the UK.

Option

25th Percentile
pay ratio

2019

Total pay and benefits:
Salary:

2018

147:1

£59,419
£40,417

202:1

Median
pay ratio

87:1

£100,755
£56,721

143:1

75th
pay ratio

54:1

£161,717
£79,991

92:1

The ratio has changed for 2019 compared to 2018 principally due to the
decrease in the Single Figure of remuneration for the CEO. This decrease
is due to the lower bonus and LTIP vesting outcomes for 2019 compared to
the outcomes in 2018. The pay and benefits for the 25th, 50th and 75th
percentile employees have also reduced in relation to 2018. Please refer
to page 137 for a discussion of the reasons behind the changes in
employee pay and benefits. The REMCO believes these changes are
consistent with the Group’s approach to managing pay as well as
strategic developments in Shell’s business portfolio.

Workforce engagement
The REMCO took a wide perspective in making the remuneration
decisions for 2019 and determining the 2020 policy. As examples,
in 2019 the REMCO noted:
■

the alignment between Shell’s culture and workforce policies, and
incentives and rewards as part of the 2020 remuneration policy review;
the planned general employee salary increases in the UK, US and
NL when determining 2020 base salaries;
the scorecard and Performance Share Plan (PSP) outcomes
for employees in determining the 2019 variable pay outcomes
for Executive Directors; and
the CEO pay ratio, which Shell has been voluntarily disclosing
in advance of the regulatory requirement to do so, and gender
pay gap reporting.

■

Executive remuneration structures in Shell are strongly aligned to the
broader Shell pay policy:
■

in recent years the Group Scorecard architecture has been identical
to the Executive Committee and Senior Executive Scorecard
in terms of measures, weightings and targets;

■ Executive Directors and Executive Committee members participate
in the Long-Term Incentive Plan. Around 150 Senior Executives
participate in the same plan. The measures and metrics for
that plan also apply to 50% of the PSP awarded to around
16,500 employees; and

■ all employees in the Group participate in the relevant pension plan

for their country based on their date of joining. Shell does not
operate separate executive pension arrangements.

This consistency means that less explanation of executive remuneration
structures is required than in companies where alignment is not
the default.

151

Shell Annual Report and Accounts 2019GovernanceANNUAL REPORT ON REMUNERATION continued

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.

Long-term Incentive Plan
On January 31, 2020, a conditional award of performance shares under
the LTIP was made to the Executive Directors resulting in 200,589 Royal
Dutch Shell plc A shares (A shares) being conditionally awarded to Ben
van Beurden and 59,062 Royal Dutch Shell plc A American Depositary
Shares (A ADSs) to Jessica Uhl. The award had a face value of 300%
(maximum performance outcome 600%) of the base salary for the CEO
and 270% (maximum performance outcome 540%) of the base salary for
the CFO, excluding potential share price appreciation and dividends. In
making these awards, the 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.

The award for the CEO has been reduced from a face value award of
340% (maximum vesting outcome 680%) in prior years. This reduction is
part of the REMCOs response to addressing quantum and further details
are provided on pages 137-138.

For LTIP awards made in 2020, performance will be assessed over
a three-year period based on four financial measures and an energy
transition condition.

The target for the FCF metric is the aggregate of our annual operational
business plan FCF targets over the three-year performance period.
These are considered to be commercially sensitive and will be disclosed
retrospectively, with annual updates on progress provided.

The NCF target range for the 2020 – 2022 LTIP grant is set as a 3-4%
reduction from the 2016 NCF of 79g CO2e/MJ. This target is aligned
with the trajectory of our NCF ambition set out in November 2017.
There is no change to the other energy transition measures other than
the advanced biofuel technology measure is extended to include a
measure of alternative fuel development. The targets for the other
leading energy transition measures are commercially sensitive,
and will be disclosed retrospectively.

STATEMENT OF 2020 PLANNED
IMPLEMENTATION OF POLICY
The proposed Directors’ Remuneration Policy as outlined on pages
155-163 will, subject to shareholder approval, take effect from May 19,
2020 and will be effective until the 2023 AGM, unless a further policy
is proposed by Shell and approved by shareholders in the meantime.
This section describes elements that apply for 2020, within the
boundaries of the policy.

Executive Directors
Salaries
Effective from January 1, 2020, the base salaries were set at €1,588,000
(+2.0%) for Ben van Beurden and at €1,035,000 (+2.0%) for Jessica Uhl,
in accordance with the proposed 2020 remuneration policy as set out on
page 156. These increases are consistent with planned salary increases
in the US, UK and NL for the general employee population which range
from 1.7% – 3.4%.

Annual bonus
There are no changes to the scorecard measures and weightings for
2020. Performance measures are comprised of cash flow from operating
activities, operational excellence and sustainable development measures.
These measures and weightings were reviewed by the REMCO as part of
the 2020 policy review, with the REMCO determining that these remain
well-aligned with our strategic and operational priorities and consistent
with the performance indicators set out on pages 42-44.

The performance measures, weightings and link to strategy for the 2020
performance year are set out below:

2020 annual bonus scorecard measures and weightings

Performance measure

Weighting

Financial

30%

Operational excellence

50%

Sustainable development

20%

Financial
■ Cashflow from

operating activities

Operational excellence
■ Production
■ LNG liquefaction volumes
■ Refinery and chemical

plant availability
■ Project delivery

Link to strategy

Aligned with our financial priorities,
reflecting our ability to generate cash to
service and reduce debt, pay the dividend
and fund capital investment.

Representative performance metrics from
our main business lines to drive focus on the
operational delivery critical to our success
and inspire a shared culture and alignment
with our purpose, strategy and values.

These metrics measure the effectiveness
with which we operate our assets
and portfolio base. This operational
performance underpins the successful
delivery of our financial framework
and ambitions to progress in the energy
transition. Shell’s longer-term strategic
ambitions are measured in the LTIP metrics.

Sustainable development
■ Safety
■ Environmental
performance

We must maintain focus on safety and
environmental performance, as this provides
assurance to shareholders, employees and
society of our commitment to safety and
progress in the energy transition.

152

Shell Annual Report and Accounts 2019GovernanceDiscretion, 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. The 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 or applying clawback.

Please refer to the policy section on pages 157 and 159 for a full
description of the circumstances under which discretion, malus and
clawback might be applied to a variable pay award.

Pension
Ben van Beurden’s pension arrangements comprise a defined benefit plan
for which the maximum pensionable salary has increased to €98,993 for
2020 and a net pay defined contribution pension plan with an employer
contribution of 27% of salary in excess of this amount.

Jessica Uhl’s US retirement benefit arrangements include the Shell Pension
Plan, a defined benefit plan, and a defined contribution plan with an
employer contribution of 10% of salary. She also has a deferred Dutch
defined benefit pension plan, as a result of a prior Shell assignment on
local Dutch terms and conditions.

Further details of Executive Director pension arrangements can be
found on page 145.

2020 LTIP measure and vesting schedule

Absolute measures

Relative measures

Energy transition

10%

Free cash flow

22.5%

TSR

22.5%

ROACE growth

Cash flow
from operating
activities growth

Link to strategy

Energy transition
Focused on Shell’s strategy to thrive in
the energy transition and support
delivery of our NCF ambition.

22.5%

Vesting schedule
(% of initial LTIP award)

Vesting based on how many
targets are achieved:
1/4 = 40%
2/4 = 100%
3/4 = 150%
4/4 = 200%

REMCO may take into account
other appropriate considerations

Free cash flow
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.

Maximum – 200%
Target – 100%
Threshold – 40%
Below threshold – 0%

TSR
Assessment of actual wealth
created for shareholders.

ROACE growth
Indicator of capital discipline.

Cash flow from operating
activities growth
Source of capital expenditure
commitments which support
sustainable growth based on
portfolio and cost management.

1st – 200%
2nd – 150%
3rd – 80%
4th or 5th – nil

TSR underpin
If TSR is in fourth or fifth, vesting on the other measures is capped
at 50% of maximum.

Holding period
3-years post-vesting which remains in force post-tenure.

153

Shell Annual Report and Accounts 2019Governance
ANNUAL REPORT ON REMUNERATION continued

Non-executive Directors’ fees

Non-executive Directors’ fees 2020

Chair of the Board

Non-executive Director

Senior Independent Director

Audit Committee

Chair [A]

Member

Safety, Environment and Sustainability Committee [B]

Chair [A]

Member

Nomination and Succession Committee

Chair [A]

Member

Remuneration Committee

Chair [A]

Member

€

Other fees

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.

850,000

135,000

55,000

60,000

25,000

35,000

17,250

25,000

12,000

40,000

17,250

[A] The chair of a committee does not receive an additional fee for membership of that committee.
[B] Formerly the Corporate and Social Responsibility Committee.

The Chair’s fee is determined by the REMCO and the annual fee for
Charles O. Holliday was set at €850,000 upon appointment in 2015 and
will remain unchanged for 2020. 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 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 general review was carried out in 2018 with a review
of the Nomination and Succession Committee fees in 2019 and fees will
remain unchanged for 2020.

The Non-executive Directors receive a basic fee. There are additional
fees for the Senior Independent Director, a Board committee chair or a
Board committee member 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 Shell. The Chair has use of
a Shell-provided apartment while in The Hague.

154

Shell Annual Report and Accounts 2019Governance
DIRECTORS’ REMUNERATION POLICY

The Directors’ Remuneration Policy sets out

■ Summary of proposed changes to the Directors’

Remuneration Policy, page 155;

■ Executive Directors’ Remuneration Policy, page 156; and
■ Non-executive Directors’ Remuneration Policy, page 162.

This section describes the Directors’ Remuneration Policy (Policy) which,
subject to shareholder approval at the 2020 Annual General Meeting
(AGM), will come into effect from May 19, 2020, and will be effective until
the 2023 AGM, unless a further policy is proposed by Royal Dutch Shell
plc (the Company) and approved by shareholders in the meantime.

The principles underpinning the REMCO’s approach to executive
remuneration are the foundation for everything we do, and are:
■ 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;

■ 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;

■ 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;
Long-term creation of shareholder value: Executive Directors should
align their interests with those of shareholders by holding shares in Shell;

■

■ 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;
■ Compliance: decisions should be made in the context of the Shell
General Business Principles and Code of Conduct. The REMCO

also seeks to ensure compliance with applicable laws
and corporate governance requirements when designing
and implementing policies and plans; and

■ Risk assessment: the remuneration structures and rewards should
meet risk-assessment tests to ensure that shareholder’s interests
are safeguarded and that inappropriate actions are avoided.

The Executive Directors’ remuneration structure is made up of a fixed element
of basic pay and 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 the delivery of strategic goals and financial outperformance over
the longer term. The award of shares under the bonus and LTIP, along with
significant shareholding requirements, is intended to ensure executives have
a sizeable shareholding in Royal Dutch Shell plc (the Company) and
experience the same outcomes as shareholders.

During 2018 and 2019, the REMCO reviewed the Remuneration Policy to
ensure that the Policy continues to be aligned with Shell’s strategy,
including delivery of shareholder returns. REMCO determined that while
the current policy remains appropriate in many respects, certain changes
will support the REMCO to simplify remuneration structures and address
the management of quantum. For each area of the policy, the REMCO has
considered market practice, the corporate governance environment and
feedback from shareholders. The Safety, Environment and Sustainability
Committee (SESCo) has provided input to the development of the
sustainable development and energy transition metrics. Any potential
conflict of interest is mitigated by the independence of the REMCO
members and the REMCO Terms of Reference.

A summary of the main proposed changes to the Policy for the Executive
Directors is outlined below. No significant changes are proposed to the
Policy for Non-executive Directors.

Remuneration
element

Annual Bonus

Proposed Changes to Policy

■ Reduction of the CEO’s target bonus from 150% to 125%; and
■ Removal of the individual performance factor for Executive Directors.

Long-Term
Incentive Plan

■ Reduction of the target LTIP grant from 400% to 300% of base salary; and
■ Inclusion of an energy transition metric.

Discretion, Malus
& Clawback

Pension

■ After reviewing the single figure outcomes for the year, the REMCO will consider an adjustment

for the purposes of managing remuneration quantum, taking into account performance,
the operation of the remuneration structures and any other relevant considerations.
An explanation of any discretionary adjustment would be set out in the relevant
Director’s Remuneration Report;

■ Alignment of malus and clawback provisions so that these are the same.

Inclusion of corporate failure as an adjustment event; and

■ Amendment of provisions in the share plan such that for future grants, awards may be

adjusted for any reason.

■ New Executive Directors who are members of a defined benefit pension arrangement will have
their pensionable salary capped at the salary applicable immediately prior to appointment,
with the exception of existing US base country participants who will have the bonus removed
from the definition of pensionable base salary instead. The Executive Director will join a
defined contribution scheme in their base country for contributions made in respect of salary
above the defined benefit pensionable salary, or in exceptional circumstances, receive a
cash allowance equivalent to the contribution above the cap; and

■ For recruitment: Explicit confirmation that new appointees, whether internally promoted or newly

hired, will be provided with a pension in line with the wider workforce in their base country.

Rationale for the change

■ Simplification: The asymmetry in the CEO’s bonus
structure and the inclusion of individual performance
factors was creating undue complexity; and

■ Transparency: The annual bonus is now solely
linked to the performance of Shell to support
clarity and transparency of outcomes.

■ Management of Quantum: To moderate the

quantum of pay and assist the REMCO in
managing the range of outcomes; and

■ Alignment to Strategy: Inclusion of the energy

transition metric strengthens the LTIP’s alignment to
the strategy and purpose.

■ Corporate Governance: Assist the REMCO
in managing the risks from behavioural-based
incentive schemes; and

■ Management of Quantum: To assist the

REMCO in managing the range of outcomes.

■ Management of Quantum: To moderate
the quantum of pay and assist the REMCO
in managing the range of outcomes; and

■ Corporate Governance: To adopt best practice

in line with external guidelines.

Shareholding
Requirement

■ CFO requirement increased to 500% of base salary; and
■ Extended to apply for a period of two years post-employment (at the lower of the shareholding

requirement or the number of shares held at departure).

■ Alignment with Shareholders: Further

aligns executives with the long-term interests
of shareholders.

155

Shell Annual Report and Accounts 2019GovernanceDIRECTORS’ REMUNERATION POLICY continued

EXECUTIVE DIRECTORS

Executive Directors’ remuneration policy table

Purpose and link to strategy

Maximum opportunity

Operation and performance management

Salary and pensionable base salary

Provides a fixed level of
earnings to attract and
retain Executive Directors.

€2,000,000

Reviewed annually with adjustments effective from January 1.

In making salary determinations, the REMCO will consider:
■ the market positioning of the compensation packages;
■ comparison with Senior Management salaries;
■ the employee context, and planned average salary increase for other employees

across 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.

For Executive Directors employed outside their base country, euro base salaries
are translated into their home currency for pension purposes. Pensionable base salaries
are maintained in line with euro base salaries taking into account exchange rate
fluctuations and other factors as determined by the REMCO.

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
of providing the benefit under Shell’s
standard policy. These costs can vary.

For certain benefits, for example,
relocation and tax equalisation, the
maximum opportunity will be the
grossed-up cost of meeting the specific
Executive Director’s costs.

Typical benefits include car allowances and home-to-office transport, risk benefits (for
example ill-health, disability or death-in-service), security provision, and employer
contributions to insurance plans (such as medical). Precise benefits will depend on the
Executive Director’s specific circumstances. Post-retirement benefits such as healthcare
and ongoing security provision may be applicable. 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. The 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.

Annual bonus

Rewards the delivery of short-term
operational targets as derived
from Shell’s operating plan.

To reinforce alignment with
shareholder interests, 50% is
delivered in cash and 50% is
delivered in shares. The 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):
■ Chief Executive Officer (CEO): 250%
■ Chief Financial Officer (CFO): 240%

Target levels (as a percentage of
base salary):
■ CEO: 125%
■ CFO: 120%

■ The bonus is determined by reference to performance from January 1 to December 31

each year;

■ Annual bonus = base salary x target bonus % x scorecard result (0–2);
■ 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;

■ Scorecard targets will be disclosed in a subsequent Directors’ Remuneration Report

when they are no longer deemed to be commercially sensitive;

■ 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;

■ The annual bonus is subject to malus provisions before it is delivered and to clawback

provisions thereafter;

■ The 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; and

■ In the event that another Executive Director joins the Board, the REMCO
will determine their target and maximum bonus, which will not exceed
the target and maximum for the CEO.

156

Shell Annual Report and Accounts 2019GovernanceExecutive Directors’ remuneration policy table continued

Purpose and link to strategy

Maximum opportunity

Operation and performance management

Target award of 300% base salary.

■ Award levels are determined annually by the REMCO within the approved

policy maximum;

Awards may vest at up to 200% of the
shares originally awarded, plus
dividends.

■ Awards may vest between 0% and 200% of the initial award depending on Shell’s
performance assessed on either an absolute basis against strategic targets, or on a
relative basis against the other oil majors;

Long-Term Incentive Plan (LTIP)

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, supported by measures
focused on the achievement
of Shell’s ambitions in the
energy transition.

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.

Discretion, Malus and Clawback

Enables the management of risks
from behavioural-based incentive
schemes and the REMCO to
manage the range of pay
outcomes.

Adjustment events exist for the purposes
of applying malus and clawback.

The REMCO retains discretion to adjust
pay outcomes.

Pension

Provides a competitive
retirement provision under
the individual’s base country
benefits policy, to attract and
retain Executive Directors.

Determined by the rules of the base
country pension plan of which the
Executive Director is a member.

Shareholding requirement

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):
■ CEO: 700%
■ CFO: 500%

■ Performance metrics and targets are set by the REMCO at the beginning of the
relevant performance period. When setting performance targets, the REMCO
allocates weightings to each metric as it considers appropriate taking into account
strategic priorities;

■ For 2020, performance is assessed over three years based 90% on financial metrics

(TSR, ROACE, FCF and CFFO) which support our strategic ambition to be a
world-class investment case and 10% on a measure focused on thriving in the
energy transition;

■ Additional shares are released representing the value of dividends payable on the

vested shares, as if these had been owned from the award date;

■ LTIP awards (net of tax) must be held for a further three years to align with

Shell’s longer-term time horizon and strategy;

■ The LTIP award is subject to malus provisions before it is delivered and to clawback

provisions thereafter;

■ The REMCO may adjust or change the LTIP measures, targets and weightings

to ensure continued alignment with Shell’s strategy; and

■ In the event that another Executive Director joins the Board the REMCO will

determine their award level.

The REMCO retains the discretion to adjust mathematical outcomes of the annual bonus
scorecard and / or LTIP vesting for any Executive Director if and to the extent that
it considers this appropriate at their sole discretion.

The use of any discretion will be disclosed and explained.

The REMCO may adjust pay outcomes for the purposes of managing quantum. This
would be done at the REMCO’s discretion after considering single figure outcome for
the year, taking into account Shell’s performance, the operation of the remuneration
structures and any other relevant considerations.

Please refer to page 159 for a summary of the defined adjustment events.

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 and cannot legally be disapplied. The rules of the relevant
plans detail the pension benefits which members can receive. The 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.

New Executive Directors, whether internal appointees or external hires, will be provided
with a retirement benefit in line with the wider workforce in their base country. For
individuals who are members of a defined benefit pension arrangement:
■ The pensionable salary will be capped at the salary applicable immediately prior to
appointment, with the exception of existing US base country participants who will
have the bonus removed from the definition of pensionable base salary instead; and
■ The Executive Director will join a defined contribution scheme in their base country for
contributions made in respect of salary above the defined benefit pensionable salary,
or in exceptional circumstances, receive a cash allowance equivalent to the
contribution above the cap.

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. The REMCO will monitor
individual progress and retains the ability to adjust the guideline in special circumstances
on an individual basis.

The Executive Director will be required to maintain their shareholding requirement (or
existing shareholding if lower) for a period of two years from the date they cease to be
an employee.

In the event that another Executive Director joins the Board the REMCO will determine
their Shareholding requirement level, which will not be less than 200% in line with
corporate governance best practice.

157

Shell Annual Report and Accounts 2019GovernanceDIRECTORS’ REMUNERATION POLICY continued

Notes to the Executive Directors’ remuneration
policy table
Comparator group
The benchmarking comparator group consists of the other oil majors
(BP, Chevron, ExxonMobil, and Total) and a selection of major
Europe-based companies.

The comparator companies are reviewed by the REMCO as part of the
Remuneration Policy review every three years. The last review took place
in 2019 in preparation for the 2020 Directors’ Remuneration Policy vote.
No changes to the comparator group are proposed.

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. The 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.

The REMCO retains the right to alter the comparator group as it sees fit
in order to ensure it remains an appropriate and relevant benchmark.

2020 European comparator group

Allianz

AstraZeneca

BAT

Bayer

BHP Billiton

Daimler

Diageo

GlaxoSmithKline

Nestle

Novartis

Rio Tinto

Roche

Siemens

Unilever

Vodafone

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 partner travel, which
are generally considered legitimate business expenses rather than
components of remuneration.

Annual bonus
For the 2020 performance year, the scorecard framework will consist of
cash flow from operating activities (30% weight), operational excellence
(50% weight) and sustainable development (20% weight). Targets are
derived from the annual business plan. These measures are designed to
drive focus on the financial and operational performance critical to our
success as a world-class investment case and to maintain a strong licence
to operate, underpinned by our commitment to safety and journey to
thrive in the energy transition. The 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 and strategic outcomes. The same annual bonus scorecard
applies to the majority of group employees, supporting consistency
of remuneration and alignment of objective across employees
and senior management.

For future years, the specific measures and weightings for the annual
bonus scorecard will be reviewed annually by the 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. The
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 the REMCO deems appropriate for the reported year.

158

Annual bonus – time horizon

Yr 1

Yr 2

Yr 3

Yr 4

Yr 5

50%
delivered
in cash

50%
delivered
in shares

Performance
period

Net of tax shares held for three years

Bonus delivered

Three year holding
period ends

Long-term Incentive Plan
The LTIP rewards longer-term performance linked to Shell’s strategy, which
includes cash generation, capital discipline, value created for shareholders
as well as progress towards meeting our ambition to thrive in the energy
transition.

For 2020, the absolute measures will be FCF and energy transition, and
relative growth compared with our peers will be based on: TSR, ROACE
and CFFO. The relative measures, which focus on outperforming our
closest competitors on key financial metrics, are supported by the
absolute FCF metric which provides cash to service and repay debt, make
shareholder distributions and fund capital investment. These are aligned
with our strategic ambition to be a world-class investment case, and are
supported by an energy transition measure focused on thriving in the
energy transition and delivering our NCF target.

For the relative measures, 200% vests for first position, 150% for second,
80% for third and 0% for ranking fourth or fifth. The comparator group
consists of four of the strongest companies in our industry (BP, Chevron,
ExxonMobil and Total). Outperforming Shell’s closest competitors on
key financial metrics is challenging. A vesting outcome of 80% for
median performance (40% of maximum) in a small comparator group
is considered appropriate by the REMCO. The REMCO is aware that
vesting for median performance is generally set at a limit of 25% of
maximum for other UK companies. However, these are typically
applied against a larger comparator group.

The 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 with a stretching level
of challenge. If the REMCO was to propose any material changes
to the LTIP performance metrics, it would consult with major shareholders.

TSR underpin
If the TSR ranking is fourth or fifth, the level of the award that can vest
on the basis of the other measures will be capped at 50% of the
maximum payout for the LTIP.

The detailed weightings and metrics applicable to the 2020 bonus
scorecard are set out on page 152.

The detailed weightings and metrics applicable to the 2020 grant
are set out on page 153.

Shell Annual Report and Accounts 2019GovernancePerformance Period
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. This
holding period commences on the date of vesting and remains in force
beyond an Executive Director’s tenure. This time horizon is deemed to be
suitable for incentive purposes but is recognised as short relative to some
of Shell’s operations. However, the REMCO believes that it provides for
broad alignment with shareholder interests when coupled with significant
shareholding requirements.

for the purposes of managing remuneration quantum. In making any
adjustment to the annual bonus or LTIP vesting outcome for this purpose
REMCO will consider the overall level of remuneration for the Executive
Director, the operation of the annual bonus, the operation of the LTIP,
the wider performance of Shell over the performance periods, as well
as the internal context for other employees.

An explanation of any discretionary adjustment would be set out in the
relevant Directors’ Remuneration Report.

LTIP time horizon

Yr 1

Yr 2

Yr 3

Yr 4

Yr 5

Yr 6

Performance period

Net of tax shares
held for three years

100% delivered
in shares

Three year holding
period ends

Discretion, 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
statements due to material non-compliance with a financial reporting
requirement; misconduct by an Executive Director or misconduct through
their direction or non-direction; any material breach of health and safety
or environment regulations; serious reputational damage to Shell; material
failure of risk management; corporate failure; or other exceptional events
as determined at the discretion of the REMCO. The REMCO retains the
right to alter the list of adjustment events in respect of future awards.

In addition, the REMCO retains the discretion to adjust mathematical
outcomes if and to the extent that it considers this appropriate. This power
to adjust the outcomes is broad and includes adjusting the outcomes to
zero. For example, an adjustment might be made if the REMCO considers:
■ The mathematical outcomes do not reflect the wider financial or
non-financial performance of RDS or the participant over the
performance period;

■ The LTIP vesting percentage is not appropriate in the context of

circumstances that were unexpected or unforeseen at award; and

■ There is any other reason why an adjustment is appropriate.

It is not anticipated that discretion would be used for upwards adjustment.
If, in exceptional circumstances, it was considered, this would be done
only after consultation with major shareholders.

Performance outcomes and/or share price appreciation make it difficult
to predict the final amounts delivered under the LTIP at the time of award.
In years where the vesting outcome makes the total remuneration
inappropriate for any Executive Director, the REMCO will consider an
adjustment to the annual bonus outcome or the LTIP vesting outcome

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 10, 2020, this applies to Executive Directors Ben van Beurden
and Jessica Uhl who each have outstanding awards under the LTIP.

Shareholding
The 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. The CFO is expected to build up
a shareholding of five 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.

Executive Directors will be required to maintain their shareholding
requirement (or their existing shareholding if less than the guideline)
for a period of two years post-employment.

The holding periods for LTIP vested shares and shares delivered as
part of the annual bonus continue to apply after Executive Directors
leave employment.

Differences for Executive Directors from other employees
The remuneration structure and approach to setting remuneration levels
is 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.

159

Shell Annual Report and Accounts 2019GovernanceDIRECTORS’ REMUNERATION POLICY continued

Executive Directors are eligible to receive the standard benefits and
allowances provided to other employees. The provisions which 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, bonuses for the majority of Shell employees are
determined taking into account individual and business performance,
whereas bonuses for Executive Directors are based solely on business
performance. Although the makeup and weightings scorecard used for
the majority of Shell employees is currently aligned with the scorecard,
these scorecards may differ if required to support the achievement of
business objectives. All Executive Directors and Executive Committee
members receive 50% of their annual bonus in shares, which are subject
to a three-year holding period.

Performance scenarios

Base salary (2020)

Benefits (2019 actual)

Pension (2020 estimate)

Bonus

LTIP

Minimum

Target

Maximum[A]

NIL

125% CEO

250% CEO

120% CFO

240% CFO

300% CEO

600% CEO

270% CFO

540% CFO

[A] Maximum assuming 50% share price appreciation.

CEO pay scenarios (€m)

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 2020, around 51,000 employees participate in one or more
of Shell’s global share plans and/or incentive plans, further supporting
alignment with shareholder interests.

Minimum

100%

2.1

On-target

24%

22%

54%

8.9

Fixed remuneration

Annual incentive

Long-term incentive

Maximum assuming 50%
share price appreciation

Maximum 14%

25%

61%

15.7

20.4

Executive Directors’ retirement benefits are maintained in line with those
of the wider workforce in their base country.

CFO pay scenarios (€m)

Minimum

100%

1.6

On-target

29%

22% 49% 5.7

Fixed remuneration

Annual incentive

Long-term incentive

Maximum assuming 50%
share price appreciation

Maximum 17% 26%

57%

9.7

13.8

Recruitment
The 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,
the REMCO will seek a balanced outcome which allows Shell to:
■ attract and motivate candidates of the right quality;
■

take into account the individual’s current remuneration package
and other contractual entitlements;
seek a competitive pay position relative to our comparator group,
without overpaying;

■

■ encourage relocation if required; and
■ honour entitlements (for example, variable remuneration) of internal
candidates before their promotion to the Board. The REMCO will
follow the approach set out in the table below when determining
the remuneration package for a new Executive Director.

Illustration of potential remuneration outcomes
The charts on this page represent estimates under four performance
scenarios (“Minimum”, “On-target”, “Maximum” and “Maximum,
assuming a 50% share price appreciation between award and vest”)
of the potential remuneration outcomes for each Executive Director
resulting from the application of 2020 base salaries to awards made in
accordance with the proposed Policy. The majority of Executive Directors’
remuneration is delivered through variable pay elements, which are
conditional on the achievement of stretching targets.

The REMCO will review the formulaic Single Figure outcome relative
to the quality of performance outcomes and adjust these, taking into
account Shell’s performance, shareholder experience, the operation of
the remuneration structures and any other relevant factors, to ensure that
the highest variable pay outcomes are only achieved in years with the
highest quality performance.

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.
For simplicity, the minimum, on-target and maximum 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 CFO (Jessica Uhl) roles.

160

Shell Annual Report and Accounts 2019GovernanceRecruitment – Remuneration package

Component

Approach

Ongoing remuneration

Compensation for the forfeiture of any
awards under variable remuneration
arrangements

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.

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. The 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.
The intention is that any such compensation would, as far as possible, align to the
duration and structure of the award being forfeited.

Maximum

As stated in the “Executive Directors’
remuneration policy table”.

An amount equal to the value of the
forfeited variable remuneration awards,
as assessed by the REMCO.
Consideration will be given to
appropriate performance conditions,
performance periods and clawback
arrangements.

Replacement of forfeited entitlements
other than any awards under variable
remuneration arrangements

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 the REMCO and compensated in cash.

An amount equal to the value of the
forfeited entitlements, as assessed
by the REMCO.

Exceptional recruitment incentive

In cases of internal promotion to the Board, any commitments made which cannot
be effectively replaced within the Executive Directors’ remuneration policy may,
at the REMCO’s discretion, continue to be honoured.

Apart from the ongoing annual remuneration package and any compensation in
respect of the replacement of forfeited entitlements, there may be circumstances in
which the REMCO needs to offer a one-off recruitment incentive in the form of cash
or shares to ensure the right external candidate is attracted (e.g. to the industry). The
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. The intention will be that
this is only used in genuinely exceptional circumstances.

Subject to the limits set out in the
“Executive Directors’ remuneration
policy table”.

Pension

New appointees will be provided with a pension in line with the wider workforce in
their base country. For defined benefit members:
■ The pensionable salary is capped at executive committee level pay for defined

In accordance with the pension
provision applicable to the wider
workforce in the base country.

benefit purposes (with the exception of participants in the US plan where the bonus
is removed from the definition of pensionable pay; and

■ The member joins an appropriate base country defined contribution mechanism
in excess of the cap, or exceptionally a pension cash allowance equivalent to
the defined contribution level is payable in excess of the cap.

Executive Directors’ employment arrangements
and letters of appointment
The Dutch 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. Executive Directors’
employment arrangements are available for inspection at the AGM or
on request. For further details on appointment and re-appointment of
Directors, see the “Governance Framework” on page 118 and “Other
Regulatory and Statutory Information” on page 170.

End of employment
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, 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 on page 162.

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, on page 162, 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 the REMCO’s discretion.

161

Shell Annual Report and Accounts 2019GovernanceDIRECTORS’ REMUNERATION POLICY continued

End of employment

Provision

Policy

Compensation for loss of office

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 Shell’s ability to implement phased
payment terms.

For Executive Directors appointed on or after January 1, 2017, the 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 Shell’s ability to implement
phased payment terms.

The provision of standard end-of-employment benefits such as repatriation costs, security provision and outplacement support may
also be included, as deemed reasonable by the REMCO.

The REMCO may adjust the termination payment for any situation where a full payment is inappropriate, taking into consideration
applicable law, corporate governance provisions, the applicability of any statutory compensation and the best interests of Shell
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, the REMCO
may consider the latest scorecard position or defer payment until the full-year scorecard result is known.

LTIP

Bonuses 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.

NON-EXECUTIVE DIRECTORS

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.

The Chair’s fee is determined by the
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.

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.

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 partner travel. NEDs may receive a token of
recognition on retirement from the board. The maximum value for
this is €300. Where required, the Chair is offered Shell-provided
accommodation in The Hague. The 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.

162

Shell Annual Report and Accounts 2019Governance

Non-executive Directors’ letters of appointment
NEDs, including the Chair, have letters of appointment. 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 “Governance Framework” on page 118 and “Other
Regulatory and Statutory Information” on page 170.

Non-executive Director recruitment
The 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.

Non-executive Director termination of office
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, the 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 the REMCO with advice in the formation
of this Policy.

Dialogue between management and employees 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. Shell also encourages share ownership among employees,
and many are shareholders who are able to participate in the vote on the
Policy at the AGM.

The REMCO is kept informed by the CEO, the Chief Human Resources &
Corporate Officer and the Executive Vice President Remuneration and HR
Operations on the bonus scorecard and any relevant remuneration
matters affecting other senior executives, extending to multiple levels
below the Board and Executive Committee.

Consideration of shareholder views
The 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 the REMCO responding to shareholder
views include: considering the quantum of executive pay and the use of
alternative reward structures; introducing the Energy Transition metric
to the LTIP in line with our strategic ambitions; removing the individual
performance modifier from the calculation of annual bonus outcomes
to make remuneration structures simpler and more transparent to
shareholders; reducing the CEO’s target bonus from 150% to 125%;
reducing the CEO’s LTIP grant; and enabling the broader use of
discretion to manage remuneration outcomes.

The REMCO will review the Policy regularly to ensure it continues to
reinforce Shell’s long-term strategy and remains closely aligned
with shareholders’ interests.

Additional policy statement
The 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 the REMCO considers such
payments are necessary to give effect to the intent of the Policy.

Signed on behalf of the Board

/s/ Linda M. Coulter

LINDA M. COULTER
Company Secretary
March 11, 2020

163

Shell Annual Report and Accounts 2019GovernanceOTHER REGULATORY AND STATUTORY INFORMATION

This section of the Annual Report contains the remaining information which the Directors are required to report on each year and for the year
ended December 31, 2019. There are other matters that are required to be reported on and that have been disclosed in other sections of the
Annual Report, as summarised below:

Management Report

This Directors’ Report, together with the Strategic Report, serves as the Management
Report for the purpose of Disclosure Guidance and Transparency Rule 4.1.8R.
Both the Directors’ Report and Strategic Report have been presented in accordance
with and reliance on English law, and the liabilities of the Directors in connection with
those reports shall be subject to the limitations and restrictions provided by such law.

Directors’ Report: pages 113-163
Strategic Report: pages 6-101

Corporate governance

Business relationships [A]

The Company’s statement on corporate governance, as required by DTR7.2.3R, is
incorporated in this Directors’ Report by way of reference.

Directors’ Report: pages 104-171

A statement, summarising the Directors’ business relationships with suppliers,
customers and others.

Strategic Report: pages 6-101

Employee engagement

Information on how the Directors have engaged with employees.

Directors’ interests [B]

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”.

Annual Report on Remuneration:
pages 148

Changes in Directors’ share interests during the period from December 31, 2019,
to March 11, 2020.

Likely future developments

Information relating to likely future developments.

Provided throughout the Strategic
Report: pages 6-101

Research and development

Information relating to Shell’s research and development, including expenditure.

Shell Story: pages 12-18

Diversity and inclusion

Information concerning diversity and inclusion.

Our people: pages 99-101

Employee communication and
involvement

This includes information on the equal opportunities in recruitment, career development,
promotion, training and rewards for all our people, including those with disabilities.

Information concerning employee communication and involvement.

Our people: pages 99-101

Corporate social responsibility

A summary of Shell’s approach to corporate social responsibility.

Branches

A list of our subsidiaries, joint ventures and associates.

Further details will be available in the Shell Sustainability Report 2019.

Our activities and interests are operated through subsidiaries, branches of subsidiaries,
joint ventures and associates which are subject to the laws and regulations of many
different jurisdictions.

Greenhouse gas emissions

Information relating to greenhouse gas emissions.

Risk management

Detail on risk factors
Information on emerging risks

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.

Listing rule information [C]

Information concerning the amount of interest capitalised by Shell.

Listing rule information [C]

The Remuneration Committee Report

Listing rule information [C]

Details of the Company’s long-term incentive schemes as required by LR 9.4.3R

Significant shareholdings

Information concerning significant shareholdings.

Environment and society: pages 84-90
Our people: pages 99-101

Additional Information, Appendix 1:
pages 282-306

Climate change and energy transition:
pages 84-98

pages 27-36 of the Strategic Report
Other regulatory and statutory
information: pages 164-171

Consolidated Financial Statements:
Note 19, pages 227-231

Consolidated Financial Statements:
Note 6, page 209

Directors’ Remuneration Report:
pages 135-163

Additional information:
page 274-275

[A] This meets the purposes of Schedule 7 to The Companies (Miscellaneous Reporting) Regulations 2018.
[B] “Connected person” has the meaning given to “person closely associated” within the Market Abuse Regulation.
[C] This information is given in accordance with Listing Rule 9.8.4R. Further information in connection with Listing Rule 9.8.4R is contained in the remainder of “Other Statutory Information”

which follows on pages 165-171.

164

Shell Annual Report and Accounts 2019GovernanceDISCLOSURE OF INFORMATION TO AUDITORS
In accordance with section 418 of the Act, each of the persons who is a
Director at the date of approval of this Report confirms that, so far as the
Director is aware, there is no relevant audit information of which the
Company’s auditor is unaware. The Director has taken all steps that he or
she ought to have taken as a Director in order to make himself or herself
aware of any relevant audit information and to establish that the
Company’s auditor is aware of that information.

