Shell Annual Report 2020

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FY2020 Annual Report · Shell

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POWERING
PROGRESS

ANNUAL REPORT AND ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2020
ROYAL DUTCH SHELL PLC

CONTENTS

INTRODUCTION
iii
iv
1

About this Report
Terms and abbreviations
Powering Progress

STRATEGIC REPORT
4
6
8
10
18
22
28
38
41
43
46
53
61
70
77
80
81
85
94
108

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
Oil Products
Chemicals
Corporate
Liquidity and capital resources
Environment and society
Climate change and energy transition
Our people

GOVERNANCE
Directors’ Report
114
122
124
126

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 activities and evaluation
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

FINANCIAL STATEMENTS
AND SUPPLEMENTS
192

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

128
130
134

138
140

143

145
153
157
173
182

216
265

283
292

294

ADDITIONAL INFORMATION
Shareholder information
300
Non-GAAP measures reconciliations
305
Appendix 1: significant subsidiaries and
308
other related undertakings (audited)
Appendix 2: five-year financial dataset

324

Design and production: Friend www.friendstudio.com
Print: Opmeer papier pixels projecten www.opmeerbv.nl

Shell Annual Report and Accounts 2020

ABOUT 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, 2020, 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
216-264), the Parent Company Financial Statements of Shell (pages
283-291) and the Financial Statements of the Royal Dutch Shell Dividend
Access Trust (pages 294-297). 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
consolidated financial statements.

The companies in which Royal Dutch Shell plc directly or indirectly owns
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.

As used in this Report, “Accountable” is intended to mean: required or
expected to justify actions or decisions. The Accountable person does not
necessarily implement the action or decision (implementation is usually
carried out by the person who is Responsible) but must organise the
implementation and verify that the action has been carried out as required.
This includes obtaining requisite assurance from Shell companies that the
framework is operating effectively. “Responsible” is intended to mean:
required or expected to implement actions or decisions. Each Shell company
and Shell operated venture is responsible for its operational performance
and compliance with the Shell General Business Principles, Code of
Conduct, Statement on Risk Management and Risk Manual, and Standards
and Manuals. This includes responsibility for the operationalisation and
implementation of Shell Group strategies and policies.

iii

Shell Annual Report and Accounts 2020

This Report references Shell’s Sky and new Sky 1.5 scenarios, specifically
within the Climate change and energy transition section (pages 94-107).
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.

Sky 1.5 scenario starts with data from Shell’s Sky scenario but is more
aggressive and challenging in its assumptions about energy transitions as
the pace of change is accelerated. As in Sky, this scenario is normative,
meaning we assumed that society achieves the 1.5 degrees Celsius stretch
goal of the Paris Agreement, and we worked back in designing how this
could occur. Of course, there are many possible paths that society could
take to achieve this goal. This will be extremely challenging, but as of
today, we believe there is still a technically possible path while maintaining
a growing global economy. However, we believe the window for success
is quickly closing.

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. Shell’s
scenarios also are not intended to be projections or forecasts of the future.
Shell’s scenarios, including the scenarios referenced in this Report, are not
Shell’s strategy or business plan. When developing Shell’s strategy, our
scenarios are one of many variables that we consider. Ultimately, whether
society meets its goals to decarbonise is not within Shell’s control. While
we intend to travel this journey in step with society, only governments can
create the framework for success.

Shell’s operating plan, outlook and budgets are forecasted for a ten-year
period and are updated every year. They reflect the current economic
environment and what we can reasonably expect to see over the next ten
years. Accordingly, Shell’s operating plans, outlooks, budgets and pricing
assumptions do not reflect our net-zero emissions target. In the future, as
society moves towards net-zero emissions, we expect Shell’s operating
plans, outlooks, budgets and pricing assumptions to reflect this movement.

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. 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.

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.

TERMS AND ABBREVIATIONS
Currencies
$

US dollar

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; (m) risks associated with the
impact of pandemics, such as the COVID-19 (coronavirus) outbreak; and (n)
changes in trading conditions. Also see “Risk factors” on pages 28-37 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, Industry Associations Climate Review
and our report on Payments to Governments. These references are for the
readers’ convenience only. Shell is not incorporating by reference into this
report any information posted on www.shell.com or in the Shell Sustainability
Report, Tax Contribution Report, Industry Associations Climate Review or
our report on Payments to Governments.

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.

Shell Annual Report and Accounts 2020

€

euro

sterling

Units of measurement
acre

approximately 0.004 square kilometres

b(/d)

boe(/d)

kboe(/d)

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

scf(/d)

Products
GTL

LNG

LPG

NGL

million tonnes per annum

volumes are converted into a daily basis using a calendar year

standard cubic feet (per day)

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

POWERING
PROGRESS
Our strategy to accelerate the
transition to net-zero emissions,
purposefully and profitably

Growing value through
a dynamic portfolio and
disciplined capital allocation

Protecting the environment,
reducing waste and making
a positive contribution to
biodiversity

Powering lives through our
products and activities, and
supporting an inclusive society

UNDERPINNED BY
OUR CORE VALUES
AND OUR FOCUS
ON SAFETY

Working with our customers and
sectors to accelerate the energy
transition to net-zero emissions

COVER IMAGES
The images on the front cover represent the four goals of Shell’s Powering Progress strategy,
(clockwise from top): generating shareholder value; achieving net-zero emissions; respecting
nature; and powering lives.

Powering Progress is designed to create value for shareholders, customers and wider society.
The strategy seeks to accelerate Shell’s transformation into a provider of net-zero emissions
energy products and services, powered by growth in its customer-facing businesses.

Shell Annual Report and Accounts 2020STRATEGIC
REPORT

4
6
8
10
18
22
28
38
41
43
46
53
61
70
77
80
81
85
94
108

Shell Annual Report and Accounts 2020Strategic ReportACHIE VING
NE T-ZE RO
EMISSIONS

Shell Annual Report and Accounts 2020Strategic ReportCHAIR’S MESSAGE

COURAGE
AND COVID-19:
HOW OUR PEOPLE
STEPPED UP

inspectors could stay in the safety of their homes, focus on analysing the
data gathered by the robots, and offer expert opinion. By innovating in
such challenging times, we also improved safety and productivity.

And I was struck by the courage and dedication that so many of our
people showed in the face of the virus. I heard remarkable personal
stories. In Iraq, Niki Jackson and his colleagues at the Basrah Gas
Company (BGC) sweated through a summer where temperatures rose to
50 degrees Celsius and COVID-19 spread through the surrounding area.
Niki knew he risked catching the virus, despite all the precautions taken by
BGC, a joint venture between Shell, the Iraqi government and Mitsubishi.
But Niki, from Aberdeen, Scotland, wanted to be on the ground with his
colleagues. How else could he be effective in his job as asset services
director, responsible for maintenance and engineering operations? His
words are worth repeating: “I saw the pride of my Iraqi colleagues, a
pride that comes from being able to tell your family: ‘I am helping to
ensure that everyone around us has electricity, and gas for cooking.’

CHAD HOLLIDAY
Chair

In 2020, the world faced exceptional adversity in the form of the
COVID-19 pandemic. Adversity reveals character. It forces us to find
strength we never knew we had.

“I made my decision: ‘Am I still happy doing this? Too right I am. Let’s get
on with it.’”

For the good of all, many people volunteered for medical trials. Scientists
and doctors from around the world shared knowledge. Vaccines were
developed at a speed no one thought possible. Just imagine what
humanity might achieve if it could direct such public-spirited co-operation
towards other challenges, like poverty, or climate change.

PEOPLE AND PRODUCTIVITY
If the pandemic revealed humanity’s collective strength, it also showed the
resilience of Shell. As I prepare to stand down as Chair of the Royal Dutch
Shell plc Board in 2021, I am convinced Shell has a bright future. I am also
convinced we have a compelling investment case.

The strength and clarity of our strategy will enable us to succeed as a
business in the energy transition. We will continue to power progress
by generating value for shareholders and investing in energy projects
to help meet demand. In turn, this will support supply chains and boost
local economies.

My confidence in Shell is made even stronger by the quality of our people.
During my 10 years on the Board, I have seen so many colleagues who
inspired me as they helped Shell to succeed. When COVID-19 struck,
and lockdowns spread, our people rose to the challenge. They continued
to produce and deliver vital energy supplies. They helped to power
hospitals and fuel ambulances, to keep homes lit and to maintain
essential businesses. They showed ingenuity as well as resilience. They
put technology to work. For instance, using crawler robots on the roofs
of refinery tanks freed our inspectors from having to work at height. The

Krishna Gupta, a shift superintendent, went out during lockdown to
Shell Energy India’s regasification facility in Hazira, Gujarat. How did he
explain this to his 11-year-old son? He told him: “If I don’t go to the facility,
our gas can’t get to those who need it.”

ADAPTING TO THE ENERGY TRANSITION
People like Krishna and Niki give me confidence about Shell’s future.
So too does our strategy. I have seen the progress we have made,
and continue to make, towards becoming fully able to play a role
in the transition to a low-carbon future.

We are helped by long experience of serving the needs of our customers.
Our global network of around 46,000 service stations, for example, gives
us insights into the nature of consumer demand for everything from
groceries to electric vehicle charging points. It helps us to understand
what we must do to be in step with society in the energy transition.

As our business customers work to reduce carbon dioxide emissions, Shell
will increasingly provide the low-carbon energy and products to help. We
already have the kind of portfolio that other companies are trying to build.
We can invest where we will be competitive, for example, in integrated
power, hydrogen and low-carbon biofuels. We will also continue to supply
oil and gas because the world will need both for years to come. Our
Upstream business will help give us the financial strength to invest in
low-carbon sources of energy.

Shell Annual Report and Accounts 2020Strategic ReportOUR MOST DIFFICULT DECISION
This year has shown how Shell must expect the unexpected and
be resilient enough to cope with it. The recession of 2020 was
unprecedented. US oil prices briefly turned negative for the first
time in history.

In April, we faced a perfect storm. With vaccines not yet on the horizon,
no one could predict how bad things might get. That was the backdrop to
the most difficult decision I have experienced on a company board: the
vote to rebase the dividend. It was historic for Shell. More importantly, it
was human. This was about the people who invest in us, whose belief in
Shell is partly rewarded by the dividend. The grim reality was there
was only one thing worse than rebasing the dividend: not rebasing
the dividend.

We could have borrowed to keep the dividend at the same level. But in
our view that would have been a mistake. By taking the decisive action to
rebase the dividend significantly as we did, I believe we ensured that Shell
could emerge from the impact of COVID-19 in strong shape.

In October, we were able to raise the dividend by a modest amount,
and signal our intention to have annual dividend increases, subject to
Board approval. The fundamentals remain intact. Despite the global
economic havoc wreaked by the pandemic, Shell continues to make
strategic progress.

FINDING A WAY
Ben van Beurden, the Chief Executive Officer of Royal Dutch Shell,
deserves credit for this progress. Over the years, he has listened to those
urging Shell to do more to help tackle climate change. He saw we could
create new businesses serving new customers and new markets for
low-carbon energy products. And the more governments act on climate
change, the more successful these businesses can become, and the better
it will be for the planet.

We are also making progress in other ways. We hope that in May,
shareholders will agree to appoint a Board which, for the first time in
Shell’s history, will consist equally of men and women. Greater diversity
brings greater understanding of people, and better decision-making.

Shell has set challenging emissions targets. In 2020, we announced our
target to become a net-zero emissions energy business by 2050 in step
with society. We intend to meet our customers’ demand for cleaner
energy, keeping pace with society’s progress towards tackling climate
change. As this suggests, we cannot stand still. When necessary, we must
be as fast-moving as we were when the pandemic hit. We must also strive
constantly to increase productivity, to continue to build financial strength.

In the worst of times, you often see the best of people. In 2020, our
people showed great character in adversity. I thank every one of them.
I firmly believe their efforts mean Shell will continue to succeed, to deliver
energy and to power progress.

CHAD HOLLIDAY
Chair

Adapting to the
energy transition

Working together across Shell
during the COVID-19 global pandemic

Shell can invest in areas where we will be
competitive, such as hydrogen.

Below (clockwise from top left): Shell made innovative use of robots during lockdowns;
our people kept service stations open; Krishna Gupta; Niki Jackson.

Shell Annual Report and Accounts 2020Strategic ReportCHIEF EXECUTIVE OFFICER’S REVIEW

POWERING
PROGRESS
AND FACING
A PANDEMIC

In 2020 we began implementing our new safety approach, which places
greater emphasis on increasing the chances of people emerging unhurt
even if there is an incident. For the first year in our history, there were zero
fatal accidents in Shell-operated facilities. I want this achievement to spur
us on so that we keep working hard on safety.

THE GOALS OF POWERING PROGRESS
We worked towards refreshing our strategy in 2020, and in February
2021, we announced Powering Progress. It is what I believe Shell does.
It is what I believe Shell should continue to do.

Our Powering Progress strategy combines our ambitions under four goals:
generating shareholder value, achieving net-zero emissions, powering
lives and respecting nature. This will help us accelerate our progress
towards becoming a net-zero emissions energy business by 2050,
in step with society.

We will lower emissions from our operations, including the energy consumed
in running them, and help our customers to reduce their emissions from using
our products. Importantly, this will include emissions from oil and gas that
others produce and we then sell in our products – an industry-leading
approach.

Shell will deal with any of its remaining emissions using carbon capture and
storage (CCS) technology, or offsets where plants absorb carbon dioxide.

We expect our total oil production to reduce by 1-2% a year until 2030,
taking into account divestments and natural decline. But we expect
Upstream oil and gas production to deliver strong cash flows into the
2030s, underpinning our returns to shareholders and helping to fund the
low-carbon investments that will transform Shell’s energy mix. In all these
ways, Shell will change as the world adopts the low-carbon energy
system needed to tackle climate change.

WINNING IN A TRANSFORMED ENERGY SYSTEM
Customers and the choices they make will define the nature of the future
energy system.

I think the winning energy companies will be those, like Shell, who are best
placed to serve customers.

We serve more than 1 million commercial and industrial customers, and
30 million customers at 46,000 retail service stations every day.

We have the leading market positions. We have strong starting positions
in products and services that customers are going to want more and more:
biofuels, electric-vehicle charging networks, and hydrogen.

BEN VAN BEURDEN
Chief Executive Officer

In 2020, the COVID-19 pandemic affected us all. Sadly, it claimed the
lives of 20 of our Shell colleagues. I heard the stories behind these
tragedies, and the cruelty of the pandemic really hit home.

The virus also wreaked havoc with the global economy, dramatically
suppressing energy demand. Our income went from $16.4 billion in 2019
to a loss of $21.5 billion in 2020, which included non-cash impairments of
$28.1 billion. In April, with oil prices falling rapidly, Shell took swift,
decisive action to preserve cash and stay resilient. We rebased the
dividend, lowering it by 66%.

It was a very difficult decision to make, but the right thing to do.

Our dividend payments went from $15.2 billion in 2019 to $7.4 billion in
2020. We combined rebasing the dividend with the discipline to reduce
cash capital expenditure from $23.9 billion in 2019 to $17.8 billion in
2020. We reduced net debt from $79.1 billion in 2019 to $75.4 billion
at the end of 2020.

In October, with global energy demand looking more robust, we raised
the dividend by 4% and signalled our intention to have annual dividend
increases, subject to Board approval.

Our industry-leading cash flows from operations confirm Shell’s underlying
strength. Despite the unprecedented challenges, we delivered cash flow
from operating activities of $34.1 billion in 2020, compared with
$42.2 billion in 2019.

Once we have reduced net debt to $65 billion, we will target total
shareholder distributions of 20-30% of cash flow from operations.

Shell Annual Report and Accounts 2020Strategic ReportPowering Progress

The Powering Progress strategy combines our ambitions under four goals
(from top): generating shareholder value; achieving net-zero emissions;
powering lives; and respecting nature.

We can work with our customers to develop the low-carbon markets of
the future. In this way, Shell would generate value for shareholders while
working towards its net-zero carbon emissions target. Society would
benefit from reduced emissions.

Take the CrossWind consortium, a joint venture between Shell and Eneco
that in 2020 won the tender for the Hollandse Kust (noord) wind farm off
the Dutch coast. Shell’s plan is to use the wind farm’s renewable electricity
for powering the industrial-scale production of low-carbon hydrogen
by electrolysis, a process that splits water into oxygen and hydrogen.

We will then work with hauliers and truck manufacturers to develop a
market for hydrogen as a low-carbon fuel for heavy goods transport.

THE VALUE OF STRATEGIC RELATIONSHIPS
Hollandse Kust (noord) is helping Shell to form other important strategic
relationships. In February 2021, Amazon signed an agreement to buy
renewable electricity from the wind farm.

Through its air cargo fleet, Amazon also has a growing interest in aviation,
one of those sectors that will be hard to decarbonise. Shell has one of the
world’s most extensive aircraft refuelling networks. We can work with
customers, suppliers and regulators to develop a commercially viable and
profitable market for sustainable aviation fuel (SAF). We have agreed to
supply Amazon with up to six million gallons of blended SAF for its cargo
aircraft. This biofuel, produced by the company World Energy using
agricultural waste fats and oils, has lower life-cycle carbon emissions
than conventional jet fuel.

We also formed a strategic alliance with Microsoft in 2020. Shell is
supplying Microsoft with renewable energy, supporting it towards its
goal of using 100% renewable energy by 2025. Both businesses will
develop digital tools to help Shell’s customers decarbonise.

We are working on more of these strategic relationships, generating
value while helping sectors to reduce their carbon emissions.

In 2020 we announced a major reorganisation which will take effect from
August 2021. We believe this will make us more responsive to customers,
as a nimbler organisation with lower costs.

We expect to reduce between 7,000 and 9,000 jobs as we make these
changes. It will mean saying goodbye to many people who have shown
us great loyalty. We will do this in the spirit of our core values of honesty,
integrity and respect for people.

As we prepare for the years ahead, we can draw confidence from how
we rose to the challenges of 2020.

What struck me was how our people combined ingenuity with
determination to do the right thing: in applying financial discipline, in
supplying energy during lockdowns, in making donations to help their
communities fight COVID-19. In such hard times, our people generated
value for society, and Shell.

They fill me with confidence for the future. With a strong strategy and
good people, Shell will power progress for decades to come.

BEN VAN BEURDEN
Chief Executive Officer

Shell Annual Report and Accounts 2020Strategic 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 Statement of Comprehensive Income data

180,543

Revenue ($ million)

(21,534)

146

(Loss)/income for the period ($ million)

Income attributable to non-
controlling interest ($ million)

(21,680)

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

(23,512)

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

$ million

Revenue

(Loss)/income for the period

Income attributable to non-controlling interest

(Loss)/income attributable to Royal Dutch Shell plc shareholders

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

2020

2019

2018

2017

2016

180,543

344,877

388,379

305,179

233,591

(21,534)

16,432

23,906

13,435

146

(21,680)

(23,512)

590

15,842

13,773

554

23,352

24,475

458

12,977

18,828

4,777

202

4,575

(1,374)

Consolidated Balance Sheet data

379,268

108,014

651

Total assets ($ million)

Total debt ($ million)

Share capital ($ million)

155,310

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

75,386

Net debt ($ million)

3,227

Non-controlling interest
($ million)

$ million

Total assets

Total debt [A]

Net debt [A]

Share capital

2020

2019

2018

2017

379,268

404,336

399,194

407,097

108,014

75,386

651

96,424

79,093

657

76,824

51,428

685

85,665

65,944

696

2016

411,275

92,476

73,346

683

Equity attributable to Royal Dutch Shell plc shareholders

155,310

186,476

198,646

194,356

186,646

Non-controlling interest

3,227

3,987

3,888

3,456

1,865

[A] Total debt and net debt figures for 2018 and earlier periods are on an IAS 17 basis.

Shell Annual Report and Accounts 2020Strategic ReportConsolidated Statement of Cash Flows data [A]

34,105

Cash flow from operating
activities ($ million)

16,585

Capital expenditure ($ million)

13,278

Cash flow from investing
activities ($ million)

7,424

1,702

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

2020

34,105

16,585

13,278

7,424

1,702

2019

42,178

22,971

15,779

15,198

10,188

2018

53,085

23,011

13,659

15,675

3,947

2017

35,650

20,845

8,029

10,877

—

2016

20,615

22,116

30,963

9,677

—

[A] With the exception of Cash flow from operating activities, which are cash inflows, all other items are cash outflows.

Earnings per share

(2.78)

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

2020

(2.78)

2019

1.97

1.95

2018

2.82

2.80

2017

1.58

1.56

2016

0.58

Dividend per share

0.65

Dividend per share ($)

7,795.6

Dividend per share

2020

0.65

2019

1.88

2018

1.88

2017

1.88

2016

1.88

7,795.6

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

2020

7,795.6

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

Shell Annual Report and Accounts 2020Strategic ReportSHELL STORY: WHO WE ARE

Shell is a global group of energy and
petrochemical companies with 87,000
employees in more than 70 countries.

We have expertise in the exploration, production, refining, marketing and trading
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 renewable sources such
as wind and solar, and new fuels for transport, such as advanced biofuels and hydrogen.

We serve more than 30 million customers at almost 46,000 retail service stations every day.

Our strategy is to accelerate the transition of our business to net-zero emissions,
purposefully and profitably.

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/workforce/pensioners

Our strategic partners/suppliers

Communities

NGOs/civil society stakeholders/
academia/think-tanks

Governments/regulators

See “Section 172(1) statement” on pages 22-27, “Environment
and society” on pages 85-93, “Our people” on pages 108-111
and “Governance” on pages 112-189 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 18
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 to 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 108-111 for
more detailed discussion around our
core values.

Shell Annual Report and Accounts 2020Strategic ReportTHE SHELL INVESTMENT CASE

POWERING
PROGRESS
Our strategy to accelerate the
transition to net-zero emissions,
purposefully and profitably

Growing value through
a dynamic portfolio and
disciplined capital allocation

Protecting the environment,
reducing waste and making
a positive contribution to
biodiversity

Powering lives through our
products and activities, and
supporting an inclusive society

Working with our customers and
sectors to accelerate the energy
transition to net-zero emissions

UNDERPINNED BY
OUR CORE VALUES
AND OUR FOCUS
ON SAFETY

Shell Annual Report and Accounts 2020Strategic 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, marketing and trading oil, gas
and other energy-related products, such
as electricity and carbon-emission rights
as part of our integrated business model;
■ having a portfolio of refineries and chemical
plants producing a wide range of products
including gasoline, diesel, aviation
and marine fuel, lubricants
and petrochemicals;

■ marketing lubricants, aviation fuels, bitumen,
sulphur, retail mobility fuels and convenience
products and services, as well as low-carbon
fuels to customers;

■ capturing carbon dioxide using

carbon capture and storage (CCS)
technology; and

■ investing in nature-based solutions that

avoid or reduce carbon dioxide emissions.

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

OUR INPUTS [A]

FINANCIAL

HUMAN CAPITAL

276,719 2019: 291,142
Average capital employed ($ million)

87,000 2019: 87,000
Employees [B]

17,827 2019: 23,919
Cash capital expenditure ($ million)

234,000 2019: 373,000
Training days

Read more in “Performance indicators” on
pages 43-45 and “Non-GAAP measures
reconciliations” on pages 305-306.

Read more in “Our people” on
pages 108-111.

RELATIONSHIPS
Customers
Joint arrangements
Government relations
Suppliers

>70 2019: >70
Operating countries [B]

Read more in “Section 172(1) statement”
on pages 22-27, “Environment and
society” on pages 85-93 and
“Governance” on pages 112-189.

NATURAL RESOURCES

9,124 2019: 11,096
Proved oil and gas reserves
(million boe) [B]

1,239 2019: 1,338
Oil and gas production available for
sale (million boe)

171 2019: 192
Fresh water withdrawn (million
cubic metres)

Read more in “Oil and gas information”
on pages 61-69 and “Environment and
society” on pages 85-93.

OPERATIONS

95.5% 2019: 90.8%
Refinery and chemical plant availability

48% 2019: 90%
Project delivery on schedule

104% 2019: 99%
Project delivery on budget

Read more in “Performance indicators”
on pages 43-45.

INNOVATION

907 2019: 962
Investments in research
and development ($ million)

8,480 2019: 9,449
Patents [B]

Read more in “Technology and
Innovation” on page 17.

[A] In 2020 unless stated otherwise.
[B] At 31.12.2020.

Shell Annual Report and Accounts 2020Strategic ReportOUR BUSINESS
MODEL EXPLAINED
BUSINESS ACTIVITIES

EXPLORATION
1.

Exploring for oil and
gas onshore and
offshore

DEVELOPMENT AND
EXTRACTION
2.

Developing onshore
and offshore fields
Producing
conventional,
deep-water and shale
oil and gas
Capturing carbon
dioxide and storing it
safely underground
Extracting bitumen

MANUFACTURING
AND ENERGY
PRODUCTION
6.
7.

Upgrading bitumen
Refining oil into fuels
and lubricants
Producing gas-to-
liquids (GTL) products
Producing
petrochemicals
10. Producing biofuels
11. Generating renewable

power

12. Producing liquefied
natural gas (LNG)

TECHNICAL AND
BUSINESS SERVICES
24. Researching and developing
new technology solutions
25. Managing the delivery of

major projects

26. Providing technical and
supporting services

TRANSPORT
AND TRADING
13. Shipping gas to where

SALES AND
MARKETING
19. Supplying domestic

it is needed

electricity

14. Shipping oil to where it

20. Supplying products to

is needed

15. Trading oil and gas
16. Supply and distribution
of LNG for transport
applications
17. Regasifying LNG
18. Trading power

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

1234576241213814910151617252618191120212223Shell Annual Report and Accounts 2020Strategic ReportSHELL STORY: WHAT WE DO continued

Our Powering Progress
strategy is designed to
create value for our
shareholders, customers
and wider society.

OUR OUTCOME AND IMPACT [A]

ENERGY TRANSITION AND CLIMATE
CHANGE
75 2019: 78
Net Carbon Footprint
(grams of CO2 equivalent
per megajoule)

63 2019: 70
Direct greenhouse gas (GHG)
emissions (million tonnes of
CO2 equivalent)

Read more in “Climate change and energy transition” on pages 94-107.

ENVIRONMENTAL IMPACTS
68 2019: 67
Operational spills of more
than 100 kg

0.4 2019: 0.2
Weight of operational spills
(in ‘000 tonnes)

Read more in “Environment and society” on pages 85-93.

[A] In 2020 unless stated otherwise.

Shell Annual Report and Accounts 2020Strategic ReportFINANCIAL PERFORMANCE
(6.8)% 2019: 6.7%
Return on average capital
employed (ROACE)

9,126 2019: 25,386
Shareholder distributions
($ million)

Read more in “Performance indicators” on pages 43-45 and
“Non-GAAP measures reconciliations” on pages 305-306.

RESILIENCE OF BUSINESS MODEL
20,828 2019: 26,399
Free cash flow ($ million)

75,386 2019: 79,093
Net debt ($ million)

Read more in “Performance indicators” on pages 43-45 and
“Liquidity and capital resources” on pages 81-84.

TRUST AND TRANSPARENCY
42.2 2019: 47.5
Brand value ($ billion) [C]

1,425 2019: 1,686
Shell Global Helpline
(reports to the helpline)

Publication of the second Shell Tax Contribution Report

HEALTH, SAFETY AND SECURITY
103 2019: 130
0.7 2019: 0.9
Operational Tier 1 and 2
Total recordable case
process safety events
frequency (injuries per million
working hours)

Read more in “Environment and society” on pages 85-93.

CONTRIBUTION TO COUNTRIES
OF OPERATION
47.3 2019: 61.3
Taxes paid and collected
($ billion)

39.3 2019: 44.9
Total spend on goods
and services ($ billion)

Read more in “Environment and society” on pages 85-93.

OUR PEOPLE
27.8% 2019: 26.4%
Women in senior leadership
positions [B]

78 2019: 78
Average employee
engagement score (points)

Read more in “Corporate” on page 80 and “Our people”
on pages 108-111.

Read more in “Our people” on pages 108-111.

[B] At 31.12.2020.
[C] Source: Brand Finance Global 500 2021 Report.

Shell Annual Report and Accounts 2020Strategic ReportSHELL STORY: WHAT WE DO continued

OUR ORGANISATION

We describe below how our activities
are organised. Integrated Gas,
Upstream and Downstream focus on
our three business pillars (see “Strategy
and outlook” on page 18). 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)

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, which was rebranded to Renewables and Energy
Solutions in 2021, 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

Upstream manages the exploration for and extraction of crude oil, natural
gas and natural gas liquids. It also markets and transports oil and gas,
and operates infrastructure necessary to deliver them to market.

DOWNSTREAM

Downstream 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 28-37).
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 2020Strategic ReportSEGMENTAL REPORTING

Our reporting segments are Integrated Gas, Upstream, Oil Products, Chemicals and Corporate. Integrated Gas, Upstream, Oil Products and
Chemicals 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 230-232.

With effect from January 1, 2020, additional contracts were classified as held for trading purposes and consequently revenue is reported on a net
rather than gross basis.

Revenue by business segment
(including inter-segment sales) [A]

Revenue by geographical area
(excluding inter-segment sales) [A]

Integrated Gas

Third parties

Inter-segment

Total

Upstream

Third parties

Inter-segment

Total

Oil Products

Third parties

Inter-segment

Total

Chemicals

Third parties

Inter-segment

Total

Corporate

Third parties

Total

2020

2019

33,287

3,410

36,697

6,767

21,564

28,330

41,322

4,280

45,602

9,482

35,735

45,217

$ million

2018

43,764

5,031

48,795

9,459

37,125

46,584

128,717

280,460

6,213

7,819

316,409

10,613

134,930

288,279

327,022

11,721

2,850

14,571

13,568

3,917

17,485

18,704

4,864

23,568

[A] Historical comparatives are based on prevailing foreign exchange rates for respective years.

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 28-37).
We continually 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.

Europe

Asia, Oceania, Africa

USA

Other Americas

Total

2020

50,138

65,139

50,856

14,410

2019

98,455

139,916

83,212

23,294

$ million

2018

118,960

153,716

89,876

25,827

180,543

344,877

388,379

[A] Historical comparatives are based on prevailing foreign exchange rates for respective years.

In 2020, research and development expenses were $907 million,
compared with $962 million in 2019, and $986 million in 2018. 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 8,480 granted patents and
pending patent applications.

Shell Annual Report and Accounts 2020Strategic ReportSTRATEGY AND OUTLOOK

OUR
STRATEGY

In February 2021, Shell launched
Powering Progress which sets
out our strategy to accelerate
the transition of our business
to net-zero emissions, in step
with society, purposefully
and profitably.

CONTEXT

Our strategy is founded on our outlook for the energy sector and the
chance to grasp opportunities arising from the substantial changes in the
world around us. We believe the rising standard of living of a growing
global population will 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 net-zero emissions energy system to counter
climate change.

POWERING PROGRESS

In February 2021, Shell launched Powering Progress, which sets out our
strategy to accelerate the transition of our business to net-zero emissions,
in step with society, purposefully and profitably.

We will build a strong and resilient business by putting customers at the
centre of our strategy, innovating the products and solutions customers
need on their journey to net zero. This includes partnering with others
to reduce carbon emissions, especially in sectors that are hard to
decarbonise. We aim to deliver value through our integrated assets
and supply chains, optimising value and managing risk for Shell and our
customers as we produce, buy, trade, transport and sell energy products
across the world. This is a strategy that combines our financial strength
and discipline with a dynamic approach to our portfolio of assets and
products, so that we are ready to seize the significant opportunities
that exist for us in the energy transition.

POWERING PROGRESS
GENERATING SHAREHOLDER VALUE
Growing value through a dynamic portfolio
and disciplined capital allocation

ACHIEVING NET-ZERO EMISSIONS
Working with our customers and across sectors
to accelerate the transition to net-zero emissions

GENERATING
SHAREHOLDER
VALUE

ACHIEVING
NET-ZERO
EMISSIONS

Strategic ReportShell Annual Report and Accounts 2020Powering Progress generates value for our shareholders, customers and
wider society. It has four main goals which integrate sustainability with our
business strategy. These goals support Shell's purpose, to power progress
together by providing more and cleaner energy solutions. They are
underpinned by our core values of honesty, integrity and respect for
people, and our focus on safety.

Generating shareholder value: We aim to create the conditions for share
price appreciation by preparing our business for the future and accessing
the opportunities that the future of energy holds. We will do this while
providing sustainable distributions today through our progressive dividend
policy. The changing energy landscape means that Shell must take a
dynamic approach to its portfolio of assets and products. That means
continuing to provide the energy the world needs today, and increasing
our investments in cleaner energy. We will keep a disciplined approach
to capital investment, and a strong balance sheet, so that our organisation
remains strong and resilient. In this way, we will achieve our aim of being
a compelling investment case for our shareholders.

Achieving net-zero emissions: Tackling climate change is an urgent
challenge. That is why we have set a target to become a net-zero
emissions energy business by 2050, in step with society. We are
transforming our business and finding new opportunities – selling more
low-carbon products such as biofuels, electricity generated by solar
and wind power, hydrogen and charging for electric vehicles. We are
partnering with customers, businesses and governments to address the
energy transition and reduce emissions sector by sector. This includes
in sectors that are harder to decarbonise, such as aviation, shipping,

commercial road freight, power, heating and certain parts of industry.
We also support government policies to reduce carbon emissions in the
economy, sector by sector.

Powering lives: Shell helps to power lives and livelihoods by providing
vital energy for homes, businesses and transport. The supply of affordable,
reliable and sustainable energy is also crucial for addressing global
challenges, including those related to poverty and inequality. Our
operations support livelihoods by providing employment and training
in the communities where we operate. We are working to become one
of the most diverse and inclusive companies in the world, a place where
everyone feels valued and respected. We are focusing on four areas:
gender, race and ethnicity, LGBT+ and disability. We respect human
rights in all parts of our business.

Respecting nature: We are stepping up our environmental ambitions,
shaping them to reflect the UN Sustainable Development Goals. Our
environmental ambitions include protecting and enhancing biodiversity.
We are also focusing on using water and other resources more efficiently
across all our activities, reusing as much of them as we can. We are
reducing waste from our operations and increasing recycling of plastics.
We are helping to improve air quality by reducing emissions from our
operations and providing cleaner ways to power transport and industry.

Working with our partners and suppliers and developing new
collaborations is key. We will join with others across industry,
governments, our customers and supply chains to protect nature.

POWERING LIVES
Powering lives through our products and activities,
and by supporting an inclusive society

RESPECTING NATURE
Protecting the environment, reducing waste and
making a positive contribution to biodiversity

POWERING
LIVES

RESPECTING
NATURE

Strategic ReportShell Annual Report and Accounts 2020STRATEGY AND OUTLOOK continued

BUSINESS PILLARS

Powering Progress is a strategy that combines our financial strength
and discipline with a dynamic approach to our portfolio of assets and
products, so that we are ready to seize the significant opportunities that
exist for us in the energy transition. Shell will reshape its portfolio of assets
and products to meet the cleaner energy needs of its customers in the
coming decades. We will deliver our strategy through three business
pillars: Growth, Transition, and Upstream.

Through these three areas, we are creating flexibility in investment
opportunities while enabling growth in our customer-facing businesses.
Our strategy delivers additional value through trading and optimisation.

Achieving our strategy 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 where we operate,
assessing our competitive position by analysing trends, uncertainties,
and the strengths and weaknesses of our traditional and
non-traditional competitors.

To support the delivery of our strategy, we are redesigning Shell to
put customers at the centre. That means organising ourselves to help
economic sectors to decarbonise, by providing integrated, lower-carbon
energy solutions, sector by sector.

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 risks.

See "Risk factors" on page 28 and "Governance" on page 112.

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
2020, the Long-term Incentive Plan (LTIP) included cash generation,
capital discipline, value created for shareholders, and an energy
transition condition. For 2021, the weighting of the energy transition
condition in the LTIP has been increased to 20%.

See the “Directors’ Remuneration Report” on page 153.

For more details on how the strategic pillars are embedded into our businesses,
see “Shell story” on pages 10-17.

DELIVERING THE STRATEGY:
OUR VISION FOR THE FUTURE OF ENERGY

GROWTH PILLAR:
THE FUTURE OF ENERGY

TRANSITION PILLAR:
ENABLING OUR STRATEGY

UPSTREAM PILLAR:
FUNDING OUR STRATEGY

MARKETS

ASSETS

RESOURCES

Enhanced value delivery through trading and optimisation

Shell Annual Report and Accounts 2020Strategic ReportOUTLOOK FOR 2021
AND BEYOND

We believe that our integrated business model is key to driving our strategy.
It means that our portfolio is greater than the sum of its parts. This competitive
portfolio has a solid track record on cash generation, where Shell is leading
its peer group. We intend to evolve our portfolio of assets and the mix of
energy that we sell to meet the cleaner energy needs of our customers in
the coming decades, while delivering value for our shareholders.

Delivering our strategy will require clear and deliberate capital allocation
choices. We approach capital allocation at three levels: enterprise,
portfolio and project. The enterprise level is about how we make choices
between increasing distributions to our shareholders, investing in our
business and/or strengthening our balance sheet. The portfolio level
is about how we allocate capital between our three business pillars
– Growth, Transition and Upstream. The project level is about how
we evaluate and prioritise investment opportunities.

At the enterprise level, we look to achieve the right balance between
shareholder distributions today and investing for value-enhancing growth.

For cash capital expenditure, we plan to spend between $19 and 22
billion per annum in the near term. In addition, we expect operating costs
to be no higher than $35 billion and to deliver a divestment programme
totalling around $4 billion a year in this period. We remain committed to
our progressive dividend policy and focused on targeting AA-equivalent
credit metrics through the cycle.

Subject to Board approval, we aim to grow the dividend per share
by around 4 percent every year. Once our net debt level has
reached $65 billion, we will target the distribution of 20-30% of cash
flow from operations to shareholders, and may choose to return cash to
shareholders through a combination of dividends and share buybacks.

Once we have achieved this level of shareholder distributions, additional
surplus cash will be allocated between further disciplined capital
investments to deliver our strategy and further debt reduction to
strengthen the balance sheet.

We fully support the Paris Agreement’s goal to keep the rise in global
average temperature this century to well below two degrees Celsius above
pre-industrial levels and to pursue efforts to limit temperature increase even
further to 1.5 degrees Celsius. We announced a long-term target to become
a net-zero emissions energy business by 2050, in step with society. This
includes a target to be net zero on all emissions from the manufacture of all
our products – (our Scope 1 and 2 emissions) – by 2050, and also net zero
from the end use of all the energy products we sell (Scope 3 emissions). We
aim to reduce the net carbon intensity of energy sold by 6-8% by 2023, 20%
by 2030, 45% by 2035 and 100% by 2050, in comparison with 2016. We
expect that our total carbon emissions from energy sold will stay below 2018
levels. Further details are in the “Climate change and energy transition”
section on page 94.

As a result of COVID-19, there continues to be significant uncertainty in the
macroeconomic conditions with an expected negative impact on demand
for oil, gas and related products. Demand or regulatory requirements and/or
constraints in infrastructure may cause Shell to take measures to curtail or
reduce oil and/or gas production, LNG liquefaction and utilisation of refining
and chemicals plants. Sales volumes could be similarly affected. Such
measures 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 page iii and “Risk factors”
on pages 28-37.

CAPITAL ALLOCATION:
TARGET SHAREHOLDER DISTRIBUTIONS OF 20-30% OF CFFO

Clear capital allocation framework

Operationalising the framework

1st
PRIORITY

Near-term cash capex

■ Apportion near-term $19-22 billion cash capital expenditure:

– Marketing ~$3 billion; Renewables and Energy Solutions $2-3 billion; Integrated Gas

~$4 billion; Chemicals and Products $4-5 billion; Upstream ~$8 billion

Ordinary progressive dividend

– Inorganic capex included in range

■ ~4% dividend per share growth annually, subject to Board approval

2nd
PRIORITY

AA credit metrics through
the cycle

■ Reduce net debt to $65 billion

– Milestone for AA credit metrics threshold in the near term

3rd
PRIORITY

Additional shareholder
distributions

■ Total shareholder distributions of 20-30% of CFFO (on reaching net debt of $65 billion)

– Distributions include dividends and share buybacks

4th
PRIORITY

Capex growth

Continued balance sheet
strengthening

■ Measured, disciplined capex growth to enable strategy
■ Further reduce net debt to achieve firm long-term AA credit metrics

First cash priority also includes interest paid (CFFF).
Near-term cash capex numbers split by business are rounded and total will be managed within the near-term range of $19-22 billion.

Shell Annual Report and Accounts 2020Strategic ReportSECTION 172(1) STATEMENT

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
interests of other stakeholders which may affect the long-term success
of the company. This S172 statement explains how Shell Directors:
■ have engaged with employees, suppliers, customers and others; and
■ have considered employee interests, the need to foster business

To retain focus on achieving the strategic ambitions, in 2020 the Board
determined a cash allocation framework designed to enable debt
reduction, increase shareholder distributions, and facilitate disciplined
growth as Shell reshapes its business for the future of energy. Shell also
announced the reshaping of its portfolio of assets and products to meet its
customers’ cleaner energy needs in the coming decades. The key elements
of Shell’s strategic direction include:
■ setting a target to be a net-zero emissions energy business by 2050,

in step with society.

relationships with suppliers, customers and others, and the effects
of those considerations, including on the principal decisions taken
during the financial year.

■ growing its leading marketing business, further developing the

integrated power business and commercialising hydrogen and biofuels
to support customers’ efforts to achieve net-zero emissions;

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 Shell's businesses.

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
set, in order 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 in "Other regulatory
and statutory information" on page 182.

When making decisions, each Director ensures that (s)he acts in the way
he or she considers, in good faith, would most likely promote Shell's
success for the benefit of its members as a whole, and in doing so
has regard (among other matters) to the issues set out below.

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 that
meet our customers' cleaner energy needs as the global energy system
transforms, while keeping safety and social responsibility fundamental
to our business approach.

As outlined in "Our context" in the "Shell story" section on pages 10-17,
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, tackling climate change requires an orderly
transition to a lower-carbon, multi-source energy system that is enabled by
technological changes and facilitates increasing customer choice. Shell’s
strategic ambitions have been set in that context. We want to increase
long-term value for shareholders, recognising that the long-term success of
our business depends on our stakeholders and the effects of our business
activities on wider society.

In 2020, we had to operate in the unprecedented context created by the
COVID-19 pandemic, the resulting macroeconomic conditions and the
imbalance between supply and demand in the oil and gas market.

■ transforming its refining portfolio from the current 13 sites into six

high-value energy and chemicals parks, integrated with Chemicals.
Growth in Chemicals will shift to more performance chemicals and
recycled feedstocks;

■ extending leadership in liquefied natural gas (LNG) to enable

decarbonisation of key markets and sectors;

■ focusing on value over volume by simplifying Upstream to nine
significant core positions, which will generate more than 80%
of Upstream’s cash flow from operations; and

■ enhancing value delivery through trading and optimisation.

The Directors recognise that there are differing societal views about our
operations and that some Board decisions taken today may not align
with all stakeholder interests. Given the complexity of the evolving energy
transition, the Directors have taken the decisions they believe best support
Shell’s 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 the delivery of our strategic ambitions. The success
of our business depends on attracting, retaining and motivating talented
employees. The Directors consider and assess the implications of decisions
on employees and the wider workforce, where relevant and feasible.
The Directors seek to ensure that Shell remains a responsible employer,
including with respect to pay and benefits, health and safety issues, and
the workplace environment. The Directors recognise that our pensioners,
though no longer employees, also remain important stakeholders.

More information on this can be found in "Workforce engagement"
on page 138.

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 to promote and apply 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. This standard and others are described in the Shell
General Business Principles, which are based upon our core values of
honesty, integrity and respect for people (i.e. our stakeholders). The Board
periodically reviews and approves the Shell General Business Principles.
The Directors take account of the General Business Principles and core
values when exercising their duties and making Board decisions. “Core
Value Moments” are built into Board agendas and provide the Board with
opportunities to reflect on the importance of the General Business

Shell Annual Report and Accounts 2020Strategic ReportPrinciples and Core Values. The Board also reviews and approves Shell’s
approach to suppliers, which is set out in the Shell Supplier Principles. The
businesses continually assess the priorities related to customers and those
with whom we do business. The Board engages with the businesses on
these topics, for example, within the context of business strategy updates
and investment proposals.

The Directors also receive updates on a variety of topics that indicate how
these stakeholders have been engaged.

These updates include information provided by the Projects & Technology
function on suppliers and joint-venture partners, with respect to items such
as project updates and supplier contract management. Businesses also
provide information on customers and joint-venture partners in relation
to 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. The Board receives
information on various topics to help it make decisions relating, for
example, to issues such as the Net Carbon Footprint target, the COVID-19
pandemic’s impact on Shell, country-entry considerations, proposals to
invest or divest, and business strategy reviews. The information also goes
into Group-level overviews, such as updates on safety and environment
performance, reports from the Chief Ethics & Compliance Officer,
and reports from the Chief Internal Auditor. In 2020, certain Board
committees and Non-executive Directors conducted site visits of various
Shell operations and overseas offices and held external stakeholder
engagements, where feasible. The physical site visits were not as extensive
as in past years because of travel and other restrictions imposed by
governments in response to COVID-19. Despite the challenges presented
by COVID-19 in terms of international travel and face-to-face meetings,
the Board maintained a strong interface with businesses and staff through
virtual engagements, making best use of the technology available.

More information on this, including details of face-to-face visits held
pre-COVID-19, can be found in "Understanding and engaging with our
stakeholders" on page 134, or in the reports of each Board committee.

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 economically, environmentally and socially responsible ways.
The Board periodically reviews and approves clear frameworks, such as
The Shell General Business Principles, Shell’s Code of Conduct, specific
Ethics and Compliance manuals, the Ethical Decision-Making Framework,
and its Modern Slavery Statements, to ensure that its high standards are
maintained in Shell businesses and in Shell's business relationships.
This, complemented by the ways the Board is informed and monitors
compliance with relevant governance standards, helps to ensure that
Board decisions and the actions of Shell companies 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 effect 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. This can sometimes mean that certain
stakeholder interests may not be fully aligned.

CULTURE
The Board recognises that it plays an important role in assessing and
monitoring that our desired culture is embedded in our values, attitudes
and behaviours, 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 to 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. In 2020, we refreshed our approach to safety to avoid
fatalities and life-changing injuries by building on existing strong
foundations, with an increased and deliberate focus on “human
performance”. “Human performance” is the way people, culture,
equipment, work systems and processes interact as a system. It
remains our ambition to achieve Goal Zero, no harm and no leaks
across all our operations.

Shell has an ambitious strategy to achieve net-zero emissions by 2050 in
step with society, while generating shareholder value. This also includes
medium- and long-term targets of 20% by 2030, 45% by 2035, and
100% by 2050 (compared with 2016). To achieve our strategic goals, we
need to adapt our mindset and behaviours as we navigate the increasing
complexity in the world around us. “Who we are” captures the mindset
and behaviours needed to succeed in the coming years, including:
■ applying a learner mindset: everyone has the ability to grow,

learn from mistakes and successes, and speak up openly in a safe
environment. We encourage curiosity, humility, openness, helping
each other to make better decisions and create more value;

■ maximising our performance: we collaborate across boundaries and

speak up when we see things that can be improved. We enable people
to deliver, and we work in an integrated way with discipline, clear focus
on priorities, and tangible outcomes in order to reach our full potential;

■ increasing trust in Shell: we aim to be a valued member of the

communities in which we operate, and to make a positive contribution
to society. We seek to listen carefully and with humility and we have
a strong desire to understand, and, where possible, adapt to the
changing needs and expectations of society, especially as they
relate to the environment. We build strong and trusted relationships
with customers and partners which are fundamental to our
collective success;

■ living by our values and Goal Zero: we live by our values and do

the right things in respect to ethics, safety and the environment; and
■ inspiring and engaging: we aspire to a situation where everyone feels
connected to what we stand for. We build trusting and effective teams
where everyone feels ownership and has a voice in how work gets
done. We strive to maintain a diverse and inclusive culture.

The Board considers the Shell People Survey to be an important tool for
measuring employee engagement, motivation, affiliation and commitment
to Shell. It provides insights into employee views and has a consistently
high response rate. It also helps the Board to understand how the survey's
outcomes are being used to strengthen Shell culture and values. The
Board has noted that although staff surveys offer insight, limitations exist.
The surveys may lack sufficient detail on how culture is embedded. As a
result, a more rigorous approach to Board oversight of culture will be
adopted in the year ahead to establish more effective ways of monitoring
and assessing culture and how it aligns with purpose, values and strategy.

Shell Annual Report and Accounts 2020Strategic ReportSECTION 172(1) STATEMENT continued

The Board recognises the important role Shell has 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 together with customers,
governments, business partners, investors and other stakeholders.

Information on how the Directors have engaged with employees can
be found on page 138 and in the "Our people" section on pages 108.
The tables below includes examples of how Directors have considered
the interests of Shell employees and the resulting outcomes.

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,
non-governmental organisations (NGOs) and, in some appropriate
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.

STAKEHOLDER ENGAGEMENT (INCLUDING
EMPLOYEE ENGAGEMENT)
The guidance on preparing information, proposals or discussion items for
the Board asks for these materials to include considerations of the views,
interests and concerns of stakeholders and how management addressed
them. This helps to strengthen the Board’s knowledge of how the broader
business undertakes significant levels of stakeholder engagement. Board
minutes have also reflected key points on stakeholder considerations,
where appropriate. The Terms of Reference for our Safety, Environment
and Sustainability Committee also include, within the Committee’s remit,
the review and consideration of external stakeholder perspectives and
how major issues of public concern that could affect Shell's reputation
and licence to operate were, or are being addressed.

The Board also engaged with certain stakeholders directly, to understand
their views. The Board also leverages its very substantial in-house expertise
by receiving input from economics and policy experts on key political
and economic themes periodically, with some updates being presented
to the Board each quarter. More on this engagement is provided in
"Understanding and engaging with our stakeholders" on page 134.

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 in decision-making.

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

investor community;
employees/workforce/pensioners;
regulators/governments;
NGOs/civil society stakeholders/academia/think-tanks;
communities;
customers; and
suppliers/strategic partners.

Principal decisions
We define principal decisions taken by the Board as decisions taken
in 2020 that are of a strategic nature and significant to any of our key
stakeholder groups. As outlined in the UK Financial Reporting Council
(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 or mitigations were made, if any,
and how Directors have considered different interests, and the factors
taken into account.

Shell Annual Report and Accounts 2020Strategic Report
Strategic updates

Over the course of the year, the Board considered strategic options and areas of emerging strategic
focus, including in relation to the Net Carbon Footprint target. Principal decisions included: Shell’s plans
to become a net-zero emissions (NZE) energy business by 2050, in step with society, covering Scope 1, 2
and 3 emissions (the NZE energy business target as announced on April 16, 2020); and the update on
strategic direction that clarified the investment proposition and how the value that Shell generates is
translated into shareholder distributions (announced on October 29, 2020).

How stakeholders were considered
Given the significance of the strategic topics, the Board had multiple stakeholder engagements. These
involved shareholders, employees and our internal climate experts throughout the year, and in earlier years
where we also engaged external climate scientists, to help inform the key choices and parameters in the
months leading up to the decisions, which included a three-day annual strategy meeting. These engagements
included an update and discussion on: the strategic agenda; the proposed strategic pathway and underlying
premises; the energy transition strategy; choices for traditional businesses and preparing for alternative
strategies; and the financial framework required. These discussions were informed by research undertaken
for the Executive Committee to better understand the requirements and expectations of Shell’s external
stakeholders. This research focused on: investors; environmental, social, and governance (ESG) and
sustainability benchmarks; customers; business partners; international organisations; NGOs; civil society
stakeholders; think-tanks; academia and schools; and general public audiences. This included qualitative
and quantitative interview-based analysis. The Board considered: implications for customer sectors to drive
the approach to decarbonising; business opportunities in new areas to develop the energy system; changes
to be made to current business to drive competitive performance, delivery and funds for future investments
and shareholders; and Shell’s Net Carbon Footprint. In later meetings, the strategy was subsequently refined.
In these discussions, the Board considered, among other things, shifting societal expectations of the extent
and pace of the energy transition; government and regulatory expectations; ways to meet existing investors’
expectations and what would be needed to attract new investors in future; and strategic partnerships.

The Board participated in virtual staff engagement sessions that enabled the Board members to speak directly
with staff from various locations on themes including leadership styles, safety and controls, the Reshape
reorganisation and the future of Shell.

What was the outcome

In relation to Shell’s target to become a net-zero emissions
energy business by 2050, in step with society, the Board
considered whether the NZE energy business target would
meet investors’ expectations, how Shell can help customers
find ways to decarbonise, and how to ensure Shell’s credible
leadership in informing and driving a societal energy
transition. The outcome of those deliberations was the
view that we should work with our customers to address
the emissions that are produced when they use products
they buy from Shell. This is in addition to the other elements
of the NZE energy business target.

The direction of the strategic discussion fed through into the
discussions on cash allocation, shareholder returns and to the
development of Shell’s Powering Progress strategy. After
feedback from investors seeking an update on our strategic
discussions, in October 2020, stakeholders were informed
about Shell’s response to the COVID-19 pandemic and
provided with an explanation of the driver behind the
enhanced target to be a NZE energy business. The direction
of the ongoing restructuring of Shell’s ways of working
and organisation was also outlined in order to provide
stakeholders with continued updates in the lead-up to
Shell’s Strategy Day in February 2021.

As part of the Shell Strategy Day 2021, we announced
Powering Progress, our strategy to accelerate the transition of
our business to cleaner energy while delivering value for our
shareholders, our customers and wider society. The strategy
includes how we are working towards our target to become
a net-zero emissions energy business by 2050, in step with
society. We are increasing our investments in the cleaner
products and solutions that our customers need, from biofuels
to hydrogen and renewable power, so that we can build a
low-carbon business of significant scale by the beginning of
the 2030s. We will fund these investments, and our returns to
shareholders, with the strong returns we expect from our oil
and gas production over the rest of this decade. The Board
has been involved in formulating the strategy and ensuring
that the Company maintains financial resilience while being
able to seize the opportunities that transition will bring as part
of our journey to net zero. We are the first energy company to
offer shareholders an advisory vote on our energy transition
strategy at our Annual General Meeting. We will do this
every three years, starting in 2021. We will also on an annual
basis offer an advisory vote on our progress against the
targets we set for ourselves in the energy transition strategy.
The Board believe this is a time of tremendous opportunity
for Shell. By transforming our business, we will contribute
to achieving a net-zero world, help society reach its climate
goals and create a compelling investment case for our
shareholders, today and in the future. That is the essence
of Powering Progress and it has been fully endorsed by the
Board through multiple engagements with management
over a 12-month period.

Shell Annual Report and Accounts 2020Strategic ReportSECTION 172(1) STATEMENT continued

Financial strength, cash allocation including shareholder distributions

What was the outcome

The year 2020 involved unprecedented conditions for Shell, the industry and society generally. The
challenges caused by COVID-19 resulted in material responses by Shell to successfully maintain its
financial strength and resilience. The Board considered Shell’s financial policies on several occasions
and made decisions accordingly (see above, regarding the relationship and direction of the strategic
and cash allocation discussions). The long-term financial health of Shell is crucial for staff, customers, the
communities in which Shell operates, and for debt holders and shareholders. In early 2020, a key focus
area for the Board was cash preservation, which included cost and capital spend reduction, pausing of
the share buyback programme and the reduction of the dividend. In the later part of the year, Directors
approved the cash allocation framework, which was announced as part of the third quarter 2020 results.
For each quarter, the Board assessed the continuation of the share buyback programme and the ongoing
payment and rate of dividend per share payable to shareholders.