FINANCIAL STATEMENTS, DIVIDENDS AND
DIVIDEND POLICY
The “Consolidated Statement of Income” and “Consolidated Balance
Sheet” can be found on pages 191 and 192 respectively.

The Board aims to grow the dividend per share through time in line with its
view of the underlying business earnings and cash flow of the Shell group.
When setting dividends, the Board looks at a range of factors, including
the macro-environment and the Company’s current balance sheet, future
investment plans and existing commitments. In addition, the Board could
choose to return cash through share buybacks, subject to the capital
requirements of the Shell group.

The Board is aware of a consultation undertaken in 2019 by the
Investment Association on behalf of BEIS to review the practice of
shareholder distributions being made that have not been voted on
by shareholders. The Board will consider the outcome of this review
once it is published.

Interim dividends are currently declared by the Board and paid on a
quarterly basis. Shell does not currently pay a “final” dividend, which
would need to be voted on by shareholders, requiring the introduction
of a resolution at the AGM. This would delay the payment of the fourth
quarter dividend (currently paid in late March) until after the AGM, which
is towards the end of May, a delay of around seven weeks. Our approach
to dividend payments is not uncommon for companies distributing returns
to shareholders on a quarterly basis.

On December 18, 2019, Shell announced the introduction of US dollar
as additional currency election for the payment of dividends, alongside
euro and sterling, and highlighted that its dividend will be settled with its
shareholders fully electronically either in CREST or via interbank transfers.

The Directors have announced a fourth-quarter interim dividend as set
out in the table below, payable on March 23, 2020, to shareholders
on the Register of Members at close of business on February 14, 2020.
The closing date for dividend currency elections was February 28,
2020 [A] and the euro and sterling equivalents announcement date
was March 9, 2020.
[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.

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.
“Shell story” describes Shell’s business model, including competitive
advantages and key strengths. The Directors assess Shell’s prospects
at both 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”). The Risk
Factors section 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, future carbon
costs, agreements like LNG contract renewals, 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.

Dividends

Q4 [A]

Total announced in respect of the year [A]

Amount paid during the year [A]

2019

A shares

B shares [A]

A ADSs

B ADSs

0.47

1.88

€

0.42

0.43

0.42

1.68

pence

36. 97

38. 0 1

35. 73

36. 40

147. 1 1

146.65

0.47

1.88

pence

36.97

38.01

35.73

36.40

147. 1 1

146.65

€

0.42

0.43

0.42

1.68

0.94

3.76

0.94

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 page 268.

165

Shell Annual Report and Accounts 2019GovernanceOTHER REGULATORY AND STATUTORY INFORMATION continued

During 2019, 320.1 million A shares, and 16.1 million B shares, with
nominal values of €23.6 million ($28.4 million) respectively (4.27% of
the Company’s total issued share capital at December 31, 2019) were
purchased and cancelled for a total cost of $10.2 billion including
expenses, at an average price of $30.25 per share. The purpose of the
shares repurchased in 2019 under the share buyback programme is to
reduce the issued share capital of the Company. This is 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, 2020,
to January 24, 2020, the end of the sixth tranche of the share buyback
programme, a further 23.2 million A shares (0.29% of the Company’s
total issued share capital at December 31, 2019) were purchased for
cancellation for a total cost of $0.7 billion including expenses, at an
average price of $29.63 per share. This means that 624 million 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 2020 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 names of the Directors that held office during the year can be
found on pages 104-112. Information on the Directors who are seeking
appointment or reappointment is included in the Notice of Annual
General Meeting.

QUALIFYING THIRD-PARTY INDEMNITIES
The Company has entered into a Deed of Indemnity (Deed) with each
Director of the Company who served during the year. The terms of each
of these Deeds are identical and they reflect the statutory provisions on
indemnities contained in the Companies Act 2006 (CA 2006). Under the
terms of each Deed, the Company has agreed to indemnify the Director,
to the widest extent permitted by the CA 2006, against any loss, liability
or damage, howsoever caused (including in respect of a Director’s own
negligence), suffered or incurred by a Director in respect of their acts or
omissions while or in the course of acting as a Director or employee of the
Company, any associated company or affiliate (within the meaning of
the CA 2006). In addition, the Company shall lend funds to Directors
as required to meet reasonable costs and expenses incurred or to be
incurred by them in defending any criminal or civil proceedings brought
against them in their capacity as a Director or employee of the Company,
associated company or affiliate, or, in connection with certain applications
brought under the CA 2006. The provisions in the Company’s Articles
relating to arbitration and exclusive jurisdiction are incorporated, mutatis
mutandis, into the Deeds entered into by each Director and the Company.

In making the viability assessment, the Directors have 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
credit lines and debt facilities, possible assets disposals, and the ability to
flex the levels of shareholder returns and to raise future financing in line
with the operating plan window.

Scenario

A significant HSSE event

A low oil and gas price environment
with $40/bbl Brent (nominal prices)
over the three year planning period

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

Link to principal risks

[A]

[B]

[A] and [B]

[B] and [C]

Unplanned shut down of a major cash
generating asset for a year

[A]

[A] The nature of our operations exposes us, and the communities in which we work, to a wide

range of health, safety, (cyber) security and environment risks.

[B] We are exposed to macro-economic risks including 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 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,
2019, 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 6-101.

Non-Financial Information Statement

Reporting requirement

Where to read more in this report

Business model

The Shell Story

Non-financial KPIs

Performance indicators

Environmental matters

Employees

Social matters

Environment and society, Climate
change and energy transition

Our people and Directors Report

Environment and society

Respect for human rights

Environment and society

Anti-corruption and
anti-bribery matters

Our people

Page

84-98

99-101

84-90

99-101

REPURCHASES OF SHARES
The Group announced, on July 26, 2018, the 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. At the 2019 AGM,
shareholders granted an authority for the Company to repurchase up to
a maximum of 815 million of its shares (excluding purchases for employee
share plans). This authority expires on the earlier of the close of business
on August 21, 2020, or the end of the 2020 AGM.

166

Shell Annual Report and Accounts 2019GovernanceRELATED PARTY TRANSACTIONS
Other than disclosures given in Notes 9, 27 and 29 to the “Consolidated
Financial Statements” on pages 213, 237, and 238, 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
See Note 29 to the “Consolidated Financial Statements” on page 238.

SHARE CAPITAL
The Company’s issued share capital at December 31, 2019, is set out in
Note 20 to the “Parent Company Financial Statements” on pages
257-265. The percentage of the total issued share capital represented by
each class of share is given below.

Share capital percentage

Share class

Sterling deferred

52.68

47.32

de minimis

TRANSFER OF SECURITIES
There are no restrictions on transfer or limitations on the holding of the
ordinary shares other than under the Articles, under restrictions imposed
by law or regulation (for example, insider trading laws) or pursuant to
the Company’s Share Dealing Code.

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.

AUDITOR
A resolution relating to the appointment of Ernst & Young LLP as auditor
for the financial year 2020 will be proposed at the 2020 AGM.

ANNUAL GENERAL MEETING
The AGM will be held on May 19, 2020, 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.

CONFLICTS OF INTEREST
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. Detailed conflict of interest questionnaires
are reviewed by the Board and, if considered appropriate, authorised.
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 in the Articles,
available on the website.

SIGNIFICANT COMMITMENTS OF THE CHAIR
The Chair’s other significant commitments are given in his biography on
page 104.

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 27-36.

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.

Designated individuals are required to complete additional mandatory
training on antitrust and competition laws, anti-bribery, anti-corruption
and anti-money laundering laws, financial crime, data protection laws
and trade compliance requirements (see “Risk factors” on page 35). 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 the Code of Ethics. This Code is specifically intended to meet
the requirements of Section 406 of the Sarbanes-Oxley Act. It can be
found at www.shell.com/codeofethics.

167

Shell Annual Report and Accounts 2019GovernanceOTHER REGULATORY AND STATUTORY INFORMATION continued

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 directors’ and officers’ insurance policies are open
to inspection. A copy of the form of these indemnities has been previously
filed with the Securities and Exchange Commission.

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.

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 129-134).

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 “Structural”. “Foundations”
comprises the objectives, principles and rules that underpin and establish
boundaries for Shell 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. The “Structural”
component defines how Businesses and Functions facilitate achievement
of the Shell group’s overall business objectives.

CONTROL FRAMEWORK

External environment

Shell General Business Principles

RDS plc and Other Legal entities

Code of
conduct

Strategy,
planning and
appraisal

Statement
on Risk
Management

Standards
and Manuals

Controls and
assurance

Businesses and functions

The Foundation elements of the Shell Control Framework define the
principles that underpin the Shell Group’s activities.

The Management processes defines activities critical to an effective
control framework.

The Structural component defines how Businesses and Functions
facilitate achievement of the Shell group’s overall business objectives,
while respecting the separate legal identity of the Individual Shell
companies that implement them.

The Audit Committee met six times this year and received regular reports
from the Chief Internal Auditor on notable internal audits and those with
a significant impact on control effectiveness. The Audit Committee also
reviewed significant financial, business and compliance control incidents
and received regular reports on business integrity issues. The Audit
Committee also requested updates on specific financial, operational and
compliance control issues throughout the year. The Audit Committee Chair
provided an update to the Board after every Audit Committee meeting.

During and after such reports, the Board has an opportunity to request
further information and/or ask clarifying questions, which it does to
varying degrees depending on the issue. Similarly, the Chairs of the
Safety, Environment and Sustainability Committee (SESCo) and the
Nigeria Special Litigation Committee, an ad hoc Board Committee,
also provide regular updates after each of their respective meetings
covering, among other matters, the respective aspects of controls that they
monitor pursuant to their Terms of Reference. The Audit Committee and
SESCo minutes, once approved, are further provided to the Board and
incorporated into Board minutes to ensure full access to and review by

168

Shell Annual Report and Accounts 2019Governanceall Directors. These aspects, together with the 2019 Reports respectively
submitted to the Board by the Chief Internal Auditor, the External Auditors,
the Disclosure Committee Chairman and the Chief Ethics & Compliance
Officer, as well as summaries of the Annual Proved Reserves Disclosure
and the Full Year HSSE & Social Performance Assurance Report, enable
the Board’s ongoing monitoring and annual review of material controls.

An annual review of the effectiveness of risk management and internal
control was carried out by both the Executive Committee and the Audit
Committee. This was based on their own insights and experience
throughout the year as well as outcomes from the Group Assurance Letter
process, a structured internal assessment of compliance with legal and
ethical requirements and the Shell Control Framework carried out by
each Executive Director. As part of their annual review, the Executive
Committee and Audit Committee also considered annual reports from the
Chief Internal Auditor, Chief Ethics & Compliance Officer and the External
Auditor. The insights and conclusions from this annual assessment were
reviewed and discussed by the Board.

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 to be ineffective
are remediated. The principal risks faced by Shell are set out in “Risk
factors” on pages 27-36.

Shell has a variety of processes for obtaining assurance on the adequacy
of risk management and internal control. Emerging risks are identified
through (among others) the monitoring of external developments, risk
indicators, learnings from incidents and assurance findings, and through
the appraisal of Shell’s forward-looking plans. A broad array of measures
are used to manage Shell’s 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.

Shell has developed a risk appetite framework that considers three distinct
factors: Strategic Risk Appetite, Operational Risk Appetite and Conduct
Risk Appetite. These three factors aim to capture the range and variety of
risks affecting Shell, with specific risk appetite parameters identified and
monitored for each one.

Strategic Risk Appetite is about current and future portfolio considerations,
examining parameters such as country concentration or exposure to
higher-risk countries. It also considers “long-range” developments in order
to test key assumptions or beliefs in relation to energy markets.

Operational Risk Appetite is about material operational exposures, and
promotes a more granular assessment of key risks facing the organisation.
Conduct Risk Appetite brings together leading and lagging risk indicators
to provide an overall view of the culture of the organisation.

The Financial Framework sets certain boundary conditions in the
consideration of risk appetite, as the financial resilience of Shell should
logically inform the aggregate level of risk appetite that could
be sustained.

Shell has a climate change risk management structure which is supported
by standards, policies and controls (see “Risk factors” on page 34 and
“Climate change and energy transition” on pages 91-98). 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
27-36). 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 27-36). 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 confirms
it carries out a robust assessment of Shell’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 2019 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.

The Board has conducted its annual review of the effectiveness of Shell’s
system of risk management and internal control in respect of 2019, such
review covering all material controls, including financial, operational and
compliance controls.

MANAGEMENT’S EVALUATION OF DISCLOSURE
CONTROLS AND PROCEDURES OF SHELL
Shell’s CEO and CFO have evaluated the effectiveness of Shell’s
disclosure controls and procedures at December 31, 2019. Based on
that evaluation, they concluded that Shell’s disclosure controls and
procedures are effective.

169

Shell Annual Report and Accounts 2019GovernanceOTHER REGULATORY AND STATUTORY INFORMATION continued

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 Treadway Commission (COSO). On the basis of this evaluation,
management concluded that, at December 31, 2019, the Company’s
internal control over financial reporting and the preparation of the
“Consolidated Financial Statements” was effective.

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, 2019. 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, 2019, the Trust’s internal
control over financial reporting was effective.

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 268
for additional information.

ARTICLES OF ASSOCIATION
The Company’s Articles of Association (Articles) were adopted at the
2019 AGM. The Articles may only be amended by a special resolution
of the shareholders in a general meeting. A full version of the Company’s
Articles can be found at www.shell.com/investors.

MANAGEMENT AND DIRECTORS
The Company has a single-tier Board of Directors headed by a Chair,
with management led by a CEO. See “Governance Framework” on
pages 117-118.

DIRECTORS’ SHAREHOLDING QUALIFICATION
The Directors are not required to hold any shares in the Company. 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 from 2020, the CFO
is expected to build up a shareholding of five times their base salary over
the same period. In the event that another Executive Director joins the
Board, the Remuneration Committee will determine their shareholding
requirement, which will not be less than 200% of their base salary.
Executive Directors will be required to maintain their requirement (or
existing shareholding if less than the guideline) for a period of two years
post-employment. 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 135-138.

APPOINTMENT AND RETIREMENT OF DIRECTORS
The Company’s Articles, the Corporate Governance Code and the
Companies Act 2006 govern the appointment and retirement of
Directors. Board membership and biographical details of the Directors
are provided on pages 104-109. However, Directors follow the direction
laid out in the Code and stand for re-election annually.

During the year, Neil Carson was appointed to the Board on June 1, 2019.

RIGHTS ATTACHING TO SHARES
The full rights attaching to shares are set out in the Company’s Articles of
Association. 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.

VOTING
Currently, only the A and B shares have voting rights. The voting rights of
each A share and each B share are equal and carry one vote at a general
meeting of the Company.

The sterling deferred shares are not ordinary shares and therefore have
different rights and restrictions attached to them.

170

Shell Annual Report and Accounts 2019GovernanceThe 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 consider it appropriate to continue to adopt the going
concern basis of accounting in preparing the financial statements.

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.

Signed on behalf of the Board

/s/ Linda M. Coulter

LINDA M. COULTER
Company Secretary
March 11, 2020

CHANGE OF CONTROL
There are no provisions in the Articles that would delay, defer or prevent
a change of control.

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 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:
■ adopt the going concern basis unless it is inappropriate to do so;
■

select suitable accounting policies and then apply them consistently;
■ make judgements and accounting estimates that are reasonable and

■

prudent; and
state whether IFRS as adopted by the EU and IFRS as issued by the
IASB have been followed.

The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the transactions of Shell and the
Company and disclose with reasonable accuracy, at any time, the
financial position of Shell and the Company and to enable them to ensure
that the financial statements comply with the Companies Act 2006 (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 111-112, confirms that, to the best of their knowledge:
■

the financial statements, which have been prepared in accordance
with IFRS as adopted by the EU and with IFRS as issued by the IASB
give a true and fair view of the assets, liabilities, financial position
and profit of Shell and the Company; and
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.

171

Shell Annual Report and Accounts 2019GovernanceFINANCIAL
STATEMENTS
AND
SUPPLEMENTS

174

190
239

257
266

268

Independent Auditor’s Report related to
the Consolidated and Parent Company
Financial Statements
Consolidated Financial Statements
Supplementary information – oil and gas
(unaudited)
Parent Company Financial Statements
Independent Auditor’s Report to
Computershare Trustees of the Royal Dutch
Shell Dividend Access Trust and the Board
of Directors of Royal Dutch Shell plc
Royal Dutch Shell Dividend Access Trust
Financial Statements

172

Shell Annual Report and Accounts 2019Financial Statements173

Shell Annual Report and Accounts 2019Financial StatementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC

1. OUR OPINIONS AND CONCLUSIONS ARISING FROM OUR AUDIT
1.1 Our unmodified opinion on the financial statements
In our opinion, the financial statements of Royal Dutch Shell plc (the Parent Company) and its subsidiaries (collectively, Shell):
■ give a true and fair view of the state of Shell’s and of the Parent Company’s affairs as at December 31, 2019, and of Shell’s and the Parent Company’s

income for the year then ended;

■ 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

■ 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 What we have audited
We have audited Royal Dutch Shell plc’s financial statements for the year ended December 31, 2019, which are included in the Annual Report
and comprise:

Shell

Parent Company

Consolidated Balance Sheet as at December 31, 2019

Balance Sheet as at December 31, 2019

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 29 to the Consolidated Financial Statements, including
a summary of significant accounting policies

Related Notes 1 to 14 to the Parent Company Financial Statements

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.

2. BASIS FOR OUR OPINION
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 ‘Our 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.

174

Shell Annual Report and Accounts 2019Financial Statements3. OVERVIEW OF OUR AUDIT APPROACH

UPDATING OUR
UNDERSTANDING OF
SHELL’S BUSINESS AND
ITS ENVIRONMENT

IDENTIFYING
AND ASSESSING THE
RISKS OF MATERIAL
MISSTATEMENT

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 starts with updating our view on external market factors, for example
geopolitical risk, the potential impact of climate change and the 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 the review of external data, enquiry, analytical procedures, observation and visiting several of Shell’s operating units.

In planning our 2019 audit, we were mindful of the fact that the outlook for both oil and gas commodity prices continued to
narrow. Refining margins remained under pressure due to a number of factors, including the energy transition. The fundamentals
of cost control, capital spending, operational excellence, cash flow and capital return continued to be a focus in the industry.
Climate change and the energy transition are becoming increasingly important for the sector. As part of our audit, we assessed
whether Shell’s energy transition assumptions used in setting oil and gas commodity price assumptions and refining margin
assumptions were reasonable in the light of the commitments that Shell have made with respect to decarbonisation in
accordance with the Paris Agreement. Our updated understanding of Shell’s business and the environment in which it
operates informed our risk assessment procedures.

The results of our 2018 audit, together with our risk assessment procedures, provided a renewed basis for the identification and
assessment of risks of material misstatement for our 2019 audit. Whilst our assessment of risks requiring special audit attention
remained consistent with 2018, the impact of the energy transition has increased the inherent risk in estimating both oil and gas
reserves and the recoverable amount of oil and gas properties. The risks we identified were as follows:
■ the estimation of oil and gas reserves used in the calculation of the recoverable amount of exploration and production
assets, depreciation, depletion and amortisation and the estimation of decommissioning and restoration provisions;
■ the risk of unrealised trading gains and losses being recognised as a result of errors, unauthorised trading activity or

deliberate misstatement of Shell’s trading position; and

■ risk of fraud through management override within other significant revenue streams.

Our additional areas of audit focus were:
■ the recoverable amount of exploration and production assets, and investments in joint ventures and associates;
■ the impact of the energy transition on the estimation of refining margins and their potential impact on the carrying value

of Shell’s refineries, the expected lives of the refineries, whether there is a need for environmental clean up cost provisions
and the valuation of deferred tax assets;

■ the estimation of decommissioning and restoration provisions;
■ legal proceedings and other contingencies, with specific emphasis on Nigeria;
■ uncertain tax positions;
■ recognition and measurement of deferred tax assets;
■ pension assumptions;
■ the adoption of the new accounting standard on leases (IFRS 16); and
■ the dividend distribution process, including the determination of realised profits and losses for the purposes of making

distributions under the Companies Act 2006 (this area of audit focus relates to the parent company only).

We have expanded further our integration of analytical tools and technology into our audit. Not only do these tools deliver
to us more efficient and secure access to Shell’s data, but they provide us with an integrated view of risk, thus enabling us to
focus our audit effort on operating units with higher risk profiles. They also enable us to perform risk-led analyses of entire
populations of data.

When we established our audit strategy, we determined overall materiality for the financial statements. The key criterion
in determining materiality is the auditor’s perception of the needs of investors. We considered which earnings, activity or
capital-based measure aligned best with the expectations of those charged with governance at Shell and users of Shell’s
financial statements. In so doing, 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.

ASSESSING MATERIALITY
(SECTION 4)

Our assessment of overall materiality was derived from an average of Shell’s earnings for the prior two years and the
estimated result for the current year 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. In our judgement, an averaging
approach reflects the nature of Shell, the oil and gas industry and the economic environment in which Shell operates.

This approach – which is unchanged from 2018 – resulted in the following materiality measures for 2019:
■ planning materiality: $1,200 million (2018: $1,000 million);
■ performance materiality: $900 million (2018: $750 million); and
■ reporting differences threshold: $60 million (2018: $50 million).

Our determination of performance materiality was underpinned by our assessment of the strength of Shell’s control
environment. We confirmed with the Audit Committee that they were satisfied that these levels of materiality were
appropriate. We kept our assessment of materiality under review throughout the year.

175

Shell Annual Report and Accounts 2019Financial StatementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

3. OVERVIEW OF OUR AUDIT APPROACH continued

DETERMINING THE
SCOPE OF OUR AUDIT
(SECTION 5)

IDENTIFYING KEY
AUDIT MATTERS
(SECTION 6)

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 17 operating units and specific audit procedures on an additional
32 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 133 operating units that were specified by
the group audit engagement in response to specific risk factors. In addition, we performed other group audit procedures at the
consolidated level – see section 5 below.

In order to reflect changes brought about by enhancements to Shell’s finance function, changes to accounting standards and
to introduce an appropriate level of unpredictability and rotation in our audit, we made the following refinements to our audit
scope in 2019 compared to 2018:
■ in order to recognise the increased amount of audit work that we would be carrying out at Shell’s business service centres

(BSCs), we transferred audit activity from onshore to our business service centre audit teams. For example, our work related to
Germany was carried out mainly in Krakow, other than the physical inventory verification, which continued to be performed
by our German team. The same applied to US downstream, where much of the activity was transferred to Manila;
■ IFRS 16: we revised our audit procedures to reflect the requirements of the new standard. Also, we brought into scope

three new entities in order to obtain sufficient audit coverage of the ‘right of use assets’; and

■ we revised our tax audit procedures to test centrally the main consolidated tax regimes (fiscal unities), including the US,

UK and Netherlands.

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 (DD&A), impairment testing to evaluate the recoverable amounts of production assets and the estimation
of decommissioning and restoration (D&R) provisions;

■ the recoverable amounts of exploration and production assets, and investments in joint ventures and associates;
■ the estimation of future refining margins to evaluate the recoverability of manufacturing, supply and distribution assets;
■ the recognition and measurement of deferred tax assets;
■ revenue recognition: the risk of unrealised trading gains and losses being recognised as a result of errors, unauthorised

trading activity or deliberate misstatement of Shell’s trading position; and

■ the dividend distribution process, including the determination of realised profits and losses for the purposes of making

distributions under the Companies Act 2006 (this key audit matter relates to the Parent Company only).

Although IFRS 16 was adopted on January 1, 2019, most of our audit effort was carried out in 2018 in order to audit the impact
of the new standard, which was disclosed in the 2018 Annual Report. Consequently, we reported the adoption of IFRS 16 as
a key audit matter in our 2018 report, and not in 2019.

In the current year, we have added two key audit matters that were not reported as key audit matters in our 2018 report. These
relate to: (1) The estimation of future refining margins to evaluate the recoverability of manufacturing, supply and distribution
assets, and (2) The dividend distribution process (Parent Company only).

4. OUR APPLICATION OF MATERIALITY
The scope of our work is influenced by our view of materiality and our assessed risks of material misstatement. 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)).

Planning
Materiality

Performance
Materiality

Reporting
differences

$1,200m
(2018: $1,000m)

$900m
(2018: $750m)

$60m
(2018: $50m)

176

Shell Annual Report and Accounts 2019Financial Statements
Overall materiality

What we mean

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 our 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.

Level set

Group materiality
We set our preliminary overall materiality for Shell’s Consolidated Financial
Statements at $1,200 million (2018: $1,000 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 these reviews and reassessments, 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 (2018:
$2.6 billion), which is 1% (2018: 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 basis for determining materiality

Our assessment of overall materiality was $1,200 million. This was derived from
an average of Shell’s earnings for 2017 and 2018 and the estimated result for
2019 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.

This approach of averaging over three years is consistent with the approach
adopted by many large, international groups and moderates the effect of
oil and gas price volatility.

The $1,200 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 5% of the 2019
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 predominately 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 ($2.6 billion), net impairments ($4.2 billion charge), fair value
accounting of commodity derivatives and certain gas contracts($0.6 billion gain),
redundancy and restructuring ($0.1 billion charge), and the aggregate of other
individually small items (net $0.8 billion charge).

The identified items excluded in 2018 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.

Performance materiality

What we mean

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 $1,200 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.

Level set

On the basis of our risk assessment, our judgement was that performance
materiality should be 75% (2018: 75%) of our overall materiality, namely $900
million (2018: $750 million). In assessing the appropriate level, we consider the
nature, the number and impact of the audit differences identified in 2018 as well
as the overall control environment.

In 2019, the range of performance materiality allocated to operating units was
$135 million to $450 million (2018: $113 million to $375 million). This is set out
in more detail in section 5 below.

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Shell Annual Report and Accounts 2019Financial StatementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

4. OUR APPLICATION OF MATERIALITY continued

Audit difference reporting threshold

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.

Level set

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.

We agreed with the Audit Committee that we would report to the Committee all audit differences more than $60 million (2018: $50 million), as well as differences below
that threshold that, in our view, warranted reporting on qualitative grounds.

5. 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 we 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 were in scope for group reporting purposes, included the following:
■ 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 2018 audit.

Selection of in-scope
operating units

We reassessed our audit scope for 2019 compared to 2018. 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 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.

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.

We selected 49 operating units (2018: 52) across 11 countries (2018: 11) based on their size or risk characteristics. We performed full scope
audits of the complete financial information of 17 operating units (2018: 19). For 32 operating units (2018: 33) we performed specific scope
audit procedures on individual account balances within the operating unit based on their size and risk profiles.

In addition to the 49 operating units (2018: 52) discussed above, we selected a further 41 operating units (2018: 38) where we performed
procedures at the operating unit level that were specified by the group engagement 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 92 (2018: 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 program, testing controls for the revenue and purchase to pay processes, including
IT general and IT application controls, segment level impairment reviews, procedures over the forecasts as they relate to deferred tax asset
recoverability and review of pension scheme assumptions.

For the remaining 614 operating units (2018: 637), 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, homogenous 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 706 operating units whereby we identified 210 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, specific, specified and group procedures is illustrated below. The summary is by Total assets, CCS earnings and
Revenue. Overall, our full, specific and specified procedures accounted for 70% 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.

The Parent Company is located in the United Kingdom and audited directly by the Group engagement team.

Full and
specific scope

Specified
procedures

Group
procedures

178

Shell Annual Report and Accounts 2019Financial Statements Full scope

Specific scope

Specified
procedures

Covered by
Group
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 2019 the range of materiality applied at the operating unit level
was $135 million to $450 million (2018: $113 million to $375 million). The operating units selected, together with the ranges of materiality
applied, were:

Location

Full scope operating units:

Australia, Qatar

Brazil, Nigeria, USA

USA

Segment / Function

Integrated gas

Upstream

Downstream

Barbados, Singapore, The Netherlands, UAE, UK, USA

Trading and Supply

Total full scope operating units

Specific scope operating units:

Malaysia, UK

Singapore, USA

Singapore, The Netherlands, UK, USA

Canada, Singapore, UAE, UK, USA

Total specific scope operating units

Total full and specific scope operating units

Upstream

Downstream

Corporate

Trading and Supply

No. of
operating units

Range of
materiality applied
$ million

180-270

135-450

180

135-180

Integrated group
engagement team
structure

The group engagement partner and Senior Statutory Auditor, Allister Wilson, has overall responsibility for the direction, supervision and
performance of the Shell audit engagement in compliance with professional standards and applicable legal and regulatory requirements.
He is supported by 24 segment and function partners and associate partners, who are based in the Netherlands and the UK, and who
together with related staff comprise the integrated group engagement team. This group engagement team established the overall group
audit strategy, communicated with component auditors, performed work on the consolidation process, and evaluated the conclusions
drawn from the audit evidence as the basis for forming Ernst & Young’s (EY) opinion on the group financial statements.

For the purpose of the group audit, the group engagement team is responsible for directing, supervising, evaluating and reviewing the
work of EY global network firms operating under their instruction (local EY teams) to assess whether:
■ the work was performed and documented to a sufficiently high standard;
■ 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

■ there is sufficient appropriate audit evidence to support the conclusions reached.

179

Shell Annual Report and Accounts 2019TotalAssets48%12%21%19%CCSEarnings35%13%22%30%Revenue51%32%11%6%Financial StatementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

5. OUR SCOPE OF THE AUDIT OF SHELL’S FINANCIAL STATEMENTS continued

Involvement with local
EY teams

Shell has centralised processes and controls over key areas within its BSCs. Members of the group engagement team provide direct oversight,
review, and coordination of our BSC audit teams. Our BSC 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 engagement team or by auditors from other local EY teams.

The group engagement team performed procedures directly on 92 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 engagement team to enable us to
conclude that sufficient appropriate audit evidence had been obtained.

The group engagement 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 each quarter to ensure that we were fully aware of their progress and
the results of their audit procedures.

During 2019, the Senior Statutory Auditor and other group audit partners, associate partners and directors visited operating units across eight
countries as well as each of Shell’s four BSCs. These visits included discussing the audit approach with the local EY teams and any issues
arising from their work, meetings with Shell local management, attending planning and closing meetings, and reviewing key audit working
papers on selected areas of audit risk. The visits also promoted deeper engagement with our local EY audit teams, ensuring that a consistent
and cohesive audit approach was adopted so as to drive a high-quality audit. The countries and the BSC locations visited were as follows:

Countries visited

Australia
Brazil [A]
India [A]
Nigeria [A]
The Netherlands [A]
Trinidad and Tobago
UK [A]
USA [A]

[A] These locations were visited multiple times.

BSCs

India [A]
Malaysia [A]
Philippines [A]
Poland [A]

6. OUR ASSESSMENT OF KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. 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 2019 Consolidated and Parent Company Financial Statements. In making this determination we
took the following into account:
■

the risks that we believed were significant to our audit and therefore required special audit consideration;

■ areas of higher assessed risk of material misstatement that influenced our audit focus;
■

significant audit judgements relating to areas in Shell’s Consolidated and Parent Company Financial Statements including accounting estimates that
we identified as having high estimation uncertainty;
the effect on our audit of significant events or transactions that occurred during the period; and
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 identified the following key audit matters that, in our professional judgement, were of most significance in our audit of Shell’s
2019 Consolidated and Parent Company Financial Statements. These matters included those that had the greatest effect on:
■ our overall strategy;
■

the allocation of resources in the audit; and

■ directing the efforts of our audit team.

The key audit matters have been addressed in the context of the audit of Shell’s Consolidated and Parent Company Financial Statements as a whole,
and in forming our opinions 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 Audit Committee.

In 2018, our auditor’s report included two key audit matters that have not been reported as key audit matters in our 2019 report. These relate to: (1)
Enhancements to Shell’s system of IT general controls, and (2) The recognition, measurement, presentation and disclosure of leases (IFRS 16). In the
current year, we have added two key audit matters that were not reported as key audit matters in our 2018 report. These relate to: (1) The estimation of
future refining margins to evaluate the recoverability of manufacturing, supply and distribution assets, and (2) The dividend distribution process, including
the determination of realised profits and losses for the purposes of making distributions under the Companies Act 2006 (Parent Company only).

180

Shell Annual Report and Accounts 2019Financial StatementsTHE ESTIMATION OF OIL AND GAS RESERVES, INCLUDING RESERVES USED IN THE CALCULATION OF DEPRECIATION,
DEPLETION AND AMORTISATION (DD&A), IMPAIRMENT TESTING TO EVALUATE THE RECOVERABLE AMOUNTS OF
PRODUCTION ASSETS AND THE ESTIMATION OF DECOMMISSIONING AND RESTORATION (D&R) PROVISIONS

Description of the key audit matter

Our response to the risk

This is a subjective estimate. Risk is unchanged
compared to 2018.

Our reserves audit team includes auditors with substantial oil and gas reserves expertise, valuation
experience and relevant qualifications in energy economics.

As described in Note 8 to the Consolidated
Financial Statements, production assets amounted
to $150,366 million, and have an associated DD&A
charge of $19,346 million. The accounting for these
financial statement amounts relies on management’s
estimation of proved oil and gas reserves. As described
in Note 8, impairment charges of $3,639 million were
recorded during the year. As described in Note 18,
D&R provisions amounted to $19,019 million.

At December 31, 2019, Shell reported 11,096 million
barrels of oil equivalent of proved developed
and undeveloped reserves.

Auditing the estimation of oil and gas reserves is complex
as there is significant estimation uncertainty in assessing the
quantities of Shell’s reserves and resources. The estimates
are based on a central group of experts’ assessments of
petroleum initially in place, production curves and certain
inputs, including future capital and operating cost
assumptions and future carbon costs.

In-year movements are driven by revisions of previous
estimates resulting from reclassifications, improved recovery
assumptions, extensions and discoveries and purchases and
sales of reserves in place. Revisions generally arise from new
information, for example additional drilling results, changes
in production patterns and changes to development plans.

Auditing these financial statement areas is complex
because of the use of the work of reservoir engineers and the
evaluation of the inputs selected by management described
above, which are used by reservoir engineers in estimating
proved oil and gas reserves.

The procedures we carried out included the following:
■ we obtained an understanding of the controls over Shell’s oil and gas reserves estimation

process. We then evaluated the design of these controls and tested their operating
effectiveness. For example, we tested management’s controls over completeness and accuracy
of the financial data provided to the reservoir engineers for use in estimating proved oil and gas
reserves;

■ we tested that significant additions or reductions in proved reserves had been made in the

period in which the new information became available;

■ we evaluated the professional qualifications and objectivity of Shell’s internal reservoir

engineers:
– who provide the detailed preparation of the reserve estimates; and
– those who are primarily responsible for providing independent review and challenge, and

ultimately endorsement of, the reserve estimates;

■ we evaluated the completeness and accuracy of the inputs used by the internal reservoir

engineers in estimating the economic limit test for proved oil and gas reserves determination by
agreeing the inputs to source documentation. The economic limit of a project is reached when
the operating cash flow from a project becomes negative. The economic limit test has a direct
impact on DD&A and impairment. Where relevant, we assessed whether the economic limit test
incorporated Shell’s estimate of future carbon costs to reflect the potential impact of climate
change and the energy transition. We also identified and evaluated corroborative and contrary
evidence by comparing actual to prior year forecasts;

■ for proved undeveloped reserves, we evaluated management’s development plan for

compliance with the SEC rule that undrilled locations must be scheduled to be drilled within five
years, unless specific circumstances justify a longer time. This evaluation was made by assessing
consistency of the development projections with Shell’s drilling, development and capital
expenditure plans;

■ we tested the proved undeveloped reserves recognised. Where volumes recognised remained
undeveloped for more than five years from the date they were booked, or where development
was not expected for at least five years, we assessed whether or not Shell was still working
towards development by comparing to future development plans, including capital expenditure
plans. Also, where reserves are recognised beyond current licence terms, we obtained evidence
to support the assumption that the licence would be renewed; and

■ we assessed whether the energy transition assumptions incorporate the commitments that Shell

have made with respect to decarbonisation in accordance with the Paris Agreement, specifically
considering reserve volumes expected to be lifted beyond 2030.

Our procedures were led by the group engagement team, with input from our teams in Australia,
Brazil, Canada, Kazakhstan, the Netherlands, Nigeria, Norway, Qatar, Russia and USA.

Key observations communicated to the Shell Audit Committee
In January 2020 we communicated to the Audit Committee that, based on the 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. We also reported that we saw no evidence
that the recognition of the reserve volumes expected to be lifted beyond 2030 results in the overstatement of Shell’s balance sheet by overstating the recoverable
amounts of Shell’s production assets or understatement of D&R liabilities.

Cross-reference: See the Audit Committee Report on page 130 for details on how the Audit Committee reviewed assurances for proved oil and gas reserves. Also, see Notes 2A and 8 to the
“Consolidated Financial Statements”, and Supplementary information – oil and gas (unaudited) on page 239.

181

Shell Annual Report and Accounts 2019Financial StatementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

6. OUR ASSESSMENT OF KEY AUDIT MATTERS continued

THE RECOVERABLE AMOUNTS OF EXPLORATION AND PRODUCTION ASSETS, AND INVESTMENTS IN JOINT
VENTURES AND ASSOCIATES

Description of the key audit matter

Our response to the risk

This is a forecast-based valuation. Risk is elevated
compared to 2018 due to increased focus on the
energy transition.

As described in Note 8 to the Consolidated Financial
Statements, at December 31, 2019, Shell recognised
$165 billion of exploration and production assets
within property, plant and equipment (PP&E). As
described in Note 9 Shell also recognised investments
in joint ventures and associates of $23 billion.

Assets’ operational performance and external factors have
a significant impact on the estimate of the recoverable
amounts of Shell’s Upstream and Integrated Gas assets.