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

When making decisions relating to Shell’s financial policies, including the cash allocation framework, the
Board asked for further information on specific yet broad topics that impacted various stakeholders, such
as: information on the proposed operating and capital expenditure reductions; the potential impact of a
reduced dividend on strategic options; the articulation of cash allocation plans to investors and other
stakeholders; and potential asset and project risks associated with counterparty financial viability risks.
These considerations were balanced against prior intention statements.

To support these discussions, the Board was provided with information from an investor survey. This was
discussed extensively in order to understand the perceptions of the market in relation to Shell's direction,
strategy and financial strength. Having equity advisors and banks present directly to the Board helped
build the Board's knowledge of what the markets were looking for. This helped guide the content of the
third quarter 2020 communications.

An annual investor perception study was commissioned and considered by the Board. The Board
was also provided with periodic reports from the Executive Vice President, Investor Relations which
summarised feedback from various brokers and provided detailed analysis of how Shell’s messages
had been received by investors.

The Board was regularly updated on, and discussed, the management and impact of COVID-19 on
Shell’s activities and workforce.

The Board and management carefully considered various
stakeholders in their decisions to reinforce the financial
strength and resilience of Shell’s business. They also took
action to protect staff and customers. Their considerations
focused on three key areas: care for staff, customers, and
communities; business continuity and the need to continue
to serve customers in every way we can, including providing
them with certainty; and generating and preserving cash
to protect the future financial health of Shell.

For example, in relation to staff and the wider workforce, the
Board considered with management the appropriate timing of
any large-scale redundancies, given the stress involved and
the potential vulnerability of staff and their families to issues
associated with COVID-19; how management was engaging
with staff while most people were working from home; and
how work sites were being equipped and return-to-work
plans were being formulated to ensure people could return
to work safely.

In relation to the decision to lower the dividend level, the
Board and Management considered employees, Shell
pensioners, lenders, debt holders, credit-rating agencies,
suppliers, customers, governments, partners and communities.
As a reduced dividend meant greater retention of cash to
use for increasing financial resilience, the outcome of the
consideration of stakeholders was that the decision would
be largely positive for all stakeholders in the longer term.

Investor feedback received towards the middle of 2020 led to
the decision to more clearly communicate the cash allocation
framework to investors and the prioritisation of allocation
between balance sheet strength, shareholder distributions
and investments. More information on this can be found in
“Dividend policy” on 183.

Approval of Shell’s detailed Operating Plan 2021-2023 (OP20)

What was the outcome

The approval of OP20 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 included reviews in the latter part of 2020 as an advance engagement
on OP20 while it was under preparation, and in December 2020 for final approval.

Following the review of the draft operating plan, the Board
requested further information on a number of specific matters.
Responses were provided on these items and changes were
incorporated into the plan where appropriate.

How stakeholders were considered
OP20 discussions included a full review against Shell’s strategic ambitions. The Directors and Executive
Committee balanced the priorities in the operating plan versus the strategy by using feedback received
as part of continual 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 reviewed thoroughly.

In the assessment, the interests of investors and capital markets received particular attention and featured
heavily in many discussions. Potential differences of interests between debt and equity investors were
observed. This was balanced against the importance of the value that societies – (including communities,
employees, customers, suppliers) – place on Shell because of the services it provides and the way it
conducts business.

Information on employees and our organisational structure featured as part of OP20. The plan maintained
the approach to salaries, benefits, health, worker welfare, focus on employee experience and training.

Metrics agreed within OP20 underpin the 2021 organisational scorecard, against which the majority
of 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.

OP20 reflects the refreshing of the strategy with the growth of low-carbon, customer-facing businesses.
It considered the economic and social effects of the pandemic in developing the plan and sought
appropriate balance between key priorities, including sustaining cash flows, pivoting the portfolio
to deliver the strategy (including reductions in carbon emissions), reducing debt and increasing
shareholder distributions.

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 or will completely align
with OP20.

While stakeholder opinion may differ on Shell’s approach,
OP20 is based on society’s demand for products and
services. OP20 supports Shell in maintaining a reputation
for high standards on business conduct and health, safety,
security and environment issues. It maintained the approach
to employee remuneration and benefits to pensioners. OP20
seeks to reward our investors with returns and maintain
long-term financial strength to invest in more and cleaner
forms of energy and meet the current and future needs
of society.

Shell Annual Report and Accounts 2020Strategic ReportInvesting in new business, acquisitions and divestments, and closures

What was the outcome

Over the course of the year, the Board discussed and approved new opportunities, new projects and
proposed divestments or closures across the different segments. This was in order to continually high-grade
the portfolio, to deliver the best from our traditional businesses, to grow our customer-centric business and
to rapidly and purposefully innovate for our future business models.

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), and information
on anticipated market direction and regulatory frameworks.

How stakeholders were considered
The Board obtained a clearer perspective on the role of Shell’s Trading and Supply organisation in the
energy transition (for example, in biofuels and renewable energy). This assisted the Board in assessing
the possible impact on stakeholders and risks to its reputation in relation to certain stakeholder groups.
These considerations included assessing the impact on cash allocation and shareholder distributions.

Investors shared their opinions on significant acquisitions in the New Energies sector compared with
organic growth/investment.

Oil and gas – During the year Shell 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 aware that some stakeholders
may disagree with Shell’s strategy to continue to invest in oil and gas during the energy transition.

Offshore wind farm Hollandse Kust (noord) – The CrossWind Consortium, a joint venture between
Shell and Eneco, was awarded the tender for this wind farm. The consortium plans to have Hollandse Kust
(noord) operational in 2023 with an installed capacity of 759 MW, generating at least 3.3 TWh per year.
This is enough renewable power to supply more than 1 million Dutch households with green electricity.
The Board was informed of stakeholder engagements, including with the Rijksdienst voor Ondernemend
Nederland (the ministerial entity responsible for the tender).

Oil and gas – The Board recognises that societal views
vary widely in this area. 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.

Offshore wind farm Hollandse Kust (noord) –
Throughout 2019, the Board obtained a clearer understanding
of New Energies’ investments and their alignment with the
Power strategy. In 2020, the Board continued to receive
updates on strategic priorities for New Energies/Power
investments. The Board also received a summary of potential
opportunities being considered in order for Shell to deliver
upon the overarching goal of creating a profitable, cohesive
and integrated business in the Power strategy’s core markets.
North-west Europe is a priority region for implementing Shell’s
Power Strategy. The Board reflected on Shell’s differentiators
to be successful in the tender, including technology and
innovation. During the Board’s discussion, particular attention
was paid to where this proposal fits in the capital programme
and the role of this proposal in customer offerings for
decarbonised power.

Shell Annual Report and Accounts 2020Strategic 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 and emerging risks is discussed in “Other Regulatory and
Statutory Information” on pages 182-189.

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 prices and costs for
crude oil, natural gas, oil products and chemicals. We
prepare annual strategic and financial plans that test
different scenarios and their impact on prices on our
businesses and company as a whole. These plans are
appraised regularly throughout the year, especially
during periods of significant price and demand
volatility as experienced in 2020. We also aim to
maintain a strong balance sheet to provide resilience
against weak market prices.

STRATEGIC RISKS

Risk description

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. Macroeconomic, geopolitical and technological uncertainties can also affect
production costs and 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, if governments promote the
sale of lower-carbon electric vehicles or even prohibit future sales of new diesel or gasoline vehicles, such
as the prohibition in the United Kingdom (UK) that is expected to come into force in 2030. Oil and gas
prices can also move independently of each other. Factors that influence supply and demand include
operational issues, natural disasters, weather, pandemics such as COVID-19, 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
parts of those businesses could become less profitable or 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 been
impaired in the past, (including in 2020), 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 Oil Products and Chemicals
business. Higher prices can also lead to more capacity being built, potentially resulting in an oversupply
of products that can negatively affect our LNG and Chemicals businesses.

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

See “Market overview” on page 38.

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

We use a range of oil and gas price assumptions, which we review on a periodic basis. These ranges
help us to evaluate the robustness of our capital allocation for our evaluation of 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.

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. These
drivers include the extent and pace of the energy
transition.

See “Market overview” on page 40.

Our ability to achieve our strategic objectives depends on how we react to
competitive forces.

We face competition in all our businesses. In the crude oil, natural gas, Oil Products and Chemicals
businesses we seek to differentiate our products, but many of them are competing in commodity-type
markets. Accordingly, failure to manage our costs and 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 because 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, this 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 2020Strategic ReportSTRATEGIC RISKS continued

Risk description

How this risk is managed

If we fail to stay in step with the pace and extent of society’s demands with
regard to the energy transition to a low-carbon future, we could fail in sustaining
and growing our business.

The pace and extent of the energy transition could pose a risk to Shell if our own transition towards
decarbonisation moves at a different speed to society. If we are slower than society, customers may
prefer a different supplier which would adversely impact our reputation and demand for our products.
If we move much faster than society, we risk investing in technologies, markets or low-carbon products
that are unsuccessful because there is limited demand for them. This could have a material adverse
effect on our earnings, cash flows and financial condition.

See "Strategy and outlook" on page 21 and “Climate change and energy transition”
on page 97.

We actively monitor societal developments, such as
regulation-driven carbon-pricing mechanisms and
customer-driven preferences for products. We incorporate
these into scenarios which provide insights into how the
energy transition may unfold in the medium and long term.
These insights and those from various other external
scenarios (such as the IPCC Special Report 1.5°C)
guide us how we set our strategic direction, capital
allocation and carbon emission commitments. We have
updated our strategy and organisational structure to be
more focused on the sectors where our customers operate,
in order to make us better able to compete in the current
evolving energy landscape.

Rising climate change concerns and the effects of the energy transition have led
and could lead to a decrease in demand and potentially affect prices for fossil
fuels. This may also lead to additional legal and/or regulatory measures which
could result in project delays or cancellations, potential litigation, operational
restrictions and additional compliance obligations.

Societal demand for urgent action has increased especially after the Intergovernmental Panel on Climate
Change (IPCC) 1.5°C special report of 2018 and 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. Society's increasing
focus on climate change and the effects of the energy transition has created a risk landscape that is
changing rapidly in response to a wide range of stakeholder actions at global, local and business levels.
The potential impact and likelihood of climate change effects on Shell could vary across different time
horizons, depending on the specific components of the risk.

We expect that a growing share of our GHG emissions will be subject to regulation, resulting in increased
compliance costs and operational restrictions. Regulators may seek to limit certain fossil fuel projects or
make it more difficult to obtain required permits. Achieving our target to become net zero on all emissions
from our operations will result in additional cost. We also expect that actions by customers to reduce their
emissions will continue to lower demand and potentially affect prices for fossil fuels, as will GHG emissions
regulation through taxes, fees and/or other incentives. This could be a factor contributing to additional
provisions for our assets and result in lower earnings, cancelled projects and potential impairment of
certain assets.

The physical effects of climate change such as, but not limited to, increases in temperature and sea levels
and fluctuations in water levels could also adversely affect our operations and supply chains.

Some groups are putting pressure on 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. Groups are also putting pressure on commercial and investment banks to stop
financing fossil fuel companies. According to press reports, some financial institutions have started to limit
their exposure to certain fossil fuel projects. Accordingly, our ability to use financing for these types of
future projects may be adversely affected. This could also adversely affect our potential partners’ ability
to finance their portion of costs, either through equity or debt.

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

In summary, rising climate change concerns and effects of the energy transition have led and could lead
to a decrease in demand and potentially affect prices for fossil fuels. If we are unable to find economically
viable, publicly acceptable solutions that reduce our GHG emissions and/or GHG intensity for new and
existing projects and for the products we sell, we could experience financial penalties or extra costs,
delayed or cancelled projects, potential impairments of our assets, additional provisions and/or reduced
production and product sales. This could have a material adverse effect on our earnings, cash flows and
financial condition.

Our response to the evolving risk landscape requires
transparency and clarity around our plans and actions to
achieve our climate target. We have a climate change risk
management structure which is supported by standards,
policies and controls, as part of our health, safety, security
and environment and social performance (HSSE & SP)
control framework. Climate change and risks resulting
from GHG emissions are reviewed and managed in
accordance with other significant risks through the Board
and Executive Committee. We have established several
dedicated climate change and GHG-related forums at
different levels of the organisation. These forums seek to
address, monitor and review climate change issues. Our
strategy to assess and manage risks and opportunities
resulting from climate change includes considering
different time horizons and their relevance to risk
identification and business planning.

Overall, mitigation of the risk is addressed through our
strategy to accelerate the transition to net-zero emissions,
purposefully and profitably. This approach has three
components:
■ reducing the GHG-emissions intensity of our

operations. We expect to reduce our carbon intensity
primarily through altering our product mix as customer
(Scope 3) emissions represent the largest component
of our carbon intensity. Our aim is to achieve this by
shifting the focus of our portfolio as we build our power,
hydrogen, biofuels, carbon capture and storage and
nature-based solutions businesses and activities;
■ demonstrating resilience by adopting the guidance
on disclosure by the Task Force on Climate-related
Financial Disclosures; and

■ working towards our target to become a net-zero

emissions energy business by 2050, in step with society.

For further explanations of our climate change
governance, risk management, climate ambition and
strategy, our portfolio and performance, please refer
to the section “Climate change and energy transition”
on page 98.

For further explanations of how we manage the risk
of the physical effects of climate change affecting our
operations and supply chains, 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".

Shell Annual Report and Accounts 2020Strategic ReportRISK FACTORS continued

STRATEGIC RISKS continued

Risk description

How this risk is managed

We seek to execute divestments in pursuing our strategy. We may be unable
to divest these assets successfully in line with our strategy.

We may be unable to divest assets at acceptable prices or within the timeline envisaged because of
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 any of the above circumstances arise, this could have a
material adverse effect on our earnings, cash flows and financial condition.

We continually monitor market developments to assess
potential divestments in pursuing our strategy. We
carefully tailor our sales processes to buyers’ perceived
expectations so we can deliver the most competitive
outcomes. As a general principle, the sales processes are
configured so that buyers will acquire the assets including
all related liabilities. For some assets, Shell may agree to
retain certain liabilities. We monitor these liabilities closely
and make appropriate provisions for them.

We continually monitor geopolitical developments and
societal issues relevant to our interests. Our Legal and Tax
functions are organised globally and support our 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 there in accordance with our
standards and applicable law, and we have done so
in the past.

See “Strategy and outlook” on page 21.

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. Tensions between nation states can also affect
our business. Any of these, individually or in aggregate, could have a material adverse effect on our
earnings, cash flows and financial condition.

In 2020, many governments ran deficits to deal with the economic impacts of the COVID-19 pandemic.
Given the ongoing nature of the pandemic, there will be uncertain long-term fiscal consequences, with
possible subsequent effects on government policies that affect Shell’s business interests.

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. Certain governments have also 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 187.

Shell Annual Report and Accounts 2020Strategic ReportOPERATIONAL RISKS

Risk description

How this risk is managed

Our future hydrocarbon production depends on the delivery of large and
integrated projects, and 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; delays in obtaining required
permits; 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 Mexico. 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 full potential value of the project as assessed when the investment was approved, and/or
our ability to fulfil related contractual commitments. This 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, and through
developing and applying new technologies and recovery processes to existing fields. Failure to replace
proved reserves could result in an accelerated decrease of 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

2020

1,104

135

1,239

Million boe [A]

2019

1,182

156

2018

1,179

159

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

Attributable to non-controlling interest in Shell subsidiaries

Million boe [C]

December
31, 2020

December
31, 2019

December
31, 2018

8,222

902

9,124

322

9,980

1,116

10,294

1,285

11,096

11,578

304

331

[A] We manage our total proved reserves base without distinguishing between proved reserves from subsidiaries and

those from joint ventures and associates.

[B] Includes proved reserves associated with future production that will be consumed in operations.
[C] Natural gas volumes are converted into oil equivalent using a factor of 5,800 scf per barrel.

See “Shell story” on page 16.

The estimation of proved oil and gas reserves involves subjective judgements
based on available information and the application of complex rules. This
means 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 can change over
time due to new information from production or drilling activities, changes in economic factors, such as oil
and gas prices, alterations in the regulatory policies of host governments, or other events. Estimates also
change to reflect acquisitions, divestments, new discoveries, extensions of existing fields and mines, and
improved recovery techniques. Published proved oil and gas reserves estimates could also be subject to
correction because of 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 265.

We continue to explore for and mature hydrocarbons
across our Deep Water, Conventional Oil and Gas,
Shales and Integrated Gas businesses. We use our
subsurface, project and technical expertise, and actively
manage non-technical risks across a diversified portfolio
of opportunities and projects. This involves adopting an
integrated approach for all stages, from basin choice
to development. We use competitive techniques and
benchmark our approach internally and externally.

A central group of reserves experts undertakes the
primary assurance of the proved reserves bookings.
A multidisciplinary committee reviews and endorses all
major proved reserves bookings. Shell’s Audit Committee
reviews all proved reserves bookings and Shell's Executive
Committee is responsible for final approval. The Internal
Audit function also provides further assurance through
audits of the control framework, including the information
disclosed in ‘’Supplementary information – oil and gas
(unaudited).

Shell Annual Report and Accounts 2020Strategic ReportRISK FACTORS continued

OPERATIONAL RISKS continued

Risk 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, pandemic diseases, criminal actions by external parties, and
safety lapses. If a major risk materialises, such as an explosion or hydrocarbon leak or spill, this could result
in injuries, loss of life, environmental harm, disruption of business activities, loss or suspension of permits,
loss of our licence to operate and loss of our 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 occurred in the Netherlands, affecting production and costs. We could incur significant extra
costs in the future because of the need to comply with such requirements. We could also incur significant
extra costs due to violations of or liabilities under laws and regulations that involve elements such as fines,
penalties, clean-up costs and third-party claims. Therefore, if HSSE risks materialise, they could have a
material adverse effect on our earnings, cash flows and financial condition.

See “Environment and society” on page 86.

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
affecting 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 operating costs; 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.

See “Upstream” on page 58.

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 tells employees and
contract staff how to behave in line with the Principles. Our challenge is to ensure that all employees
and contract staff 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, safety and minimising damage to the environment. 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 limit our ability to deliver our strategy, reduce
consumer demand for our branded and non-branded products, harm our ability to secure new resources
and contracts, and restrict 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
affect 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 185 and "Our people"
on page 110.

We have standards and a clear governance structure
to help manage HSSE risks and avoid potential adverse
effects. The standards and governance structure also help
us to develop mitigation strategies aimed at ensuring that
if an HSSE risk materialises, we avoid catastrophic
consequences and have ways of trying to remediate any
environmental damage. Our standards and governance
structure 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 routinely practise implementing our
emergency response plans to significant risks (such
as a spill, toxic substances, fire or explosion).

We have assessed the impact of COVID-19 on activities
and we are implementing measures to minimise the
adverse effect of the pandemic on our operations. These
measures include monitoring the level of infections among
staff, ensuring the safety and well-being of all staff,
(particularly critical staff who continue to operate our
assets), scenario planning, deploying continuity plans
and ensuring our sites and offices are “COVID safe".

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. When
we participate in joint ventures in Nigeria, we require
that they operate to internationally accepted business
standards. We monitor the security situation, and
liaise with host communities, governmental and
non-governmental organisations to help promote
peaceful and safe operations.

We continually assess and monitor the external
environment for potential risks to our reputation. We
engage in ongoing dialogue with our key stakeholders
such as investors, industry and trade groups, universities,
governments and non-governmental organisations
(NGOs) to gain greater insights into societal expectations
of our business. We have mitigation plans 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 continually 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 Annual Report and Accounts 2020Strategic ReportRisk description

How this risk is managed

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 and number of systems. They are
dependent on key contractors supporting the delivery of IT services. During 2020, information and
cyber-security risks developed and changed rapidly. Globally the COVID-19 pandemic and geopolitical
tensions have altered the IT threat landscape, increasing the frequency and ingenuity of malware attacks
and increasing the temptation to attack targets for financial gain. Also, the prevalence of remote working
introduces additional risk because it expands the IT threat landscape. We have experienced breaches
and disruptions to our critical IT services in the past. These factors continue to contribute to potential
breaches and disruptions of critical IT services. Additionally, breaches can lead to data privacy issues.
If the breaches are not detected early and responded to effectively, they could harm our reputation
and have a material adverse effect on our earnings, cash flows and financial condition.

See “Corporate” on page 80.

Our business exposes us to risks of social instability, criminality, civil unrest,
terrorism, piracy, cyber-disruption and acts of war that could have a material
adverse effect on our operations.

As seen in recent years, these risks can manifest themselves in the countries where 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).

The above risks can threaten the safe operation of our facilities and the transport of our products. They can
harm the well-being of our people, inflict loss of life and injuries, damage the environment and disrupt our
operational activities. These risks could have a material adverse effect on our earnings, cash flows and
financial condition.

See “Environment and society” on pages 87.

We continually measure and improve our cyber-security
capabilities. To reduce the likelihood of successful
cyber-attacks, our cyber-security capabilities are
embedded into our IT systems. Our IT is protected by
detective and protective technologies. Identification
and assessment capabilities are built into our IT support
processes and adhere to industry best practices. When
external companies provide us with IT services, the
security of those services is managed through contractual
clauses and supplier assurance reports. Shell invests
constantly in efforts to embed and improve our controls
and monitoring. For example, we improved our global
web content filtering capability in response to the
challenge of increased remote working in 2020. If
breaches occur, all entities, including ones that have yet
to be fully integrated into Shell's systems and processes,
are required to report the incident and use Shell's
information security capabilities.

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 strengthening the
security of sites, reducing our exposure as appropriate,
journey management, information risk management, crisis
management and business continuity measures. We
conduct training and awareness campaigns for staff and
provide them with travel and health advice and access
to 24/7 assistance while travelling.

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 earthquakes induced by gas production. Some of these earthquakes have
damaged houses and other structures in the region, resulting in complaints and lawsuits from the local
community. The government has announced it intends to accelerate the close-down, bringing the end of
production forward from 2030 to possibly mid-2022. The exact shut-in date depends on security of supply
considerations and is still to be decided. While we expect the earlier closing down of the Groningen gas
field to further reduce the number and strength of earthquakes in the region, any additional earthquakes
could have further adverse effects on our earnings, cash flows and financial condition.

NAM is working with the Dutch government and other
stakeholders to fulfil its obligations to residents of the area.
These include compensating for damage caused by the
earthquakes and paying to strengthen houses where this
is required for safety considerations. Negotiations with
the state are being conducted to determine how to
manage the accelerated close-down. 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 aim of the
venture being able to self-fund any additional
expenses and claims.

See “Upstream” on page 55.

Shell Annual Report and Accounts 2020Strategic ReportRISK FACTORS continued

OPERATIONAL RISKS continued

Risk description

How this risk is managed

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 and the conditions of financial and
commodity markets.

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, although, to a material extent, we also
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. Even where hedging is in place, it may not function as
expected.

We are exposed to credit risk; our counterparties could fail or 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. Our pension plans invest in government bonds,
and could therefore be affected by a sovereign debt downgrade or other default.

If any of the above risks materialise, they could have a material adverse effect on our earnings,
cash flows and financial condition.

See “Liquidity and capital resources” on page 81 and Note 19 to the “Consolidated
Financial Statements” on pages 251-255.

We use 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 trading and central
treasury organisations that have the appropriate skills,
experience, supervision, control and reporting systems.
We have credit risk policies in place which seek to ensure
that products are sold to customers with appropriate
creditworthiness. These policies 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
committed credit facilities. Management believes it has
access to sufficient debt funding sources (capital markets)
and to undrawn committed borrowing facilities to meet
foreseeable requirements.

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 competitively.
If we fail to continue developing or deploying technology and new products, or fail to make full, effective
use of our data 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 used. 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. Sometimes the development of new technology is subject to delays. 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 harm the environment or people's health, there could be a material
adverse effect on our earnings, cash flows and financial condition.

Shell’s Technology organisation and the relevant business
lines 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 target, 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 17.

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

Liabilities associated with defined benefit pension plans are significant, and the cash funding requirement
of such plans can also involve significant liabilities. They both depend on various assumptions. Volatility in
capital markets or government policies could affect investment performance and interest rates, causing
significant changes to the funding level of future liabilities. Changes in assumptions for mortality, retirement
age or pensionable remuneration at retirement could also cause 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).
This could result in a material adverse effect on our earnings, cash flows and financial condition.

See “Liquidity and capital resources” on page 81.

A pensions forum chaired by the Chief Financial Officer
oversees Shell’s input to pension strategy, policy and
operation. A risk committee supports the forum in
reviewing the results of assurance processes with respect
to pension risks. Local trustees manage the funded defined
benefit pension plans, and the contributions paid are
based on independent actuarial valuations that align
with local regulations.

Shell Annual Report and Accounts 2020Strategic ReportRisk description

How this risk is managed

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, who may insure
a portion of their risk exposures with third parties. Such insurance would not provide any material
coverage in the event of a large-scale safety or environmental incident. Accordingly, in the event of
a material incident, we would have to meet our obligations without access to material proceeds from
third-party insurance companies. 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 80.

Many of our major projects and operations are conducted in joint arrangements
or with associates. This could reduce our degree of control and our ability to
identify and manage risks.

When we are not the operator, we have less influence and control over the behaviour, performance and
operating costs of joint arrangements or associates. Despite having less 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 be unable to
meet their financial or other obligations to 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 187.

CONDUCT RISKS

Risk description

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

Commodity trading is an important component of our Upstream, Integrated Gas, Oil Products and
Chemicals businesses and is integrated with our supply business. Processing, managing and monitoring
many trading transactions across the world, some of them complex, exposes us to operational and market
risks, including commodity price risks which saw significant levels of volatility in 2020. We use derivative
instruments such as futures and contracts for differences to hedge market risks. 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 could deliberately act outside limits and
controls, either individually or as a group, could have material adverse effects on our earnings,
cash flows and financial condition.

See “Liquidity and capital resources” on page 81 and Note 19 to the “Consolidated
Financial Statements” on pages 251-255.

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

Shell appoints a Joint Venture Asset Manager, whose
responsibility is to manage performance and create and
protect value for Shell. The Joint Venture Asset Manager
seeks to influence operators and other partners to adapt
their practices in order to drive value appropriately and
to mitigate identified risks. An annual assurance review
assesses how the joint venture’s standards and processes
align with those of Shell. The Joint Venture Asset Manager
follows up on any gaps identified.

How this risk is managed

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 the appropriate skills, experience,
supervision, control and reporting systems. Our trading
organisation has a compliance manual addressing our
operational risks which all staff are required to follow.
Senior Management regularly reviews mandated trading
limits. We monitor market risk exposure daily, using
value-at-risk (VAR) techniques. We monitor trading
positions against limits every day. We use marking to fair
value to assess trading exposures where appropriate, with
a department that is independent of the traders reviewing
the market values applied. In response to the COVID-19
pandemic, trader monitoring tools have been upgraded.
During the period of extreme market volatility, additional
oversight has been provided by a dedicated ‘Liquidity
Forum’, chaired by senior executives in our trading
organisation. We have increased the monitoring of the
financial resilience of our customers, suppliers and the
clearing houses that we deal with.

Shell Annual Report and Accounts 2020Strategic ReportRISK FACTORS continued

CONDUCT RISKS continued

Risk 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 arrangements and associates in the vast majority
of countries where we do business. Shell and its joint arrangements and associates have been fined for
violations of antitrust and competition laws in the past. This includes a number of fines by the European
Commission Directorate-General for Competition (DG COMP). Because of DG COMP’s fining guidelines,
any future conviction of Shell or any of its joint arrangements or associates for violation of EU competition
law could potentially 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 pages 186.

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 arrangements and
associates in all countries where we do business. Shell and its joint arrangements 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 harm our reputation or have a material adverse effect on our earnings, cash flows and financial
condition.

See “Our people” on pages 110, “Other Regulatory and Statutory Information” on page
186 and Note 25 to the “Consolidated Financial Statements” on pages 260-262.

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 arrangements 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. In some countries that are key to Shell’s business operations, legislation continues to be
amended or introduced. Shell must be able to adapt dynamically to such legislative changes and be
capable of updating our internal programmes if necessary. The EU General Data Protection Regulation
(GDPR), which came into effect in May 2018, imposed increased financial penalties of up to a maximum of
4% of global annual turnover. It requires mandatory breach notification in certain situations, the standard
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, penalties and harm to
our reputation. With regard to data breaches, we have breached the GDPR in the past and some
investigations are still ongoing with European regulators. To date, no material fines have been imposed,
but 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.

With data privacy legislation now in force in the USA, the risk of class actions is increased. Class actions
after large-scale data breaches are increasingly common in the UK.

The COVID-19 pandemic has increased the level of processing of personal data to track employees,
suppliers or other visitors to our premises. Some governments require immediate disclosure of information,
including sensitive personal data, to identify infected individuals, with some mandating technologies such
as tracing applications on all devices, including corporate mobile phones.

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 186.

We maintain an antitrust programme with adequate
resources, a comprehensive governance structure and
established reporting lines. Staff receive clear guidance
that includes requirements in Shell’s Ethics and
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 antitrust risks in
engagements with parties external to Shell. As result of
the COVID-19 pandemic, we have issued guidance to
address antitrust risks arising from the disruption to supply
chains, including procurement guidance which outlines
the risks associated with exchanging information and
collaborating with Shell’s procurement competitors.

We maintain an anti-bribery and anti-money-laundering
(ABC/AML) programme with adequate resources, a
comprehensive governance structure and established
reporting lines. Staff receive clear guidance which
includes requirements in Shell’s Ethics and Compliance
Manual, an ABC/AML-specific website, training modules
where completion is monitored and regular messages
from Shell leaders on the importance of managing ABC/
AML risks. As regards 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. In response to
the COVID-19 pandemic, we have set up fast-track
processes to deal with relief donation requests. These
processes include counterparty due diligence and are
supported by Shell's Ethics and Compliance Office.

We maintain a data privacy programme with adequate
resources, a comprehensive governance structure and
established reporting lines. Shell has had Binding
Corporate Rules in place for the last 10 years. These
rules are part of a group wide global programme to
ensure consistent levels of data protection across the
group. Staff receive clear guidance which includes
requirements in Shell’s Ethics and Compliance Manual, a
website focusing on data privacy, training modules where
completion is monitored, and regular messages from Shell
leaders on the importance of managing data privacy risks.

We have revised the requirements for incident
management that are set out in our Binding Corporate
Rules, in order to comply with GDPR reporting
requirements. We have revised our approach to privacy
impact assessments, also to comply with GDPR reporting
requirements. We use our Privacy by Design programme
to enhance our controls in this area. We continue to
address challenges with compliance in data-heavy
companies controlled by Shell but not fully integrated into
our systems. IT remediation work remains a priority in such
companies, as does the strengthening of programmes to
support data privacy compliance.

To respond to the increased risk resulting from the
pandemic, we have developed policies on temperature
screening and published a guidance note on "Privacy Best
Practices for COVID-19".

Shell Annual Report and Accounts 2020Strategic ReportRisk 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. Staff
receive clear guidance, which includes requirements in
Shell’s Ethics and Compliance Manual, a specific website
for trade compliance, 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). In
response to the COVID-19 pandemic, we have promoted
an increased focus on compliance and assurance. For
example, in Trading and Supply we have promoted a
particular focus on compliance with trade controls in
high-risk areas such as port agency, inspections and
terminal operations.

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. The USA continues to impose comprehensive sanctions
against Iran, while the EU and other nations continue to maintain targeted sanctions. The EU and the USA
imposed restrictions and controls on defined oil and gas activities in Russia in 2014, and these remain in
force. The USA introduced further restrictions regarding Russia in 2017, expanding them in 2018. The EU
and the USA introduced sectoral sanctions against Venezuela in 2017, with the USA expanding them 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. The expansion of sanctions, the frequent additions of prohibited parties, the number of markets in
which we operate and the large number of transactions we process, make compliance with all sanctions
complex and sometimes challenging. Shell has voluntarily self-disclosed potential violations of sanctions
in the past. The COVID-19 pandemic has increased trade compliance risks, due to factors such as growing
state involvement in business dealings, the need to maintain and develop business opportunities and
cross-border movement of goods and technologies, and the increasing likelihood that counterparties
will change ownership as the economic crisis continues.

Any violation of sanctions could lead to loss of import or export privileges and significant penalties on or
prosecution of Shell or its employees. This 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 186.

Investors should also consider the following, which could limit shareholder remedies.

OTHER (Generally applicable to an investment in securities)

Risk description

How this risk is managed

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 2020Strategic ReportMARKET OVERVIEW

We maintain a large business portfolio across an integrated value chain
and are exposed to crude oil, natural gas, hydrocarbon product and
chemical prices (see “Risk factors” on page 28). 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
The COVID-19 pandemic has delivered an enormous global economic
shock, leading to steep recessions in many countries. In the World
Economic Outlook of January 2021, the International Monetary Fund
(IMF) estimates that despite unprecedented policy support, global GDP
contracted by 3.5% in 2020, one of the deepest global recessions in
history. The most severe economic downturns occurred in India, Western
Europe, the Middle East, and Latin America. China was the only major
economy that recorded economic growth.

Developed countries were particularly vulnerable to lockdown measures,
because of their economic structure. Services and consumption,
which account for a higher share of GDP in developed countries, were
disproportionately affected by restrictions on movement and closures
of hospitality and leisure facilities. Developing economies suffered from
collapses in capital inflows and commodity prices, and from a sharp
compression in consumption and investment. Massive fiscal and monetary
support measures were deployed in the major economies. In China, the
authorities funded infrastructure investments. In the USA and Europe,
government transfers supplemented incomes and supported businesses, in
order to prevent deeper declines in employment and disposable income.

Led by mainland China, the Asia-Pacific region led the recovery during the
year, as public health measures helped to contain community transmission
of COVID-19. In other countries, the pandemic proved more difficult
to control. European countries experienced renewed rises in infection
rates during the fourth quarter of 2020. They responded by reinstating
restrictions on activities that have a high risk of transmitting COVID-19.

Encouraging news on vaccines and improvements in therapeutics have
increased the chances of a recovery in 2021, but the global economic
outlook remains precarious, because markets fear that more virulent
variants of COVID-19 could trigger additional waves of infections. The
deep recessions triggered by the pandemic could leave lasting scars
in the form of: lower investment by companies; high unemployment;
increased global debt; and a potential retreat from global trade and
supply linkages. There is concern that these effects may well restrict
growth in the medium term.

GLOBAL PRICES, DEMAND AND SUPPLY
The following table provides an overview of the main crude oil and natural
gas price markers to which we are exposed:

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)

2020

2019

2018

2.0

2.5

3.1

[A] Yearly average prices are based on daily spot prices. The 2020 average price for Japan

Customs-cleared Crude excludes December data.

CRUDE OIL
On a daily average basis, Brent crude oil, an international benchmark,
traded between $13 per barrel (/b) and $70/b in 2020, ending the year
around $50/b. Brent crude oil prices averaged $42/b for the year, 34%
(or $22/b ) lower than in 2019.

In 2020, oil markets experienced unprecedented developments in
demand driven by the COVID-19 pandemic. At the start of 2020, global
oil demand for the year was expected to grow by 1.2 million barrels per
day (b/d). Then in January, oil demand started to contract because
demand fell in China as lockdown was imposed to contain the virus
outbreak. In subsequent months, oil demand contracted further as the
outbreak in China evolved into a global pandemic and lockdowns were
introduced across the world. In April, oil demand fell to its lowest level,
around 22 million b/d below year-average demand in 2019, according to
an estimate of the International Energy Agency (IEA). Contraction of such
magnitude has never been recorded before. Country lockdowns deeply
impacted transportation sectors, especially passenger road and
passenger air in Organisation for Economic Co-operation and
Development (OECD) economies. In subsequent months, oil demand
started recovering, but only partially, because resurgences of COVID-19
triggered re-imposition of social distancing and travel restrictions. By
the fourth quarter, global oil demand was still estimated to be around
5.5 million b/d below the 2019 level, according to the Oil Market Report
published by the IEA in January 2021. Averaged for the full year, oil
demand contracted by around 9 million b/d, or 9%, to 91.2 million b/d.
Oil demand fell by 5.7 million b/d in OECD economies, and by 3.2 million
b/d in non-OECD economies. By contrast, oil demand in 2019 was
0.8 million b/d higher than in 2018.

In 2020, oil markets also experienced unprecedented developments in
supply. In March, there was a serious disagreement within the OPEC+
alliance, which consists of OPEC members and co-operating non-OPEC
resource holders such as Russia. Saudi Arabia and Russia failed to agree
on what to do about falling demand for oil. Saudi Arabia responded to
the disagreement by boosting its production to almost 12 million b/d,
a monthly record. By April, storage capacity was filling up quickly and
oil prices were falling rapidly. On April 12, the OPEC+ alliance agreed to
jointly reduce production by an unprecedented 9.7 million b/d for May
and June. For the month of June, Saudi Arabia voluntarily cut production
further, by around 1 million b/d. For the rest of the year, the OPEC+
alliance agreed on and complied with a production cut of 7.7 million b/d.

Shell Annual Report and Accounts 2020Strategic ReportIn April, supply from outside the OPEC+ alliance also started to fall, most
notably in the USA. The US Energy Information Administration reported a
supply contraction of around 2 million b/d by the end of May, from a level
of around 13 million b/d at the start of the year. US producers cut budgets,
leading to an unprecedented fall in the number of oil drill rigs to around
26% of the total at the start of the year. Supply from the USA occasionally
fell even further to around 10 million b/d because of production shut-ins
during the hurricane season.

In aggregate, production of oil supply in 2020 is estimated in the Oil
Market Report at 93.9 million b/d, which is 6.7 million b/d lower than
in 2019. OPEC production is estimated to have fallen by 3.8 million b/d.
Supply from the USA fell by 0.8 million b/d from 2019. By contrast,
global oil supply in 2019 was 0.1 million b/d higher than in 2018.

Daily average oil prices reached a low at the end of April before the
OPEC+ supply curtailments came into effect. Brent crude oil prices fell to
around $14/b. Contract prices of some crude grades, such as West Texas
Intermediate (WTI), even traded well below $0/b for a short period. Brent
crude oil prices started to recover from May and traded in a price range of
around $35-45/b from June. Towards the end of 2020, announcements of
promising COVID-19 vaccines supported Brent crude oil prices, allowing
them to break through the upper end of this range.

On a yearly average basis, WTI crude oil traded at a discount of about
$2.5/b to Brent crude oil in 2020, compared with $7/b in 2019. The
discount narrowed from 2019 because falling US supply prevented
bottlenecks in pipeline capacity from the landlocked Cushing storage
hub to the US Gulf Coast. According to the US Energy Information
Administration, US crude oil exports increased further to a yearly average
of around 3.1 million b/d in 2020, up by 0.1 million b/d from 2019. This
helped to ensure a narrow price differential between Brent and WTI.

Looking ahead, the IMF’s global economic outlook indicates some
increase in global economic growth, which should support oil
demand growth.

Demand growth could accelerate further if vaccines can help contain
COVID-19 and allow a return to pre-pandemic demand patterns in
perhaps two or three years. According to the IEA, global oil demand is
projected to increase by around 5.4 million b/d for 2021 to reach 96.6
million b/d. This is still 3.4 million b/d less than in 2019. OPEC+ members
may have to carefully balance supply growth with sustained production
curtailments in order to achieve price stability. In the near term, once
demand has recovered to 2019 levels, the need for OPEC+ cuts may
diminish. If there is further demand growth, tightness of supply could
even develop. This is because any supply growth from the US shale
basins could be limited, since US operators have shifted their focus
from volume to value. We expect this shift to be permanent.

The supply growth potential from outside OPEC+ and the USA could be
limited by industry-wide lack of investment in new supply projects which
also tend to have a long lead time.

In the near term, prices could rise if demand is quicker to recover and
OPEC+ members successfully constrain supply. On the other hand, the
price environment could weaken if the impact of COVID-19 prevents full
demand recovery, and/or OPEC and the non-OPEC resource holders
relax their production agreement. The price environment could also
weaken if there is an increase in supply from other non-OPEC producers,
such as US shale producers.

NATURAL GAS
Global gas demand is estimated to have declined by around 2.4% in
2020, in contrast with the 2.5% annual growth rate observed since the
start of the century. The deterioration in gas demand for power generation
and in industry was mainly caused by lockdowns related to COVID-19.
Resilient gas demand for heating helped offset the overall decline.
Demand declined across all regions except non-OECD Asia. In non-
OECD Asia, demand grew in China, which experienced a robust recovery
after mitigating the impacts of COVID-19. Outside China, aggregate gas
demand in non-OECD Asia remained flat year-on-year.

In 2020, global LNG imports were almost unchanged from 2019, rising by
about 2 million tonnes year-on-year to 360 million tonnes. Growth in LNG
supply capacity was mostly limited to the USA, where 21 million tonnes of
new liquefaction started commercial operations in 2020. Liquefaction
plants already in operation in the USA responded to the weak gas price
environment by significantly curtailing production in the middle of the year.
Supply from major LNG-exporting countries such as Egypt, Malaysia and
Norway was also lower year-on-year because of operational disruptions
and shut-ins to prevent economic losses.

Natural gas prices can vary from region to region.

In the USA, the natural gas price at the Henry Hub averaged $2.0 per
million British thermal units (MMBtu) in 2020, 21% lower than in 2019. It
traded in a range of $1.5 to 3.2/MMBtu. In the earlier part of 2020, there
was downward pressure on prices because of decreased demand from
a mild winter, lower LNG exports and a weak domestic market caused
by COVID-19. Supply fell because activity declined as producers cut
investments and because lower oil production meant there was less
associated gas. During the summer, prices found support from growing
demand for gas that could generate power for cooling during the hotter
months of the year. Later in 2020, demand strengthened because of
storage ahead of the winter season and increasing US LNG exports.

In Europe, the average price at the UK National Balancing Point (NBP)
in 2020 was 28% lower than 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 because of: the slump in demand in
power generation and industry; robust supply of pipeline gas; well-filled
gas storage inventories at the start of the year; and competition with
renewables in power.

We also produce and sell natural gas in regions where supply, demand
and regulatory circumstances differ markedly from those in the USA
or Europe.

Long-term contracted LNG prices in the Asia-Pacific region in 2020 were
lower than in 2019 because they are predominantly indexed to oil prices,
particularly the Japan Customs-cleared Crude (JCC) index which dropped
by an 32% year-on-year, tracking Brent crude prices. Meanwhile,
delivered North Asia spot prices, reflected by the Japan Korea Marker,
declined by 20% compared with 2019, because of oversupply in the
global LNG market and weak demand.

Looking ahead, we expect gas markets in North America, Europe and
Asia-Pacific to find support from markets recovering from the pandemic.
Price developments are very uncertain and dependent on many factors.

Shell Annual Report and Accounts 2020Strategic ReportMARKET OVERVIEW continued

In the USA, Henry Hub gas prices are expected to increase over the next
few years. This is because while production of gas is expected to recover
by perhaps late 2021, it could lag behind demand, which may grow
earlier, to supply LNG exports and exports to Mexico by pipeline, and
to supply residential and industrial users. The Henry Hub gas price could
rise more than expected if oil prices stay low, leading to the Permian
Basin producing less oil and supplying less associated gas as a result.

On the other hand, if producers increase investments substantially, the
extra supply could exert downward pressure on prices.

The destruction of demand caused by COVID-19 led to industry idling
some refinery capacity. Permanent refinery closures were also announced
in 2020, but construction of new capacity did occur during the year,
especially in the Middle East and Asia.

The outlook for refining margins for the next few years will be influenced
by the uncertainty around the pace of economic and demand recovery
from the pandemic, and by the continued addition of new refinery
capacity in the Middle East and Asia, often integrated with chemicals
production. On balance, refining marker margins are expected to remain
under pressure for 2021.

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.
Spot prices are expected to be increasingly influenced by gas supply
and demand fundamentals.

PETROCHEMICAL MARGINS

Cracker industry margins [A]

North East/South East Asia naphtha

Western Europe naphtha

US ethane

2020

362

513

433

$/tonne

2018

594

562

412

2019

302

528

440

[A] ICIS data is quoted. Cracker margins have been revised from the fourth quarter 2019

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.

Cracker margins were volatile during 2020 because of how COVID-19
affected demand. Overall margins, however, were broadly similar to those
in 2019. The effect on chemicals depended on end use. Some sectors, such
as automotive, were hit particularly hard, while others, such as packaging,
showed robust demand. Chinese demand recovered relatively quickly
because the virus was swiftly brought under control. Overall chemicals
demand was not hit as hard as GDP. West European cracker margins
were supported by the sudden fall in the price of crude oil in March and
April. The fact that crude oil was at a lower price than in 2019 reduced
naphtha feedstock costs, which reduced product prices. This in turn put
pressure on US ethane cracker margins, although plentiful ethane supply
helped counter the impact.

The outlook for petrochemical margins in 2021 and beyond depends
on feedstock costs and supply and demand balances. Demand for
petrochemicals will be affected by the speed and extent of recovery
from the COVID-19 pandemic. Supply of petrochemicals will depend
on the net capacity effect of new builds and plant closures (taking into
account any delays or cancellations in building new plants or closing old
ones). Product prices reflect the prices of raw materials, which are closely
linked to crude oil and natural gas prices. The balance of all 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 iii-iv and “Risk factors”
on pages 28-37.

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 28). We use a rigorous assessment of short-,
medium- and long-term market uncertainties to determine what ranges
of future crude oil and natural gas prices to use in project and portfolio
evaluations. Market uncertainties include, for example, future economic
conditions, geopolitics, actions by major resource holders, production
costs, technological progress and the balance of supply and demand.
See also Note 8 to the “Consolidated Financial Statements” on
pages 234-238.

REFINING MARGINS

Refining marker average industry gross margins

US West Coast

US Gulf Coast Coking

Rotterdam Complex

Singapore

2020

8.5

2.3

0.4

(0.5)

2019

13.5

4.9

2.3

(0.6)

$/b

2018

11.5

7.0

2.5

1.4

Industry gross refining margins weakened in 2020 because demand
for oil products was significantly reduced by the fall in economic activity
and increase in travel restrictions caused by COVID-19. Demand for
transportation fuels such as gasoline for passenger cars and kerosene for
air transportation was hit particularly hard. During most of the second half
of the year, mobility and the resulting demand for transportation fuels
improved in some parts of the world, especially in China and South-east
Asia. At the end of the year, new waves of COVID-19 infections in Europe
and the Americas severely limited any global increase in demand for
transportation fuels.

On January 1, 2020, the new International Maritime Organization
low-sulphur shipping fuel specification came into effect, limiting the sulphur
content of maritime fuel to 0.5%. This had a limited effect on margins
because of the economic slowdown in 2020 and because companies
had prepared for the new regulations by building inventory in the
second half of 2019.

Shell Annual Report and Accounts 2020Strategic ReportSUMMARY OF RESULTS

Key statistics

(Loss)/income for the period

Current cost of supplies adjustment

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

Integrated Gas

Upstream

Oil Products

Chemicals

Corporate

Identified Items [B]

Adjusted Earnings [B]

Capital expenditure

Cash capital expenditure [B]

Operating expenses [B]

Return on average capital employed [B]

Net Debt at December 31 [B]

Gearing at December 31

Oil and gas production (thousand boe/d)

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

2020

(21,534)

1,833

(19,701)

(6,278)

(10,785)

(494)

808

(2,952)

(24,767)

4,846

16,585

17,827

34,789

(6.8)%

75,386

32.2%

3,386

9,124

$ million, except where indicated

2019

16,432

(605)

15,827

8,628

3,855

6,139

478

(3,273)

(1,192)

16,462

22,971

23,919

37,893

6.7%

79,093

29.3%

3,665

11,096

2018

23,906

458

24,364

11,444

6,490

6,025

1,884

(1,479)

2,429

21,404

23,011

24,078

39,316

9.4%

51,428

20.3%

3,666

11,578

[A] Segment earnings are presented on a current cost of supplies basis. See Note 4 to the “Consolidated Financial Statements” on pages 230-232.
[B] See “Non-GAAP measures reconciliations” on pages 305-306.

EARNINGS 2020-2019
Income for the period was a loss of $21,534 million in 2020, compared
with earnings of $16,432 million in 2019. After current cost of supplies
adjustment, total segment earnings were a loss of $(19,701) million in
2020, compared with earnings of $15,827 million in 2019.

Chemicals earnings in 2020 were $808 million, compared with
$478 million in 2019. The increase was mainly driven by lower tax and
operating expenses and higher chemicals prices, which was partly offset
by higher redundancy and restructuring charges and higher depreciation,
depletion and amortisation. See "Chemicals" on pages 77-79.

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 2020 were a loss of $6,278 million, compared
with earnings of $8,628 million in 2019. The decrease was mainly driven
by higher impairments, lower realised oil, LNG and gas prices, higher
charges related to fair value accounting of commodity derivatives and
lower contributions from marketing and trading. These effects were
partly offset by lower operating expenses. See “Integrated Gas”
on pages 46-52.

Upstream earnings in 2020 were a loss of $10,785 million, compared
with earnings of $3,855 million in 2019. The decrease was mainly driven
by lower realised oil and gas prices, higher impairments, higher losses on
sales of assets, lower production volumes and unfavourable deferred tax
movements. This was partly offset by lower operating expenses and lower
well write-offs. See “Upstream” on pages 53-60.

Oil Products earnings in 2020 were a loss of $494 million, compared
with earnings of $6,139 million in 2019. The decrease was mainly driven
by higher impairments, lower combined Refining and Trading margins as
well as lower marketing margins. This was partly offset by lower operating
expenses and other items mainly including taxation movements.
See “Oil Products” on pages 70-76.

Corporate segment in 2020 was an expense of $2,952 million, compared
with $3,273 million in 2019. The lower expense was mainly driven by the
favourable deferred tax movements. See “Corporate” on page 80.

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.

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 marketing and trading,
and gains related to the fair value accounting of commodity derivatives.
See “Integrated Gas” on pages 46-52.

Upstream earnings in 2019 were $3,855 million, compared with
$6,490 million in 2018. The decrease was 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 53-60.

Oil Products earnings in 2019 were $6,139 million, compared with
$6,025 million in 2018. The increase was mainly driven by higher
Marketing margins and lower operating expenses partly offset by lower
Refining and Trading margins. See "Oil Products" on pages 70-76.

Shell Annual Report and Accounts 2020Strategic ReportSUMMARY OF RESULTS continued

Chemicals earnings in 2019 were $478 million, compared with
$1,884 million in 2018. The decrease was mainly driven by lower
margins and higher legal provisions. See “Chemicals” on pages 77-79.

Corporate segment in 2019 was an expense of $3,273 million, compared
with $1,479 million in 2018. The higher loss was mainly driven by the
introduction of IFRS 16 and reduced capitalised interest, as well as
reduced tax credits from financing and one-off charges. See
“Corporate” on page 80.

PRODUCTION AVAILABLE FOR SALE
Oil and gas production available for sale in 2020 was 1,239 million
barrels of oil equivalent (boe), or 3,386 thousand boe per day (boe/d),
compared with 1,338 million boe, or 3,665 thousand boe/d, in 2019.
In 2020, lower production was due to the impact of divestments, higher
maintenance, demand reduction and OPEC+ restrictions. New fields
and ramp-ups offset the impact of field declines.

In 2020, total oil and gas production was 1,286 million boe, of which
1,239 million boe was available for sale and 47 million boe was
consumed in operations. Production available for sale from subsidiaries
was 1,104 million boe and 40 million boe was consumed in operations.
The Shell share of the production available for sale of joint ventures
and associates was 135 million boe and 7 million boe was consumed
in operations.

Accordingly, after taking production into account, our proved reserves
decreased by 1,972 million boe in 2020, to 9,124 million boe at December
31, 2020, with a decrease of 1,758 million boe from subsidiaries and
a decrease of 214 million boe from the Shell share of joint ventures
and associates.

CASH CAPITAL EXPENDITURE AND OTHER INFORMATION
Cash capital expenditure was $17.8 billion in 2020, compared with
$23.9 billion in 2019.

Oil and gas production available for sale [A]

Operating expenses decreased by $3.1 billion in 2020, to $34.8 billion.

Our return on average capital employed (ROACE) decreased to (6.8)%,
compared with 6.7% in 2019, mainly driven by lower income in 2020.

Net debt was $75.4 billion at the end of 2020, compared with $79.1
billion at the end of 2019, mainly driven by lower share buybacks and
dividend payments.

Gearing was 32.2% at the end of 2020, compared with 29.3%
at the end of 2019, mainly driven by lower earnings in 2020.

SIGNIFICANT ACCOUNTING ESTIMATES AND
JUDGEMENTS
See Note 2 to the “Consolidated Financial Statements” on pages
221-229.

LEGAL PROCEEDINGS
See Note 25 to the “Consolidated Financial Statements” on
pages 260-262.

Crude oil and natural gas liquids

Synthetic crude oil

Natural gas [B]

Total

Of which:

Integrated Gas

Upstream

Oil sands (reported as part of Oil Products)

2020

1,752

1,583

3,386

911

2,424

Thousand boe/d

2019

1,823

1,790

3,665

922

2,691

2018

1,749

1,863

3,666

957

2,656

[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 265-282.

Before taking production into account, our proved reserves decreased
by 686 million boe in 2020. This comprised decreases of 614 million
boe from Shell subsidiaries and decreases of 72 million boe from the
Shell share of joint ventures and associates. The decrease from Shell
subsidiaries included a net decrease of 607 million boe from revisions and
reclassifications, an increase of 88 million from extensions and discoveries
and a net decrease of 95 million boe related to purchases and sales of
minerals in place. The decrease of 72 million boe from the Shell share
of joint ventures and associates comprises a net decrease of 73 million
boe from revisions and reclassifications.

Shell Annual Report and Accounts 2020Strategic 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 153-156.

FINANCIAL

Total shareholder return (%)*

Return on average capital employed (%)*

(32.7) 2019: 0.5

(6.8) 2019: 6.7

Total shareholder return (TSR) is the difference between the share price at
the beginning of the year and the share price at the end of the year (each
averaged over 90 days), plus gross dividends delivered during the
calendar year (reinvested quarterly), expressed as a percentage of the
share price at the beginning of the year (averaged over 90 days). The
data used are a weighted average in dollars for A and B shares. The TSRs
of major publicly traded oil and gas companies can be compared directly,
providing a way to determine how we are performing 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 41-42 and “Non-GAAP measures
reconciliations” on pages 305-306.

Cash flow from operating activities ($ million)*

34,105 2019: 42,178

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 for investments.

See “Liquidity and capital resources” on pages 81-84.

Free cash flow ($ million)*

20,828 2019: 26,399

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 305-306.

Adjusted earnings ($ million)

4,846 2019: 16,462

Adjusted earnings are income/(loss) attributable to shareholders plus cost
of sales adjustment and excluding identified items. This measure aims to
facilitate a comparative understanding of Shell’s financial performance
from period to period by removing the effects of oil price changes on
inventory carrying amounts and removing the effects of identified items.
These items are in some cases driven by external factors and may, either
individually or collectively, hinder the comparative understanding of
Shell’s financial results from period to period. This measure excludes
earnings attributable to non-controlling interest.

See “Non-GAAP measures reconciliations” on pages 305-306.

Adjusted earnings per share ($)

0.62 2019: 2.04

Adjusted earnings per share is calculated as adjusted earnings, divided
by the weighted average number of shares used as the basis for basic
earnings per share.

See “Non-GAAP measures reconciliations” on pages 305-306.

Organic free cash flow ($ million)

17,634 2019: 20,116

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.

Divestment proceeds ($ million)

4,010 2019: 7,871

Divestment proceeds represent cash received from divestment activities
in the period. This is the sum of the following lines from the “Consolidated
Statement of Cash flows”: proceeds from sale of property, plant and
equipment and businesses; proceeds from sale of joint ventures and
associates [A]; and proceeds from sale of equity securities.

See “Non-GAAP measures reconciliations” on page 305-306.

[A] includes $313 million (2019: $155 million) of long-term loan repayments

received from joint ventures and associates.

See “Non-GAAP measures reconciliations” on pages 305-306.

Shell Annual Report and Accounts 2020Strategic ReportPERFORMANCE INDICATORS continued

FINANCIAL continued

Cash capital expenditure ($ million)

Gearing (%)

17,827 2019: 23,919

32.2 2019: 29.3

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 305-306.

Gearing is defined as net debt as a percentage of total capital (net debt
plus total equity) at December 31, and is a measure of the degree to which
our operations are financed by debt.

See “Liquidity and capital resources” on page 81-84 and “Note 14 Debt
and Lease Arrangements” on pages 241-243.

Net debt ($ million)

75,386 2019: 79,093

Net debt is defined as the sum of current and non-current debt, less cash
and cash equivalents. 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.

See “Note 14 Debt and Lease Arrangements” on pages 241-243.

OPERATIONAL

Production available for sale (thousand boe/d)*

Project delivery on schedule (%)*

3,386 2019: 3,665

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,
natural gas liquids (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 41-42.

LNG liquefaction volumes (million tonnes)*

33.2 2019: 35.6

48 2019: 90

Project delivery on budget (%)*

104 2019: 99

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, where a figure
greater than 100% means over-budget.

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

Proved oil and gas reserves (million boe)

See “Integrated Gas” on pages 46-52.

Refinery and chemical plant availability (%)*

95.5 2019: 90.8

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 refinery and chemical plant facilities.

See “Oil Products” on pages 70-76 and "Chemicals" on pages 77-79.

9,124 2019: 11,096

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 estimates are subject to change owing to a wide
variety of factors, some of which are unpredictable.

See “Risk factors” on pages 28-37, “Summary of results” on pages 41-42,
“Oil and gas information” on pages 61-69 and “Supplementary
information – oil and gas (unaudited)” on pages 265-282.

Shell Annual Report and Accounts 2020Strategic ReportSAFETY AND ENVIRONMENT

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

0.7 2019: 0.9

Total recordable case frequency (TRCF) is the number of employee 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 85-93.

Number of operational Tier 1 and 2 process safety
events*

103 2019: 130

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.

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

0.98 2019: 1.04

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 94-107.

Number of operational spills of more
than 100 kilograms

68 2019: 67

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

See “Environment and society” on pages 85-93.

See “Environment and society” on page 85-93.

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

0.16 2019: 0.17

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 94-107.

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

1.05 2019: 1.06

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 (UEDCTM). UEDCTM is a proprietary metric of Solomon
Associates. It is a complexity-weighted normalisation parameter that
reflects the operating cost intensity of a refinery based on the size and
configuration of its particular mix of process and non-process facilities.

See “Climate change and energy transition” on pages 94-107.

Direct GHG emissions
(million tonnes of CO2 equivalent)

63 2019: 70

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

See “Climate change and energy transition” on pages 94-107.

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

75 2019: 78

Net Carbon Footprint is a comprehensive measure of the life-cycle carbon
intensity of the energy products we sell. It is a weighted average of the
life-cycle 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 94-107.

Shell Annual Report and Accounts 2020Strategic 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

Identified Items [A]

Adjusted Earnings [A]

Capital expenditure

Cash capital expenditure [A]

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

LNG liquefaction volumes (million tonnes)

[A] See “Non-GAAP measures reconciliations” on pages 305-306.

$ million, except where indicated

2020

(6,278)

2019

8,628

2018

11,444

36,697

45,602

48,795

562

6,555

611

17,704

(2,507)

(10,661)

4,383

3,661

4,301

911

33.2

1,791

263

6,667

281

6,238

2,242

(326)

8,955

3,851

4,299

922

35.6

2,273

2,230

6,014

208

4,850

2,795

2,045

9,399

3,262

3,819

957

34.3

OVERVIEW
Our Integrated Gas segment includes 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 businesses which were
rebranded to Renewables and Energy Solutions in 2021. The segment
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.

BUSINESS CONDITIONS
Global gas demand is estimated to have declined by around 2.4% in
2020, in contrast with the 2.5% annual growth rate observed since the
start of the century. The deterioration in gas demand for power generation
and in industry was mainly caused by lockdowns related to COVID-19.
Resilient gas demand for heating helped offset the overall decline.
Demand declined across all regions except non-OECD Asia. In non-
OECD Asia, demand grew in China, which experienced a robust recovery
after mitigating the impacts of COVID-19. Outside China, aggregate
gas demand in non-OECD Asia remained flat year-on-year.

In 2020, global LNG imports were almost unchanged from 2019, rising by
about 2 million tonnes year-on-year to 360 million tonnes. Growth in LNG
supply capacity was mostly limited to the USA, where 21 million tonnes
of new liquefaction started commercial operations in 2020. Liquefaction
plants already in operation in the USA responded to the weak gas price
environment by significantly curtailing production in the middle of the year.
Supply from major LNG-exporting countries such as Egypt, Malaysia and
Norway was also lower year-on-year because of operational disruptions
and shut-ins to prevent economic losses.

Natural gas prices can vary from region to region.

In the USA, the natural gas price at the Henry Hub averaged $2.0 per
million British thermal units (MMBtu) in 2020, 21% lower than in 2019.
It traded in a range of $1.5 to 3.2/MMBtu.

Long-term contracted LNG prices in the Asia-Pacific region in 2020
were lower than in 2019 because they are predominantly indexed to
oil prices, particularly the Japan Customs-cleared Crude (JCC) index
which dropped by an 32% year-on-year, tracking Brent crude prices.
Meanwhile, delivered North Asia spot prices, reflected by the Japan
Korea Marker, declined by 20% compared with 2019.

See “Market overview” on pages 38-40.

PRODUCTION AVAILABLE FOR SALE
In 2020, production was 333 million barrels of oil equivalent (boe), or 911
thousand boe per day (boe/d), compared with 336 million boe, or 922
thousand boe/d in 2019. Natural gas production was 83% of total production
in 2020 and 2019. In 2020 natural gas production decreased by 1% compared
with 2019. This was mainly because of extended maintenance at the Prelude
floating liquefied natural gas (FLNG) facility and maintenance activities at
the Gorgon project in Australia, as well as lower wells performance. These
were partially offset by the transfer of Rashpetco operations in Egypt from
the Upstream segment and field ramp-ups. Liquids production decreased
by 2%, in line with the decrease in natural gas production.

LNG LIQUEFACTION VOLUMES
LNG liquefaction volumes of 33.2 million tonnes in 2020 were 6% lower
than in 2019, mainly driven by lower feedgas availability, higher maintenance
activities, primarily at Prelude FLNG and Gorgon, as well as cargo timing.

LNG sales volumes of 69.67 million tonnes in 2020 were 6% lower than
in 2019, driven by lower LNG liquefaction volumes partly offset by higher
purchases from third parties.

Through our Shell Energy organisation, we market a portion of our share
of equity production of LNG and sell and market LNG volumes around
the world through our hubs in the UK, Dubai and Singapore. Shell has term
sales contracts for the majority of our LNG liquefaction and term purchase
contracts. We are able to maximize the income we generate from our LNG
cargos through our shipping network, regasification terminals and ability to
purchase and deliver LNG spot cargos from third parties. For example, if one
customer does not need a scheduled cargo, we can deliver that cargo to
another customer who is in need. Similarly, if a customer needs an additional
cargo not available from our production facilities, we can contract with third
parties to deliver the additional cargo. We also conduct paper trades
primarily to manage commodity price risk related to sales and purchase
contracts. We also sell trucked LNG in China, Singapore and Europe.

Shell Annual Report and Accounts 2020Strategic ReportINTEGRATED GAS DATA TABLE

LNG liquefaction volumes

Australia

Brunei

Egypt

Malaysia

Nigeria

Norway

Oman

Peru

Qatar

Russia

Trinidad and Tobago

United States

Total

[A] Includes LNG liquefaction volumes related to our share in equity securities of Malaysia LNG Tiga, which were disposed of in 2018.

2020

11.8

1.6

0.2

—

5.3

0.1

2.5

0.9

2.4

3.1

5.4

0.1

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

2018

12.1

1.6

0.3

0.6 [A]

5.1

0.1

2.4

0.8

2.3

3.1

5.8

—

33.2

35.6

34.3

EARNINGS 2020-2019
Segment earnings in 2020 were a loss of $6,278 million, which
included a net charge of $10,661 million. The net charge reflected
impairment charges of $9,282 million mainly reflecting revisions to mid-
and long-term price outlook assumptions and primarily related to the
Queensland Curtis LNG and Prelude FLNG operations in Australia.
It also comprised a net charge of $969 million due to the fair value
accounting of commodity derivatives and a charge of $607 million
related to onerous contract provisions.

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 in Australia and write-offs of
$131 million in Trinidad and Tobago. 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.

■

Excluding the net charge described above, segment earnings were
$4,383 million in 2020 compared with $8,955 million in 2019. Earnings
were negatively impacted by lower realised LNG, oil and gas prices,
and lower contributions from marketing and trading, partly offset by
lower operating expenses.

EARNINGS 2019-2018
Segment earnings in 2019 were $8,628 million, which included a net
charge of $326 million as described above.

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.

■

CASH CAPITAL EXPENDITURE
Cash capital expenditure in 2020 was $4.3 billion, unchanged from
$4.3 billion in 2019. Our cash capital expenditure is expected to be
around $6 billion in 2021.

PORTFOLIO AND BUSINESS DEVELOPMENT
Key portfolio events in 2020 included the following:
■

In February 2020, we announced that we will build and operate our
first industrial-scale solar electricity farm near Wandoan in central
Queensland, Australia. The solar farm will generate 120 MW of
solar electricity and is expected to be completed in early 2021.
In March 2020, we decided not to proceed with an equity interest in
the proposed Lake Charles LNG project. Energy Transfer will take over
as the project developer.
In July 2020, the CrossWind consortium, a joint venture between Shell
in the Netherlands and Eneco, was awarded the tender for the offshore
wind farm Hollandse Kust (noord). Both companies have already taken
their final investment decisions (FID) on the project. The consortium
plans to have Hollandse Kust (noord) operational in 2023 with an
installed capacity of 759 MW.

The following major milestones were reached in 2020:
■

In April 2020, we took a FID to develop the first phase of Arrow
Energy’s Surat Gas Project in Queensland, Australia. This decision
will bring up to 90 billion cubic feet per year of new gas by the end
of the decade, which will flow to Shell-operated QGC to be sold
locally and exported through its plant on Curtis Island.
In May 2020, we took a FID on a new LNG processing unit known
as Train 7 at Nigeria LNG (NLNG).
In August 2020, the tenth and final movable modular liquefaction
system (MMLS) unit at the Elba Island export terminal in Georgia, USA,
was delivered to the energy infrastructure company Kinder Morgan.
In August 2020, the Blauwwind consortium, which is developing
offshore wind projects in the Netherlands, achieved its first power.

Excluding the net charge 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% related to New Energies, reflecting
underlying business growth), and lower liquids production volumes,
partly offset by significantly stronger contributions from LNG
marketing and trading.

We continued our divestment activities for selected assets during 2020,
including:
■

In December, QGC Common Facilities Company Pty Ltd, a wholly-
owned subsidiary of Shell, announced it had agreed to the sale of a
26.25% interest in the Queensland Curtis LNG (QCLNG) Common
Facilities to Global Infrastructure Partners Australia. The transaction is
subject to regulatory approval in Australia and customary conditions.
It is expected to complete in the first half of 2021.

Shell Annual Report and Accounts 2020Strategic ReportINTEGRATED GAS continued

BUSINESS AND PROPERTY
Integrated Gas
Our complete list of LNG and GTL plants in operation and under construction in which we have an interest is provided below.

LNG liquefaction plants in operation at December 31, 2020

Asset

Gasnor

Brunei LNG

Oman LNG

Qalhat LNG

Qatargas 4 [C]

Sakhalin LNG [C]

Location

Bergen

Lumut

Sur

Ras Laffan

Prigorodnoye

Australia North West Shelf [C]

Karratha

Gorgon LNG [C]

Prelude [C] [D]

Barrow Island

Browse Basin

Queensland Curtis LNG T1 [C]

Curtis Island

Queensland Curtis LNG T2 [C]

Curtis Island

Europe

Norway

Asia

Brunei

Oman

Qatar

Russia

Oceania

Australia

Africa

Egypt [E]

Egyptian LNG T1

Egyptian LNG T2

Nigeria

Nigeria LNG

South America

Idku

Bonny

Peru

Peru LNG

Pampa Melchorita

Trinidad and Tobago Atlantic LNG T1

Atlantic LNG T2/T3

Atlantic LNG T4

Point Fortin

Shell interest (%)

100% capacity
(mtpa) [A]

Shell-operated

100

11 [B]

27.5

16.7

67.5

97.5

35.5

25.6

57.5

51.1

0.3

7.6

7.1

3.7

7.8

10.9

16.9

15.6

3.6

4.3

3.6

24.1

4.5

6.6

5.2

Yes

[A] 100% capacity represents the total capacity that all trains can process as reported by the operator.
[B] Interest, or part of the interest, is held via indirect shareholding.
[C] These assets are clustered as integrated assets and have onshore or offshore upstream production.
[D] Following a number of operational issues and shutdown since February 2020, Prelude continues to progress towards safe and reliable operations with LNG rundown restart in late December 2020.
[E] In January 2014, force majeure notices were issued under the LNG agreements as a result of domestic gas diversions severely restricting volumes available to the ELNG plant. These notices remain

in place.

LNG liquefaction plants under construction at December 31, 2020

Asset

Train 7 [B]

Africa

Nigeria

North America

Location

Bonny

Canada

LNG Canada T1-2 [C]

Kitimat

[A] 100% capacity represents the total capacity that all trains can process as reported by the operator.
[B] First LNG is expected in the middle of the 2020s.
[C] Construction started in October 2018 and first LNG is expected before the middle of the 2020s.

GTL plants in operation at December 31, 2020

Asia

Malaysia

Qatar

Asset

Shell MDS

Pearl

[A] 100% capacity represents the total capacity of the plant.

Location

Bintulu

Ras Laffan

Shell interest (%)

100% capacity
(mtpa) [A]

Shell-operated

25.6

40.0

7.6

14.0

Shell interest (%)

100% capacity
(b/d) [A]

Shell-operated

72.0

100.0

14,700

140,000

Yes

Shell Annual Report and Accounts 2020Strategic ReportWe also have interests and rights in various regasification terminals listed below. Extension of leases or rights beyond the periods mentioned below will
be reviewed on a case-by-case basis.

LNG regasification terminals

Project name

Altamira

Costa Azul

Cove Point

Dragon LNG

Elba Island Expansion

Elba Island

Location

Tamaulipas, Mexico

Baja California, Mexico

Lusby, MD, USA

Milford Haven, UK

Elba Island, GA, USA

GATE (Gas Access to Europe)

Rotterdam, The Netherlands

Shell Energy India Pvt Ltd (formerly Hazira)

Gujarat, India

Lake Charles

Lake Charles Expansion

Singapore SGM

Singapore SETL

Shell LNG Gibraltar

Lake Charles, LA, USA

SLNG, Singapore

Gibraltar

Shell capacity rights
(mtpa)

Capacity rights
period

3.3 [A]

2.7

1.8

3.1

4.2

2.8

4.6

1.5

4.4

8.7

up to 3.0 [B]

up to 1.0 [C]

up to 0.04

2006–2021

2008–2028

2003–2023

2009–2029

2010–2035

2006–2036

2003–2027

Status

In operation

Shell interest (%)
and Rights

Leased

2015–2031

In operation

Capacity rights

2005–2035

2002–2030

2005–2030

2013–2029

2018–2035

2018–2038

In operation

100

Leased

Import rights

[A] 100% capacity rights are held by Gas del Litoral joint venture with which Shell has a contract to supply 75% of the volumes. Our capacity rights end in September 2021 and the contract will not be renewed.
[B] Exclusive licence to import LNG and sell regasified LNG in Singapore for up to 3.0 mtpa.
[C] Second licence to import LNG and sell regasified LNG in Singapore.

Our Integrates Gas business also includes oil and natural gas production,
exploration and development in the following locations:

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

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%). We
have a 25% interest in the Chevron-operated Gorgon LNG joint venture
that includes offshore production.

We also operate the Queensland Curtis LNG (QCLNG) venture’s natural
gas operations, including wells, compression stations and processing
plants, in Queensland’s Surat Basin. We have interests ranging from 44%
to 74% in 25 field compression stations and six central processing plants.
Our production of natural gas from the onshore Surat Basin supplies the
QCLNG liquefaction plant and the domestic gas market.

We relinquished positions in asset and exploration areas in the Exmouth
Plateau, leading to us relinquishing four exploration permits in the
Exmouth Plateau in June 2020.

We have a 50% interest in Arrow, a Queensland-based joint venture with
China National Petroleum Corporation (CNPC). Arrow owns coal-bed
methane assets and a domestic power business.

Our interests in the Browse basin include joint arrangements, with Shell
as the operator, for the Prelude field (Shell interest 67.5%), the pre-FID
Crux gas and condensate field (Shell interest 82%), and other backfill
and contingent resources for Prelude FLNG, including the Bratwurst field
(Shell interest 100%). Bratwurst, discovered in 2019, is currently under
evaluation as a future backfill opportunity.

Bolivia
We hold a 37.5% participating interest in the Caipipendi block where
we produce and explore. We also have a 25% interest in 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 exploring there. We hold a 15%
participating interest in the Repsol-operated Iniguazu exploration.

China
We jointly develop and produce from the onshore Changbei tight-gas
field under a production-sharing contract (PSC) with CNPC. In 2017,
we took the FID on the Changbei II Phase 1 project and started drilling
activity in early 2019.

Egypt
We have a 25% interest in the Burullus Gas Company (Burullus), a
self-operated joint venture which operates the West Delta Deep Marine
concession (Shell interest 50%) and supplies gas to the domestic market
and the Egyptian LNG plant. We have a 50% interest in the Rashid
Petroleum Company (Rashpetco), a self-operated joint venture which
operates the Rosetta concession (Shell interest 100%).

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

QGC is one of Australia’s leading natural gas producers.

Shell Annual Report and Accounts 2020Strategic ReportINTEGRATED GAS continued

Indonesia
We have a 35% interest in the INPEX Masela Ltd joint venture which
owns and operates the offshore Masela block.

Oman
In February 2019, we signed an interim upstream agreement that detailed
a funding and work programme for 2019 and 2020 to develop gas
resources for 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.

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 the capacity to produce, process and transport 1.6 billion standard
cubic feet per day (scf/d) of gas from Qatar’s North Field.

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.

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 operate and have a 60% interest in Blocks 1 and 4 offshore southern
Tanzania. In June 2020, the government granted a 4.5-year licence
extension for both blocks. We continue to develop a potential domestic
gas and LNG project.

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

We have a 35% interest in Cyprus Block 12, holding the Aphrodite discovery,
which is currently under appraisal. In Colombia, we have a 60% interest in
two deep-water blocks that we operate and 50% interests in three other
blocks that we operate. We have interests in offshore blocks in Myanmar.
We have a 90% interest in one exploration block licence in Namibia.

Renewables and Energy Solutions
Renewables and Energy Solutions includes power generation, trading
and supply, hydrogen and nature-based solutions.

The Renewables and Energy Solutions 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 Renewables and Energy
Solutions 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.

In 2020, cash capital expenditure in Renewables and Energy Solutions
amounted to $0.9 billion.

Shell is investing in renewables such as wind power.

Power
In the UK, through Shell Energy Retail, we supply 100% renewable
electricity via the purchase of renewable energy guarantees of origin
(REGO) certificates, and natural gas and smart home technology to more
than 900 thousand homes. In Germany, we supply electricity and/or gas
to more than 80 thousand homes through Shell Energy Retail GmBH.

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 in Georgia
which consists of 10 MMLS units. We also lease regasification capacity
on Elba Island with a contracted capacity of 11.6 mtpa.

Through sonnen, we provide battery storage systems to homes with
solar panels, with over 60 thousand installations globally. Through our
London-based energy technology firm Limejump, we manage distributed,
renewable and flexible power generation assets in supplying power to
the UK national grid.

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.

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

Our Shell Recharge electric vehicle (EV) charging service offers ways for
drivers to recharge their vehicles at home, at their destination or during
their journey. Shell New Energies is also developing charging networks
for EV drivers through our NewMotion and Greenlots subsidiaries.
NewMotion operates around 60 thousand private electric charge
points in the Netherlands, Germany, France and the UK.

Shell Annual Report and Accounts 2020Strategic ReportGreenlots provides EV charging posts, charging network software
and grid services. It operates 8 thousand charge points for businesses
and private drivers in the USA, Canada and Singapore.

Through MP2, we provide retail electricity and renewable energy
solutions to commercial and industrial customers across the USA.

Silicon Ranch is an independent power producer and Shell’s US solar
platform, with a diverse portfolio of operating facilities including
utility-scale solar.

In Australia, through ERM, we are the second-largest electricity
retailer serving commercial and industrial customers.

Shell Recharge allows drivers to charge their electric vehicles.

Our major renewable power projects in operation and in development are listed below:

Renewable power projects in operation

Project

Location

Shell interest (%)

100% capacity (MW)

Type

Silicon Ranch

Cleantech Solar

USA

Asia

46.47

24.5 [A]

Moerdijk

The Netherlands

Noordzee Wind NL

The Netherlands

Brazos, TX

Whitewater Hill, CA

Rock River, WY

Cabazon Pass, CA

USA

Sohar Solar Quabas

Oman

Emmen

Heerenveen

The Netherlands

100

1,130

252

108

160

61.5

14.5

[A] Shell interest in Cleantech is 49% where Cleantech owns 50% of the projects. Therefore 24.5% Shell interest is reported.

Renewable power projects under construction

Shell interest (%)

100% capacity (MW)

Type

Project

Gangarri

Location

Australia

Silicon Ranch [A]

Cleantech Solar [A]

USA

Asia

CrossWind

The Netherlands

Borssele III and IV

The Netherlands

Sas van Gent

The Netherlands

100

46.47

24.5 [B]

79.9

100

120

1,744

174

759

731.5

29.6

Solar Developer

Solar Operations

Offshore Wind JV

Theme

Solar

Offshore wind

Onshore wind Operations

Onshore wind

Onshore wind Operations

Onshore wind

Onshore wind Operations

Onshore wind

Onshore wind Operations

Onshore wind

Solar Development

Solar Developer

Solar

Theme

Solar

Offshore Wind Development Offshore wind

Solar Development

Solar

Shell-operated

Yes

Shell-operated

Yes

[A] These solar projects are shown in Projects in operation and under construction as they are in multiple phases.
[B] Shell interest in Cleantech is 49% where Cleantech owns 50% of the projects. Therefore 24.5% Shell interest is reported.

Renewable power projects in development

Projects in development represent various earlier stages where FID has not yet been taken.

Project

GBI

Mayflower

Atlantic Shores

Location

France

USA

Pottendijk

The Netherlands

Shell interest (%)

100% capacity (MW)

Type

Theme

Shell-operated

29.5

100

28.5

1,600

2,500

100

Offshore Wind JV

Offshore wind

Solar and Onshore Wind

Onshore Renewable
Power

Yes

Shell Annual Report and Accounts 2020Strategic ReportINTEGRATED GAS continued

Hydrogen
We are part of joint ventures and alliances that have built hydrogen filling
stations for passenger cars in Canada, Germany, the UK and the US state
of California. We have announced plans to build several hydrogen filling
stations in the Netherlands, the first of which opened in the fourth quarter
of 2020.

We aim to complete the construction of a 10 MW electrolyser at our
Rheinland refinery in Germany by mid-2021. In China, Shell and
Zhangjiakou City Transport have signed a joint-venture agreement to
build a 20 MW renewable power electrolyser and hydrogen refuelling
stations in Zhangjiakou City in the Beijing-Tianjin-Hebei region.

Nature-based solutions
In 2020, we completed the acquisition of Select Carbon, a specialist
company that partners with farmers, pastoralists and other landowners
in Australia to develop carbon farming projects, where plants are grown
and soil managed to absorb carbon dioxide from the atmosphere. Select
Carbon represents the first corporate acquisition for our nature-based
solutions programme. This programme invests in forests, grasslands,
wetlands and other natural ecosystems around the world to offset
emissions by using plants to absorb carbon dioxide. The investment
in natural ecosystems also helps biodiversity.

Marketing and Trading
We also market and trade 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 the Philippines
and China which began operations in 2020.

Shell opened its first hydrogen refuelling station in the Netherlands in 2020.

Shell Annual Report and Accounts 2020Strategic 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)

Identified Items [A]

Adjusted Earnings [A]

Capital expenditure

Cash capital expenditure [A]

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

[A] See “Non-GAAP measures reconciliations” on pages 305-306.

2020

(10,785)

28,330

(7)

542

10,983

1,136

23,119

(467)

(7,933)

(2,852)

6,911

7,296

2,424

$ million, except where indicated

2019

3,855

45,217

379

2,180

11,582

2,073

16,881

5,878

(598)

4,452

10,003

10,205

2,691

2018

6,490

46,584

285

605

11,690

1,132

12,871

8,756

6,472

12,002

12,134

2,656

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.

BUSINESS CONDITIONS
In 2020, oil markets experienced unprecedented developments in
demand driven by the COVID-19 pandemic. At the start of 2020, global
oil demand for the year was expected to grow by 1.2 million barrels per
day (b/d). Then in January, oil demand started to contract because
demand fell in China as lockdown was imposed to contain the virus
outbreak. In subsequent months, oil demand contracted further as the
outbreak in China evolved into a global pandemic and lockdowns were
introduced across the world. In April, oil demand fell to its lowest level,
around 22 million b/d below year-average demand in 2019, according
to an estimate of the International Energy Agency (IEA). Contraction of
such magnitude has never been recorded before. Country lockdowns
deeply impacted transportation sectors, especially passenger road
and passenger air in Organisation for Economic Co-operation and
Development (OECD) economies. In subsequent months, oil demand
started recovering, but only partially, because resurgences of COVID-19
triggered re-imposition of social distancing and travel restrictions. By
the fourth quarter, global oil demand was still estimated to be around
5.5 million b/d below the 2019 level, according to the Oil Market Report
published by the IEA in January 2021. Averaged for the full year, oil
demand contracted by around 9 million b/d, or 9%, to 91.2 million b/d.
Oil demand fell by 5.7 million b/d in OECD economies, and by 3.2 million
b/d in non-OECD economies. By contrast, oil demand in 2019 was
0.8 million b/d higher than in 2018.

On a daily average basis, Brent crude oil, an international benchmark,
traded between $13 per barrel (/b) and $70/b in 2020, ending the year
around $50/b. Brent crude oil prices averaged $42/b for the year, 34%
(or $22/b) lower than in 2019.

Global gas demand is estimated to have declined by around 2.4% in
2020, in contrast with the 2.5% annual growth rate observed since the
start of the century. The deterioration in gas demand for power generation
and in industry was mainly caused by lockdowns related to COVID-19.
Resilient gas demand for heating helped offset the overall decline.
Demand declined across all regions except non-OECD Asia. In non-
OECD Asia, demand grew in China, which experienced a robust recovery
after mitigating the impacts of COVID-19. Outside China, aggregate
gas demand in non-OECD Asia remained flat year-on-year.

See “Market overview” on pages 38-40.

PRODUCTION AVAILABLE FOR SALE
In 2020, production was 887 million boe, or 2,424 thousand boe/d,
compared with 982 million boe, or 2,691 thousand boe/d in 2019. Liquids
production decreased by 4% and natural gas production decreased by
19% compared with 2019.

Shell Annual Report and Accounts 2020Strategic ReportUPSTREAM continued

The decrease in liquids production was mainly caused by divestments,
OPEC+ curtailment, higher maintenance and hurricanes in the Gulf of
Mexico interrupting production. Increased production from ramp-ups
and new field start-ups more than offset field decline. The decrease in
gas production was mainly caused by divestments, lower demand from
Nederlandse Aardolie Maatschappij B.V. (NAM) in the Netherlands,
and the transfer of Rashpetco operations in Egypt from Upstream to
Shell's Integrated Gas segment.

We expect that oil production peaked in 2019. Going forward, we expect
a gradual reduction in oil production of around 1-2% each year, including
divestments and natural decline.

EARNINGS 2020-2019
Segment earnings in 2020 were a loss of $10,785 million, which included
a net charge of $6,447 million related to impairments, primarily in the US
Gulf of Mexico, unconventional assets in North America, offshore assets
in Brazil and Europe, and a project in Nigeria (OPL245), mainly triggered
by revision of Shell's mid- and long-term commodity price and updated
Appomattox sub surface understanding. Also included was a net charge
of $782 million related to the impact of the weakening Brazilian real on
a deferred tax position.

Segment earnings in 2019 were $3,855 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.

Excluding the net charges described above, segment earnings in 2020
were a loss of $2,852 million, compared with a profit of $4,452 million
in 2019. Earnings excluding the net charges were adversely impacted
by lower prices and lower volumes, mainly driven by the unfavourable
macroeconomic conditions as described in the business condition
section and severe weather conditions in the Gulf of Mexico.

In the second quarter of 2020, we made cost interventions by reducing
the size of our contingent workforce and initiating an organisational
review in line with Reshape.

EARNINGS 2019-2018
Segment earnings in 2019 were $3,855 million, which included a net
charge of $598 million as described above.

Segment earnings in 2018 were $6,490 million, which included a net gain
of $19 million. This included a net gain of $888 million on sale of assets,
mainly related to our divestments in Iraq, Malaysia, Oman and Ireland, and
a gain of $152 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 of the 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.

Excluding the net charges described above, segment earnings in 2019
were $4,452 million compared with $6,472 million in 2018. Earnings
excluding the net charge were adversely impacted by lower realised oil
and gas prices, higher depreciation and higher well write-offs, mainly in
Albania and Kazakhstan, partly offset by higher sales volumes associated
with the timing of liftings.

CASH CAPITAL EXPENDITURE
Cash capital expenditure in 2020 was $7.3 billion, compared with
$10.2 billion in 2019. Our cash capital expenditure is expected to
be around $8 billion in 2021.

Lower cash capital expenditure in 2020 was mainly driven by actions to
preserve cash. The lower cash capital expenditure and capital investments
in 2020 also reflected our continuing efforts to improve capital efficiency
by pursuing developments which cost less.

PORTFOLIO AND BUSINESS DEVELOPMENT
We took the following key portfolio decisions during 2020:
■

In Argentina, in January 2020, partnering with Equinor, we completed
the acquisition of Schlumberger’s 60% interest in the Bandurria Sur
block, located in the Vaca Muerta Basin (Shell interest 30%).
In Brazil, in August 2020, we took the final investment decision (FID)
to contract the Mero 3 floating production, storage and offloading
(FPSO) vessel to be deployed at the Mero field within the offshore
Santos Basin.
In Brunei, in March 2020, we completed the acquisition of deep-water
exploration Block CA-1 (Shell interest 86.95%).
In Kazakhstan, in December 2020, we successfully settled a long-
running contractual dispute with the Republic of Kazakhstan
government about the profit share between the parties in the
Karachaganak joint venture. Shell paid $424 million as its share
of the settlement.
In Norway, in May 2020, partnering with Equinor and Total, we made
a final investment decision on the Northern Lights carbon capture and
storage (CCS) project. The project will involve the capture, transport
and storage of carbon dioxide produced from industrial regions around
the Norwegian continental shelf. Equinor is the operator of the project.
In Russia, in April 2020, we cancelled our acquisition of the 50%
participation interest in LLC Meretoyahaneftegaz from Gazprom Neft.
In Russia, with Gazprom Neft, we established a joint venture (Shell
interest 50%) to explore and develop the Leskinsky and
Pukhutsayakhsky blocks in the Gydan peninsula, in north-western
Siberia. The deal was completed in November 2020.
In September, we agreed to acquire seven exploration licences in four
countries from Kosmos Energy. Suriname represents a new country
entry for Shell. In São Tomé and Príncipe, we will deepen our position
in two blocks and enter two others. In both Namibia and South Africa,
we will expand our position in two blocks. Transfer has been completed
in Suriname, São Tomé and Príncipe and Namibia. South Africa is
expected to complete in 2021.
In the US Gulf of Mexico, in March 2020, we acquired seven blocks
across multiple plays in the Gulf of Mexico Lease 254.

We achieved the following operational milestones in 2020:
■

In Brazil, Atapu 1, (the FPSO vessel P-70), came on stream and
delivered first oil in June.

We continued to divest selected assets during 2020, including:
■

In Brazil, in June 2020, we sold a 30% interest in the Gato do Mato
project in the Santos Basin. We are still the project operator, with a
50% interest.
In Brazil, we agreed to sell our 23% interest in the P-71 FPSO vessel,
the deal is expected to be completed in the first quarter of 2021.
In Canada, in August 2020, we completed the sale of our
Tourmaline shares.
In Canada, we agreed to sell our Duvernay shale light oil position
in Alberta. The deal is expected to be completed in the second
quarter of 2021.
In Nigeria, we agreed to sell our 30% interest in oil mining lease
(OML17). The deal was completed in January 2021.
In the USA, we completed the sale of our Appalachia shale gas
position. The deal was completed in July 2020.
In Egypt, we agreed to sell our onshore assets in the Western Desert.
The deal is expected to be completed in the second half of 2021.

■

Shell Annual Report and Accounts 2020Strategic ReportBUSINESS AND PROPERTY
Our subsidiaries, joint ventures and associates are involved in all
aspects of upstream activities, including such matters as land tenure,
entitlement to produced hydrocarbons, production rates, royalties,
pricing, environmental protection, social impact, exports, taxes and
foreign exchange.

Netherlands
Shell and ExxonMobil are 50:50 shareholders in Nederlandse Aardolie
Maatschappij B.V. (NAM). A significant 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.

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, legal agreements are generally granted by, or
entered into with, a government, state-owned company, government-run
oil and gas company or agency. 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.

■

■ Production-sharing contracts (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.

Production from the Groningen field induces earthquakes that have
damaged 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. These
obligations include compensating for earthquake damage.

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 residents' safety, security of supply in
the domestic gas market and supply commitments in EU member states.
The production level in the gas year 2019-2020 (ending October 1, 2020)
was 8.7 billion cubic meters.

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 agreed not to declare dividends for 2018 and 2019.
Dividend payments in 2020 and beyond will be made only if a solvency
ratio of 25% is reached and maintained. 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 conjunction with the HoA, it was agreed that NAM would cease
all involvement in handling damage claims or strengthening buildings
to make them safe. The Dutch government has stepped into these two
roles and has developed legislation and policies to deal with earthquake-
related matters. One of the consequences of the legislation is that
duty of care has shifted from NAM to the Dutch government. The Dutch
government passes on to NAM the cost of the elements for which NAM is
liable. There are escalation and arbitration options to settle any disputes.

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 regarding
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.
If no agreement can be reached on such re-balancing, NAM shareholders
can go to arbitration to resolve the matter.

NAM also has a 60% interest in the Schoonebeek oil field and operates
25 other hydrocarbon production licences. Some of these are onshore
and others are offshore in the North Sea.

Shell Annual Report and Accounts 2020Strategic ReportUPSTREAM continued

Norway
We are a partner in 27 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 a non-operated interest in the producing field Troll.

We are a partner in the Northern Lights carbon dioxide transport and
storage project. In this phase the partnership is governed by a collaboration
agreement between Equinor, Shell and Total (equal partners).

The Nyhamna gas plant processes gas from the Ormen Lange field,
120 kilometres off the Norwegian coast.

UK
We operate a significant number of our interests on the UK continental
shelf under a 50:50 joint-venture agreement with ExxonMobil. On
February 24, 2021, ExxonMobil announced that it had signed an
agreement with HitecVision (through its wholly owned portfolio company
Neo Energy) for the sale of most of its non-operated upstream assets in
the UK central and northern North Sea, including a number of interests
subject to the Shell ExxonMobil 50:50 joint venture agreement. The sale,
which ExxonMobil expects will close later in 2021, is subject to regulatory
and third-party approvals. 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 44.89%).

In 2020, new production came on stream in the Fram (Shell interest 32%),
Shearwater (Shell interest 28%) and Pierce (Shell interest 92.52%) fields.
We are a participant in the Acorn project, which is in its early stages and
will involve carbon capture, utilisation and storage (CCUS) and hydrogen
production (joint venture, Shell interest 25%).

We continued with decommissioning Heather assets and the Curlew
FPSO, and continued Brent decommissioning. In June 2020 the Pioneering
Spirit vessel safely completed the single-lift removal of the 17,000-tonne
Brent Alpha topside from the North Sea. This was followed in August
2020 by the SSCV Sleipnir vessel safely lifting and removing the upper
portion of the Brent Alpha jacket. Brent Alpha is the third of four platforms,
after Brent Delta and Brent Bravo, to be decommissioned and removed
from the Brent oil and gas field. In July 2020, the UK government
approved the Brent Alpha decommissioning programme, including the
derogation to leave in place the Brent Alpha steel jacket footings. A
decision on the proposed derogations to leave in place each of the
gravity-based concrete installations of Brent Bravo, Brent Charlie
and Brent Delta is expected in the first half of 2021.

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 pages
46-52), with the remainder (23% in 2020) sold in the domestic market.

In addition to our interest in BSP, we have a 35% non-operating interest in
the offshore Block B concession, where gas and condensate are produced
from the Maharaja Lela field.

We also have non-operating interest in a gas holding area for deep-water
exploration Block CA-2 (Shell interest 12.5%), under a PSC. The
exploration acreage in Block CA-2 was relinquished in 2020.

We completed the acquisition of Total E&P Deep Offshore Borneo B.V.
on March 31, 2020, and renamed the company Shell Exploration and
Production Brunei B.V. The acquisition gives us an operator interest in
the deep-water Block CA-1 (Shell interest 86.95%), under a PSC.

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.

Kazakhstan
We are the joint operator of the onshore Karachaganak oil and
condensate field (Shell interest 29.3%), where we have a licence until the
end of 2037. In December 2020, we successfully settled a long-running
contractual dispute with the Republic of Kazakhstan government about
the profit share between the parties in the Karachaganak joint venture.
Shell paid $424 million as its share of the settlement.

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 around 66
thousand boe/d (Shell interest) by 2021, with the possibility of
increases after later phases of development.

The Pioneering Spirit vessel has now lifted and removed the topsides of Brent Alpha,
Brent Bravo and Brent Delta.

Shell Annual Report and Accounts 2020Strategic ReportWe have a 7.4% interest in the 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.

For SK308 PSC, first oil and gas for phase 2 of the E6 project is expected
in 2021.

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%.

Early in 2020, the Malaysian Inland Revenue Board (MIRB) started a tax
audit on Sabah and Sarawak Contiguous, which comprises the Sabah
and Sarawak upstream businesses. This resulted in preliminary audit
findings. The Company has determined it is probable that each uncertain
tax treatment used in its income tax filings will ultimately be defensible,
either during the next phase of the audit or on appeal to the courts.
To date, no notices of additional assessments have been received.

Offshore Sabah, we operate two producing oil fields. These are the
Gumusut-Kakap deep-water field (Shell interest 29%), and the Malikai
deep-water field (Shell interest 35%). In August 2020, we took FID on
phase 3 of the Gumusut-Kakap project. The project involves drilling four
subsea wells, (two oil producers and two water injectors), to enhance
Gumusut-Kakap’s expected recoverable oil volumes.

In October 2020, drilling started for phase 2 of the Malikai project.
Phase 2 is expected to deliver first oil in 2021. 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. We also have
exploration interests in Blocks SB-J, SB-G, SB-N, SB-3G, ND-6 and ND-7.

Offshore Sarawak, in 2020 we were the operator of eight producing gas
fields (Shell interest 30%-50%) and one field producing oil and gas (Shell
interest 50%). Shell handed over interest and operations of the E11 field/
hub, one of the eight producing gas fields, to Petronas at the end of
December 2020. After a binding heads of agreement (HoA) in December
2019 to extend the MLNG PSC, the PSC and joint operating agreement
(JOA) were amended on November 16, 2020. Under the extended
MLNG PSC, as of January 1, 2021, Shell (with 40% interest) will continue
to be the operator of the F6 and F23 hubs and the producing E8, F13 East
and F13 West fields. Shell will also continue to be the operator for new
exploration acreage and new fields (F22, F27, Selasih).

Shell is also the operator for Block SK318 PSC (Shell interest 75%),
which contains the discovered Rosmari, Marjoram and Timi fields.

In Block SK408 (Shell interest 30%), first gas was successfully produced
from the Gorek field in May 2020 and from Bakong in June 2020.
The block also contains the producing Larak gas field.

First oil and gas for phase 2 of the E6 project in Malaysia is expected in 2021.

First gas is expected from the Pegaga field in Block SK320 (Shell interest
20%) by the fourth quarter of 2021.

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 pages 46-52.

Shell has exploration interests in Block SK320. Exploration periods expired
in June 2020 for Blocks SK318 and SK408, and in December 2020 for
Block SK319. We also have a 40% interest in the amended 2011 Baram
Delta enhanced oil recovery PSC, and a 50% interest in Block SK-307.

Oman
We have a 34% interest in the Block 6 concession and its operator
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.

We have a 50% interest in the Block 42 exploration and production-
sharing agreement. Oman Oil (OQ) has the remaining 50% interest. Shell
is the operator of Block 42, an area of 31,068 square kilometres. We have
signed an exploration and production-sharing agreement that makes us
the operator and gives us a 100% working interest in Block 55, an area
of 7,564 square kilometres.

Russia
We have a 50% interest in Salym Petroleum Development N.V., a joint
venture with Gazprom Neft that is developing the Salym fields in the
Khanty Mansiysk Autonomous District of western Siberia. In March 2020,
Salym Petroleum Development N.V. expanded its area of operations by
acquiring a 100% interest in LLC Salymsky 2, holder of the licence for
the Salymsky 2 block.

Shell and Gazprom Neft each have a 50% interest in the Khanty-
Mansiysk Petroleum Alliance VOF partnership. Through this, Shell is a
holder of 50% of shares in the JSC Khanty-Mansiysk Petroleum Alliance.
Acquisition of the 50% participating interest in LLC Meretoyahaneftegaz
from Gazprom Neft through the VOF was cancelled in April 2020. Since
then, neither Khanty-Mansiysk Petroleum Alliance VOF partnership
nor JSC Khanty-Mansiysk Petroleum Alliance has undertaken any
significant activities.

Because European Union and US sanctions prohibit certain defined oil
and gas activities in Russia, we have since 2014 suspended our support to
Salym Petroleum Development N.V. and JSC Khanty-Mansiysk Petroleum
Alliance in relation to shale oil activities.

In November 2020, Shell acquired from Gazprom Neft a 50%
shareholding in LLC Gazpromneft-Aero Bryansk, which holds the Leskinsky
and Pukhutsayakhsky licences on the Gydan peninsula. The joint venture
will be managed by Gazprom Neft and Shell on a parity basis aiming to
develop an exploration cluster in the north-eastern part of the Gydan
Peninsula.

United Arab Emirates
In Abu Dhabi, we have a 15% interest in the licence of ADNOC Gas
Processing. 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.

Shell Annual Report and Accounts 2020Strategic ReportUPSTREAM continued

Syria
Shell holds a 65% interest in Shell Petroleum Development B.V. (SSPD),
a joint venture between Shell and the China National Petroleum
Corporation (CNPC). SSPD holds a 31.3% interest in Al Furat Petroleum
Company (AFPC), a Syrian joint stock company, which performs operations
under SSPD contracts. In December 2011, in compliance with international
sanctions on Syria, including European Council Decision 2011/782/CFSP,
Shell suspended all exploration and production activities in Syria.

occurred through a court-auction sale arising out of the Ejema Ebubu
(Ogoniland) community litigation. SPDC has appealed against the
judgement of the Rivers State High Court.

Notwithstanding the FGN appeal and the judgement in favour of the
RVSG, SPDC continues to operate OML 11. In doing so, it is supported
by the August 2019 Federal High Court judgement in its favour, which
remains in force.

Rest of Asia
We also have interests in Kuwait, the Philippines and Turkey. In the Philippines,
Shell is exploring options to divest its interest in SC 38 (Malampaya).

SPDC supplies gas to Nigeria LNG Ltd (see “Integrated Gas” on
pages 46-52) mainly through its Gbaran-Ubie and Soku projects.

Africa
Egypt
We have a 50% interest in the Badr Petroleum Company (BAPETCO),
a joint venture between Shell and the Egyptian General Petroleum
Corporation (EGPC). BAPETCO operates 10 oil- and gas-producing
concessions and two exploration concessions, (North East Obaiyed, North
Matruh), in the Western Desert. We also have onshore concessions with
100% Shell interest (West El Fayum, South East Horus, South Abu Sennan)
and one producing concession extension (Bed 2-17). In 2021, we agreed
to sell our onshore upstream assets in Egypt. The deal is expected to be
completed in the second half of 2021.

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: the producing assets Bonga (OML 118) and Erha
(OML 133) and the non-producing asset Bolia Chota (OML 135).
SNEPCO operates OMLs 118 (including the Bonga field FPSO, Shell
interest 55%) and 135 (Bolia and Doro, Shell interest 55%) and has a
43.8% non-operating interest in OML 133 (including the Erha FPSO).
Separately, SNEPCO holds a 50% non-operating interest in oil
prospecting licence (OPL) 245 (Zabazaba, Etan) under a production-
sharing agreement.

Nigeria
Our share of production, onshore and offshore, in Nigeria was
223 thousand boe/d in 2020, compared with 266 thousand boe/d
in 2019. Security issues, sabotage and crude oil theft in the Niger
Delta remained significant challenges in 2020.

Onshore
The Shell Petroleum Development Company of Nigeria Limited (SPDC)
is the operator of a joint venture (Shell interest 30%) that, after the
completion of the sale of its interest in OML 17 on 15 January 2021,
has 16 Niger Delta onshore oil mining leases (OML).

SPDC started litigation in May 2019 against the Federal Government
(FGN) in the domestic court to challenge the non-renewal of oil mining
lease 11 (OML 11). In August 2019, the Federal High Court ruled in favour
of SPDC, affirming that it has fulfilled its obligations under the law for the
renewal of OML 11. The court ordered the FGN to renew OML 11 for 20
years. In December 2019, the court refused to grant an application by
the FGN to suspend the implementation of the judgement. The FGN
appealed the court's decision and, in February 2021, the Court of Appeal
granted a stay of the judgment in favour of FGN thereby suspending
implementation pending a determination of the appeal on the merits.
SPDC is taking various steps to protect its right to continue operating
OML 11 pending a determination of the appeal.

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 260-262.

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).

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 pages 28-37). 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. We monitor legislative
developments and the security situation. We liaise with host communities,
governmental and non-governmental organisations to help promote
peace and safe operations. We continue to be transparent about how we
manage and report spills, and how we deploy oil-spill response capability
and technology. We implement a maintenance strategy to support
sustainable equipment reliability and have begun a multi-year programme
to reduce routine flaring of associated gas. See “Climate change and
energy transition” on pages 94-107.

In separate litigation, in August 2020, the Rivers State Government
(RVSG) obtained judgment against SPDC. This judgement, by the Rivers
State High Court, sought to reinforce the RVSG’s purported purchase of
SPDC’s interest in OML 11. The purported purchase was said to have

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

Shell Annual Report and Accounts 2020Strategic ReportNorth America
Bitumen and synthetic crude oil
From January 1, 2020, our interest in bitumen and synthetic crude oil
is reported in the Oil Products segment. Comparative information has
not been restated.

Canada
We have mineral leases mainly in Alberta and British Columbia. We
produce and market natural gas, natural gas liquids and condensate.

Shales
We have around 1.3 million net mineral acres, primarily in the
Duvernay play in Alberta and the Montney play in British Columbia.
Our Groundbirch asset in British Columbia will be an integral part of
the LNG Canada value chain. We currently operate four natural gas
processing area facilities in British Columbia. In 2021 we agreed to sell
our Duvernay shale light oil position in Alberta. The deal is expected
to be completed in the second quarter of 2021.

In 2020, we drilled and brought 17 wells on stream. We have interests
in 757 productive wells.

USA
We produce oil and gas in deep water in the Gulf of Mexico, heavy oil
in California and oil and gas in 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 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 total share of production in the USA was 571 thousand
boe/d in 2020.

Gulf of Mexico
The Gulf of Mexico is our major production area in the USA and accounts
for around 55% of our oil and gas production in the country. We have an
interest in around 315 active federal offshore leases and secured a further
19 blocks as an outcome of the US Gulf of Mexico Lease Sale 256 held in
November 2020. Our share of production averaged 313 thousand boe/d
in 2020.

We are the operator of eight production hubs – Mars, Olympus, Auger,
Perdido, Ursa, Enchilada/Salsa, Appomattox and Stones – and the West
Delta 143 processing facilities (Shell interests ranging from 33% to 100%).
We continue to produce from Coulomb (Shell interest 100%) which ties
into the Na Kika platform, where Shell has a 50% non-operating interest.

We continued exploration, development and abandonment activities
in the Gulf of Mexico in 2020.

We continued the ramp-up of the Appomattox floating production
system, which started production in May 2019. We also advanced
the development of Powernap and Vito, which are both in the execution
phase. Powernap, a subsea tie-back to the Olympus production hub,
is expected to produce up to 35 thousand boe/d. Vito, Shell’s eleventh
deep-water project in the Gulf of Mexico, is expected to achieve first
oil in 2022 and reach around 100 thousand boe/d at peak rates.

The 2020 Atlantic hurricane season adversely impacted production at
our US Gulf of Mexico assets. We experienced extended shutdowns at
our Auger and Enchilada/Salsa production hubs because of the storms
and the subsequent recovery efforts.

The Turritella FPSO in the Gulf of Mexico.

Shales
We have around 410 thousand net mineral acres. Our activity is focused
in the Permian Basin, following our divestment of the Appalachia asset.
This was completed in July 2020 and covered the sale of around 443
thousand net leasehold acres across Pennsylvania, with around 358
producing wells in the Marcellus and Utica shale formations, and
associated facilities in Tioga County. The transaction also included the
transfer of owned and operated midstream infrastructure.

Our shales activity in the USA is focused on the Permian Basin.

In 2020, we drilled and brought on stream 181 wells. We have interests
in 1,588 productive wells and operate eight central processing facilities.

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

Alaska
We have sold or relinquished all frontier licences in Alaska and have no
plans for frontier exploration offshore Alaska. We retain 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 held since
2007 and operated by ENI. The other position consists of 18 state leases
in nearby West Harrison Bay that have been held since 2012, which
we plan to turn over to an alternative operator.

Shell Annual Report and Accounts 2020Strategic ReportUPSTREAM continued

Rest of North America
Shell has equity in nine deep-water licences and one shallow-water
licence in Mexico (Shell interest 40%-100%). We are currently evaluating
these positions through exploration drilling.

In November 2020, we agreed a farm-in transaction with the China
National Offshore Oil Corporation (CNOOC) E&P Mexico, acquiring
a participating interest (Shell interest 30%) in the deep-water round
1.4 Block 4 exploration licence in the offshore Mexico Perdido.
This transaction is subject to regulatory approval.

South America
Argentina
Shales
We have more than 178 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 2020, we drilled and brought 23 wells on stream. We have interests
in 88 producing wells. We have a 90% interest in our operated Sierras
Blancas/Cruz de Lorena central processing facility.

Our non-operated portfolio consists of the following fields in the offshore
Santos Basin:
■ Sapinhoá field (Shell interest 30%, operated by Petrobras), straddling

the BM-S-9 and Entorno de Sapinhoá blocks, already unitised;
Lapa field (Shell interest 30%, operated by Total) in Block BM-S-9A;

■

■ Berbigão and Sururu fields (Shell interest 25%, subject to ongoing

discussions about unitisation agreements, operated by Petrobras) in
Block BM-S-11A;

■ Atapu field (Shell interest 4%, unitised in September 2019) in Block

■

BM-S-11A;
Lula field in Block BM-S-11, recently renamed the Tupi field because of
a court decision (subject to unitisation in effect since April 2019, Shell
interest 23%, operated by Petrobras);
Iracema field in Block BM-S-11 (Shell interest 25%, not subject to
unitisation, operated by Petrobras); and

■ Mero field in the Libra PSC area (Shell interest 20%, unitisation with
an adjoining area still subject to government approval, operated
by Petrobras).

In addition to the producing assets, we hold interests in two non-operated
exploration blocks in the Santos Basin:
■ BM-S-50, containing the Sagitário discovery (Shell interest 20%,

operated by Petrobras); and

■ Tres Marias (Shell interest 40%, operated by Petrobras).

In 2020, in a 50:50 partnership with Equinor, we acquired a 60% working
interest (Shell 30% interest) in the Bandurria Sur block, operated by YPF
S.A., in the Vaca Muerta Basin.

We also hold interests in two non-operated exploration blocks in the
Potiguar Basin:
■ POT-M-859 (Shell interest 40%, operated by Petrobras); and
■ POT-M-952 (Shell interest 40%, operated by Petrobras).

Offshore
We have two frontier exploration blocks offshore Argentina. For both
blocks, Shell is the operator with a 60% interest.

Brazil
Our total share of production in Brazil was an average of 394 thousand
boe/d in 2020.

■

Our operated portfolio consists of offshore assets in:
■

the Bijupirá and Salema fields (Shell interest 80%) and the BC-10
field (Shell interest 50%) in the Campos Basin;
the Gato do Mato field in the Santos Basin and the adjacent Sul de
Gato do Mato area (Shell interest 50%, after the completed sale
of a 30% stake to Ecopetrol in 2020), subject to unitisation, with
development options under evaluation; and

■ a total of 17 exploration blocks in the following areas:

– Barreirinhas Basin (10 blocks with Shell interests ranging from

50% to 100%);

– Santos Basin (Alto Cabo Frio Oeste PSC, Shell interest 55%;

Saturno PSC, Shell interest 45%);

– Potiguar Basin (POT-M-948, Shell interest 100%); and
– Campos Basin (C-M-659, Shell interest 40%; C-M-713, Shell interest

40%; C-M-791, Shell interest 40% and C-M-757, Shell interest
100%). (Block C-M-757 was awarded to Shell in the National
Petroleum Agency (ANP) permanent offer round in December
2020 and is awaiting ratification.)

P69 FPSO produces oil and gas in the pre-salt Santos basin, offshore Brazil.
Photo credit: Agência Petrobras.

The activities of operated and non-operated fields are currently supported
by 17 producing deep-water FPSOs, of which the 17th (P-70) delivered first
oil in June 2020. Two additional FPSOs are expected to be brought online
over the period 2022-2023 (Mero 1 and Mero 2). In August 2020, we
announced the final investment decision to contract the Mero 3 FPSO
vessel to be deployed at the Mero field. We agreed to sell our 23%
interest in the P-71 FPSO, the deal is expected to be completed in the
first quarter of 2021.