Auditing the recoverable amounts of assets and investments
is complex and subjective due to the significant amount
of judgement involved. As described in Note 2A, the most
critical assumptions in forecasting future cash flows are
management’s view on the long-term oil and gas price
outlook, future expected production volumes and the
discount rate used. Forming a view on long-term oil and
gas prices is inherently difficult, in particular with significant
demand uncertainty due to factors such as world trade
disputes, political instability, fears over a global recession
and the pace of decarbonisation.

The audit procedures were performed by our group
engagement team as well as our local audit teams in
Australia, Brazil, Malaysia, Nigeria, Qatar, the UK and USA,
which covered 72% 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 PP&E balances in Argentina, Bolivia, Brunei,
Canada, Egypt, UAE, Iraq, Italy, Malaysia, the Netherlands,
Nigeria, Oman, Qatar, Russia, Tunisia, Trinidad and Tobago
and USA which covered an additional 16% of PP&E in the
Upstream and Integrated Gas segments.

We obtained an understanding of the controls over Shell’s asset impairment process. We then
evaluated the design of these controls and tested their operating effectiveness. For example, we
tested controls over the identification of cash generating units, of indicators of impairment and
reversals of impairment and the approval of key inputs to impairment assessments, including oil
and gas prices, discount rates and oil and gas reserves.

We evaluated Shell’s asset impairment methodology for both exploration and production assets
within PP&E and investments in joint ventures and associates. Where impairment assessments were
carried out, we tested the mathematical accuracy and completeness of the models used. For those
assets or investments impaired previously, we evaluated the actual results versus the assumptions
made and considered if reversals were required.

To test price assumptions, we compared future short and long-term commodity prices to consensus
analysts’ forecasts and those adopted by other international oil companies; we evaluated whether
prices were used consistently across Shell, including pricing differentials, and evaluated whether
Shell’s long-term price assumptions incorporated the potential impact of climate change and the
energy transition by comparing the assumptions to the International Energy Agency price outlook
in the Energy Outlook scenarios.

To test the discount rate used for impairment testing, we involved our oil and gas valuations
specialists to assist in evaluating, amongst other things, the methodology applied and assumptions
made. We also tested the underlying data used to support the discount rate calculation.

In order to evaluate the cash flow inputs of the impairment models, our procedures included the
following:
■ tested that operating expenditure profiles and capital costs to complete construction agreed to

approved operator budgets and management forecasts;

■ tested that carbon pricing was included in cash flows, where applicable;
■ reconciled reserves volumes in the impairment models and tested that the life-of-field

assumptions were consistent with those applied in the decommissioning and restoration
provision models; and

■ performed sensitivity analyses on key variables in the base case cash flow models to understand

the impact of changes in certain assumptions (including oil and gas prices, production and
operating expenditure levels).

We assessed the basis for adjusting the cash flows to reflect the risks of each individual asset. In so
doing, we considered the stage of the life of the asset, country risk and compared the consistency
of management assumptions across similar fields.

Where impairment tests were undertaken, we performed sensitivity analyses of the models using
different price scenarios and discount rates taking into account the nature of the asset, its location,
its stage of development and associated risks.

Key observations communicated to the Shell Audit Committee
We reported that our price analysis provided strong independent evidence to support the reasonableness of Shell’s commodity price assumptions in relation
to comparator benchmarks. Both oil and gas price assumptions have been reduced year on year and we noted that Shell’s oil price assumption was
conservative versus the sector and analysts; however, we noted that the gas price assumption remained at the top of sector estimates.

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 recorded were appropriately determined. Also, we reported that we were satisfied that there were not material impairment
reversals that were required to be recognised. Where impairment tests were undertaken and no impairment was recorded, we performed specific sensitivity
analyses on the key assumptions that drive the impairment analysis, and concluded that it was reasonable and supportable not to record an impairment charge.

Since early 2020, the COVID-19 (coronavirus) outbreak across China and elsewhere has caused disruption to business and economic activity and may ultimately
impact Shell’s future performance and asset values. In addition, an international dispute on or about March 7, 2020 has triggered an oil price war that caused
the largest one-day fall in the oil price since 1991. As part of our post balance sheet audit procedures, we have considered whether or not these events provide
evidence of conditions that existed at the balance sheet date. On March 10, 2020, we reported to the Audit Committee orally that both events are indicative
of conditions that arose after the balance sheet date, and that therefore they are both non-adjusting events that have no impact on our conclusions concerning
the recoverable amounts of Shell’s assets at the balance sheet date.

Cross-reference: See the Audit Committee Report on page 133 for details on how the Audit Committee considered impairments. Also, see Notes 2A, 8, 9 and 29 to the “Consolidated
Financial Statements”.

182

Shell Annual Report and Accounts 2019Financial StatementsTHE ESTIMATION OF FUTURE REFINING MARGINS TO EVALUATE THE RECOVERABILITY OF MANUFACTURING, SUPPLY
AND DISTRIBUTION ASSETS

Description of the key audit matter

Our response to the risk

This is a forecast-based assumption. Risk is elevated
compared to 2018 due to increased focus on the
energy transition.

We obtained an understanding of the controls over Shell’s process for the estimation of refining
margins. We then evaluated the design of these controls and tested their operating effectiveness.
For example, we tested controls over the approval of refining margins.

As described in Note 8 to the Consolidated Financial
Statements, manufacturing, supply and distribution
assets amounted to $56 billion. As described in Note
2A, forecast refining margins are a key input to:
■ assessing whether or not there are indicators
that refining assets might be impaired; and
■ whether there is a need for environmental

provisions.

Auditing future refining margins is inherently complex as
the margins are influenced by regional factors and there
is limited external refining margin forecast data available.
Shell’s approach to estimating long-term refining margins
focuses on the concept of mean reversion of markets, unless
a fundamental shift in markets has been identified, over an
asset’s life, as opposed to attempting to forecast refining
cycles. This approach is consistent with prior years, which
is based on Shell statistical analysis showing that refinery
margins and product cracking spreads have generally
reverted either to a constant mean or trending mean, thus
supporting the continued application of the mean reversion
methodology. Mean reversion methodology assumes that the
refining margin will revert to the average over time. In other
words, deviations from the average are expected to revert
to the average.

Our other procedures included the following:
■ we read Shell’s documentation with respect to their methodology for determining refining
margins and held discussions with the Shell individuals responsible for the analysis and
implementing Shell’s established methodology;

■ we involved our oil and gas valuations specialists to assess the reasonableness of Shell’s refining
margin estimation methodology, particularly in light of the expected impacts of a lower carbon
economy, by performing an independent research exercise based on third party information to
identify the long-term outlook for refining margins;

■ we assessed whether or not mean reversion is a valid methodology for forecasting refining
margins by performing several statistical tests over different time spans to examine possible
mean-reverting behaviour over the long-term as well as the short-term;

■ we independently calculated mean refining margins for the regional refining hubs of North West
Europe, Singapore-Dubai and United States Gulf Coast incorporating 14 years of data covering
the period 2006-2019;

■ we assessed the extent to which the reversion to mean analysis is compatible with the potential

of future energy transition by performing quantitative and qualitative analysis of refining
margins, which included developing econometric and machine learning models to project
refining margins, which incorporated the findings from the mean reversion trends;

■ to test the uncertainty related to how oil demand and refining capacity may evolve in the future,
we developed different sets of scenarios that are consistent with differing rates of renewable
energy adoption, including Shell’s “Sky Scenario” and compared to management’s refining
margin forecast;

■ we considered the impact of oil demand, refining capacity, business cycles, environmental

regulation, upcoming regulations, technology substitution and policy changes in our
performance of over 900 statistical tests;

■ In evaluating the refining margins, we read third party research papers that examine the

behaviour of refining margins from a statistical perspective; and

■ we used external broker reports to support our expectations with respect to future refining

margins and assessed whether or not management’s projections aligned with our independent
analysis.

The audit procedures were performed principally by the group engagement team.

Key observations communicated to the Shell Audit Committee
We reported to the Audit Committee in January 2020 that management’s approach to estimating refining margins is consistent with industry valuation practice
for refining assets. Our own empirical analysis corroborates Shell’s view that refining margins exhibit mean reversion in the long-term. It also indicates that, in the
long-term, falling refined product demand could create structural change in the refining sector (including the closure of higher-cost refineries), which will result in
asset returns that are commensurate with the underlying operating and financial risks.

Cross-reference: See the Audit Committee Report on page 133 for details on how the Audit Committee reviewed refining margins. Also see Notes 2A and 8 to the “Consolidated Financial
Statements”.

183

Shell Annual Report and Accounts 2019Financial StatementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

6. OUR ASSESSMENT OF KEY AUDIT MATTERS continued

RECOGNITION AND MEASUREMENT OF DEFERRED TAX ASSETS

Description of the key audit matter

Our response to the risk

This is an estimation based on uncertain outcomes.
The realisation of these assets is largely dependent
on generating substantial future profits. Risk is
elevated compared to 2018 due to increased
focus on the energy transition.

As described in Note 16 of the Consolidated Financial
Statements, at December 31, 2019, Shell recognised
gross DTAs totalling $28 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. 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.

We obtained an understanding of the controls over Shell’s process for the estimation of deferred
tax assets. We then evaluated the design of these controls and tested their operating effectiveness.
For example, we tested controls over projected sources of taxable income and the deferred tax
calculations that support the recognition of DTAs.

We considered the expected timing of utilisation of the DTA, including the relevant country tax
laws that apply to the utilisation of tax losses. This included the ability to carry tax losses forward
or back and any restrictions arising from ring fencing tax losses to particular projects.

We tested the forecast timing of the unwinding of taxable temporary differences by evaluating the
projected sources of taxable income and considering the nature of the temporary differences and
the relevant tax law.

For DTAs that are supported by forecast taxable profits or tax planning strategies, our procedures
included the following:
■ we performed sensitivity analyses over the commodity price and/or other key assumptions that

underpin Shell’s assessment of forecast probable taxable profits;

Auditing the recognition and measurement of DTAs
is complex because the estimation 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 DTA can be offset.

■ we evaluated 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, if applicable, or if losses are ring fenced
for tax purposes; and

■ we considered whether the tax balances were calculated using substantively enacted tax laws

and rates.

For the tax planning strategies necessary to justify the recognition of the DTA, we involved our
tax professionals to evaluate the application of tax law in the Company’s available tax planning
strategies, Shell’s assessment of its ability to carry forward losses, the scheduling of the reversal of
existing temporary taxable differences and carry forward amounts, and the evaluation of the
carry forward lives of its deferred tax assets.

Our audit procedures over the recognition and valuation of DTAs were performed by our tax
specialist teams in Australia, Brazil, Canada, Kazakhstan, Malaysia, The Netherlands, Nigeria,
Singapore, Qatar, the UK and USA, which covered 81% of the gross DTA balance. We also
performed specified procedures over the recognition and valuation of DTAs in Albania, Austria,
China, Egypt, France, Germany, Norway, Oman, Spain, Switzerland, Tanzania, Trinidad &
Tobago, Tunisia and Turkey, which covered an additional 22% of the gross DTA balance.

Key observations communicated to the Shell Audit Committee
We reported to the January 2020 meeting of the Audit Committee that we had challenged the robustness of 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 Audit Committee that the DTAs were appropriately recognised and valued at the year end.

Cross-reference: See the Audit Committee Report on page 133 for details on how the Audit Committee reviewed certain tax matters, in particular the recoverability of deferred tax assets. Also
see Notes 2A and 16 to the “Consolidated Financial Statements”.

184

Shell Annual Report and Accounts 2019Financial StatementsREVENUE RECOGNITION: THE RISK OF UNREALISED TRADING GAINS AND LOSSES BEING RECOGNISED AS A RESULT
OF ERRORS, UNAUTHORISED TRADING ACTIVITY OR DELIBERATE MISSTATEMENT OF SHELL’S TRADING POSITION

Description of the key audit matter

Our response to the risk

We obtained an understanding of the controls over Shell’s process for the recognition of revenue
relating to unrealised trading gains and losses. We then evaluated the design of these controls and
tested their operating effectiveness. For example, we tested controls within the front-to-end deal
lifecycle across the trading and supply function around the review of valuation models.

Our trading audit professionals comprise of individuals who have significant experience of
auditing both large commodity trading organisations and financial institutions.

The other procedures we performed included the following:
■ we enquired whether or not there were any breakdowns of trading controls or instances of

rogue trading reported or known or suspected frauds;

■ we obtained external confirmation of a sample of open trading positions with brokers and

counterparties;

■ where external confirmations were not received, we tested the existence of the deal by

agreement to signed contracts;

■ we compared the price curves used by Shell to value the trading positions to external data;
■ we performed independent testing of valuation models, evaluating contract terms and key

assumptions to independent market quotes; and

■ we tested the completeness of the amounts recorded in the financial statements through

procedures to search for unrecorded liabilities by comparing sales and trade receivables and
purchases and trade payables that occurred near the end of the financial year to evaluate
whether or not transactions were recorded in the correct period.

The audit procedures were performed principally by the group engagement team and the UK
and US component teams.

This is a risk of error in revenue due to the
complexity of Shell’s trading and supply function.
Risk is unchanged compared to 2018.

As described in Note 4 to the Consolidated Financial
Statements, at December 31, 2019, Shell recognised
$345 billion of revenue. As described in Note 19,
Shell recognised derivative financial instrument
assets of $8 billion and $7 billion of
derivative financial instrument liabilities.

The recognition of unrealised trading gains and losses is a
complex audit area. There is an inherently higher risk of error,
of unauthorised trading activity or of deliberate misstatement
of the group’s overall trading position.

Shell’s trading and supply function is integrated within the
Downstream, Integrated Gas and Upstream segments and
is spread across multiple regions. The trading and supply
function is inherently complex due to, amongst other things,
the fact that trading is not always carried out in active markets
where prices are readily available. This exposes Shell to
risks that are not normally associated with core oil and
gas activities.

Auditing unrealised trading gains and losses is complex
because of the significant judgement used in determining the
key assumptions used in valuing the trades, the risk of error,
of unauthorised trading activity or of 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.

Key observations communicated to the Shell Audit Committee
In March 2020, we reported to the Audit Committee that:
■ the valuation of derivative contracts as at December 31, 2019 was appropriate;
■ our testing – through a combination of controls testing and substantive audit procedures – satisfied us that the models used to value contracts were

appropriate for the purposes of the valuations included in Shell’s Consolidated Financial Statements;

■ the unrealised gains and losses had been recorded appropriately; and
■ our completeness testing did not identify any unrecorded liabilities or significant cut-off issues.

Cross-reference: See the Audit Committee Report on page 130 on how the Audit Committee reviewed Trading and Supply’s control framework. Also see Note 19 to the “Consolidated
Financial Statements”.

185

Shell Annual Report and Accounts 2019Financial StatementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

6. OUR ASSESSMENT OF KEY AUDIT MATTERS continued

THE DIVIDEND DISTRIBUTION PROCESS, INCLUDING THE DETERMINATION OF REALISED PROFITS AND LOSSES FOR THE
PURPOSES OF MAKING DISTRIBUTIONS UNDER THE COMPANIES ACT 2006

Description of the key audit matter

Our response to the risk

This is a risk of non-compliance with laws and
regulations. This key audit matter relates to the
Parent Company only.

RDS plc has $19 billion of distributable profits. At
December 31, 2019, Shell distributed $15 billion of
dividends and repurchased $10 billion of shares.

There is considerable public interest in ensuring that
companies pay dividends and buy back shares out of
profits available for distribution. Shell is both one of the
world’s highest dividend-paying companies and has a
significant share buyback programme.

The legal framework applicable to UK companies for
determining profits available for distribution is contained
in both the Companies Act 2006 and complementary
technical guidance. Under this framework, distributions are
made by individual companies and not by groups. The Shell
Consolidated Financial Statements are therefore not relevant
for the purpose of determining Shell’s profits available for
distribution. Whether or not a distribution may be made by
Shell is determined by reference to Shell’s ‘relevant accounts’,
which are the Parent Company financial statements.

The procedures we performed included the following:
■ We obtained an understanding of the procedures performed by management to monitor the
profits available for distribution of the Parent Company. This included understanding the
processes to monitor profits available for distribution of the subsidiary entities paying
significant dividends to the Parent Company;

■ We tested management’s distributable reserve controls at both the Parent Company and

subsidiary entities that pay significant dividends, which are designed to ensure that there are
sufficient profits available for distribution prior to a dividend being proposed and approved.
Our testing included a review of management’s analysis of non-distributable profits or losses.
We also assessed the completeness of the non-distributable profits or losses identified;
■ We analysed transactions that impacted significantly the retained earnings of the Parent

Company and subsidiary entities paying significant dividends and considered whether any
of these transactions do not meet the criteria of distributable profits or losses. We considered
whether operating and financial circumstances existed that could result in a dividend block
within the group structure;

■ We reviewed management’s analysis of profits available for distribution in the Parent Company
and compared this to the expected future dividends and share buy-back commitments. We
also reperformed the calculation of distributable profits available for distribution of the Parent
Company by reference to the relevant accounts;

■ We compared the market capitalisation of Shell with the carrying amount of the investment held

by the Parent Company that directly and indirectly holds the investments of Shell to assess
whether there was any indication that the asset may be impaired. We compared the carrying
value of the investment to its recoverable amount in order to identify any impairment that could
have a direct impact on profits available for distribution; and

■ We satisfied ourselves that dividends paid and shares repurchased in 2019 were allowable,
by reference to the most recent relevant accounts, for the purposes of making distributions
under the Companies Act 2006.

The audit procedures were performed principally by the group engagement team and the
UK component team.

Key observations communicated to the Shell Audit Committee
In January 2020, we reported to the Audit Committee that:
■ the procedures performed by management to monitor the profits available for distribution of the Parent Company and subsidiary entities paying significant

dividends to the Parent Company were appropriate;

■ the analysis performed by management to identify non-distributable profits or losses and expected future commitments or operating and financial circumstances

that could result in a dividend block is appropriate; and

■ through a combination of controls testing and substantive audit procedures, we are satisfied that the profits available for distribution, by reference to the

relevant accounts, were sufficient to support the dividends paid and declared and share buy-backs made by the Parent Company.

Cross-reference: See Note 23 to the “Consolidated Financial Statements” and Note 8 to the “Parent Company Financial Statements”.

186

Shell Annual Report and Accounts 2019Financial Statements7. OTHER INFORMATION AND MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
The other information comprises the information included in the Annual Report set out on pages 1 to 171 and 239 to 256 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 the table below, we have outlined our responsibility for the other information in the
Annual Report and the matters we would like to draw to your attention.

STRATEGIC REPORT AND THE DIRECTORS’ REPORT

Our responsibility
We are required to report whether, based on the work undertaken in the course of the audit:
■ 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.

Our reporting
In our opinion, based on the work undertaken in the course
of the audit, 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 they have been prepared
in accordance with applicable legal requirements.

We are required to report by exception whether, in the light of the knowledge and understanding of
the group and the parent company and its environment obtained in the course of the audit, we have
identified material misstatements in the strategic report or the directors’ report.

Our reporting
We have nothing to report by exception.

PRINCIPAL RISKS, GOING CONCERN AND VIABILITY STATEMENT

Our responsibility
ISA(UK) requires us to report to you whether we have anything material to add or draw attention to:
■ the disclosures in the Annual Report set out on pages 27 to 36 that describe the principal risks and cross

Our reporting
We have nothing material to add or draw attention
to with regard to any of these matters.

refer to where there are explanations of how the risks are being managed or mitigated;

■ the Directors’ confirmation set out on page 169 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;

■ the Directors’ statement set out on page 171 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;

■ 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

■ the Directors’ explanation set out on pages 165 to 166 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.

FAIR, BALANCED AND UNDERSTANDABLE SET OUT ON PAGE 171

Our responsibility
We are required to consider whether 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.

OTHER INFORMATION

Our responsibility
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.

DIRECTORS’ REMUNERATION REPORT

Our responsibility
We are required to report whether the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act 2006.

Our reporting
In the context of our responsibilities on other information,
we have nothing to report.

Our reporting
We have nothing to report in this regard.

Our reporting
In our opinion, the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.

We are also required to report by exception whether certain disclosures of directors’ remuneration
specified by law are not made.

Our reporting
We have nothing to report by exception.

187

Shell Annual Report and Accounts 2019Financial StatementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

7. OTHER INFORMATION AND MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION continued

DIRECTORS’ STATEMENT OF COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE SET OUT ON PAGES 115 to 116

Our responsibility
We are required to consider whether 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 properly disclose a departure from
a relevant provision of the UK Corporate Governance Code.

Our reporting
In the context of our responsibilities on other information,
we have nothing to report.

AUDIT COMMITTEE REPORTING SET OUT ON PAGES 139 TO 134

Our responsibility
We are required to consider whether the section describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit Committee.

Our reporting
We have nothing to report by exception.

OTHER REPORTING

Our responsibility
Under the Companies Act 2006, we are required to report to you by exception if, in our opinion:
■ 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

■ 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
■ we have not received all the information and explanations we require for our audit.

Our reporting
We have nothing to report by exception.

8. RESPONSIBILTIES OF THE DIRECTORS
As explained more fully in the statement of Directors’ responsibilities set out on page 171, 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.

9. OUR 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.

10. 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.

Our approach was as follows:
■ 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;

■ 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
Audit Committee and correspondence received from regulatory bodies and noted that there was no contradictory evidence;

188

Shell Annual Report and Accounts 2019Financial Statements ■ We assessed the susceptibility of Shell’s Consolidated Financial Statements to material misstatement, including how fraud might occur, by embedding

forensic specialists into our group engagement team. Our forensic specialists worked with the group engagement 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;

■ 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
If any instances 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.

11. OTHER MATTERS WE ARE REQUIRED TO ADDRESS
Following the recommendation of the Audit Committee we were re-appointed by Royal Dutch Shell plc’s Annual General Meeting (AGM) on
May 21, 2019, as auditors of Royal Dutch Shell to hold office until the conclusion of the next AGM of the Company, and signed an engagement
letter on May 22, 2019. Our total uninterrupted period of engagement is four years covering periods from our appointment through to the period
ending December 31, 2019.

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 Audit Committee explaining the results of our audit.

12. 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

ALLISTER WILSON
Senior Statutory Auditor
for and on behalf of Ernst & Young LLP
London
March 11, 2020

[A] 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.

[B] Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

189

Shell Annual Report and Accounts 2019Financial StatementsCONSOLIDATED
FINANCIAL
STATEMENTS

Consolidated Statement of Income

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Note 1 Basis of preparation

Note 2A Significant accounting policies, judgements and estimates

Note 2B Changes to IFRS not yet adopted

Note 3 Adoption of IFRS 16 Leases

Note 4 Segment information

Note 5 Interest and other income

Note 6 Interest expense

Note 7 Intangible assets

Note 8 Property, plant and equipment

Note 9 Joint ventures and associates

Note 10 Investments in securities

Note 11 Trade and other receivables

Note 12 Inventories

Note 13 Cash and cash equivalents

Note 14 Debt and lease arrangements

Note 15 Trade and other payables

Note 16 Taxation

Note 17 Retirement benefits

Note 18 Decommissioning and other provisions

Note 19 Financial instruments

Note 20 Share capital

Note 21 Share-based compensation plans and shares held in trust

Note 22 Other reserves

Note 23 Dividends

Note 24 Earnings per share

Note 25 Legal proceedings and other contingencies

Note 26 Employees

Note 27 Directors and Senior Management

Note 28 Auditor’s remuneration

Note 29 Post-balance sheet events

191

192

193

194

195

203

204

206

209

210

213

214

215

216

220

223

226

227

232

233

235

237

238

190

wShell Annual Report and Accounts 2019Financial StatementsCONSOLIDATED 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, net of tax

Items that may be reclassified to income in later periods:

Currency translation differences

Unrealised gains on securities [A]

Debt instruments remeasurements [A]

Cash flow and net investment hedging (losses)/gains

Deferred cost of hedging [A]

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 [A]

Share of other comprehensive income of joint ventures and associates [A]

Total

Other comprehensive (loss)/income for the period

Comprehensive income for the period

Comprehensive income attributable to non-controlling interest

Comprehensive income attributable to Royal Dutch Shell plc shareholders

Notes

2019

2018

$ million

2017

344,877

388,379

305,179

3,604

3,625

352,106

252,983

26,438

10,493

962

2,354

28,701

4,690

4,106

4,071

396,556

294,399

26,970

11,360

986

1,340

22,135

3,745

4,225

2,466

311,870

223,447

26,652

10,509

922

1,945

26,223

4,042

326,621

360,935

293,740

25,485

9,053

16,432

590

15,842

1.97

1.95

35,621

11,715

23,906

554

23,352

2.82

2.80

Notes

2019

16,432

2018

23,906

344

(3,172)

(267)

(76)

(2,102)

(30)

(2,130)

(2,034)

14,398

625

13,773

(15)

730

(209)

(10)

(2,676)

3,588

(153)

193

3,628

952

24,858

383

24,475

18,130

4,695

13,435

458

12,977

1.58

1.56

$ million

2017

13,435

5,156

593

(552)

170

5,367

604

5,971

19,406

578

18,828

191

[A] Changes in line items from 2018 onwards compared with 2017 are the result of the implementation of IFRS 9 Financial Instruments, effective from January 1, 2018.

wShell Annual Report and Accounts 2019Financial StatementsCONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET

Notes

Dec 31, 2019

Dec 31, 2018

$ million

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

Derivative financial instruments

Current assets

Inventories

Trade and other receivables

Derivative financial instruments

Cash and cash equivalents

Total assets

Liabilities

Non-current liabilities

Debt

Trade and other payables

Derivative financial instruments

Deferred tax

Retirement benefits

Decommissioning and other provisions

Current liabilities

Debt

Trade and other payables

Derivative financial instruments

Taxes payable

Retirement benefits

Decommissioning and other provisions

Total liabilities

Equity

Share capital

Shares held in trust

Other reserves

Retained earnings

Equity attributable to Royal Dutch Shell plc shareholders

Non-controlling interest

Total equity

Total liabilities and equity

Signed on behalf of the Board

/s/ Jessica Uhl

JESSICA UHL
Chief Financial Officer
March 11, 2020

192

23,486

238,349

22,808

2,989

10,524

4,717

8,085

689

23,586

223,175

25,329

3,074

12,097

6,051

7,826

574

311,647

301,712

24,071

43,414

7,149

18,055

92,689

404,336

81,360

2,342

1,209

14,522

13,017

21,799

21,117

42,431

7,193

26,741

97,482

399,194

66,690

2,735

1,399

14,837

11,653

21,533

134,249

118,847

15,064

49,208

5,429

6,693

419

2,811

79,624

213,873

657

(1,063)

14,451

172,431

186,476

3,987

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

190,463

202,534

404,336

399,194

Shell Annual Report and Accounts 2019Financial Statements(917)

16,794

177,733

194,306

3,456

197,762

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Equity attributable to Royal Dutch Shell plc shareholders

Share capital
(see Note 20)

Shares
held in trust

Other
reserves
(see Note 22)

Retained
earnings

Total

Non-
controlling
interest

$ million

Total
equity

(1,260)

16,615

182,606

198,646

3,888

202,534

–

182,610

198,650

3,888

202,538

At January 1, 2019 (as previously published)

Impact of IFRS 16 [A]

At January 1, 2019 (as revised)

Comprehensive income/(loss) for the period

Transfer from other comprehensive income

Dividends (see Note 23)

Repurchases of shares [B]

Share-based compensation

Other changes in non-controlling interest

At December 31, 2019

At January 1, 2018 (as previously published)

Impact of IFRS 9

At January 1, 2018 (as revised)

Comprehensive income for the period

Transfer from other comprehensive income

Dividends (see Note 23)

Repurchases of shares [B]

Share-based compensation [C]

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

Share-based compensation

Other changes in non-controlling interest

685

–

685

–

(28)

–

657

696

–

696

–

(11)

–

685

683

–

(1,260)

–

197

–

16,615

(2,069)

(74)

–

(49)

–

15,842

13,773

(15,198)

(10,286)

(613)

–

(15,198)

(10,286)

(465)

(1,063)

(917)

–

14,451

16,932

(138)

172,431

186,476

177,645

194,356

(50)

–

(343)

–

(1,260)

(901)

–

(16)

–

1,123

(971)

–

(342)

–

16,615

11,298

5,851

–

(13)

(204)

–

23,352

24,475

971

(15,675)

(4,519)

693

–

(15,675)

(4,519)

182,606

198,646

175,566

186,646

12,977

(15,628)

4,751

(74)

18,828

(15,628)

4,751

(294)

625

–

(537)

–

3,987

3,456

–

14,398

–

(15,735)

(10,286)

(465)

190,463

197,812

(50)

383

–

(586)

–

635

3,888

1,865

578

(406)

–

1,419

3,456

24,858

–

(16,261)

(4,519)

686

202,534

188,511

19,406

(16,034)

4,751

(294)

1,472

197,812

At December 31, 2017

696

(917)

16,932

177,645

194,356

[A] See Note 3.
[B] The repurchase of shares recognised through retained earnings includes the aggregate maximum consideration to which Shell is contractually bound under the current tranche of the buyback

programme, plus associated stamp duty (see Note 20).

[C] 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 classified as equity-settled from 2018 onwards.

193

Shell Annual Report and Accounts 2019Financial StatementsCONSOLIDATED FINANCIAL STATEMENTS continued

CONSOLIDATED STATEMENT OF CASH FLOWS

Income before taxation for the period [A]

Adjustment for:

Interest expense (net)

Depreciation, depletion and amortisation

Exploration well write-offs

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

(Increase)/decrease in inventories

(Increase)/decrease in current receivables

(Decrease)/increase in current payables

Derivative financial instruments

Retirement benefits [A]

Decommissioning and other provisions [A]

Other [A]

Tax paid

Cash flow from operating activities

Capital expenditure

Investments in joint ventures and associates

Investment in equity securities [A]

Proceeds from sale of property, plant and equipment and businesses

Proceeds from sale of joint ventures and associates

Proceeds from sale of equity securities [A]

Interest received

Other investing cash inflows [A]

Other investing cash outflows [A]

Cash flow from investing activities

Net decrease in debt with maturity period within three months

Other debt:

New borrowings

Repayments

Interest paid

Derivative financial instruments [B]

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

(Decrease)/increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Notes

2019

25,485

3,705

28,701

1,218

(2,519)

(3,604)

4,139

(2,635)

(921)

(1,223)

(1,484)

(365)

(686)

(28)

(7,605)

42,178

(22,971)

(743)

(205)

4,803

2,599

469

911

2,921

2018

35,621

2,878

22,135

449

(3,265)

(4,106)

4,903

2,823

1,955

(1,336)

799

390

(1,754)

1,264

(9,671)

53,085

(23,011)

(880)

(187)

4,366

1,594

4,505

823

1,373

(3,563)

(2,242)

(15,779)

(13,659)

(308)

(396)

$ million

2017

18,130

3,365

26,223

897

(1,640)

(4,225)

4,998

(2,079)

(2,577)

2,406

(1,039)

(654)

(1,706)

(142)

(6,307)

35,650

(20,845)

(595)

(93)

8,808

2,177

2,636

724

2,909

(3,750)

(8,029)

(869)

760

(11,720)

(3,550)

11,185

(14,292)

(4,649)

(48)

–

(15,198)

(537)

(10,188)

(1,174)

3,977

(11,912)

(3,574)

678

293

(15,675)

(10,877)

(584)

(3,947)

(1,115)

(406)

–

(717)

(35,209)

(32,548)

(27,086)

124

(8,686)

26,741

18,055

(449)

6,429

20,312

26,741

647

1,182

19,130

20,312

[A] With effect from 2019, the starting point for the Consolidated Statement of Cash Flows is ‘Income before taxation’ (previously ‘Income’). Furthermore, to improve transparency, 'Retirement benefits'
and 'Decommissioning and other provisions' have been separately disclosed. The 'Other' component of cash flow from investing activities has been expanded to distinguish between cash inflows
and outflows. Prior period comparatives for these line items have been revised to conform with current year presentation. Overall, the revisions do not have an impact on cash flow from operating
activities, cash flow from investing activities or cash flow from financing activities, as previously published.

[B] As from 2019, a new line item 'Derivative financial instruments' has been introduced for derivatives related to debt.

194

Shell Annual Report and Accounts 2019Financial Statements
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 2A, 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, 2019
(see Note 3 below).

The Consolidated Financial Statements were approved and authorised for
issue by the Board of Directors on March 11, 2020.

2A – 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.
It includes the measurement bases used in preparing the Consolidated
Financial Statements. 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, 2019 of IFRS 16
Leases (“IFRS 16”), amendments to IAS 19 Employee Benefits (“IAS 19”)
and the Annual Improvement Cycle 2015-2017.

Mandatory
The impact of the transition to the accounting pronouncements as listed
below have an immaterial impact other than for IFRS 16.

IFRS 16 Leases
Under IFRS 16, all lease contracts, with limited exceptions, are recognised
in the financial statements by way of right-of-use assets and corresponding
lease liabilities. Shell applied the modified retrospective transition method,
and consequently comparative information is not restated. As a practical
expedient, no reassessment was performed of contracts that were
previously identified as leases and contracts that were not previously
identified as containing a lease applying IAS 17 Leases (“IAS 17”) and
IFRIC 4 Determining whether an Arrangement contains a Lease. At
the adoption date, additional lease liabilities were recognised for leases
previously classified as operating leases applying IAS 17 (see Note 3).
These lease liabilities were measured at the present value of the remaining
lease payments and discounted using entity-specific incremental
borrowing rates at January 1, 2019. In general, a corresponding
right-of-use asset was recognised for an amount equal to each lease
liability, adjusted by the amount of any prepaid or accrued lease
payment relating to the specific lease contract, as recognised on the
balance sheet at December 31, 2018. Provisions for onerous lease
contracts at December 31, 2018 were adjusted to the respective
right-of-use assets recognised at January 1, 2019.

The adoption of the new standard had an accumulated impact of
$4 million on equity following the recognition of lease liabilities of
$16.0 billion and additional right-of-use assets of $15.6 billion and
reclassifications mainly related to pre-paid leases and onerous
contracts previously recognised (see Note 3).

IAS 19 Employee Benefits
IAS 19 specifies how a company accounts for a defined benefit plan.
When a plan event (i.e., a plan amendment, curtailment or settlement)
occurs, IAS 19 requires a company to update its assumptions and
remeasure its net defined benefit liability or asset. The IAS 19 amendments
that are adopted clarify that after a plan event, entities would use these
updated assumptions to measure current service cost and net interest for
the remainder of the reporting period after the plan event. These
amendments had no impact on Shell.

Annual Improvement Cycle 2015-2017
The Annual Improvements to IFRS Standards 2015-2017 Cycle includes
minor amendments affecting IFRS 3 Business combinations, IFRS 11 Joint
arrangements, IAS 12 Income taxes, and IAS 23 Borrowing costs. None
of the amendments had a material impact on Shell.

IFRIC 23 Uncertainty over income tax treatments (“IFRIC 23”)
IFRIC 23 clarifies the recognition and measurement for income tax when
it is unclear whether a taxation authority will accept the tax treatment
claimed. An uncertain tax position arises where there is more than one
possible interpretation of how tax regulations apply to a given transaction
or event. The interpretation requires the Company to determine whether
uncertain tax treatments are assessed separately or as a group. The
interpretation also requires an assumption that a taxation authority has full
knowledge of all relevant information. Where it is not probable that a
taxation authority will accept an uncertain tax treatment, it requires the
Company to reflect the effect of the uncertainty in the accounting tax
position. Finally, reassessment should be performed on a yearly basis in
the event of changes in facts and circumstances.

Based on the assessment performed, this interpretation had no material
impact on Shell’s uncertain income tax accounting positions recognised.

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, 2019,
can be found in ‘Appendix 1: Significant Subsidiaries and Other
Related Undertakings’.

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) are recognised in income. This is

195

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

2A – SIGNIFICANT ACCOUNTING POLICIES,
JUDGEMENTS AND ESTIMATES continued
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 to which Shell expects to be entitled,
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 primarily for the purpose of being
traded 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 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
the recapitalisation of depreciation, 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.

PROPERTY, PLANT AND EQUIPMENT AND
INTANGIBLE ASSETS
Recognition
Property, plant and equipment comprise assets owned by Shell, assets
held by Shell under lease contracts, 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.

196

Shell Annual Report and Accounts 2019Financial StatementsAn 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 leases contracts 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, potential costs
associated with operational GHG emissions, and forecast product and
refining margins. In addition, management takes into consideration the
expected useful lives of the refineries, and exploration and production
assets, and expected production volumes. The latter takes into account
assessments of field and reservoir performance and includes expectations
about both proved reserves and volumes that are expected to constitute
proved reserves in the future (unproved volumes), which are risk-weighted
utilising geological, production, recovery and economic projections. Cash
flow estimates are risk-adjusted to reflect local conditions as appropriate
and discounted at a rate based on Shell’s marginal cost of debt.

Impairments, except those related to goodwill, are reversed as applicable
to the extent that the events or circumstances that triggered the original
impairment have changed.

Impairment 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 a central group of reserves experts.
The estimated proved reserves are made 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.

197

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

LEASES (from January 1, 2019)
A contract or parts of contracts, that conveys the right to control the use
of an identified asset for a period of time in exchange for payments to be
made to the owners (lessors) are accounted for as leases. Contracts are
assessed to determine whether a contract is, or contains, a lease at the
inception of a contract or when the terms and conditions of a contract are
significantly changed. The lease term is the non-cancellable period of a
lease, together with contractual options to extend or to terminate the
lease early, where it is reasonably certain that an extension option
will be exercised or a termination option will not be exercised.