Rest of South America
We also have interests in Suriname and Uruguay.

TRADING AND SUPPLY
We market and trade crude oil from most of our Upstream operations.

Shell Annual Report and Accounts 2020Strategic 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)

Synthetic crude oil
(million barrels)

Bitumen
(million barrels)

Natural gas
(thousand million scf)

Total
(million boe)[A]

Shell subsidiaries

Increase/(decrease) in 2020:

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, 2020

At December 31, 2020

Shell share of joint ventures and associates

Increase/(decrease) in 2020:

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, 2020

At December 31, 2020

Total

Increase/(decrease) before taking production into account

Production

Increase/(decrease)

At January 1, 2020

At December 31, 2020

Reserves attributable to non-controlling interest in
Shell subsidiaries at December 31, 2020

(63)

–

(7)

(606)

(613)

4,374

3,761

(32)

–

(31)

(36)

(67)

283

216

(38)

(642)

(680)

4,657

3,977

–

(20)

607

644

–

(20)

607

644

322

–

(3,477)

–

228

(599)

(3,848)

(3,012)

(6,860)

28,992

22,132

(234)

–

(232)

(615)

(847)

4,829

3,982

(4,080)

(3,627)

(7,707)

33,821

26,114

(607)

–

(95)

(614)

(1,144)

(1,758)

9,980

8,222

(73)

–

(72)

(142)

(214)

1,116

902

(686)

(1,286)

(1,972)

11,096

9,124

–

322

[A] Natural gas volumes are converted into oil equivalent using a factor of 5,800 standard cubic feet (scf) per barrel.
[B] Included 40 million boe consumed in operations (natural gas: 225 thousand million scf; synthetic crude oil: 1 million barrels).
[C] Included 7 million boe consumed in operations (natural gas: 42 thousand million scf).

Shell Annual Report and Accounts 2020Strategic 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 265-282.

Before taking production into account, our proved reserves decreased by
686 million boe in 2020. This comprised of decreases of 614 million boe
from Shell subsidiaries and of decreases of 72 million boe from the Shell
share of joint ventures and associates.

After taking production into account, our proved reserves decreased by
1,972 million boe in 2020 to 9,124 million boe at December 31, 2020.

SHELL SUBSIDIARIES
Before taking production into account, Shell subsidiaries’ proved reserves
decreased by 614 million boe in 2020. This comprised decreases of
7 million barrels of crude oil and natural gas liquids and 664 million boe
(3,848 thousand million scf) of natural gas and an increase of 57 million
barrels of synthetic crude oil. The 614 million boe decrease is the net effect
of a net decrease of 607 million boe from revisions and reclassifications,
an increase of 88 million boe from extensions and discoveries, and a net
decrease of 95 million boe related to purchases and sales of minerals in
place. On January 15th 2021 Shell announced that the Shell Petroleum
Development Company of Nigeria Limited (SPDC) had completed the sale
of its 30% interest in Oil Mining Lease (OML17) in the Eastern Niger Delta,
and associated infrastructure. Proved reserves at end-2020 associated
with this transaction were 26 million boe.

After taking into account production of 1,144 million boe (of which
40 million boe were consumed in operations), Shell subsidiaries’ proved
reserves decreased by 1,758 million boe in 2020 to 8,222 million boe.
In 2020, Shell subsidiaries’ proved developed reserves (PD) decreased
by 872 million boe to 6,978 million boe, and proved undeveloped
reserves (PUD) decreased by 886 million boe to 1,244 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 72 million boe in 2020.
This comprised a decrease of 31 million barrels of crude oil and natural
gas liquids and a decrease of 41 million boe (232 thousand million scf)
of natural gas. The 72 million boe decrease comprises a net decrease
of 73 million boe from revisions and reclassifications and an increase
of 1 million boe from extensions and discoveries.

After taking into account production of 142 million boe (of which 7 million
boe were consumed in operations), the Shell share of joint ventures and
associates’ proved reserves decreased by 214 million boe to 902 million
boe at December 31, 2020.

The Shell share of joint ventures and associates’ PD decreased by
169 million boe to 791 million boe, and proved undeveloped reserves
(PUD) decreased by 45 million boe to 111 million boe.

For further information, see "Supplementary Information – oil and gas
(unaudited)" on pages 265-282.

PROVED UNDEVELOPED RESERVES
In 2020, Shell subsidiaries and the Shell share of joint ventures and
associates’ PUD decreased by 932 million boe to 1,355 million boe.
There were decreases of 339 million boe due to maturation to proved
developed – mainly 98 million boe in Brazil, 95 million boe in the USA
and 146 million boe spread across other countries. There were also
decreases of 682 million boe due to other revisions resulting mainly from
a combination of lower year average price and reductions in planned

capital expenditure (mainly in Australia (354 million boe), USA (121 million
boe) and Brazil (100 million boe)), partly offset by net increases of
89 million boe due to extensions and discoveries.

In addition to the maturation of 339 million boe from PUD to PD, 75 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, 2020,
amounted to 184 million boe, a decrease of 74 million boe compared with
the end of 2019. 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 2020 was driven mainly by changes in
Jansz-Io (Australia) and Clair (UK).

The fields with the largest PUD5+ at December 31, 2020, were Lunskoye
(Russia), Gorgon and Jansz-Io (Australia) and Clair (UK).

During 2020, we spent $6.5 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 2021-2023, we are contractually committed to
deliver to third parties, joint ventures and associates a total of 7,490 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 2021-2023, we expect to meet our delivery commitments
for almost all the areas in which they are carried, with an estimated 71.9%
coming from PD, 5.5% through the delivery of gas that becomes available
to us from paying royalties in cash, and 22.6% 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 770 billion scf (83% 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. But we expect to cover 86%
of our delivery commitments from existing developed resource
volumes and new projects, resulting in an expected true shortfall
of some 103 billion scf; and
In Malaysia, one of the third-party gas supply lines which was under
maintenance has not been repaired during 2020. Force majeure has
been declared, and no penalties have been incurred, resulting in an
expected true shortfall of some 72 billion scf (54% of the promised
gas delivery).

■

Shell Annual Report and Accounts 2020Strategic ReportSummary of proved oil and gas reserves of Shell subsidiaries and Shell share of joint ventures and associates (at December 31, 2020)

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 2020

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.

108

1,609

316

539

675

3,327

174

189

140

650

184

1,783

379

728

815

3,977

–

1,817

12,850

3,699

1,341

669

720

925

22,021

886

755

520

1,022

132

575

203

4,093

2,703

13,605

4,219

2,363

801

1,295

1,128

26,114

–

644

–

644

–

644

–

644

322

421

3,825

707

548

654

780

834

7,769

229

304

239

212

102

176

1,355

650

4,129

800

787

866

882

1,010

9,124

322

Shell Annual Report and Accounts 2020Strategic ReportOIL AND GAS INFORMATION continued

EXPLORATION
We continue to focus and high-grade our portfolio of growth options.

In February 2020:
We acquired a 70% interest as operator of the UK Southern North Sea
licences P2304 and P1929 which contain the Resolution gas discovery.
Our appraisal programme consists of 3D seismic and a contingent
appraisal well.

We added 4,553 square kilometres of exploration licences in the
UK and Netherlands Southern North Sea across multiple plays.

We signed a farm-out agreement with Ecopetrol into the Colombia
Offshore COL-5, Purple Angel, and Fuerte Sur blocks, as operator
with a 50% working interest. Government ratification was obtained
in December 2020.

Two exploration blocks, C-M-659 and C-M-713, awarded through Brazil’s
16th National Petroleum Agency (ANP) bid round, were ratified. These
Shell-operated blocks (Shell interest 40%) are located in the outboard
Campos Basin and cover an area of around 1,800 square kilometres.
The joint venture has a commitment to acquire 3D seismic in both blocks
and to drill one well in Block C-M-659.

In March 2020:
We completed the sale and purchase agreement signed in October
2019 for the acquisition of Total E&P Deep Offshore Borneo B.V. and all its
interests in the deep-water exploration Block CA-1 (Shell interest 86.95%)
production-sharing agreement (PSA). We assumed operatorship of Block
CA-1, with a total area of around 5,800 square kilometres which is largely
unexplored. The deal also gave us access to the Jagus East oil field which
lies within CA-1.

An exploration and production-sharing agreement for Block 55 in the
south-east of the Sultanate of Oman was ratified by Royal Decree. 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.

In US Gulf of Mexico Lease Sale 254, we acquired seven blocks across
multiple plays in the US Gulf of Mexico.

In July 2020, we signed a sales and purchase agreement for the Esenin
deal, a 50% farm-in into two Gazprom Neft-held blocks on the Gydan
peninsula in north-west Siberia, Russia. The deal was finalised in
November 2020. The blocks cover an area of around 3,850
square kilometres.

In September 2020, Shell and Kosmos Energy executed a portfolio
transaction under which Kosmos divested seven deep-water exploration
licences to Shell across four countries: Suriname, São Tomé and Príncipe,
Namibia and South Africa. Suriname (Block 42) represents a new country
entry for Shell with a 33.33% participating interest. In São Tomé and
Príncipe, Shell will expand its position in two blocks – (Block 6 by 25%
working interest and Block 11 by 35% working interest) – and enter two
others (10 and 13) with a 35% interest in both. In both Namibia and South
Africa, Shell will deepen its position by 45% working interest in the two
blocks, PEL0039 and NCUD. The agreement received all necessary
regulatory approvals and third-party consents in December 2020, with
the exception of South Africa which is expected to be completed in 2021.

In November 2020:
We agreed a farm-in transaction with CNOOC E&P Mexico, acquiring
a participating interest (Shell interest 30%) in the deep-water round
1.4 Block 4 exploration licence in the offshore Mexico Perdido. This
transaction is subject to regulatory approval.

We agreed a farm-in transaction with Impact Africa Limited to acquire
a 50% participating interest in the frontier deep-water blocks Transkei/
Algoa (ER252) off the east coast of South Africa, with an area of around
46,000 square kilometres. Pursuant to the agreement, we will secure the
operatorship from the counterparty. The agreement is subject to
customary conditions including regulatory approvals.

In the delayed US Gulf of Mexico Lease Sale 256 held in November
2020, Shell secured a further 19 blocks.

In December 2020:
Our exploration presence in offshore Egypt was bolstered by entries into
new blocks in the West Mediterranean and the Red Sea. For the West
Mediterranean, Herodotus Block 3 North Ras Kanais (Shell interest 30%)
was ratified in December 2020 with more than 4,400 square kilometres
of acreage. Red Sea Block 3 (Shell interest 90%, operator) was ratified in
December 2020 and covers more than 3,000 square kilometres in an
under-explored area south of the Gulf of Suez. Some blocks have been
awarded but are yet to be ratified; Red Sea Block 4 (Shell interest 63%,
operator) and Herodotus Blocks 6 (North Marina, Shell interest 63%)
and 7 (North Cleopatra Offshore, Shell interest 63%) all of which are
awaiting government ratification.

In Brazil, we were awarded Block C-M-757 (Outboard Campos
Basin) (Shell interest 100%) in the Permanent Offer Bid Round. This
is awaiting ratification.

In total, the net undeveloped acreage in our exploration portfolio
increased by around 9.4 million acres in 2020. The largest contributions
were licence entries in São Tomé and Príncipe, the Sultanate of Oman,
the Arab Republic of Egypt, Namibia and the Nation of Brunei. There
were some relinquishments and divestments, with the largest being in
Australia, Norway and Italy.

For further information, see "Supplementary Information – oil and gas
(unaudited)" on pages 265-282.

Shell Annual Report and Accounts 2020Strategic ReportLOCATION OF OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES

Location of oil and gas exploration and production activities [A] (at December 31, 2020)

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

Sao Tome and Principe

South Africa

Tanzania

Tunisia

North America – USA

Mexico

USA

North America – Canada

Canada

South America

Argentina

Bolivia

Brazil

Colombia

Suriname

Trinidad & 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 2020Strategic 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

Nigeria

Other [B]

Total Africa

North America

USA

Canada

Total North America

South America

Brazil

Other [B]

Total South America

Total

2020

Shell share of
joint ventures
and associates

2019

Shell share of
joint ventures
and associates

Shell
subsidiaries

Thousand barrels

2018

Shell share of
joint ventures
and associates

Shell
subsidiaries

—

11,342

6,914

30,061

609

48,926

387

37,769

18,494

74,854

20,816

30,101

182,421

7,416

48,620

8,485

57,105

165,169

8,128

173,297

131,339

5,072

136,411

—

1,084

17,094

—

9,050

7,629

33,773

—

729

605,576

35,586

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

—

38,326

[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 2020 production was lower than 10,100 thousand barrels or where specific disclosures are prohibited.

Synthetic crude oil

North America – Canada

Thousand barrels

2020

2019

2018

Shell
subsidiaries

18,920

19,076

19,514

Shell Annual Report and Accounts 2020Strategic 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

244,286

—

271,303

2020

Shell share of
joint ventures
and associates

2019

Shell share of
joint ventures
and associates

Shell
subsidiaries

—

35,918

—

187,627

65,012

13,005

301,562

—

21,025

46,750

86,999

226,791

40,549

4,301

—

411,979

838,394

—

131,648

—

131,648

—

159,846

—

142,418

—

118,153

420,417

—

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

—

104,946

190,982

27,438

323,366

—

255,383

164,451

419,834

—

45,015

73,914

141,576

9,609

270,114

—

830

2,786,850

573,541

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

—

244,286

160,648

—

134,807

—

118,253

413,708

—

633,580

20,646

686,956

20,840

—

633,580

20,646

686,956

20,840

Million standard cubic feet

2018

Shell share of
joint ventures
and associates

—

Shell
subsidiaries

45,027

40,368

44,833

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

—

678,834

3,241,721

702,330

[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 2020 production was lower than 41,795 million scf or where specific disclosures are prohibited.

Shell Annual Report and Accounts 2020Strategic ReportOIL AND GAS INFORMATION continued

AVERAGE REALISED PRICE BY GEOGRAPHICAL AREA

Crude oil and natural gas liquids

2020

Shell share of
joint ventures
and associates

Shell
subsidiaries

39.51

38.73

21.29

41.23

34.17

27.17

36.01

36.72

39.05

42.51

—

37.28

42.31

65.11

58.16

51.51

65.39

54.56

36.61

56.68

57.56

2019

Shell share of
joint ventures
and associates

58.08

65.25

—

65.05

$/barrel

2018

Shell
subsidiaries

Shell share of
joint ventures
and associates

68.23

64.06

61.63

71.02

61.87

43.72

62.67

63.96

64.24

70.66

—

70.43

$/barrel

2018

2020

2019

Shell
subsidiaries

31.13

50.27

48.90

2020

Shell share of
joint ventures
and associates

2019

Shell share of
joint ventures
and associates

Shell
subsidiaries

3.66

2.68

6.21

2.55

1.72

1.61

1.35

3.31

3.76

4.19

3.15

—

1.90

4.06

5.59

2.66

8.22

2.92

2.27

1.37

2.33

3.95

4.95

6.34

3.91

—

5.80

7.08

2.99

8.66

3.02

3.12

1.35

3.50

4.63

$/thousand scf

2018

Shell share of
joint ventures
and associates

4.06

7.06

4.15

—

5.74

Europe

Asia

Oceania

Africa

North America – USA

North America – Canada

South America

Total

Synthetic crude oil

North America – Canada

Natural gas

Europe

Asia

Oceania

Africa

North America – USA

North America – Canada

South America

Total

Shell Annual Report and Accounts 2020Strategic 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

2020

Shell share of
joint ventures
and associates

2019

Shell share of
joint ventures
and associates

Shell
subsidiaries

$/boe

2018

Shell
subsidiaries

Shell share of
joint ventures
and associates

20.50

5.54

8.92

9.43

12.50

10.52

5.12

8.49

11.44

6.83

20.23

—

6.94

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

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

Synthetic crude oil

North America – Canada

2020

2019

$/barrel

2018

Shell
subsidiaries

18.28

19.29

20.15

Shell Annual Report and Accounts 2020Strategic ReportOIL PRODUCTS

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]

Identified Items [B]

Adjusted Earnings [B]

Capital expenditure

Cash capital expenditure [B]

Refinery utilisation (%) [C]

Refinery processing intake (thousand b/d)

Oil Products sales volumes (thousand b/d)

$ million, except where indicated

2020

(494)

2019

6,139

2018

6,025

134,930

288,279

327,022

988

(93)

13,511

10,473

(898)

(6,489)

5,995

3,236

3,328

2,063

4,710

1,179

273

15,730

4,461

1,319

(93)

6,231

4,654

4,907

2,564

6,561

1,101

393

17,615

3,165

1,211

231

5,794

4,389

4,643

2,648

6,783

[A] See Note 4 to the “Consolidated Financial Statements” on pages 230-232. Segment earnings are presented on a current cost of supplies basis.
[B] See “Non-GAAP measures reconciliations” on pages 305-306.
[C] With effect from January 1, 2020, Shell discloses utilisation instead of availability to improve transparency on refinery production volumes. Utilisation is defined as the actual usage of the plants as

a percentage of the rated capacity.

OVERVIEW
Our Oil Products business is part of an integrated value chain that 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,
low-carbon fuels, lubricants, bitumen and sulphur. We also trade crude
oil, oil products and petrochemicals. We provide access to electric
vehicle charge points at home, at work and on-the-go, including at
our forecourts and at a range of public locations.

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 Low-Carbon Fuels
(biofuels and renewable natural gas (RNG)). In Trading and Supply, we
trade crude oil, oil products and petrochemicals to optimise feedstocks
for Refining, to supply our Marketing businesses and third parties, and
for our own profit. We also manage Oil Sands activities – the extraction
of bitumen from mined Oil Sands and its conversion into synthetic crude
oil. Our Oil Sands activities were previously reported under Upstream.
As of January 1, 2020, they are reported under Oil Products.

BUSINESS CONDITIONS
In 2020, oil markets experienced unprecedented developments in
demand driven by the COVID-19 pandemic. At the start of 2020, global
oil demand for the year was expected to grow by 1.2 million barrels per
day (b/d). Then in January, oil demand started to contract because
demand fell in China as lockdown was imposed to contain the virus
outbreak. In subsequent months, oil demand contracted further as the
outbreak in China evolved into a global pandemic and lockdowns were
introduced across the world. In April, oil demand fell to its lowest level,
around 22 million b/d below year-average demand in 2019, according
to an estimate of the International Energy Agency (IEA). Contraction
of such magnitude has never been recorded before. Country lockdowns
deeply impacted transportation sectors, especially passenger road
and passenger air in Organisation for Economic Co-operation and
Development (OECD) economies. In subsequent months, oil demand
started recovering, but only partially, because resurgences of COVID-19
triggered re-imposition of social distancing and travel restrictions. By
the fourth quarter, global oil demand was still estimated to be around
5.5 million b/d below the 2019 level, according to the Oil Market Report

published by the IEA in January 2021. Averaged for the full year, oil
demand contracted by around 9 million b/d, or 9%, to 91.2 million b/d.
Oil demand fell by 5.7 million b/d in OECD economies, and by 3.2 million
b/d in non-OECD economies. By contrast, oil demand in 2019 was
0.8 million b/d higher than in 2018.

Industry gross refining margins weakened in 2020 because demand
for oil products was significantly reduced by the fall in economic activity
and increase in travel restrictions caused by COVID-19. Demand for
transportation fuels such as gasoline for passenger cars and kerosene
for air transportation was hit particularly hard. During most of the second
half of the year, mobility and the resulting demand for transportation fuels
improved in some parts of the world, especially in China and South-east
Asia. At the end of the year, new waves of COVID-19 infections in Europe
and the Americas severely limited any global increase in demand for
transportation fuels.

See “Market overview” on pages 38-40.

REFINERY UTILISATION
With effect from January 1, 2020, Shell discloses utilisation instead
of availability to improve transparency on refinery production volumes.
Utilisation is defined as the actual usage of the plants as a percentage
of the rated capacity.

Utilisation was 72% in 2020, compared with 78% in 2019. Lower
utilisation in 2020 was mainly because of lower demand and economic
optimisation of sites.

Shell Annual Report and Accounts 2020Strategic ReportOIL PRODUCTS SALES
Oil Products sales volumes decreased by 28% in 2020 compared with
2019 The decrease in sales volumes was largely driven by the COVID-19
pandemic affecting Marketing volumes. There was also a reporting
change effective from January 1, 2020 and certain additional Oil Products
contracts held for trading purposes were reported on a net rather than
a gross basis. This reporting change decreased sales volumes by 10%.

EARNINGS 2020-2019
Segment earnings in 2020 came to a loss of $494 million, 108% lower
than in 2019. Earnings in 2020 included a net charge of $6,489 million,
compared with a net charge of $93 million in 2019 which is described
at the end of this section.

Excluding the impact of the net charges, earnings in 2020 were $5,995
million, compared with $6,231 million in 2019. Marketing accounted for 76%
of these 2020 earnings, Refining for -19% and Trading & Supply for 43%.

The decrease in Oil Products earnings, excluding the net charge, was
$236 million (4%) lower compared with 2019. This was driven by lower
Refining and Trading margins (around $2,400 million), lower Marketing
margins (around $600 million), partly offset by lower operating expenses
(around $2,000 million) and other items mainly including tax movements
(around $700 million).

The decrease in earnings of $236 million, analysed by class of business
was as follows:
■ Refining and Trading earnings were $101 million lower than in 2019,
mainly because of lower realised refining margins driven by lower
demand because of the pandemic and its effect on the economy.
This was partly offset by higher earnings from crude and oil products
trading and optimisation, lower operating expenses and favourable
deferred tax movements.

■ Marketing earnings were $135 million lower than in 2019, mainly driven
by lower sales volumes due to the impact of the pandemic. This was
largely offset by strong margins in Retail and Lubricants on account
of better margin management, higher penetration of premium fuels
and lower operating expenses.

Segment earnings in 2020 included a net charge of $6,489 million.

This included:
■

impairment charges of $5,530 million (across sites, reflecting revisions
to medium- and long-term price outlook assumptions in light of:
changes in supply and demand fundamentals in the energy market;
macroeconomic conditions; the COVID-19 pandemic; expenditure
at Pulau Bukom in Singapore including transformation; and the
shutdown of the Convent refinery in Louisiana, USA;
restructuring costs of $365 million (mainly shutdown of Convent,
Bukom transformation and various initiatives across Oil Products);

■

■ other net charges of $552 million (mainly onerous contract

provisions due to shutdown of Convent); and

■ a net charge of $101 million due to the fair value accounting

of commodity derivatives.

These charges were partly offset by:
■ net gains from disposal of assets of $59 million.

Segment earnings in 2019 included a net charge of $93 million.

This included:
■

impairment charges of $337 million (mainly expenditure at Bukom
and other assets);

■ costs of $84 million relating to restructuring (various initiatives

across Oil Products);

■ net charge of $66 million due to the fair value accounting of

commodity derivatives; and

■ other net charges of $26 million (mainly provision for discount

rate change).

The above were partly offset by:
■ net gains of $329 million from disposal of assets; and
■ gains from one-off tax items of $91 million (tax rate changes

in Alberta, Canada).

EARNINGS 2019-2018
Segment earnings in 2019 of $6,139 million were 2% higher than in 2018.
Earnings in 2019 included a net charge of $93 million described above.
Earnings in 2018 included a net gain of $231 million, reflecting gains
on disposal of assets of $273 million (mainly our Oil Products assets
in Argentina and other smaller disposals), a net gain from fair value
accounting of commodity derivatives of $224 million, gains from one-off
tax items of $91 million (mainly corporate income tax rate changes in the
Netherlands and the USA) and other net gains of $50 million (which
included a one-off gain from the Ontario cap-and-trade scheme).
These were partly offset by impairment charges of $309 million
and redundancy and restructuring charges of $98 million.

Excluding the impact of these items, earnings in 2019 were $6,231 million,
compared with $5,794 million in 2018. Marketing accounted for 75% of
these 2019 earnings, Refining for 4% and Trading & Supply for 21%.

The increase in Oil Products earnings, excluding the net charge, was
$437 million (8%) compared with 2018. The increase was driven by higher
Marketing margins (around $500 million), benefit from foreign exchange
(around $250 million) and the change in accounting policy IFRS 16
(around $140 million). This was partly offset by lower Refining and Trading
margins (around $400 million) and other impacts resulting in a net charge
of around $50 million. Marketing margins benefited from stronger unit
margins. These were partly offset by lower earnings from Raízen, the joint
venture (Shell interest 50%) in Brazil, caused by adverse foreign exchange
and lower fuel margins. Refining and Trading margins were lower than
in 2018, mainly because of lower realised refining margins caused by
adverse price variance across all regions, driven by lower global
demand growth and an increase in worldwide refining capacity.

CASH CAPITAL EXPENDITURE
Cash capital expenditure (cash capex) was $3.3 billion in 2020,
compared with $4.9 billion in 2019.

Cash capital expenditure in Refining and Trading decreased by
$1.3 billion mainly because of cash preservation initiatives (lower
capital expenditure spends including turnaround deferrals). In Marketing,
cash capital expenditure decreased by $0.3 billion as a result of cash
preservation initiatives and reduced spending in US pipelines projects
as they are nearing completion. Our cash capital expenditure is
expected to be around $4-4.5 billion in 2021.

Shell Annual Report and Accounts 2020Strategic ReportOIL PRODUCTS continued

■

PORTFOLIO AND BUSINESS DEVELOPMENTS
Shell announced its plans to reshape its portfolio of assets and products
to meet the cleaner energy needs of its customers in the coming decades.
Significant portfolio and business developments during 2020 included:
■

In the USA, in February 2020, our subsidiary Equilon Enterprises LLC,
doing business as Shell Oil Products US (Shell) completed the sale of
the Martinez refinery to PBF Holding Company LLC in the USA for a
consideration of $1.2 billion, which included the refinery and inventory.
■ Also in the USA, in March 2020, we announced our intention to sell the
Puget Sound refinery in Washington State and Mobile site in Alabama.
In August 2020, Pilipinas Shell Petroleum Corporation, a subsidiary
of Royal Dutch Shell in which we have an interest of 55%, announced
that it will permanently shut down its Tabangao Refinery in Batangas
City, Philippines, and convert it to a full import terminal.
In November 2020, we announced that we had begun transforming
our Shell Pulau Bukom manufacturing site in Singapore into an energy
and chemicals park. This is part of our strategy to integrate our refining
portfolio with Chemicals, resulting in approximately six high-value
energy and chemicals parks, of which Bukom will be one. Bukom
will switch from a crude-oil, fuels-based product slate towards new
low-carbon value chains. Crude processing capacity at Bukom
will be reduced by around half.
In November 2020, we announced that we are shutting down the
Convent Refinery in Louisiana, USA. Shell continues to assess market
interest for the potential divestment of the asset during and after the
shutdown, but does not intend to operate it in the future.
In January 2021, Shell reached an agreement with Postlane for the
sale of A/S Dansk Shell in Denmark, which consists of the Fredericia
Refinery and local trading and supply activities.
In January 2021, Shell signed an agreement to acquire 100% of
ubitricity, a leading European provider of on-street charging for
electric vehicles. The acquisition was completed in February 2021.
In January 2021, Shell announced the signing of commercial
agreements to invest in Varennes Carbon Recycling, the first waste
to low-carbon fuels plant in Québec, Canada. Shell will have a 40%
interest in the plant, which will use technology developed by Enerkem.
The facility will produce low-carbon fuels and renewable chemicals
products from non-recyclable waste. Commissioning of the first phase
of the facility is scheduled for 2023.

■

BUSINESS AND PROPERTY
Refining and Trading
Refining
We have interests in 13 refineries worldwide, (after converting Tabangao
in the Philippines into a terminal and deciding in November 2020 to shut
down Convent, in Louisiana, USA). We have the capacity to process a
total of 2.2 million barrels of crude oil per day (Shell share, before it was
announced that Bukom’s crude capacity would reduce by around 200
thousand b/d). The distribution of our refining capacity is 46% in Europe
and Africa, 33% in the Americas and 21% in Asia.

Shell’s Refining business is transforming. We will further concentrate
our refineries portfolio to meet our strategic aims and to capitalise
on the strong integration between our customers, trading operations,
chemical plants and, increasingly, our low-carbon fuels output.

The six sites expected to form our energy and chemicals parks include
Deer Park and Norco in the USA, Scotford in Canada, Pernis in the
Netherlands, Rheinland in Germany and Pulau Bukom in Singapore,

Our Bukom refinery will move from a crude-oil, fuels-based product slate
towards new, low-carbon products. It will reduce its crude processing
capacity as a result by around 200 thousand b/d sometime in July 2021.

In 2020, Pilipinas Shell Petroleum Corporation (PSPC) approved the
transformation of the Tabangao refinery into an import terminal. Shell
also decided to shut down the Convent Refinery in Louisiana, USA,
starting the process in November 2020.

Trading and Supply
Through our main trading offices in London, Houston, Singapore and
Rotterdam, we trade crude oil, 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.

Operating in around 25 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.

Shipping and Maritime enables the safe delivery of the Shell Trading
and Supply 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.

Oil Sands
Synthetic crude oil is produced by mining bitumen-saturated sands,
extracting the bitumen, and transporting it to a processing facility where
hydrogen is added to make a wide range of feedstocks for refineries.
The Athabasca Oil Sands Project (AOSP) includes the Albian Sands
mining and extraction operations, the Scotford upgrader and the
Quest carbon capture and storage (CCS) project.

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,
Oil Sands is reported under Oil Products. It was previously reported
under Upstream. Prior-period information has been restated for
comparative purposes.

The Quest CCS facility in Alberta, Canada.

Shell Annual Report and Accounts 2020Strategic ReportMarketing
Retail
Shell is the world’s largest mobility retailer, by number of sites, with almost
46,000 service stations operating in nearly 80 countries at the end of
2020. We operate different models across these markets, from full
ownership of retail sites through to brand licensing agreements.

Every day, around 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, through which they can obtain items including
fuel cards, road services and carbon-neutral offers.

We have more than 100 years’ experience in fuel development. Aided
by our 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 64 countries in 2020.

In a growing number of markets, we are offering customers lower-emission
products and services, including biofuels, electric vehicle fast charging,
hydrogen and various gaseous fuels such as LNG. In 2020, we launched
carbon-neutral driving offers in five new countries. Across the seven
countries where we now offer carbon-neutral driving, we helped offset
customer emissions from more than 1 billion litres of fuel by buying carbon
credits linked to projects that plant and protect forests, wetlands and
other natural ecosystems.

Shell operates more than 60,000 electric vehicle charge points. This includes
over 1,000 charge points at Shell forecourts and new locations as well as
operated charge points owned by our individual and business customers.

In January 2021, Shell signed an agreement to acquire 100% of ubitricity,
a leading European provider of on-street charging for electric vehicles.
The move represents a further step in Shell’s efforts to support drivers as
they switch to lower-carbon transport. The acquisition was completed
in February 2021.

We also manufacture premium lubricants for conventional vehicles
and Shell E-fluids for electric vehicles using gas-to-liquids (GTL) base
oils that are made from natural gas at our Pearl GTL plant in Qatar
(see “Integrated Gas” on pages 46-52).

We have a global lubricants supply chain with a network of four base oil
manufacturing plants, 32 lubricant blending plants, eight grease plants
and four GTL base oil storage hubs.

Through our marine activities, we primarily provide the shipping and
maritime sectors with lubricants, but also with fuels, chemical products and
related technical and digital services. We supply 259 grades of lubricants
and six types of fuel to vessels worldwide, ranging from large ocean-going
tankers to small fishing boats.

Business-to-Business
Our Business-to-Business (B2B) activities encompass the sale of fuels,
speciality products and services to a broad range of commercial customers.

Shell Aviation provides aviation fuel, lubricants and low-carbon solutions
globally. In 2020, we collaborated with many organisations to develop
a scalable supply of sustainable aviation fuel made from renewable raw
materials and waste products. In partnership with World Energy, Shell
Aviation has agreed to supply up to 6 million gallons of sustainable
aviation fuel to Amazon Air.

Shell Bitumen supplies customers across 60 markets and provides enough
bitumen to resurface 500 kilometres of road lanes every day. It also
invests in 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. It also develops
new technologies for sulphur that benefit sectors such as agriculture.

Pipelines
Shell Pipeline Company LP (Shell interest 100%) operates 9 tank farms
across the USA, owns all of the interest in one such tank farm and, through
its subsidiaries, has a majority ownership interest in the other 8 tank farms.
It transports around 2 billion barrels of crude oil and refined products a
year through around 6,000 kilometres of pipelines in the Gulf of Mexico
and five US states. Our various non-Shell-operated ownership interests
provide a further 14,000 pipeline kilometres.

We carry more than 40 types of crude oil and more than 20 grades of fuel
and chemicals, including gasoline, diesel, aviation fuel, chemicals and ethylene.

Shell offers electric vehicle drivers access to Shell Recharge points in 19 countries.

We have around 50 hydrogen retail sites in Europe and North America,
where drivers can fill up their vehicles with hydrogen fuel.

Lubricants
Shell Lubricants has been the number one global finished lubricants supplier
in terms of market share for 14 consecutive years, according to Kline &
Company data for 2019. Across more than 160 markets, we produce, market
and sell technically advanced lubricants for passenger cars, motorcycles,
trucks, coaches, and machinery used in the manufacturing, mining, power
generation, agriculture and construction sectors.

The Falcon pipeline will run through 155 kilometres of Pennsylvania, West Virginia and Ohio.

Shell Annual Report and Accounts 2020Strategic ReportOIL PRODUCTS continued

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
pipelines and terminals for crude oil and refined products. These serve
as key infrastructure that transports crude oil produced onshore and
offshore to the refining markets of the US Gulf Coast and Midwest. Shell
Midstream Partners also delivers refined products from these markets to
major demand centres. Its assets also include interests in entities that own
natural gas and refinery gas pipelines. These transport offshore natural
gas to market hubs, and deliver refinery gas from plants and refineries to
chemical sites along the Gulf Coast. Shell controls the general partner.

See "Governance – Related Party Transactions" on page 185 for
information on transactions between Shell and Shell Midstream
Partners, L.P.

Low-Carbon Fuels
Biofuels
In 2020, around 9.5 billion litres of biofuels went into Shell's fuels
worldwide, which includes Raízen sales.

Harvesting crops used for the processing of biofuel by Raízen, Brazil.

Raízen, our joint venture in Brazil (Shell interest 50%), produced around
2.5 billion litres of ethanol and around 4.4 million tonnes of sugar from
sugar cane in 2020. In 2015, Raízen opened its first cellulosic ethanol
plant at its Costa Pinto mill in Brazil. This produced almost 25 million litres
of ethanol in 2020.

In February 2021, Raízen announced the acquisition of Biosev, adding
an additional 50% of production capacity in low-carbon fuels. It will allow
to increase Raízen’s bioethanol production capacity to a 3.75 billion litres
a year. The transaction contributes to Shell’s target to be a net-zero
emissions energy business by 2050, in step with society.

RNG
Renewable natural gas (RNG), also known as biomethane, is gas derived
from processing organic waste in a controlled environment until it is fully
interchangeable with conventional natural gas. Shell has taken a final
investment decision to construct, own and operate its first renewable
compressed natural gas (R-CNG) fuelling site in the USA. This will be at
Shell’s products distribution complex in Carson, California. The R-CNG
will be sourced from Shell’s portfolio of anaerobic digestion projects.

BUSINESS ACTIVITIES WITH SUDAN, SYRIA AND CUBA
Sudan
We ceased all operational activities in Sudan in 2008. In 2020, we
registered a trademark right in Sudan (north) and paid $8 to the General
Intellectual Property Register Office, and $79 in agent and handling fees.

The renewal of the trademark rights is not indicative of any sales of
products in Sudan.

Syria
We ceased all operational activities in Syria in 2011. In 2020, we
renewed our trademark rights in Syria and paid $1,914 to the Directorate
of Industrial and Commercial Property Protection, and $551 in agent and
handling fees. The renewal of the trademark rights is not indicative of any
sales of products in Syria.

Cuba
We do not have any operational activities in Cuba. In January 2021,
we renewed a trademark right in Cuba and paid $300 to the Cuban
Industrial Property Office, and $420 in agent and handling fees.
The registration of this trademark right is not indicative of any sales
of products in Cuba.

OIL PRODUCTS DATA TABLES
The tables below reflect Shell subsidiaries and instances where Shell
owns the crude oil or feedstocks processed by a refinery. The tables
include Martinez refinery until the date of divestment in February 2020,
Tabangao refinery until the date of transformation into a terminal in
August 2020 and Convent refinery until the date of shutdown in
December 2020. Other joint ventures and associates are only
included where explicitly stated.

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

Total

2020

35.03

2019

54.97

$/barrel

2018

59.94

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

joint ventures and associates.

Crude distillation capacity [A]

Europe

Asia

Africa

Americas

Total

Thousand b/stream day [B]

2020

1,059

573

1,028

2,750

2019

1,057

767

1,171

3,085

2018

1,056

767

1,261

3,174

[A] Average operating capacity for the year, excluding mothballed capacity.
[B] Stream day capacity is the maximum capacity with no allowance for downtime.

Shell Annual Report and Accounts 2020Strategic ReportOil products – crude oil processed [A]

Oil Products sales volumes [A][B]

Europe

Asia

Africa

Americas

Total

2020

810

292

719

1,875

Thousand b/d

2019

829

498

1,004

2,386

2018

897

545

Europe

Gasolines

Kerosines

1,041

Gas/Diesel oils

2,549

Fuel oil

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

Other products

Refinery processing intake [A]

Crude oil

Feedstocks

Total

Europe

Asia

Africa

Americas

Total

Thousand b/d

2020

1,876

187

2,063

854

302

853

2019

2,342

222

2,564

875

517

1,117

2,063

2,564

2018

2,434

214

2,648

896

543

1,143

2,648

[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

2020

2019

2018

771

158

774

140

279

952

417

818

223

282

966

321

965

284

321

Total

Asia

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

2,122

2,692

2,858

Total product sales [C][D]

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

Gasolines

Kerosines

Gas/Diesel oils

Fuel oil

Other products

Total

Thousand b/d

2020

2019

2018

224

165

610

(42)

(19)

938

346

455

308

383

334

317

720

138

278

323

294

745

178

314

1,787

1,854

408

208

535

330

518

373

210

543

407

620

1,590

2,000

2,153

120

1,136

103

496

240

137

134

1,419

1,446

239

582

120

277

236

567

117

276

2,062

2,637

2,642

1,749

377

1,620

354

610

4,710

2,207

777

1,907

590

1,079

6,561

2,184

750

1,929

704

1,216

6,783

[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 2020 was a reduction in oil product sales of approximately 1,284,000 b/d
(2019: 546,000 b/d; 2018: 458,000 b/d). With effect from January 1, 2020 certain
contracts held for trading purposes and reported net for Europe and Asia regions are
consolidated in Europe.

[D] Reported volumes in 2020 and 2019 include the Shell joint ventures’ sales volumes from

key countries.

Shell Annual Report and Accounts 2020Strategic ReportOIL PRODUCTS continued

MANUFACTURING PLANTS AT DECEMBER 31, 2020

Refineries in operation

Location

Asset class

Shell interest (%)
[A]

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

Crude
distillation
capacity

Thermal
cracking/
visbreaking/
coking

Catalytic
cracking

Hydro-
cracking

Europe

Denmark

Germany

Netherlands

Asia

Singapore

Africa

South Africa

Americas

Argentina

Canada

Alberta

Ontario

USA

Louisiana

Texas

Washington

Fredericia

Miro [C]

Rheinland

Schwedt [C]

Pernis

Pulau Bukom [D]

Durban [C]

Buenos Aires [C]

Scotford

Sarnia

Norco

Deer Park

Puget Sound

100

313

354

233

443

504

180

108

100

250

341

149

—

119

—

103

—

[A] Shell interest is rounded to the nearest whole percentage point; Shell share of production capacity may differ.
[B] Stream day capacity is the maximum capacity with no allowance for downtime.
[C] Not operated by Shell
[D] Bukom capacity is as on December 31, 2020 prior to the transformation. Crude processing capacity is expected to decrease by around 200 thousand b/d after the transformation sometime in July 2021.

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

BRANDED RETAIL SITES [A]

Europe

Asia [B]

Oceania [B]

Africa

Americas

Total

[A] Excludes sites closed for more than six months.
[B] Asia includes Turkey and Russia; Oceania includes French Polynesia, Guam, Palau and New Caledonia.

2020

8,071

10,387

1,071

2,622

23,461

45,612

2019

7,978

10,138

1,038

2,494

23,021

44,669

2018

7,888

9,754

1,030

2,502

23,223

44,397

Shell Annual Report and Accounts 2020Strategic Report

CHEMICALS

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]

Identified Items [B]

Adjusted Earnings [B]

Capital expenditure

Cash capital expenditure [B]

Chemical plant utilisation (%) [C]

Chemicals sales volumes (thousand tonnes)

$ million, except where indicated

2019

478

2018

1,884

17,485

23,568

546

(7)

3,430

1,074

(2)

(263)

741

4,068

4,090

15,223

684

(53)

3,594

1,034

339

(192)

2,076

3,140

3,212

17,644

2020

808

14,571

567

—

3,235

1,116

(154)

962

2,608

2,640

15,036

[A] See Note 4 to the “Consolidated Financial Statements” on pages 230-232. Segment earnings are presented on a current cost of supplies basis.
[B] See “Non-GAAP measures reconciliations” on pages 305-306
[C] With effect from January 1, 2020, Shell discloses utilisation instead of availability to improve transparency on chemicals production volumes. Utilisation is defined as the actual usage of the plants

as a percentage of the rated capacity.

OVERVIEW
Our Chemicals business supplies customers with a range of base and
intermediate chemicals used to make products that people use every
day. We also have major manufacturing plants which are located
close to refineries, and our own marketing network.

BUSINESS CONDITIONS
Cracker margins were volatile during 2020 because of how COVID-19
affected demand. Overall margins, however, were broadly similar to those
in 2019. The effect on chemicals depended on end use. Some sectors, such
as automotive, were hit particularly hard, while others, such as packaging,
showed robust demand. Chinese demand recovered relatively quickly
because the virus was swiftly brought under control. Overall chemicals
demand was not hit as hard as GDP. West European cracker margins
were supported by the sudden fall in the price of crude oil in March and
April. The fact that crude oil was at a lower price than in 2019 reduced
naphtha feedstock costs, which reduced product prices. This in turn put
pressure on US ethane cracker margins, although plentiful ethane supply
helped counter the impact.

EARNINGS 2020-2019
Segment earnings in 2020 of $808 million were 69% higher than in 2019.
Earnings in 2020 included a net charge of $154 million, compared with a net
charge in 2019 of $263 million, which is described at the end of this section.

Excluding the impact of these charges, earnings in 2020 were
$962 million, compared with $741 million in 2019.

The increase in Chemicals earnings, excluding the net charges, was
$221 million (30%) compared with 2019. This was driven by higher
margins (around $130 million) because of a favourable price environment,
lower operating expenses (around $50 million) as a result of various
initiatives, and favourable tax movements (around $60 million) partly
offset by other costs (around $20 million).

Segment earnings in 2020 included a net charge of $154 million.

This included:
■

impairment charges of $4 million;

■ costs related to restructuring of $38 million (various initiatives across

See “Market overview” on pages 38-40.

Chemicals);

CHEMICAL PLANT UTILISATION
With effect from January 1, 2020, Shell discloses utilisation instead of
availability to improve transparency on chemicals production volumes.
Utilisation is defined as the actual usage of the plants as a percentage
of the rated capacity.

Chemicals manufacturing plant utilisation was 80% in 2020 compared
with 76% in the full year 2019, mainly because of higher maintenance
activities in Asia and Europe in 2019, and the impact of strike actions
in the Netherlands in 2019.

CHEMICALS SALES
In 2020, Chemicals sales volumes were 15,036 thousand tonnes, which
was 1% lower than 2019 sales volumes of 15,223 thousand tonnes due
to lower demand.

■ net loss from disposal of assets of $1 million; and
■ other net charges of $115 million (mainly legal provision).

These charges were partly offset by:
■ a net gain from fair value accounting of commodity derivatives

of $4 million.

Segment earnings in 2019 included a net charge of $263 million.

This included:
■ net charges of $247 million (mainly legal provisions);
■

loss of $11 million from disposal of assets;

■ costs of $5 million related to restructuring; and
■

impairment charge of $4 million.

These charges were partly offset by:
■ gain from one-off tax items of $5 million (tax rate changes in

Alberta, Canada).

Shell Annual Report and Accounts 2020Strategic ReportCHEMICALS continued

EARNINGS 2019-2018
Segment earnings in 2019 of $478 million were 75% lower than in 2018.
Earnings in 2019 included a net charge of $263 million described above.
Earnings in 2018 included a net charge of $192 million, reflecting
impairment charges of $76 million, a net loss from disposal of $50 million,
redundancy and restructuring charges of $2 million, and other net
charges of $97 million (related to onerous contracts in connection with
decommissioning the Stanlow site). These were partly offset by gains
from one-off tax items of $27 million, (mainly corporate income tax
rate changes in the Netherlands), and a net gain of $6 million from
fair value accounting of commodity derivatives.

Excluding the impact of these items, earnings in 2019 were $741 million,
compared with $2,076 million in 2018.

The decrease in earnings, excluding the net charges, was $1,335 million
(64%) compared with 2018. This was driven by lower margins (around
$1,500 million), partly offset by lower operating costs (around $140 million)
and the change in accounting policy relating to IFRS 16 leases (around
$20 million). Margins were impacted by lower realised base chemicals
and intermediate margins and by higher maintenance activities in Asia
and Europe, including the impact of strike action in the Netherlands in 2019.

Marketing
In 2020, we supplied more than 15 million tonnes of petrochemicals
to around 1,000 industrial customers worldwide. Products made from
chemicals improve everyday life in health care, construction, transport,
electronics, agriculture and sports. As global demand for chemicals
increases, we plan to grow our business, by understanding and
responding to our customers’ needs.

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.

CHEMICALS DATA TABLES
The tables below reflect Shell subsidiaries and instances where Shell owns
the crude oil or feedstocks processed by a refinery. The tables also include
Martinez until the date of divestment in February 2020. Other joint
ventures and associates are only included where explicitly stated.

CASH CAPITAL EXPENDITURE
Cash capital expenditure (cash capex) was $2.6 billion in 2020,
compared with $4.1 billion in 2019.

Ethylene capacity [A]

Cash capex decreased by $1.5 billion, mainly because of lower spend
on account of the COVID-19 pandemic impact in the construction of
our cracker facilities in Pennsylvania and cash preservation initiatives.
Our cash capex expenditure is expected to be around $3 billion to
$3.5 billion in 2021.

Europe

Asia

Americas

Total

Thousand tonnes/year

2020

1,701

2,530

2,268

6,499

2019

1,701

2,530

2,268

6,499

2018

1,701

2,529

2,268

6,498

PORTFOLIO AND BUSINESS DEVELOPMENTS
Significant portfolio and business developments during 2020:
In the USA, in March 2020, we announced our intention to
■
sell the Mobile site in Alabama.

BUSINESS AND PROPERTY
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. We are expanding our product portfolio to
include sustainable chemicals, more intermediates and performance
chemicals such as polyethylene and polycarbonate. We operate chemical
plants worldwide and have a global balance of locations, feedstocks and
products that allows us to seize commercial opportunities and get through
cycles of lower margins.

Shell’s Chemicals business is transforming and will be further integrated
with our Refining business. In addition to our standalone, chemicals-only
production sites, the six sites (Deer Park and Norco in the USA, Scotford
in Canada, Pernis in the Netherlands, Rheinland in Germany and Pulau
Bukom in Singapore) are expected to form our energy and chemicals
parks. Growth will shift towards performance chemicals and
recycled feedstocks.

[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.

Chemicals sales volumes [A]

2020

2019

2018

Europe

Base chemicals

Intermediates and others

Total

Asia

Base chemicals

Intermediates and others

Total

Americas

Base chemicals

Intermediates and others

Total

Total product sales

Base chemicals

Intermediates and others

3,490

1,990

5,480

1,192

2,969

4,161

2,936

2,459

5,395

7,618

7,418

3,666

1,872

5,538

1,057

2,848

3,905

3,261

2,519

5,780

7,984

7,239

4,069

1,994

6,063

2,140

3,082

5,222

3,842

2,517

6,359

10,051

7,593

Total

15,036

15,223

17,644

[A] Excludes feedstock trading and by-products.

Shell Annual Report and Accounts 2020Strategic ReportMajor chemical plants in operation [A]

Europe

Germany

Netherlands

Asia

China

Singapore

Americas

Canada

USA

Total

Location

Rheinland

Moerdijk

Mossmorran [D]

Nanhai [D]

Jurong Island [E]

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
[E] The polyethylene, polypropylene and olefins production mentioned refers to Shell share of capacity of our non-operated joint ventures Petchem Corporation of Singapore (PCS) and The Polyolefin

Company (TPC) which are in Jurong Island.

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

Mobile

Puget Sound

A, I, O

A, I

Shell Annual Report and Accounts 2020Strategic ReportCORPORATE

Earnings

Segment earnings

Comprising:

Net interest [A]

Taxation and other [B]

Identified Items

Adjusted Earnings

2020

(2,952)

2019

(3,273)

$ million

2018

(1,479)

(2,991)

(3,080)

(2,075)

460

(194)

109

596

327

(3,412)

(3,383)

(1,806)

[A] Mainly Shell’s interest expense (excluding accretion expense) and interest income.
[B] Other earnings mainly comprise net foreign exchange gains and losses on financing activities, headquarters and central functions’ costs not recovered from business segments, and net gains

on sale of properties. This also includes Shell's share of joint ventures and associates' interest income/(expense) and net foreign exchange gains/(losses) on financing activities.

OVERVIEW
The Corporate segment covers the non-operating activities supporting
Shell. It comprises Shell’s holdings and treasury organisation, self-insurance
activities and headquarters and central functions. All finance expense and
income and related taxes are included in Corporate segment earnings
rather than in the earnings of business segments.

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.

The holdings and treasury organisation manages many of the Corporate
entities. It is the point of contact between Shell and external capital
markets, conducting a wide range of transactions, such as raising
debt instruments and transacting foreign exchange. Treasury centres
in London and Singapore support these activities.

Headquarters and central functions provide business support in
communications, finance, health, human resources, information technology,
legal services, real estate and security. They also provide support for
shareholder-related activities. The central functions are supported by
business service centres, which process transactions, manage data and
produce statutory returns, among other services. Most headquarters and
central-function costs are recovered from the business segments. Costs
that are not recovered are retained in Corporate.

EARNINGS 2020-2018
Segment earnings in 2020 were an expense of $2,952 million,
compared with $3,273 million in 2019 and $1,479 million in 2018.

Net interest decreased by $89 million compared with 2019. This was primarily
due to a decrease in interest expense following reductions in interest rates,
partly offset by a reduction in interest income generated on cash balances.
In 2019, net interest increased by $1,005 million compared with 2018. This
was primarily due to the adoption of IFRS 16 and reduced capitalised interest.

Taxation and other earnings increased by $233 million in 2020,
compared with 2019 This largely reflected favourable deferred tax
impacts due to the strengthening Brazilian real on financing positions
and a reduction in Shell’s share of financing expenses from joint ventures
and associates, partly offset by a foreign exchange loss from adverse
exchange rate movements. In 2019, taxation and other earnings
decreased by $790 million compared with 2018, because of reduced
tax credits from financing and one-off charges, and unfavourable
exchange rate movements producing net foreign exchange losses.

SELF-INSURANCE
We mainly self-insure our risk exposure. Capital is set aside to meet
self-insurance obligations (see “Risk factors” on page 35). We seek to
ensure this capital is at least as much as would be held in third-party
insurance markets. Periodic surveys of key assets provide knowledge
and best practices aimed at reducing exposure to hazards. Follow-up
actions 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 continually monitor external

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 cyber-attacks. 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 subjected to cyber-attacks and the pandemic in 2020
caused an increase in such activity. COVID-19 necessitated a switch from
office to remote working, which changed and increased the attack surface.
Shell’s CyberDefence Team responded by enhancing cyber-security controls
for remote connectivity, strengthening its monitoring/detection, and taking
additional measures to improve cyber-awareness.

In 2020, malicious actors infiltrated several companies and government
agencies through a supply chain attack via SolarWinds Orion software.
They injected malware into an update that was distributed to SolarWinds’
customers globally, allowing the actors to access SolarWinds systems and
from there attempt to access other systems. Shell uses SolarWinds software.
We detected the malicious SolarWinds applications in our environment,
and isolated and removed them. No evidence has been found that any
Shell systems were accessed by the attackers. Shell has followed the US
Cybersecurity and Infrastructure Security Agency’s guidance to rebuild
and/or patch affected systems.

In 2020, none of the cyber-security events led to known breaches of our
business-critical IT landscape and, as such, did not result in any material
business impact. When significant incidents happen, they are addressed
through a robust incident management framework and, if needed, will
result in appropriate follow-up actions, including notifications towards
regulators. See “Risk factors” on Page 33.

BRAND VALUE
In January 2021, Shell’s brand value was estimated at $42.2 billion in Brand
Finance Global 500 2021, the annual report by leading brand valuation
consultancy Brand Finance. This was down 11% compared with 2020, but
up 33% compared with 2016. According to the valuation the Shell brand
remains the most valued in the oil and gas industry and the gap to second
place widened from $761 million in 2020 to $4.7 billion in 2021. The report
also showed that Shell’s brand rating stayed at AAA, unchanged from 2020.

Shell Annual Report and Accounts 2020Strategic ReportLIQUIDITY AND CAPITAL RESOURCES

We manage our businesses to deliver strong cash flows to fund investment
for profitable growth. Management's priorities for applying Shell's cash
are first the reduction of net debt to $65 billion and, on achieving this
milestone, distributing a total of 20-30% of cash flow from operations
to shareholders. Remaining cash will be allocated to disciplined and
measured capital expenditure growth and further debt reduction.

FINANCIAL CONDITION AND LIQUIDITY
Despite the weak macroeconomic and commodity price environment during
the COVID-19 pandemic, Shell Group generated cash flow from operations
of $34.1 billion and free cash flow of $20.8 billion in 2020. Through the
course of the year, Shell took decisive actions (including reducing costs,
rebasing the dividends and not continuing with the next tranche of the
share buyback programme following completion of the seventh tranche) to
increase liquidity and underpin the strength of the balance sheet, positioning
the business to navigate the challenging environment and supporting
long-term value creation. Reflecting mitigating actions taken, net debt
decreased to $75.4 billion at December 31, 2020 (December 31,
2019: $79.1 billion). Gearing increased to 32.2% at December 31, 2020,
compared with 29.3% at December 31, 2019 due to the reduction in equity
mainly driven by lower earnings in 2020. Note 14 to the Consolidated
Financial Statements on page 241-243 provides information on our debt
arrangements, including net debt and gearing definitions.

LIQUIDITY
We satisfy our funding and working capital requirements from the cash
generated from our operations, the issuance of debt and divestments. In
2020, 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). We plan to file
a new US shelf registration statement with the Securities and Exchange
Commission shortly after the filing of our Annual Report on Form 20-F.

We also maintain committed credit facilities. The core facilities, totalling
$10 billion, were extended in December 2020 with $2 billion now
expiring in 2021 and $8 billion in 2025. Each facility includes a further
one-year extension option at the discretion of each lender. Both remained
undrawn at December 31, 2020. These core facilities and internally
available liquidity provide back-up coverage for our CP programmes.
In addition, in April 2020, to increase liquidity amid COVID-19-related
uncertainties, Shell entered into a dual currency $7.2 billion and
EUR 4.4 billion revolving credit facility expiring in April 2021, with
two six-month extension options at our discretion. This facility remains
undrawn. The extension options have not been exercised, and the facility
will expire in April 2021. Other than certain borrowing by local
subsidiaries, we do not have any other committed credit facilities.

Our total debt increased by $11.6 billion to $108 billion at December 31,
2020. The total debt excluding leases will mature as follows: 16% in 2021;
6% in 2022; 7% in 2023; 6% in 2024; and 64% in 2025 and beyond.
The portion of debt maturing in 2021 is expected to be repaid from a
combination of cash balances, cash generated from operations,
divestments and the issuance of new debt.

In 2020, we issued $6.3 billion of bonds under our US shelf registration
and $6.7 billion equivalent 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 34 and Note 19 to the “Consolidated Financial
Statements” on pages 251-255. 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.

PENSION COMMITMENTS
We have substantial pension commitments, the funding of which is subject
to capital market risks (see “Risk factors” on page 32). 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 of 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 $0.6 billion in
2020 and are estimated to be $1.6 billion in 2021 See Note 17 to the
Consolidated Financial Statements on pages 246-249.

Capitalisation table

$ million

December
31, 2020

December
31, 2019

Equity attributable to Royal Dutch Shell plc shareholders

155,310

186,476

Current debt

Non-current debt

Total debt [A]

Total capitalisation

16,899

91,115

108,014

15,064

81,360

96,424

263,324

282,900

[A] Of total debt, $79.4 billion (2019: $65.7 billion) was unsecured and $28.6 billion

(2019: $30.7 billion) was secured. See Note 14 to the “Consolidated Financial Statements”
on pages 241-243 for further disclosure on debt.

Shell Annual Report and Accounts 2020Strategic ReportLIQUIDITY AND CAPITAL RESOURCES continued

DIVESTMENT AND CASH CAPITAL EXPENDITURE
The level of divestment proceeds and cash capital expenditure in
2020 and 2019 reflects our discipline, and focus on capital efficiency
and cash preservation.

Divestment proceeds

Integrated Gas

Upstream

Oil Products

Chemicals

Corporate

Total divestment proceeds

2020

503

1,909

1,368

205

4,010

2019

723

5,384

1,517

225

7,871

$ million

2018

3,156

3,364

540

3,405

10,465

Cash capital expenditure is used 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 2020 allowed us to deliver cash capital expenditure of less than
$20 billion in line with the financial framework initiatives announced
in March 2020.

Cash capital expenditure

Integrated Gas

Upstream

Oil Products

Chemicals

Corporate

Total cash capital expenditure

2020

4,301

7,296

3,328

2,640

262

17,827

2019

4,299

10,205

4,907

4,090

418

23,919

$ million

2018

3,819

12,134

4,643

3,212

269

24,078

STATEMENT OF CASH FLOWS
Cash flow from operating activities in 2020 was an inflow of $34.1 billion,
compared with $42.2 billion in 2019, mainly due to lower earnings. The
decrease in cash flow from operating activities in 2019, compared with
$53.1 billion in 2018, was mainly due to lower earnings and an
unfavourable working capital impact.

Cash flow from investing activities in 2020 was an outflow of $13.3 billion,
compared with an outflow of $15.8 billion in 2019. The decreased cash
outflow was mainly due to lower capital expenditure in 2020. The
increased cash outflow in 2019 compared with $13.7 billion in 2018
was mainly due to lower proceeds from the sale of equity securities,
partly offset by higher proceeds from sale of assets in 2019.

Cash flow from financing activities in 2020 was an outflow of $7.2 billion,
compared with outflows of $35.2 billion in 2019 and $32.5 billion
in 2018., due to lower dividends payments to Royal Dutch Shell plc
shareholders of $7.4 billion (2019: $15.2 billion; 2018: $15.7 billion),
net issuance of debt of $5.6 billion (2019: $3.4 billion net repayment;
2018: $8.3 billion net repayment), and lower repurchases of shares of
$1.7 billion (2019: 10.2 billion; 2018: $3.9 billion).

Cash and cash equivalents were $31.8 billion at December 31, 2020
(December 31, 2019: $18.1 billion; December 31, 2018: $26.7 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; chemicals, refining and marketing margins; and movements
in working capital.

The impact on earnings from changes in market prices depends on: the
extent to which contractual arrangements are tied to market prices; the
dynamics of production-sharing contracts; the existence of agreements
with governments or 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
expenses. 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. 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.

Shell Annual Report and Accounts 2020Strategic ReportCash flow information [A]

Cash flow from operating activities excluding working capital movements

Integrated Gas

Upstream

Oil Products

Chemicals

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 220.

DIVIDENDS
Subject to Board approval, Shell aims to grow the dividend per share by
around 4% every year, and once the Group’s net debt level has reached
$65 billion, the Group will target the distribution of 20-30% of its cash
flow from operations to shareholders. The Group may choose to return
cash to shareholders through a combination of dividends and
share buybacks.

When setting the level of shareholder remuneration, the Board looks at a
range of factors, including the macro-environment, the underlying business
earnings and cash flow of Shell Group, the current balance sheet, future
investment and divestment plans, and existing commitments. We returned
$7.4 billion to our shareholders through dividends in 2020.

The fourth quarter 2020 interim dividend of $0.1665 per share will be
payable to shareholders on the register at February 19, 2021. See Note
23 to the “Consolidated Financial Statements” on page 259. The Board
expects that the first quarter 2021 interim dividend will be $0.1735 per
share, representing an increase of around 4% on the fourth quarter
2020 interim dividend.

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. On March 23,
2020, the Company announced that in light of the economic and oil
price environment, it had decided not to continue with the next tranche
of the share buyback programme following the completion of the tranche
announced on January 30, 2020. On April 14, 2020, the seventh
tranche of the share buyback programme was completed, and
no further tranches were undertaken in 2020.

2020

2019

$ billion

2018

10.8

9.8

7.0

1.8

0.1

29.5

4.5

9.6

(9.5)

4.6

34.1

(13.3)

(7.2)

0.2

13.8

18.1

31.8

14.8

19.9

10.7

1.7

(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

21.4

8.5

2.8

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

This was in accordance with the authorities 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), and at the 2019 AGM, 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. At the 2020 AGM, shareholders granted a renewal of this
authority, to repurchase up to a maximum of 783 million ordinary shares,
such authority to expire at the earlier of the close of business on August 19,
2021 and the end of the 2021 AGM. As at December 31, 2020, 783
million ordinary shares could still be repurchased under the current AGM
authority. The purpose of the share repurchases in 2018 to 2020 was
to reduce the issued share capital of the Company.

A new resolution will be proposed at the 2021 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 2021 Notice of Annual General Meeting.

Shares are also purchased by the employee share ownership trusts and
trust-like entities (see the “Other regulatory and statutory information”
on page 185) 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 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 2020Strategic ReportLIQUIDITY AND CAPITAL RESOURCES continued

Purchases of equity securities by issuer and affiliated purchasers in 2020 [A]

Number
purchased
for employee
share plans

Number
purchased
for cancellation
[C]

—

23,106,521

11,306,918

12,229,299

813,021

3,905,280

—

3,244,447

2,783,283

—

6,840,751

50,548,018

—

A shares

Weighted
average
price ($)[D]

29.63

25.32

18.48

18.19

—

15.68

18.52

24.14

—

Purchase period

January [E]

February

March

April

May

June

July

August

September

October

November

December

Total 2020

January

Total 2021

[A] Reported as at settlement date
[B] American Depositary Shares
[C] Under the share buyback programme
[D] Includes stamp duty and brokers’ commission
[E] January 2020 number of A shares purchased for cancellation has been revised

B shares

Number
purchased
for employee
share plans

Number
purchased for
cancellation [C]

Weighted
average
price ($)[D]

Number
purchased
for employee
share plans

—

1,003,452

—

5,518,503

9,904,356

1,874,926

7,800,412

—

113,348

—

1,988,274

23,223,271

—

24.45

14.88

17.31

—

13.9

—

17.9

—

A ADSs [B]

Weighted
average
price ($)[D]

59.76

—

31.25

—

133,692

—

20,109

35.09

—

26,570

—

1,509,662

934,246

3,627,731

1,525,265

—

26.74

—

31.36

36.87

40.62

37.23

CONTRACTUAL OBLIGATIONS
The table below summarises our principal contractual obligations at December 31, 2020, 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

12.8

6.1

21.4

0.1

40.4

10.3

9.6

24.9

0.7

45.5

12.9

7.1

18.1

0.6

38.7

42.3

20.0

47.8

1.2

111.3

$ billion

Total

78.3

42.8

112.2

2.6

235.9

[A] See Note 14 to the “Consolidated Financial Statements” on pages 241-243. Debt contractual obligations exclude interest, which is estimated to be $1.8 billion payable in less than one year,

$3.3 billion between one and three years, $2.9 billion between three and five years, and $16.0 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, 2020, 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 as of 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” and provisions related to onerous contracts included in "Decommissioning and other provisions” 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 246-249) and obligations associated with decommissioning
and restoration (see Note 18 to the “Consolidated Financial Statements” on page 250).

GUARANTEES AND OTHER OFF-BALANCE SHEET
ARRANGEMENTS
There were no guarantees and other off-balance sheet arrangements at
December 31, 2020, or December 31, 2019, 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 294-297.

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 2020, 2019 and 2018, the
Trust recorded income before tax of £2,777 million, £5,484 million
and £5,328 million respectively. In each period, this reflected the
amount of dividends received on the dividend access shares.

At December 31, 2020, the Trust had total equity of £nil (December 31, 2019:
£nil; December 31, 2018: £nil), reflecting assets of £7 million (December 31,
2019: £3 million; December 31, 2018: £3 million) and unclaimed dividends
of £7 million (December 31, 2019: £3 million; December 31, 2018: £3 million).
The Trust only records a liability for an unclaimed dividend, 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 2020Strategic ReportENVIRONMENT AND SOCIETY

OUR APPROACH TO SUSTAINABILITY
Our core values of honesty, integrity and respect for people – first laid
out in the Shell General Business Principles more than 40 years ago
– underpin our approach to sustainability.

A commitment to contribute to sustainable development was added
in 1997. These principles, together with our Code of Conduct, apply
to the way we do business and to our conduct with the communities
where we operate.

Since 1997, we have worked to embed this sustainability commitment into
our strategy, our business processes and decision-making. Sustainability is
core to our project planning and operational activities. We aim to provide
more and cleaner energy solutions in a responsible manner – in a way
that balances short- and long-term interests, and that integrates economic,
environmental, and social considerations into decision-making.

Today, we continue to build on these foundations while driving change
across the organisation to help society meet its most pressing challenges,
including those related to climate change, the environment, diversity and
inclusion, and human rights. We seek the views of various groups and
individuals about the role of an organisation like Shell in addressing
these challenges.

Powering Progress is underpinned by our core values and our focus
on safety. These include our commitment to doing business in an ethical
and transparent way.

For more information on what we mean by becoming a net-zero
emissions business, please refer to "Climate change and energy
transition" on pages 94-107.

IMPACT OF THE COVID-19 PANDEMIC – HELPING
COLLEAGUES, CUSTOMERS AND COMMUNITIES
The COVID-19 pandemic continues to have a serious impact on people’s
health and livelihoods around the world. During 2020, we worked hard to
assist in the global fight against the virus, and to support recovery efforts
while taking care of our employees, our customers and the communities
we work with.

In January 2020, Shell set up our Global Health Alert Monitoring Team to
equip Shell staff and companies with information and guidance to remain
operational in a responsible way. Certain elements of this approach were
adopted as the industry standard by the joint health committee of two
acknowledged industry associations: the International Association of Oil
& Gas Producers (IOGP), and IPIECA, the global oil and gas industry
association for advancing environmental and social performance.

Sustainability reporting boundary and guidelines
Data in this section are reported on a 100% basis in respect of activities
where a Shell company is the operator (unless noted otherwise). Reporting
on this operational control basis differs from that applied for financial
reporting purposes in the “Consolidated Financial Statements” on pages
216-264. Detailed data and information on our 2020 environmental
and social performance are expected to be published in the Shell
Sustainability Report in April 2021.

More information on the steps we took to protect our staff is expected
to be published in the Shell Sustainability Report in April 2021.

UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS
The UN’s 17 Sustainable Development Goals (SDGs) seek to address the
world’s biggest challenges, including ending poverty, improving health
and education, making cities sustainable and tackling climate change.

We use certain guidelines to inform our reporting on sustainability issues:
■ As a member of the World Business Council for Sustainable

Development, we support the organisation’s updated criteria
for membership from 2022, which includes requirements for
corporate transparency.

■ We report in line with guidelines developed by IPIECA, the global
oil and gas industry association for advancing environmental and
social performance.

■

■ The recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD) help to guide and inform our reporting. For more
information, see the “Climate change and energy transition” section.
In January 2021, we agreed to adopt the Stakeholder Capitalism
Metrics, a set of environmental, social and governance metrics
released by the World Economic Forum and its International
Business Council.

OUR STRATEGY: POWERING PROGRESS
In February 2021, we announced our updated business strategy, called
Powering Progress. It has four main goals in support of our purpose – to
power progress together by providing more and cleaner energy solutions:
■ generating shareholder value: growing value through a dynamic

portfolio and disciplined capital allocation;

■ achieving net-zero emissions: working with our customers and across

sectors to accelerate the transition to net-zero emissions;

■ powering lives: powering lives through our products and activities,

■

and by supporting an inclusive society; and
respecting nature: protecting the environment, reducing waste
and making a positive contribution to biodiversity.

Governments are responsible for prioritising and implementing
approaches that meet the SDGs, but achieving these tasks will require
unprecedented collaboration and collective action across businesses,
governments and civil society.

We will play our part in helping governments and societies to achieve the
SDGs. The goals were one of the considerations in the development of our
Powering Progress strategy. Actions we take as part of our Powering Progress
strategy can help directly contribute to 13 of the SDGs, while indirectly
contributing to others. See our website shell.com for information on how
Shell and our Powering Progress strategy are contributing to the SDGs.

BOARD OVERSIGHT FOR SUSTAINABILITY
We describe Shell’s overall governance framework on pages 128-129.
It provides information on the roles of the Board, its committees, and the
Executive Committee. The Safety, Environment and Sustainability Committee
(SESCo) advises the Board on safety, environment including climate change,
and Shell’s overall sustainability performance. More information on the
SESCo’s role and activities during 2020 is provided on page 143-144.

The Annual Report on Remuneration (see page 170) provides details of
how the Shell scorecard captures key performance indicators for safety,
environment and climate.

SHELL GENERAL BUSINESS PRINCIPLES
The Shell General Business Principles set out our responsibilities to
shareholders, customers, employees, business partners and society. They set
the standards for how we conduct business with integrity, care and respect
for people, while seeking to protect the environment and establish mutually
beneficial relationships with communities. All ventures that a Shell company
operates must conduct their activities in line with our business principles.

Shell Annual Report and Accounts 2020Strategic ReportENVIRONMENT AND SOCIETY continued

HSSE & SP Control Framework

The HSSE & SP Control Framework deﬁnes mandatory standards, requirements and accountabilities.
The framework applies to Shell entities and Shell-operated ventures, including employees and contractor staff.

Mandatory manuals
describe:

– Purpose of the manual
– Accountabilities and responsibilities

– Scope
– Requirements to be met

HSSE & SP
Management System

Health

Personal Safety

Process Safety

Environment

Social Performance

Security

Product Stewardship

Transport

Contractor HSSE
Management

Projects

Resources

Shell Commitment and Policy on Health, Security, Safety,
the Environment and Social Performance

HSSE & SP CONTROL FRAMEWORK
We aim to minimise the environmental impact of new projects and existing
operations, and we engage with local communities and non-governmental
organisations (NGOs) to understand and respond to their concerns. Shell
conducts an environmental, social and health impact assessment for every
major project. We determine whether a project qualifies as major by
considering its cost and capacity, including the potential consequences
of adverse incidents. This helps us to understand and manage how our
projects could affect the surrounding environment and local communities.
We have standards and a governance structure to help manage potential
impacts. We are committed to the safety of our people and contractors.
The Shell HSSE & SP Control Framework (CF) specifies the standards for
health, safety, security, environment and social performance (HSSE & SP)
and the scope for applying these standards. The CF consists of a series
of mandatory manuals that align with the Shell Commitment and Policy
on HSSE & SP and the Shell Code of Conduct. They are supported by
guidance documents and complemented by assurance protocols.

The CF applies to every Shell entity and Shell-operated venture, including all
employees and contract staff. The CF defines standards and accountabilities
at each organisational level and sets out the procedures and processes that
we require people to follow. We require that all significant HSSE & SP risks
associated with our business activities are assessed and managed to make
them as low as reasonably practicable. Our HSSE & SP functions provide
expert advice and support for our businesses.

The Process Safety and HSSE & SP Assurance team provides assurance
to the Board on the effectiveness of the HSSE & SP CF through an audit
programme. The full Shell portfolio comprises about 200 organisational

groups covered by this programme. Audits are performed with a
frequency of between three and five years, depending on the overall risk
and complexity of a particular facility or organisational group. Overall,
this results in a rolling five-year plan, with every annual plan being
approved by the Board. On average, the assurance team conducts about
50 audits per year. The scope of the audits is designed to test risk areas as
defined in the CF. This includes the overall HSSE & SP management system
and specific requirements for areas such as personal safety, environment
and contractor management. Based on audit outcomes, the audit
frequency for an entity may be increased. Audit findings and action
items identified are documented and tracked to completion by the
relevant business.

We expect joint ventures not operated by Shell to apply standards
and principles substantially equivalent to our own. We support these
joint ventures in their implementation of these standards and principles,
and we offer to assist them in their review of the effectiveness of their
implementation. Even if such a review is not conducted, we periodically
evaluate HSSE & SP risks faced by the ventures that we do not operate.
If one of these joint ventures does not meet our HSSE & SP expectations,
we seek to improve performance by working with our partners to
develop and implement remedial action plans.

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 cover expectations in areas such as business
integrity, health and safety, environment, and human rights.

Shell Annual Report and Accounts 2020Strategic ReportSAFETY
A focus on safety is one of the pillars that supports our Powering Progress
strategy. We build and operate our facilities with the aim of preventing
incidents that may damage or harm our employees, contract staff, nearby
communities, the environment or our assets. We strive to help improve
safety throughout the energy industry by sharing our safety standards
and experience with other operators, contractors and professional
organisations, including the International Association of Oil & Gas
Producers (IOGP) and the Energy Institute.

Safety risks are managed across our businesses through the use of
standards, controls and compliance systems. We combine this with a
culture of care and an ambition to learn and continually improve. 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 seek
to improve safety by focusing on the three areas where the safety risks
associated with our activities are highest: personal, process and transport.
We require and assure ourselves that people responsible for tasks
involving a significant safety hazard have the necessary training, skills
and competencies. We also take human performance into account when
deciding how to approach safety. This means that in order to minimise
the risk of people being harmed, we seek to optimise the way people,
culture, equipment, work systems and processes interact.

We employ many contractors and we work with them so that they
understand our safety requirements. Together we seek to improve safety
performance by building skills and expertise, and by creating an inclusive
and safe work environment. We expect everyone working for us to
comply with our mandatory Life-Saving Rules which set out simple
"do’s and don’ts" for activities with the highest potential safety risks.
Employees are expected to discuss, coach and intervene so that everyone
understands how the rules apply to a particular work task. If employees
break these rules, we seek to understand why, but individuals may face
disciplinary action up to and including termination of employment if they
do not follow the Life-Saving Rules. If contract staff break the Life-Saving
Rules, they can be removed from the worksite.

The COVID-19 pandemic necessitated new kinds of risk assessments
beyond those that are normally conducted in our industry. The results
led to us adopting extra measures to take care of our employees, our
contractors, our customers and the communities we work with. We
identified potential impacts beyond our local operations, and we
continue to work hard to help the global fight against the virus
and to support recovery efforts.

We took many practical steps to protect the health of our staff, including
requiring or encouraging office-based staff to work from home, based on
the advice of local authorities. From March 2020, the average occupancy
rate of our 18 largest offices fell to around 10% for the rest of the year. Our
information technology (IT) teams ensured that thousands of people could
work from home each day. At the same time, measures were taken to
protect colleagues’ health where operations had to be maintained
by staff on sites. We created a wide range of tools and resources which
also addressed potential mental, physical and social health issues. For
example, we set up a programme called Care for Self to encourage
staff to pay attention to their physical and mental well-being, and to
support them as they did so.

Safety strategy
In 2019, the Board and the Executive Committee spent considerable time
reflecting on the worrying safety performance, measured by the number
of fatalities, and what needed to change across Shell to prevent fatalities
and all other serious incidents. This included conducting 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.

We have made progress in improving the safety of operations since
the early 2000s. This was largely because of 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.
In recent years the vast majority of fatalities had no link to a breach of
the Life-Saving Rules. Sadly, we have been unable to eliminate all fatal
incidents involving Shell employees and contractors.

In 2020, we started what is expected to be a multi-year effort to refresh
our approach to safety. The purpose is to avoid life-changing injuries and
fatalities by building on existing strong foundations. We aim to achieve
this with an increased and deliberate focus on human performance. We
recognise that people are key to executing complex tasks and to finding
solutions to problems. We call the belief that we can always improve,
enhance individual capabilities, learn from mistakes and successes, and
speak up without being punished a learner mindset. We seek to create
conditions that encourage employees and contractors to share ideas and
concerns without fear of rejection or punishment. In addition to specific
training, events like our annual Safety Day 2020 provided Shell teams
and contractors with the chance to reflect on this concept.

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. The majority 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.
We acknowledge that people make mistakes and not all incidents may be
preventable. As a result, we started to focus more on how people can “fail
safely”, and on their response in the moment to avoid the risk of a serious
injury. This approach is a change of philosophy, put into practice by
improving processes for planning and completing work, and debriefing
afterwards. In 2020, tangible changes were piloted and deployed for
application by employees and contractors. For example, in 2020, we used
earlier experience with drones, remote sensing technology, robots and
digital technology, such as augmented reality, as lockdowns caused by the
COVID-19 pandemic disrupted the movement of people. This technology
enabled us to carry out more remote monitoring and to continue to assure
data to meet safety and environmental performance reporting standards.

Personal and process safety
We continue to strengthen the safety culture and leadership among
our employees and contract staff. This aligns with our focus on caring
for people. Our safety goal is to achieve no harm and no leaks across
all Shell company operations. We call this our Goal Zero ambition.

We expect everyone to consider two aspects of their tasks: the hazards
that could potentially cause serious harm, and the effectiveness of the
barriers in place to avoid serious harm if an incident occurs. In addition
to our ongoing safety awareness programmes, we hold an annual global
Safety Day to give employees and contractors time to reflect on how to
prevent incidents. During Safety Day 2020, we asked all our staff and
contractors to reflect on the importance of showing care for each other
and ensuring that we are in control of risks with robust barriers in place,
particularly under the current challenges of the pandemic. More
information on how we implement these measures is expected to
be published in our Shell Sustainability Report in April 2021.

Process safety management is about keeping hazardous substances
inside pipes, tanks and vessels, and ensuring that well fluids are contained
during well construction and well intervention so that they do not harm
people or the environment. It starts at the design and construction stage of
projects and continues throughout the life cycle of facilities to ensure they
are safely operated, well maintained and regularly inspected. Our global

Shell Annual Report and Accounts 2020Strategic ReportENVIRONMENT AND SOCIETY continued

standards and operating procedures define our expectations for the
controls and physical barriers required to mitigate risks of incidents. For
example, to mitigate the risk of an uncontrolled release of hydrocarbons,
offshore wells are to be designed with at least two independent barriers in
the direction of flow. 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, our standards require the use of independent
recovery measures to stop the release from becoming catastrophic. This
system of barriers and recovery measures is called a “bow-tie”, a model
that visually represents a system where personal and process safety
hazards are managed through prevention and response barriers.

We have embedded a set of process safety fundamentals to strengthen
barriers that involve critical safety tasks carried out by frontline staff. These
fundamentals provide guidelines for good operating practice that should
prevent unplanned releases.

Risk management approach

Threats

TOP
EVENT

Consequences

CONTROLS, BARRIERS

RECOVERY MEASURES

We 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 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 seek to reduce these risks by
developing best-practice standards within Shell. We also work with
specialist contractors, industry bodies, NGOs and governments to
find ways of reducing transport safety risks.

Shell employees and contractors drove a combined distance of around
470 million kilometres on business in 2020 in over 50 countries. We
run road safety programmes that promote safe driving techniques and
behaviour in a number of countries where we operate, for example in
India, Malaysia, and the UK. We require everyone driving more than
7,500 kilometres a year on Shell company business on public roads
and those who drive in countries with higher road safety risks to take a
defensive driving course. We also run an annual online defensive driving
course for all who drive on public roads while on Shell company business.
Fatigue is one of the most significant risks when on the road. In 2020, at
the Shell-operated QGC facility in Queensland, Australia, we worked
with four universities and eight contracting companies to evaluate fatigue
detection devices and to find the one that performed best in testing. The
collaboration was the largest of its kind and involved evaluating around
100 devices on long stretches of Australia’s road network. As a result, we
aim to start introducing recommended devices in Malaysia in 2021.

We also work to improve general road safety in several communities and
countries where we operate, through organisations such as the Global
Road Safety Partnership. For example, in India, we continue our road
safety campaign which includes eye testing of third-party professional
drivers. In 2020, around 20,000 Shell employees and contractors
completed such testing.

Safety performance
In 2020, despite the unprecedented challenges faced, Shell and its
contractor partners had the safest year that we have ever experienced.
It was the first year with zero fatal injuries, and also the best ever process
safety performance at ventures operated by Shell. Tragically, two
contractors died after they caught COVID-19 during the course of
their work for Shell.

Our Total Recordable Case Frequency (injuries per million working hours)
was 0.7 in 2020, compared with 0.9 in 2019. There were 103 operational
Tier 1 and 2 process safety events in 2020, compared with 130 in 2019.
Detailed information on our 2020 safety performance is expected to be
published in the Shell Sustainability Report in April 2021.

From 2021, the Total Recordable Case Frequency (TRCF) will be replaced
on the Group scorecard by Serious Incidents and Fatalities Frequency
(SIF-F). The new metric reflects the number of serious incidents and
fatalities per 100 million working hours. The Executive Committee and the
Safety, Environment and Sustainability Committee (SESCo) have endorsed
the change. Several industry safety leadership groups confirm that root
causes for serious and high-potential incidents are often different from the
majority of lower-consequence events. Shell’s shift is intended to help
focus attention on improving its safety systems, and it targets the
prevention of life-altering injuries, which aligns with the emphasis on
human performance and Goal Zero. We will continue to report on
TRCF for benchmarking purposes.

We require incidents to be investigated so we can understand the
underlying causes, including technical, behavioural, organisational and
human factors. We share learnings and implement mitigations at the site
and in the country and business where the incident occurred. We seek to
turn incident findings into improved standards or better ways of working
that can be applied widely across similar Shell facilities. This is part of
embedding the learner mindset approach across the organisation and
engaging with contractors to share these learnings.

For example, in 2020, we continued to implement learnings from a tragic
roll-over incident that occurred in Pakistan in 2017 and which was not
under our operational control. Pakistan continues to be among the
countries with the highest risks for road transport. The investigation offered
several learnings. Our focus has now moved from technical standards to
driver professionalism, including aspects such as fitness to work, training
and coaching on the job. One of the most significant risks when on the
road is fatigue. Shell Pakistan Limited is managing this through the
creation of enhanced awareness for this topic, reduced duty hours
and better rest facilities.

In 2021, Shell will take a further step to focus our efforts to enhance safety.
We will transition from applying our 12 Life-Saving Rules to using the
simplified set of nine Life-Saving Rules of the International Association of
Oil & Gas Producers (IOGP). A common approach across the industry
makes working within the supply chain easier and can accelerate the
adoption of safety measures.

Shell Annual Report and Accounts 2020Strategic ReportENVIRONMENT
For many years we have had guiding principles and standards that seek
to protect the environment. Now we are stepping up our environmental
ambitions and shaping them to contribute to the UN Sustainable
Development Goals.

Our environmental ambitions include protecting and enhancing
biodiversity – the plant and animal life that is vital for the planet. We
are also focusing on using water and other resources more efficiently
across all our activities, reusing as much of them as we can.

We are reducing waste from our operations and increasing recycling
of plastics. We are helping to improve air quality by reducing emissions
from our operations and providing cleaner ways to power transport
and industry. Working with our partners and suppliers and developing
new collaborations is key. We will join with others across industry,
governments, our customers and supply chains to protect nature.

In February 2021, we launched our new environmental framework which
focuses on four priority areas: biodiversity, water, circular economy and
waste, and air quality. We have set environmental ambitions for 2030
and later, as well as shorter-term goals:
■ We will reduce the amount of fresh water consumed in our facilities,
starting by reducing fresh-water consumption by 15% by 2025
compared with 2018 levels in areas where there is high pressure
on fresh-water resources.

■ By 2030, we will increase the amount of recycled plastic in our

packaging to 30% and ensure that the packaging we use for our
products is reusable or recyclable.

■ We are aiming for zero waste by increasing reuse and recycling

in our business and supply chains.

■ We will demonstrate an overall positive impact on biodiversity from
our new projects in areas rich in biodiversity, called critical habitats.
This will include investing in conservation and taking steps to
safeguard and, where possible, enhance local environments.

We will continue to look for opportunities to go further and will report
our progress in a transparent way. We use external standards and
guidelines, such as those developed by the World Bank and the
International Finance Corporation, to inform our approach. We
follow global environmental standards for managing our emissions
and discharges, for conserving biodiversity, and for minimising our
water use and impact on water resources.

Shell’s global environmental standards cover our environmental
performance. They include details of how to manage emissions of
greenhouse gases (GHG), consume energy more efficiently, reduce
gas flaring, prevent spills and leaks of hazardous materials, use less
fresh water and conserve biodiversity. We seek to apply our global
environmental standards wherever we operate. When planning new
major projects, we conduct detailed environmental, social and health
impact assessments.

See also “Control Framework” on page 86, more information on
how we manage our GHG emission in “Climate change and energy
transition” on page 106, and read about our new environmental
framework on our website shell.com.

We believe some areas are too sensitive to enter. Therefore, we made the
commitment that we will not explore for or develop oil and gas resources
in natural and/or cultural World Heritage Sites.

We aim to minimise the impact of our projects on biodiversity and
ecosystems by applying the mitigation hierarchy, a decision-making
framework that involves a sequence of four key actions: avoid, minimise,
restore and offset. We first aim to avoid impacts on biodiversity and
ecosystems. Where our operations have affected biodiversity and
communities that rely on biodiversity for their livelihoods, we seek to help
restore damaged habitats. We also look for opportunities to make a positive
contribution to conservation, also known as a net-positive impact (NPI). For
example, to offset and compensate for clearing vegetation and habitat while
developing gas resources, the Shell-operated QGC gas project in Australia
manages the Valkyrie property, an area with a rich ecosystem. We monitor
and measure the impact and seek ways to improve the mitigation strategy.

Managing our impacts on water and ensuring the availability of fresh
water is a growing challenge in some parts of the world. Increasing
demand for water resources, growing stakeholder expectations and
concerns, and water-related legislation may reduce the access to water for
our operations. We manage water use carefully, and tailor our use of fresh
water to local conditions and requirements. We sometimes use alternatives
to fresh water in our operations. These include water that has been
recycled from our operations, processed sewage water and desalinated
water. For example, the QGC project in Australia produces liquefied
natural gas (LNG) from natural gas in a 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 the produced water so that it
is suitable for use by local farmers, industry and town water suppliers. We
require that all Shell company facilities and projects are assessed to see
what risks they might pose to water availability. In places where water is
scarce, we develop water-management action plans for using less fresh
water, increasing water recycling and closely monitoring water use.

In 2020, our intake of fresh water was 171 million cubic metres, compared
with 192 million cubic metres in 2019. The reduction was partly because
of divestments in Canada and the USA. 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 35% of fresh water
intake was from public utilities, such as municipal water supplies, with the
rest taken from surface water such as rivers and lakes (around 55%) and
groundwater (around 10%).

Detailed information on our 2020 environmental performance is expected
to be published in the Shell Sustainability Report in April 2021.

See “Climate change and energy transition” on page 106 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 harm the environment, and result in major clean-up costs,
fines and other damages. They can also affect our licence to operate and
harm our reputation.

We have requirements and procedures designed to prevent spills. We
design, operate and maintain our facilities with the intention of avoiding
spills. To further reduce the risk of spills, Shell has routine programmes to
reduce failures and maintain the reliability of facilities and pipelines.
Our business units are responsible for organising and executing spill
responses in line with Shell guidelines and relevant legal and regulatory
requirements. Our offshore installations have spill response plans for
when an incident occurs. These plans set out response strategies and
techniques, available equipment, and trained personnel and contracts.
We can engage specialist contracted services for oil-spill response,
including vessels, aircraft or other equipment and resources, if required,
for large spills. We conduct regular exercises that seek to ensure these
plans remain effective and fit for purpose.

Shell Annual Report and Accounts 2020Strategic ReportENVIRONMENT AND SOCIETY continued

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.

by sabotage was 1.4 thousand tonnes (122 incidents), compared with
2.3 thousand tonnes (156 incidents) in 2019. The decrease in incidents
and volumes was because of improved security and surveillance,
including community-based pipeline surveillance.

We are involved in several industry consortia formed to improve
well-containment capabilities. Shell Offshore Response Company LLC is 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. Shell Response Limited was a founding member of the
Subsea Well Response Project, an industry cooperative effort to enhance
global well-containment capabilities, which has since become Oil Spill
Response Limited, an industry consortium.

Site-specific emergency response plans are maintained in case there is an
onshore spill. Like the offshore response plans, these are designed to meet
Shell guidelines and relevant local legal and regulatory requirements. The
onshore response plans also provide for the initial assessment of incidents
and the mobilisation of resources to manage them. In the event of spills on
land, businesses are supported by our global Soil & Groundwater team
which reviews and implements appropriate remedies. The global Soil &
Groundwater Team is engaged throughout the life cycle of our assets. For
example, during acquisition and divestment of assets, the team conducts
due diligence to identify land contamination liabilities. Through research
and development initiatives, the 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 2020, there were 68 operational spills of more than 100
kilograms compared with 67 in 2019. The weight of operational spills of
oil and oil products in 2020 was 0.4 thousand tonnes, compared with
0.2 thousand tonnes in 2019. At the time of publication of this Report, there
were four spills under investigation in Nigeria that may result in adjustments.

Spills in Nigeria
In the Niger Delta, over the last 10 years, the total number of operational
hydrocarbon spills and the volume of oil spilled from them into the
environment have been significantly reduced.

Most oil spills in Nigeria's Niger Delta region continue to be caused by
crude oil theft or sabotage of oil and gas production facilities, and by
illegal oil refining, including the distribution of illegally refined products.

In 2020, the Shell Petroleum Development Company of Nigeria Limited
(SPDC) managed to reduce the number of operational spills of more
than 100 kilograms to around 0.02 thousand tonnes of crude oil
(10 incidents) compared with around 0.03 thousand tonnes of crude
oil (seven incidents) in 2019. This was a year-on-year reduction in
operational spills of one-third by weight.

To reduce the number of operational spills, SPDC has an ongoing work
programme to appraise, maintain and replace key sections of pipelines
and flow lines. Over the last nine years, about 1,330 kilometres of
pipelines and flow lines have been replaced. This is organised through
a pipeline and flow line integrity management system that proactively
addresses pipeline integrity. It 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.

Spills caused by sabotage reduced in 2020
In 2020, about 90% oil spills of more than 100 kilograms from the SPDC
joint venture's facilities were caused by the illegal activities of third parties.
In 2020, the volume of crude oil spills of more than 100 kilograms caused

SPDC continues to undertake initiatives to prevent and reduce spills
caused by theft from or sabotage of its facilities in the Niger Delta. In
2020, SPDC continued on-ground surveillance of its 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 spills or illegal activity. SPDC has
also introduced anti-theft protection mechanisms for key infrastructure
such as wellheads and manifolds. The programme to protect wellheads
with steel cages continues to help deter theft.

By the end of 2020, 364 cages had been installed. including 73 cages
upgraded with CCTV. Only 15 breaches were successful out of 1,706
registered attempts.

Faster response and remediation
Irrespective of the cause, SPDC works to clean up and remediate areas
affected by spills originating from its facilities. SPDC reduced the average
time to complete recovery of free-phase oil – oil that forms a separate
layer and is not mixed with water or soil – from about 13 days in 2016 to
about one week in 2020. This is the average time it takes to safely access
a damaged site to start joint investigation visits (JIV) with regulators,
impacted communities, and in some cases with non-governmental
organisations, to clean up oil not mixed with water or soil.

Clean-up activities include bio-remediation which stimulates micro-
organisms that naturally break down and use carbon-rich oil as a source of
food and energy, effectively removing it. Once clean-up and remediation
operations are completed, the work is inspected and, if satisfactory,
approved and certified by the Nigerian regulators. With operational
spills, SPDC also pays compensation to affected people and communities.

SPDC has been working with the International Union for Conservation
of Nature (IUCN) since 2012 to enhance remediation techniques and
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 initiatives to help strengthen its remediation and
restoration efforts. In 2020, SPDC, IUCN, the Nigerian Conservation
Foundation and Wetlands International worked together on the Niger
Delta Biodiversity Technical Advisory Group, which continues to
monitor biodiversity recovery at 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 participate in remediation work for operational spills.
Due to the restrictions of COVID-19 there were fewer opportunities to
collaborate but the engagement and partnership with communities
continued. Various NGOs have sometimes gone on joint investigation
visits with SPDC, government regulators and members of affected
communities to establish the cause and volume of oil spilled.

SPDC has also implemented several programmes to raise awareness
of the negative effects of crude oil theft and illegal oil refining. Examples
include community-based pipeline surveillance, and promoting of
alternative livelihoods through Shell’s flagship youth entrepreneurship
programme, Shell LiveWIRE.

Shell Annual Report and Accounts 2020Strategic ReportBodo clean-up process
In 2015, SPDC, on behalf of the SPDC joint venture and the Bodo
community, signed a memorandum of understanding (MOU) granting
SPDC access to begin cleaning up areas affected by two operational spills
that occurred in 2008. The MOU also provided for the selection of two
international contractors to conduct the clean-up under the oversight of
an independent project director. The clean-up project was delayed in 2016
and for most of 2017 because of access challenges from the community.
Engagement with the Bodo community and other stakeholders began in
September 2015 and was managed by the Bodo Mediation Initiative.

HYDRAULIC FRACTURING
Shale oil and gas resources remain a critical part of a modern energy
system as we move towards renewable sources. Shale resources are
abundant and offer a relatively affordable source of energy. 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
that developing these resources is critical for meeting the energy needs
of growing societies around the world.

After two years of engagement, in September 2017, it was possible to
start the first phase of clean-up and remediation activities. The clean-up
consists of three phases:
1) removal of oil floating on water surfaces;
2) remediation of soil; and
3) planting of mangroves and monitoring.

The first phase was completed in August 2018. The contract procurement
process for phase two was completed in 2019. Remediation activities in the
field started in November 2019. During 2020, work had to be put on hold
because of COVID-19 restrictions. Currently, we expect to finalise the
activities by about May 2023.

In 2020, the Niger Delta Biodiversity Technical Advisory Group assessed
the initial field reports from two pilot sites containing freshwater and
swamp forests. The advisory group set out its aims and timeline for
work at both sites. Field visits to these remote locations were disrupted
by COVID-19 restrictions. The advisory group is also analysing other
potential pilot sites identified by SPDC, and planning an engagement
session with regulatory agencies in Nigeria.

Ogoniland: commitment to the United Nations
Environment Programme
SPDC remains committed to the implementation of the 2011 United
Nations Environmental Programme (UNEP) Report on Ogoniland
which assessed contamination from oil operations in the region and
recommended actions to clean it up. Over the last nine years, SPDC has
acted on all and completed most of the UNEP recommendations that
were specifically addressed to it as the operator of the joint venture.

The clean-up efforts are led by the Hydrocarbon Pollution and Remediation
Project (HYPREP), an agency established by the federal government. In
2018, HYPREP awarded contracts for the first set of remediation projects.
In 2019, 21 contractors started operations on 21 lots which add up to 12
of the 67 polluted sites recorded in the UNEP report. Of those 67 sites, two
are waste sites without hydrocarbon pollution. In January 2020, HYPREP
awarded a further 29 contracts for remediation on 29 lots covering eight
polluted sites. The contractors took up remediation activities in the fourth
quarter of 2020. Although remediation works continue to make progress,
challenges remain. These include re-pollution, lack of contractor funding,
land disputes and security issues in Ogoniland.

The UNEP report recommended creating 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 to the fund as its
share over five years. 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. HYPREP did not request the release
of any funds in 2020. The UNEP continues to monitor the progress of the
clean-up exercise via its observer status at both the HYPREP’s Governing
Council and the Ogoni Trust Fund. Its agencies such as UNDP, UNITAR
and UNOPS provide services to HYPREP in the areas of livelihood
programmes, training and project services.

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, making 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 Tight/Shale Oil and Gas
(known as Onshore Operating Principles). These provide a framework
for protecting the environment and the communities in which we operate.
These 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.

We work to reduce greenhouse gas (GHG) emissions associated with our oil
and gas development and production. Shell’s shale assets implement GHG
management plans and have a robust Leak Detection and Repair (LDAR)
programme. We are working on multiple fronts to develop cutting-edge
technologies that enhance our LDAR programme and enable earlier
detection and repair of leaks. As per the Onshore Operating Principles, we
seek to minimise routine gas flaring at shale assets. See our website shell.com
for more information about the GHG management practices, such as the
"Onshore Operating Principles in Action: Methane Fact Sheet".

See also "Climate change and energy transition" on page 106.

The availability and quality of water, local environmental conditions and
regulatory requirements vary from basin to basin. Therefore, each shale
asset develops a tailor-made water management strategy, 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. The people operating our shale assets aim to
minimise the use of water. Depending on local hydro-geologic conditions,
they typically use a combination of fresh water, brackish groundwater,
produced water and waste water. They actively strive to reduce and
ideally eliminate freshwater intake for drilling and hydraulic fracturing
operations, by increasing recycling capacity and using municipal water.

Potable groundwater aquifers are isolated from the hydrocarbon-
producing shale formations by hundreds of metres of impermeable rock.
We often need to drill through potable groundwater aquifers to reach
shale formations. We therefore design our drilling, hydraulic fracturing and
production activities in ways that aim to maintain isolation from potable
groundwater aquifers. Before drilling a well, we conduct a hazard

Shell Annual Report and Accounts 2020Strategic ReportENVIRONMENT AND SOCIETY continued

assessment in which we 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 wellbore and potable groundwater aquifers. We continuously monitor
wellbore integrity before, during and after hydraulic fracturing and during
production activities.

Chemical additives are needed in hydraulic fracturing fluid to carry
sand, reduce friction and prevent the growth of bacteria. We have been
working to optimise the composition of our hydraulic fracturing fluids since
2015. As a result, we have reduced chemical additive volumes by around
50-60% compared with 2015. Currently, on a volume basis, around
0.1% of our hydraulic-fracturing fluid is chemical additives. We support
disclosure of the chemical additives used in hydraulic-fracturing fluids
for Shell-operated wells. See our website shell.com for more information
about our water management practices, such as the "Onshore Operating
Principles in Action: Water Fact Sheet".

SEISMICITY
As oil and gas fields mature, seismic activity may occur, depending on the
unique geology of individual fields. An example is the Groningen onshore
gas field in the Netherlands, where induced earthquakes have occurred
since the 1990s. Some of these earthquakes have damaged houses and
other structures in the region, resulting in complaints, claims and lawsuits
from local home-owners and residents. Actions have been taken to
improve safety, liveability and economic prospects in the region.
Nederlandse Aardolie Maatschappij B.V. (NAM, Shell interest 50%)
operates the gas field. The Dutch government has taken over policy
setting and execution of these mitigating actions and the "duty of care"
from NAM. NAM continues to carry the costs. The government is also
currently instructing NAM on production levels. Production from the
onshore Groningen gas field in the Netherlands is expected to stop
by 2022 or shortly thereafter.

See "Upstream" on page 55.

Overall, we believe it is relatively unlikely that hydraulic fracturing or well
operations for disposing of produced water will induce seismicity that is
felt on the surface. Despite this, Shell still takes precautionary measures
around induced seismicity, and proactively manages the risk in
accordance with, and sometimes beyond, regulatory requirements. We
have added precautionary measures around 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. See our website shell.com for
more information about our induced seismicity management practices,
such as the "Onshore Operating Principles in Action: Induced
Seismicity Fact Sheet".

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.

We place a premium on developing effective technologies that are
also safe for the environment. But 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 could be subject
to additional remedial, environmental and litigation costs as a result
of 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 28-37). 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. Risk mitigation includes strengthening the security
of sites, reducing our exposure as appropriate, journey management,
information risk management, crisis management and business continuity
measures. We conduct training and awareness campaigns for staff, and
provide them with travel advice and access to 24/7 assistance while
travelling. We consistently verify the identity of our employees and
contract staff, and control their access to our sites and activities, both
physical and logistical. We manage and exercise crisis response and
management plans.

CONTRIBUTION TO SOCIETY
Shell’s businesses are part of society and contribute to it by buying and
selling goods and services across economies in various countries and
jurisdictions. Our employees, suppliers and contractors are part of the
local communities where Shell operates.

In 2020, Shell paid $47.3 billion to governments (2019: $61.3 billion).
We paid $3.4 billion in corporate income taxes and $3.5 billion in
government royalties, and collected $40.4 billion in excise duties, sales
taxes and similar levies on our fuel and other products on behalf of
governments. In 2020, Shell spent $39.3 billion (2019: $44.9 billion) on
goods and services from more than 29,000 suppliers globally. For more
information about our approach to tax and transparency, see Shell’s
Tax Contribution Report, available via our website shell.com.

Supply chain engagement
Our suppliers are critical to our ability to run our businesses. They are
involved in almost every step of our operations – and are often key to
having a positive impact on local communities and achieving successful
business outcomes. Shell aims to work with suppliers, including
contractors, that behave in an economically, environmentally and
socially responsible manner, as set out in our Shell General Business
Principles and Shell Supplier Principles.

The way we engage with our contractors and suppliers is based on our
Shell Supplier Principles which are embedded in contracts. They require
contractors and suppliers:
■

to commit to protect the environment in compliance with all applicable
environmental laws and regulations;
to use energy and natural resources efficiently; and
to continually look for ways to minimise waste, emissions and discharge
of their operations, products and services.

■

Ongoing operating expenses include the costs of preventing unauthorised
discharges into the air and water, and the safe disposal and handling
of waste.

More information about how we engage with contractors and suppliers is
expected to be published in the Shell Sustainability Report in April 2021.

Shell Annual Report and Accounts 2020Strategic ReportNEIGHBOURING 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 responsibly by avoiding or
minimising the negative social effects of our operations. The requirements
also help us to maximise the benefits of our activities, such as employment
and contractual opportunities that can support local economies.

The requirements set clear rules and expectations for how we engage
with and respect communities that may be affected by our operations.
We require major projects and facilities operated by Shell to have a
social performance plan that defines actions for managing potential
negative and positive effects on communities. A key part of these plans
is identifying the social environment and stakeholders who may be
vulnerable to our operations. Another key component is an appropriate
community feedback mechanism for listening to queries and responding
to them, or resolving complaints in a timely manner. We have specific
requirements to avoid, minimise or mitigate potential impacts on the
traditional lifestyles and cultural heritage of indigenous people. or
We also have specific requirements to avoid, minimise or mitigate
their involuntary resettlement.

Early in 2020, we launched a new global community feedback tool (CFT).
This enables us to globally track and respond to all queries, complaints
and positive and negative feedback that we receive. It allows our network
of about 100 community liaison officers (CLO) to document all types of
feedback. It is accessible via a mobile app and can be used to send
feedback received in the field to those who can act to resolve issues.
Asset managers can generate reports to help them analyse trends,
detect underlying causes, and decide appropriate action.

The CLOs continue to act as a bridge between local communities and
our businesses. The CLOs are in our community centres on workdays,
receiving visitors and listening to questions or complaints. Members of the
community can also contact CLOs via dedicated telephone lines. It is the
job of CLOs 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 mechanisms for managing
community feedback on our operations.

In 2019, we had assessed the community feedback mechanisms (CFMs)
of 32 sites, and in 2020, we helped 14 of these sites to improve their
CFMs. The improvement measures involved included:
■ promoting public access to and transparency of the sites’ CFMs;
improving written procedures so they are better aligned with
■
global good practice and more reflective of local circumstances;

■ providing clear steps for recognising alternative options for

communities to seek remedy; and
respecting people’s anonymity and data privacy.

■

In 2020, we also developed a guide to help sites make their CFMs
effective and address local needs. In 2021, we plan to further improve
the quality of sites’ CFMs.

See our website shell.com for more information about our work with
communities.

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 United Nations Guiding Principles on Business and
Human Rights.

We work closely with other companies and non-governmental
organisations to improve how we apply these principles. We focus on four
priority areas where respect for human rights is critical to how we operate:
communities, security, labour rights, and supply chain. For each of these
areas, we have systems to identify potential impacts and to avoid and
mitigate them. For example, our HSSE & SP Control Framework (CF)
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 contractors to respect the human rights of our workforce
and neighbouring communities. Our joint-venture partners are expected
to implement our CF or an equivalent.

An internal Human Rights Working Group consisting of experts from
different functions advises on and supports the businesses with the
implementation and review of our approach to human rights. The group
includes an external adviser. A steering committee composed of senior
executives provides steer and support to the work of the Human Rights
Working Group.

Our approach to due diligence is informed by the United Nations Guiding
Principles on Business and Human Rights. Due diligence in each focus
area, including human rights, is typically exercised in countries where
there may be a risk of an impact on people’s human rights. It is supported
by experts working within the applicable functions in Shell. We recognise
how due diligence helps us to act on our commitment to respect human
rights. For example, in our supply chains, where contractors and suppliers
are considered to be at risk of having issues with labour rights, we engage
with them to assess their management systems, before deciding whether
to award 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 conduct 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.

■

The Shell Supplier Principles include specific labour and human rights
expectations for contractors and suppliers. Shell companies use a joint
industry supplier capability assessment that is delivered in collaboration
with other operators. This sharing mechanism is intended to support the
improvement of working conditions in the participating companies’
supply chains.

See our website shell.com for more information about our approach
to human rights.

Shell Annual Report and Accounts 2020Strategic ReportCLIMATE CHANGE AND ENERGY TRANSITION

Shell has long recognised that greenhouse gas (GHG) emissions from the use
of hydrocarbon-based energy are contributing to the warming of the climate
system. In December 2015, 195 nations adopted the Paris Agreement. We
welcomed the efforts made 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 above pre-industrial levels and to pursue efforts to limit
the temperature increase even further to 1.5 degrees Celsius. In pursuit of this
goal, we also support the vision of a transition towards a net-zero emissions
energy system. Shell agrees with the statement of the Intergovernmental Panel
on Climate Change (IPCC) special report, Global Warming of 1.5°C that says
that in order to limit global warming to 1.5 degrees Celsius above pre-
industrial levels, the world economy would need to transform in complex
and interconnected 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: it must 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
requires, among other things, reducing emissions while also changing how
energy is produced, stored, used and made accessible to more people.

Shell recognises that society’s attitude towards climate change is shifting
rapidly and that it is different in different locations. Regulators in some
advanced economies such as the EU and the UK have already started
pushing for net-zero emissions by 2050 in an effort to achieve the 1.5
degrees Celsius stretched goal of the Paris Agreement. Potential similar
developments in other key locations might lead to similar or more
stringent regulatory conditions on Shell’s operations and products.

On February 11, 2021, we announced Powering Progress, our new strategy.
Powering Progress is our strategy to accelerate progress to net-zero emissions,
purposefully and profitably. One of the pillars of this strategy is for Shell to
become a net-zero emissions energy business by 2050, in step with society.
We believe our net-zero target supports the most ambitious goal of the UN
Paris Agreement, to limit warming to 1.5 degrees Celsius above pre-industrial
levels. This will require us to transform our business, working with our customers
and others, in sectors that are difficult to decarbonise. This includes aviation,
shipping, road freight and heavy industries. We also believe that our total oil
production peaked in 2019 and our total emissions (Scope 1, 2 and 3) peaked
in 2018 at around 1.73 gigatonnes per annum.

Shell’s target is to be a net-zero emissions energy business by 2050, in step
with society. This means net-zero emissions from our operations – our Scope 1
and 2 emissions – and also net zero from the end use of our products that we
sell – our Scope 3 emissions. Our Scope 3 emissions include our customers’
emissions from the energy products we produce and sell as well as the
life-cycle emissions of the energy products produced by other companies
that we resell to our customers. This means that our target covers all the
energy we sell, not just the oil and gas we produce and refine ourselves.

But Shell cannot get to net zero without society also being net zero.
While we aim to transition slightly ahead of society, where we expect to
see higher margins for our low-carbon and renewable energy products,
we cannot transition too quickly or we will be trying to sell products
that our customers do not want. Accordingly, other than our short-term
remuneration targets, all targets are conditional on being in step with
society. If society is not on the path to net zero for 2050, it is unlikely
that Shell will meet its emissions targets.

We believe it is important for the Board and the management to
understand what our shareholders think. Accordingly, in 2021, Shell
intends to submit its energy transition strategy to shareholders for an
advisory vote at our Annual General Meeting. We will submit our energy
transition strategy to such an advisory vote every three years. We will also

seek an advisory vote on the progress we make each year, as disclosed
in our Annual Report, starting in 2022.

SHELL’S ABSOLUTE EMISSIONS AND CARBON
INTENSITY TARGETS
Our target is to be a net-zero emissions energy business by 2050,
in step with society.

Shell’s 2050 absolute emissions targets
We aim to achieve these targets in step with society. They are:
■ net-zero Scope 1 and Scope 2 emissions from our operations by 2050; and
■ net-zero Scope 3 emissions from the energy products we sell by 2050.

Shell’s net carbon intensity targets
We aim to achieve these targets in step with society. They are
measured by our Net Carbon Footprint (NCF) metric, and are:
■ 2030 NCF reduced by 20% from 2016 NCF;
■ 2035 NCF reduced by 45% from 2016 NCF; and
■ 2050 NCF reduced by 100% from 2016 NCF.

The updated 2035 and 2050 targets reflect that we will start to include
all actions taken to reduce emissions when we calculate our net carbon
intensity. This includes the actions we take ourselves and actions taken
by the users of the energy products we sell.

We will work with our customers to address the emissions created when
they use products bought from us (Scope 3) and help them find ways to
reduce their emissions and overall carbon footprint to net zero by 2050.

Remuneration targets
We have set specific carbon intensity targets for the following years:
■ 2021 NCF reduced by 2-3% from 2016 NCF;
■ 2022 NCF reduced by 4-6% from 2016 NCF; and
■ 2023 NCF reduced by 6-8% from 2016 NCF.

See below, in this section, for more detail on:
■ How we plan to deliver;
■ Our climate target;
■ Our net carbon intensity targets; and
■ Our performance.