At the commencement of a lease contract, a right-of-use asset and a
corresponding lease liability are recognised, unless the lease term is
12 months or less. The commencement date of a lease is the date the
underlying asset is made available for use. The lease liability is measured
at an amount equal to the present value of the lease payments during the
lease term that are not paid at that date. The lease liability includes
contingent rentals and variable lease payments that depend on an index,
rate, or where they are fixed payments in substance. The lease liability is
remeasured when the contractual cash flows of variable lease payments
change due to a change in an index or rate when the lease term changes
following a reassessment.

Lease payments are discounted using the interest rate implicit in the lease.
If that rate is not readily available, the incremental borrowing rate is
applied. The incremental borrowing rate reflects the rate of interest that
the lessee would have to pay to borrow over a similar term, with a similar
security, the funds necessary to obtain an asset of a similar nature and
value to the right-of-use asset in a similar economic environment.

In general, a corresponding right-of-use asset is recognised for an amount
equal to each lease liability, adjusted by the amount of any pre-paid lease
payment relating to the specific lease contract. The depreciation on
right-of-use assets is recognised in income unless capitalised as
exploration drilling cost (see ‘Exploration cost’) or capitalised when the
right-of-use asset is used to construct another asset.

Where Shell is the lessor in a lease arrangement at inception, the lease
arrangement will be classified as a finance lease or an operating lease.
Classification is based on the extent to which the risks and rewards
incidental to ownership of the underlying asset lie with the lessor or
the lessee.

Where Shell, usually in its capacity as operator, has entered into a lease
contract on behalf of a joint arrangement, a lease liability is recognised
to the extent that Shell has primary responsibility for the lease liability.
A finance sub-lease is subsequently recognised if the related right-of-use
asset is subleased to the joint arrangement. This is usually the case when
the joint arrangement has the right to direct the use of the asset.

2A – SIGNIFICANT ACCOUNTING POLICIES,
JUDGEMENTS AND ESTIMATES continued

Judgements and estimates continued
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, potential
costs associated with operational GHG emissions, 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 affect the rate used to discount future cash flow
estimates or the risk-adjustment in the future cash flows.

Estimation is involved with respect to the expected life of refineries and
chemicals sites, and also including management’s view on the future
development of refining margins.

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 estimates
Future commodity 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.

Forecast refining margins are a key input for impairment testing in
Downstream. Management’s estimate of longer-term refining margins
is based on the mean reversion of markets, unless a fundamental shift
in markets has been identified, over the life of the refineries. Under this
approach, that is consistently applied, it is assumed that refining
margins will revert to historical averages over time.

Changes in assumptions could affect the carrying amounts of assets
and estimation of environmental provisions. Any impairment losses
and reversals will affect income.

Information about the carrying amounts of assets and impairments is
presented in Notes 7 and 8.

198

Shell Annual Report and Accounts 2019Financial StatementsImpairment of the right-of-use asset
Right-of-use assets are subject to existing impairment requirements
as set out in ‘Property, plant and equipment’ (see Note 8).

Judgements and estimates
A lease term includes optional lease periods where it is reasonably
certain to exercise the option to extend or not to exercise the option to
terminate the lease. Determination of the lease term is subject to
judgement and has an impact on the measurement of the lease liability
and related right-of-use asset.

Where the rate implicit in the lease is not readily available, an
incremental borrowing rate is applied. This incremental borrowing rate
reflects the rate of interest that the lessee would have to pay to borrow
over a similar term, with a similar security, the funds necessary to obtain
an asset of a similar nature and value to the right-of-use asset in a similar
economic environment. Determination of the incremental borrowing
rate requires estimation. The incremental borrowing rate is determined
using the risk-free rate over a matched term, adjusted for factors such
as the credit rating of the lessee and the borrowing currency.

Significant estimate
The operating leases that were recognised on the balance sheet
following the adoption of IFRS 16 (see Note 3) were measured
applying an incremental borrowing rate at transition date to the future
payments under these lease contracts. To determine the incremental
borrowing rate for each lease contract, a risk-free rate at transition
date was applied, adjusted for other factors such as the credit rating of
the entity that entered into the lease contract, a country risk premium,
the impact of currency, an asset specific element and the term of the
lease contract. All factors are subject to estimation. If a higher or lower
incremental borrowing rate had been applied, the lease liability
and corresponding right-of-use asset would respectively have
been lower or higher. The incremental borrowing rate will not be
revised each period and will not result in a material adjustment to
the carrying amount of lease liability and right-of-use asset in the
future years.

LEASES (prior to January 1, 2019)
Agreements under which payments are made to owners in return for the
right to use an asset for a period are accounted for as leases. Leases that
transfer substantially all the risks and rewards of ownership are recognised
at the commencement of the lease term as finance leases within property,
plant and equipment and debt at the fair value of the leased asset or, if
lower, at the present value of the minimum lease payments. Finance lease
payments are apportioned between interest expense and repayments of
debt. All other leases are 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, 2019, can be found in
‘Appendix 1: Significant Subsidiaries and Other Related Undertakings’.

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 tax receivables and payables as well as deferred tax assets and
liabilities include provisions for uncertain income tax positions/treatments.

199

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

2A – SIGNIFICANT ACCOUNTING POLICIES,
JUDGEMENTS AND ESTIMATES continued
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. Provisions for uncertain income tax
positions/treatments are measured at the most likely amount or the
expected value, whichever method is more appropriate. Generally,
uncertain tax treatments are assessed on an individual basis, except
where they are expected to be settled collectively. It is assumed that
taxing authorities will examine positions taken if they have the right to
do so and that they have full knowledge of the relevant information. 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 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.

200

Shell Annual Report and Accounts 2019Financial StatementsOther 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.

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 Shell 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 losses 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 is also 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.

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.

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.

201

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

2A – SIGNIFICANT ACCOUNTING POLICIES,
JUDGEMENTS AND ESTIMATES continued
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.

Derivatives that are held primarily for the purpose of trading are
presented as current in the Consolidated Balance Sheet.

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.

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.

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.

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.

202

Shell Annual Report and Accounts 2019Financial StatementsUnless 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 in 2018, 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 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.

2B – CHANGES TO IFRS NOT YET ADOPTED
Inter-Bank Offered Rate (“IBOR”) Reform – Phase 1
Amendments to IFRS 9 Financial Instruments (“IFRS 9”) and IFRS 7
Financial Instruments: Disclosures (“IFRS 7”) were issued in September
2019. The amendments contain a temporary exception from applying
specific hedge accounting requirements pre-IBOR reform (Phase 1).
Further amendments to IFRS standards (Phase 2) are expected to
address potential financial reporting implications when an existing
interest rate benchmark is replaced with an alternative.

Shell’s fixed rate debt hedged to floating rate will be affected by the
market-wide replacement of London Inter-Bank Offered Rate (“LIBOR”)
to alternative risk-free reference rates, most significantly by reform of
dollar LIBOR.

The majority of Shell’s debt related interest rate and currency swaps
were designated in fair value hedge relationships at December 31, 2019.
In relation to the required prospective assessment of the existence of an
economic relationship between the hedged items and hedging instruments
for these hedge relationships, Shell will apply the temporary exception in
IFRS 9 on hedge relationships directly affected by the IBOR reform.
By applying the exception, Shell anticipates that the interest rate
benchmark on which the hedged risk is based is not altered as
a result of the IBOR reform.

The notional amount of hedging instruments designated in hedge
relationships affected by the reform, at December 31, 2019, was
$31,823 million.

A Group-wide project is in progress to manage the transition to
alternative benchmark rates.

203

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

At the transition date, the remaining lease payments were discounted,
as required under the transition approach chosen, using the incremental
borrowing rate as per the transition date of January 1, 2019. To determine
the incremental borrowing rate for each lease contract, a risk-free rate at
transition date was applied, adjusted for other factors such as the credit
rating of the entity that entered into the lease contract, a country risk
premium, the impact of currency, an asset specific element and the term
the lease contract. The weighted average incremental borrowing rate
applied upon transition was 7.2%.

Compared with the previous accounting for operating leases under IAS 17,
the application of the new standard has a significant impact on the
classification of expenditures and cash flows. It also impacts the timing of
expenses recognised in the statement of income. With effect from 2019,
expenses related to leases previously classified as operating leases are
presented under ‘Depreciation, depletion and amortisation’ and ‘Interest
expense’. Before 2019, these were mainly included in ‘Purchases,
Production and manufacturing expenses’, and ‘Selling, distribution and
administrative expenses’. Payments related to leases previously classified
as operating leases are presented under ‘Cash flow from financing
activities’ (before 2019 these were included in ‘Cash flow from operating
activities’ and ‘Cash flow from investing activities’).

The adoption of the new standard had an accumulated impact at January
1, 2019 of $4 million on equity following the recognition of lease liabilities
of $16.0 billion and additional right-of-use assets of $15.6 billion and
reclassifications mainly related to pre-paid leases and onerous contracts
previously recognised.

The reconciliation of differences between the operating lease
commitments disclosed under the prior standard and the additional
lease liabilities recognised on the balance sheet at January 1, 2019
is as follows:

2B – CHANGES TO IFRS NOT YET ADOPTED continued
IFRS 17 Insurance contracts (“IFRS 17”)
IFRS 17 was issued in 2017, and is currently envisaged to become effective
for annual reporting periods beginning on or after January 1, 2021 (the
IASB is presently reviewing the effective date, with a potential extension
by one or two years). 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 of evaluating the initial impact of this pronouncement.

3 – ADOPTION OF IFRS 16 LEASES
IFRS 16 was adopted as from January 1, 2019. All operating lease
contracts, with limited exceptions, were recognised on the balance sheet
by recognising right-of-use assets and corresponding lease liabilities at the
transition date. Shell applied the modified retrospective transition method,
and consequently comparative information is not restated. As a practical
expedient, no reassessment was performed of contracts that were
previously identified as leases and contracts that were not previously
identified as containing a lease applying IAS 17 Leases (“IAS 17”) and
IFRIC 4 Determining whether an Arrangement contains a Lease. At the
adoption date, additional lease liabilities were recognised for leases
previously classified as operating leases applying IAS 17. These lease
liabilities were measured at the present value of the remaining lease
payments and discounted using entity-specific incremental borrowing
rates at January 1, 2019. In general, a corresponding right-of-use asset
was recognised for an amount equal to each lease liability, adjusted by
the amount of any prepaid or accrued lease payments relating to the
specific lease contract, as recognised on the balance sheet at December
31, 2018. Provisions for onerous lease contracts at December 31, 2018
were adjusted to the respective right-of-use assets recognised at January
1, 2019. As a practical expedient the recognition exemption for leases with
a remaining term of less than 12 months from the adoption date was
applied upon adoption.

Lease liabilities reconciliation

Undiscounted future minimum lease payments under operating leases at December 31, 2018

Impact of discounting

Leases not yet commenced at January 1, 2019

Short-term leases

Long-term leases expiring before December 31, 2019

Other reconciling items (net)

Additional lease liability at January 1, 2019

Finance lease liability at December 31, 2018

Total lease liability at January 1, 2019

$ million

24,219

(5,167)

(2,586)

(277)

(192)

16,037

14,026

30,063

204

Shell Annual Report and Accounts 2019Financial StatementsThe detailed impact on the balance sheet at January 1, 2019, is as follows:

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

Current assets

Inventories

Trade and other receivables

Derivative financial instruments

Cash and cash equivalents

Total assets

Liabilities

Non-current liabilities

Debt

Trade and other payables [B]

Derivative financial instruments

Deferred tax

Retirement benefits

Decommissioning and other provisions [C]

Current liabilities

Debt

Trade and other payables

Derivative financial instruments

Taxes payable

Retirement benefits

Decommissioning and other provisions [C]

Total liabilities

Equity

Share capital

Shares held in trust

Other reserves

Retained earnings

Equity attributable to Royal Dutch Shell plc shareholders

Non-controlling interest

Total equity

Total liabilities and equity

Dec 31, 2018

IFRS 16 impact

Jan 1, 2019

$ million

23,586

223,175

25,329

3,074

12,097

6,051

7,826

574

–

15,558

–

(814)

–

23,586

238,733

25,329

3,074

12,097

6,051

7,012

574

301,712

14,744

316,456

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

399,194

–

21,117

42,500

7,193

26,741

97,551

14,813

414,007

13,125

(540)

–

(347)

12,238

2,912

(23)

–

(318)

2,571

14,809

–

14,813

79,815

2,195

1,399

14,837

11,653

21,186

131,085

13,046

48,865

7,184

7,497

451

3,341

80,384

211,469

685

(1,260)

16,615

182,610

198,650

3,888

202,538

414,007

205

[A] Mainly in respect of pre-paid leases.
[B] Mainly related to operating lease contracts that were measured at fair value under IFRS 3 Business Combinations following the acquisition of BG in 2016.
[C] Mainly in respect of onerous contracts.

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

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 (“LNG”)
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 turn 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 the Company’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.

With the adoption of IFRS 16, the interest expense on leases, formerly
classified as operating leases, is reported under the Corporate segment,
while depreciation related to the respective right-of-use assets is reported
in the segment making use of the assets. This treatment is consistent with
how formerly classified finance leases were treated.

Information by segment on a current cost of supplies basis is as follows:

2019

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 businesses

Other

Third-party and inter-segment purchases (CCS basis)

Production and manufacturing expenses

Selling, distribution and administrative expenses

Research and development expenses

Exploration expenses

Depreciation, depletion and amortisation charge, of which:

Impairment losses

Impairment reversals

Interest expense

Taxation charge/(credit) (CCS basis)

CCS earnings

Integrated Gas

Upstream

Downstream

Corporate

Total

$ million

41,322

4,280

1,791

263

–

282

(19)

23,498

5,768

716

181

281

6,238

579

–

104

2,242

8,628

9,965

36,448

379

2,180

–

1,888

292

7,168

11,545

452

2,073

17,003

2,576

–

534

5,954

4,195

293,545

1,132

1,725

266

–

297

(31)

264,966

9,088

9,280

329

–

5,413

627

(190)

1,241

6,277

–

(307)

916

899

(35)

(6)

449

–

3,978

(578)

(3,273)

344,877 [A][B]

41,860

3,588

3,625

899

2,519

207

295,626

26,438

10,493

962

2,354

28,701

3,782 [C]

(190) [D]

4,690

8,859

15,827

[A] Includes $3,760 million of revenue from sources other than from contracts with customers, which mainly comprises the impact of fair value accounting of commodity derivatives.
[B] In March 2019, the IFRS Interpretation Committee (“IFRIC”) finalised an agenda decision regarding 'Physical settlement of contracts to buy or sell a non-financial item (IFRS 9)'.
This agenda decision has been analysed and will be prospectively implemented from January 1, 2020. The impact will be limited to a reclassification within total revenue.

[C] Impairment losses comprise Property, plant and equipment ($3,639 million) and Intangible assets ($143 million).
[D] See Note 8.

206

Shell Annual Report and Accounts 2019Financial Statements2018

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 businesses

Other

Third-party and inter-segment purchases (CCS basis)

Production and manufacturing expenses

Selling, distribution and administrative expenses

Research and development expenses

Exploration expenses

Depreciation, depletion and amortisation charge, of which:

Impairment losses

Impairment reversals

Interest expense

Taxation charge/(credit) (CCS basis)

CCS earnings

Integrated Gas

Upstream

Downstream

Corporate

43,764

5,031

2,273

2,230

–

2,231

(1)

27,775

5,370

458

186

208

4,850

200

–

212

2,795

11,444

9,892

37,841

285

600

–

712

(112)

6,144

11,463

200

493

1,132

13,006

1,065

(1,265)

591

8,791

6,798

334,680

917

1,785

345

–

302

303,709

10,294

10,142

307

–

4,064

424

–

1,515

7,601

–

(222)

896

772

104

(157)

560

–

215

–

2,847

(1,270)

(1,479)

[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] Inter-segment revenue has been revised to amend for transactions within segments that were previously reported as inter-segment revenue, and vice versa.
[C] Impairment losses comprise Property, plant and equipment ($1,515 million) and Intangible assets ($181 million).
[D] See Note 8.
[E] Interest expense has been reclassified between segments compared with prior year.

2017

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 businesses

Other

Third-party and inter-segment purchases (CCS basis)

Production and manufacturing expenses

Selling, distribution and administrative expenses

Research and development expenses

Exploration expenses

Depreciation, depletion and amortisation charge, of which:

Impairment losses

Impairment reversals

Interest expense

Taxation charge/(credit) (CCS basis)

CCS earnings

Integrated Gas

Upstream

Downstream

Corporate

32,674

4,096

1,714

687

–

301

386

22,478

5,120

237

114

141

4,965

302

(10)

248

790

5,078

7,723

32,469

623

1,188

–

1,189

(1)

5,535

12,119

533

1,804

17,303

4,118

(605)

744

2,409

1,551

264,731

1,090

1,956

154

–

136

234,321

9,519

9,789

275

–

3,877

385

–

109

1,783

8,258

–

(129)

437

677

(254)

(106)

478

–

2,941

(636)

(2,416)

[A] Inter-segment revenue has been revised to amend for transactions within segments that were previously reported as inter-segment revenue, and vice versa.
[B] Impairment losses comprise Property, plant and equipment ($4,572 million) and Intangible assets ($233 million).
[C] See Note 8.

$ million

Total

388,379 [A]

43,789 [B]

4,121

4,071

772

3,265

337,629

26,970

11,360

986

1,340

22,135

1,696 [C]

(1,265) [D]

3,745 [E]

11,831

24,364

$ million

Total

305,179

37,655 [A]

4,164

2,466

677

1,640

149

262,354

26,652

10,509

922

1,945

26,223

4,805 [B]

(615) [C]

4,042

4,346

12,471

207

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

4 – SEGMENT INFORMATION continued

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

2019

15,827

2018

24,364

784

(194)

605

(559)

116

(15)

(458)

$ million

2017

12,471

1,252

(349)

964

Income for the period

16,432

23,906

13,435

Information by geographical area is as follows:

2019

Third-party revenue, by origin

98,455 [A]

139,916 [B]

83,212

23,294

344,877

Asia,
Oceania,
Africa

Europe

USA

Other
Americas

$ million

Total

Intangible assets, property, plant and equipment, joint ventures
and associates at December 31

[A] Includes $41,094 million that originated from the UK.
[B] Includes $84,282 million that originated from Singapore.
[C] Includes $24,696 million located in the UK.

2018

43,262 [C]

119,732

67,105

54,544

284,643

Asia,
Oceania,
Africa

Europe

USA

Other
Americas

$ million

Total

Third-party revenue, by origin

118,960 [A]

153,716 [B]

89,876

25,827

388,379

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

38,617 [C]

117,127

59,625

56,721

272,090

Asia,
Oceania,
Africa

Europe

USA

Other
Americas

Total

$ million

Third-party revenue, by origin

100,609 [A]

114,683 [B]

66,854

23,033

305,179

Intangible assets, property, plant and equipment, joint ventures
and associates at December 31

[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.

41,416 [C]

122,345

55,898

58,828

278,487

208

Shell Annual Report and Accounts 2019Financial Statements5 – 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 gains/(losses) on financing activities

Other

Total

2019

899

2,519

179

3,625

2018

772

104

3,265

(174)

104

4,071

$ million

2017

677

375

1,640

(453)

227

2,466

In 2019, net gains on sale of non-current assets and businesses arose mainly in respect of gains on the sale of Upstream assets in the USA and Denmark,
as well as Downstream assets in Saudi Arabia and China and Integrated Gas assets in Australia.

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, partly 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.

6 – INTEREST EXPENSE

Interest incurred and similar charges

Less: interest capitalised

Other net losses on fair value hedges of debt

Accretion expense

Total

2019

4,592 [A]

(752)

132

718

4,690

2018

3,550

(876)

169

902

3,745

$ million

2017

3,448

(622)

114

1,102

4,042

[A] Includes $2,186 million of interest expenses related to leases of which $1,137 million related to those leases which formerly would have been classified as operating leases (see Note 3).

The rate applied in determining the amount of interest capitalised in 2019 was 4.5% (2018: 4.0%; 2017: 3.0%). The rate increase in 2019 was mainly
driven by the weighted average rate for leases recognised upon the adoption of IFRS 16 Leases (see Note 3).

7 – INTANGIBLE ASSETS

2019

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

LNG off-take
and sales
contracts

Goodwill

$ million

Other

Total

14,338

10,365

6,392

31,095

674

(46)

–

(154)

–

586

(122)

1,260

(322)

14,973

10,211

6,866

32,050

622

135

(1)

768

14,205

3,293

3,594

876

(155)

–

4,014

6,197

354

(172)

3,782

3,084

7,509

1,365

(328)

8,564

23,486

209

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

7 – INTANGIBLE ASSETS continued

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

LNG off-take
and sales
contracts

Goodwill

$ million

Other

Total

14,154

10,429

331

(75)

(72)

–

(64)

–

14,338

10,365

6,106

659

(253)

(120)

6,392

492

173

(21)

(22)

622

13,716

2,432

3,585

925

(64)

–

3,293

7,072

370

(275)

(86)

3,594

2,798

30,689

990

(392)

(192)

31,095

6,509

1,468

(360)

(108)

7,509

23,586

Goodwill at December 31, 2019, principally related to the acquisition of BG Group plc in 2016, allocated to Integrated Gas ($4,897 million)
and Upstream ($5,967 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.

8 – PROPERTY, PLANT AND EQUIPMENT

Exploration and production

Exploration
and evaluation

Production

Manufacturing,
supply and
distribution

21,181

–

21,181

2,659

(5,442)

198

280,381

4,871

285,252

11,374

(11,253)

1,293

91,235

6,459

97,694

10,945

(3,683)

(139)

$ million

Other

Total

22,040

414,837

4,228

15,558

26,268

430,395

3,145

(456)

124

28,123

(20,834)

1,476

18,596

286,666

104,817

29,081

439,160

3,287

1,096

(440)

4,010

14,586

131,692

19,346

(15,567)

829

136,300

150,366

46,218

10,465

5,742

(2,981)

(107)

48,872

55,945

1,573

(437)

11,629

17,452

191,662

27,757

(19,425)

817

200,811

238,349

2019

Cost

At January 1 (as previously published)

Impact of IFRS 16 [A]

At January 1 (as revised)

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] See Note 3.

210

Shell Annual Report and Accounts 2019Financial Statements2018

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

Exploration and production

Exploration
and evaluation

Production

Manufacturing,
supply and
distribution

$ million

Other

Total

22,510

3,514

(4,443)

(400)

21,181

292,256

12,596

(19,643)

(4,828)

280,381

86,948

6,438

(667)

(1,484)

22,355

424,069

1,594

24,142

(814)

(25,567)

(1,095)

(7,807)

91,235

22,040

414,837

5,060

137,525

44,483

(979)

(608)

(186)

3,287

17,894

16,551

(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

Sales, retirements and other movements in 2019 related to sales of Shell’s 36.8% non-operating interest in the Danish Underground Consortium,
its 50% interest in the SASREF joint venture in Saudi Arabia and its 22.45% non-operating interest in the Caesar-Tonga asset in the Gulf of Mexico.

The carrying amount of property, plant and equipment at December 31, 2019, included $27,779 million (2018: $33,451 million) of assets under
construction. This amount excludes exploration and evaluation assets. The carrying amount at December 31, 2019, also included $1,401 million of assets
classified as held for sale (2018: $705 million).

The carrying amount of exploration and production assets at December 31, 2019, included rights and concessions in respect of proved and unproved
properties of $14,355 million (2018: $15,860 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, 2019, for which an alternative reserves base was applied in the calculation of the depreciation charge
(see Note 2A), was $173 million (2018: $5,838 million). If no alternative reserves base had been used, the pre-tax depreciation charge for the year
ended December 31, 2019, would have been $77 million higher (2018: $1,003 million, 2017: $5,558 million).

Contractual commitments for the purchase and lease of property, plant and equipment at December 31, 2019, amounted to $5,519 million.
In 2018, the contractual commitments for the purchase of property, plant and equipment amounted to $4,783 million.

211

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

8 – PROPERTY, PLANT AND EQUIPMENT continued
Within property, plant and equipment the following amounts relate to leases:

Right-of-use assets

Exploration and production

Exploration and
evaluation

Production

Manufacturing,
supply and
distribution

Cost

At January 1 (as previously published)

Impact of IFRS 16 [A]

At January 1 (as revised)

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

–

11,508

4,871

16,379

664

(1,867)

15,213

5,209

1,632

(1,091)

5,761

9,452

[A] Up to and including 2018, Shell recognised lease assets and liabilities that were classified as finance leases under IAS 17 Leases (see Note 3).

Impairments

Impairment losses [A]

Exploration and production

Manufacturing, supply and distribution

Other

Total

Impairment reversals [A]

Exploration and production

Manufacturing, supply and distribution

Total

[A] See Note 4.

$ million

Other

Total

789

4,228

5,017

917

(157)

(18)

16,556

15,558

32,114

4,710

(2,292)

4,259

6,459

10,718

3,124

(268)

–

13,574

5,759

34,551

1,110

1,855

(30)

2,936

10,638

589

703

(128)

–

1,164

4,595

2019

2018

2,983

654

3,639

–

190

1,066

441

1,515

1,265

–

1,265

6,908

4,190

(1,249)

9,861

24,690

$ million

2017

4,187

376

4,572

615

–

615

Impairment losses in 2019 were mainly triggered by the revision to Shell’s long-term oil and gas price outlook and change to future capital expenditure
plans. The impairment losses related primarily to Upstream shale and deep-water properties in North and South America, in Integrated Gas to
properties in Australia and in Downstream to the refining portfolio. 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 in 2018 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.

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, potential costs associated with operational GHG emissions, product margins including forecast refining margins and expected
production volumes (see Note 2A). 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 2019 was 6% (2018: 6%; 2017: 6%).

212

Shell Annual Report and Accounts 2019Financial StatementsOil 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 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 2019 were as follows:

Commodity price assumptions [A]

Brent crude oil ($/b)

Henry Hub natural gas ($/MMBtu)

[A] Money of the day.

2020

2.75

2021

2.75

2022

3.00

For periods after 2022, the real terms long-term price assumptions applied were $60 per barrel (/b) (2018: $70/b after 2021) for Brent crude oil and
$3.00 per million British thermal units (/MMBtu) (2018: $3.50/MMBtu after 2021) 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

Between 1 and 5 years

Between 6 and 10 years

Between 11 and 15 years

Between 16 and 20 years

Total

2019

6,629

2,036

(1,218)

(1,655)

(124)

5,668

Projects

$ million

3,195

961

237

–

4,393

2018

6,981

2,588

(449)

(2,461)

(30)

6,629

$ million

2017

7,910

1,708

(897)

(1,894)

154

6,981

Wells

Number

$ million

150

251

2,117

1,746

495

4,393

Number

–

Exploration drilling costs capitalised for periods greater than one year at December 31, 2019, analysed according to the most recent year of activity,
are presented in the table above. They comprise $284 million relating to five projects where drilling activities were under way or firmly planned for
the future, and $4,109 million relating to 55 projects awaiting development concepts.

9 – JOINT VENTURES AND ASSOCIATES

Shell share of comprehensive income of joint ventures and associates

Income for the period

Other comprehensive
(loss)/income for the period

Comprehensive income for the period

2019

2018

Joint
ventures

Associates

1,121

2,483

Total

3,604

Joint
ventures

Associates

1,307

2,799

(82)

1,039

(74)

2,491

3,530

172

1,479

2,810

2017

Joint
ventures

Associates

2,102

2,123

164

2,266

2,129

Total

4,106

183

4,289

Carrying amount of interests in joint ventures and associates

$ million

Total

4,225

170

4,395

$ million

Dec 31, 2018

Joint
ventures

Associates

Total

ventures Associates

Total

Dec 31, 2019

Joint

Net assets

13,426

9,382

22,808

14,263

11,066

25,329

213

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

9 – JOINT VENTURES AND ASSOCIATES continued

Transactions with joint ventures and associates

Sales and charges to joint ventures and associates

Purchases and charges from joint ventures and associates

2019

7,748

9,573

2018

8,270

11,212

$ million

2017

13,121

10,680

These transactions principally comprise sales and purchases of goods and services in the ordinary course of business. Related balances outstanding at
December 31, 2019, and 2018, 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

$ million

Dec 31, 2019

Dec 31, 2018

2,177

897

1,823 [B]

638

[A] Commitments to make purchases from joint ventures and associates mainly relate to contracts associated with LNG processing fees and transportation capacity. Shell has other purchase

obligations related to joint ventures and associates that are not fixed or determinable and are principally intended to be resold in a short period of time through sales agreements with third parties.
These include long-term LNG and natural gas purchase commitments and commitments to purchase refined products or crude oil at market prices.

[B] As revised to include commitments of $569 million.

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

$ million

Dec 31, 2019

Dec 31, 2018

1,437

1,552

1,086

455

2,989

1,725

1,253

2,978

2,989

1,823

1,251

953

290

3,074

1,873

1,193

3,066

3,074

Equity securities at December 31, 2019, principally comprised interests below 5%, in various investments. Debt securities principally comprised a
portfolio required to be held by the Company’s internal insurance entities as security for their activities.

Investments in securities measured using predominantly unobservable inputs [A]

At January 1

(Losses)/Gains 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.

2019

1,193

(42)

102

1,253

$ million

2018

1,268

212

(287)

1,193

214

Shell Annual Report and Accounts 2019Financial Statements11 – TRADE AND OTHER RECEIVABLES

Trade receivables

Lease receivables [A]

Other receivables [A]

Amounts due from joint ventures and associates

Prepayments and deferred charges

Total

[A] In 2018 ‘Lease receivables’ were included in ‘Other receivables’.

Dec 31, 2019

$ million

Dec 31, 2018

Current

Non-current

Current

Non-current

30,216

213

7,791

912

4,282

43,414

–

1,528

4,039

1,078

1,440

8,085

27,541

–

8,543

992

5,355

42,431

4,823

1,183

1,820

7,826

The fair value of financial assets included above approximates the carrying amount and was determined from predominantly unobservable inputs.

Other receivables at December 31, 2019, include receivables from certain governments in their capacity as joint arrangement partners, of $1,209 million
(2018: $1,449 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 and other tax receivables
(see Note 16).

Provisions for impairments deducted from trade and other receivables amounted to $649 million at December 31, 2019 (2018: $790 million).

Shell uses a provision matrix to calculate expected credit losses (“ECLs”) for trade receivables. The provision matrix is initially based on Shell’s historical
observed default rates. Shell calculates the ECL to adjust the historical credit loss experienced with forward-looking information. The ECL at December
31, 2019 is $83 million (2018: $23 million) which represents 0.08%-0.27% of all trade receivables.

A loss allowance provision of $193 million (2018: $243 million) was established, in addition to all other impairments to trade receivables as at
December 31, 2019, that are outside of the provision matrix calculations.

Lease receivables
Lease contracts where Shell is the lessor are classified as finance lease or operating lease. Receivables for lease contracts classified as finance
leases are as follows:

Finance lease

Less than one year

Between 1 and 5 years

5 years and later

Total undiscounted lease payments receivable

Unearned finance income

Net investment in the lease

In addition at December 31, 2019, Shell is entitled to contractual payments under operating leases of $344 million.

$ million

Dec 31, 2019

305

953

1,019

2,277

536

1,741

215

Shell Annual Report and Accounts 2019Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

12 – INVENTORIES

Oil, gas and chemicals

Materials

Total

Inventories at December 31, 2019, include write-downs to net realisable value of $546 million (2018: $1,473 million).

13 – CASH AND CASH EQUIVALENTS

Cash

Short-term bank deposits

Money market funds, reverse repos and other cash equivalents

Total

$ million

Dec 31, 2019

Dec 31, 2018

22,654

1,417

24,071

19,516

1,601

21,117

$ million

Dec 31, 2019

Dec 31, 2018

4,168

2,665

11,222

18,055

4,034

3,655

19,052

26,741

Included in cash and cash equivalents at December 31, 2019, were amounts totalling $431 million (2018: $443 million as revised) 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

[A] See Note 3.

Debt
(excluding
lease
liabilities)

3,962

6,146

10,108

55,779

65,887

Lease
liabilities [A]

–

4,956

25,581

30,537

Dec 31, 2019

Total

3,962

11,102

15,064

81,360

96,424

Debt
(excluding
lease
liabilities)

693

8,419

9,112

53,686

62,798

Finance lease
liabilities

–

1,022

13,004

14,026

$ million

Dec 31, 2018

Total

693

9,441

10,134

66,690

76,824

216

Shell Annual Report and Accounts 2019Financial StatementsNet debt

At January 1, 2019 (as previously published)

Impact of IFRS 16 [A]

At January 1, 2019 (as revised)

Cash flow

Lease additions

Other movements [B]

Currency translation differences and foreign exchange gains/(losses)

At December 31, 2019

At January 1, 2018

Cash flow

Finance lease additions

Other movements

Currency translation differences and foreign exchange gains/(losses)

Current
debt

(10,134)

(2,912)

(13,046)

10,333

(971)

(11,453)

(15,064)

(11,795)

10,392

(51)

(8,939)

259

Non-current
debt

Derivative
financial
instruments

Cash and cash
equivalents
(see Note 13)

(66,690)

(1,345)

26,741

(13,125)

(79,815)

(7,269)

(3,547)

9,179

(81,360)

(73,870)

(2,418)

(652)

9,270

980

(1,345)

351

453

(183)

(724)

(591)

446

(261)

(939)

(1,345)

26,741

(8,810)

–

124

18,055

20,312

6,878

–

(449)

26,741

$ million

Net debt

(51,428)

(16,037)

(67,465)

(5,395)

(4,518)

(1,821)

106

(79,093)

(65,944)

15,298

(703)

(149)

(51,428)

At December 31, 2018

(10,134)

(66,690)

[A] See Note 3.
[B] ‘Other movements’ includes $1,618 million relating to existing leases entered into on behalf of certain joint operations.

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.

Gearing is a key measure of Shell’s capital structure and is defined as net debt as a percentage of total capital. Net debt is defined as the sum of current
and non-current debt, less cash and cash equivalents, adjusted for the fair value of derivative financial instruments used to hedge foreign exchange and
interest rate risks relating to debt, and associated collateral balances. Across the business cycle, management aims to return to a gearing level within a
range of 15%-25%.

Gearing

Net debt

Total equity

Total capital

Gearing

$ million, except where indicated

Dec 31, 2019

Dec 31, 2018 [A]

79,093

190,463

269,556

29.3% [B]

51,428

202,534

253,962

20.3%

[A] Shell used the modified retrospective transition method for implementing IFRS 16 Leases (see Note 3). Comparative information was not restated, and continues to be presented as previously

reported under IAS 17 Leases.

[B] Gearing increased to 29.3%, at December 31, 2019, comparable with 25.0% on an IAS 17 basis (2018: 20.3%).

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.

217

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

14 – DEBT AND LEASE ARRANGEMENTS continued

Borrowing facilities and amounts undrawn

CP programmes

EMTN programme

US shelf registration

Committed credit facilities

Facility

Amount undrawn

$ million

Dec 31, 2019

Dec 31, 2018

Dec 31, 2019

Dec 31, 2018

20,000

unlimited

10,000

20,000

unlimited

8,840

16,610

20,000

N/A

10,000

N/A

8,840

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 July 2019. In 2019, debt issued under this programme amounted
to $3 billion (2018: $nil). The US shelf registration provides Shell with the flexibility to issue debt securities, ordinary shares, preferred shares and
warrants. The registration is updated every three years and was last updated in December 2017. During 2019, debt totalling $4 billion (2018: $3 billion)
was issued under the registration. On December 13, 2019, Shell entered into $10 billion revolving credit facilities, which in anticipation of the LIBOR
reform (see Note 2B), were linked to the new Secured Overnight Financing Rate (“SOFR”). Under the terms of the facilities, the LIBOR interest rate will be
replaced by SOFR as early as the first anniversary of the signing date of these revolving credit facilities. The committed credit facilities are available at
pre-agreed margins, with $2 billion expiring in 2020 and $8 billion expiring in 2024. Each facility includes two one-year extension options at the
discretion of each lender. The terms and availability are not conditional on Shell’s financial ratios nor its financial credit ratings. The interest and
fees paid on both facilities are linked to Shell’s progress towards reaching its short-term Net Carbon Footprint intensity target.

In addition, other subsidiaries have access to undrawn short-term bank facilities totalling $2,784 million at December 31, 2019 (2018: $3,035 million).

The following tables compare contractual cash flows for debt excluding 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 fair value 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.

Less than
1 year

Between
1 and 2
years

Between
2 and 3

Between
3 and 4
years

Between
4 and 5
years

5 years
and later

3,390

5,900

859

10,149

1,665

–

4,971

425

5,396

1,559

–

4,392

4,448

1,430

–

4,326

4,397

1,357

Contractual payments

Total

3,390

–

2,091

38,323

60,003

2,106

1,263

412

38,735

14,618

1,838

65,231

21,892

Difference
from carrying
amount

(38)

694

–

656

Contractual payments

Less than
1 year

8,163

945

9,108

1,780

Between
1 and 2
years

5,900

5,939

1,555

Between
2 and 3

4,993

209

5,202

1,426

Between
3 and 4
years

Between
4 and 5
years

5 years
and later

Difference
from carrying
amount

Total

4,458

4,508

1,319

4,312

4,339

1,244

33,162

60,988

359

33,521

14,406

1,629

62,617

21,730

181

–

181

$ million

Carrying
amount

3,352

60,697

1,838

65,887

$ million

Carrying
amount

61,169

1,629

62,798

2019

Commercial paper

Bonds

Bank and other borrowings

Total (excluding interest)

Interest

2018

Bonds

Bank and other borrowings

Total (excluding interest)

Interest

218

Shell Annual Report and Accounts 2019Financial StatementsInterest rate swaps have been entered into against certain fixed rate debt affecting the effective interest rate on these balances (see Note 19). The fair
value of debt excluding lease liabilities at December 31, 2019, was $71,163 million (2018: $64,708 million), mainly determined from the prices quoted
for those securities.