See also the Directors’ Remuneration Report on page 153-156.

Business milestones
We are taking steps to cut emissions from our existing oil and
gas operations, and to avoid generating more in the future.
■ We believe our annual oil production peaked in 2019, and we

expect our total oil production to decline by 1-2% a year until 2030.
■ We do not anticipate any new frontier exploration entries after 2025.
■ Natural gas is the least polluting hydrocarbon. We expect the
percentage of total gas production in our portfolio to gradually
rise to 55% or more by 2030.

■ By 2030, we will end routine flaring of gas, which generates carbon

emissions, from the assets we operate.

■ By 2025, we expect to have kept the methane emissions intensity

of Shell-operated assets to below 0.2%.

HOW WE PLAN TO DELIVER
Getting the energy system on a path to net zero will require co-ordinated
action between energy providers, energy users and governments. They
will need to work together over the coming decades to define rapid,
realistic decarbonisation pathways, sector by sector.

Shell Annual Report and Accounts 2020Strategic ReportWe are already taking steps to cut emissions from our existing oil and gas
operations, and to avoid generating more in the future. We aim to reduce
the GHG intensity of our portfolio and we continue to work on improving
the energy efficiency of our existing operations. One element of our target
is to achieve net-zero emissions from all our operations, as well as from the
energy we need to power them.

Shell believes that society must accelerate and increase the scale of all
forms of GHG reduction. We are increasing the proportion of lower-
carbon products such as natural gas, biofuels, electricity and hydrogen
in the mix of products we sell. For example, Amazon Air has secured up to
six million gallons of sustainable aviation fuel – made partly from biomass
and waste – supplied by Shell Aviation and produced by World Energy.
Similarly, we have formed an alliance with Microsoft which includes
supply of renewable energy to help them meet their commitment of
100% renewable energy consumption by 2025.

Our shift to energy and chemicals parks means we will reduce our
production of traditional fuels by 55% by 2030, from around 100 mtpa to 45
mtpa. We plan to build on Shell’s leading position in hydrogen by developing
integrated hydrogen hubs to serve industry and heavy-duty transport, aiming
to achieve double-digit share of global clean hydrogen sales.

It is not enough for Shell to take action on its own. We can only meet our
net-zero target as part of a world that is also heading to net zero. That will
require a reduction in the global supply of carbon-based energy, which
can only happen if demand for carbon-based energy also reduces. So
Shell, as a supplier, must work with customers on a sector-by-sector basis,
to develop the right pathways to transition each sector from carbon-based
energy to low-carbon solutions.

Our approach to commercial road transport is similar to how we work
with other hard-to-decarbonise sectors such as shipping and aviation.
We are working with transport companies, truck manufacturers and
policymakers to identify profitable pathways to decarbonisation.

We are already one of the world’s largest blenders and distributors of
biofuels, and we will continue to invest in and increase the production
of these low-carbon fuels. Over the next decade, we will help customers
in Europe, China and on the US West Coast to transition to liquefied
natural gas (LNG) and biogas.

Hydrogen also offers a route to lowering emissions. We are part of the
H2Accelerate consortium, which looks at ways to create infrastructure
for generating and supplying hydrogen across Europe.

In Power, we are working with our customers in different markets, finding
commercial ways to meet their specific needs. Our scale, reach, brand
strength and trading capability set us up to succeed. An example is
our deal to supply Amazon with renewable power, which is helping
it to fulfil its climate pledges.

We are also supporting infrastructure development through our
investments in Silicon Ranch and Cleantech Solar. Combined, these two
companies have over 350 solar farms in the USA and South-east Asia.
In Australia and in Oman, Shell is building its first large-scale solar farms.

Shell’s infrastructure, systems integration, experience and people put us
in a strong position to profitably meet the current and future needs of our
customers, helping them and society to decarbonise for a net-zero
emissions future.

Shell’s marketing business is being restructured on a sectoral basis.
This in turn will help us to make progress in working with customers
on a sector-by-sector basis.

Our mission is to help the millions of brand-loyal customers whom we
serve every day – from individual energy consumers to large businesses
– to decarbonise. We have the scale and the competitive advantage
to generate profit from this shared ambition.

Our marketing platform is one of the best in the energy industry. Spanning
160 markets, every day we serve more than 30 million customers at our
retail sites; and one million businesses.

Our customer access gives us first-hand insights, helping us to deliver what
our customers want rather than offering what others think they need.

This will help us to grow our existing marketing platforms profitably, while
also increasing the decarbonisation choices across sectors and countries.

Our global ambition is that by 2025 we are operating more than half a million
electric-vehicle charging points for businesses, fleets and customers, at our
retail sites and people’s homes. This number is expected to rise to 2.5 million
charging points operated by Shell by 2030. For drivers who are unable to
switch to an electric vehicle immediately, we also offer carbon-neutral driving
using nature-based carbon offsets, in seven countries including the UK.

We are positioning ourselves to profitably deliver integrated offers by
cross-selling to motorists and home energy customers. Our integrated
solutions will help our business customers to navigate the challenges
and opportunities of decarbonisation.

We are restructuring so that we have marketing teams facing individual
sectors. We are also developing a carbon management framework to
guide decision-making on investments in assets and businesses that
align with our climate target. We intend to have carbon budgets
for customer-facing businesses to motivate them to find value growth
by switching from high-carbon income to low-carbon income.

Shell believes 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.

TRANSPARENCY AND COLLABORATION
We support efforts to increase transparency and investors' understanding of
companies’ strategies for responding to the risks and opportunities of climate
change. We do this through engagement with external stakeholders such
as industry associations beyond the energy industry, standard setters,
non-governmental organisations (NGOs), investors, and initiatives on
different topics including climate change. With publications such as our
2020 Sustainability Report and our 2020 Industry Associations Climate
Review update (both planned to be published in April 2021) we aim to
provide additional information to that in this Report to address requests and
recommendations from different reporting frameworks and standards. Some
examples of those frameworks and engagements are described below.
■ We continue to support the Task Force on Climate-related Financial

Disclosures (TCFD) recommendations and apply them to our reporting.
We aim to address the recommendations with this Report and other
Shell publications such as the 2020 Sustainability Report and 2020
Industry Associations Climate Review update (both due to be published
in April 2021), and our latest scenarios Islands, Waves, and Sky 1.5.
■ As a member of the Oil and Gas Climate Initiative (OGCI) we are one

One such customer is Penske Corporation in the USA. We work closely
with this customer across truck leasing, logistics and automotive retail.
We provide Penske Corporation with products and services ranging from
fuels and lubricants, to electric-vehicle charging and renewable power.

of a group of 12 national and international energy companies that focus
on action that has real impact now and delivers on decarbonisation
in the coming decades (see Methane initiatives and collaborations,
page 102).

Shell Annual Report and Accounts 2020Strategic ReportCLIMATE CHANGE AND ENERGY TRANSITION continued

■

In December 2020, eight leading energy companies including Shell
announced that they had jointly developed and agreed to apply
six Energy Transition Principles. These principles aim to support the
collective industry acceleration to contribute to the Paris Agreement
objectives by delivering progress on reducing GHG emissions, the role
of carbon sinks, and the importance of transparency and alignment on
climate change with trade associations. The companies are building
further on this collaboration to drive more consistency and
transparency in greenhouse gas reporting, and in measurement of
the emissions which may occur at different points in the value chain.
■ We continue to engage with the Science Based Targets initiative (SBTi),
and we are a member of its Technical Working Group that is currently
working to define the methodology for the oil, gas and integrated
energy sector.

■ Some governments have introduced carbon pricing mechanisms, which
we believe can be an effective way to reduce GHG emissions across
the economy at the lowest overall cost to society. We expect more
governments to follow. Shell is encouraging carbon pricing mechanisms
so that businesses and consumers are further incentivised to improve
energy efficiency, provide and switch to lower-carbon options, and
reduce carbon emissions. Such mechanisms can also help encourage
projects such as CCS facilities and nature-based solutions like the
planting of forests. Shell continues to work with governments to
produce effective transition plans and policies.

OUR GOVERNANCE OF CLIMATE CHANGE
Climate change and risks resulting from GHG emissions are a significant
risk factor for Shell. They are managed in accordance with other
significant risks through the Board and the Executive Committee.

See “Other regulatory and statutory information” on pages 182-189.

Shell’s climate change risk management structure includes the work of the
Board. In 2020, the Board discussed a variety of energy transition and
climate change-related subjects. These included environmental topics
ahead of Responsible Investment Day and Shell’s announcement of its
target to be a net-zero emissions energy business by 2050, in step with
society. Directors received information on opportunities and priorities in
the New Energies area. Throughout the year, Directors were also informed
about topics of interest among investors and other stakeholder groups.
These included sustainability, governance and the energy transition.
During the annual strategy meeting, in virtual format, the Board discussed
various topics including the energy transition and its implications.

For more information on the activities of the Board see
“Board activities and evaluation” on pages 130-133.

The Board committees play an important role in assisting the Board with
regard to governance and oversight of management of climate change
risks and opportunities, as described in "Governance" on page 128.

The Safety, Environment and Sustainability Committee (SESCo) assists the
Board in reviewing the practices and the performance of the Shell Group of
companies, primarily with respect to safety, environment including climate
change, and sustainability. When reviewing these areas and deciding how
to advise the Board, SESCo takes into account Shell's General Business
Principles, Code of Conduct, and HSSE & SP Control Framework. SESCo’s
duties include reviewing Shell's progress towards meeting our climate targets
and the energy transition. SESCo also advises the Remuneration Committee
on metrics relating to sustainable development and energy transition.

For more information about SESCo’s activities around climate change
and energy transition see page 143.

The Remuneration Committee (REMCO) is responsible for determining the
Directors’ Remuneration Policy, in alignment with our business strategy.

Annual scorecard
Starting in 2021, we are increasing the weight associated with GHG
emissions management. The GHG emissions intensity metric and its weight
(10%) will remain unaltered, but we will add a new metric that measures
the execution of GHG-abatement projects with a weight of 5% (see page
170 for more information).

Performance Share Plan and Long-term Incentive Plan
For 2021 awards made under the Performance Share Plan (PSP), the
weighting of the energy transition condition has doubled from 5% to 10%.
For 2021, the weighting of the energy transition condition in the Long-term
Incentive Plan (LTIP) will also double from 10% to 20%. The target range is
a 6-8% reduction in net carbon intensity against the 2016 baseline NCF of
79 grams of carbon dioxide (CO₂) equivalent per megajoule. The other
targets linked to our strategic ambitions will also evolve, with the metric
connected to commercialising advanced biofuel technology broadening
to a measure of growing new cleaner energy product offerings. The
targets for the leading energy transition measures are commercially
sensitive and will be disclosed retrospectively.

The energy transition condition was included again in the 2020 LTIP awards for
Executive Directors and senior executives and was also incorporated into the
Performance Share Plan awards made to around 16,500 employees globally.

See “Directors’ Remuneration Report” on pages 153-156 for further
information. An update on progress on the 2019 and 2020 awards is
provided on pages 165.

The Audit Committee has key responsibilities in helping the Board to
maintain oversight of areas such as the effectiveness of risk management
and internal control. For more information on the work of the Audit
Committee see page 145.

The CEO is the most senior individual with accountability for climate
change risk. Shell has established specialist forums at different levels
of the organisation where climate change and GHG-related matters
are addressed, monitored and reviewed. Each Shell entity and each
Shell-operated venture is responsible for implementing climate
change policies and strategies.

The Executive Vice President (EVP) Safety and 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 Group Carbon team and the HSSE & SP Assurance and
Reporting team.

Group Carbon is accountable for monitoring and examining the strategic
implications of climate change for Shell. Group Carbon also reviews the
effects of governmental policy and regulation. It proposes policy positions
based on analysis by Shell and external organisations. The team also
advises Shell companies to ensure that they are consistent in how they
apply our core principles and policies when interacting with policymakers.

Group Carbon also has oversight of Shell’s GHG management
programme. It helps our lines of business to adopt strategies for managing
greenhouse gases. The team includes managers who advise projects on
the risks and opportunities of GHG-related issues.

The HSSE & SP Assurance and Reporting team is accountable for
the delivery of Shell’s non-financial reporting. It is also responsible
for auditing the performance of Shell businesses with regards to our
HSSE & SP Control Framework requirements, which include climate
change risk management.

Shell Annual Report and Accounts 2020Strategic ReportClimate change management organogram

Board of Royal Dutch Shell plc
Oversight of climate change risk management

Safety, Environment
and Sustainability
Committee
Non-executive Directors
appointed by the Board
to review and advise on
sustainability policies
and practices including
climate change

Audit Committee
Non-executive
Directors appointed
by the Board to
oversee the
effectiveness of the
system of risk
management and
internal control

Remuneration
Committee
Non-executive
Directors appointed by
the Board to set the
remuneration policy in
alignment with
strategy

CEO and Executive
Committee

Executive Vice President,
Safety & Environment

Vice President,
Group Carbon

Businesses and Functions
Responsible for implementing
Shell’s GHG strategy. They are
represented in the Safety and
Environment Leadership Team

Most senior individuals with
accountability for climate
change risk management

EVP Steering Team
Group strategic steer

Safety and Environment
Leadership Team
Operational
implementation steer

REORGANISATION IN LINE WITH UPDATED STRATEGY
During 2020, we worked on a comprehensive organisational review
in order to enable our new strategy to be effective. We call this project
Reshape. The governance of topics around sustainability, including
climate change, will not change at the most senior levels of Shell. We are
introducing changes at specific levels of the organisation to better address
the effects of the strategy update. We expect to adjust the initial structure
as we go through the process. Currently, we are working towards going
live with the revised organisational structure in the second half of 2021.

For more information, see Strategy and outlook on page 18, and
Our people on page 108.

CLIMATE CHANGE RISK MANAGEMENT PROCESS
The framework for managing the climate change and GHG emissions
risk is underpinned by Shell’s Control Framework and Statement on
Risk Management, which are described on pages 186 of the “Other
regulatory and statutory information” section of this Report.

For the climate change and GHG emissions risk, several global teams
support our businesses in GHG and energy management, comprising
a network of experts in subjects related to GHG and risk management.
They work globally across our lines of business and assist in:
■

identifying and assessing risks;

■ planning and implementing responses;
■

sharing best practices; and

■ monitoring, improving and completing action that affects the

objectives and performance of projects and assets.

These teams have created a set of mandatory manuals and
complementary guidance documents that are updated periodically
and are ultimately based on our HSSE & SP Control Framework (CF).
These manuals and 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 identified
risks, including ways to:
■ ensure consistent assessment of climate risk across Shell;
■ clarify expectations for risk management and reporting, including

roles and responsibilities of the risk owners;

■ clarify types of assurance activities that may be applicable;
■

strengthen decision-making by ensuring that businesses have better
awareness and understanding of climate risks (including their
likelihood and potential impact) and mitigation plans; 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 98.

The GHG and Energy Management Manual is one of the mandatory
manuals of our HSSE & SP Control Framework. It requires that effective
steps are taken to track the GHG emissions from Shell’s operated and
non-operated facilities and the life-cycle emissions of its energy products.
The manual also focuses on the efficient operation of existing equipment.
This means, for example, using monitoring systems to get 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 includes GHG measures that create additional incentives for
our employees to reduce GHG emissions in our portfolio.

See “Directors’ Remuneration Report” on page 153.

The global teams mentioned above support the businesses in monitoring
and addressing certain physical risks of climate change. This support
includes the input of specialist teams who provide direct technical
assistance to facilities, based on their analysis of the potential impacts
of climate change in different operating environments. For example,
the specialist teams support facilities on an ad hoc basis to address
potential operational issues such as flooding of a site that may affect
its drainage system.

The teams also provide expertise on how to include considerations of
certain potential physical climate change risks in the internal Design and
Engineering Practice (DEP) requirements for new projects. The DEPs for
new projects are reviewed periodically to take account of changes in
the risk environment, including emerging weather and climate factors.

We review our portfolio annually to identify emerging risks from changes
in GHG emissions regulations and changing physical conditions. Shell’s
Group Carbon team provides management with strategic insights on
Shell's exposures, risks and opportunities, and recommends actions for
Shell to take. Each of Shell’s businesses and functions has an assurance
committee that considers this risk on a regular basis and coordinates
the applicable assurance activities.

At the Group level, the climate change and GHG emissions risk has been
identified as a significant risk factor for Shell – see “Risk factors” on page
29. The Executive Committee and Board regularly review this risk in the
same way that they do for other significant Group risk factors. Potential
impacts and likelihoods are considered and discussed bi-annually.
Similarly, the effectiveness of risk responses is also considered and
discussed on a regular basis. Where necessary, these reviews are
further supplemented by additional in-depth reviews with the relevant
management teams. These reviews help to guide operational
decisions, maintenance schedules and response planning.

Shell Annual Report and Accounts 2020Strategic ReportCLIMATE CHANGE AND ENERGY TRANSITION continued

Climate change risk management at project level
Shell requires that the GHG emissions of certain assets and projects are
addressed in specific ways. This is described in our internal, mandatory
GHG and Energy Management Manual which is part of our HSSE & SP
Control Framework (see Environment and society, page 86). This manual
specifies the requirements for managing the risks associated with GHGs
and energy use, and is owned and signed off by the Vice President Group
Carbon. It states that projects with a material GHG footprint must get
their targets approved by the Executive Vice President Safety and
Environment at certain defined stages. The project’s GHG-abatement
plan helps to determine the nature of these targets.

Projects under development that are expected to have a material GHG
footprint must meet our internal carbon performance standards or industry
benchmarks. This indicates that they will be able to compete and prosper
in a future where society aims to limit overall GHG emissions.

The performance standards are used as our screening criteria for
measuring projects’ average lifetime GHG intensity or energy efficiency
per asset type. We are working to develop a complete set of standards
for our businesses. Performance Standards for the Upstream and
Transition pillars are in place, while those for the Growth pillar are
under development. The complete set is expected to continue to evolve
to incorporate new types of projects that support Shell’s portfolio changes
in alignment with our NZE energy business target. Our current standards
are reviewed and updated annually, based on changes to legislation
and external and/or internal benchmarking. The latest update was in
2020. The performance standards were signed off by the Executive Vice
President (EVP) accountable for implementation in the relevant businesses,
and by the EVP Safety and Environment, who represented the view of a
risk owner from outside the relevant business.

We estimate the GHG emissions of facilities in two ways. We apply
the performance standards, and we consider the GHG emissions
from the use of the products that are manufactured. We assess GHG
emissions’ impacts alongside economic and technical design factors.
These assessments can lead to projects being stopped or designs
being changed.

During project development, we consider ways to reduce GHG emissions
and whether to include them in the design. Measures considered and
adopted have included:
flaring reduction;
■

■ carbon capture and storage (CCS) capabilities;
■ exclusion of high-intensity process equipment;
■ using renewable energy; and
■ electrification.

Our approach continues to evolve as we increase our understanding
of the shifting policy landscape and the differing paces of energy
transitions in different regions.

We continue to develop our project managers’ and practitioners’
competencies for effective GHG emissions management in projects.
The Shell Project Academy has been set up to provide competence
development programmes that include different ways of learning, such
as courses on specific topics and on-the-job training. These courses also
aim to ensure sharing of good practice and to encourage collaboration
across businesses.

CLIMATE-RELATED RISKS AND OPPORTUNITIES
Our approach for assessing and managing the risks and opportunities
associated with climate change includes considering different time
horizons. The time horizons and their relevance to risks, opportunities
and business planning are as follows:
■ Short term (up to three years): we develop detailed financial

projections and use them to manage performance and expectations
on a three-year cycle.

■ Medium term (generally three to 10 years): most of our expected

■

production and earnings in this period come from our existing assets.
Long term (generally beyond 10 years): for this period, it is expected
that the current Shell portfolio will change and evolve with the energy
transition. Decision-making and risk identification on the thematic
structure of the future portfolio are guided by the pace of society's
progress and the aim of being in step with society as it moves
towards the goals of the Paris Agreement.

The overall climate change risk consists of four components, based on
the nature of our exposure and the options for our mitigation responses.
The four components are regulatory risks, commercial risks, physical risks
and societal risks:
■ Regulatory risks (time horizon: short term) include increased

compliance costs for assets and/or products such as carbon costs;
restrictions on the use of fossil fuels; and lack of net-zero-aligned
global and national policy and frameworks.

■ Commercial risks (time horizon: medium to long term) include lower
sales volumes and/or margins because of generally reduced or
eliminated demand; the possibility of underutilised or stranded oil and
gas assets; changing preferences of investors and financial institutions;
and additional costs for decarbonisation of operations.

■ Physical risks (time horizon ranging from short to long term) include
structural damage to assets and downtime caused by acute events;
reduced efficiency because of changing ambient conditions; increased
operations and maintenance costs; and value-chain disruptions.
■ Societal risks (time horizon: continuous) include the potential for a
deteriorating relationship with the public, other companies, and
governments in countries where Shell operates; class action lawsuits or
similar litigation; potential stakeholder criticism related to transparency
and clarity around plans and actions to achieve climate targets; and
decline in reputation, brand value and competitive advantage.

See "Risk Factors" on page 29.

Climate change and the energy transition have also created some
business opportunities for Shell. See also "Our portfolio and climate
change" on page 101.

Impact of climate-related risks and opportunities
on strategy, planning and business decisions
For Powering Progress, we must evolve our portfolio of assets and the mix
of energy that we sell, so we can meet the cleaner energy needs of our
customers in the coming decades. We aim to achieve this by repositioning
our traditional businesses for resilience and taking advantage of the
growth opportunities created by emerging customer needs.

We assess our portfolio decisions, including investments and divestments,
against the potential impacts of the energy transition to the use of
lower-carbon energy. These include higher regulatory costs linked to
carbon emissions and lower demand for oil and gas. We continue to
transform our organisation, ensuring that our portfolio is well positioned
for the future of energy. In February 2021, we announced our updated
strategy (see Strategy and outlook, page 18).

Shell Annual Report and Accounts 2020Strategic ReportWe believe that our business strategy is resilient and adapted to the
current implementation of the Paris Agreement, which is now progressing
through the mechanism of countries developing their individual nationally
determined contributions (NDCs). The Paris Agreement 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. It acknowledges that emissions might even increase in
some parts of the world. What is important is that overall emissions fall.

GHG elements in the business plans consist of a GHG-emissions forecast,
GHG-abatement plan and GHG costs. To assess the resilience of new
projects, we consider the potential costs associated with operational
GHG emissions. We have developed country-specific short-, medium-
and long-term estimates of future carbon costs which are reviewed and
updated annually. By 2050, our real-terms carbon cost estimates for
all countries are expected to increase to at least $100 per tonne of
GHG emissions.

The transition to lower-carbon energy requires major changes to industrial,
commercial and residential infrastructure. This takes time and substantial
investment. 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 an uncertain and
changing external environment.

The annual business plan is our way of putting the strategy into effect.
A business plan is created, which is then approved by the Board. The
plan contains forecasts of Shell’s cash flows, and seeks to ensure that
we can service financing requirements, pay dividends and fund
investment activities.

Shell’s business plan includes assumptions about internal and external
parameters. Some of the key assumptions relate to:
■ commodity prices;
■ production levels and product demand;
■ exchange rates;
■

future carbon costs;
the schedules of growth programmes; and
risks and opportunities that may have material impacts on free
cash flow.

■

Shell’s strategy recognises that the world is transitioning to a lower-carbon
energy system, but acknowledges that the pace and specific path forward
remain uncertain and may differ across regions and countries. This means
that Shell will need to make agile business decisions in step with society.

Scenario planning is a well-established process for exploring possible
future outcomes. Many factors and variables are considered in this
exercise. These include the future size and cost of resource bases and
macroeconomic, geopolitical, social, technological and regulatory
developments. Our portfolio and strategy have been assessed against
a wide range of outlooks. These include the potential impacts of various
possible energy transition pathways, and changes in societal expectations
around climate change. Our latest set of Shell scenarios was one of
the many variables used in guiding the updated strategy which we
announced in February 2021. One of the key aspects that underpin
Shell’s financial statements are the oil and gas price and refining margin
assumptions. These price assumptions are developed with input from
our scenarios and other factors.

The process for developing our cost of carbon estimates uses short-term
policy outlooks and long-term scenario forecasts, both of which reflect the
current nationally determined contributions (NDCs) submitted by countries
as part of the Paris Agreement and evolving national policy developments.
NDCs under the Paris Agreement are subject to revisions every five years.
The United Nations estimate that the current NDCs are consistent with
limiting the rise in global average temperature to around three degrees
Celsius above pre-industrial levels. In the coming decades, we expect
countries to tighten their NDCs to meet the goals of the Paris Agreement.
We expect to update our estimates as countries update their NDCs and
climate policies. Accordingly, we believe our estimates appropriately
reflect society’s current implementation of the Paris Agreement. We
continue to test the robustness of our projects with a material GHG
footprint by using long-term carbon cost estimates that are consistent
with limiting the rise in global average temperature to well below two
degrees Celsius.

Shell’s annual carbon cost exposure is expected to increase over the next
decade because of evolving carbon regulations. This expected increase is
based on forecasts of Shell’s equity share of emissions from operated and
non-operated assets, and real-terms carbon cost estimates which range
from $5 to $110 per tonne of GHG emissions in 2030. This exposure also
takes into account the estimated impact of free allowances as relevant to
assets based on their location. The regulatory carbon cost estimate is
refreshed on an annual basis as part of the development of our
business plan.

OUR CLIMATE TARGET
As indicated at the beginning of this section, our long-term climate target
is to be a net-zero emissions energy business by 2050, in step with
society's progress towards achieving the goal of the UN Paris Agreement
on climate change. This target supports the most ambitious goal of the
Paris Agreement on climate change to limit the global temperature rise
to 1.5 degrees Celsius. We referred to the database developed for the
IPCC special report Global Warming of 1.5°C while setting this target.
We started with all the 1.5 degrees Celsius scenarios and then selected
the scenarios which focused on earlier action and placed less reliance
on the use of carbon sinks to produce the 1.5 degrees Celsius pathway
we have used for target setting.

Shell Annual Report and Accounts 2020Strategic ReportCLIMATE CHANGE AND ENERGY TRANSITION continued

OUR NET CARBON INTENSITY TARGETS
Shell’s carbon intensity is the average intensity, weighted by sales volume,
of the energy products sold by Shell. This is tracked, measured and
reported using the Net Carbon Footprint (NCF) metric and methodology.
Our NCF calculation includes the life-cycle greenhouse gas emissions
associated with each unit of energy we sell that is used by our customers.
This includes the emissions associated with the production, processing,
transport and end use of these products. Also included are emissions from
other elements of this life cycle not owned or controlled by Shell, such as

oil and gas that we process but do not produce, or emissions from oil
products and electricity marketed by Shell that have not been processed
or generated at a Shell facility. The calculation also subtracts emissions for
those that are stored by using carbon capture and storage (CCS) or are
offset using 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 metric. The carbon intensity of the energy
products we sell is expressed in grams of carbon dioxide equivalent
(CO2e) per megajoule consumed.

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 products

Third-party crude oil

Third-party products

Own oil and
gas production

Reﬁning

Sales

Oil products

Processing, liquefaction,
gas-to-liquids (GTL)

Sales

Natural gas

LNG

GTL

Third-party gas

Third-party products

Renewable
energy

Gas
production

Renewable
raw materials

Third-party power

Power
plant

Sales

Power

Processing

Sales

Biofuels

Third-party biofuels

Scope includes Shell’s CO2 sinks such as CCS and nature-based solutions (NBS)

Emissions from bringing own products to market

Emissions from bringing third-party products to market

Power distribution

Emissions from use of sold products

100

Shell Annual Report and Accounts 2020Strategic ReportImpact of physical risks and adaptation measures
The physical effects of climate change may increase Shell’s exposure to
hazards that could potentially include, for example, higher air and sea
temperatures, rising sea levels, an increased chance of flooding and
droughts, wildfires and more severe tropical storms. They could potentially
impact our operations and supply chains. There could also be potential
financial implications, such as increased operating costs and lower
revenue because of decreased efficiency.

The potential impacts of physical risks to Shell facilities, where processes,
equipment and safety could be affected, are reasonably understood in
Shell’s oil and gas businesses. For example, rising temperatures could
potentially impact the efficiency of our plants, increase equipment
corrosion and decrease gas pipeline capacity. Rising sea levels could
potentially impact our coastal facilities through increased coastal
erosion and flooding, damage to jetties, and salt-water intrusion
in freshwater intake.

The potential impacts of physical risks to the wider environment and their
indirect effect on our facilities is an area that we continue to monitor and
evaluate within the local context. Such risks could potentially disrupt
our operations by affecting people, infrastructure or supply chains.
For example, wildfires and droughts could disrupt feedstock supply for
biofuels or make it difficult to access assets, including areas that support
our nature-based solutions programme. Floods, meanwhile, could affect
staff and communities in low-lying areas.

Measures to adapt to climate change could help reduce the impact of
some of these physical climate change risks. These measures can range
from local actions for a specific facility, to more general changes, such as
adjustments to engineering design codes and alterations to the set limits
and conditions within which facilities are deemed safe to operate. For
example, Shell has already completed or started to implement solutions
like pumping sand on beaches in to order to stabilise them, dredging
works, and using a hovercraft for transport between islands.

OUR PORTFOLIO AND CLIMATE CHANGE
We aim to grow our business in areas that will be essential in the energy
transition, and where we see growth in demand over the next decade.

We are seeking cost-effective ways of managing GHG emissions in line
with our NCF ambition. We also intend to help customers choose options
with lower carbon intensity by bringing to market products with lower
carbon intensity, in line with demand. We seek to help reduce global
GHG emissions by:
■

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.

See further information on portfolio decisions in “Integrated Gas”
on page 47, “Upstream” on page 54, “Oil Products” on page 72,
and “Chemicals” on page 78.

NATURAL GAS
Natural gas is the least polluting hydrocarbon. It produces less than
one-tenth of the air pollution that coal does when burned to generate
electricity. Increasing the role that gas plays in the energy mix is one
way countries can take action as the world moves to a net-zero
emissions future.

Natural gas is an abundant, secure and readily available source of
energy, one of the few that can be used across power generation,
industry, the built environment and transport. Gas has significant
advantages when used to generate power alongside renewables:
it can quickly compensate for dips in supply from solar or wind
generation, and can rapidly respond to surges in demand.

In 2020, gas accounted for around 47% of Shell’s total production.
We are a leading producer, marketer and trader of liquefied natural gas
(LNG) and gas-to-liquids (GTL) products. In our new strategy, launched in
February 2021, one of the energy transition milestones by 2030 is that we
expect the percentage of total gas production in our portfolio to gradually
rise to around 55% or more.

See “Integrated Gas” part on page 46.

Methane emissions
Natural gas consists mainly of methane. Methane is a potent greenhouse
gas and has a much higher global warming impact than CO2. Efforts to
address climate change therefore require the industry to reduce both
deliberate and unintended methane emissions.

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 than coal when burned at a power plant. Higher levels
of methane emissions reduce this benefit.

In 2018, Shell announced an industry-leading target of keeping its
methane emissions intensity below 0.2% by 2025. This target covers all
the Shell-operated oil and gas facilities in our Upstream and Integrated
Gas businesses. The baseline and target intensities are expressed as
percentage figures, representing estimated methane emissions from
Shell-operated oil and gas 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 (for example, those that re-inject produced
gas). Methane emissions include those from unintentional leaks, venting
and incomplete combustion, for example, in flares and turbines.

The largest contributor to our reported methane emissions in 2020
was the flaring and venting of gas (including equipment venting) in our
upstream oil and gas operations. We are working to reduce methane
emissions from these sources by reducing the overall level of flaring and
venting. We also continue to implement programmes across our sites to
identify and stop unintended leaks and to replace or repair high-emission
equipment, such as high-bleed pneumatic devices. We continue to work
on confirming that we have identified all potential methane sources and
reported our emissions from these sources in line with regulations and
industry standards.

101

Shell Annual Report and Accounts 2020Strategic ReportCLIMATE CHANGE AND ENERGY TRANSITION continued

Since 2018, we have tested drone-based leak detection cameras and
sensors in our Permian Basin shales asset, where we have more than
400 sites. In 2020, we signed a contract with Avitas, a GE Venture,
to expand the use of drones to enhance our existing leak detection and
repair programme in the Permian Basin. As a result, we started the drone
programme on one of our shales businesses, across sites that have the
potential to emit methane.

We played an active role in the advisory committee of The University of
Texas at Austin’s Project Astra which plans to establish a proof-of-concept
network of methane detection sensors in the Permian Basin for high-
frequency monitoring.

We have also tested fixed-based methane detection sensors in our
Rocky Mountain House (Canada) asset.

At our Shell ONEgas facilities in the North Sea, we have reduced
methane emissions by around 55%, (around 2,000 tonnes) since 2017.
We have done this through improvements that reduce gas venting, such
as minimising valve leakage and substituting nitrogen for natural gas
when purging potentially explosive oxygen from equipment. ONEgas
also continues efforts to improve the accuracy of its measurement of
methane emissions. It is planning a trial of drone-mounted sensors in
2021, to see whether they provide a better way of quantifying
emissions from platforms.

Methane initiatives and collaborations
We participate in a number of voluntary initiatives to encourage
industry-wide action to reduce methane emissions.

In 2017, we joined the Climate and Clean Air Coalition Oil and Gas
Methane Partnership. This brings together industry, governments and
NGOs to improve the quantification of methane emissions globally
and to work on reducing them.

Also in 2017, Shell formed an industry coalition, supported by
organisations such as the Environmental Defense Fund, the UN
Environment Programme and the World Bank, to develop a set
of Methane Guiding Principles. These principles focus on:
■ continually reducing methane emissions;
■ advancing strong performance across gas value chains;
improving the accuracy of methane emissions data;
■

■ advocating sound policies and regulations on methane emissions; and
■

increasing transparency.

Shell has been involved in developing all actions associated with the
Methane Guiding Principles, including the establishment of a major
global outreach programme. This programme seeks to address gaps in
knowledge about managing methane emissions. It provides high-quality
educational material and courses covering 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 for senior
managers and executives, and masterclasses for managers of frontline
staff. By the end of 2020, the Methane Guiding Principles had been
signed by 23 companies.

In 2020, we became a founding signatory to the Oil and Gas Methane
Partnership 2.0, the new gold-standard reporting framework that
is designed to enhance reporting accuracy and transparency on
methane emissions in the oil and gas sector.

102

The Methane Guiding Principles

The Methane Guiding Principles focus on reducing
methane emissions across the natural gas supply chain

CH4

1. Continually reduce methane emissions

2. Advance strong performance across

the gas supply chain

3. Improve accuracy of methane emissions data

4. Advocate sound policy and regulations

on methane emissions

5. Increase transparency

Shell is 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
of reducing 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%, which would be
a reduction of one-third.

Methane emissions performance
In 2020, our overall methane intensity was 0.06% for facilities with
marketed gas and 0.01% for facilities without marketed gas. Intensities at
facility level ranged from below 0.01% to 0.6%. 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 still uncertainties associated
with quantifying methane emissions with the available methodologies. To
reduce these uncertainties, our Upstream and Integrated Gas businesses
are rolling out methane improvement programmes to further improve data
quality and reporting. The improvement programmes will also continue
leak detection and repair initiatives, 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 other initiatives such as the OGCI.

Detailed information on our approach to managing methane emissions
and performance is expected to be published in the Shell Sustainability
Report in April 2021.

Shell Annual Report and Accounts 2020Strategic ReportRENEWABLES AND ENERGY SOLUTIONS
Renewables and Energy Solutions, formerly New Energies, encompasses
Shell’s low-carbon businesses. These include Shell’s activities in integrated
power, hydrogen, nature-based solutions (NBS) and carbon capture and
storage (CCS). We want to find ways of helping customers – be they
households or businesses – to switch to low-carbon and renewable
electricity. That is why we are also developing digitally-enabled platforms
that will provide customers with services that make it easier for them
to decarbonise and accelerate their progress in this area. We could
invest on average $2-3 billion each year in our Renewables and
Energy Solutions business.

See “Integrated Gas” on page 50.

Power
Electricity is the fastest-growing part of the energy system and when
generated from renewable sources has a major role to play in reducing
GHG emissions. Shell is building an interconnected power business that is
designed to be sustainable and offer long-term opportunities. We aim to
sell some 560 terawatt hours of electricity a year by 2030, which is twice
as much electricity as we sell today. Our integrated power strategy will
help Shell in its broader aim to accelerate its transformation into a
provider of net-zero emissions energy products and services.

See “Integrated Gas” on page 50.

Low-carbon fuels
Shell believes that low-carbon fuels will play a valuable role in reducing
carbon dioxide (CO2) emissions from the transport sector in the coming
decades. Low-carbon fuels projects and operations around the world
form part of a wider commitment to provide a range of energy choices
for customers.

In 2020, around 9.5 billion litres of biofuels went into Shell’s petrol and
diesel worldwide. This helped us to make progress towards achieving our
climate ambition while complying with applicable mandates and targets
in the markets where we operate. Through our own long-established
sustainability clauses in supply contracts, we request that all biofuels
we buy are produced in ways that are 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, biofuels can emit significantly less CO2 compared with
conventional gasoline. This depends on several factors, such as how
the feedstock is cultivated and the way the biofuels are produced. Other
challenges include concerns over labour rights, the amount of water used
in the production process, and competition for land use between biofuels
and food crops.

Over three-quarters of the biofuels we buy are from North American
or European feedstock producers. Both regions have regulations for
agricultural practices including in relation to sustainability.

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

Currently, more than 97% 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 volumes that are certified according to robust multi-
stakeholder standards.

The Raízen joint venture (Shell interest 50%, not operated by Shell) in
Brazil has produced low-carbon biofuel from sugar cane since 2011.
Through Raízen, Shell is a significant biofuels producer. Raízen hosts
the first commercial advanced bioethanol facility and the fourth
largest renewable natural gas (RNG) facility in the world.

As part of our target to be a net-zero energy business by 2050, in step with
society, we seek to reduce the carbon intensity of the products we sell. This
means transforming our refining footprint, keeping sites in key locations but
manufacturing low-carbon fuels suitable for use as aviation, road transport
and shipping fuels or as a chemical feedstock (for liquid crackers). In 2020,
our Rheinland refinery in Germany produced nearly 100 million litres of
renewable diesel, produced from sustainably sourced vegetable fats and
oils Our production strategy is anchored around access to competitive
feedstock, commercialisation of advanced technology, supportive
government policy, and building internal capability.

We are also investing in new facilities that are able to produce sustainable
low-carbon fuel suitable for use as aviation, road transport and shipping
fuels or chemical feedstock for liquid crackers. Shell’s hydro-processed
esters and fatty acids (HEFA) technology yields up to 65% low-carbon
fuels compared to fossil diesel and aviation equivalent. If HEFA
technology is used with green hydrogen – produced by using renewable
electricity to split water into hydrogen and oxygen through electrolysis –
it can increase the energy content and further reduce the carbon content
of the fuels produced.

We are working on a project to add a HEFA facility at our Pernis refinery
in the Netherlands. If this project went ahead, production would start
in around three to four years. The proposed facility could convert waste
fats and oils and other sources into sustainable low carbon vehicle
and aviation fuels. A final investment decision has not yet been taken.

103

Shell Annual Report and Accounts 2020Strategic ReportCLIMATE CHANGE AND ENERGY TRANSITION continued

In January 2021, Shell announced the signing of commercial agreements
to invest in Varennes Carbon Recycling, a plant in Québec, Canada,
that will turn waste into chemicals and biofuels. This plant, a joint venture
with Enerkem, Proman, Suncor and Invest Quebec (Shell interest 40%),
will produce biofuels and renewable chemical products using non-
recyclable waste from the industrial, commercial and institutional
sectors, from construction, renovation and demolition debris and
from residual forest biomass.

In line with our strategy of developing more sustainable feedstocks for
transport, we are 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 the anaerobic digestion of
food waste or manure. It is 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 a way to lower their carbon footprint.

The heavy-duty road transport sector is starting to use RNG in its efforts
to decarbonise. Shell recently won tenders to supply RNG to fuel around
300 of the Los Angeles (LA) bus fleet and vehicles of the West LA waste
haulers fleet.

Shell has taken a final investment decision (FID) to construct, own and
operate its first renewable compressed natural gas (R-CNG) fuelling site in
the USA. This will be at Shell’s products distribution complex in Carson,
California. The R-CNG will be sourced from Shell’s renewable natural gas
projects in the USA, which are currently Shell Junction City in Oregon and
Shell Galloway in Plains, Kansas. These convert wastes, such as dairy cow
manure and agricultural residues, into pipeline-quality natural gas. Shell
will be able to substantially decarbonise the transport of its products from
the Carson complex by providing 100% R-CNG to its haulage partners,
who are equipped with ultra-low nitrogen oxide natural gas vehicles.

CARBON CAPTURE AND STORAGE
CCS is a technology used for capturing carbon dioxide (CO2) before it
is emitted into the atmosphere, then transporting it, and injecting it into a
deep geological formation for permanent storage. The majority of climate
change scenarios produced by organisations such as IEA, IPCC and Shell
require a large component of CCS in order to achieve the goals of the
Paris Agreement. We recognise the scale of the challenge in developing
CCS globally as quickly as is required.

In 2020, we refreshed our CCS strategy. We placed greater emphasis
on how CCS could enable the energy transition for low-carbon fuels and
power, and for industrial hub developments where CO2 from different
industrial sources is routed to a single storage location. We seek to have
access to an additional 25 million tonnes a year CCS capacity by 2035.

In 2020, Shell invested around $70 million in CCS. This included
progressing opportunities and operating costs for CCS assets in
which Shell has an interest.

By the end of 2020, our Quest CCS project in Canada (Shell interest 10%)
had captured and safely stored more than 5.5 million tonnes of CO2 since
it began operating in 2015. Quest CCS was designed to capture about 1
million tonnes of CO2 each year. The storage reservoir proved to have a
significant capacity for CO2 injection and strong capture reliability with
less than 1% downtime annually. This means the facility could exceed its
target and reduce estimated costs.

The Gorgon CCS project in Australia (Shell interest 25%, operated
by Chevron) started operating in August 2019. It had stored more
than 4 million tonnes of CO2 by the end of 2020.

In Norway, Shell, our project partners and the Norwegian government
took the final investment decision (FID) on the Northern Lights CCS project
in 2020. This project aims to become the first carbon storage facility with
capacity to transport and store CO2 from industrial facilities in Norway
and potentially from across Europe.

Shell is also involved in the Technology Centre Mongstad (TCM), in
Norway. TCM is a centre for testing and improving carbon capture
technology.

In the Netherlands, we have signed a joint-development agreement
to assess the potential to export CO2 from our Pernis refinery to a
Rotterdam-based CO2 transport and storage provider.

In the UK, we are collaborating with other companies to further
understand the potential of CCS. Projects include how to decarbonise
our own facilities, to deliver gas power and low-carbon hydrogen.

In other regions, we are pursuing opportunities which are currently in
early development phases.

Shell recognises the role of policy as a key enabler for implementing CCS.
We are a member of several industry organisations that actively advocate
CCS, such as the Zero Emissions Platform in the EU, the American
Petroleum Institute in the USA, and the Carbon Capture and Storage
Association in the UK. Shell makes representations and contributes to
technical and policy papers through these organisations. In 2020, Shell
submitted responses to a number of consultations on aspects of CCS,
individually and through industry associations, in the EU, USA, UK and
other jurisdictions.

Shell is participating in the OGCI’s KickStarter initiative to unlock
large-scale investment in CCS. The initiative is designed to help
decarbonise industrial hubs around the world and started with hubs
including North America, North-west Europe and China.

NATURE-BASED SOLUTIONS
We believe that nature will play an important role in the transition to a
low-carbon world. Using nature to absorb carbon dioxide helps to limit
the overall stock of greenhouses gases in the atmosphere. This can serve
as a temporary solution until other low-carbon alternatives are deployed
at scale, or it can compensate for emissions that are unavoidable.

As customers’ and society’s demand for the use of low-carbon products
and services grows, nature-based solutions are becoming an increasingly
attractive option for emissions offsetting for a range of industries
and operators.

Nature-based projects typically involve protecting or redeveloping natural
ecosystems such as forests and wetlands, so they can capture and store
more carbon. These projects generate carbon emission rights that can
be bought by energy consumers around the world. They also support
conservation of biodiversity and offer alternative sources of income
to local communities.

104

Shell Annual Report and Accounts 2020Strategic ReportNature-based solutions are expected to contribute to meeting our target
to be a net-zero emissions energy business by 2050, in step with society.

We have been running a nature-based solutions programme to invest in
natural ecosystems since 2019. As well as investing directly in projects that
protect or restore nature, we are also working with projects that already
generate carbon credits for our customers. In 2020, Shell invested around
$90 million in nature-based projects that reduce or avoid emissions and
can also benefit ecosystems by improving biodiversity, water quality and
flood protection. This in turn can improve the livelihoods of people in
local communities.

Our ambition is to invest around $100 million per year in nature-based
projects that reduce or avoid CO2 emissions and offer other valuable
ecosystem benefits. We aim to use nature-based solutions, in line with the
philosophy of avoid, reduce and only then mitigate, to offset emissions of
around 120 million tonnes a year by 2030, through projects of the highest
independently verified quality.

In 2020, we developed a screening process with clear criteria to help
ensure that we invest in nature-based solutions projects that are of high
quality and integrity. The criteria include but are not limited to:
■

selecting only projects that are certified under credible, high-quality
and independent carbon-credit standards;
selecting projects that deliver wider environmental and social benefits;

■

■ working to ensure project developers maintain appropriate health,

safety, security and social governance standards; and

■ having an independent third party audit our internal nature-based

project screening review and management processes.

In 2019, we started offering what we called “carbon-neutral driving”
to our retail customers. We offered service-station customers in the
Netherlands and the UK nature-based carbon credits to offset the CO2
emissions generated by the extraction, refining, distribution and use of
the Shell fuel they buy. By the end of 2020, around 18% of Shell’s retail
customers in the Netherlands and around 15% of our UK service-station
customers were driving carbon neutral. So too were more than 200
fleet customers in 12 countries who took advantage of similar offers
for businesses.

In 2020, we continued to roll out our carbon-neutral retail offer in
Germany, Austria, Switzerland, and Canada, and via a third-party
reseller agreement in Denmark. We also offer a growing range of
products with nature-based carbon credits, including home energy in
the UK, LNG in Asia, bitumen in Europe, and selected lubricants.

In 2020, we took another step to scale up our activities in natural
ecosystems by acquiring Select Carbon, a specialist company that
partners with farmers, pastoralists and other landowners in Australia
to develop carbon farming projects, where plants are grown and
soil managed to absorb carbon dioxide from the atmosphere.

For more information, see the Shell Sustainability Report, due to be
published in April 2021.

OUR PERFORMANCE
Shell’s carbon intensity
Shell’s carbon intensity provides an annual measure of the life-cycle
emissions intensity of the portfolio of energy products sold. Specifically,
we calculate the carbon intensity (gCO2e/MJ) in terms of the grams of
carbon dioxide equivalent (gCO2e) per unit of energy (MJ) sold. This is
measured, tracked and reported using the Net carbon Footprint (NCF)
metric and methodology.

Shell’s NCF is not calculated by simply dividing total emissions by total
energy, nor is it an inventory of absolute emissions. Instead, Shell
calculates the life-cycle carbon intensity of each of the different energy
products it sells. Once we have calculated the carbon intensity for each
individual energy product, we then calculate the overall carbon intensity
by taking a weighted average of the individual product intensities, with
the weighting based on their sales volumes. This approach enables
like-for-like comparisons across a range of energy products and allows
us to establish the average carbon intensity for all the energy products
we sell, including renewables.

Finally, we deduct, or "net off", any emissions that are stored in carbon
sinks. For example, we subtract emissions that are stored using carbon
capture and storage in our own operations. We also subtract any
carbon dioxide emissions that are removed from the atmosphere and
stored using natural carbon sinks created using nature-based solutions,
such as reforestation.

While Shell’s NCF is an intensity measure and not an inventory of absolute
emissions, a notional estimate of the amount of CO2e emissions covered
by the scope of the Net Carbon Footprint calculation can be derived
from the final Net Carbon Footprint value for any year.

Net carbon intensity performance
Our NCF performance

NCF in the reference year (2016) = 79 gCO2e/MJ

2018

2019

2020

NCF

gCO2e/ MJ

Estimated total energy
delivered by Shell [A]

Estimated total GHG
emissions included in
NCF [B], [C]

trillion (10^12) MJ

21.05

18.4

million tonnes CO2e

1,731

1,646

1,384

[A] Retail sales volumes from markets where Shell operates under trademark licensing

agreements are excluded from the scope of Shell’s carbon intensity metric

[B] The 2.2 million tonnes of carbon offsets used in 2019, and 3.9 million tonnes of carbon
offsets used in 2020 have been subtracted from the estimated total GHG emissions

[C] These numbers include well-to-wheel emissions associated with energy products sold by Shell;
they also include the well-to-tank emissions associated with the manufacturing of energy
products by others that are sold by Shell. Emissions associated with the manufacturing
and use of non-energy products are excluded

We have received third-party limited assurance on our carbon intensity,
measured and reported using the Net Carbon Footprint, for the years
from 2016 to 2020. Shell’s NCF in 2020 was 75 gCO2e/MJ, a 4%
reduction from the previous year and a 5% reduction from the 2016
reference year. One of the major causes of this larger than expected
reduction in 2020 was lower demand for energy, especially for oil and
gas. Demand for oil products experienced the most significant reduction,
followed by natural gas and LNG. Another important factor contributing
to the reduction of the NCF was the increase in our power sales in
absolute terms as well as their share of the energy mix sold by Shell.
The power we sold also had a lower average emissions intensity than
in previous years, which further contributed to the overall NCF reduction.

105

Shell Annual Report and Accounts 2020Strategic ReportCLIMATE CHANGE AND ENERGY TRANSITION continued

Share of energy delivered per energy product type [A], [B], [C], [D]

14%

24%

15%

23%

16%

21%

18%

17%

54%

55%

56%

12%

19%

21%

47%

2016

2017

2018

2019

2020

Oil products and GTL
Gas
LNG

Biofuels
Power

[A] Percentage of delivered energy may not add up to 100% because of rounding.
[B] Total volume of energy products sold by Shell, aggregated on an energy basis, with

electricity represented as fossil equivalents. This value is derived from energy product sales
figures disclosed by Shell in the Annual Report, Form 20-F and the Sustainability Report.

[C] Lower heating values are used for the energy content of the different products and
a fossil-equivalence approach is used to account for electrical energy, so that it is
assessed on the same basis as our other energy products.

[D] Retail sales volumes from markets where Shell operated under trademark licensing

agreements are excluded from the scope of Shell’s carbon intensity metric.

Carbon intensity of Shell’s energy product types
The graph below illustrates the carbon intensity of our delivered energy
per product type from 2016 to 2020. Our NCF is calculated by taking
a weighted average of these individual carbon intensities, with the
weighting based on their sales volumes.

Carbon intensity of Shell’s energy product types [A]
(gCO2e/MJ)

100

2016

2017

2018

2019

2020

Oil products and GTL

Gas

LNG

Biofuels

Power

[A] Emissions included in carbon intensity of power have been calculated using the market-based

method in 2020

For hydrocarbon fuels, emissions from end use by customers are by far the
biggest contributors to the carbon intensity of the product. As a result, the
emissions intensity of hydrocarbon fuels is expected to stay relatively
unchanged over time.

This contrasts with the emissions intensity of power, which can be highly
variable depending on how it has been generated. To a lesser extent,
there is also a contrast between hydrocarbon fuels and biofuels, which
can vary significantly in intensity depending on the feedstock and
production process used.

106

The proportion of our renewable power sales and countries where we sell
power to the market both affect Shell’s overall power mix and its resulting
emissions intensity. The carbon intensity of biofuels provided in the graph
“Carbon intensity of Shell’s energy product types” reflects the global
average for biofuels sold by Shell.

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 that we sell to our customers.

GREENHOUSE GAS EMISSIONS
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 216-264. Detailed data
and information on our 2020 environmental and social performance are
expected to be published in the Shell Sustainability Report in April 2021.

GHG Performance
Our direct GHG emissions (Scope 1) decreased from 70 million tonnes of
CO₂ equivalent in 2019 to 63 million tonnes of CO₂ equivalent in 2020.
The main contributors to this decrease were divestments, (for example,
in Canada and the USA), and reduced utilisation at a number of assets
caused by lower demand driven by COVID-19. The level of flaring in our
Upstream and Integrated Gas businesses combined decreased by around
35% compared with 2019. In 2019, our Prelude floating LNG facility in
Australia had experienced an unanticipated spike in flaring during its
start-up. In February 2020, we had to shut down Prelude which resulted
in a decrease of its GHG emissions by around 80% compared with 2019.

In 2015, we signed up to the World Bank’s Zero Routine Flaring by 2030
initiative. This seeks 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 6% of our overall direct GHG emissions in 2020. Around 35% of this
flaring occurred at facilities where there was no infrastructure to capture the
gas produced with oil, known as associated gas.

Around 45% of flaring in our Upstream and Integrated Gas facilities in
2020 occurred in assets operated by the Shell Petroleum Development
Company of Nigeria Limited (SPDC). Flaring from SPDC-operated facilities
decreased by around 15% in 2020 compared with 2019. SPDC, in close
collaboration with its joint-venture partners and the Federal Government
of Nigeria, continues to make progress 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.

Our indirect GHG emissions associated with imported energy (Scope 2)
were 9 million tonnes in 2020 (using market-based method), down from
10 million in 2019, in part driven by divestments (for example in Canada)
and lower demand for imported electricity due to reduced utilisation.

Our GHG emissions

Scope 1 [A]

Scope 2 [B]

Scope 3 [C]

million tonnes CO₂

2018

2019

2020

million tonnes CO₂

1,637

1,551

1,305

[A] total direct (Scope 1) GHG emissions from assets and activities under operational control boundary
[B] total indirect GHG emissions from imported energy (Scope 2) from assets and activities under

operational control boundary

[C] indirect GHG emissions (Scope 3) based on the energy product sales included in the NCF
boundary. See our website shell.com for more information on our NCF methodology

Shell Annual Report and Accounts 2020Strategic ReportGreenhouse gas intensity
In 2020, the three GHG intensity metrics included in the Performance
Indicators on page 45 covered over 80% of our total Scope 1 and 2
GHG emissions from assets and activities under our operational control.

The Upstream and Integrated Gas GHG intensity – measured in tonnes
of CO2 equivalent per tonne of hydrocarbon production available for sale
– decreased from 0.17 in 2019 to 0.16 in 2020. This was partly because
of our Prelude FLNG asset being shut down in February 2020.

The Refining GHG intensity – measured in tonnes of CO2 equivalent per
Solomon’s Utilised Equivalent Distillation Capacity (UEDC™) – decreased
from 1.06 in 2019 to 1.05 in 2020. This was mainly driven by divestment
of our Martinez refinery in the USA.

The Chemicals GHG intensity – measured in tonnes of CO2 equivalent
per tonne of high value chemicals – decreased from 1.04 in 2019 to
0.98 in 2020. This was mainly because of increased utilisation following
turnarounds on three of our sites in 2019.

GHG emissions and energy consumption data and information 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 American Petroleum Institute (API)
Compendium of Greenhouse Gas Emissions Methodologies, 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 (API/International
Association of Oil & Gas Producers (IOGP)/IPIECA, the global oil and
gas industry association for advancing environmental and social
performance) indicate that a number of sources of uncertainty can
contribute to the overall uncertainty of a corporate emissions inventory.

Greenhouse gas emissions

Emissions (million tonnes of CO2 equivalent)

Total global direct (Scope 1) [A]

UK including offshore area [B]

Total global energy indirect (Scope 2) [C]

UK including offshore area [D]

Intensity ratio (tonne/tonne)

All facilities [E]

2020

2019

2.0

0.0

2.1

0.0

0.25

0.24

[A] Emissions from the combustion of fuel and the operation of our facilities globally, calculated

using global warming potentials from the IPCC’s Fourth Assessment Report.

[B] Emissions from the combustion of fuels and the operation of our facilities in the UK and its offshore
area, calculated using global warming potentials from the IPCC’s Fourth Assessment Report.
[C] Emissions from the purchase of electricity, heat, steam and cooling for our own use globally,

calculated using a market-based method as defined by the GHG Protocol Corporate
Accounting and Reporting Standard. Using location-based methods, indirect GHG emissions
from generation of purchased and consumed energy (electricity, steam, heat and cooling)
were 11 million tonnes CO2e in 2019 and 11 million tonnes CO2e in 2020.

[D] Emissions from the purchase of electricity, heat, steam and cooling for use by our facilities
in the UK including its offshore area, calculated using a market-based method as defined
by the GHG Protocol Corporate Accounting and Reporting Standard. Using location-based
methods, indirect GHG emissions from generation of purchased energy consumed by our
facilities were 0.06 million tonnes CO2e in 2019 and 0.06 million tonnes in 2020.
[E] 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. For an
additional breakdown by segment, see Greenhouse gas intensity section above.

Energy consumption data reflect primary (thermal) energy (e.g. the energy
content of fuels used to generate electricity, steam, heat, mechanical
energy etc.). This includes energy from renewable and non-renewable
sources. Own energy generated was calculated by multiplying the
volumes of fuels consumed for energy purposes by their respective lower
heating values. Own energy generated that was exported to third-party
assets or to the power grid is excluded. Thermal energy for purchased and
consumed electricity was calculated using actual electricity purchased
multiplied by country-specific electricity generation efficiency factors (from
IEA statistics). Thermal energy for purchased and consumed steam and
heat was calculated from actual steam/heat purchased multiplied by a
supplier-specific conversion efficiency, or generic efficiency factor where
supplier-specific data were not available.

Energy consumption (billion kilowatt-hours)

2020

2019

Own energy generated and consumed

Total energy generated and consumed

UK including offshore area

Purchased and consumed energy

Total purchased and consumed energy

UK including offshore area

Energy consumption

Total energy consumed

UK including offshore area

202

7.6

0.2

240

7.8

220

7.6

0.2

264

7.8

In 2020, we implemented a variety of measures to reduce the energy
use and increase the energy efficiency of our operations. Examples
of some of the principal measures taken are listed below:
■ At our Clipper facility in the UK, we completed a project to optimise

the use of compressors.

■ At our Bukom facility in Singapore, we completed two projects to

minimise energy loss from steam.

■ At our Scotford upgrader facility in Canada, we completed several
projects to minimise energy use and improve efficiency, for example
by removing equipment from service or replacing it with more
efficient equipment.

■ At our Geismar facility in the USA, we improved flare staging

and temperature control which resulted in lower levels of natural
gas consumption.

■ At our Mobile facility in the USA, we installed new equipment to

increase heat transfer between heat exchangers in order to improve
the energy efficiency of the units.

■ At our GTL facility in Qatar, we completed several projects to reduce
energy use and improve efficiency, for example by minimising the
generation of excess steam and converting excess energy into
electricity for export to the public grid.
In Brazil, we reduced fuel usage of vessels by optimising how they
operate in dynamic position, stand-by and navigation modes.

■

Detailed information on our 2020 GHG emissions and energy use is
expected to be published in the Shell Sustainability Report in April 2021
and on our website.

The statements in this “Climate change and energy transition” section,
including those relating to the Net Carbon Footprint targets, 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.

The energy consumption data provided below comprise own energy,
generated and consumed by our facilities, and supplied energy
(electricity, steam and heat) purchased by our facilities for our own use.

See “About this Report” on pages iii-iv and “Risk factors” on
pages 28-37.

107

Shell Annual Report and Accounts 2020Strategic ReportOUR PEOPLE

Performing competitively in the evolving energy landscape requires
competent and empowered people working safely together across Shell.

EMPLOYEES

REGION

TRAINING

87,000
employees at December 31, 2020

>70
countries in which we operate

234,000
formal training days for employees
and joint-venture partners

FEMALE EMPLOYEES

32%
female employees

DIRECTORS

38%
women on the Board of Directors

SENIOR LEADERS

28%
women in senior leadership positions

EXPERIENCED HIRES

957
experienced people joined Shell (31% female)

OPERATIONS CENTRE HIRES

1,879
recruited for Shell Business
Operations centres (50% female)

GRADUATE HIRES

160
graduate hires (49% female)

[A] All metrics except the employees metric exclude the employees in certain Upstream,

Downstream and Renewables and Energy Solutions (Formerly New Energies)
companies that maintain their own HR systems.

[B] As part of its restructuring plans, Shell expects to reduce 7,000-9,000 jobs by the

end of 2022.

108

We recruit, train and remunerate 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. Strong engagement helps us to
accelerate our people's development, enhance our leadership
capabilities and improve employee performance.

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, 2020, there were a total of 87,000 employees in Shell.
This total consisted of employees in Shell and employees in certain Upstream,
Downstream and Renewables and Energy Solutions (formerly New Energies)
companies that operate more autonomously than other Shell subsidiaries and
maintain their own HR systems.

The total of 87,000 employees at December 31, 2020 was the same as
at December 31, 2019.

There were 81,000 employees in Shell, excluding those in companies
with their own HR systems, at December 31, 2018.

As part of Reshape initiative, Shell expects to reduce between 7,000
and 9,000 jobs by the end of 2022, as it seeks to reduce costs and
restructures with the aim of becoming a more streamlined, more
competitive organisation that is nimbler and better able to respond to
customers. The job reductions will include around 1,500 people who have
already decided to take voluntary redundancy in 2020, but will exclude
anybody who may leave Shell because of divestments. Shell will conduct
the job reductions process in accordance with our core values of honesty,
integrity and respect for people. We will seek at all times to show care for
anyone who loses their role. Job and cost reductions are in comparison
with December 31, 2019.

The table below shows actual employee numbers by geographical area.
Note 26 to the “Consolidated Financial Statements” on page 262
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

2020

2019

Thousand

2018 [A]

[A] As revised, numbers have been changed from average number to actual numbers.

These numbers exclude those in companies with their own HR systems.

In 2020, a total of 234,000 formal training days were provided for
employees and joint-venture partners, compared with 373,000 in 2019.
The decrease in formal training was caused by COVID-19-related travel
restrictions, which significantly affected classroom and blended training
plans. In response to this, we rapidly increased the number of courses that
could be attended virtually, and created more digital resources to help our
people learn, train and develop their skills. This allowed us to continue to
invest in people and capabilities, while maintaining our focus on safety.

Shell Annual Report and Accounts 2020Strategic ReportEMPLOYEE COMMUNICATION AND INVOLVEMENT
We strive to maintain a healthy employee and industrial relations
environment. We seek to ensure that our work practices involve dialogue
between management and employees – both directly and, where
appropriate, through employee representative bodies. Management
regularly engages with our employees through a range of formal and
informal channels. These include webcasts and all-staff messages from our
Chief Executive Officer (CEO) Ben van Beurden, senior leader webcasts,
town halls, team meetings, virtual coffee/chai connects, interviews with
Senior Management and online publications via our intranet. For further
information on stakeholder engagement, see the "Governance" section
on pages 138-139.

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 2020, 1,425 cases were
reported via the Shell Global Helpline: 1,153 allegations and 272
inquiries. In 2019, 1,686 cases were reported via the Shell Global
Helpline: 1,278 allegations and 408 inquiries. Shell Internal Audit (SIA) is
the custodian of the Shell Global Helpline process, 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 to the Audit
Committee the responsibility for reviewing the functioning of the Shell
Global Helpline and the reports arising from its operation. 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 2020,
the response rate was 86.1%, our highest ever level and an increase of
0.6 percentage points compared with 2019. The average employee
engagement score was 78 points out of 100, the same as in 2019. This
result gives Shell one of the leading employee engagement scores
across a range of industries.

In 2020, we faced the worldwide COVID-19 pandemic. In response, we
strengthened the country chair network so we could respond locally to
the challenges of the pandemic as experienced by our staff, businesses,
suppliers and customers. We also provided global support on health. We
offered a home-working ergonomics programme, which involved more
than 50,000 staff having a health-based risk assessment, receiving advice
and if necessary receiving support to buy office and IT equipment. We
established a Care for Self programme to encourage staff to pay attention
to their physical and mental well-being, and to support them as they did
so. This was considered particularly important, given the stresses placed
on staff by the COVID-19 pandemic and lockdowns.

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 improves our understanding of the needs of our people, partners,
suppliers and customers. A diverse workforce, and an inclusive, caring
environment that respects and nurtures diverse people, help us to improve
our safety and business performance.

We continue to focus on recruiting, developing and promoting more
women, and we are supporting initiatives that encourage girls to study
science, technology, engineering and mathematics (STEM). We also
do this by creating a culture of respect and inclusion. Our CEO Ben van
Beurden joined the Catalyst CEO Champions for Change, a group of
more than 50 CEOs who pledge to support women’s advancement at all
levels of leadership. Our CEO actively supports the Shell global gender
gap campaign, which seeks to close the gender gap in STEM roles.

In 2020, 49% of our graduate recruits were female, compared with 48%
in 2019. At the end of 2020, the proportion of women in senior leadership
positions was 27.8 %, an increase of 1.4 percentage points compared with
the end of 2019. “Senior leadership positions” is a Shell measure based on
salary group levels and is distinct from the term “senior manager” in the
statutory disclosures set out below.

Gender diversity data (at December 31, 2020)

Directors of the Company

Senior managers [A]

Employees (thousand)

Men

62%

71%

68%

632

Number

Women

38%

29%

32%

258

[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, and other directors of Shell subsidiaries.

We are creating an environment where people with disabilities can excel.
We will provide support and can make adjustments for people with
disabilities through the recruitment process and throughout their careers
with Shell, including equal access to valuable educational resources, training
programmes, and emphasis on personal and professional development.

Our workplace accessibility service currently serves 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.

To further support our employees with disabilities, we have created
internal employee networks, including the enABLE networks that support
and highlight the work of disabled employees in Shell. First launched in
the UK in 2005, we now have 13 enABLE networks in countries including
Brazil, Canada, France, India, the Netherlands, the UK and the USA. The
disability and enablement focus area is sponsored by Harry Brekelmans,
Executive Director for Projects & Technology and Huibert Vigeveno,
Executive Director for Downstream.

Shell is a member of the disability campaign The Valuable 500, which
seeks to eliminate the exclusion of disabled people worldwide and ensure
disability remains a priority for global business leaders. We are also
members of Business Disability Forum, a membership organisation that
exists to create a disability smart world by linking businesses, disabled
people, and government, and Purplespace, a networking and professional
development hub for disabled employees, employee network leads and
allies from all sectors and trades.

At Shell, we support and enable remarkable people from every
background, and strive to be a leader in lesbian, gay, bisexual and
transgender (LGBT+) inclusion in the workplace. We have pledged support
for the UN LGBTI Standards of Conduct for Business. We benchmark
ourselves externally, with consistent top-tier results. For example, in 2020,
in the USA we earned a 100% score in the Human Rights Campaign
Foundation’s Corporate Equality Index, a recognition we have earned
annually since 2016. In 2020, Shell has again been benchmarked as a top
employer in the Workplace Pride Global Benchmark inclusive workplace
survey, scoring 94.2% compared with a median score of 50-60%.

109

Shell Annual Report and Accounts 2020Strategic ReportOUR PEOPLE continued

We have also created a global LGBT+ forum consisting of LGBT+
colleagues and allies and backed by members of the Executive
Committee. The forum is taking action in a number of areas, for
example, strengthening our approach to talent development and
industry collaborations, including with non-governmental organisations.

Shell has established a global D&I Council for Race, sponsored by
our CEO Ben van Beurden. The council aims to build on our actions to
advance diversity in our workforce so it better reflects communities where
we work and from which we draw talent. While seeking to drive change
across the organisation, the council has identified the USA and the UK
as the focus of much of its initial efforts to address diversity and
inclusion challenges.

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. The total number of senior leadership roles has reduced which
resulting in the drop of local national coverage.

Local national coverage (at December 31)

Number of selected key business countries

December 31,
2020

December 31,
2019

December 31,
2018

Greater than 80%

Less than 80%

Total

[A] These numbers exclude those in companies with their own HR systems.

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, detect, 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
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 our leaders emphasise the importance of these
commitments and compliance with requirements. These are reinforced
with both global and targeted communications to ensure that Shell staff
are frequently reminded of their obligations. To support the Code of
Conduct, we have mandatory risk-based procedures and controls that
address a range of compliance risks and ensure that we focus resources,
reporting and attention appropriately. By making a commitment to our
core values of honesty, integrity and respect for people, and by following
the Code of Conduct, we protect Shell’s reputation.

and businesses globally, resulting in a human health crisis, widespread
lockdowns and a severe economic recession. As a general position, our
response to the pandemic has been to reiterate and emphasise that
adherence to Shell’s compliance rules (including the Code of Conduct)
remains essential to protect our business and to help us make the right
decisions for the future. While maintaining this basic position, pragmatic,
risk-based mitigations have been implemented where appropriate to
increase response speed and efficiency without undermining the
intended purpose of our controls.

Our ethics and compliance requirements are articulated through our
policies, standards and procedures. They are communicated to Shell
employees and contract staff and, where necessary and appropriate,
to agents and business partners. We monitor and report internally on
adherence with select ethics and compliance requirements, such as
mandatory training completion and due diligence screening. We pay
particular attention to our due diligence procedures when dealing with
third parties. We also make our requirements clear to third parties through
a variety of measures such as standard contract clauses. We publish our
Ethics and Compliance Manual on shell.com to demonstrate our
commitment in this area.

The Shell Ethics and Compliance Office helps the businesses and functions
to implement the ABC/AML and other programmes, and monitors and
reports on progress. Legal counsel provides legal advice globally and
supports the implementation of programmes. 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, and periodically
commissioning external reviews and benchmarking.

A structured framework for ethical decision-making, expanding on the
formulation “Is it legal, is it ethical, is it wise?”, was developed and tested
during the course of 2020 and subsequently reviewed by an independent
third-party panel. The framework will be implemented broadly across
Shell from 2021. It will support decision-making by requiring Shell staff
to think through, in a structured manner, the legal, ethical and external
dimensions of the various opportunities and decisions they face in
their daily work.

We 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. Allegations may be raised confidentially and
anonymously through several channels, including a Shell Global
Helpline operated by an independent provider.

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 252 substantiated breaches of the Code
of Conduct in 2020. As a result, we dismissed or terminated the contracts
of a total of 54 employees and contract staff.

In 2020, the COVID-19 pandemic brought additional focus on conduct
risk. Our core values are undermined if decisions are taken which fall short
of the expected standards of ethical behaviour and compliance. Conduct
risk arises from human behaviour and is influenced by factors in the
external environment. The COVID-19 pandemic has impacted individuals

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 153-156.

110

Shell Annual Report and Accounts 2020Strategic Report
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 10, 2021

PERFORMANCE SHARE PLAN, LONG-TERM INCENTIVE
PLAN AND EXCHANGED AWARDS UNDER THE BG
LONG-TERM INCENTIVE PLAN
Under the Performance Share Plan (PSP), 50% of the award is linked to
certain indicators described in “Performance indicators” on pages 43-45,
averaged over the performance period. From 2017 to 2019, 12.5% of
the award was linked to free cash flow (FCF) and the remaining 37.5%
was 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. For 2020 onwards,
11.25% of the award is linked to the FCF measure and 5% is linked to
an energy transition measure. The remaining 33.75% is linked to the
comparative performance condition. From 2021, 10% of the award
is linked to the FCF measure and 10% is linked to an energy transition
measure. The remaining 30% is linked to the comparative
performance condition.

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. For 2019 and
2020, 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. From 2021, 20%
of the award is linked to the FCF measure and 20% is linked to an energy
transition measure. The remaining 60% is linked to the comparative
performance condition.

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 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 subject to clawback after delivery. None of
the awards result in beneficial ownership until the shares vest.

See Note 21 to the “Consolidated Financial Statements” on page 256.

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 subject to clawback 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.

111

Shell Annual Report and Accounts 2020Strategic ReportGovernance

GOVERNANCE

Directors’ Report
114
122
124
126

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 activities and evaluation
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

128
130
134
138
140
143
145
153
157
173
182

112

Shell Annual Report and Accounts 2020

POWERING
LIVES

Shell Annual Report and Accounts 2020

113

GovernanceTHE 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 and well-respected 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. He ensures that their views are considered
during Board discussions and decision-making. Chad has a strong interest in, and has
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
enhanced diversity goals across the Shell Group.

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, Temasek Trustees
Pte Ltd, DBS Bank Ltd and DBS Group Holdings 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 organisations
provide significant experience in the area of strategy development and international
businesses. She is highly regarded both externally and within Shell as a champion of diversity
and consistently but constructively challenges the Board and management to continue to
progress in this area.

Based in Singapore and having been 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,
and her voice is regularly heard on discussions regarding appropriate risk appetite. 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 market.

CHARLES O. HOLLIDAY
Chair

Tenure

Chair – five years and nine months (appointed Chair
May 19, 2015) On Board – 10 years and six months
(appointed September 1, 2010) (Chad will be standing
down from the Board following the 2021 Annual
General Meeting. See page 142 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

EULEEN GOH
Deputy Chair and Senior
Independent Director

Tenure

Six years and six months (appointed September 1,
2014). Euleen was appointed Deputy Chair and
Senior Independent Director on May 20, 2020.

Board committee membership

Member of the Nomination and Succession Committee
and member of the Remuneration Committee

Outside interests/commitments

Chairman of SATS Ltd. Trustee of the Singapore Institute
of International Affairs Endowment Fund. Chairman of
the Singapore Institute of Management Pte Ltd and
Non-executive Director of Singapore Health Services
Pte Ltd, both of which are not-for-profit organisations.

Age

114

Nationality

Singaporean

Euleen uses her financial acumen and advocacy for diversity to pose probing and insightful
questions, both in and beyond the boardroom. This contributes to well-rounded, incisive and
inclusive Board discussions.

Shell Annual Report and Accounts 2020GovernanceBEN VAN BEURDEN
Chief Executive Officer

Tenure

Seven years and two months (appointed January 1, 2014)

Board committee membership

N/A

Outside interests/commitments

The Board of Daimler AG has proposed to its
shareholders that Ben join its Board as a Supervisory
Board member (Non-Executive Director). Daimler
AG shareholders are scheduled to vote on this
proposal at its AGM, scheduled for March 31, 2021.

Age

Nationality

Dutch

JESSICA UHL
Chief Financial Officer

Tenure

Four years (appointed March 9, 2017)

Board committee membership

N/A

Outside interests/commitments

No external appointments

Age

Nationality

US citizen

Career
Ben was Downstream Director from January to September 2013. Before that, he was
Executive Vice President Chemicals from 2006 to 2012. In this period, he also served on the
boards of a number of leading industry associations, including the International Council of
Chemicals Associations and the European Chemical Industry Council. Prior to this, he held
a number of operational and commercial roles in 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 37 years' experience of working for Shell. He has built a deep
understanding of the industry and proven management experience across the technical and
commercial roles.

Ben has led Shell to build resilience and deliver strong financial results. In 2016, he steered the
Company through the acquisition and integration of the BG Group, which accelerated Shell’s
business strategy and led to a streamlining divestment programme of $30 billion of non-core assets.

Under his leadership, Shell has positioned itself to help tackle climate change. In April
2020, Shell set a target of becoming a net-zero emissions energy business by 2050, in
step with society.

In 2020, in the unprecedented circumstances of the COVID-19 pandemic, Shell took decisive
action to maintain its financial resilience. Ben also led plans for a strategic reorganisation, due
to take effect in August 2021, aimed at setting up Shell to succeed in the energy transition by
making the business nimbler and better able to respond to customers. In February 2021, Shell
set out a detailed strategy to create value for shareholders and society and to achieve its
net-zero emissions target.

Career
Jessica was Executive Vice President Finance (EVP) for the Integrated Gas business from January
2016 to March 2017. Previously, she was EVP Finance for Upstream Americas from 2014 to 2015,
Vice President Finance for Upstream Americas Unconventionals from 2013 to 2014, VP Controller
for Upstream and Projects & Technology from 2010 to 2012, VP 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. Jessica’s professional
background combines an external perspective with more than 16 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.

Jessica was appointed CFO in the year following 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 of 2016. Jessica responded to these challenging conditions with enthusiasm,
clarity and discipline and has overseen Shell’s delivery of industry-leading cash flow from
operating activities.

In 2020, Jessica drove decisive counter-measures to protect the long-term financial health
of the organisation, strengthen its balance sheet and preserve cash while ensuring the safe
continuity of the business.

Jessica has also been a leading voice 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 principles of the Task Force on Climate-
Related Financial Disclosures. Under her guidance, from 2019, Shell began publishing an
annual Tax Contribution Report. This includes country-by-country report data, a standard
set by the Organisation for Economic Co-operation and Development (OECD).

115

Shell Annual Report and Accounts 2020GovernanceTHE BOARD OF ROYAL DUTCH SHELL PLC continued

Career
Dick was President and Chief Executive Officer of Ahold Delhaize from 2016 to 2018. Prior
to the merger between Ahold and Delhaize, he served as President and CEO of Royal Ahold
from 2011 to 2016. From 2006 to 2011 he was a member of the Executive Board of Ahold
and served as Chief Operating Officer of Ahold Europe from 2006 to 2011.

Dick joined Ahold in 1998 as CEO of Ahold Czech Republic and was appointed President
and CEO of Albert Heijn in 2000. In 2003, he also became President and CEO of Ahold’s
Dutch businesses.

DICK BOER
Independent Non-executive Director

Prior to joining Ahold, Dick spent more than 17 years in various retail positions, for SHV
Holdings N.V. in the Netherlands and abroad, and for Unigro N.V.

Tenure

Nine months (appointed May 20, 2020)

Board committee membership

Member of the Audit Committee

Outside interests/commitments

Non-executive Director for Nestlé and SHV
Holdings; Chairman of the Advisory Board for
G-Star RAW; Chairman of the Supervisory
Board of Royal Concertgebouw; Chairman
of Rijksmuseum Fonds.

Age

Nationality

Dutch

Relevant skills and experience
Dick is a highly regarded, recently retired chief executive, who has a deep understanding of
brands and consumers, and extensive knowledge of the US and European markets, from his
time leading one of the world’s largest food retail groups. He brings a career’s worth of
experience at the forefront of retailing and customer service, which extended in more recent
years to e-commerce and the digital arena. This experience is most timely as Shell focuses on
the growth of our marketing businesses and increasing consumer choices in energy products.

Dick is a balanced leader with sound business judgement and a proven track record in
strategic delivery, evidenced by the combination of Ahold and Delhaize. He also has a
passion for sustainability and is well aware of the importance of the various stakeholder
interests in this area.

Career
Neil is a former FTSE 100 chief executive. After completing an engineering degree, Neil
joined Johnson Matthey in 1980 where he held several senior management positions in the
UK and the USA, before being appointed Chief Executive Officer in 2004. Since retiring from
Johnson Matthey in 2014, Neil has focused his time on his non-executive roles. He was
Chairman of TT Electronics plc from 2015 until May 6, 2020.

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 used his current and past experience in non-executive
positions and, despite being relatively 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. Neil was appointed Chair of
the Remuneration Committee on May 20, 2020.

NEIL CARSON OBE
Independent Non-executive Director

Tenure

One year and nine months (appointed June 1, 2019)

Board committee membership

Chair of the Remuneration Committee and member
of the Safety, Environment and Sustainability
Committee

Outside interests/commitments

Non-executive Chairman of Oxford Instruments plc

Age

Nationality

British

116

Shell Annual Report and Accounts 2020GovernanceCareer
Ann started her career with Sun Life of Canada in 1976 in Montreal, Canada. She 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. Ann served as a non-executive director of Rio
Tinto plc and Rio Tinto Limited until May 2019, and she was also Senior Independent Director
of Rio Tinto plc. In January 2021, Ann joined the Board of the newly formed Stellantis NV,
and she chairs its Audit Committee.

Relevant skills and experience
Ann is a former CFO, a Fellow of 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 global perspective to Board discussions.

Ann's long and varied international business career powered by her financial acumen is
reflected in the insights and constructive challenges she brings to the boardroom. As Audit
Committee Chair, Ann leverages her background to ensure robust discussions are consistently
held as the Audit Committee delivers its remit.

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.
Catherine was up until May 2020, a non-executive Director of SNC-Lavalin Group Inc.

Relevant skills and experience
Catherine contributes through her knowledge of industry and the ease with which she
engages with other Directors and managers in the boardroom. With over 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.

ANN GODBEHERE
Independent Non-executive Director

Tenure

Two years and nine months (appointed May 23, 2018)

Board committee membership

Chair of the Audit Committee, member of the Safety,
Environment and Sustainability Committee

Outside interests/commitments

Non-executive Director and audit committee chair
of Stellantis N.V., Fellow of the Institute of Chartered
Professional Accountants and a Fellow of the Certified
General Accountants Association of Canada.

Age

Nationality

Canadian and British

CATHERINE J. HUGHES
Independent Non-executive Director

Tenure

Three years and nine months (appointed June 1, 2017)

Board committee membership

Member of the Safety, Environment and
Sustainability Committee and member of the
Remuneration Committee. On March 11, 2021 the
Board announced that Catherine would become
Chair of the Safety, Environment and Sustainability
Committee, effective May 19, 2021.

Outside interests/commitments

–

Age

Nationality

Canadian and French

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.

117

Shell Annual Report and Accounts 2020GovernanceTHE BOARD OF ROYAL DUTCH SHELL PLC continued

Career
Martina was Chief Financial Officer of Mastercard Inc from 2007 to 2019. From 2002
to 2007 she was Senior Vice President, Corporate Treasurer at Tyco International Ltd
and from 2000 to 2002 she was Senior Vice President, Treasurer at Lucent Technologies.

Prior to this, Martina spent 12 years with General Motors, undertaking a number of senior
roles within their finance operations.

Relevant skills and experience
Originally from Germany, Martina has spent 30 years in the USA and is an experienced
global executive. Her financial and operational leadership of technology-focused companies
is extremely relevant as Shell explores new technology-enabled business models. Martina
also brings diverse sector experience to the Board, most recently from operating at a large
global organisation in the highly regulated finance industry.

Martina is known for her straightforward and direct approach. She maintains the highest
standards of leadership, strategic thinking and financial stewardship. She also has a strong
track record as a mentor and in promoting diversity.

Martina's deep financial knowledge and unique perspective also enables her to make robust,
demanding and constructive challenges to our investment considerations to help ensure that
our projects are aligned with our strategic intent.

Career
Sir Andrew joined BHP, the world’s largest mining company, in 2008, becoming Group
CEO from 2013 to 2019, when he systematically simplified and strengthened the business,
and created options for the future. He also made BHP the first miner to pledge to tackle
emissions caused when customers use its products.

From 2004 to 2007 at Rio Tinto, he was Head of Industrial Minerals, then Head of Industrial
Minerals and Diamonds. Prior to this, Sir Andrew spent 22 years with BP, joining in 1982
in research and development, followed by international operations and technology roles
across most business streams and functions – principally in exploration and production and
petrochemicals, including as Chief Reservoir Engineer and Chief Technology Officer. Latterly
he was Group Vice President for Chemicals in the Americas, then Olefins and Polymers globally.

From 2005 to 2013 Sir Andrew served as a Non-executive Director of Centrica. He has also
served on many not-for-profit boards, including public policy think-tanks in the UK and Australia.
He was knighted in 2020 for services to business, science, technology and UK-Australia relations.

Relevant skills and experience
Sir Andrew is a highly experienced leader who has managed major international FTSE 100
businesses, and has more than 30 years’ experience in the oil and gas, petrochemicals
and minerals industry. Following early academic distinction, Sir Andrew made important
contributions to geochemistry, including groundbreaking methods for oil exploration
and recovery. He was recognised as “one of the world’s most influential earth scientists”
and made a Fellow of the Royal Society in 2014.

Having lived and worked on five continents, Sir Andrew applies his deep understanding of
the energy business and geopolitical outlook to create public-private partnerships and advise
governments around the world. As an earth scientist, Sir Andrew has consistently pursued
sustainable action on climate change in the interests of access to affordable energy and global
development. Sir Andrew brings the wealth of his experience and insights to Shell, where his
expertise is already contributing to help Shell navigate the energy transition. Sir Andrew is also
a committed champion of gender balance, the rights of indigenous peoples, and of the power
of large companies to support social change – all of which align closely with Shell’s purpose,
strategy and values.

[A] On March 11, 2021, the Board announced the appointment of Sir Andrew Mackenzie as Chair with effect from

the conclusion of the 2021 AGM.

MARTINA HUND-MEJEAN
Independent Non-executive Director

Tenure

Nine months (appointed May 20, 2020)

Board committee membership

Member of the Audit Committee

Outside interests / commitments

Non-executive Director of Prudential Financial Inc,
Colgate-Palmolive Company, and Truata Ltd.

Age

Nationality

German and US citizen

SIR ANDREW MACKENZIE
Independent Non-executive Director [A]

Tenure

Five months (appointed October 1, 2020)

Board committee membership

Member of the Nomination and Succession Committee

Outside interests / commitments

Fellow of the Royal Society (FRS)

Age

Nationality

British

118

Shell Annual Report and Accounts 2020GovernanceABRAHAM SCHOT
Independent Non-executive Director

Tenure

Five months (appointed October 1, 2020)

Board committee membership

Member of the Safety, Environment and
Sustainability Committee

Outside interests/commitments

–

Age

Nationality

Dutch

SIR NIGEL SHEINWALD GCMG
Independent Non-executive Director

Tenure

Eight years and eight months (appointed July 1, 2012)

On March 11, 2021 the Board announced that
Sir Nigel Sheinwald would not be seeking re-election
at the 2021 AGM.

Board committee membership

Chair of the Safety, Environment and Sustainability
Committee and member of the Nomination and
Succession Committee

Outside interests/commitments

Non-executive Director of Invesco Ltd. Senior Adviser
to Tanium Inc. and the Universal Music Group.
Visiting Professor of King’s College, London.

Age

Nationality

British

Career
Bram has been a member of the group Board of Volkswagen AG, responsible for the Premium
Car Group, CEO of Audi AG, Chairman of Lamborghini and Ducati, responsible for the VW
group Commercial Operations and Vice-Chairman of Porsche Holding Salzburg.

From 2011 to 2016 he was a Member of the Board of Volkswagen CV, Executive Vice
President responsible for Global Marketing, Sales & Services, New Business Models. In 2017
he became a member of the Board of Audi AG. From 2006 to 2011 Bram was President &
CEO of Daimler/Mercedes-Benz Italia & Holding S.p.A. From 2003 to 2006 he was
President & CEO of DaimlerChrysler in the Netherlands.

Prior to this, Bram held a number of Director and senior leadership roles within Mercedes-
Benz in the Netherlands, having joined the business in 1987 on an executive management
programme.

Relevant skills and experience
Bram has over 30 years' experience working in the automotive industry at all levels of the business.

He gained a wealth of knowledge on far-reaching cost optimisation programmes at Audi AG.
These helped transform the car company into a provider of electric vehicles that could offer
sustainable mobility and succeed in the energy transition. He is well placed to leverage this
knowledge in the Shell boardroom as Shell navigates its own transformation and pathway
through the energy transition.

Bram has strong principles and regards integrity and compliance as the basis for doing business.

His studies have encompassed innovation and organisational effectiveness, geopolitical
environments, shareholder value, corporate social responsibility and risk management, in
several countries, which are all highly valued management tools and are already evident
in the questions he raises in the boardroom.

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, which encompasses three of the most senior
international roles in British public service, has given him broad geopolitical and public
policy experience, and 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 continues to bring 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 accustomed 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, has made him well suited to the role of Chair of our Safety, Environment and
Sustainability Committee.

119

Shell Annual Report and Accounts 2020Governance
THE BOARD OF ROYAL DUTCH SHELL PLC continued

Career
Gerrit was an adviser to PricewaterhouseCoopers during 2007, Chairman of the Trustees of
the International Accounting Standards Board from 2007 to 2010, and an adviser to Permira
from 2007 to 2008. He was Chief Economist of DSB Bank from July 2007 to January 2008,
Chief Financial Officer from January 2008 to December 2008, and Chairman of the
Managing Board of ABN AMRO Bank N.V. from 2010 to 2016. He was Minister of Finance
of the Netherlands, twice, from 1994 to 2002 and from 2003 to 2007. In between, he
was Chairman of the parliamentary party of the VVD.

Prior to 1994, he was head of the Netherlands Bureau for Economic Policy Analysis, a
professor at Vrije Universiteit Amsterdam, and held various positions at the Ministry of Finance
and the Ministry of Economic Affairs. He studied general economics at Vrije Universiteit
Amsterdam, 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
of the Netherlands, and his experience gained from his time with ABN AMRO Bank, bring
a deep and valuable understanding of Dutch politics and financial markets to the Board.
His international financial management expertise and strategic development experience
also benefit 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, which he regularly and directly provides to the benefit of the Board and management.
His questions often trigger other analytical questions from fellow Directors, deepening and
widening Board discussions.

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 and 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 Canada, the Netherlands, 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.

GERRIT ZALM
Independent Non-executive Director

Tenure

Eight years and two 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

LINDA M. COULTER
Company Secretary

Tenure

Four years and two months (appointed January 1, 2017)

Age

Nationality

US citizen

RETIREMENTS IN 2020

GERARD KLEISTERLEE
Retired: May 19, 2020. In line with best
practice, Gerard chose not to seek
re-election at the 2020 AGM following
completion of his third three-year term
and retired from the Board.

LINDA STUNTZ
Retired: May 19, 2020. In line with
best practice, Linda chose not to seek
re-election at the 2020 AGM following
completion of her third three-year term
and retired from the Board.

ROBERTO SETUBAL
Retired: May 19, 2020. Roberto chose
not to seek re-election at the 2020 AGM
due to other business commitments in his
home country of Brazil and retired from
the Board.

120

Shell Annual Report and Accounts 2020Governance
BOARD DIVERSITY

Gender diversity

Non-executive Director tenure (years)

Female

Male

38%

62%

Subject nominations standing for election at the 2021 AGM being approved
by shareholders, the Board will have achieved gender parity.

0-3

4-6

7-9

50%

17%

33%

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

100%

64%

82%

91%

British

Dutch

American

Canadian

Singaporean

German

15%

23%

31%

ATTENDANCE
The Board met 12 times during 2020. Two meetings were held in
The Hague in the Netherlands and the remainder were held virtually
in the context of COVID-19 circumstances. Attendance during
2020 for all Board meetings is given in the table opposite [A].

[A] For attendance at Committee meetings during the year, please refer to

individual Committee Reports.

[B] Dick Boer joined the Board in May 2020.
[C] Martina Hund-Mejean joined the Board in May 2020.
[D] Gerard Kleisterlee retired from the Board following the AGM in May 2020.
[E] Sir Andrew Mackenzie joined the Board in October 2020.
[F] Bram Schot joined the Board in October 2020.
[G] Roberto Setubal retired from the Board following the AGM in May 2020.
[H] Linda G. Stuntz retired from the Board following the AGM in May 2020.

Board member

Ben van Beurden

Dick Boer [B]

Neil Carson

Ann Godbehere

Euleen Goh

Charles O. Holliday

Catherine J. Hughes

Martina Hund-Mejean [C]

Gerard Kleisterlee [D]

Sir Andrew Mackenzie [E]

Bram Schot [F]

Roberto Setubal [G]

Sir Nigel Sheinwald

Linda G. Stuntz [H]

Jessica Uhl

Gerrit Zalm

Meetings attended

12/12

7/7

12/12

7/7

5/5

3/3

5/5

12/12

5/5

12/12

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.

ETHNIC DIVERSITY
The Board is satisfied that it currently meets the recommendation from the Parker Review.

121

Shell Annual Report and Accounts 2020GovernanceSENIOR 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 129).

HARRY BREKELMANS
Projects & Technology Director

Tenure

DONNY CHING
Legal Director

Tenure

Six years and five months (appointed October 2014)

Seven years and one 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 and
Corporate Officer

Tenure

Five years and two 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

One year and eight months (appointed July 2019)

Age

Nationality

Lebanese and Canadian

Career
Wael was previously the Executive Vice
President of Shell's Deep Water business and
was a member of the Upstream Leadership
Team. He joined Shell in 1997 and worked
in a variety of roles in each of Shell's core
business units: Upstream, Integrated Gas
and Downstream.

122

Shell Annual Report and Accounts 2020GovernanceHUIBERT VIGEVENO
Downstream Director

Tenure

MAARTEN WETSELAAR
Integrated Gas, Renewables
and Energy Solutions Director

One year and two months (appointed January 2020)

Tenure

Age

Nationality

Dutch

Career
Huibert was previously Executive Vice President
Global Commercial. He joined Shell in 1995 as
a business analyst and led many Downstream
businesses across Shell in Europe, Africa, North
and South America as well as Asia. In 2009,
Huibert was appointed Vice President Supply
& Distribution, Europe and Africa. In 2012 he
became Executive Chairman of Shell in China,
and in 2016 led the integration of BG Group.

Five years and two 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.

123

Shell Annual Report and Accounts 2020GovernanceINTRODUCTION FROM THE CHAIR

CHAD HOLLIDAY
Chair

As mentioned earlier in this Report, I will be vacating my role as
Chair of the Board after the 2021 Annual General Meeting (AGM). I
very much hope that we will be able to revert back to a more normal
AGM, with shareholders physically present at our meeting. We will,
though, need to assess whether this is possible, alongside
government guidance, closer to the time of the meeting.

It has been a great honour to serve Shell over the last 10 years, and I
thank our shareholders for granting me that privilege. As I look back on
my time with Shell, 2020 is by far the most memorable year, for many
reasons. We came into 2020 off the back of what had already been a
difficult 2019 for our industry, with tough macroeconomic conditions,
lower liquefied natural gas (LNG) prices and weaker realised refining
margins. In the Governance section of the 2019 Annual Report, when I
looked forward to the coming year, I highlighted the continuing risk from
trade conflicts with difficult-to-predict outcomes, regional geopolitical
tensions and the uncertainties of Brexit. Yet we still looked forward
with optimism.

In other areas of the 2019 Report we noted the early impact that we
were seeing from COVID-19 and the ensuing macroeconomic uncertainty
around prices and demand for oil, gas and products. The Risk factors
section of the 2019 Report highlighted the potential for COVID-19 to have
a material adverse effect on our operations. The months that followed put
our words “potential” and “material” into perspective. Economies across
the world were decimated. Life and the many freedoms we associated
with it changed in ways that are likely to impact people and broader
society for many years to come.

As I reflect on how our organisation navigated this environment, what
stands out for me is our people. I am immensely proud of them. I was
struck by how our people stepped up and continued to deliver in this
challenging environment. They continued to work on platforms and
refineries, away from their families for extended periods of time, to ensure
Shell delivered on its commitments. They worked in retail fuel stations,
face-to-face with the public. They went into our offices when they could
not do their job from home. The list of what our people did for this
organisation is extensive, and in some instances quite humbling. Yet what
stands out the most is their care for one another, and the efforts they made
to support their colleagues. It is this enduring care for one another that will
be my strongest memory over the past decade I have served Shell. It is
what defines the culture and heart of this Company.

124

The rapid changes in response to COVID-19 have prompted positive
action in many areas of society. The pandemic has challenged us to look
at how we live, what we value, and how we see the future. Our scenarios
team has updated its thinking and issued a number of publications which
can be found on the Shell website. Governments have stepped up their
environmental ambitions. Growth after the virus is expected to be greener.
Shell is evolving its strategy to remain aligned with a greener future and
to encourage society to choose lower-carbon options. It is our target to
be a net-zero emissions energy company by 2050, in step with society.
We still believe, though, that society will continue to need oil and gas for
many years to come. Oil and gas will continue to be the cash generators
that support our investments through the energy transition. They will
underpin Shell's delivery of its targets that are aligned with the goals
of the Paris Agreement.

BOARD LEADERSHIP AND SHELL’S PURPOSE
The 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 and
deliver against its recently published targets.

The purpose of Shell is set out in the early pages of this Annual Report.
We will continue with the theme of communicating purpose throughout
this report, focusing on how our governance operates in practice, and
why we believe this is the best approach for Shell.

The Governance report is structured around the key themes of the Code.
Our narrative is articulated to provide genuine understanding of how
governance supports and protects Shell and our stakeholders.

Although Shell applies the Principles and the spirit of the Code, there are
instances where we adopt an approach that is slightly different from that
suggested by some of the Code's provisions and we explain these on
page 126. In these instances, our governance processes are considered
appropriate, given the specific circumstances and a range of factors that
are particular to Shell, such as its global nature, size, complexity and
history. More detail on Shell’s compliance with the Code can be found
on pages 126 to 127.

Last year I highlighted the importance of our stakeholders and the greater
level of external focus on these groups. We expressed our enthusiasm to
build on our engagement with our stakeholder groups in 2020. Sadly, the
face-to-face interaction we had hoped for was often made impossible by
restrictions on social interaction and travel during the pandemic. Instead,
greater use of technology has facilitated online, virtual engagement. The
Board was able to visit some of our sites virtually, and engaged in virtual
meetings with our broader stakeholders and our people. 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 are set out on page 22. On page 130
we provide information about our Board activities and highlight which
stakeholders we considered.

Shell Annual Report and Accounts 2020GovernanceOur workforce engagement methods remain unchanged from those
previously disclosed. As we implement the proposals from our Reshape
reorganisation, we anticipate an enhanced level of workforce
engagement, within the parameters of COVID-19 restrictions. We continue
to believe that constructive relationships built on mutual respect and
transparency help Shell attract and retain employees while supporting
greater productivity and operational safety and 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 organisational 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, and takes pride in having such a culture.

Our culture reflects the values of the organisation – honesty, integrity and
respect for people. These underpin all the work we do and are embedded
in our Strategy and Purpose. The 2020 Board evaluation highlighted that
although the Board uses various reports and engagements to assess our
culture, a considerable part of this assessment is based on the outcome
of the annual employee survey. Although this survey provides informed
insight, the Board recognises that this data can have its limitations.
For this reason, the Board will undertake a deeper analysis of Shell’s
culture in 2021.

DIVISION OF RESPONSIBILITIES
More information on how the Board and its Committees support business
operations is provided on page 128. Further detail is contained 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.

Maintaining 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. One of these
is tenure. In the 2019 Annual Report we shared information on Directors
that exceeded guidance outlined in the Code with regard to tenure. We
also explained when these Directors' tenure was expected to end, and the
assessments of their independence that the Nomination and Succession
Committee made on behalf of the Board. Some of this information can be
found within our Statement of Compliance with the Code, on page 126.
A deeper analysis can be found on page 115 of the 2019 Annual Report.

At the 2021 AGM, as announced on March 11, 2021, Sir Nigel Sheinwald
will retire from the Board following nine years of service. He leaves behind
a strong leadership track record and the Board is deeply grateful for his
many years of dedicated commitment to the business.

The 2021 AGM will also be my last day with Shell. After the meeting, Sir
Andrew Mackenzie will succeed me as Chair of the Board. I am delighted
to welcome him as my successor. His appointment follows a rigorous
search process led by the Deputy Chair and Senior Independent Director.
An overview of the Chair succession process can be found on page 142.
In addition, as announced on March 11, 2021, the Board intends to
propose to the 2021 Annual General Meeting that Jane Lute be
appointed a Non-executive Director of the Company with effect from
May 19, 2021. If shareholders are supportive of her appointment, we
will have achieved gender parity on the Board.

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 145.

Shell is at a point where it must transform itself while facing intense public
scrutiny and operating in a rapidly changing, disruptive environment. It
must frame and implement its strategy with courage and commitment,
but also with the humility to listen, learn and adapt. Shell’s Board and
leadership must be steadfast, agile and sensitive to the opportunities,
risks and rewards confronting the business. I remain confident that all
are up to the tasks.

Finally, we hope that this document provides clear reporting and
enhances our stakeholders' understanding of our governance processes.
I would also like to thank again my fellow Directors, our colleagues and
our workforce around the world for their continued and considerable
efforts towards the success of the Company.

COMPOSITION, SUCCESSION AND EVALUATION
The Director biographies in this Governance report provide insight into
our Directors’ careers, skills and experience. Our Board diversity reporting
also extends beyond gender and nationality, and outlines the varying
sector experience across the Board.

CHAD HOLLIDAY
Chair
March 10, 2021

At the 2020 AGM, shareholders appointed Dick Boer, Martina Hund-
Mejean and Sir Andrew Mackenzie to the Board. In September, Bram
Schot was appointed by the Board. After joining the Board, each new
member was appointed to one of the Board committees, refreshing the
committee’s composition. Each Director’s biography contains information
on their committee memberships. An overview of the new Directors’
induction programme can be found on page 142. After the 2020 AGM,
Gerard Kleisterlee, Linda Stuntz and Roberto Setubal retired from the
Board. The Board is grateful for their years of service.

125

Shell Annual Report and Accounts 2020GovernanceSTATEMENT 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”), with the exception of
those provisions noted below. A copy of the Code can be found on the
FRC’s website: www.frc.org.uk.

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 140-156) is intended to provide
an explanation of how the Code's Principles were applied practically
throughout the year. We have also provided clear and meaningful
explanation below where we believe stakeholders may benefit from
more specific information on particular Code provisions.

Chair tenure (Provision 19)
Note: The text relating to Chair tenure is provided by Euleen Goh, 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. Chad will be standing down from
the Board at the 2021 AGM.

The provisions of the Code address Chair tenure and set 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 at numerous
shareholder engagements. 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 and 2020 AGMs
(96% and 95%, respectively, votes in favour) and ongoing support
from shareholders.

Retaining Chad on the Board and in the position of Chair until the
2021 AGM was right for the business. Doing so has facilitated a more
effective phasing of his succession, particularly given the existing slate
of Director tenure at the time of the Code’s issuance with three Directors
nearing their ninth year of service. Earlier departure would have been
disruptive and could have left a significant deficiency in the Board's
corporate knowledge.

The 2019 independent Board evaluation strongly recognised Chad as
an effective Chair. This was again reflected in the findings of the 2020
internal Board evaluation (see pages 132-133). Throughout 2020, Chad
continued to exercise objective judgement, despite his tenure exceeding
nine years. The Board found that the continuity of his Shell corporate
knowledge and experience supported the induction of the new
Directors, and that Chad provided continuity and sound leadership
of the Board through one of the most challenging years that the
business has experienced.

Chad's innate understanding and knowledge of the Shell Group, coupled
with the strong Shell relationships he has established, proved invaluable in
2020. His skills enabled him to balance his challenge of management with
pragmatic perspectives of the external pressures upon the business. He
has done this while coaching other, particularly new, Non-executive
Directors on the intricacies and nuances of the business, so they
were better able to challenge management effectively and
enhance overall governance.

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 and of our wider workforce complicate 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.

In the 2019 Annual Report, we communicated that the Board had decided
that in 2020 it would increase its direct engagements, when the Board,
committees and individual Directors visit our sites across the world.
We communicated that the Board would also increase its indirect
engagements through enhanced stakeholder engagement information
being included in relevant management reports. Due to the ongoing
COVID-19 pandemic and associated travel restrictions, the direct
engagements did not progress as we had hoped. That said, in line with
the spirit of this ambition, a number of virtual engagements have been
undertaken. Information on stakeholder engagement has also been
enhanced in management reporting. The Board also intends 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 138-139.

Director independence (Provision 10)
In the 2019 Annual Report, we noted that Gerard Kleisterlee had served
on the Board for more than nine years, having joined in November 2010.
Gerard stepped down from the Board at the 2020 AGM. Therefore,
although not currently a Board member, he was a Director for part
of the year.

In the 2019 Annual Report, published in March 2020, the Board
acknowledged the potential impairment of his independence owing to his
length of tenure, as outlined in a Code provision. In the Board’s view, there
had been no notable negative change in Gerard’s performance as a
Director and in his various Board roles in recent years. The Board
continued 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. A detailed overview of the assessment
can be found on page 119 of the 2019 Annual Report.

126

Shell Annual Report and Accounts 2020GovernanceAppointment of independent Non-executive Director
as Senior Independent Director (Provision 12)
Euleen Goh succeeded Gerard Kleisterlee as Deputy Chair and Senior
Independent Director, after Gerard’s retirement at the 2020 AGM in
May. Information on the independence of Gerard, who was the Senior
Independent Director for the first four and a half months of the year,
is explained under the “Director independence” heading above.

Composition of the Remuneration Committee
(Provision 32, independence)
For the period leading up to the 2020 AGM, the Remuneration
Committee consisted of five Non-executive Directors, four of whom are
deemed to be independent under the Code’s parameters, and the fifth
(Gerard Kleisterlee) was considered to be independent by the Board for
the reasons provided in its explanation. As we approached the end of
Gerard’s tenure, Remuneration Committee members had served on this
committee for periods ranging from less than a year to just over five years.
As announced on January 29, 2020, Neil Carson succeeded Gerard in
the role of Committee Chair after the 2020 AGM. 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 153 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.

127

Shell Annual Report and Accounts 2020GovernanceGOVERNANCE FRAMEWORK

BOARD OF DIRECTORS

Board
■ The Company has a single-tier Board of Directors headed by a Chair, with executive management led by the Chief Executive Officer.

The names of the Directors that held office during the year can be found on pages 114-121. Information on the Directors that are seeking
appointment or reappointment is included in the Notice of Annual General Meeting;

■ There is no fixed number of times that the Board may meet in one year. In 2019, the Board convened eight times. During 2020, the Board
met 12 times, and, as detailed throughout our Strategic Report including the Section 172 statement and activities undertaken throughout
the year, works hard to promote the long-term sustainable success of the Company, generating value for shareholders and contributing
to wider society. Further information on the Board’s work and assessments in relation to strategy, culture, engagement with stakeholders
and its workforce can be found as follows:

■ The Board’s responsibilities are governed by a formal schedule of matters reserved to it and 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.

Board Committees

Audit Committee
■ Carries out certain oversight functions on behalf of the

Safety, Environment and Sustainability Committee
■ Carries out certain oversight functions on behalf of

Board; and

■ Assists the Board in fulfilling its responsibilities in relation

to internal control and financial reporting.

More information on the Committee’s composition
and its role and activities during the year is on
pages 145-152.

the Board; and

■ 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 is on
pages 143-144.

Leads the process for appointments to the Board;

Nomination and Succession Committee
■
■ 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, is on pages 140-142.

Remuneration Committee
■ Determines and agrees with the Board of Directors the
remuneration policy for the Chair, Executive Directors
and Executive Committee of the Company;

■ Within the terms of such agreed policy, determines

individual remuneration package for the Chair, Executive
Directors and Senior Management (including the
Company Secretary); and

■ Monitors and makes recommendations regarding the
structures and levels of remuneration and levels for
other senior executives, if appropriate.

More information on the Committee’s composition
and its role and activities during the year is on
pages 153-156.

Other ad hoc Committees
The Nigeria Special Litigation Committee is an ad hoc committee which has been formed to monitor the status of the OPL-245 litigation
and investigations. Its members are Euleen Goh (Chair), Chad Holliday, Ann Godbehere, and Sir Nigel Sheinwald.

128

Shell Annual Report and Accounts 2020GovernanceBOARD OF DIRECTORS continued

Division of 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.

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 142),

with assistance from the Company Secretary.

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, 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 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 122-123.

GOVERNANCE DOCUMENTS AVAILABLE ON WWW.SHELL.COM/INVESTOR

■ 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

129

Shell Annual Report and Accounts 2020GovernanceBOARD ACTIVITIES AND EVALUATION

BOARD ACTIVITIES
A rolling Board agenda is reviewed at Board meetings, enabling effective
forward management of meetings and focused discussions. Forthcoming
Board agenda items are categorised as: Strategy & Portfolio, Delivery &
Performance, External Environment, Corporate & Miscellaneous or
Standard items. Of the standard items, Board agendas regularly include
reports from the Chief Executive Officer, the Chief Financial Officer, other
Executive Committee members and from each Board committee. “Core
values” moments also feature regularly led by a Director or Executive
Committee member. In 2020, “Shell Heroes” vignettes were added to
highlight extraordinary staff actions including those exemplifying care for
people, society and/or the environment. Updates are also provided from
the various businesses and key functions, including Investor Relations;
Health and Safety, Security and Environment; Human Resources; and
Legal, as well as the Company Secretary. The Board also considers
and approves the quarterly, half-year and full-year financial results,
shareholder distributions and the associated 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 and despite COVID-19 travel restrictions, certain
Board committees and Non-executive Directors conducted site visits of
various Shell operations and overseas offices – albeit virtually in 2020.
These virtual visits were designed to provide Directors with first-hand
insights into certain businesses, including into key projects and energy
transition initiatives. Directors also held various virtual workforce
engagements, as well as virtual external stakeholder engagements. More
detail on these can be found in the table below and on pages 134-139.

Some of the activities and areas of Board focus over the year are
summarised in the table below. The information below is not exhaustive.

Information on other topics discussed by the Board and details of the
resulting decisions are covered elsewhere, primarily in the Section 172
Statement contained in the Strategic Report on page 22. In some cases,
a brief outline has been provided below and reference given to where
additional and more comprehensive information can be found.

June strategy days
In lieu of the traditional physical June Strategy off-site meetings or Board’s
Strategy Day, virtual meetings were held over the course of three days. As
these meetings are usually an opportunity for the Board, and particularly
new Directors, to strengthen collegial relationships among Directors and
with the Executive Committee, considerable efforts were invested into
making these meetings as innovative and engaging as possible. This
included incorporating break-out sessions, staff engagements and an
external engagement. The Board members were also asked to share
light-hearted insights about themselves in advance of the meetings
which were woven into informal quizzes. Virtual social events rounded
out the end of each day’s programme.

The Board Strategy Days included discussions on various topics including
the proposed direction for Shell, with strategic alternatives. Topics covered
at the sessions included:
■ 2020-2022 outlook and responses;
■ Project Reshape (Shell’s reorganisation);
■
■ energy transition strategy;
■
■ exploring alternative strategies;
■

strategic pathway and underlying strategic premises;

implications of energy transition strategy;

■

financial framework;
strategic alignment next steps;
staff engagements; and

■
■ external engagement with a significant customer/supplier.

Topic

Discussion/activity/updates included

Examples of outcome/progress

Board leadership and company purpose

Stakeholders
considered

External business
environment

Strategy Day

■ Received updates on and discussed regional

■ Considered feedback from investor community on expected

geopolitical issues.

■ Discussions on spread of COVID-19, including global
public health response, economic policy response,
recession and recovery, oil demand, gas markets
outlook.

■ Reviewed and discussed progress of strategy agenda
including Management recommendations, work on
development of alternative strategies, review of
strategic options, and considered fundamental
macro-environment changes caused by COVID-19.

financial performance and related risks.