LEASE ARRANGEMENTS
From January 1, 2019, leases are recognised as a right-of-use asset (see Note 8) and a corresponding liability at the date which the lease asset is
available for the use by Shell (see Note 3). Lease liabilities are secured on the leased assets. Shell has lease contracts in Upstream and Integrated
Gas for floating production storage and offloading units, subsea equipment, power generation 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.

Lease expenses not included in the measurement of lease liability

Expense relating to short-term leases

Expense relating to variable lease payments not included in the lease liabilities

$ million

2019

834

1,091

The total cash outflow in respect of leases representing repayment of principal and payment of interest in 2019 was $7,866 million, recognised in the
Consolidated Statement of Cash Flows from financing activities.

The future lease payments under lease contracts and the present value of future lease payments at December 31, by payment date are as follows:

2019

Less than 1 year

Between 1 and 5 years

5 years and later

Total

Contractual
lease payments

7,337

17,435

21,340

Interest

2,381

6,141

7,053

46,112 [B]

15,575

$ million

Lease
liabilities [A]

4,956

11,294

14,287

30,537

[A] See Note 3.
[B] Future cash outflows in respect of leases may differ from lease liabilities recognised due to future decisions that may be taken by Shell in respect of the use of leased assets. These decisions may
result in variable lease payments to be made. In addition, Shell may reconsider whether it will exercise extension options or termination options, where future reconsideration is not reflected in
the lease liabilities. There is no exposure to these potential additional payments in excess of the recognised lease liabilities until these decisions have been taken by Shell.

2018

Less than 1 year

Between 1 and 5 years

5 years and later

Total

$ million

Operating
leases [A]

Future minimum
lease payments

Finance leases [A]

Present value
of future minimum
lease payments

1,022

4,117

8,887

14,026

4,784

11,575

7,860

24,219

Interest

1,039

3,391

4,483

8,913

Future
minimum
lease payments

2,061

7,508

13,370

22,939

[A] Shell used the modified retrospective transition method for the adoption of IFRS 16 Leases (see Note 3). Comparative information is not restated and continues to be presented as previously

reported under IAS 17 Leases.

219

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

15 – TRADE AND OTHER PAYABLES

Trade payables

Other payables

Amounts due to joint ventures and associates

Accruals and deferred income

Total

Dec 31, 2019

$ million

Dec 31, 2018

Current

Non-current

Current

Non-current

29,497

6,356

3,312

10,043

49,208

–

2,060

242

2,342

30,351

5,597

2,851

10,089

48,888

–

2,413

289

2,735

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.

2019

2018

7,597

(1)

7,596

1,377

(67)

147

1,457

9,053

10,415

10,475

1,438

(157)

(41)

1,240

11,715

$ million

2017

7,204

(613)

6,591

(4,102)

2,004 [A]

202

(1,896)

4,695

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 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 at standard statutory tax rates [A]

Adjustments in respect of prior periods

Tax effects of: [B]

Expenses not deductible for tax purposes

Derecognition/(recognition) of deferred tax assets

Incentives for investment and development [A]

Disposals

Income not subject to tax at standard statutory rates

Changes in tax rates and legislation

Exchange rate differences

Other reconciling items

Taxation charge

2019

25,485

(3,604)

21,881

7,214

146

1,493

846

(757)

(235)

159

(67)

(34)

288

2018

35,621

(4,106)

31,515

11,641

1,176

(381)

(557)

(524)

(286)

(157)

623

161

9,053

11,715

$ million

2017

18,130

(4,225)

13,905

4,709

(411)

1,000

(957)

(527)

(910)

(359)

2,004

320

(174)

4,695

[A] Incentives for investment and development include conditional preferential tax rates to attract investment, uplift on carried forward losses and capital expenditure, investment tax allowances and
credits for research and development. Up to and including 2018, preferential tax rates were reported within the applicable tax charge at standard statutory tax rates. Comparative numbers for
2018 and 2017 were reclassified to conform with the current year presentation.

[B] The tax effect categories have changed to provide better insights. Comparative numbers for 2018 and 2017 were reclassified to conform with the current year presentation.

220

Shell Annual Report and Accounts 2019Financial StatementsThe weighted average of statutory tax rates was 33% in 2019 (2018: 37% as revised; 2017: 34% as revised). Compared with 2018, the decrease in the
rate reflects a higher proportion of earnings in the Downstream and Integrated Gas segments, subject to relatively lower tax rates than earnings in the
Upstream segment. In addition, a higher proportion of Integrated Gas income was earned in countries with relatively lower statutory tax rates.

Taxes payable

Income taxes

Sales taxes, excise duties and similar levies

Total

$ million

Dec 31, 2019

Dec 31, 2018

3,478

3,215

6,693

3,990

3,507

7,497

Included in other receivables at December 31, 2019 was income tax receivable of $1,328 million (2018: $1,042 million) (see Note 11).

2019 – Deferred tax

Deferred tax asset

At January 1, 2019 (as previously published)

Impact of IFRS 16

At January 1, 2019 (as revised)

(Charge)/credit to income

Currency translation differences

Other

At December 31, 2019

Deferred tax liability

At January 1, 2019 (as previously published)

Impact of IFRS 16

At January 1, 2019 (as revised)

(Charge)/credit to income

Currency translation differences

Other

At December 31, 2019

Net deferred tax liability at December 31, 2019

Deferred tax asset/liability as presented in the balance
sheet at December 31, 2019

Deferred tax asset

Deferred tax liability

$ million

Total

29,330

–

29,330

(1,219)

109

(176)

Other

4,233

4,276

(2)

4,361

28,044

Decommissioning
and other
provisions

Property, plant
and equipment

Tax losses
and credits
carried forward

Retirement
benefits

5,902

(43)

5,859

(550)

5,380

3,718

–

3,718

(521)

(189)

3,014

(27,771)

144

(27,627)

(227)

(129)

(57)

(28,040)

12,167

–

12,167

(647)

11,629

3,310

–

3,310

(76)

(8)

434

3,660

(1,674)

–

(1,674)

(6)

541

(2,625)

(144)

(2,769)

(57)

(5)

(78)

(1,093)

(2,909)

(32,070)

–

(32,070)

(238)

(140)

406

(32,042)

(3,998)

10,524

(14,522)

221

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

16 – TAXATION continued

2018 – Deferred tax

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

Decommissioning
and other provisions

Property, plant
and equipment

Tax losses and
credits carried
forward

Retirement
benefits

6,182

166

(177)

(269)

5,902

3,379

345

(32)

13,684

(553)

(462)

(502)

3,718

12,167

(26,904)

(1,751)

409

475

(27,771)

3,868

(93)

(479)

3,310

(742)

180

(1,136)

(1,674)

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

$ million

Total

31,257

(806)

(1,212)

Other

4,144

119

(42)

4,233

29,330

(2,827)

(30,473)

240

(74)

(2,625)

(1,331)

469

(735)

(32,070)

(2,740)

12,097

(14,837)

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.

The deferred tax category ‘Other’ primarily includes deferred tax positions in respect of leases, financial assets and liabilities, inventories, intangible
assets and investments in subsidiaries, joint ventures and associates.

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 $8,773 million at December 31, 2019 (2018: $9,979 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 $6,356 million at December 31, 2019 (2018: $3,951 million). These retained earnings are subject to withholding tax upon
distribution. The increase of the amount compared with 2018 is related to a change in the withholding tax legislation, as a result of which a larger
part of the undistributed retained earnings will be subject to withholding tax.

Unrecognised deductible temporary differences, unused tax losses and credits carried forward amounted to $33,068 million at December 31, 2019
(2018: $30,010 million as revised) including amounts of $24,295 million (2018: $22,704 million as revised) that are subject to time limits for utilisation
of five years or later, or are not time limited.

Furthermore, there are unrecognised losses for Petroleum Resource Rent Tax (“PRRT”) in Australia, amounting to $36,905 million as at the end of the most
recent PRRT fiscal year (June 30, 2019). In 2018, a portion of the PRRT losses amounting to $4,900 million was included in the amount of the
unrecognised deductible temporary differences, unused tax losses and credits carried forward. Based on business forecasts at existing commodity
price levels, and the annual augmentation of the unused PRRT losses, this amount is expected to increase in the near future.

222

Shell Annual Report and Accounts 2019Financial Statements17 – 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

2019

2018

1,188

2,364

(2,253)

1,325

428

1,753

1,494

2,282

(2,087)

(221)

1,468

410

1,878

$ million

2017

1,500

2,309

(2,019)

(404)

1,386

429

1,815

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 in excess/(shortage) 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.

Defined benefit plans

Obligations

Plan assets

Net liability

Retirement benefits in the Consolidated Balance Sheet:

Non-current assets

Non-current liabilities

Current liabilities

Total

2019

2018

(11,711)

232

(75)

(11,554)

8,460

(12)

(3,106)

8,186

(268)

(459)

7,459

(2,312)

5,213

$ million

2017

(4,495)

933

(3,525)

4,942

1,467

$ million

Dec 31, 2019

Dec 31, 2018

(103,545)

94,826

(8,719)

4,717

(13,017)

(419)

(8,719)

(91,856)

85,803

(6,053)

6,051

(11,653)

(451)

(6,053)

223

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

17 – RETIREMENT BENEFITS continued

Defined benefit plan obligations

At January 1

Current service cost

Interest expense

Actuarial losses/(gains)

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

Defined benefit plan assets

At January 1

Return on plan assets in excess/(shortage) 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

Other

Other:

Equities

Debt securities

Real estate

Investment funds

Cash

$ million, except where indicated

2019

91,856

1,186

2,364

11,554

(3,961)

194

352

103,545

93,727

17 years

4,793

13 years

5,025

14 years

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

$ million, except where indicated

2019

85,803

8,460

2,253

1,462

(3,741)

160

387

94,826

26%

51%

2018

93,243

(2,312)

2,087

763

(4,123)

(102)

(3,800)

85,803

24%

53%

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.

Employer contributions to defined benefit pension plans are based on actuarial valuations in accordance with local regulations and are estimated to be
$0.7 billion in 2020.

224

Shell Annual Report and Accounts 2019Financial StatementsSignificant funding requirements:
■ 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 (2019) 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; and
■ Under the Pension Protection Act, US pension plans are subject to minimum required contribution levels based on the funding position. No

contributions are required based on the most recent funding valuation.

The principal assumptions applied in determining the present value of defined benefit obligations and their bases were as follows:
■

rates of increase in pensionable remuneration, pensions in payment and healthcare costs: historical experience and management’s long-term
expectation;

■ discount rates: prevailing long-term AA corporate bond yields, chosen to match the currency and duration of the relevant obligation; and
■ mortality rates: published standard mortality tables for the individual countries concerned adjusted for Shell experience where statistically significant.

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:

Men

Women

$ million, except where indicated

Effect of using alternative assumptions

Assumptions used

Increase/(decrease) in defined benefit obligations

2019

4.1%

1.6%

6.1%

2.1%

3.2%

2018

4.1%

1.8%

6.3%

2.9%

4.2%

Range of
assumptions

-1% to +1%

2019

2018

(1,975) to 2,266

(1,576) to 1,819

(9,541) to 11,757

(8,304) to 10,104

(546) to 675

(410) to 496

18,431 to (14,155)

15,606 to (12,078)

704 to (558)

536 to (436)

87 years

-1 year to +1 year

(1,717) to 1,782

89 years

-1 year to +1 year

(1,631) to 1,694

(1,538) to 1,583

(1,436) to 1,476

225

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

18 – DECOMMISSIONING AND OTHER PROVISIONS

Decommissioning
and restoration

Legal

Environmental

Redundancy

Other

Total

$ million

At January 1, 2019

Current (as previously published)

Impact of IFRS 16 [A]

Current (as revised)

Non-current (as previously published)

Impact of IFRS 16 [A]

Non-current (as revised)

Additions

Amounts charged against provisions

Accretion expense

Disposals

Remeasurements and other movements

Currency translation differences

At December 31, 2019

Current

Non-current

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

876

–

876

17,057

–

17,057

17,933

625

(797)

644

(1,238) [B]

1,696

156

1,086

755

18,264

19,019

817

19,767

20,584

418

(497)

755

(1,781)

(1,065)

(481)

(2,651)

876

17,057

17,933

213

–

213

1,247

–

1,247

1,460

585

(216)

–

(45)

(1)

351

626

1,185

1,811

423

1,095

1,518

196

(200)

(14)

(47)

(10)

(58)

213

1,247

1,460

264

–

264

1,074

–

1,074

1,338

229

(223)

(8)

(155)

–

(141)

263

934

1,197

287

1,218

1,505

191

(212)

(11)

(130)

(22)

(167)

264

1,074

1,338

491

(50)

441

468

(188)

280

721

290

(304)

–

(192)

(3)

(206)

295

220

515

758

560

1,318

535

(504)

(3)

(367)

(35)

(359)

491

468

959

1,815

(268)

1,547

1,687

(159)

1,528

3,075

535

(562)

(14)

(988) [C]

(3)

(1,007)

872

1,196

2,068

1,180

2,326

3,506

1,070

(887)

(49)

(122)

(64)

(4)

1,815

1,687

3,502

3,659

(318)

3,341

21,533

(347)

21,186

24,527

2,264

(2,102)

716

(1,260)

316

149

2,811

21,799

24,610

3,465

24,966

28,431

2,410

(2,300)

852

(1,858)

(1,731)

(612)

(3,239)

3,659

21,533

25,192

[A] Following the implementation of IFRS 16 Leases (see Note 3) provisions related to onerous operating lease contracts at December 31, 2018 were derecognised and related right-of-use assets were
adjusted accordingly. Certain operating lease contracts, mainly related to office buildings became onerous following restructuring and these onerous operating lease contracts were included in
the provision for redundancy.

[B] Mainly related to the disposal of interests in Denmark and Canada.
[C] Mainly related to reclassifications to Trade and other payables.

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. Reviews of estimated future decommissioning and restoration costs and the discount rate applied are carried out annually. The
discount rate applied at December 31, 2019 was 3% (December 31, 2018: 4%). This decrease resulted from the decrease in capital markets rates in 2019.

In 2019, there was an increase of $2,241 million (2018: $nil) in the decommissioning and restoration provision as a result of the change in the discount
rate, partly offset by a decrease in the provision resulting from changes in cost estimates of $545 million (2018: $982 million), reported within re-
measurements and other movements.

Of the decommissioning and restoration provision at December 31, 2019, an estimated $2,869 million is expected to be utilised within one to five years,
$2,432 million within six to 10 years, and the remainder in later periods.

Other provisions include amounts recognised in respect of employee benefits.

226

Shell Annual Report and Accounts 2019Financial Statements19 – FINANCIAL INSTRUMENTS
Financial instruments in the Consolidated Balance Sheet include 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 debt markets. As a result, a substantial portion of the debt portfolio at December 31, 2019, is at fixed rates
and this reduces Shell’s exposure to the dollar LIBOR interest rate (see Note 2B).

The financing of most subsidiaries is structured on a floating-rate basis, and any further interest rate risk management is only applied under exceptional
circumstances.

On the basis of the floating-rate net debt position at December 31, 2019 (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 2019 income before taxation by $98 million (2018: $37 million, based on the floating rate position at December 31, 2018).

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.

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

2019

2018

2019

2018

(97)

(55)

(58)

(40)

(109)

(46)

1,380

1,227

835

581

1,245

1,190

835

779

227

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

19 – FINANCIAL INSTRUMENTS continued
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.

Value-at-risk (“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 1-day holding 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

December 31, 2019

December 31, 2018

$ million

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 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:

2019

Assets:

Within trade receivables

Within derivative financial instruments

Liabilities:

Within trade payables

Within derivative financial instruments

228

Amounts offset

Amounts not offset

$ million

Gross amounts
before offset

Amounts
offset

Net amounts
as presented

Cash collateral
received/pledged

Other offsetting
instruments

Net
amounts

13,821

12,995

13,335

12,355

8,975

7,310

9,029

7,253

4,846

5,685

4,306

5,102

531

706

101

2,262

101

2,262

4,691

2,892

4,194

2,134

Shell Annual Report and Accounts 2019Financial Statements2018

Assets:

Within trade receivables

Within derivative financial instruments

Liabilities:

Within trade payables

Within derivative financial instruments

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

12,697

12,323

12,931

12,227

8,340

6,353

8,264

5,044

4,358

5,970

4,667

7,183

437

1,115

221

2,653

221

2,653

4,075

2,880

4,349

3,415

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, 2019, presented within trade and
other receivables, was $1,948 million (2018: $3,094 million). The carrying amount of collateral held at December 31, 2019, presented within trade and
other payables, was $718 million (2018: $535 million). Collateral mainly relates to initial margins held with commodity exchanges and over-the-counter
counterparty variation margins. Some derivative contracts are fully cash collateralised, thereby eliminating both counterparty risk and the Group’s own
non-performance risk

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.

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:

2019

Interest rate swaps

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Other contracts

Total

2018

Interest rate swaps

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Other contracts

Total

Designated

Not
designated

227

–

324

236

6,914

341

7,514

Designated

Not
designated

932

–

968

309

5,281

–

5,670

Assets

Total

235

243

105

6,914

341

7,838

Assets

Designated

Not
designated

Total

Designated

Not
designated

–

186

–

272

331

6,864

271

7,495

331

212

6,864

271

7,767

174

1,202

–

1,409

264

203

6,637

7,174

Liabilities

Total

311

988

5,281

–

6,638

Liabilities

Total

188

297

1,405

6,637

8,583

$ million

Net

177

(68)

(883)

1,633

341

1,200

$ million

Net

(99)

(1,193)

227

215

(816)

229

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

19 – FINANCIAL INSTRUMENTS continued
Net losses before tax on derivative contracts, excluding realised commodity contracts and those accounted for as hedges, were $2,004 million in 2019
(2018: $1,818 million losses; 2017: $1,321 million losses).

Certain contracts, mainly to hedge price risk relating to forecast commodity transactions which mature in 2020-2021, were designated in cash flow
hedging relationships. The net carrying amount of commodity derivative contracts designated as cash flow hedging instruments at December 31, 2019,
was a liability of $101 million (2018: $120 million asset) (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, 2019, was a liability of $518 million (2018: $1,242 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 2020-2025, with certain contracts having early termination rights (for either party). Valuations are derived from
quoted market prices.

The contractual maturities of derivative liabilities at December 31 compare with their carrying amounts in the Consolidated Balance Sheet as follows:

2019

Interest rate swap

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Total

[A] Mainly related to the effect of discounting.

2018

Contractual maturities

$ million

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

214

255

3,472

3,976

475

756

1,279

444

349

805

–

201

189

394

118

204

123

450

–

1,777

511

2,292

Difference
from carrying
amount [A]

Carrying
amount

(2)

(69)

(2,368)

(119)

(2,558)

311

988

5,281

6,638

Total

380

3,356

5,400

9,196

Contractual maturities

$ million

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)

132

(2,257)

(229)

(2)

188

297

1,405

6,637

Total

192

165

3,662

6,866

(15)

1,715

382

–

2,083

10,943

(2,360)

8,583

Interest rate swap

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Other contracts

Total

[A] Mainly related to the effect of discounting.

101

177

605

4,733

5,674

(24)

265

978

–

1,287

474

422

–

949

(1)

405

213

–

618

(5)

198

138

–

332

230

Shell Annual Report and Accounts 2019Financial StatementsFair 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:

2019

Interest rate swaps

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Other contracts

Total

2018

Interest rate swaps

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Other contracts

Total

Net carrying amounts of derivative contracts measured using predominantly unobservable inputs

At January 1

Net gains/(losses) recognised in revenue

Purchases

Sales

Recategorisations (net)

Currency translation differences

At December 31

Included in net gains recognised in revenue in 2019 were unrealised net gains totalling $612 million relating to assets and liabilities held at
December 31, 2019 (2018: $36 million losses).

Prices in active
markets for
identical
assets/liabilities

Other
observable
inputs

Unobservable
inputs

–

(6)

177

(68)

(883)

895

304

425

–

744

754

Prices in active
markets for
identical
assets/liabilities

Other
observable
inputs

Unobservable
inputs

–

(52)

–

(52)

(99)

(1,193)

431

(737)

–

(152)

125

(27)

2019

(27)

1,085

453

(633)

(125)

754

$ million

Total

177

(68)

(883)

1,633

341

1,200

$ million

Total

(99)

(1,193)

227

215

(816)

$ million

2018

297

(258)

461

(540)

(5)

(27)

231

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

20 – SHARE CAPITAL

Issued and fully paid ordinary shares of €0.07 each [A]

At January 1, 2019

Repurchases of shares

At December 31, 2019

At January 1, 2018

Repurchases of shares

At December 31, 2018

Number of shares

4,471,889,296

3,745,486,731

(320,101,779)

(16,079,624)

4,151,787,517

3,729,407,107

4,597,136,050

3,745,486,731

(125,246,754)

–

4,471,889,296

3,745,486,731

376

(27)

349

387

(11)

376

Nominal value ($ million)

309

(1)

308

309

–

309

Total

685

(28)

657

696

(11)

685

[A] Share capital at December 31, 2019, and 2018, also included 50,000 issued and fully paid sterling deferred shares of £1 each.

At the Company’s Annual General Meeting (“AGM”) on May 21, 2019, 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 €190.3 million
(representing 2,720 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 21, 2020, and the end of the AGM to be held in 2020, unless previously renewed, revoked or varied
by the Company in a general meeting.

At the May 21, 2019 AGM, shareholders granted the Company the authority to repurchase up to 815 million 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
21, 2020, and the end of the AGM of the Company to be held in 2020. 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.

21 – SHARE-BASED COMPENSATION PLANS AND SHARES HELD IN TRUST

Share-based compensation expense

Equity-settled

Cash-settled [A]

Total

2019

537

–

537

2018

531

–

531

$ million

2017

422

380

802

[A] As from 2018 onwards, components of share-based payments (related to tax) that were previously classified as cash-settled are classified as equity-settled. On an incidental basis awards may be

cash settled, where an equity settlement is not possible under local regulations.

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

At January 1, 2019

Granted

Vested

Forfeited

At December 31, 2019

At January 1, 2018

Granted

Vested

Forfeited

At December 31, 2018

232

Number of A
shares
(million)

Number of B
shares
(million)

Number of A
ADSs
(million)

Weighted Average
remaining contractual
life (years)

(11)

(1)

(12)

(1)

(5)

–

(4)

–

(3)

–

(4)

–

1.0

0.9

1.0

Shell Annual Report and Accounts 2019Financial StatementsOther plans offer eligible 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, 2019, they held 17.4 million A shares (2018: 19.6 million), 6.5 million B shares (2018: 7.1 million) and 5.3 million
A ADSs (2018: 5.9 million).

22 – OTHER RESERVES

Other reserves attributable to Royal Dutch Shell plc shareholders

$ million

Total

16,615

(2,069)

(74)

(49)

14,451

16,932

(138)

16,794

1,123

(971)

(342)

16,615

11,298

5,851

(13)

(204)

At January 1, 2019

Other comprehensive loss attributable to Royal Dutch Shell plc
shareholders

Transfer from other comprehensive income

Repurchases of shares

Share-based compensation

At December 31, 2019

At January 1, 2018 (as previously published)

Impact of IFRS 9

At January 1, 2018 (as revised)

Other comprehensive income attributable to Royal Dutch Shell plc
shareholders

Transfer from other comprehensive income

Repurchases 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

Merger
reserve

37,298

–

37,298

–

37,298

–

37,298

37,311

–

(13)

–

37,298

Share
premium
reserve

154

–

154

–

154

–

154

–

154

Capital
redemption
reserve

Share plan
reserve

Accumulated
other
comprehensive
income

1,098

(22,030)

–

123

–

(49)

1,049

1,440

–

1,440

–

(342)

1,098

1,644

–

(204)

1,440

(2,069)

(74)

–

(24,173)

(22,044)

(138)

(22,182)

1,123

(971)

–

(22,030)

(27,895)

5,851

–

(22,044)

16,932

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, plc, now The Shell Transport and Trading Company Limited, in 2005.
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 $45 million in 2019 (2018: $71 million; 2017: $11 million).

233

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

22 – OTHER RESERVES continued
Accumulated other comprehensive income comprises the following:

Accumulated other comprehensive income attributable to Royal Dutch Shell plc shareholders

At January 1, 2019

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, 2019

At January 1, 2018 (as previously published)

Impact of IFRS 9

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 loss for the period

Less: non-controlling interest

Currency
translation
differences

(11,747)

302

–

344

(2)

342

(35)

307

(11,440)

(8,735)

–

(8,735)

(3,794)

651

–

(29)

(3,172)

(25)

(3,197)

185

Attributable to Royal Dutch Shell plc shareholders

(3,012)

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

(11,747)

(13,831)

4,513

610

–

5,156

Other comprehensive income/(loss) for the period

5,209

Less: non-controlling interest

(113)

Attributable to Royal Dutch Shell plc shareholders

5,096

At December 31, 2017

(8,735)

Unrealised
gains/
(losses) on
securities

Debt
instruments
remeasurements

Cash flow
and net
investment
hedging
gains/(losses)

Deferred
cost of
hedging

Retirement
benefits
remeasurements

Equity
instrument
remeasurements

Total

$ million

(21)

–

(6)

(15)

–

(15)

–

(15)

–

(15)

(21)

–

117

(353)

(579)

268

–

(267)

(74)

(341)

–

(341)

(224)

(633)

(627)

722

(30)

–

(12)

730

744

–

744

117

(144)

(467)

(87)

(18)

(552)

(489)

–

(489)

(633)

–

(29)

–

(287)

–

(144)

(362)

–

(209)

–

(209)

–

(209)

(353)

–

(10,932)

(3,106)

–

1,004

(2,091)

–

(2,091)

–

(2,091)

(13,023)

(14,645)

–

(14,645)

5,213

–

137

(1,625)

3,725

3,726

(13)

3,713

(10,932)

(15,241)

1,467

–

(863)

604

(1)

603

(7)

596

906 (22,030)

(17)

(3,367)

–

(85)

(13)

397

(74)

999

(115)

(2,034)

(74)

(113)

(2,108)

–

(35)

(113)

(2,143)

793

(24,173)

– (22,044)

1,975

(138)

1,975

(22,182)

(147)

945

–

(1,108)

1,468

(30)

(971)

(6)

(1,614)

(1,261)

(202)

193

(1,068)

(1)

(1,069)

183

(19)

171

152

906 (22,030)

– (27,895)

–

6,309

312

(18)

(802)

5,801

170

5,971

(120)

5,851

(14,645)

– (22,044)

1,969

(1,969)

1,321

796

(211)

–

593

648

–

648

1,969

234

Shell Annual Report and Accounts 2019Financial Statements23 – DIVIDENDS

Interim dividends

A shares:

Cash: $1.88 per share (2018: $1.88; 2017: $1.88)

Scrip: none (2018: none; 2017: $1.88 per share)

Total – A shares

B shares:

Cash: $1.88 per share (2018: $1.88; 2017: $1.88)

Scrip: none (2018: none; 2017: $1.88 per share)

Total – B shares

Total

2019

2018

8,147

–

8,147

7,051

–

7,051

15,198

8,605

–

8,605

7,070

–

7,070

15,675

$ million

2017

4,919

3,558

8,477

5,958

1,193

7,151

15,628

In addition, on January 30, 2020, the Directors announced a further interim dividend in respect of 2019 of $0.47 per A share and $0.47 per B share.
The total dividend is estimated to be $3,691 million and is payable on March 23, 2020, to shareholders on the register at February 14, 2020. 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 US dollars or in sterling. Dividends on B shares
are by default paid in sterling, although holders may elect to receive dividends in US dollars or 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)

2019

15,842

8,058.3

8,112.5

2018

23,352

8,282.8

8,348.7

2017

12,977

8,223.4

8,299.0

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.

235

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 36 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, 2019, 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. In the Netherlands a
case has been filed against Shell by a group of environmental non-
governmental organisations (“eNGOs”) and individual claimants seeking
a court order that Shell reduce by (net) 100% by 2050 the emissions
associated with its business activities and products. 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
favourable injunctions suspending the enforcement of the law in two
separate lawsuits, one filed to cover year 2016 and the other covering
year 2017 onwards. The injunctions remain in effect and Shell received
favourable decisions on the subject matter from the RJ State Court.
The RJ State has appealed against both decisions and one is pending
confirmation by the State Court while the other is pending final
decisions by the Brazilian Superior and Supreme Courts. 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, filed a suit in February 2016 before 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 potential total liability of
approximately $5,275 million as of end 2019.

236

Louisiana coast litigation
The State of Louisiana and multiple local governments have initiated 43
lawsuits against 200+ Oil and Gas companies claiming historical oil and
gas operations caused or contributed to wide-spread contamination, land
loss and the erosion of the Louisiana coastline. Shell entities are named in
14 of the suits. The amounts claimed are unspecified. The cases are of first
impression, arise out of an untested 1980 Louisiana statute and represent
a novel attempt to render illegal operations that federal and state
agencies permitted and authorized at the time. Management believes
the outcome of these matters should be resolved in a manner
favourable to Shell; there remains a high degree of uncertainty, however,
concerning the scope of the claims and the ultimate outcome, as well
as their potential effect on future operations, earnings, cash flows
and Shell’s financial condition.

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 January
2020, criminal charges alleging disobeying direction of law were filed in
Nigeria against Shell Nigeria Ultra Deep Ltd., SNEPCO, and third parties
including Nigeria Agip Exploration Limited. 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. On December 12, 2018, the Federal Republic
of Nigeria issued a claim form in the UK against Shell 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. The Shell entities were
served in April and May 2019. The Shell entities and other defendants
have challenged the jurisdiction of the English courts to try the claims and
a hearing is scheduled for April 2020. On February 14, 2017, Royal Dutch
Shell plc received a notice of request for indictment from the Milan public

Shell Annual Report and Accounts 2019Financial Statementsprosecutor 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. On September 18, 2018, Shell 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, Shell
Petroleum Development Company of Nigeria Ltd. and Shell Exporation
and Production Africa Ltd. ) also joined the proceedings but were denied
status as responsabile civile for their respective former employees at that
phase of the proceedings. The trial is ongoing with closing arguments
scheduled to begin on March 25, 2020. 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.

26 – EMPLOYEES

Employee costs

In February 2019, we were informed by the Dutch Public Prosecutor’s
Office (“DPP”) that they were nearing the conclusion of their investigation
and 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. On October 2, 2019 the U.S. Department of Justice
(“DOJ”) informed Shell that it was closing its inquiry into Shell in relation
to OPL 245. We understand that the decision was based on the facts
available to the DOJ, including ongoing legal proceedings in Europe.

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.

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]

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 (2019: 3,000 employees, 2018: 3,000 employees, 2017: 3,000 employees).

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

2019

10,075

844

1,753

537

13,209

2018

10,167

810

1,878

531

13,386

$ million

2017

10,855

844

1,815

802

14,316

2019

2018

Thousand

2017

2019

2018

$ million

2017

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 2019, 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 135-138.

237

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

27 – DIRECTORS AND SENIOR MANAGEMENT continued

Directors and Senior Management expense

Short-term benefits

Retirement benefits

Share-based compensation

Termination and related amounts

Total

2019

2018

–

$ million

2017

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.

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

2019

2018

$ million

2017

–

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 2019 (2018: $1 million; 2017: $1 million).

29 – POST-BALANCE SHEET EVENTS
On February 27, 2020 the fully-consolidated Shell Midstream Partners, L.P. (“SHLX”) signed an agreement with its Shell-controlled general partner to
eliminate all incentive distribution rights and economic general partner interest in SHLX and convert the general partner’s two per cent general partner
interest in SHLX into a non-economic general partner interest in SHLX. SHLX has also entered into a Purchase and Sale Agreement with Shell affiliates
to acquire our 79% interest in the Mattox Pipeline Company LLC, which owns the Mattox Pipeline, and certain logistics assets at the Shell Norco
Manufacturing Complex. As consideration for the assets and the elimination of incentive distribution rights, Shell will receive 160 million newly issued
SHLX common units, plus $1.2 billion of Series A perpetual convertible preferred units at a price of $23.63 per unit. The transaction is expected to
close in the second quarter of 2020 and is subject to regulatory approvals and other customary closing conditions.

After the balance sheet date, we have seen macro-economic uncertainty with regards to prices and demand for oil, gas and products as a result of the
COVID-19 (coronavirus) outbreak. Furthermore, recent global developments and uncertainty in oil supply in March have caused further abnormally
large volatility in commodity markets. The scale and duration of these developments remain uncertain but could impact our earnings, cash flow and
financial condition.

238

Shell Annual Report and Accounts 2019Financial Statements
SUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED)

The information set out on pages 239-256 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, 2019, were divided into
79% developed and 21% undeveloped on a barrel of oil equivalent
basis. For the Shell share of joint ventures and associates, the proved
reserves at December 31, 2019, were divided into 86% developed and
14% 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, 2019,
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 2,170 million barrels of crude oil and natural gas liquids,
and 13,433 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 27 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 28
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 34 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 de-bookings and endorses the total aggregated proved
reserves. Final approval of all proved reserves bookings remains with
Shell’s Executive Committee, and 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.

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 240-242. 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 2019–2018
Shell subsidiaries
Europe
The net decrease of 65 million barrels in sales and purchases resulted
from divestments carried out in Denmark.

Asia
The net increase of 226 million barrels in revisions and reclassifications
was mainly in Oman and Kazakhstan.

USA
The increase of 86 million barrels in revisions and reclassifications
mainly resulted from field performance studies and development
activities in the Permian Basin and in Mars and Ursa field in the Gulf of
Mexico. The increase of 74 million barrels in extensions and discoveries
was in the Permian Basin and PowerNap.

South America
The increase of 72 million barrels in revisions and reclassifications
mainly resulted from field performance studies and development
activities in Lula and Lapa Field (Brazil). The net increase of 60 million
barrels in extensions and discoveries was mainly in Mero (Brazil).

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 the Mars and Ursa fields in the Gulf of Mexico. The
increase of 179 million barrels in extensions and discoveries was mainly
in the Vito field in the Gulf of Mexico and in the Permian Basin.

South America
The net increase of 139 million barrels in extensions and discoveries was
mainly in Mero (Brazil) and Vaca Muerta (Argentina).

239

Shell Annual Report and Accounts 2019Financial StatementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

Proved developed and undeveloped reserves 2019

Europe

Asia Oceania

Africa

USA

North America

Canada

South
America

Million barrels

Total

Oil and
NGL

Synthetic
crude oil Bitumen

Oil and
NGL

Synthetic
crude oil Bitumen

All
products

Shell subsidiaries

At January 1

368

1,502

129

420

1,017

Revisions and reclassifications

226

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

Total

Reserves attributable to non-
controlling interest in Shell
subsidiaries at December 31

–

(65)

(56)

–

(184)

274

1,551

–

281

–

(1)

(37)

271

–

(10)

121

(64)

395

–

(29)

(171)

982

–

(2)

–

(2)

(12)

–

661

(34)

–

(20)

607

–

1,027

4,486

–

444

158

(96)

661

(34)

–

(130)

(627)

1,033

4,374

(20)

607

–

290

–

(38)

283

–

1,033

4,657

607

–

304

286

1,822

121

395

982

607

–

304

[A] Includes 1 million barrels consumed in operations for synthetic crude oil.

Proved developed reserves 2019

Europe

Asia Oceania

Africa

USA

North America

Canada

South
America

–

5,147

410

158

(96)

(647)

4,981

290

–

(38)

283

5,264

304

Million barrels

Total

Oil and
NGL

Synthetic
crude oil Bitumen

Oil and
NGL

Synthetic
crude oil Bitumen

All
products

Shell subsidiaries

At January 1

At December 31

243

156

1,318

1,403

108

106

335

314

629

641

Shell share of joint ventures and associates

At January 1

At December 31

251

240

–

661

607

–

634

675

3,288

3,310

661

607

–

259

251

–

3,949

3,917

259

251

Proved undeveloped reserves 2019

Europe

Asia Oceania

Africa

USA

North America

Canada

South
America

Million barrels

Total

Oil and
NGL

Synthetic
crude oil Bitumen

Oil and
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

240

124

118

185

149

–

388

341

–

394

358

1,199

1,064

–

1,199

1,064

Shell Annual Report and Accounts 2019Financial StatementsProved developed and undeveloped reserves 2018

Europe

Asia Oceania

Africa

USA

North America

Canada

South
America

Million barrels

Total

Oil and
NGL

Synthetic
crude oil Bitumen

Oil and
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

356

1,482

–

(14)

(70)

227

–

(52)

(185)

132

463

899

–

179

–

(2)

–

649

–

(8)

(9)

368

1,502

129

420

1,017

(61)

(140)

(13)

(20)

661

At January 1

Revisions and reclassifications

Improved recovery

Extensions and discoveries

Purchases of minerals in place

Sales of minerals in place

Production

At December 31

Total

Reserves attributable to
non-controlling interest in Shell
subsidiaries at December 31

(2)

–

(1)

301

(2)

–

(37)

281

–

377

1,783

129

420

1,017

661

–

331

[A] Includes 1 million barrels consumed in operations for synthetic crude oil.

Proved developed reserves 2018

–

946

4,300

139

–

489

329

(76)

649

–

(122)

(600)

1,027

4,486

(20)

661

–

313

(4)

–

(38)

290

–

1,027

4,776

661

–

331

Europe

Asia Oceania

Africa

USA

North America

Canada

South
America

–

4,949

521

329

(76)

(620)

5,147

313

(4)

–

(38)

290

5,437

331

Million barrels

Total

Oil and
NGL

Synthetic
crude oil Bitumen

Oil and
NGL

Synthetic
crude oil Bitumen

All
products

Shell subsidiaries

At January 1

At December 31

250

243

1,364

1,318

108

373

335

569

629

Shell share of joint ventures and associates

At January 1

At December 31

253

251

–

649

661

–

651

634

3,274

3,288

649

661

–

264

259

–

3,923

3,949

264

259

Proved undeveloped reserves 2018

Europe

Asia Oceania

Africa

USA

North America

Canada

South
America

Million barrels

Total

Oil and
NGL

Synthetic
crude oil Bitumen

Oil and
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

–

330

388

–

295

394

1,026

1,199

–

1,026

1,199

241

Shell Annual Report and Accounts 2019Financial StatementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

Proved developed and undeveloped reserves 2017

Europe

Asia Oceania

Africa

USA

North America

Canada

South
America

Million barrels

Total

Oil and
NGL

Synthetic
crude oil Bitumen

Oil and
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

Total

Reserves attributable to
non-controlling interest in Shell
subsidiaries at December 31

435

1,386

153

–

(50)

(90)

128

–

529

–

(14)

(75)

(187)

(9)

356

1,482

132

463

–

256

–

(1)

(35)

301

–

491

235

242

–

(109)

899

–

2,014

–

(11)

–

(3)

–

664

(1,992)

(34)

649

–

368

1,783

132

463

899

649

–

325

–

(2)

–

992

3,979

2,014

–

531

374

(3)

–

664

(64)

(1,992)

(114)

(595)

946

4,300

(34)

649

–

263

–

(36)

313

–

946

4,613

649

–

325

[A] Includes 1 million barrels consumed in operations for synthetic crude oil.

Proved developed reserves 2017

Europe

Asia Oceania

Africa

USA

North America

Canada

South
America

–

(2)

–

5,995

530

374

666

(2,058)

(631)

4,949

263

–

(36)

313

5,262

325

Million barrels

Total

Oil and
NGL

Synthetic
crude oil Bitumen

Oil and
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

250

1,184

1,364

215

253

–

461

373

437

569

–

1,387

649

–

543

651

2,932

3,274

1,387

649

–

219

264

–

4,321

3,923

219

264

Proved undeveloped reserves 2017

Europe

Asia Oceania

Africa

USA

North America

Canada

South
America

Million barrels

Total

Oil and
NGL

Synthetic
crude oil Bitumen

Oil and
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

242

178

106

202

118

–

330

–

627

–

449

295

1,047

1,026

–

627

–

1,674

1,026

Shell Annual Report and Accounts 2019Financial StatementsNATURAL 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 years are
set out on pages 244-246. 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 2019–2018
Shell subsidiaries
Asia
The net increase of 859 thousand million scf in revisions and
reclassifications was mainly in Qatar and Malaysia (Sabah and
Sarawak).

Oceania
The net increase of 699 thousand million scf in revisions and
reclassifications was mainly in Surat, Gorgon and Jansz-lo.

Africa
The net increase of 290 thousand million scf in revisions and
reclassifications was mainly in Bonny and Gbaran (Nigeria).

Canada
The net increase of 317 thousand million scf in extensions and
discoveries was mainly in Groundbirch.

Shell share of joint ventures and associates
Europe
The net decrease of 322 thousand million scf in revisions and
reclassifications was mainly in Groningen (Netherlands).

PROVED RESERVES 2018–2017
Shell subsidiaries
Europe
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.

243

Shell Annual Report and Accounts 2019Financial StatementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

Proved developed and undeveloped reserves 2019

Thousand million standard cubic feet

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

Europe

Asia

Oceania

Africa

USA

Canada

North America

3,600

(46)

10,631

859

8,427

699

2,544

2,147

–

(210)

(346)

2,998

1,163

(322)

–

(246)

595

3,593

–

290

–

152

–

(908)

10,618

(766)

8,360

(378)

2,608

4,581

–

(453)

4,198

14,816

–

(22)

–

114

–

142

(132)

(408)

1,868

–

South
America

Total

1,509

29,847

–

(319)

1,259

–

2,180

684

(372)

(3,355)

28,992

5,768

(224)

–

(721)

4,829

33,821

989

235

–

317

–

(30)

(230)

1,281

–

8,396

2,608

1,868

1,281

1,259

Reserves attributable to non-controlling
interest in shell subsidiaries at December 31

–

[A] Includes 247 thousand million standard cubic feet consumed in operations.
[B] Includes 42 thousand million standard cubic feet consumed in operations.

Proved developed reserves 2019

Europe

Asia

Oceania

Africa

USA

Canada

North America

South
America

Total

Thousand million standard cubic feet

2,658

2,060

1,136

555

10,092

10,091

3,938

3,519

5,820

5,769

1,573

1,523

1,706

1,615

–

721

781

–

1,238

968

23,808

22,807

–

5,099

4,110

Thousand million standard cubic feet

Europe

Asia

Oceania

Africa

USA

Canada

North America

942

937

539

528

643

680

2,607

2,591

971

1,085

–

441

254

–

268

499

–

South
America

271

291

–

Total

6,039

6,185

670

719

Shell subsidiaries

At January 1

At December 31

Shell share of joint ventures and associates

At January 1

At December 31

Proved undeveloped reserves 2019

Shell subsidiaries

At January 1

At December 31

Shell share of joint ventures and associates

At January 1

At December 31

244

Shell Annual Report and Accounts 2019Financial StatementsProved developed and undeveloped reserves 2018

Thousand million standard cubic feet

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

Europe

Asia

Oceania

Africa

USA

Canada

North America

3,100

1,183

–

(192)

(494)

11,822

(483)

–

354

–

(157)

(906)

7,978

1,438

–

(232)

(757)

3,600

10,631

8,427

5,125

(3,653)

4,964

–

(37)

(273)

1,163

4,763

–

(450)

4,581

15,212

–

(20)

2,082

896

–

(434)

2,544

–

2,569

(296)

–

283

–

(32)

(377)

2,147

–

1,272

(153)

–

131

–

(261)

989

–

South
America

Total

1,501

30,324

181

–

(258)

1,509

–

2,766

836

(613)

(3,487)

29,847

10,108

(3,566)

–

(37)

(743)

5,768

35,615

8,451

2,544

2,147

989

1,509

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

Shell subsidiaries

At January 1

At December 31

Shell share of joint ventures and associates

At January 1

At December 31

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

North America

South
America

Total

Thousand million standard cubic feet

2,978

2,658

5,055

1,136

11,460

10,092

4,275

3,938

5,026

5,820

1,493

1,573

1,652

1,706

–

859

721

–

1,225

1,238

24,693

23,808

–

9,349

5,099

Thousand million standard cubic feet

Europe

Asia

Oceania

Africa

USA

Canada

North America

122

942

362

539

689

643

2,952

2,607

–

589

971

–

917

441

–

413

268

–

South
America

276

271

–

Total

5,631

6,039

759

670

245

Shell Annual Report and Accounts 2019Financial StatementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

Proved developed and undeveloped reserves 2017

Thousand million standard cubic feet

Europe

Asia

Oceania

Africa

USA

Canada

North America

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

3,741

197

–

(224)

(616)

3,100

6,497

(1,027)

–

11,073

979

549

–

(845)

11,822

4,754

652

–

(345)

5,125

8,225

(454)

4,964

16,786

9,051

(574)

–

204

–

(703)

7,978

–

(21)

2,225

287

–

(7)

(423)

2,082

–

675

958

1,163

(11)

(293)

2,569

–

844

412

–

205

(6)

(226)

1,272

–

South
America

Total

1,650

29,259

–

(227)

1,501

–

2,304

140

1,925

277

(248)

(3,333)

30,324

11,282

(366)

–

(820)

10,108

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

–

Europe

Asia

Oceania

Africa

USA

Canada

North America

South
America

Total

Thousand million standard cubic feet

3,437

2,978

5,240

5,055

10,569

11,460

4,110

4,275

3,966

5,026

1,618

1,493

563

1,652

–

458

859

–

1,172

1,225

21,783

24,693

–

9,381

9,349

Thousand million standard cubic feet

Europe

Asia

Oceania

Africa

USA

Canada

North America

304

122

1,257

504

362

644

689

5,085

2,952

–

607

589

–

112

917

–

386

413

–

South
America

478

276

–

Total

7,476

5,631

1,901

759

Shell subsidiaries

At January 1

At December 31

Shell share of joint ventures and associates

At January 1

At December 31

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

246

Shell Annual Report and Accounts 2019Financial StatementsSTANDARDISED 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

2019 – Shell subsidiaries

Future cash inflows

Future production costs

Future development costs

Future tax expenses

Future net cash flows

Effect of discounting cash flows at 10%

Standardised measure of discounted future net cash flows

Non-controlling interest included

Europe

33,762

11,818

6,047

9,285

6,612

1,917

4,695

–

2019 – Shell share of joint ventures and associates

Asia

Oceania

Africa

USA

Canada

North America

31,046

55,800

111,802

32,581

13,449

25,938

39,834

17,851

21,983

–

71,775

21,589

10,103

12,158

4,081

7,016

10,542

33,067

13,328

19,739

–

4,265

377

3,888

–

30,139

11,137

2,397

12,127

1,815

10,312

–

31,522

16,651

4,603

2,313

7,955

5,571

2,384

1,371

Europe

Asia

Oceania

Africa

USA

Canada

North America

Future cash inflows

Future production costs

Future development costs

Future tax expenses

Future net cash flows

Effect of discounting cash flows at 10%

3,615

2,810

935

718

(848)

(266)

38,099

18,336

6,946

6,160

6,657

1,190

Standardised measure of discounted future net cash flows

(582) [A]

5,467

122

(7)

–

$ million

Total

South
America

64,957

400,664

32,362

157,298

13,219

5,429

13,947

4,094

9,853

–

South
America

–

62,639

62,920

117,807

44,953

72,854

1,371

$ million

Total

41,836

21,227

7,917

6,882

5,812

917

4,893

[A] While proved reserves are economically producible at the 2019 yearly average price, the standardised measure of discounted future net cash flows was negative for those proved reserves at

December 31, 2019, due to addition of overhead, tax and abandonment costs and ongoing commitments post production of proved reserves.

2018 – Shell subsidiaries

Future cash inflows

Future production costs

Future development costs

Future tax expenses

Future net cash flows

Effect of discounting cash flows at 10%

Standardised measure of discounted future net cash flows

Non-controlling interest included

Europe

Asia

Oceania

Africa

USA

Canada

North America

50,392

122,037

72,355

36,080

68,546

18,400

32,773

8,649

12,603

10,739

3,024

7,715

–

12,301

30,994

45,969

20,957

22,219

11,598

5,899

32,639

12,130

25,012

20,509

–

13,237

4,672

12,805

5,366

572

4,794

–

32,533

11,486

1,948

22,578

5,039

17,539

–

34,719

17,378

4,674

3,257

9,411

6,446

2,964

1,638

$ million

Total

South
America

74,417

458,545

42,301

178,842

6,991

7,764

60,370

75,271

17,360

144,062

6,048

11,312

–

54,217

89,845

1,639

247

Shell Annual Report and Accounts 2019Financial StatementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

2018 – Shell share of joint ventures and associates

Future cash inflows

Future production costs

Future development costs

Future tax expenses

Future net cash flows

Effect of discounting cash flows at 10%

Standardised measure of discounted future net cash flows

Europe

5,260

2,712

1,083

1,136

329

(76)

405

Asia

Oceania

Africa

USA

Canada

North America

South
America

44,327

20,886

6,726

7,128

9,588

2,759

6,829

104

(13)

(8)

(5) [A]

–

$ million

Total

49,691

23,677

7,844

8,265

9,904

2,675

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.

2017 – Shell subsidiaries

Future cash inflows

Future production costs

Future development costs

Future tax expenses

Future net cash flows

Effect of discounting cash flows at 10%

Standardised measure of discounted future net cash flows

Non-controlling interest included

Europe

34,902

15,672

7,852

5,747

5,631

825

4,806

–

Asia

Oceania

94,535

30,894

12,558

18,048

33,035

15,115

17,920

51,052

18,264

14,062

1,169

17,557

5,773

11,784

–

Africa

29,276

11,496

4,920

9,064

3,796

(9)

3,805

–

2017 – Shell share of joint ventures and associates

North America

USA

Canada

South
America

$ million

Total

32,576

20,242

50,620

342,350

30,924

156,997

49,389

29,505

14,200

2,177

3,507

(796)

4,303

–

5,115

2,509

4,710

3,077

1,633

870

6,210

4,888

8,598

2,325

6,273

–

Future cash inflows

Future production costs

Future development costs

Future tax expenses

Future net cash flows

Effect of discounting cash flows at 10%

Standardised measure of discounted future net cash flows

Europe

22,725

17,442

1,051

1,803

2,429

1,008

1,421

Asia

Oceania

Africa

USA

Canada

North America

South
America

37,954

17,592

7,605

5,172

7,585

1,862

5,723

–

(49)

(14)

(35) [A]

–

[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.

248

64,917

43,602

76,834

26,310

50,524

871

$ million

Total

60,748

35,088

8,720

6,975

9,965

2,856

7,109

Shell Annual Report and Accounts 2019Financial StatementsCHANGE IN STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES

2019

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

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

89,845

(18,759)

13,777

5,193

(2,831)

(9,417)

(33,319)

10,430

12,004

5,931

72,854

7,229

(1,017)

(293)

–

(2)

(3,918)

702

1,133

966

4,893

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)

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

–

461

(3,652)

536

630

(1,004)

7,109

$ million

Total

97,074

(19,776)

13,484

5,286

(2,831)

(9,419)

(37,237)

11,132

13,137

6,897

77,747

$ million

Total

57,633

64,284

13,818

9,468

(3,421)

(4,184)

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

249

(4,858)

(42,872)

Shell Annual Report and Accounts 2019Financial StatementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

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.

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

2019

$ million

2018

265,700

265,489

18,669

11,043

21,256

6,404

295,412

293,149

129,809

126,641

4,089

4,078

137,976

157,436

2019

46,895

2,428

4,882

54,205

3,362

3,424

133,427

159,722

$ million

2018

44,331

2,591

4,399

51,321

34,120

31,702

–

2,817

36,937

17,268

–

2,586

34,288

17,033

[A] Includes capitalised asset decommissioning and restoration costs and related depreciation.

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. As a result of the adoption of IFRS 16 Leases as of January 1, 2019, leases are included in year
2019. 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.

Shell subsidiaries

Acquisition of properties

Proved

Unproved

Exploration

Development

Europe

Asia

Oceania

Africa

USA

Other [A]

North America

–

428

2,054

105

165

–

117

1,434

1,225

253

1,480

–

118

1,723

4,455

–

402

287

$ million

Total

118

204

South
America

–

500

3,588 [B]

2,418

13,353

[A] Comprises Canada and Mexico.
[B] Includes $1,195 million of Shales-related exploration activities. In 2019, we participated in 231 Shales productive exploratory wells with proved reserves allocated (Shell share: 117 wells).

250

Shell Annual Report and Accounts 2019Financial Statements2018

Acquisition of properties

Proved

Unproved

Exploration

Development

Europe

Asia

Oceania

Africa

USA

Other [A]

North America

384

1,452

182

1,102

–

1,632

596

188

962

1,912

4,052

–

310

251

505

$ million

Total

646

924

3,468 [B]

South
America

–

486

502

2,095

11,800

[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).

2017

Acquisition of properties

Proved

Unproved

Exploration

Development

[A] Comprises Canada, Honduras and Mexico.

Europe

Asia

Oceania

Africa

USA

Other [A]

North America

–

329

776

–

135

840

–

2,493

138

371

–

141

1,354

4,123

2,246

320

235

722

SHELL SHARE OF JOINT VENTURES AND ASSOCIATES
Joint ventures and associates did not incur costs in the acquisition of oil and gas properties in 2019, 2018 or 2017.

2019

Exploration

Development

2018

Exploration

Development

2017

Exploration

Development

[A] Includes a revision of decommissioning and restoration provisions.

Europe

Asia

116

1,400

Oceania

Africa

USA

Canada

–

North America

Europe

–

229

Asia

1,026

Oceania

Africa

USA

Canada

–

North America

Europe

(22) [A]

Asia

660

Oceania

Africa

USA

Canada

–

North America

South
America

600

1,671

South
America

–

South
America

–

South
America

–

$ million

Total

2,275

548

2,829

10,996

$ million

Total

129

1,559

$ million

Total

104

1,334

$ million

Total

696

251

Shell Annual Report and Accounts 2019Financial StatementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

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.

Shell subsidiaries

2019

Revenue

Third parties

Sales between businesses

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 and Mexico.

2018

Revenue

Third parties

Sales between businesses

Total

Production costs excluding taxes

Taxes other than income tax

Exploration

Depreciation, depletion and amortisation

Other costs/(income)

Earnings before taxation

Taxation (credit)/charge

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

Other costs/(income)

Earnings before taxation

Taxation charge/(credit)

Earnings after taxation

[A] Comprises Canada, Honduras and Mexico.

252

Europe

Asia

Oceania

Africa

USA

Other [A]

North America

1,257

4,911

6,168

1,582

619

2,604

(20)

1,289

848

441

3,065

10,526

13,591

2,065

749

583

2,130

1,599

6,465

4,013

2,452

931

4,719

5,650

1,178

136

107

1,957

(105)

2,377

1,094

1,283

1,936

3,289

5,225

1,062

370

187

1,354

121

2,131

1,431

700

2,638

7,786

10,424

2,807

103

411

6,932

(575)

746

154

592

632

1,936

2,568

983

–

159

858

818

(250)

(110)

(140)

Europe

Asia

Oceania

Africa

USA

Other [A]

North America

1,875

6,705

8,580

2,262

122

277

2,684

947

2,288

2,047

241

3,364

11,284

14,648

2,143

841

149

2,301

(180)

9,394

4,851

4,543

1,389

4,683

6,072

1,073

199

1,571

(514)

3,665

893

2,772

2,401

3,586

5,987

1,093

328

144

1,394

609

2,419

902

1,517

2,165

7,716

9,881

2,573

341

4,543

447

1,894

550

1,344

507

1,946

2,453

1,069

–

114

(346)

667

949

236

713

Europe

Asia

Oceania

Africa

USA

Other [A]

North America

1,193

7,120

8,313

2,509

243

2,560

(157)

3,069

1,689

1,380

2,708

9,061

11,769

2,469

556

245

2,892

1,073

4,534

2,969

1,565

1,414

2,400

3,814

1,110

119

1,777

(382)

1,148

(202)

1,350

1,872

3,218

5,090

1,365

287

129

1,863

145

1,301

(361)

1,662

1,080

5,119

6,199

2,558

868

3,410

114

(849)

363

(1,212)

339

2,938

3,277

1,571

142

3,886

1,050

(3,373)

(1,486)

(1,887)

$ million

Total

11,303

40,814

52,117

10,812

4,065

2,354

19,764

3,217

11,905

7,352

4,553

$ million

Total

12,724

43,074

55,798

11,614

4,340

1,340

15,418

2,825

20,261

10,641

9,620

$ million

Total

9,295

35,101

44,396

12,800

2,841

1,945

19,762

2,312

4,736

2,678

2,058

South
America

844

7,647

8,491

1,135

2,613

288

3,929

1,379

(853)

(78)

(775)

South
America

1,023

7,154

8,177

1,401

2,767

237

3,271

849

(348)

1,162

(1,510)

South
America

689

5,245

5,934

1,218

1,691

276

3,374

469

(1,094)

(294)

(800)

Shell Annual Report and Accounts 2019Financial StatementsSHELL SHARE OF JOINT VENTURES AND ASSOCIATES

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

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

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

Europe

Asia

Oceania

Africa

USA

Canada

North America

South
America

1,233

249

217

547

141

102

5,475

669

1,037

949

622

2,147

957

1,190

–

415

(18)

(410)

–

(410)

–

(1)

–

(1)

–

(1)

–

(1)

–

Europe

Asia

Oceania

Africa

USA

Canada

North America

South
America

1,395

307

318

595

Europe

1,646

337

631

188

(83)

566

173

393

5,884

674

1,259

1,016

615

2,275

975

1,300

105

–

163

(26)

(167)

–

(167)

–

Asia

Oceania

Africa

USA

Canada

North America

South
America

4,503

729

705

1,654

511

847

197

650

(60)

(23)

–

(23)

–

$ million

Total

6,789

1,006

1,118

1,581

1,153

1,876

996

880

$ million

Total

7,358

1,086

1,345

1,497

1,184

2,196

982

1,214

$ million

Total

6,207

1,159

1,340

1,882

368

1,390

370

1,020

253

Shell Annual Report and Accounts 2019Financial StatementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

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)

2019

2018

Thousand acres

2017

Developed

Undeveloped

Developed

Undeveloped

Developed

Undeveloped

Gross

Net

Gross

Net Gross

Net

Gross

Net

Gross

Net

Gross

Net

6,289

1,915

13,864

6,082

6,022 [B]

1,954 [B]

14,385 [C] 6,540 [C]

6,214 [D] 2,051 [D]

13,079 [E] 5,823 [E]

7,885

1,220

1,940

952

–

752

710

31,676

15,433

25,975

15,319 [F] 10,095 [F]

3,296

38,874

22,732

2,133

5,178

1,681

10,352

1,635

3,885

1,193

6,725

4,663

1,936

–

953

1,302

9,139

1,255

1,938

1,134

–

651

606

35,305

18,730

22,295 [G] 13,985

33,453

20,811

2,718

1,937

–

15,818

14,468

9,338

6,196

38,573

14,541

145,931 76,473

40,116

15,413

119,598

68,238

44,339

16,774

132,006

81,950

Europe [A]

Asia

Oceania

Africa

21,387

7,672

31,486 14,880 22,087

3,025

1,215

11,720

6,260

3,202

4,663

1,938

62,965 32,564

4,666

North America – USA

1,333

877

2,489

1,917

1,541

North America – Mexico

–

5,178

3,291

–

North America – Canada

South America

Total

483

1,393

329

595

1,783

1,265

1,108

16,446

10,214

1,490

[A] Includes Greenland for 2018 and 2017.
[B] Corrected from 6,228 (1,958 net).
[C] Corrected from 15,443 (6,913 net).
[D] Corrected from 6,463 (2,071 net).
[E] Corrected from 14,119 (6,187 net).
[F] Corrected from 15,662 (10,298 net).
[G] Corrected from 22,406.

Number of productive wells [A] (at December 31)

Europe

Asia

Oceania

Africa

Oil

Net

217

Gross

893

7,767

2,841

Gross

1,091

336

2019

Gas

Net

345

193

–

3,352

1,896

514

206

–

137

–

202

822

748

139

516

676

Gross

1,077

Oil

Net

277

7,455 [D] 2,728 [D]

–

478

–

189

15,224

7,745

Gross

1,201

331

3,411

195

1,479

936

117 [E]

52 [E]

63 [F]

2018

Gas

Net

379

189

1,924

132

Oil

2017

Gas

Gross

Net

Gross

Net

1,138 [B]

299 [B]

1,255 [C]

396 [C]

9,279

3,067

–

380

–

155

672

15,408

7,817

846

–

111

–

682

3,499

180

1,636

892

269

1,926

122

717

794

24,246 10,965

6,609

3,801

24,352

10,992

7,616

4,183

26,316

11,385

8,199

4,256

North America – USA

14,935

7,638

North America – Canada

South America

Total

[A] The number of productive wells with multiple completions at December 31, 2019, was 955 gross (418 net); December 31, 2018: 1,061 gross (454 net), corrected from 1,132 Gross (489 Net);

December 31, 2017: 1,696 gross (636 net).

[B] Corrected from 1,156 (303 net).
[C] Corrected from 1,235 (392 net).
[D] Corrected from 7,498 (2,750 net).
[E] Corrected from 119 (53 net).
[F] Corrected from 62.

254

Shell Annual Report and Accounts 2019Financial Statements
Number of net productive wells and dry holes drilled

Productive

2019

Dry

Productive

Exploratory [A]

Europe

Asia

Oceania

Africa

North America – USA

North America – Canada

South America

Total

Development

Europe

Asia

Oceania

Africa

North America – USA

North America – Canada

South America

Total

–

154

182

280

532

–

22 [B]

–

104

153

198 [E]

54 [G]

276

614

2018

Dry

11 [C]

–

Productive

2017

Dry

–

18 [D]

291 [F]

237

677

–

[A] Productive wells are wells with proved reserves allocated. Wells in the process of drilling are excluded and presented separately below.
[B] Corrected from 9.
[C] Corrected from 10.
[D] Corrected from 3.
[E] Corrected from 222.
[F] Corrected from 312.
[G] Corrected from 41.

Number of wells in the process of exploratory drilling [A]

Europe

Asia

Oceania

Africa

At January 1

Net

28 [B]

Gross

75 [B]

42 [C]

North America – USA

239 [D]

158 [D]

North America – Canada

South America

Total

5 [E]

37 [F]

464

5 [E]

266

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

New wells in the
process of drilling at
December 31

At December 31

Gross

Net

Gross

Net

Gross

Net

Gross

Net

(1)

(21)

–

(3)

(126)

(5)

(10)

(166)

–

(8)

–

(3)

(60)

(5)

(7)

(83)

(5)

(21)

(3)

(6)

(13)

–

(1)

(3)

(8)

(1)

(6)

(9)

–

(49)

(27)

155

197

404

126

234

[A] Wells in the process of exploratory drilling includes wells pending further evaluation.
[B] Corrected from 68 (25 net).
[C] Corrected from 45.
[D] Corrected from 151 (96 net).
[E] Corrected from 0 (0 net).
[F] Corrected from 36.

255

Shell Annual Report and Accounts 2019Financial StatementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

Number of wells in the process of development drilling

Europe

Asia

Oceania

Africa

North America – USA

North America – Canada

South America

Total

[A] Corrected from 36 (14 net).
[B] Corrected from 3 (1 net).
[C] Corrected from 64 (33 net).
[D] Corrected from 17 (17 net).

At January 1

At December 31

2019

Net

16 [A]

8 [B]

20 [C]

12 [D]

Gross

Net

123

–

245

139

Gross

41 [A]

19 [B]

40 [C]

12 [D]

131

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, 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).

256

Shell Annual Report and Accounts 2019Financial StatementsPARENT COMPANY
FINANCIAL
STATEMENTS

258

259

260

261

262

264

265

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

257

Shell Annual Report and Accounts 2019Financial StatementsNotes

2019

21,051

101

(54)

(146)

20,952

567

20,385

2019

20,385

$ million

2018

23,278

141

(43)

(222)

23,154

23,110

$ million

2018

23,110

$ million

Notes

Dec 31, 2019

Dec 31, 2018

256,654

256,920

–

355

256,654

257,275

1,864

1,868

9,263

9,266

258,522

266,541

1,775

4,862

657

235,561

20,529

256,747

258,522

685

235,536

25,458

261,679

266,541

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

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

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 11, 2020

258

Shell Annual Report and Accounts 2019Financial StatementsSTATEMENT OF CHANGES IN EQUITY

At January 1, 2019

Comprehensive income for the period

Dividends

Repurchases of shares

Share-based compensation

At December 31, 2019

At January 1, 2018

Comprehensive income for the period

Dividends

Repurchases of shares

Share-based compensation [A]

At December 31, 2018

Notes

Share
capital

Other
reserves

Retained
earnings

685

235,536

–

(28)

–

657

696

–

(11)

–

(3)

235,561

235,366

–

159

25,458

20,385

(15,199)

(10,286)

171

20,529

21,778

23,110

(15,675)

(4,519)

764

$ million

Total
equity

261,679

20,385

(15,199)

(10,286)

168

256,747

257,840

23,110

(15,675)

(4,519)

923

685

235,536

25,458

261,679

[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 classified as equity-settled from 2018 onwards.

STATEMENT OF CASH FLOWS

Income for the period

Adjustment for:

Dividend income

Taxation charge

Interest income

Interest expense

Share-based compensation

Decrease/(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

2019

20,385

$ million

2018

23,110

(21,051)

(23,278)

567

(101)

111

4,008

3,938

21,051

101

408

(141)

156

(3,796)

(3,889)

23,278

141

248

21,560

23,667

(15,198)

(10,188)

(111)

(15,675)

(3,947)

(156)

(25,497)

(19,778)

–

259

Shell Annual Report and Accounts 2019Financial StatementsNOTES 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.

The Financial Statements were approved and authorised for issue by the
Board of Directors on March 11, 2020.

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 190-238. 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 268-271.

The Company’s principal activity is being the parent company for Shell,
as described in Note 1 of the Consolidated Financial Statements
(see page 195)

2 SIGNIFICANT ACCOUNTING POLICIES
The Company’s accounting policies follow those of Shell as set out in Note
2A of the Consolidated Financial Statements (see pages 195-203). 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
of the Consolidated Financial Statements (see pages 210-213).

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, plc, 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
plc 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. On February 15, 2016 the Company acquired
all the voting rights in BG Group plc via the issuance of shares and cash
payments of total fair value $53,086 million. In September 2016, the
Company’s shares in BG Group Limited (“BG”), formerly BG Group plc,
were exchanged for an increased investment in Shell Petroleum.

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.

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.

Note 21 of the Consolidated Financial Statements (see page 232-233)
for information on the Company’s principal plan.

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. Balances not settled with the Company at the balance sheet
date are recognised in the member’s financial statements and, to the
extent they are material, are disclosed in the notes to the Company’s
financial statements.

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.

260

Shell Annual Report and Accounts 2019Financial Statements3 INTEREST AND OTHER INCOME/EXPENSE

Interest and other income:

Interest income

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

2019

101

(111)

(35)

(146)

2019

$ million

2018

141

(156)

(66)

(222)

$ million

2018

256,920

256,882

506

(772)

512

(474)

256,654

256,920

Dec 31, 2019

$ million

Dec 31, 2018

Current

Non-current

Current

Non-current

750

730

291

1,775

–

3,934

614

311

4,862

–

Accruals and other liabilities at December 31, 2019, and at December 31, 2018, principally comprise commitments for share repurchases undertaken on
the Company’s behalf under irrevocable, non-discretionary arrangements.

6 TAXATION

Taxation charge

Current tax:

Charge in respect of current period

Total

Deferred tax:

Relating to the origination and reversal of tax losses and credits

Relating to changes in tax rates and legislation

Total

Taxation charge

In 2019, the deferred tax charge related to derecognition of deferred tax assets on unused tax losses and tax credits carried forward.

$ million

2019

2018

539

558

567

–

261

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS continued

6 TAXATION continued

Reconciliation of applicable tax charge at statutory tax rate to taxation charge

Income before taxation

Applicable tax charge at the statutory tax rate of 25.0% (2018: 25.0%)

Derecognition of deferred tax assets

Tax effects of:

Income not subject to tax at statutory rates

Expenses not deductible for tax purposes

Other

Taxation charge

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

2019

20,952

5,238

539

$ million

2018

23,154

5,789

–

(5,253)

(5,820)

567

2019

355

(558)

203

–

$ million

2018

598

(44)

(199)

355

In the Company’s capacity as head of the fiscal unity, no deferred tax assets have been recognised at December 31, 2019. Deferred tax assets
recognised in this capacity at December 31, 2018 amounted to $355 million and were in respect of credits carried forward and unused tax losses.
At December 31, 2019, unrecognised unused tax losses amounted to $1,683 million (2018: $nil) and unrecognised credits carried forward amounted
to $273 million (2018: $99 million). Unused tax losses are available for relief against future taxable profits for up to a period of six to nine years,
dependent upon the year in which the losses were incurred. Unused tax credits are available indefinitely.

7 FINANCIAL INSTRUMENTS
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,
2019, and 2018, approximates their carrying amount.

Information on financial risk management is presented in Note 19 of the Consolidated Financial Statements (see pages 227-231). 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, 2019, or 2018.

8 SHARE CAPITAL

Issued and fully paid ordinary shares of €0.07 each [A]

At January 1, 2019

Repurchases of shares

At December 31, 2019

At January 1, 2018

Repurchases of shares

At December 31, 2018

Number of shares

4,471,889,296

3,745,486,731

(320,101,779)

(16,079,624)

4,151,787,517

3,729,407,107

4,597,136,050

3,745,486,731

(125,246,754)

–

4,471,889,296

3,745,486,731

376

(27)

349

387

(11)

376

Nominal value ($ million)

309

(1)

308

309

–

309

Total

685

(28)

657

696

(11)

685

[A] Share capital at December 31, 2019, and 2018, also included 50,000 issued and fully paid sterling deferred shares of £1 each.

262

Shell Annual Report and Accounts 2019Financial StatementsAt the Company’s Annual General Meeting (“AGM”) on May 21, 2019,
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 €190.3 million
(representing 2,720 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 21, 2020, and the end of the
AGM to be held in 2020, unless previously renewed, revoked or varied by
the Company in a general meeting.

At the May 21, 2019 AGM, shareholders granted the Company the
authority to repurchase up to 815 million 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 21, 2020, and the end of the AGM of the Company to
be held in 2020. 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 and B shares repurchased in 2019 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, 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 of the
Consolidated Financial Statements (see pages 232-233).

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.

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.

263

Shell Annual Report and Accounts 2019Financial StatementsNOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS continued

8 SHARE CAPITAL continued
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.

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, 2019

Repurchases of shares

Share-based compensation

At December 31, 2019

At January 1, 2018

Repurchases of shares

Share-based compensation

At December 31, 2018

Merger
reserve

234,231

–

234,231

–

234,231

Share
premium
reserve

Capital
redemption
reserve

154

–

154

–

154

–

123

–

Share
plan
reserve

1,056

–

(3)

1,053

897

–

159

$ million

Total

235,536

(3)

235,561

235,366

159

1,056

235,536

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 and the release as a
result of vested awards.

10 DIVIDENDS
See Note 23 of the Consolidated Financial Statements (see page 235).

264

Shell Annual Report and Accounts 2019Financial Statements11 LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
See Note 25 of the Consolidated Financial Statements (see pages 235-237).

12 DIRECTORS AND SENIOR MANAGEMENT
See Note 27 of the Consolidated Financial Statements (see page 237) for the remuneration of Directors of the Company. In 2019, the Company
recognised $25 million (2018: $24 million) in administrative expenses for the compensation of Directors and Senior Management.

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, 2019, is set out in ‘Appendix 1: Significant Subsidiaries and Other Related Undertakings’.

Shell Petroleum

Shell Treasury Centre Limited

Shell Corporate Services Switzerland AG

Other

Total

Amounts due from subsidiaries

2019

–

1,862

–

2018

–

9,260

–

1,864

9,263

750

$ million

Amounts due to subsidiaries
(see Note 5)

2019

748

–

2018

550

–

3,384

–

3,934

The Company received interest income from Shell Petroleum in 2019 of $60 million (2018: $134 million). Interest was calculated at US LIBOR less
0.21% (December 31, 2018: US LIBOR less 0.21%). At both December 31, 2019 and 2018 the closing amount due from Shell Petroleum was $nil.

The amount due from Shell Treasury Centre Limited (“STCL”) comprises call deposits in dollars, sterling and euros. Interest is calculated at US LIBOR less
0.21% (2018: US LIBOR less 0.21%) on dollar balances, at GBP LIBOR less 0.19% (2018: GBP LIBOR less 0.19%) on sterling balances and at Euro
Overnight Index Average (“EONIA”) (2018: EONIA) on euro balances, unless this results in a negative interest rate in which case no interest is earned.
Net interest income in 2019 from STCL was $41 million (2018: $7 million).

In 2019, the Company settled an interest-bearing receivable and an interest-bearing payable at fair value, equal to the carrying amount of the balances
at transfer date, with Shell Corporate Services Switzerland AG (“SCSS”). The net amount due to SCSS at December 31, 2019, is $nil (2018: interest-
bearing receivable of €4,690 million and an interest-bearing payable of $8,746 million). Interest on euro balances was calculated at EONIA (2018:
EONIA) unless this resulted in a negative interest rate in which case no interest was earned. Interest on dollar balances was calculated at US LIBOR
(2018: US LIBOR). Net interest expense on these balances in 2019 was $111 million (2018: $67 million).

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, 2019, or 2018.

The Company settles general and administrative expenses of the Trust, including the auditor’s remuneration.

The Company has guaranteed contractual payments totalling $52,974 million at December 31, 2019 (2018: $53,357 million), and related interest,
in respect of listed debt issued by Shell International Finance B.V.

14 AUDITOR’S REMUNERATION
See Note 28 of the Consolidated Financial Statements (see pages 238).

265

Shell Annual Report and Accounts 2019Financial StatementsINDEPENDENT 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, 2019 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:
■ give a true and fair view of the Royal Dutch Shell Divided Access

Trust’s (the Trust) affairs as at December 31, 2019 and of its income
for the year then ended; and

■ have been properly prepared both in accordance with IFRS as

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.

adopted by the EU and IFRS as issued by the IASB.

We have nothing to report in this regard.

Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (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 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 material to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you where:
■

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
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.

■

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 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.

266

Shell Annual Report and Accounts 2019Financial StatementsAuditor’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 Trustee and the Directors as a body,
in accordance with our engagement letter. 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 11, 2019

[A] 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.

[B] Legislation in the UK governing the preparation and dissemination of financial statements

may differ from legislation in other jurisdictions.

267

Shell Annual Report and Accounts 2019Financial StatementsROYAL DUTCH SHELL
DIVIDEND ACCESS TRUST
FINANCIAL STATEMENTS

Statement of Income

Statement of Comprehensive Income

Balance Sheet

Statement of Changes in Equity

Statement of Cash Flows

Notes to the Royal Dutch Shell Dividend Access Trust Financial Statements

Note 1 The Trust

Note 2 Basis of preparation

Note 3 Significant accounting policies

Note 4 Unclaimed dividends

Note 5 Capital account

Note 6 Distributions made

Note 7 Related parties

Note 8 Auditor’s remuneration

269

270

271

268

Shell Annual Report and Accounts 2019Financial StatementsSTATEMENT 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

Signed on behalf of Computershare Trustees (Jersey) Limited
as Trustee of the Royal Dutch Shell Dividend Access Trust

/s/ Karen Kurys

KAREN KURYS
March 11, 2020

/s/ Martin Fish

MARTIN FISH

2019

5,484

2019

5,484

2018

5,328

2018

5,328

£ million

2017

4,567

£ million

2017

4,567

£ million

Notes

Dec 31, 2019

Dec 31, 2018

–

269

Shell Annual Report and Accounts 2019Financial StatementsROYAL DUTCH SHELL DIVIDEND ACCESS TRUST FINANCIAL STATEMENTS continued

Notes

Capital
account

–

Revenue
account

–

5,484

(5,484)

–

5,328

(5,328)

–

4,567

(4,567)

–

2019

5,484

2018

5,328

£ million

Total
equity

–

5,484

(5,484)

–

5,328

(5,328)

–

4,567

(4,567)

–

£ million

2017

4,567

(5,484)

(5,328)

(4,567)

–

5,484

(5,484)

–

5,328

(5,327)

–

4,567

(4,567)

–

STATEMENT OF CHANGES IN EQUITY

At January 1, 2019

Comprehensive income for the period

Distributions made

At December 31, 2019

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

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

270

Shell Annual Report and Accounts 2019Financial StatementsNOTES 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 plc,
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.

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.

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.

4 UNCLAIMED DIVIDENDS
Unclaimed dividends of £3,456,974 (2018: £2,816,655) 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.

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.

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 of the Consolidated
Financial Statements (see pages 235) for information about dividends per
share. Any wire transfers that are not completed are replaced by cheques.

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 11, 2020.

The financial results of the Trust are included in the Consolidated and
Parent Company Financial Statements on pages 190-238 and pages
257-265 respectively.

7 RELATED PARTIES
The Trust received dividend income of £3,573 million (2018: £3,470
million; 2017: £2,970 million) in respect of the dividend access share
from Shell Transport and £1,911 million (2018: £1,858 million; 2017:
£1,597 million) in respect of the dividend access share from BG.
The Trust made distributions of £5,484 million (2018: £5,328 million;
2017: £4,567 million) to the B shareholders of the Company.

The Company pays the general and administrative expenses of the
Trust, including the auditor’s remuneration.

3 SIGNIFICANT ACCOUNTING POLICIES
The Trust’s accounting policies follow those of Shell as set out in Note 2A
of the Consolidated Financial Statements (see pages 195-203). The
following are Trust-specific policies.

8 AUDITOR’S REMUNERATION
Auditor’s remuneration for 2019 audit services was £33,750
(2018: £33,750; 2017: £33,750).

271

Shell Annual Report and Accounts 2019Financial StatementsADDITIONAL
INFORMATION

274
279
282

Shareholder information
Non-GAAP measures reconciliations
Appendix 1: Significant Subsidiaries and
Other Related Undertakings (Audited)

272

Shell Annual Report and Accounts 2019Additional Information273

Shell Annual Report and Accounts 2019Additional InformationSHARE CAPITAL
The issued and fully paid share capital of the Company at February 14,
2020, was as follows:

Share capital

Ordinary shares of €0.07 each

A shares

B shares

Issued and fully paid

Number

Nominal value

4,125,109,180

€ 288,757,643

3,727,267,215

€ 260,908,705

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 AGM. Under the resolution passed at the Company’s 2019
AGM, the Directors were granted authority to allot ordinary shares up to
an aggregate nominal amount equivalent to approximately one-third of
the issued ordinary share capital of the Company (in line with the
guidelines issued by institutional investors).

The following is a summary of the material terms of the Company’s
ordinary shares, including brief descriptions of the provisions contained in
the Articles of Association (the Articles) and applicable laws of England
and Wales in effect on the date of this document. This summary does
not purport to include complete statements of these provisions:
■ upon issuance, A and B shares are fully paid and free from all liens,
equities, charges, encumbrances and other interest of the Company
and not subject to calls of any kind;

■ all A and B shares rank equally for all dividends and distributions

on ordinary share capital; and

■ 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.

At December 31, 2019, trusts and trust-like entities holding shares for the
benefit of employee share plans of Shell held (directly and indirectly)
35 million shares of the Company with an aggregate market value of
$1,021 million and an aggregate nominal value of €3 million.

SIGNIFICANT SHAREHOLDINGS
The Company’s A and B shares have identical voting rights, and
accordingly the Company’s major shareholders do not have
different voting rights.

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. Each ADS represents two €0.07 shares of Royal Dutch Shell plc
deposited under the agreement. More information relating to ADSs is
given on pages 274-278.
[A] At February 14, 2020, 395,595,127 A ADSs and 322,677,233 B ADSs were outstanding,

representing 5.04% and 4.11% of the respective share capital class, held by 5,003 and 912
holders of record with an address in the USA, respectively. In addition to holders of ADSs, at
February 14, 2020, 21,380 A shares and 920,170 B shares of €0.07 each were outstanding,
representing 0.0003% and 0.0117% of the respective share capital class, held by 299 and
3,061 holders of record registered with an address in the USA, respectively.

Listing information

Ticker symbol London

Ticker symbol Amsterdam

Ticker symbol New York (ADS [A])

ISIN Code

CUSIP

SEDOL Number London

SEDOL Number Euronext

Weighting on FTSE at 31/12/19

Weighting on AEX at 31/12/19

A shares

B shares

RDSA

RDS.A

RDSB

RDS.B

GB00B03MLX29 GB00B03MM408

G7690A100

G7690A118

B03MLX2

B09CBL4

4.97%

11.9%

B03MM40

B09CBN6

4.44%

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.

274

Shell Annual Report and Accounts 2019Additional Information

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
February 14, 2020 are given below.

A shares

Number

Nederlands Centraal Instituut Voor Giraal Effectenverkeer Bv

1,648,160,815.00

Guaranty Nominees Limited

State Street Nominees Limited

Chase Nominees Limited

780,888,066.00

153,192,955.00

39,792,354.00

B shares

Number

Total

Number

15,631,116.00

0.42

1,663,791,931.00

635,107,032.00

17.04

1,415,995,098.00

176,114,622.00

223,049,935.00

4.73

5.98

329,307,577.00

262,842,289.00

39.95

18.93

3.71

0.96

Significant indirect shareholdings
Interests of investors with 3% or more of A and B shares combined at February 14, 2020 are given below.

The Capital Group [A]

The Vanguard Group

BlackRock Inc

[A] Information presented as at February 24, 2020.

A shares

Number

42,482,002

197,154,328

304,037,938

0.54

4.75

7.32

B shares

Number

349,161,475

141,041,343

259,041,285

4.45

3.78

6.95

Total

Number

391,643,477

338,195,671

563,079,223

21.19

18.03

4.19

3.35

4.99

4.29

7.14

Notification of major shareholdings
The Company received two notifications pursuant to Disclosure Guidance and Transparency Rule (DTR) 5 during the year and up to February 14, 2020,
(being a date not more than one month prior to the date of the Company’s Notice of Annual General Meeting). The information provided includes the
percentage of issued capital as at the date of the notifications.

Investor

The Capital Group Companies, Inc.[B]

The Capital Group Companies, Inc. [C] [D]

A shares

Number

64,854,057

51,230,530

0.80

0.65

B shares

Number

337,594,482

342,234,201

4.19

4.35

Total [A]

Number

402,448,539

393,464,731

4.99

5.00

[A] 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)).

[B] The notification was announced on 9 July 2019.
[C] The notification was announced on 20 January 2020.
[D] On 24 February 2020, Royal Dutch Shell plc announced receipt of a notification from The Capital Group Companies Inc. disclosing a holding of 31,948,156 A shares and 10,533,846

A ADR shares (0.54%) and 166,464,737 B shares and 182,696,738 B ADR shares (4.45%) being a total of 391,643,477 shares held (4.99%).

DIVIDENDS
The following tables show the dividends on each class of share and each class of ADS for the years 2015–2019.

A and B shares

Total announced in respect of the year

2019

0.47

1.88

2018

0.47

1.88

2017

0.47

1.88

2016

0.47

1.88

2015

0.47

1.88

275

Shell Annual Report and Accounts 2019Additional Information

SHAREHOLDER INFORMATION continued

A shares

Total announced in respect of the year

Amount paid during the year

[A] Euro equivalent, rounded to the nearest euro cent.

B shares

Total announced in respect of the year

Amount paid during the year

[A] Sterling equivalent.

A and B ADSs

Total announced in respect of the year

Amount paid during the year

METHOD OF HOLDING SHARES OR AN INTEREST IN SHARES
There are several ways in which Royal Dutch Shell plc registered shares
or an interest in these shares can be held, including:
■ directly as registered shares either in uncertificated form or in

■

certificated form in a shareholder’s own name;
indirectly through Euroclear Nederland (in respect of which the Dutch
Securities Giro Act (“Wet giraal effectenverkeer”) is applicable);
through the Royal Dutch Shell Corporate Nominee Service;
through another third-party nominee or intermediary company; and
■ as a direct or indirect holder of either an A or a B ADS with the Depositary.

■

AMERICAN DEPOSITARY SHARES
The Depositary is the registered shareholder of the shares underlying the
A or B 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.

2019

0.42

0.43

0.42

1.68

2019

36.97

38.01

35.73

36.40

147.11

146.65

2019

0.94

3.76

2018

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

3.76

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

3.76

2016

0.42

0.44

1.72

1.70

2016

32.98

35.27

37.16

38.64

144.05

138.19

2016

0.94

3.76

€ [A]

2015

0.42

0.43

0.42

1.69

1.71

Pence [A]

2015

30.75

30.92

31.07

32.78

125.52

123.94

2015

0.94

3.76

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.

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

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.

276

Shell Annual Report and Accounts 2019Additional Information

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 278.

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, 2019, to February 14,
2020, the Company received $1,320,599 from the Depositary.

Persons depositing or withdrawing shares must pay:

For:

$5.00 or less per 100 ADSs (or portion of 100 ADSs)

■ Issuance of ADSs, including those resulting from a distribution of shares, rights 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.

■ As necessary.

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 278). Dividends paid on the dividend
access shares are treated as UK-source for tax purposes and there is no
UK withholding tax on them.

Registration and transfer fees

Expenses of the Depositary

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

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.

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.

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 for example, 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.

277

Shell Annual Report and Accounts 2019Additional InformationSHAREHOLDER INFORMATION continued

In 2019, 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:
■

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, 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.

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:

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.

March 31, 1982

July 20, 2005

278

Shell Annual Report and Accounts 2019Additional Information

NON-GAAP MEASURES RECONCILIATIONS

4,299

3,819

3,616

10,277

12,582

11,670

8,926

7,408

6,090

418

269

157

1,137

4,494

(762)

889

452

(541)

1,048

1,074

–

28,788

24,878

23,655

6,706

4,259

3,921

11,075

12,785

13,160

10,542

7,565

6,418

465

269

157

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”.

Cash capital expenditure and Capital investment reconciliation

Capital expenditure [A]

Investments in joint ventures and associates [A]

Investments in equity securities [A]

$ million

2019

2018

2017

22,971

23,011

20,845

743

205

880

187

595

Cash capital expenditure

23,919

24,078

21,533

Of which:

Integrated Gas

Upstream

Downstream

Corporate

Exploration expense, excluding exploration
wells written off

Reconciliation of CCS earnings to income for the period

Leases recognised in the period

Earnings on a current cost of supplies basis
(CCS earnings)

$ million

2019

2018

2017

Other adjustments

Capital investment

Of which:

15,827

24,364

12,471

Integrated Gas

Attributable to non-controlling interest

(557)

(531)

(390)

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

Upstream

Downstream

Corporate

15,270

23,833

12,081

605

(33)

(458)

(23)

964

(68)

[A] Included within Cash flow from investing activities in the “Consolidated Statement of

Cash Flows”.

15,842

23,352

12,977

590

554

458

16,432

23,906

13,435

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

Production and manufacturing expenses

26,438

26,970

26,652

Selling, distribution and administrative expenses

10,493

11,360

10,509

$ million

2019

2018

2017

Research and development

Total

Of which

Integrated Gas

Upstream

Downstream

Corporate

962

986

922

37,893

39,316

38,083

6,667

6,014

5,471

12,043

12,157

12,656

18,697

20,743

19,583

486

402

373

CASH CAPITAL EXPENDITURE AND CAPITAL INVESTMENT
Capital investment is a measure used to make decisions about allocating
resources and assessing performance. It comprises Capital expenditure,
Investments in joint ventures and associates and Investments in equity
securities, exploration expense excluding well write-offs, leases
recognised in the period and other adjustments.

The definition reflects two changes with effect from January 1, 2019, for
simplicity reasons. Firstly, “Investments in equity securities” now includes
investments under the Corporate segment and is aligned with the line
introduced in the Consolidated Statement of Cash Flows from January 1,
2019. Secondly, the adjustments previously made to bring the Capital
investment measure onto an accruals basis no longer apply.
Comparative information has been revised.

Cash capital expenditure is introduced with effect from January 1, 2019,
to monitor investing activities on a cash basis, excluding items such as
lease additions which do not necessarily result in cash outflows in the
period. The measure comprises the following lines from the Consolidated
Statement of Cash flows: Capital expenditure, Investments in joint ventures
and associates and Investments in equity securities. Information for prior
periods are stated to enable comparison.

The reconciliation of “Capital expenditure” to “Cash capital expenditure”
and “Capital investment” is as follows.

279

Shell Annual Report and Accounts 2019Additional InformationNON-GAAP MEASURES RECONCILIATIONS continued

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.

SHAREHOLDER DISTRIBUTION
Shareholder distribution is used to evaluate the level of cash distribution
to shareholders. It is defined as the sum of Cash dividends paid to Royal
Dutch Shell plc shareholders and Repurchases of shares, both of which
are reported in the Consolidated Statement of Cash Flows.

Calculation of shareholder distribution

Calculation of return on average capital employed

Income for the period

Interest expense after tax

$ million

2019

2018

2017

16,432

23,906

13,435

Cash dividends paid to Royal Dutch
Shell plc shareholders

3,024

2,513

2,995

Repurchases of shares

Income before interest expense

19,456

26,419

16,430

Shareholder distribution

$ million

2019

2018

2017

15,198

15,675

10,877

10,188

3,947

–

25,386

19,622

10,877

Capital employed – opening

295,398 283,477 280,988

Capital employed – closing

286,887 279,358 283,477

Capital employed – average

291,142

281,417 282,233

ROACE

6.7%

9.4%

5.8%

DIVESTMENTS
Following the completion of the $30 billion divestment programme for
2016-18, the Divestments measure was discontinued with effect from
January 1, 2019.

FREE CASH FLOW AND ORGANIC 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.

Organic free cash flow is introduced in 2019, and it is defined as Free
cash flow excluding the cash flows from acquisition and divestment
activities. It is a measure used by management to evaluate generation
of cash flow without these activities. Information for 2018 is stated to
enable comparison.

Free cash flow and Organic free cash flow

$ million

2019

2018

2017

Cash flow from operating activities

42,178

53,085

35,650

Cash flow from investing activities

(15,779)

(13,659)

(8,029)

Free cash flow

26,399

39,426

27,621

Less: Cash inflows related to divestments [A]

7,871

10,465

Add: Tax paid on divestments

187

482

Add: Cash outflows related to inorganic capital
expenditure [B]

Organic free cash flow

1,400

1,740

20,116

31,183

[A] Cash inflows related to divestments includes Proceeds from sale of property, plant and

equipment and businesses, Proceeds from sale of joint ventures and associates, and Proceeds
from sale of equity securities as reported in the "Consolidated Statement of Cash Flows".
[B] Cash outflows related to inorganic capital expenditure includes portfolio actions which
expand Shell's activities through acquisitions and restructuring activities as reported in
capital expenditure lines in the "Consolidated Statement of Cash Flows".

280

Shell Annual Report and Accounts 2019Additional InformationAPPENDICES

281

Shell Annual Report and Accounts 2019Additional InformationAPPENDIX 1

SIGNIFICANT SUBSIDIARIES AND OTHER RELATED UNDERTAKINGS (AUDITED)
Significant subsidiaries and other related undertakings at December 31, 2019, are set out below. 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 190-238, 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

Shell Argentina S.A.

AUSTRALIA

1st Energy Pty Ltd

Alliance Automation Pty Ltd

Arrow Energy Holdings Pty Ltd

Austen & Butta Pty Ltd

BC 789 Holdings Pty Ltd

BG CPS Pty Limited

BNG (Surat) Pty Ltd

Braemar 3 Holdings Pty Ltd

CCM Energy Solutions Pty Ltd

Condamine 1 Pty Ltd

Condamine 2 Pty Ltd

Condamine 3 Pty Ltd

Condamine 4 Pty Ltd

Avenida Pte. Roque Sáenz Pena 788, 5th floor, Buenos Aires, 1383

Level 4, 459 Little Collins Street, Melbourne, VIC 3000

c/o Alands Accountants, Level 1/293 Queen Street, Brisbane, QLD 4000

Level 39, 111 Eagle Street, Brisbane, QLD 4000

Shell House, 562 Wellington Street, Perth, WA 6000

Level 30, 275 George Street, Brisbane, QLD 4000

Level 52, 111 Eagle 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

E.R.M. Oakey Power Pty Ltd

Energy Locals Pty Ltd

ERM Braemar 3 Power Pty Ltd

ERM Braemar 3 Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

132 Cremorne Street, Richmond, VIC 3121

Level 52, 111 Eagle Street, Brisbane, QLD 4000

ERM Employee Share Plan Administrator Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

ERM Energy Solutions Holdings Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

ERM Financial Services Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

ERM Gas Pty Ltd

ERM Gas WA01 Pty Ltd

ERM Holdings Pty Ltd

ERM Innovation Labs Pty Ltd

ERM Land Holdings Pty Ltd

ERM Neerabup Power Pty Ltd

ERM Neerabup Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

ERM Oakey Power Holdings Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

ERM Power Developments Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

ERM Power Engineering Pty Ltd

ERM Power Generation Pty Ltd

ERM Power International Pty Ltd

ERM Power Investments Pty Ltd

ERM Power Limited

ERM Power Projects Pty Ltd

ERM Power Retail Pty Ltd

ERM Power Services Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

ERM Power Utility Systems Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

ERM Wellington 1 Holdings Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

ESCO Pacific Holdings Pty Ltd

Level 4, 13 Cremorne Street, Richmond, VIC 3121

Fuelink Pty Ltd

Greensense Pty Ltd

Lumaled Pty Ltd

New South Oil Pty Ltd

Shell House, 562 Wellington Street, Perth, WA 6000

Level 52, 111 Eagle Street, Brisbane, QLD 4000

Level 30, 275 George Street, Brisbane, QLD 4000

NewGen Neerabup Pty Ltd [b]

Level 52, 111 Eagle Street, Brisbane, QLD 4000

NewGen Power Neerabup Pty Ltd [b]

Level 52, 111 Eagle Street, Brisbane, QLD 4000

282

100

Shell Annual Report and Accounts 2019Additional InformationCompany by country of incorporation

Address of registered office

North West Shelf LNG Pty Ltd

Oakey Power Holdings Pty Ltd

Shell House, 562 Wellington Street, Perth, WA 6000

Level 52, 111 Eagle Street, Brisbane, QLD 4000

OME Resources Australia Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

Out Performers Trading Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

Petroleum Resources (Thailand) Pty. Limited

Level 30, 275 George Street, Brisbane, QLD 4000

PowerMetric Metering Pty Ltd

Level 52, 111 Eagle 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

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

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Midstream Holdings Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Midstream Investments Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Midstream Land Pty Ltd

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

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Northern Forestry Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Pty Limited

QGC Sales Qld Pty Ltd

QGC Train 1 Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Train 1 Tolling Pty Ltd

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

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Train 2 Tolling No.2 Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Train 2 Tolling Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Train 2 UJV Manager Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Upstream Finance Pty Ltd

QGC Upstream Holdings Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Upstream Investments Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

QGC Upstream Limited Partnership

Level 42, Bourke Place, 600 Bourke Street, Melbourne, VIC 3000

Queensland Electricity Investors Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

Queensland Gas Company Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

Richmond Valley Solar Thermal Pty Ltd

Level 52, 111 Eagle Street, Brisbane, QLD 4000

Roma Petroleum Pty Limited

Level 30, 275 George Street, Brisbane, QLD 4000

SASF Pty Ltd

SGA (Queensland) Pty Ltd

SGAI Pty Limited

Shell Australia FLNG 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

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 House, 562 Wellington Street, Perth, WA 6000

Shell Development (PSC19) Pty Ltd

Shell House, 562 Wellington Street, Perth, WA 6000

Shell Development (PSC20) Pty Ltd

Shell House, 562 Wellington Street, Perth, WA 6000

Shell Energy Australia Pty Ltd

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

100

283

Shell Annual Report and Accounts 2019Additional InformationAPPENDIX 1 continued

Company by country of incorporation

Address of registered office

AUSTRALIA continued

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 QGC Pty Ltd

Level 30, 275 George Street, Brisbane, QLD 4000

Shell Tankers Australia Pty Ltd

Shell House, 562 Wellington Street, Perth, WA 6000

Solpod Pty Ltd

c/o Jeffrey Zivin, 140 Belmore Road, Balwyn, VIC 3103

Sonnen Australia Pty Limited

Lionsgate Business Park, Level 3, Main Administration Building, 180 Philip Highway, Elizabeth South, SA 5112

Starzap Pty Ltd

Sunshine 685 Pty Limited

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

Innsbrucker Bundesstrasse 95, Salzburg, 5020

Shell Austria Gesellschaft mbH

Tech Gate, Donau-City-Str. 1, Vienna, 1220

Shell Brazil Holding GmbH

Shell China Holding GmbH

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 & Victoria Avenue, Nassau

BELGIUM

Belgian Shell S.A.

New Market Belgium S.A.

Cantersteen 47, Brussels, 1000

Shell Catalysts & Technologies Belgium N.V.

Pantserschipstraat 331, Gent, 9000

The New Motion Belgium BVBA

Regentlaan 37-40, Brussels, 1000

BERMUDA

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 Somalia Company Limited

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Qatar Shell GTL Limited

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Sakhalin Energy Investment Company Ltd

Clarendon House, 2 Church Street, Hamilton, HM 11

Shell Australia Natural Gas Shipping Limited

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Shell Bermuda (Overseas) Limited

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Shell Deepwater Borneo Limited

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Shell EP International 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

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Shell Oman Trading Limited

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

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Shell Saudi Arabia (Refining) Limited

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Shell South Syria Exploration Limited

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Shell Trading (M.E.) Private Limited

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Shell Trust (Bermuda) Limited

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Shell Trust (U.K. Property) Limited

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

Solen Insurance Limited

Solen Life Insurance Limited

3rd Floor Continental Building, 25 Church Street, Hamilton, HM 12

284

100

Shell Annual Report and Accounts 2019Additional InformationCompany by country of incorporation

Address of registered office

BRAZIL

BG Comercio e Importacao Ltda.

Avenida das Republica do Chile 330, 23º Andar, Torre 2, Centro, Rio de Janeiro, 20031-170

BG do Brasil Ltda.

Avenida das Republica do Chile 330, 23º Andar, Torre 2, Sala 2309, Centro, Rio de Janeiro, 20031-170

BG Petroleo & Gas Brasil Ltda.

Avenida das Republica do Chile 330, 23º Andar (parte) – Torre 2, Centro, Rio de Janeiro, 20031-170

Fusus Comércio e Participações Ltda.

Avenida das Republica do Chile nº 330, Bloco 2, Sala 2001 – Centro, Rio de Janeiro, 20031-170

Icolub – Industria de Lubrificantes S.A.

Praia Intendente Bittencourt, 2 (Parte), Ilha do Governador, Rio de Janeiro, 21930-030

Marlim Azul Energia S.A.

Avenida Paulista, 1274, 8º andar, Conjunto 23, Sala B, Bela Vista, São Paulo, 01310-100

Pecten do Brasil Servicos de Petroleo Ltda.

Av. República do Chile nº 330, Bloco 2, Sala 2301, Centro, Rio de Janeiro, 20031-170

Raizen Combustíveis S.A.

Avenida das Almirante Barroso, nº 81, 36º Andar, Sala 36A104, Rio de Janeiro, 20031-004

Raizen Energia S.A.

Seapos Ltda.

Shell Brasil Participações Ltda.

Shell Brasil Petroleo Ltda.

Avenida Brigadeiro Faria Lima, 4100, 11th floor, part V, Itaim Bibi, São Paulo, 04538-132

Av. República do Chile nº 330, Bloco 2, Sala 2401, Centro, Rio de Janeiro, 20031-170

Avenida Brigadeiro Faria Lima, 3311, Conj 81 Sala 02, Itam Bibi, São Paulo, 04538-133

Av. República do Chile nº 330, Bloco 2, Salas 2001, 2301, 2401, 2501, 3101, 3201, 3301 e 3401, Centro,
Rio de Janeiro, 20031-170

Shell Energy Brasil Comercializadora de Energia Ltda.

Avenida Brigadeiro Faria Lima nº 3.311, Conj 81, Sala 01, Itam Bibi, São Paulo, 04538-133

Shell Energy do Brasil Ltda.

Avenida Brigadeiro Faria Lima nº 3.311, Conjunto 82, Itaim Bibi, São Paulo, 04538-133

BRUNEI

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, KB3534

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, Chamkar Mon, Phnom Penh

CANADA

10084751 Canada Limited

1745844 Alberta Ltd.

7026609 Canada Inc.

7645929 Canada Limited

Alberta Products Pipe Line Ltd.

Cansolv Technologies Inc.

Coral Cibola Canada Inc.

FP Solutions Corporation

400 4th Avenue S.W., Calgary, Alberta, T2P 0J4

2100, 855 – 2nd Street S.W., Calgary, Alberta, T2P 4J8

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

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

400 4th Avenue S.W., Calgary, Alberta, T2P 0J4

Shell Catalysts & Technologies Canada Inc.

400 4th Avenue S.W., Calgary, Alberta, T2P 0J4

Shell Chemicals Canada [c]

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 4th Avenue S.W., Calgary, Alberta, T2P 0J4

Shell Treasury Centre Canada Inc

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.

Zeco Systems (Canada) Inc.

45 Vogel Road, Suite 310, Richmond Hill, Ontario, L4B 3P6

295 Hagey Boulevard, Suite 300, Waterloo, Ontario, N2L 6R6

100

285

Shell Annual Report and Accounts 2019Additional InformationAPPENDIX 1 continued

Company by country of incorporation

Address of registered office

CAYMAN ISLANDS

Beryl North Sea Limited

Sterling Trust (Cayman) Limited, Whitehall House, 238 North Church Street, P.O. Box 1043, George Town, Grand Cayman,
KY1-1102

BG Egypt S.A.

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, George Town, Grand Cayman, KY1-9010

Gas Resources Limited

Schiehallion Oil & Gas Limited

Zephyr House, 122 Mary Street, P.O. Box 2570, George Town, Grand Cayman, KY1-1103

Caledonian Trust (Cayman) Limited, Caledonian House, 69 Dr Roy's Drive P.O. Box 1043, George Town, Grand Cayman,
KY1-1102

Shell Bolivia Corporation

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, George Town, Grand Cayman, KY1-1104

CHILE

Shell Chile S.A.

CHINA

C/O Carey y Cia Abogados, Miraflores 222, Piso 28, Santiago

Anhui Shell Energy Company Limited

Room 2519-2522, 25/F, Greenland Center, Cross-area of Susong Rd and Changqin St, South Erhuan, Baohe District,
Hefei, Anhui, 230000

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, Zhejiang, 310007

Hubei Shell Energy Company Limited

No. 4, 5, 12/F, Unit A, Oceanwide International Center Office, 187 Yunxia Road, CBD, Jianhan District, Wuhan, 430000

Hunan Shell Energy Company Limited

Room 2407-2409, Building 15, Fangmaoyuan (Phase II), No. 1177 Huanhu Road, Yuelu District, Changsha, 410006

Infineum (China) Co. Ltd.

No. 1 Dongxin Road, Jiangsu Yangtze River International, Chemical Industry Park, Zhangjiagang, Jiangsu, 215600

Jiangsu Shell Energy Company Limited

Room 1001, 10/F, Unit 3, No. 198 Hexi Street, Jianye District, Nanjing, Jiangsu, 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, Gaolan Harbour Economic Zone, Zhuhai, 519050

Shell Energy (China) Limited

Room 530, 5th Floor, Building 1, No. 239 Gang'ao Road, China (Shanghai) Free Trade Zone, Shanghai, 200137

Shell Management and Consulting Company Limited

8/F, Building 1, No. 818 Shenchang Road, Minhang District, Shanghai, 201106

Shell North China Petroleum Group Co., Ltd.

5th Floor, Administrative Commission Building, Wuqing Development Area, No. 18, Fuyuan Road, Wuqing District,
Tianjin, 300203

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 New
Town, Tianhe District, Guangzhou, 510623

Yanchang and Shell (Sichuan) Petroleum Company Limited

23F, Yanlord Square, Section 2, Renmin South Road, Chengdu, Sichuan, 610016

Yanchang and Shell Petroleum Company Limited

18th Floor, Tower 1, Yongli International Finance Centre, Jinye No. 1 Road, High-tech District, Xi'an, 710075

Zhejiang Shell Fuels Company Limited

Room 2103, North Tower, Yefeng Modern Center, No. 161, Shaoxing Road, Xiacheng District, Hangzhou, Zhejiang, 310004

Zhejiang Shell Oil and Petrochemical Company Limited

The Port of Zhapu, Jiaxing Municipality, Zhejiang, 314201

Zhejiang Transfar and Shell Energy Company Limited

Rm 1503, Building 2, Plaza of ZBA, No. 939 Minhe Road, Ningwei Street, Xiaoshan, Hangzhou, Zhejiang, 311215

COLOMBIA

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

Metochiou str, 37, Agios Andreas, Nicosia, CY-1101

286

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Address of registered office

CZECH REPUBLIC

Shell Czech Republic a.s.

DENMARK

A/S Dansk Shell

Antala Staška 2027/77, Praha 4, 140 00

Egeskovvej 265, Fredericia, 7000

DCC & Shell Aviation Denmark A/S

Nærum Hovedgade 8, Naerum, 2850

Shell EP Holdingselskab Danmark ApS

Egeskovvej 265, Fredericia, 7000

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]

127 Abdel Aziz Fahmy St., Heliopolis, P.O. Box 5958, Cairo, 5958

Burullus Gas Company S.A.E. [b]

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

North Alam El-Shawish Petroleum Company [b]

127 Abdel Aziz Fahmy St., Heliopolis, P.O. Box 5958, Cairo, 5958

North Um Baraka Petroleum Company [b]

127 Abdel Aziz Fahmy St., Heliopolis, P.O. Box 5958, Cairo, 5958

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

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
Projects S.A.E.

City of Rashid, El Behera Governorate

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

FRANCE

Accurasea

Airefsol Energies

Airefsol Energies 2

Airefsol Energies 6

Airefsol Energies 8

Airefsol Energies 9

Avitair SAS

Teknobulevardi 3-5, Vantaa, 01530

10 place de Catalogne, Paris, 75014

Tour Pacific, 11/13 Cours Valmy – La Défense, Puteaux, 92800

Centrale Photovoltaïque Bouches-du-Rhône 1

10 place de Catalogne, Paris, 75014

Centrale Photovoltaïque Haute-Vienne

10 place de Catalogne, Paris, 75014

Centrale Photovoltaïque Landes 1

10 place de Catalogne, Paris, 75014

Centrale Photovoltaïque Var 1

Eolfi Offshore France

Eolfi SAS

Eoliennes du Gentilhomme

10 place de Catalogne, Paris, 75014

Ferme Eolienne Flottante de Groix & Belle-Ile

10 place de Catalogne, Paris, 75014

Ferme Eolienne Flottante Stenella Rhône

10 place de Catalogne, Paris, 75014

Groupement Pétrolier Aviation SNC

Aéroport Roissy Charles de Gaulle, Zone de Frêt 1, 3 Rue des Vignes, Tremblay-en-France, 93290

Infineum France

Parc Eolien Aisne 1

Parc Eolien Charente 1

Parc Eolien Corrèze 1

Parc Eolien Côtes Armor 1

Parc Eolien de la Vrine

Parc Eolien Haute-Saône 1

Parc Eolien HM1

Parc Eolien Jura 1

Parc Eolien Marne 1

Parc Eolien Oise 1

Parc Eolien Oise 2

Parc Eolien Somme 1

Chemin départemental 54, Berre-L'Etang, 13130

10 place de Catalogne, Paris, 75014

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Company by country of incorporation

Address of registered office

FRANCE continued

Parc Eolien Somme 2

Parc Eolien Yonne 1

Service Aviation Paris SNC

Shell Retraites SAS

10 place de Catalogne, Paris, 75014

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

Tour Pacific, 11/13 Cours Valmy – La Défense, Puteaux, 92800

Ste du Pipeline Sud Européen S.A.

7-9, Rue des Frères Morane, Paris, 75015

The New Motion France SAS

92 Avenue Charles de Gaulle, CS 30082, Neuilly sur Seine, 92522

GERMANY

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 Deutschland GmbH

Am Haupttor, Bau 8322, Leuna, 06237

Deutsche Infineum GmbH & Co. KG

Neusser Landstraße 16, Köln, 50735

Deutsche Shell GmbH

Suhrenkamp 71 – 77, Hamburg, 22335

Deutsche Shell Holding GmbH

Suhrenkamp 71 – 77, Hamburg, 22335

Deutsche Transalpine Oelleitung GmbH

Paul Wassermann Str. 3, Munich, 81829

Energeticum Energiesysteme GmbH

St.-Leonhard-Straße 26, Balzhausen, 86483

Enersol GmbH

Einsteinstr. 47, Vaihingen an der Enz, 71665

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

H2 Mobility Deutschland GmbH and Co. KG

EUREF-Campus 10-11, Berlin, 10829

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

WeWork Europapassage, Hermannstraße 13, Hamburg, 20095

Passower Chaussee 111, Schwedt/Oder, 16303

Auf dem Schollbruch 24-26, Gelsenkirchen, 45899

Rhein-Main-Rohrleitungstransportgesellschaft mbH [b]

Godorfer Hauptstrasse 186, Köln, 50997

Shell Catalysts & Technologies Leuna GmbH

Am Haupttor, Bau 8322, Leuna, 06237

Shell Deutschland Additive GmbH

Suhrenkamp 71 – 77, Hamburg, 22335

Shell Deutschland Oil GmbH

Suhrenkamp 71 – 77, Hamburg, 22335

Shell Energy Deutschland GmbH

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

Shell Verwaltungsgesellschaft für Erdgasbeteiligungen mbH

Suhrenkamp 71 – 77, Hamburg, 22335

Sonnen eServices Deutschland GmbH

Am Riedbach 1, Wildpoldsried, 87499

Sonnen eServices GmbH

Am Riedbach 1, Wildpoldsried, 87499

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Address of registered office

Sonnen GmbH

Sonnen Holding GmbH

Am Riedbach 1, Wildpoldsried, 87499

SPNV Deutschland Beteiligungsges. mbH

Suhrenkamp 71 – 77, Hamburg, 22335

The New Motion Deutschland GmbH

Wattstraße 11, Berlin, 13355

Tiramizoo GmbH

Toll4Europe GmbH

Prannerstr. 2-4, Munich, 80333

Französische Straße 33 a-c, Berlin, 10117

Wasserbeschaffungsverband Wesseling-Hersel

Bruehler Str. 95, Wesseling, 50389

GIBRALTAR

Shell LNG Gibraltar Limited

57/63 Line Wall Road, P.O. Box 199, Gibraltar

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

Fulmart Limited

Hong Kong Response Limited

Ocean Century Tf Limited [i]

P.O. Box 510, Issortarfimmut 6, 102, Nuussuaq, 3905

643 Chalan San Antonio, Suite 100, Tamuning, GU 96911

3 Scenic Road, Chek Lap Kok, Lantau

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

35/F AIA Kowloon Tower, Landmark East, 100 How Ming Street, Kwun Tong, Kowloon

Shell Korea Limited

Shell Macau Limited

HUNGARY

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

Greenlots Technology India LLP

Platina Tower MG Road, Near Sikandarpur Metro Station, Section, Haryana, Gurugram, 122001

Hazira Port Private Limited

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, Mumbai, MH 410208

Shell Energy India Private Limited

101-103 Abhijeet-II, Mithakhali Circle, Ahmedabad 380 006, Gujarat, 380006

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

Shell Pahal Social Welfare Association

7, Bangalore Hardware Park, Devanahalli Industrial Park, Mahadeva-Kodigehalli, Bangalore, 562149

Tiki Tar and Shell India Private Limited

Tiki Tar Industries Village Road, Near Bhandup village, Bhandup West Mumbai, Mumbai, MH 400078

INDONESIA

PT Shell LNG Indonesia

PT. Shell Indonesia

Talavera Office Park 22-26th Floor, Jl. Letjen. TB Simatupang Kav. 22-26, Jakarta Selatan, Jakarta, 12430

PT. Shell Manufacturing Indonesia

Talavera Office Park 22-26th Floor, Jl. Letjen. TB Simatupang Kav. 22-26, Jakarta Selatan, Jakarta, 12430

IRAQ

Basrah Gas Company

IRELAND

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

First Names House, Victoria Road, Douglas, IM2 4DF

Petrolon International Limited

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

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Company by country of incorporation

Address of registered office

ISRAEL

Ravin AI Ltd.

ITALY

Alle S.R.L.

Aquila S.p.A.

BG Italia Power S.r.l

Brindisi LNG S.r.l.

Infineum Italia S.R.L.

Derech Aba Hilel 16, Ramat Gan, 5250608

Via Vittor Pisani 16, Milano, 20124

Via Tortona 25, Milano, 20144

Strada di Scorrimento 2, Vado Ligure, Savona, 17047

Shell Energy Italia S.R.L.

Via Vittor Pisani 16, Milano, 20124

Shell Fleet Solutions Consorzio

Via Susa 40, Torino, 10138

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

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

Sonnen eServices Italia S.R.L.

Sonnen S.R.L.

JAPAN

Via Autostrada 32, Bergamo, 24126

Brunei Energy Services Company Ltd.

1-8-2 Marunouchi, Chiyoda-ku, Tokyo, 100-0005

CO2-free Hydrogen Energy Supply-chain TRA

7F Kokuryu Shiba Koen Building 2-6-15, Shiba Koen, Minato-ku, Tokyo, 105-0011

Sakhalin LNG Services Company Ltd.

2-3, Kanda, Awaji-cho, Chiyoda-ku, Tokyo, 101-0063

Shell Japan Limited

16F Pacific Century Place, 1-11-1, Marunouchi, Chiyoda-Ku, Tokyo, 100-6216

Sonnen Japan Kabushiki Kaisha

16F Pacific Century Place, 1-11-1, Marunouchi, Chiyoda-Ku, Tokyo, 100-6216

JERSEY

Shell Service Station Properties Limited

Queensway House, Hilgrove Street, St. Helier, JE1 1ES

LUXEMBOURG

Denham International Power SCSp [d]

412F, route d'Esch, Luxembourg, L-2086

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 Ehsan,
47301

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

P S Pipeline Sendirian Berhad

P S Terminal Sendirian Berhad

Pertini Vista Sdn. Bhd.

Provista Ventures Sdn. Bhd.

Sarawak Shell Berhad

Level 30, Tower 1, Petronas Twin Towers, KLCC, Kuala Lumpur/Federal Territory, 50088

12th Floor, Menara Symphony, No. 5, Jalan Prof. Khoo Kay Kim, Seksyen 13, Petaling Jaya/Selangor Darul Ehsan, 46200

Shell Business Service Centre Sdn. Bhd.

12th Floor, Menara Symphony, No. 5, Jalan Prof. Khoo Kay Kim, Seksyen 13, Petaling Jaya/Selangor Darul Ehsan, 46200

Shell Global Solutions (Malaysia) Sdn. Bhd.

12th Floor, Menara Symphony, No. 5, Jalan Prof. Khoo Kay Kim, Seksyen 13, Petaling Jaya/Selangor Darul Ehsan, 46200

Shell Malaysia Trading Sendirian Berhad

12th Floor, Menara Symphony, No. 5, Jalan Prof. Khoo Kay Kim, Seksyen 13, Petaling Jaya/Selangor Darul Ehsan, 46200

Shell MDS (Malaysia) Sendirian Berhad

12th Floor, Menara Symphony, No. 5, Jalan Prof. Khoo Kay Kim, Seksyen 13, Petaling Jaya/Selangor Darul Ehsan, 46200

Shell New Ventures Malaysia Sdn. Bhd. [i]

12th Floor, Menara Symphony, No. 5, Jalan Prof. Khoo Kay Kim, Seksyen 13, Petaling Jaya/Selangor Darul Ehsan, 46200

Shell People Services Asia Sdn. Bhd.

12th Floor, Menara Symphony, No. 5, Jalan Prof. Khoo Kay Kim, Seksyen 13, Petaling Jaya/Selangor Darul Ehsan, 46200

Shell Sabah Selatan Sendirian Berhad

12th Floor, Menara Symphony, No. 5, Jalan Prof. Khoo Kay Kim, Seksyen 13, Petaling Jaya/Selangor Darul Ehsan, 46200

Shell Timur Sdn. Bhd.

12th Floor, Menara Symphony, No. 5, Jalan Prof. Khoo Kay Kim, Seksyen 13, Petaling Jaya/Selangor Darul Ehsan, 46200

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

Pennzoil Products International Company

33 Edith Cavell Street, Port Louis, 11324

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Address of registered office

MEXICO

Comercial Importadora S.A. De C.V.

Guillermo González Camarena No. 400, Santa Fe, lvaro Obregón, Ciudad de México, 1210

Concilia Asesores y Servicios, S.A. de C.V.

Guillermo González Camarena No. 400, Santa Fe, lvaro Obregón, Ciudad de México, 1210

Gas Del Litoral, S. de R.L. de C.V.

Avenida Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
México, 11000

Mega Gasolineras SA de CV

Avenida Cerro Gordo del Campestre 201 int 202, Las Quintas, León, Guanajuato, 37125

Shell Energy Mexico, S.A. de C.V.

Avenida Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
México, 11000

Shell Exploración y Extracción de México, S.A. de C.V.

Avenida Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
México, 11000

Shell México Gas Natural, S. de R.L. de C.V.

Avenida Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
México, 11000

Shell México, S.A. de C.V.

Shell Servicios México, S.A. de C.V.

Shell Solutions Mexico S.A. de C.V.

Shell Trading México, S. de R.L. de C.V.

NETHERLANDS

Avenida Paseo de las Palmas 340, 1st floor, Colonia Lomas de Chapultepec, Delegación Miguel Hidalgo, Ciudad de
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 Global Holdings B.V.

BG Gas International B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

BG Gas International Holdings B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

BG Gas Netherlands Holdings B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

BG Gas Sao Paulo Investments B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

BJS Oil Operations B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

BJSA Exploration and Production B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Blauwwind II C.V. [d]

Blauwwind Management II B.V.

Weena 70, Rotterdam, 3012 CM

Caspi Meruerty Operating Company B.V. [b]

Muiderstraat 1, Amsterdam, 1011 PZ

Chosun Shell B.V.

Cicerone Holding B.V.

Ellba B.V. [b]

Ellba C.V. [b] [d]

Euroshell Cards B.V.

Fitzroy C.V. [d]

Gasterra B.V.

Guara B.V.

Hkz Lp 18 B.V.

Hkz Lp 19 B.V.

Hkz Lp 20 B.V.

Hkz Lp 21 B.V.

Hkz Lp 22 B.V.

Iara B.V.

Infineum Holdings B.V.

Integral Investments B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Herikerbergweg 238, Amsterdam, 1101 CM

Vondelingenweg 601, Vondelingenplaat, Rotterdam, 3196 KK

Weena 70, Rotterdam, 3012 CM

Stationsplein 45, Rotterdam, 3013 AK

P.O. Box 477, Groningen, 9700 AL

Weena 722, Rotterdam, 3014 DA

Carel van Bylandtlaan 30, The Hague, 2596 HR

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. [b]

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

100

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Company by country of incorporation

Address of registered office

NETHERLANDS continued

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

North Caspian Operating Company N.V. [b]

Oostduinlaan 2, The Hague, 2596 JM

Paqell B.V.

Reactorweg 301, unit 1.3, Utrecht, 3542 AD

Raffinaderij Shell Mersin N.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

RESCO 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

Shell Asset Management Company B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Brazil Holding B.V.

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.

Weena 70, Rotterdam, 3012 CM

Shell Chemicals Ventures B.V. [k]

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell China B.V.

Shell China Holdings B.V.

Shell Deepwater Tanzania B.V.

Shell Development Iran B.V.

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.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell EP Holdings (EE&ME) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell EP Middle East Holdings B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell EP Oman B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell EP Russia Investments (III) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell EP Russia Investments (V) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell EP Somalia B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell EP Wells Equipment Services B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Europe New Energies Holding B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration & Production Brunei B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration and Production (100) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration and Production (101) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration and Production (102) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration and Production (103) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration and Production (104) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration and Production (105) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration and Production (106) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration and Production (107) 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 (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 (92) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration and Production (93) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

292

100

Shell Annual Report and Accounts 2019Additional InformationCompany by country of incorporation

Address of registered office

Shell Exploration and Production (94) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration and Production (96) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Exploration and Production (99) 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 (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

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 West-Siberia 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.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Gas B.V.

Shell Gas Iraq B.V.

Shell Gas Nigeria B.V.

Shell Gas Venezuela B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Generating (Holding) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Geothermal B.V.

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.

Lange Kleiweg 40, Rijswijk, 2288 GK

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.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell International B.V.

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

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 Bunkering B.V.

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.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Vondelingenweg 601, Vondelingenplaat, Rotterdam, 3196 KK

Carel van Bylandtlaan 30, The Hague, 2596 HR

100

293

Shell Annual Report and Accounts 2019Additional InformationAPPENDIX 1 continued

Company by country of incorporation

Address of registered office

NETHERLANDS continued

Shell Nederland B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Nederland Chemie B.V. [i]

Chemieweg 25, P.O. Box 6060, Moerdijk, 4780 LN

Shell Nederland Raffinaderij B.V.

Vondelingenweg 601, Vondelingenplaat, Rotterdam, 3196 KK

Shell Nederland Verkoopmaatschappij B.V.

Weena 70, Rotterdam, 3012 CM

Shell Netherlands Canada Financing B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

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 Services B.V.

Shell OKLNG Holdings 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]

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Philippines Exploration B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Project Development (VIII) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell RDS Holding B.V.

Shell Sakhalin Holdings B.V.

Shell Sakhalin Services B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Salym Development B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Sao Tome and Principe B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Services Oman B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Shared Services (Asia) B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell TapUp B.V.

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

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.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Ventures Investments B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Western LNG B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Windenergy Netherlands B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Shell Windenergy NZW I B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Snijders Olie B.V.

SolarNow B.V.

Weena 70, Rotterdam, 3012 CM

Zeelandsestraat 1, Millingen aan de Rijn, 6566 DE

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 Green Near Future 5 B.V.

The New Motion B.V.

Carel van Bylandtlaan 30, The Hague, 2596 HR

Rigakade 20, Amsterdam, 1013 BC

Travis Road Services International B.V.

Dr. Hub van Doorneweg 183, Tilburg, 5026 RD

Tupi B.V.

W2C GP B.V.

Wilhelminatoren, Wilhelminaplein 14, Rotterdam, 3072

Stationsplein 45, Rotterdam, 3013 AK

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

c/o Baker Tilly Staples Rodway Taranaki Limited, 109-113 Powderham Street, P.O. Box 146, New Plymouth, Taranaki, 4340

Energy Holdings Offshore Limited

c/o Baker Tilly Staples Rodway Taranaki Limited, 109-113 Powderham Street, P.O. Box 146, New Plymouth, Taranaki, 4340

Shell (Petroleum Mining) Company Limited

c/o Baker Tilly Staples Rodway Taranaki Limited, 109-113 Powderham Street, P.O. Box 146, New Plymouth, Taranaki, 4340

Shell Energy Asia Limited

Shell Investments NZ Limited

c/o Baker Tilly Staples Rodway Taranaki Limited, 109-113 Powderham Street, P.O. Box 146, New Plymouth, Taranaki, 4340

Southern Petroleum No Liability

c/o Baker Tilly Staples Rodway Taranaki Limited, 109-113 Powderham Street, P.O. Box 146, New Plymouth, Taranaki, 4340

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Address of registered office

NIGERIA

All on Partnerships for Energy Access Limited by Guarantee

44 Bourdillon Road, Ikoyi, Lagos

BG Exploration and Production Nigeria Limited

Freeman House, 21/22 Marina, P.M.B. 2418, Lagos

BG Upstream A Nigeria Limited

Freeman House, 21/22 Marina, P.M.B. 2418, Lagos

Delta Business Development Limited

Freeman House, 21/22 Marina, P.M.B. 2418, Lagos

Nigeria LNG Limited

Corporate Office, Intels Aba Road Estate, Km16 Aba Expressway, Port Harcourt, 500211

NLNG Shipping Management Limited

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, P.O. Box 263, Rivers State, Port Harcourt, 500272

NORWAY

A/S Norske Shell

Tankvegen 1, Tananger, 4056

Aviation Fuelling Services Norway AS

Bygg 6, Drammensveien 134, Oslo, 0277

Enhanced Well Technologies Group AS

Kongsgårdbakken 1, Stavanger, 4005

Gasnor AS

Ormen Lange Eiendom DA

Shell New Energies AS

Technology Centre Mongstad DA

Vestprosess DA

OMAN

Oman LNG LLC

Helganesvegen 59, Avaldsnes, Karmøy, 4262

Nyhamna, Aukra, 6480

Karenslyst Allé 2, Oslo, 0278

Mongstad 71A, Mongstad, 5954

Forusbeen 50, Stavanger, 4035

P.O. Box 560, Mina Al Fahal, Muscat, 116

Petroleum Development Oman LLC

P.O. Box 81, Mina Al Fahal, Muscat, 113

Shell Development Oman LLC

P.O. Box 74, Mina Al Fahal, Muscat, 116

Shell Oman Marketing Company SAOG

P.O. Box 38, Mina Al Fahal, Muscat, 116

Sohar Solar Qabas (FZC) LLC

P.O. Box 398, Sohar Free Zone, North Al Batinah Governorate, Sohar, 322

PAKISTAN

Pak Arab Pipeline Company Limited

House No. 2-B, Nazimuddin Road, F-8/1, Islamabad, 75400

Pakistan Energy Gateway Limited

E110, Khayaban e Jinnah, Lahore Cantonement, Punjab, Cantonement, 54810

Shell Energy Pakistan (smc-private) Limited

Shell House, 6 Ch. Khaliquzzaman Road, Karachi, 75530

Shell Pakistan Limited

PERU

Shell GNL Peru S.A.C.

Shell House, 6 Ch. Khaliquzzaman Road, Karachi, 75530

Calle Dean Valdivia 111, Oficina 802, San Isidro, Lima, Lima 27

Shell Operaciones Peru S.A.C.

Calle Dean Valdivia 111, Oficina 802, San Isidro, Lima, Lima 27

PHILIPPINES

Bonifacio Gas Corporation

2nd Floor, Bonifacio Technology Center, 31st Street corner 2nd Avenue, Bonifacio Global City, Taguig, Metro Manila, 1635

Connected Freight Solutions Philippines, Inc.

41st Floor, The Finance Center, 26th Street corner 9th Avenue, Bonifacio Global City, Taguig, Metro Manila, 1635

Kamayan Realty Corporation

NDC Bldg., 116 Tordesillas St., Salcedo Village, Makati City, Metro Manila, 1227

Manta Energy Inc

1004 East Tower, PSE Centre, Exchange Road, Ortigas Center, Pasig City, 1605

Pilipinas Shell Petroleum Corporation

41st Floor, The Finance Center, 26th Street corner 9th Avenue, Bonifacio Global City, Taguig, Metro Manila, 1635

Shell Chemicals Philippines, Inc.

41st Floor, The Finance Center, 26th Street corner 9th Avenue, Bonifacio Global City, Taguig, Metro Manila, 1635

Shell Gas and Energy Philippines Corporation

41st Floor, The Finance Center, 26th Street corner 9th Avenue, Bonifacio Global City, Taguig, Metro Manila, 1635

Shell Gas Trading (Asia Pacific), Inc.

Subic Bay Free Port Zone, Olangapo City, 2200

Shell Solar Philippines Corporation

41st Floor, The Finance Center, 26th Street corner 9th Avenue, Bonifacio Global City, Taguig, Metro Manila, 1635

Tabangao Realty, Inc.

Unit D 9th Floor Inoza Tower, 40th Street, North Bonifacio, Bonifacio Global City, Taguig, Metro Manila, 1634

100

295

Shell Annual Report and Accounts 2019Additional InformationAPPENDIX 1 continued

Company by country of incorporation

Address of registered office

POLAND

Shell Energy Retail Poland Sp. z o.o.

Al. Pokoju 5, Krakow, 31-548

Shell Polska Sp. z o.o.

PORTUGAL

Shell Madeira Praia Formosa – Instalações,
Comércio e Distribuição de Combustíveis S.A

PUERTO RICO

ul. Bitwy Warszawskiej 1920 r. nr 7A, Warsaw, 02-366

Avenida dos Combatentes da Grande Guerra nº 17, Freguesia de S. Juliao, Setúbal, 2900-329

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 [b]

24 A Yakubovicha ul., Saint Petersburg, 190000

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

Novinsky blvd, 31, Moscow, 123242

Meretoyahaneftegaz LLC [b] [c]

16 Komsomolskaya street, Apartment 36, Yamalo-Nenetsky Autonomous Region, Nadym, 629733

Syriaga Neftegaz Development LLC

Novinsky blvd, 31, Moscow, 123242

SAINT KITTS AND NEVIS

Shell Oil & Gas (Malaysia) LLC

SAINT LUCIA

Morning Star Holdings Limited, Main Street, Suite 556, Charlestown, Nevis, West Indies

BG Atlantic 1 Holdings Limited

Mercury Court, Choc Estate, Castries

BG Atlantic 2/3 Holdings Limited

Mercury Court, Choc Estate, Castries

BG Atlantic 4 Holdings Limited

BG Central Holdings Ltd.

BG West Indies No. 2 Limited

SAUDI ARABIA

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

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

The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588

Cleantech Renewable Assets Pte Ltd

25 Church Street, 03-04 Capital Square three, Singapore, 049482

Connected Freight Pte. Ltd.

The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588

Ellba Eastern (Pte) Ltd

Fuelng Pte. Ltd

Infineum Singapore LLP

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 Catalysts & Technologies Pte. Ltd.

The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588

Shell Chemicals Seraya Pte. Ltd.

The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588

Shell Eastern Petroleum (Pte) Ltd [i]

The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588

Shell Eastern Trading (Pte) Ltd [i]

The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588

Shell Gas Marketing Pte. Ltd.

Shell India Ventures Pte. Ltd.

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.

The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588

Shell Myanmar Petroleum Pte. Ltd.

The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588

Shell Pulau Moa Pte Ltd

Shell Seraya Pioneer (Pte) Ltd

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

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Shell Annual Report and Accounts 2019Additional InformationCompany by country of incorporation

Address of registered office

Shell Treasury Centre East (Pte) Ltd

The Metropolis Tower 1, 9 North Buona Vista Drive, #07-01, Singapore, 138588

Singapore Lube Park Pte. Ltd. [b]

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

Zeco Systems Pte. Ltd.

SLOVAKIA

SHELL Slovakia s.r.o.

SLOVENIA

Shell Adria d.o.o.

SOUTH AFRICA

1 Commonwealth Lane, #09-30, One Commonwealth, Singapore, 149544

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]

Honshu Road, Durban, 4001

Sekelo Oil Trading (Pty) Limited

1st Floor Oxford Parks, 199 Oxford Road, Dunkeld, Gauteng, 2196

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.

Paseo de la Castellana, 257-6º, Madrid, 28046

Shell & Disa Aviation España, S.L.

Rio Bullaque, 2, Madrid, 28034

Shell España, S.A.

Shell Spain LNG, S.A.U.

SUDAN

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

P.O. Box 135, Stockholm-Arlanda, 190 46

BG International Services AB

Deloitte, P.O. Box 450, Östersund, 831 26

Gothenburg Fuelling Company AB

P.O. Box 2154, Gothenburg, 438 14

Malmö Fuelling Services AB

Shell Aviation Sweden AB

Sturup Flygplats, P.O. Box 22, Malmö, 230 32

Gustavslundsvägen 22, Bromma, 16751

Stockholm Fuelling Services AB

P.O. Box 85, Stockholm-Arlanda, 190 45

SWITZERLAND

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

Route de Pré-Bois 17, Cointrin, 1216

Baarermatte, Baar, 6340

Steigerhubelstrasse 8, Bern, 3008

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

CPC Shell Lubricants Co. Ltd

Shell Taiwan Limited

Damascus New Sham Western Dummar, Island No. 1 – Property 2299, P.O. Box 7660, Damascus

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

100

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Shell Annual Report and Accounts 2019Additional InformationAPPENDIX 1 continued

Company by country of incorporation

Address of registered office

TANZANIA

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

Shell Global Solutions Service (Thailand) Company Limited

10 Soonthornkosa Road, Klongtoey, Bangkok, 10110

Thai Energy Company Limited

10 Soonthornkosa Road, Klongtoey, Bangkok, 10110

Unitas Company Limited

TRINIDAD AND TOBAGO

BG 2/3 Investments Limited

10 Soonthornkosa Road, Klongtoey, Bangkok, 10110

5 Saint Clair Avenue, Saint Clair, Port of Spain

Point Fortin LNG Exports Limited

5 Saint Clair Avenue, Saint Clair, Port of Spain

Shell Gas Supply Trinidad Limited

5 Saint Clair Avenue, Saint Clair, Port of Spain

Shell LNG T&T Ltd

Shell Manatee Limited

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

Immeuble Rue du Lac Windermere, Les Berges du Lac, Tunis, 1053

Ambarli Depolama Hizmetleri Ltd. Sti.

Yakuplu Mah. Gencosman Cad. No:7, Beylikduzu, Istanbul, 34524

Cekisan Depolama Hizmetleri Ltd. Sti.

Yakuplu Mah. Gencosman Cad. No:3, Beylikduzu, Istanbul, 34524

Marmara Depoculuk Hizmetleri A.S.

Sultankoy Mahallesi Maltepe Sokak No:66, Marmara Ereglisi, Tekirdag, 59750

Samsun Akaryakit VE Depolama A.S.

Dilovasi Organize Sanayi Bolgesi 1.Kisim, 1004 Sokak No:10, Dilovasi, Kocaeli

Shell & Turcas Petrol A.S.

Gulbahar Mah.Salih Tozan Sok., Karamancilar Is Merkezi B Blok No:18, Esentepe, Sisli, Istanbul, 34394

Shell Enerji A.S.

Shell Petrol A.S.

Alie Investments Limited

Angkor Shell Limited

Applied Blockchain Ltd

Autogas Limited

BG Central Holdings Limited

BG Cyprus Limited

BG Delta Limited

Gulbahar Mah.Salih Tozan Sok., Karamancilar Is Merkezi B Blok No:18, Esentepe, Sisli, Istanbul, 34394

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

BG Employee Shares Trustees Limited

Shell Centre, London, SE1 7NA

BG Energy Capital Plc

BG Energy Holdings Limited

BG Energy Marketing Limited

BG Equatorial Guinea Limited

Shell Centre, London, SE1 7NA

BG Exploration and Production Limited

Shell Centre, London, SE1 7NA

BG Gas Services Limited

BG Gas Supply (UK) Limited

BG General Holdings Limited

BG General Partner Limited

Shell Centre, London, SE1 7NA

50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ

BG Global Employee Resources Limited

Shell Centre, London, SE1 7NA

BG Great Britain Limited

Shell Centre, London, SE1 7NA

BG Group Company Secretaries Limited

Shell Centre, London, SE1 7NA

BG Group Employee Benefit Trust Limited

Shell Centre, London, SE1 7NA

298

100

Shell Annual Report and Accounts 2019Additional InformationCompany by country of incorporation

Address of registered office

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

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

Shell Centre, London, SE1 7NA

BG Netherlands Financing Unlimited

Shell Centre, London, SE1 7NA

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

BG Pension Funding Scottish Limited Partnership [l]

50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ

BG Rosetta Limited

BG South East Asia Limited

BG Subsea Well Project Limited

BG Tanzania Holdings Limited

BG Trinidad LNG Limited

BG UK Holdings Limited

Brazil Shipping I Limited

Brazil Shipping II Limited

Shell Centre, London, SE1 7NA

British Pipeline Agency Limited

5-7 Alexandra Road, Hemel Hempstead, Hertfordshire, HP2 5BS

B-Snug Limited

Shell Centre, London, SE1 7NA

CRI Catalyst Company Europe Limited

Shell Centre, London, SE1 7NA

Derivatives Trading Americas Limited

Shell Centre, London, SE1 7NA

Dragon LNG Group Limited [b]

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

Main Road, Waterston, Milford Haven, Pembrokeshire, SA73 1DR

Shell Centre, London, SE1 7NA

First Telecommunications Limited

Shell Energy House, Westwood Business Park, Westwood Way, Coventry, CV4 8HS

First Utility Limited

Gainrace Limited

Shell Energy House, Westwood Business Park, Westwood Way, Coventry, CV4 8HS

Shell Centre, London, SE1 7NA

Gatwick Airport Storage and Hydrant Company Limited

Shell Centre, London, SE1 7NA

Glossop Limited

GOGB Limited

Shell Centre, 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

Hudson Energy Supply UK Limited

3/F Elder House, 586-592 Elder Gate, Milton Keynes, MK9 1LR

Impello Limited

Shell Energy House, Westwood Business Park, Westwood Way, Coventry, CV4 8HS

International Inland Waterways, Limited

Shell Centre, London, SE1 7NA

Karachaganak Project Development Limited [b]

Shell Centre, London, SE1 7NA

100

[l] Established by BG Group plc and the BG Trustee in 2013 as part of funding agreements associated with the BG pension scheme. 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.

299

Shell Annual Report and Accounts 2019Additional InformationAPPENDIX 1 continued

Company by country of incorporation

Address of registered office

UK continued

Khmer Shell Limited

Kite Power Systems Limited

Limejump Energy Limited

Shell Centre, London, SE1 7NA

146 New London Road, Chelmsford, Essex, CM2 0AW

Canterbury Court, Kennington Park, 1-3 Brixton Road, London, SW9 6DE

Limejump Intermediate 1 Limited

Canterbury Court, Kennington Park, 1-3 Brixton Road, London, SW9 6DE

Limejump Ltd

Limejump Virtual 1 Limited

Limejump Virtual 10 Limited

Limejump Virtual 11 Limited

Limejump Virtual 12 Limited

Limejump Virtual 13 Limited

Limejump Virtual 14 Limited

Limejump Virtual 15 Limited

Limejump Virtual 2 Limited

Limejump Virtual 3 Limited

Limejump Virtual 4 Limited

Limejump Virtual 5 Limited

Limejump Virtual 6 Limited

Limejump Virtual 7 Limited

Limejump Virtual 8 Limited

Limejump Virtual 9 Limited

Machine Max Limited

Canterbury Court, Kennington Park, 1-3 Brixton Road, London, SW9 6DE

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

Shell Centre, London, SE1 7NA

Sabah Shell Petroleum Company Limited

Shell Centre, London, SE1 7NA

Saxon Oil Limited

Saxon Oil Miller Limited

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

Shell Business Development Middle East Limited

Shell Centre, London, SE1 7NA

Shell Caribbean Investments Limited

Shell Centre, London, SE1 7NA

Shell Catalysts & Technologies 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 Chemicals Support Services Asia Limited

Shell Centre, London, SE1 7NA

Shell Chemicals U.K. Limited

Shell Centre, London, SE1 7NA

Shell China Exploration and Production Company Limited

Shell Centre, London, SE1 7NA

Shell Clair UK Limited

Shell Club Corringham Limited

Shell Company (Hellas) Limited

Shell Centre, London, SE1 7NA

Shell Company (Pacific Islands) Limited

Shell Centre, London, SE1 7NA

Shell Corporate Director Limited

Shell Corporate Secretary Limited

Shell Direct (U.K.) Limited

Shell Distributor (Holdings) Limited

Shell Centre, London, SE1 7NA

Shell Employee Benefits Trustee Limited

Shell Centre, London, SE1 7NA

Shell Energy Europe Limited

Shell Centre, London, SE1 7NA

300

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Shell Annual Report and Accounts 2019Additional InformationCompany by country of incorporation

Address of registered office

Shell Energy Investments Limited

Shell Centre, London, SE1 7NA

Shell Energy Retail Limited

Shell Energy Supply UK LTD.

Shell EP Offshore Ventures Limited

Shell Energy House, Westwood Business Park, Westwood Way, Coventry, CV4 8HS

Shell Centre, London, SE1 7NA

Shell Exploration and Production Tanzania Limited

Shell Centre, London, SE1 7NA

Shell Finance GB Limited

Shell Centre, London, SE1 7NA

Shell Gas Holdings (Malaysia) Limited

Shell Centre, London, SE1 7NA

Shell Gas Marketing U.K Limited

Shell Global LNG Limited

Shell Hasdrubal Limited

Shell Holdings (U.K.) Limited

Shell Centre, London, SE1 7NA

Shell Information Technology International Limited

Shell Centre, London, SE1 7NA

Shell International Gas Limited

Shell International Limited

Shell Centre, London, SE1 7NA

Shell International Petroleum Company Limited

Shell Centre, London, SE1 7NA

Shell International Trading and Shipping Company Limited

Shell Centre, London, SE1 7NA

Shell Malaysia Limited

Shell Marine Products Limited

Shell New Energies UK Ltd

Shell Overseas Holdings Limited

Shell Overseas Services Limited

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 Shared Service Centre – Glasgow Limited

Shell Centre, London, SE1 7NA

Shell South Asia LNG 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 Centre, London, SE1 7NA

Shell Treasury Dollar Company Limited

Shell Centre, London, SE1 7NA

Shell Treasury Euro Company Limited

Shell Centre, London, SE1 7NA

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

Shell U.K. North Atlantic Limited

Shell U.K. Oil Products Limited

Shell Centre, London, SE1 7NA

1 Altens Farm Road, Nigg, Aberdeen, AB12 3FY

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

Stansted Fuelling Company Limited

Exxonmobil House, Ermyn Way, Leatherhead, KT22 8UX

Steama Company Limited

Pannone Corporate Llp, 378-380 Deansgate, Castlefield, Manchester, M3 4LY

100

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Shell Annual Report and Accounts 2019Additional InformationAPPENDIX 1 continued

Company by country of incorporation

Address of registered office

UK continued

STT (Das Beneficiary) Limited [a]

Shell Centre, London, SE1 7NA

Synthetic Chemicals (Northern) Limited

Shell Centre, London, SE1 7NA

Telegraph Service Stations Limited

Shell Centre, 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 Mexican Eagle Oil Company Limited

Shell Centre, London, SE1 7NA

The New Motion EVSE Limited

4th Floor, Davidson Building, 5 Southampton Street, London, WC2E 7HA

The Shell Company (W.I.) Limited

Shell Centre, London, SE1 7NA

The Shell Company of Hong Kong Limited

Shell Centre, London, SE1 7NA

The Shell Company of India Limited

Shell Centre, London, SE1 7NA

The Shell Company of Nigeria Limited

Shell Centre, London, SE1 7NA

The Shell Company of Thailand Limited

Shell Centre, London, SE1 7NA

The Shell Company of The Philippines Limited

Shell Centre, London, SE1 7NA

The Shell Company of Turkey Limited

Shell Centre, London, SE1 7NA

The Shell Company of West Africa Limited

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

Shell Centre, London, SE1 7NA

United Kingdom Oil Pipelines Limited [b]

5-7 Alexandra Road, Hemel Hempstead, Hertfordshire, HP2 5BS

Walton-Gatwick Pipeline Company Limited [b]

5-7 Alexandra Road, Hemel Hempstead, Hertfordshire, HP2 5BS

West London Pipeline and Storage Limited [b]

5-7 Alexandra Road, Hemel Hempstead, Hertfordshire, HP2 5BS

Wonderbill Limited

Woodlea Limited

UKRAINE

Shell Centre, London, SE1 7NA

Shell Ukraine Exploration and Production I LLC

4 Mykoly Grinchenka street, Kiev, 03038

UNITED ARAB EMIRATES

Abu Dhabi Gas Industries 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.

La Cumparsita, 1373 4th Floor, Montevideo, 11200

Gasoducto Cruz del Sur S.A.

La Cumparsita, 1373 4th Floor, Montevideo, 11200

USA

Aera Energy LLC [b]

10000 Ming Avenue, Bakersfield, CA 93311

Aera Energy Services Company

10000 Ming Avenue, Bakersfield, CA 93311

Airbiquity Inc.

1191 2nd Avenue, Suite 1900, Seattle, WA 98101

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

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 Brasilia, LLC [c]

BG Energy Finance, Inc.

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

BG Energy Merchants, LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

BG Gulf Coast LNG, LLC [c]

BG LNG Services, LLC [c]

BG LNG Trading, LLC

BG North America, LLC [c]

302

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

100

Shell Annual Report and Accounts 2019Additional InformationCompany by country of incorporation

Address of registered office

BG US Production Company, LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

BG US Services, Inc.

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Bluware Headwave Ventures Inc.

16285 Park Ten Place, Suit 300, Houston, TX 77084

Brazil Crude Services, LLC [c]

Brazos Wind Ventures, LLC [c]

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 Sales and Services Inc.

CRI Zeolites Inc.

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Cumulus Digital Systems, Inc.

Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808

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

EcoSmart Solution LLC

Corporation Service Company, 215 Little Falls Drive, Wilmington, DE 19808

Ellwood Land Holdings, LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

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

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

Gaviota Terminal Company [d]

150 N. Dairy Ashford, Houston, TX 77079

GI Endurant LLC [b]

GI Energy Storage LLC [c]

GlassPoint Solar Inc.

Husk Power Systems, Inc.

Infineum USA Inc.

Infineum USA L.P. [h]

J & J Lubrication, LLC [c]

Jiffy Lube International, Inc.

Lake Charles Exports, LLC [c]

Laurentide E&P, LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

47669 Fremont Blvd., Fremont, CA 94538

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

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

Lazlyng Real Estate Company, LLC [c]

C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201

LOCAP LLC

LOOP LLC

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Maple Power Holdings LLC

Bechtel Enterprises, 12011 Sunset Hills Road, Reston, VA 20190

Mars Oil Pipeline Company LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Mattox Pipeline Company LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Mayflower Wind Energy LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

MP2 Energy LLC [c]

MP2 Energy NE LLC [c]

MP2 Energy NY LLC [c]

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

MP2 Mesquite Creek Wind LLC [c]

C T Corporation System, 1999 Bryan Street, Suite 900, Dallas, TX 75201

Mpower2 LLC [c]

Noble Assurance Company

Odyssey Pipeline L.L.C. [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

Oryx Caspian Pipeline, L.L.C. [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Pacwest Energy, LLC.

Pecten Arabian Company

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

Pecten Orient Company LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

100

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Shell Annual Report and Accounts 2019Additional InformationAPPENDIX 1 continued

Company by country of incorporation

Address of registered office

USA continued

Pecten Producing Company

Pecten Trading Company

Pecten Victoria Company

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Pecten Yemen Masila Company

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Pennzoil-Quaker State Company

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]

Premium Velocity Auto LLC [c]

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

Quaker State Investment Corporation

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

RDK Ventures, LLC

4080 West Jonathan Moore Pike, Columbus, IN 47201

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

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]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

SCOGI GP [d]

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 & Technologies Americas LP [d]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Catalysts & Technologies Company

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Catalysts & Technologies Holdings Inc.

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Catalysts & Technologies LP [d]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Catalysts & Technologies US LP [d]

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]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Chemicals Arabia L.L.C. [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

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

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

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 Lake Charles Operations, LLC [c]

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]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Midstream Operating LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Midstream Partners GP LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

304

100

Shell Annual Report and Accounts 2019Additional InformationCompany by country of incorporation

Address of registered office

Shell Midstream Partners, L.P. [h]

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]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell New Energies US LLC [c]

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

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Oil Company Investments Inc.

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Oil Products Company LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Onshore Ventures Inc.

Shell Petroleum Inc.

Shell Pipeline Company LP [d]

Shell Pipeline GP LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Rail Operations Company

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.

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Trademark Management Inc.

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell Trading (US) Company

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 US LNG, LLC [c]

Shell Ventures LLC [c]

Shell WindEnergy Inc.

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Shell WindEnergy Services Inc.

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Ship Shoal Pipeline Company [d]

150 N. Dairy Ashford, Houston, TX 77079

Silicon Ranch Corporation

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

SOI Finance Inc.

Sonnen Inc.

SOPC Holdings East LLC [c]

SOPC Holdings West LLC [c]

SOPC Southeast Inc.

SWEPI LP [d]

Tejas Coral GP, LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

2711 Centerville Road, Suite 400, New Castle County, Wilmington, DE 19808

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Tejas Coral Holding, LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Tejas Power Generation, LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Texas Petroleum Group LLC

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

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

Three Wind Holdings, LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

TMR Company

Tri Star Energy LLC

Triton Diagnostics Inc.

Triton Terminaling LLC [c]

Triton West LLC [c]

True North Energy LLC

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

10346 Brecksville Rd, Brecksville, OH 44141

URSA Oil Pipeline Company LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

100

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Shell Annual Report and Accounts 2019Additional InformationAPPENDIX 1 continued

Company by country of incorporation

Address of registered office

USA continued

West Shore Pipe Line Company

Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808

Zeco Holdings, Inc.

Zeco Systems, Inc.

Zeolyst International

1013 Centre Road, County of New Castle, Delaware, Wilmington, DE 19805

3333 Hwy 6 South, Houston, TX 77082

Zydeco Pipeline Company LLC [c]

The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801

VENEZUELA

Shell Venezuela Productos, C.A.

Shell Venezuela, S.A.

Sucre Gas, S.A.

VIETNAM

Shell Vietnam Ltd

ZIMBABWE

Av. Orinoco, Edificio Centro Empresarial Premium, Piso 2, Oficina 2-B, Urbanización Las Mercedes, Caracas, Distrito
Capital, 1060

Av. Orinoco, Edificio Centro Empresarial Premium, Piso 2, Oficinas 2-A y 2-B, Urbanización Las Mercedes, Caracas, Distrito
Capital, 1060

Avenida 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

100

306

Shell Annual Report and Accounts 2019Additional InformationNOTES

NOTES

FINANCIAL CALENDAR IN 2020

The Annual General Meeting will be held on May 19, 2020.

Results announcements

Interim dividend timetable

Announcement date

Ex-dividend date [D]

Record date

Closing of currency election date [E]

Pounds sterling and euro equivalents announcement date

Payment date

2019 Fourth
quarter [A]

January 30

2020 First
quarter [B]

2020 Second
quarter [B]

2020 Third
quarter [B]

April 30

July 30

October 29

January 30 [C]

February 13

February 14

February 28

March 9

March 23

April 30

May 14

May 15

June 2

June 8

July 30

October 29

August 13

November 12

August 14

November 13

August 28

November 27

September 8

December 3

June 22

September 21

December 16

[A] In respect of the financial year ended December 31, 2019.
[B] In respect of the financial year ended December 31, 2020.
[C] The Directors do not propose to recommend any further distribution in respect of 2019.
[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
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Registered in England and Wales
Company number 4366849
Registered with the Dutch Trade Register
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Royal Dutch Shell plc
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Shell Oil Company
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www.shell.com/investor

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■ Comprehensive financial information on our

activities throughout 2019

■ Detailed operational information including maps
■ Report on our progress in contributing to

sustainable development