■ Considered how COVID-19 impacts on the business were

being managed. Included: key focus on staff health,
well-being/care; and identification of, and planning
mitigations for, ongoing risks.

■ Alignment on outcomes from virtual Board Strategy Days
and on programme of work and preliminary engagement
proposal in lead-up to Strategy Day 2021. Energy transition
opportunities also discussed.

■ Proposal to use series of external communication events to

deepen external understanding of refreshed strategy
including financial framework and proposed shareholder
distributions component once finalised.

investor community
communities

customers

suppliers/strategic partners

employees/workforce/pensioners

regulators/governments

NGOs/civil society stakeholders/academia/think-tanks

130

Shell Annual Report and Accounts 2020Governance

Topic

Culture

Shell People Survey
(2019 results)

Shell People Survey
(2020 results)

Discussion/activity/updates included

Examples of outcome/progress

Stakeholders
considered

■ In January 2020, the Board reviewed and discussed

■ Although noting the high response rates and overall top

the results of the 2019 Shell People Survey.

■ Through analysis and questioning, the Board gained
insights on survey topics including: collaboration,
working conditions, views on one’s job, job security,
people development, reputation, total rewards and
benefits, diversity and inclusion, operational excellence
and internal perspectives on Shell’s responsible
business aspects.

quartile employee engagement ratings and high
organisational and team leadership ratings, the Board
questioned: gaps in certain ratings on a regional basis;
workload impacts and potential knock-on implications;
whether survey results could help identify correlations with
other key performance indicators, including with regard
to safety; how the survey could be used to strengthen
organisational values and culture even more; and whether
learnings were being taken from leaders who had improved
their team engagement scores from bottom quartile in 2018
to top quartile in 2019.

■ In December 2020, the Board reviewed and discussed
the results of the 2020 Shell People Survey. Discussion
was immediately preceded by the Board’s virtual
engagement with a cross-section of staff from Brazil,
the USA, the UK, Nigeria and India (see entry under
“staff engagements” below for more detail).

■ Through analysis and questioning, the Board gained
insights on survey topics including: collaboration;
working conditions; views on one’s job; job security;
people development; reputation; total rewards and
benefits; diversity and inclusion; operational excellence;
and internal perspectives on Shell’s responsible
business aspects.

■ The preceding virtual staff engagement complemented the

quantitative survey results by providing a qualitative
“barometer” of staff views on numerous topics including
aspects of corporate culture. The Board queried management
on: retention and motivation of key talent; providing reskilling
and upskilling opportunities; finding ways to show staff value
given the remuneration measures taken in 2020; and job
security challenges and Reshape fatigue. The interactive
session helped the Board to monitor Shell’s culture and staff
engagement in an unprecedented year. The Chair also
reminded the Board to retain the context of the engagement
and survey feedback as a backdrop reference on the strategic,
operational and risk-related topics on the Board’s agenda.

Board staff
engagements

■ The Board held a number of virtual staff engagements
(both at the June Strategy Days and in connection with
the 2020 Shell People Survey review). Engagements
deliberately included a cross-section of staff (at
different levels, from different countries, within different
businesses and functions) and included engagements
both with and without management. Topics included
the working/professional and personal impact of
COVID-19, the Reshape reorganisation and the
future of Shell.

Audit, risk and internal control

Safety and
Environment

■ Received regular updates from management on safety
and environment performance. Periodic updates on the
progress of Reshape, impact on staff and culture from
a safety and environment perspective also featured
regularly in these reports, and in addition to other
updates on similar topics.

■ The Board continued to share personal anecdotes and

reflections on topics of values and safety at the
beginning of each Board meeting.

■ The Safety, Environment and Sustainability Committee

and other Board members attended a virtual site visit to
the Shell Rheinland refinery in Germany. Directors also
met with a minister of the state government of North
Rhine-Westphalia.

Risk management
and internal
control

■ Reviewed Risk Reports, covering external trends,
emerging risks, proposed changes to the Group’s
strategic, operational and conduct and culture
risk profiles.

COVID-19

■ Received weekly updates from the Group Co-

ordination Team on the management of COVID-19
with respect to staff health and well-being/care and
the financial position of the business. The Board was
also informed of Shell’s co-ordinated responses to
the pandemic.

■ Gained direct feedback and first-hand insight into the views of
staff on COVID-19 impacts (from the perspective of working
from home and from the perspective of continuing to work at
assets). Positive reflections on flexibility, ergonomic support,
more time spent with families (for those working from home),
and pride in achieving work. Negative reflections on missing
interaction with colleagues, family (for asset workers) and
increased workloads due to unprecedented times.

■ The Board also gained insights into staff perspectives on
Reshape regarding communications, general views on it,
views for the future including ways to unlock future potential,
empowering young talent, digitalisation, and diversity.

■ The updates and subsequent discussions provided the

Board with commentary and examples of how safety has
continued to permeate Shell culture, including in the context
of COVID-19.

■ The use of learnings and insight gained outside Shell added
perspective and diversity of thought to Board discussions.
■ The virtual site visit provided Directors with various insights
into: the views and priorities of the local workforce; safety
and environmental performance; and the planned
transformation of the Rheinland site into an energy and
chemicals park.

■ The Board considered the effectiveness of the risk

management and internal control system. The Board
considered the effects of COVID-19 and the perceived
impacts on the Group’s strategic, operational and conduct
and culture risk profiles. The Board considered the learnings
and insights from the organisation’s responses to managing
the pandemic.

■ The Board gained insight and clarity about Shell’s response
to COVID-19 including: its approach to disaster relief and
donations; how potential key risks and impacts were being
managed; and a recognition of the uncertainty of ongoing
developments as a result of the prolonged impact of
the pandemic.

■ Discussions on business environment, operational

■ The Board was provided with the communications shared

impacts and issues, financial considerations and wider
escalating economic impacts, and oil price outlook.

with staff via different channels, for awareness, to
understand frequency of communications and any concerns
of the workforce.

investor community
communities

customers

employees/workforce/pensioners

regulators/governments

NGOs/civil society stakeholders/academia/think-tanks

suppliers/strategic partners

131

Shell Annual Report and Accounts 2020Governance

BOARD ACTIVITIES AND EVALUATION continued

Topic

Discussion/activity/updates included

Examples of outcome/progress

Composition, succession and evaluation

Succession planning ■ Received recommendations from the Nomination and

■ The Board was regularly informed about succession planning

Succession Committee regarding succession plans and
Board composition.

arrangements.

■ Please refer to Nomination and Succession Committee report

for further details.

Stakeholders
considered

Board and committee
effectiveness reviews

■ Examined the internal evaluation reports following
the assessment that was carried out to review the
effectiveness of the Board and each of the committees. The
evaluation of the Chair’s performance was also considered.
The Board also reflected on progress with priorities that
had been identified from the previous year’s review.

■ The responses from Directors indicated that in spite of

challenges experienced throughout the year, the Board, its
committees and the Chair continued to operate effectively.

■ Please refer to Board evaluation on page 132 for further details.

Board
membership, other
appointments

Talent overview
and senior
succession review

Remuneration

Remuneration and
reward matters

■ Reviewed Directors’ tenure, external commitments,

■ The Board approved committee membership changes

conflicts of interests, composition/membership of Board
committees and appointments.

and appointments to the Board, following recommendations
made by the Nomination and Succession Committee. The
review of the existing Directors’ renewal terms and tenure
was postponed so that it would take place after the 2021
AGM, in consideration of succession planning.

■ Please refer to Nomination and Succession Committee

report for further details.

■ RDS Senior Succession and Resourcing Review covering

■ Enhanced insight into Shell talent and future leaders,

Executive Director and Executive Committee (EC)
succession, EC direct reports and the senior
executive group.

assurance of robust succession and
contingency plans.

■ Review of fees of Directors, taking into consideration

■ The Board accepted the recommendation from the

any Committee appointments.

Remuneration Committee for fees to remain the same
until the next review scheduled in 2021.

Governance matters

Governance

■ Provided with emerging corporate governance

■ The Board was provided with insight into Shell’s

developments and updates relating to ethics and
compliance matters. Reviewed

■ Modern Slavery Statement and assurance and
considered other regulatory and legislative
requirements.

participation in consultations and projects relating
to governance and legislative requirements.

investor community
communities

customers

suppliers/strategic partners

employees/workforce/pensioners

regulators/governments

NGOs/civil society stakeholders/academia/think-tanks

OCTOBER 2020

NOVEMBER 2020

DECEMBER 2020

NOMCo reviewed
questionnaires for
in-house Board
and committee
performance
evaluation.

Questionnaires
made available
for Directors and
Executive Committee
(EC) members to
complete online via
a secure web-based
system operated
by Lintstock [A].

Board reviewed
evaluation reports
of Board and each
committee [B].

A separate report was
also produced in
relation to the
evaluation of the Chair
and made available to
the Deputy Chair only.

ACTION PLAN
AGREED

[A] Lintstock, a London-based corporate advisory firm previously used by Shell for Board performance evaluations
[B] Separate reports were provided for the responses from the Board and the Executive Committee. The reports in relation to the Audit

Committee, Nomination and Succession Committee, Safety, Environment and Sustainability Committee and Remuneration Committee
were sent to the respective committee chairs.

BOARD EVALUATION

Board evaluation

The 2020 Board evaluation
was facilitated internally, led
by the Nomination and
Succession Committee
(NOMCo) and managed by
the Company Secretary.

132

Shell Annual Report and Accounts 2020Governance

Insight
The feedback from Board Directors was positive throughout their
responses to the evaluation.

Planned enhancements for 2021
The 2020 Board evaluation findings provided areas of focus or priorities
for 2021.

Board dynamics – the Non-executive Directors’ support and challenge
of management was rated very highly, with the quality of the interaction
and the openness of the leadership team being commended.

Monitoring execution and strategic implementation
This is an area of undeniable importance for the years ahead. The Board
will continue to monitor strategic execution with support to Management,
enabled by a performance tracking approach.

Board oversight – the Board’s effectiveness in adjusting its focus and
priorities in response to the COVID-19 pandemic was rated very highly.
Board oversight of various specific aspects of risk was also rated highly
overall, with retention of focus on risk appetite continuing to be a priority.
The Board’s oversight of the Company’s processes for managing and
developing senior executive talent, including with regard to diversity,
was rated very highly, and will be a continued area of focus.

Management and focus of meetings – themes included: shortening
and simplifying Board papers further, and a desire for returning to physical
meetings when circumstances permit. The measures implemented to
facilitate virtual meetings, induction/onboarding, and ongoing training
were rated highly and viewed as very effective.

Stakeholder oversight – the mechanisms by which the Board obtains
the views and needs of major investors and employees were highly rated,
while noting that the mechanisms for obtaining the views of customers,
private/retail investors, communities and suppliers could be enhanced,
as feasible and relevant. The Board’s effectiveness in monitoring and
assessing culture throughout the organisation was rated positively overall.

Delivery against the 2020 ambitions
The COVID-19 pandemic drove unprecedented change throughout 2020,
impacting both the short- and longer-term business outlook. Through the
use of additional meetings, the Board balanced its focus on short-term
operational matters and long-term strategy. Principal decisions made in
2020 were bold and decisive and, where possible, discussions were
initiated well in advance of final Board decisions. Acquisitions/divestments
and critical strategy shifts were all key agenda items for 2020, and these
aligned with the Board ambitions set at the start of the year.

The Board’s ambitions on succession were tested during 2020 with
the appointment and induction of four Non-executive Directors and the
retirement of three Non-executive Directors – all in the context of a virtual
environment. Planned improvements to the Director onboarding process
were implemented despite the COVID-19 crisis. Simultaneous adaptations
were made to ensure there was as much dynamism as feasible within the
constraints of having to work virtually. The development of a Board travel
calendar was inevitably put on hold. The intention to share details of other
induction sessions and committee trips was put into effect, albeit virtually.

On our Board papers ambition, efforts were made to focus information
provided to the Board (for example, through optional briefing sessions,
one-on-one engagements and advance “polling” of questions/information
needs) to enable decision-making on key topics.

Company culture and Project Reshape
The Board will continue to monitor the Reshape transformation, enabled
by the performance-tracking approach referenced above. It will
strengthen its emphasis on culture and workforce engagement
(particularly after COVID-19).

Completion of improvement items already in progress
Ensuring smooth Chair succession, oversight of ongoing litigation and
potential further optimisation of the induction processes for Non-executive
Directors once travel is safely resumed. Likewise, sharing other Director
induction sessions, committee trips and Chair visits will continue.

Chair
Ongoing performance evaluation – the Board was very appreciative
of the Chair’s strong leadership (both of the full Board and individual
Directors) during an extremely difficult year. He ensured thoughtful and
interactive agendas (despite the required virtual format). It was also
considered that he invested purposeful time with all, particularly with
new Non-executive Directors, and continued to facilitate strong Board
engagement and strong relationships with management. The Directors
considered the Board very fortunate to have a Chair functioning at his
peak. Board members added that the careful and thorough way in which
all decisions this year have been framed, debated and made owes a great
deal to the Chair’s experience and care, and his relationships with the
CEO and Non-executive Directors.

The Chair’s focus on strengthening individual Director performance
through coaching and feedback continues to be rated highly. His regular
contact with Directors between meetings provides continued real-time
feedback and reflection. This way of working continues to be regarded
as an outstanding aspect of his leadership.

The Deputy Chair communicated the feedback to the Chair, along
with requests to:
■ ensure knowledge transfer of the Chair's insights and learnings

to his successor; and

■ continue to carefully balance the airing of divergent views with

the need to appropriately converge on Board decisions.

The Chair fully accepted the feedback and agreed to reflect and
act upon it.

133

Shell Annual Report and Accounts 2020GovernanceUNDERSTANDING AND ENGAGING WITH OUR STAKEHOLDERS

Co-operating with our stakeholders and taking the time to understand
their different views have always been of high value and importance to
the Board. Our commitment to stakeholder engagement is built upon the
understanding that knowledge-sharing, widening of experiences and
adopting a learner mindset will help us achieve our commercial,
environmental and social objectives.

The Board and Shell take their commitment to public collaboration and
stakeholder engagement very seriously. In the past this has been easily
demonstrated through both virtual and physical events which have served
as opportunities to hear directly about stakeholder issues and priorities.
This has been harder to navigate in the context of the continuing impact
of COVID-19. Our focus on supporting and caring for our colleagues,
customers and the communities in which we work has not changed
through these unprecedented times.
■ We have put the safety and health of our people, customers and other
stakeholders first, along with the safe operations of our businesses.

■ We have endeavoured to continue to engage with stakeholders,

seeking alternative virtually focused opportunities.

■ We have endeavoured to engage in a way which is as effective

and as safe as possible.

The impact of COVID-19 and subsequent restrictions on travel and public
gatherings have inevitably limited the engagements we planned for 2020.
Our events have been cancelled, postponed or held in a way that was
vastly different from previous years. We have had to think more creatively
about engagement, and all of this was done with public health and safety
and the advice/law of local governments in mind. The Board was
disappointed that there have been fewer possibilities to engage in
person. Nonetheless, we remain grateful for the continued support of
our stakeholders and look forward to future engagements in the year
ahead, when it is safe and appropriate to hold them.

investor community;

The Directors have continued to consider stakeholders’ views in Board
discussions and decision-making, as described on page 128. Here, we
have categorised our key stakeholders into seven groups and where
appropriate, each group is deemed to include both current and
potential stakeholders. The stakeholder groups are:
■
■ employees/workforce/pensioners;
■
■ NGOs/civil society stakeholders/academia/think-tanks;
■ communities;
■ customers; and
■

regulators/governments;

suppliers/strategic partners.

Engagement with our stakeholders goes beyond the Board and is
continual. The broader business regularly engages with stakeholders
throughout the year, and in the build-up to or during many Shell projects
or activities. This engagement is often governed by formulated policies,
control frameworks, regulation and legislation. It may differ by region.

Site visits
Various Shell operations and overseas offices are traditionally visited by
the Chair, certain Board committees and Non-executive Directors. The
visits are designed to provide Directors with:
■
■ opportunities to engage directly with stakeholders including

first-hand insights into portfolio positions; and

employees, partners, communities and NGOs.

134

Directors were disappointed that site visits were reduced and converted to
virtual only as a result of COVID-19. In previous years, and as part of the
Board evaluation process, the Directors have reflected on the use of site
visits for improving the Board’s oversight of risk and concluded that the
best way to determine if risks are being properly managed is to visit sites
and talk to local management. Similarly, some Directors have used site
visits as a way to monitor and assess culture first-hand and have
commented on the difficulty of doing that this year. Further observations
referenced how visits to key sites played an important part of the induction
process for new Board members and provided good opportunities for
Board members to get to know each other better.

As noted, alternative arrangements were made where feasible and details
of these are described below. Resuming site visits as soon as practically
possible was identified as a priority in the 2020 Board evaluation.
Further details are provided on page 133.

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 51 major shareholders, including at
roadshows. The Deputy Chair and Senior Independent Director and the
Remuneration Committee Chair met with 52 shareholders over the course
of the year. A variety of topics were discussed.

Shareholders can also contact Shell directly via the recently updated
"Contact us" section of the Shell website. The recent enhancements
replace the shareholder email address and allow investors’ questions
to be properly directed to the Shell team that can assist.

We have also introduced an automated question response tool to assist
with the most common questions that we receive. We have reviewed and
updated the “Frequently asked questions” section of the Shell website
to help investors access information in a time-efficient manner.

Furthermore, other contact details are also provided in the same area be
it our registrar, Equiniti, for shareholder queries, our media team, requests
for copies of the Annual Report or for general customer enquiries.

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.

Shareholder advisory vote
As announced in February 2021, an advisory shareholder vote will be
sought every three years from the 2021 AGM onwards on Shell’s energy
transition strategy. The Board believes this provides shareholders with an
opportunity to exercise a governance role related to climate change.

Board governance event
In the past, the Board has held a biennial governance event, Board
Engagement Day, that is attended by Directors including the Chair, Senior
Independent Director, Audit Committee Chair and Safety, Environment
and Sustainability Committee Chair. It is seen as an opportunity to provide
investors with an overview of the Board’s roles, activities and its key focus
areas including stakeholder engagement.

Shell Annual Report and Accounts 2020GovernanceThe last event was held in December 2018, and, as reported in the 2019
Annual Report and 20-F, it was intended that the next event would be held
in the latter part of 2020. This was not possible because of the COVID-19
pandemic. The Board understands the value of stakeholder engagements,
including this event, to Shell and its stakeholders. The risk of missing
important perspectives and insight has been mitigated as much as
practically possible over the course of the year by alternative
arrangements which are described below. Topics such as stakeholder
engagement expectations, Chair tenure, Board succession planning,
diversity and inclusion and the Senior Management pipeline have been
covered at other events during 2020. The Board is proposing to hold
the next event in October 2021 if circumstances permit.

Engagements in 2020
A summary of the main ways in which the Board sought to obtain
feedback and understand the views of key stakeholders during 2020
is shown below. Information on engagement with other stakeholders
including the workforce is provided on page 138. The way in which
stakeholder interests were considered in principal decision-making by the
Board in 2020 (Section 172 statement) can be found on pages 22-27.
Further insight into our engagement with stakeholders can be found within
our Sustainability Report and our report on payments to governments,
scheduled for publication in April 2021.

Director
attendance

CEO
Chair

Engagement before event

Event/activity

Responsible Investment Annual Briefing

Investors were engaged and
a press release was issued
ahead of the event, as in
previous years. Investors
were informed that the
agenda would differ from
past occasions and that
there were new disclosures
which would be shared
at the meeting.

In the past, this event has served as an occasion to hear from investors
and other stakeholders on environmental, social and governance (ESG)
issues that are gaining prominence among the stakeholder community.
In 2020, this session was instead used by Shell to share details of its
response to the threat of climate change. Stakeholders were also
informed about Shell’s new target to be a net-zero emissions energy
business by 2050, in step with society, and to become an integral part
of the future net-zero world. The following were highlighted as ways
to achieve this:
■ change business plans in line with expectations of society and

customers; and

■ shift towards serving the businesses and sectors that are aiming to
be net zero by 2050 by establishing pathways to help the energy
users we work with to make progress towards net zero.

Shareholder engagement webcast 2020

The Board sought feedback
from the investor community
and other stakeholder
groups about how it could
best and most practically
support the needs of
stakeholder engagement
as it became evident that
it would be impossible to
hold the AGM in the same
way as in previous years.

2020 AGM

The Board sought feedback
from the investor community
and other stakeholder
groups prior to the AGM as
detailed above. Questions
were submitted in advance
and answered on the
webcast prior to the AGM.

Chair roadshow

A number of meetings were
held prior to the roadshow
to provide the Chair with
insight on particular topics
of interest to the investor
community.

An additional engagement opportunity was hosted by the Board in
advance of the 2020 AGM to provide investors with an opportunity to
hear from the Directors and submit questions to them. This was in
response to the evolving COVID-19 pandemic, and the UK and Dutch
government restrictions. These had resulted in Shell’s AGM being held
virtually and focusing solely on the business of the meeting, with no live
voting or question and answer session.

Board

Issues raised by shareholders during the webcast included:
■ shareholder returns: whether alternatives to reducing the dividend had
or would be considered, and concerns around the impact on share
price volatility;

■ the energy transition: clarity on how net-zero target and impact would
be monitored/measured as pivoting and other changes occur; and
■ remuneration: whether this would be reviewed in light of dividend cut
and whether climate change components of remuneration would be
reviewed in light of new NCF targets.

After extensive discussions and meetings, the Board concluded that
physical attendance at the AGM was not a responsible course of action
as there was a risk that gatherings could expose people to COVID-19.
The decision was not taken lightly and was aimed at protecting the
health and safety of shareholders, employees, AGM staff and the public,
while also respecting the decisions of the Dutch and UK governments to
severely restrict/ban public gatherings.

Chair
CEO
Remuneration
Committee Chair/
Deputy Chair/
Senior Independent
Director (SID)

The AGM was solely focused on the business of the meeting with
minimal physical attendance, live voting or question and answer session.
A transcript of the meeting was posted online.

The Chair provided key investors with an update on the governance of
Shell. The main topics included governance, remuneration, energy
transition and business outlook. Investors had opportunities to ask the
Chair questions about these topics.

Chair

Subsequent engagement/ feedback

Feedback received following the event
included reflections on how the Board had
demonstrated thought leadership regarding
Shell’s targets and science-based
methodologies.

After the event, there were a number of
additional engagements including follow-up
meetings and presentations with stakeholders.

Public support was received from large
groups of investors such as Climate action
100+ regarding the targets announced at
the Responsible Investment Annual Briefing.

The webcast facilitated enhanced
engagement with institutional investors
and allowed more of them to participate
compared with previous years. As the
webcast was held a week before the AGM,
this allowed people to ask questions ahead
of voting rather than afterwards. The
pre-submission of questions enabled
conversations to be grouped into themes
and provided structure to the meeting.

The shareholder resolution on climate issues
received a small increase in support
compared with previous years.

Following continued engagement with
investors, Shell announced in February
2021 that it would put Shell’s energy
transition strategy to a shareholder vote
every three years. In addition, a progress
report will be voted on every year.

In addition to direct engagement with
the Chair, investors also had subsequent
dialogue with Shell’s Investor Relations
team where feedback was provided.
Some feedback commended the access to
and the availability of the Board members.
Their open and transparent approach in
engagement with shareholders was also
commented on.

135

Shell Annual Report and Accounts 2020GovernanceUNDERSTANDING AND ENGAGING WITH OUR STAKEHOLDERS continued

Engagement before event

Event/activity

Director
attendance

Subsequent engagement/ feedback

Remuneration
Committee Chair/
Deputy Chair/SID

Future Remuneration
Committee Chair

In the spring of 2020, the then Chair of the Remuneration Committee,
Gerard Kleisterlee, (also Senior Independent Director/Deputy Chair),
discussed the approach to remuneration and alignment to strategy, the
2019 pay outcomes and proposed 2020 remuneration policy ahead of
voting at the 2020 AGM. Calls were held with investors and a video was
published on the Shell website. In the latter part of 2020, Neil Carson,
who became Chair of the Remuneration Committee in May 2020, held
his first roadshow for Shell. It covered the Remuneration Committee’s
early decision that there would be no 2020 annual bonus and no 2021
merit increase for Senior Management, and also provided an update on
Shell’s climate targets and 2020 priorities of care, continuity and cash.
Neil also sought shareholders’ views on managing potential windfall
gains that might arise from the 2021 share awards. This helped to inform
the Remuneration Committee’s approach. Further details are set out in
the Remuneration Report.

Euleen Goh, who assumed the role of SID in May 2020, held several
calls with key institutional investors to discuss and outline the process
of selecting a new Chair of the Board as part of succession planning.
She highlighted the responsibility of the Nomination and Succession
Committee in this process and the capabilities that Shell was looking
for in a new Chair.

Deputy Chair/SID

Remuneration roadshows

Engagement was
undertaken prior to the
meetings so that the
Directors were provided
with understanding and
insight on particular topics
of interest.

SID calls

Following requests from
investors, and in line with
best practice, engagement
with key institutional
investors was undertaken as
part of the appointment of
the Senior Independent
Director. Engagement was
undertaken and key topics of
interest were communicated
to the Senior Independent
Director, prior to the calls.

The Institutional Investors Group on Climate Change (IIGCC) meetings

We have a continuing
dialogue with this group
throughout the year.

Twice a year, meetings with the IIGCC are held with the CEO, and
another with a member of the Executive Committee as part of our
engagement and collaboration with the IIGCC and Climate Action
100+. In 2020, the Executive Committee member was Harry Brekelmans.
The topics discussed were the energy transition, Shell’s new energy
ambition, the sectoral approach, and Shell’s industry association
climate lobbying.

CEO

In addition to Board engagement, Shell’s Chief Climate Change
Adviser participated in a presentation as part of a corporate
outreach programme. This meeting aimed to help expand investors’
understanding of the risks and opportunities that climate change
mitigation and adaptation present to companies and how they
are responding to the challenges.

Consultation with major shareholders was
undertaken prior to the engagements on
remuneration-related matters. The conclusion
reached during the Remuneration Policy
review process was that the policies in place
prior to 2020 were closely aligned with
strategy and had proven effective at
delivering pay-for-performance over
a long period.

The Remuneration Committee proposed a
number of changes to simplify policies and
provide greater transparency and to keep
pace with developing governance standards.
The 2020 Directors’ Remuneration Policy
received positive support from shareholders
at the 2020 AGM.

Positive feedback for holding the sessions
was received. Key reflections from the
institutional investors included: the need for
the new Chair to support the new strategy;
the need for the new Chair to have change
management experience over a long
period of time since this would be important
in the energy transition, as well as a strong
understanding and respected stance on
climate-related matters; and the usefulness
of the new Chair having had CEO
experience in a global company within
a complex and cyclical industry.

We continue to value and appreciate the
collaboration with Climate Action 100+
and their large institutional investor base.

Board visit (virtual)

Clear briefing materials were
provided to each Director
ahead of the event.

Chair visits (face-to-face)

Engagement prior to the
visits helped to formulate
the agenda and refine
the areas of focus for
the respective visits.

The Board was provided with an opportunity to engage virtually with
staff members at the Shell Pennsylvania Chemicals complex in the USA.
During this session, the Board was provided with an overview of Shell’s
Chemicals strategy, industry outlook, plans to achieve goals and to
support the customer experience. The Board also engaged in discussions
of a health, safety, security and environment nature,

Board

The Board gained an insight into the
development and culture of the operations
and maintenance teams. The use and
impact of digitalisation tools were
highlighted, and the future environmental
capabilities of the site were discussed.

Face-to-face visits of various Shell sites by the Chair included Sonnen, the
Shell Pernis site and ‘Springland site’. The Chair was provided with a view
on business context, integrated cash generation and key priorities for the
sites and an opportunity to informally connect with staff members about
the energy transition, current opportunities and challenges in the business
or site where they work.

Chair

The visits provided further opportunity
to engage with the workforce and gain
a deeper understanding of the business
areas and their operations.

136

Shell Annual Report and Accounts 2020GovernanceEngagement before event

Event/activity

Audit Committee Chair visit to Houston (face-to-face)

Director
attendance

Subsequent engagement/ feedback

Engagement prior to the
visits helped to formulate
the agenda and refine
the areas of focus for
the respective visits.

The Audit Committee Chair visited the Country Co-ordination Team, the
Shell Technology Centre Houston and other business areas.

Audit Committee
Chair

Audit Committee visits (virtual)

As reported in the 2019 Annual Report, the Audit Committee had
planned to visit three sites – Singapore, Kuala Lumpur and Krakow –
in 2020. These visits were conducted virtually because of the impact
of COVID-19, including travel restrictions. Further information, see
“Focus areas for 2020” on page 146 of the Audit Committee Report.

Audit Committee
and other Board
members

Discussions were held with
the relevant country chairs
as well as the Audit
Committee members ahead
of the visits. The purpose of
this was to refine the topics
for discussion, ensure that
key areas of interest were
covered and were suitably
organised for a virtual
environment.

Safety, Environment and Sustainability Committee visit (virtual)

Discussions were held with
the Safety, Environment and
Sustainability Committee
members ahead of the visit
to formulate the agenda and
ensure that key areas of
interest were covered.

The Safety, Environment and Sustainability Committee held a series
of engaging virtual sessions in lieu of a physical visit to the Shell
Rheinland refinery in Germany.

Safety,
Environment and
Sustainability
Committee and
other Board
members

Director visits (face-to-face and virtual)

Discussions were held with
the respective Directors
ahead of the visit to
formulate the agenda and
ensure that a natural, open
dialogue was encouraged
in the various group sessions.

In February and March, a series of staff engagements were held with
Directors including staff lunches and an International Women’s Day
panel discussion.

Board

In June, virtual engagement sessions were held with staff members from a
range of business areas in order to get a broad spectrum of staff views.
(Staff members who attended included people in Trading/projects, staff
in Asia who had returned to work, frontline staff in markets, people in
Shell business operations and staff directly supporting assets). This
engagement was planned as an alternative to the usual face-to-face staff
engagements which happen around Executive Committee or Board
meetings. Staff members were put into six groups for casual
conversations with a few Board members so natural dialogue could flow
and Board members could receive a candid view of how staff had been
coping during extraordinary times. Discussions were wide-ranging and
included discussion of effects of COVID-19 such as:
■ how situations had changed for staff and family members;
■ team dynamics and culture at work;
■ whether there were any new ways of working that would be good

to keep; and

■ thoughts and reflections on the future.

The Audit Committee Chair gained an
overview of the US energy transition, and
insights into strategy, HSSE, regulatory
topics and Shell’s deep-water operations.
The visit also provided an opportunity to
engage with some of Shell’s emerging
leaders in Houston.

Singapore: The Committee members
gained an understanding of the operations
of the Shell businesses relating to business
controls, ethics and compliance. They
obtained insight into the risks, controls
and mitigations associated with
operating in a COVID-19 environment.

Krakow: The Committee was further
educated about the energy transition
in Shell Poland and gained a deeper
understanding of our businesses in Poland
including Shell Business Operations (SBO).

Kuala Lumpur: The Committee gained an
understanding of the operations of the Shell
businesses in Malaysia, including the SBO,
and more first-hand information about the
energy transition in Shell Malaysia.

This visit provided the Committee with many
insights, including into the local German
context, the views and priorities of the
workforce, and the safety and
environmental performance of the
Rheinland site. Committee members also
gained an understanding of energy
transition projects under way and the
planned transformation of the Rheinland
site to an energy and chemicals park.
Committee members also met with
a government minister of the state
government of North Rhine-Westphalia.

The virtual visits provided Directors with
opportunities to engage with the workforce
as best as possible in the circumstances.
They provided an insightful and uplifting
part of the traditional off-site meeting. The
Directors gained insight and were able to
discuss with staff the challenges they had
been facing as a result of COVID-19 and
the economic downturn.

137

Shell Annual Report and Accounts 2020GovernanceWORKFORCE ENGAGEMENT

The Board recognises merit in the Code’s three mechanisms for engaging
with the workforce. As with all the Code’s provisions, boards must consider
the size and structure of their business, including its international scope,
and select an approach that most practically delivers the underlying spirit
and ambition of the Code, even if the chosen approach differs from what
the Code outlines. The Code does note that alternative methods for
workforce engagement are supported 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. But
for a global organisation bound by the laws of more than 70 countries,
blurring the clearly prescribed legal definitions that affect complex
issues (such as local HSSE requirements, work contract terms, legal
accountability, employment rights) or merging two definitions of the same
term could have a 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.
The Board also engages with others outside this group (for example, on
site visits), and some of this engagement is shared on page 134.

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 webcasts and emails from the
Chief Executive Officer and other senior executives, webcasts, townhalls,
team meetings, face-to-face gatherings (pre-COVID-19), 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.

Throughout 2020 the ongoing COVID-19 pandemic impacted how the
Board engages with the workforce and it was impossible to implement the
enhancements to physical engagement discussed and planned at the start
of the year. The Board did undertake a number of virtual engagements,
often around the time of scheduled Board discussion. Feedback from
these video calls was shared with and discussed by the wider Board.
Management also continued to engage extensively throughout the year,
implementing a number of focused events to better understand how
people were coping with the working environment caused by the
COVID-19 pandemic, their mental well-being and what the business
could do to better support them. Information from these discussions
was provided to the Board via bi-weekly updates.

The Board considers the current workforce engagement approach
effective. The information provided in the following table gives examples
of various methods of Board engagement.

Board’s direct engagements with the workforce
(Because of COVID-19 restrictions in various countries,
the engagement activities have mostly been held virtually)

Informal engagement

Chair lunches, prior to the COVID-19 restrictions, were held from time to time with a
select cross-section of employees in various regions. Virtual staff engagements have
been held by the Board with a select cross-section of employees (diverse by gender,
nationality, business or function, profession and level) in various regions and
countries. Nomination and Succession Committee members meet with various
senior leaders and high-potential individuals throughout the year.

The Chair commented: “I never cease to be impressed by the quality of talent,
professionalism, humility and authenticity evident in the individuals with whom our
Committee engages. Their diverse backgrounds, capabilities and experience enrich
our pipeline in ways that transcend paper credentials. The Nomination and
Succession Committee takes its duty of identifying leaders with the “full” package
required to deliver our Company’s purpose very personally, and we derive
confidence from the equivalent personal drive and commitment we see reflected
in the talent we meet.” In addition, the Nomination and Succession Committee
received a detailed briefing alongside that given to the full Board on the results
of the annual Shell People Survey, which was completed by more than 86%
of employees.

Virtual informal engagement – Board

The Board participated in a number of virtual employee engagements this year in
which they had the opportunity to speak to staff in smaller groups, with between
two and three Board members in each group. One such event involved staff from
various geographical locations at various levels in Shell.

The purpose was for the Board to discuss with staff the challenges they have been
facing in the COVID-19 pandemic. Staff were asked to describe: how things have
changed for them and their families since the onset of COVID-19; how the current
situation has changed the dynamics or culture of their team; and how they felt
about the future and what was most on their minds.

Another engagement was towards the end of the year, after the company-wide
communications on Reshape’s impact on jobs. It focused on people’s personal
experiences working for Shell, including ways of working, views on the future
direction of Shell and perceptions around Reshape. The session was arranged
geographically to ensure an international scope and included mid-level
employees from Brazil, the USA, the UK, Nigeria and India.

During these engagements Shell people were asked to validate whether the
communication, care and support offered by the business was sufficient, and
if more was needed. The outcomes of these Board engagements have been
discussed in Board meetings and have been incorporated in future
communication and support to our people.

Off-site visits

Because of COVID-19 restrictions, site visits were limited to the beginning of the
year. Although in some instances we were able to organise virtual visits and
meetings, priority was given to running the business operations.

People engagements during Board and/or meetings off-sites.

Meeting talent/leadership teams

Company Chair engaging with various individuals.

The Board attended a virtual site visit to the Pennsylvania Chemicals plant in the
USA. This gave Board members an opportunity to speak with another group of
Shell’s people in the context of a specific, large-scale project which has had to
manage multiple staff safety issues, particularly in relation to COVID-19. The
Pennsylvania Chemicals site has also required significant management of HSSE
and community stakeholder matters. The engagement included an overview of
COVID-19 management with a focus on recent preparations for a third wave and
a specific discussion of engagement with external stakeholders and management
of non-COVID-related risks.

The Board raised numerous questions and challenges in the context of key business
decisions which will affect employees, such as refinery closures, the impact on
employees and the possibility of retraining and redeployment. They also shared
their own experiences of dealing with stakeholders and staff representatives.

138

Shell Annual Report and Accounts 2020GovernanceRisks

The Board reviews reports on strategic and conduct and culture risks annually, and
considers reports on operational risks twice a year. These reports assess current
business activities against risk appetite.

Organisational culture

As part of the Reshape restructuring, the Board has been discussing the people
strategy, new leadership framework, and safety refresh. Discussions on diversity
and inclusion issues such as race also took place to further improve the
organisational culture.

The Board also reviewed the Conduct and Culture Risk Report, which included
a refreshed dashboard of risk appetite measures aligned with Shell’s core values
– honesty, integrity and respect for people. Elements measured by the dashboard
include: the number of terminations as a result of formally investigated Code of
Conduct violations; the number of overdues on mandatory Ethics and Compliance
training; anonymous reporting rates on our global helpline; and a selection of Shell
People Survey scores. Qualitative assessments of insider threats and our approach
to caring for our people were also covered.

Chief Ethics and Compliance Officer Report

Data and insights include information from the Global Helpline, Shell Ethics and
Compliance organisation and the Shell People Survey. SESCo continues to strongly
support the work of the Chief Ethics and Compliance Officer, including the efforts to
ensure a safe working environment where staff feel confident to raise any concerns
in good faith.

The Audit Committee is kept updated when matters highlighted through the Global
Helpline are investigated, and on the associated remediation. For more information
see page 148 of 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 evident 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 supports the Board’s
annual review of the effectiveness of the Group’s system of risk management
and internal control and feeds into the Group scorecard, against which staff
bonuses are calculated.

The Shell Control Framework

Significant HSSE, Ethics and Compliance, and more broadly, business control
incidents are brought to the attention of Senior Management and the Board
through regular reporting.

The Board discussed how the organisation could learn more from incidents
and how the business could drive safety performance. The Board shared and
discussed examples based on personal experience of how to promote a strong
safety culture.

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 businesses, sites and countries. This gives insight into progress made,
risks and opportunities. The benefits are mutual. The Board obtains direct insight
into local business operations and projects, and local strengths and challenges
while our people have an opportunity to better understand the Board and to
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, Directors engaging with Shell women’s
networks activities.

In 2020, panel discussions took place on International Women’s Day. Various
members of the Board joined these discussions.

Directors involved in these engagements note the opportunity to enrich their
understanding of the female perspective within Shell, getting better insights on
gender balance and the employee experience in this area.

Formal reports and information updates to the Board

Shell People Survey (anonymous survey facilitated externally)

Annual Board discussion to keep it fully aware of employee engagement levels and
quality of leadership across Shell’s workforce, and informed on 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 to be one of its principal tools for
measuring employee engagement, motivation, affiliation and commitment to Shell.
It provides insights into employee views and has a consistently high response rate.
In 2020 the response rate was 86%, which was the highest ever. The average
employee engagement score was maintained at 78 points out of 100, despite the
challenging year and remained top quartile compared with external benchmarks.

The Board also considers this engagement to understand, for example, how Shell
is using the survey outcomes in: i) data analytics, for example, to identify potential
correlative relationships between employee engagement and safety or ethics
and compliance incidents; and ii) strengthening Company culture and values.

Senior Succession and 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 effectiveness of succession
planning, the impact of its associated execution, and the professional, data-driven,
integrated approach to leadership and leadership development. It welcomed the
continued focus on performance management, proactive management of Shell’s
talent pipeline, and the focus on advancing Shell’s diversity agenda with increased
attention on race. Overall this year’s insights provided a deeper understanding
of the interplay between culture, identity, leadership talent and employee
engagement across Shell.

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
(also via the Audit Committee and SESCo) obtains insight into incidents and
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.

139

Shell Annual Report and Accounts 2020GovernanceNOMINATION 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 is fully engaged with the end-to-end talent management and
senior succession planning approach that is deployed within Shell. It plays
a key role in senior succession and resourcing and retaining in-depth
knowledge of the individuals within the talent pipeline is a Committee
priority. In fact, the Committee makes time to personally meet and engage
with numerous individuals within the pipeline. The Committee’s oversight
and input extend from recruitment to leadership identification and from
leadership development to leadership appointment, all of which are
underpinned by clearly articulated talent priorities and a commitment to
advancing diversity and inclusion across Shell.

The Committee manages Board and Senior Management succession under
a structured, proactive methodology. The processes have clear and agreed
selection principles for short-, medium- and long-term succession and are
aligned with Shell’s strategic priorities.

For Non-executive Director succession, the Committee also follows its
Principles for the Strategic Composition of the Board. These principles
function much like a policy and include both quantitative and qualitative
principles, considering: (i) the overall aspired Board composition and
diversity of gender, race and ethnicity, nationality, background, experience
and desired skillsets that align with the Company’s strategy and purpose;
and (ii) the values, attitudes, and behaviours expected of Directors.

For Senior Management succession, the selection principles include
process-specific elements, such as a clear and proactive approach to
identifying and developing succession candidates. The principles also outline
the long-term structured nature of the succession planning process. There is
also great focus on ensuring that the principles reflect the leadership qualities
required for future business success and that they advance the progress of
diversity in all its forms.

Senior Management principles feature in the Committee’s review of the
succession plans which occurs in every Committee meeting. Utilising the
principles, 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.

CHAD HOLLIDAY
Chair of the Nomination and Succession Committee

Focus areas for 2020

■ Appointment and onboarding of four new Non-executive Directors
■ Continued discussions about Non-executive Director and

Executive Committee succession

■ Continued talent engagements with key staff and succession

candidates

■ Deep dives into the Royal Dutch Shell People Strategy, including

culture and identity and end-to-end talent management

Priorities for 2021

■ Continued discussions about Non-executive Director and

Executive Committee succession

■ Continued talent engagements with key staff and succession

candidates.

■ Continued deep dives into the Royal Dutch Shell People Strategy
and culture, with an increased focus on diversity and inclusion
and end-to-end talent management

COMMITTEE ATTENDANCE FOR 2020

Committee Member

Member since

Chad Holliday
(Chair of the Committee) May 19, 2015

Euleen Goh

July 1, 2019

Gerard Kleisterlee [A] May 23, 2018

Sir Andrew Mackenzie Oct 1, 2020

Sir Nigel Sheinwald

May 20, 2020

Linda Stuntz [A]

June 1, 2016

Maximum
possible
meetings

Number of
meetings
attended

% of
meetings
attended

100%

66.6%

100%

[A] Both Gerard Kleisterlee and Linda Stuntz retired from the Board after the 2020 Annual

General Meeting, held on May 19, 2020.

140

Shell Annual Report and Accounts 2020GovernanceIn 2020, the Committee undertook its annual in-depth look at the succession
plans for Senior Management across Shell and reviewed the talent pipeline
in line with the business outlook. The engagement focused on the depth and
breadth of the leadership pipeline, the skills and behaviours required for
future success and progress against diversity aspirations and policies.
Following the Committee’s review, the findings were reported to the Board.

DIVERSITY OF LEADERSHIP
The Committee recognises that continuing to improve all types of diversity
at each level of the Shell Group is crucial. Shell aims to be an inclusive
workplace where everyone feels valued and respected and has a strong
sense of belonging. The Committee’s review of diversity objectives and
strategies for the Shell Group as a whole also monitors the impact of
diversity and inclusion initiatives.

In February 2021 Shell published its diversity aspirations as part of its
strategic update. Gender and nationality diversity is increasing, and focus
is broadening and deepening in other areas such as race and ethnicity,
enablement and LGBT+. When looking at our progress against our
ambitions, female representation has steadily improved in recent years.
Among experienced recruitment in 2020, Shell companies recruited 31%
females, and among graduates 49%. Female representation in the top
1,400 roles (“Senior Leadership” positions) has strengthened by 1.4
percentage points during 2020 to 27.8%, 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 and
we have a strong focus on progressing race and ethnic minority
representation. The representation of people of colour among Shell’s
senior leaders in the USA has been actively tracked for many years. It
stood at 26.4% at the end 2020, compared with 17.3% in 2016. In in the
UK, BAME representation among senior leaders was 10.6%, an advance
from 7% in 2018.

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 29.5%.

Although the Committee monitors Shell’s organisational diversity and
inclusion strategies and initiatives, it also holds itself accountable for the
Board’s own diversity and inclusion. By the end of 2020, the Board’s
diverse composition clearly met both the Hampton Alexander and Parker
Reviews’ objectives by reflecting 38.46% female representation with one
person meeting BAME criteria. Gender representation was down slightly
from May 2020 (when the Board’s composition included 42% female
representation) as a result of the departure of three Non-executive
Directors (one female, two males) and the appointment later in the year of
four new Non-executive Directors (one female, three males). But following
the 2021 AGM, subject to shareholder approval and for the first time in
Shell’s history, the Board is expected to reach gender parity with 50%
female representation (after the departure of two males and the
expected appointment of one female).

More information on diversity in Shell is provided in the Our people
section on page 108.

The People Strategy and culture and identity
In 2020, the Committee conducted an in-depth examination of the Royal
Dutch Shell People Strategy, with a particular emphasis on our aspired
culture and identity. Leaders are key to delivering the Company’s strategic
ambitions and animating our aspired identity and culture. Given the
critical importance of this issue for the Company’s transformation under
our Powering Progress strategy, the Committee will conduct further
engagements in 2021 to maintain proactive oversight over the issue
of leadership and aspired identity and culture.

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 corporate governance-related disclosures. The
Committee continues to monitor and review this area, considering whether
and how current Company governance matters should be strengthened.
Further insight on some of the Committee’s areas of consideration in
2020 is provided below.

Succession [A]

Topic of discussion/Example of Board activity

Recommendation

■ Appointment of Dick Boer, Martina Hund-Mejean,

Sir Andrew Mackenzie and Abraham (Bram)
Schot to the Board.

■ Changes to the composition of the Board

committees.

Review and oversight

■ Royal Dutch Shell Senior Succession and

Resourcing Review.

Oversight

■ Royal Dutch Shell People Strategy including

culture and identity.

■ End-to-end talent management in Royal Dutch Shell.

Engagement

■ Talent engagements

Governance

Topic of discussion/Example of Board activity

Governing the Board
and its committees

■ Reviewed its Principles for the Strategic

Composition of the Board.

Regulation, legislation
and other governance-
related guidance

■ Reviewed its Terms of Reference, and the terms of
Reference for other Board committees and the
matters reserved to the Board.

■ Key governance matters affecting the Company’s

external reporting.

■ Other governance and regulatory changes agreed
or proposed and their impact or potential impact
on the Company, its processes and its reporting.

■ Considered any potential conflicts of interest and
the independence of the Non-executive Directors.

■ Review of additional external appointments

requested by Directors, with specific focus on the
time allocated to all commitments. For Executive
Directors, the benefit/relevance to the business of
the Director undertaking the additional role is also
a key consideration.

■ Determined the process for the 2020 internal

RDS matters

Board Evaluation.

Board membership and
other appointments

Directors’ tenure, external
commitments, conflicts of
interests and succession
planning

Topic of discussion/Example of Board activity

■ Non-executive Director appointments and

changes to Committee membership.

Talent overview and
senior succession review Topic of discussion/Example of Board activity

■ Enhanced insight of Shell talent and future leaders.
■ Assurance of robust succession and

contingency plans.

RDS Senior Succession and
Resourcing Review covering
Executive Director and
Executive Committee
(EC) succession, EC direct
reports, the senior executive
group and the overall
talent pipeline

[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.

141

Shell Annual Report and Accounts 2020GovernanceNOMINATION AND SUCCESSION COMMITTEE continued

Director Induction and Training
After being appointed to the Board, Directors receive a comprehensive
induction tailored to their individual needs. This normally 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. Existing Directors are also able to join these
visits to keep abreast of business developments and progress. With the
abnormal COVID-19 circumstances in 2020, the induction programme
was quickly adapted to a completely virtual induction.

Although the programme had received praise from new Non-executive
Directors over the past several years, enhancements were nonetheless
implemented in 2020 despite the required fully virtual implementation.

The enhancements ensured that all onboarding was phased and
prioritised based on forthcoming Board agenda items to help ensure the
new Non-executive Director “hit the ground running”. The enhancements
included digital onboarding books for each new Non-executive Director.
These onboarding books complemented the existing digital Directors’
Handbook and featured:

■ overviews of scheduled briefing meetings customised to the

Non-executive Director’s needs;

■ hyperlinks to key Shell publications (external and internal);
■
■ key current materials on:

lists of common Shell acronyms;

– Shell’s safety and core values;
– Board governance;
– Group strategy and portfolio; and
– key businesses and functions.

■ biographies of key executives
■ Other enhancements of the onboarding programme for Non-executive

Directors included:
– arranging briefing meetings with key executives (both business
and functional) customised to Non-executive Directors’ needs;

– where feasible, pairing up new Non-executive Directors in

onboarding briefings to optimise learning while also providing
opportunities for collegial relationship-building and increasing
efficiencies for the executives; and

– where possible, arranging virtual site visits (either specifically for

onboarding or by inviting the new Directors to committees’ virtual
site visits).

CHAIR SUCCESSION
Message from Euleen Goh
In early 2018, the process of selecting the next Chair of the Board of
Royal Dutch Shell plc began in response to the proposed limit on Chair
tenure, outlined in the draft version of the Code. The Nomination and
Succession Committee (NOMCo) created a subcommittee, drew up
a potential succession timeline, and initiated an internal and external
search process. Hans Wijers, the Senior Independent Director at the
time, led the subcommittee and the search process. Chad Holliday,
the current Chair, was not a member of the subcommittee.

My predecessor Gerard Kleisterlee took over from Hans in May 2018
and refined the selection criteria and succession timeline. The
subcommittee agreed what qualities the successful candidate should
have, and determined the functional focus elements of the new Chair’s
role. Accordingly, the subcommittee considered and interviewed
multiple candidates.

I assumed leadership of the subcommittee after Gerard retired from the
Board at the 2020 AGM. The NOMCo subcommittee further reviewed
the required qualities and functional focus elements of the role in the
context of the current environment. The subcommittee also examined
the main trends and factors affecting the long-term success and future
viability of Shell, and the organisation’s strategic priorities, consulting
on these with the wider Board. One-on-one discussions were held with
each Board member. The review and the discussions helped us to refine
our search process with a clear and updated understanding of the
qualities, skills and attributes that the future Chair should possess.

We engaged with some of our larger investors, as appropriate,
seeking input on the skills, attributes and sector knowledge that they
considered important for the Chair candidate profile. These discussions
were very valuable. They helped inform our search and selection of
the most appropriate individual for the role.

After this thorough and robust search process, the Board agreed
unanimously at its March 2021 meeting that Sir Andrew Mackenzie
should be appointed Chair of the Board with effect from the conclusion
of Shell’s 2021 Annual General Meeting, scheduled for May 18, 2021.

When reviewing candidates, our preferred qualities and functional
focus elements included a strong requirement for a candidate who has
experience in leading large, complex, international organisations. The
candidate would have had significant experience in capital discipline.
He/she should have an ability to balance the transformational changes
that Shell needs to make against the timing of these changes as it
navigates the energy transition. The successful candidate should have
demonstrated sustainable actions with respect to the climate change
agenda. An understanding of the energy market was essential, without
it being necessary for the candidate to have spent their entire career
working in the oil and gas sector.

In Andrew we believe that we have found the required qualities and
more. Andrew is a lifelong learner with a collaborative, agile mindset
and he is a champion of good governance. His strategic vision has
helped operations and companies under his leadership to transform.
His leadership performance in the areas of environmental, social and
governance (ESG) and climate action are outstanding. He was recently
knighted by the Queen of the United Kingdom for his services to
business, science and technology. Andrew firmly believes that business
can be a force for good, for shareholders and society alike.

Andrew joined the Board in October 2020 and has dedicated
significant time to familiarising himself with the business, the people,
and the Powering Progress strategy which he and the Board fully
support and are committed to delivering together with management.

His broad experience, strategic vision, scientific curiosity and
commercial acumen make him the ideal candidate to lead the Board
of Royal Dutch Shell plc.

142

Shell Annual Report and Accounts 2020GovernanceSAFETY, ENVIRONMENT AND SUSTAINABILITY COMMITTEE

SIR NIGEL SHEINWALD GCMG
Chair of the Safety, Environment and Sustainability Committee

FOCUS AREAS FOR 2020

■ Safety performance
■ Shell's climate targets
■ Sustainability metrics for scorecard
■ Energy transition metrics for remuneration

PRIORITIES FOR 2021

■ Process safety and personal safety
■ Progress against climate targets
■ Broader sustainability performance
■ Assurance programme

COMMITTEE ATTENDANCE FOR 2020

Committee Member

Member since

Sir Nigel Sheinwald
(Chair of the Committee)

July 1, 2012

Neil Carson

June 1, 2019

Ann Godbehere

May 20, 2020

Catherine J. Hughes

November 1, 2017

Bram Schot

October 1, 2020

Linda Stuntz [A]

May 23, 2018

Maximum
possible
meetings

Number of
meetings
attended

% of
meetings
attended

100%

[A] Linda Stuntz retired from the Board following the 2020 Annual General Meeting, held on

May 19, 2020.

“2020 was an important year for SESCo.
We monitored closely and welcomed Shell’s
much improved safety performance, and
contributed actively to the energy transition
pathway and new carbon targets developed.”

SIR NIGEL SHEINWALD GCMG

PURPOSE
The Safety, Environment and Sustainability Committee (SESCo) assists
the Board in reviewing the practices and performance of Shell, primarily
with respect to safety, environment including climate change, and
broader sustainability.

OVERVIEW
The Committee meets regularly to review and discuss a wide range of
important topics. These include the safe and responsible operation of
Shell’s facilities, environmental protection and greenhouse gas emissions,
significant incidents that impact safety and environmental performance,
progress towards Shell’s climate targets, and energy transition. The
Committee also endorses the Shell annual HSSE & SP assurance plan,
reviewing the execution of the plan and audit outcomes.

The Committee assesses Shell’s overall sustainability performance and
provides input to 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 annual scorecard and long-term incentive plan.

The Committee reviews and considers external stakeholder perspectives in
relation to Shell’s business, as well as how Shell addresses issues of public
concern that could affect its reputation and licence to operate. Examples
include plastic waste, methane emissions, human rights, the UN
Sustainable Development Goals, and access to energy in low- and
middle-income countries.

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.

Royal Dutch Shell plc’s Chief Executive Officer and the Executive
Committee hold overall accountability for sustainability within Shell,
supported by the Executive Vice President for Safety & Environment
and other senior managers.

ACTIVITIES
During 2020, the Committee focused on the areas of greatest strategic
importance to Shell, in line with its updated Terms of Reference. This
allowed the Committee to oversee effectively and thoroughly the
practices and performance of the Company with respect to safety,
environment including climate change, and broader sustainability.

The Committee was pleased that there were no fatalities in 2020 at
Shell-operated ventures, the first year this has been achieved and a
testament to Shell’s relentless focus on safety. The Committee welcomed
Shell’s refreshed approach to safety announced in 2020, with its emphasis
on the human dimension of safety performance.

The topics discussed in particular depth by the Committee included
personal and process safety, Shell’s climate targets and the energy
transition, and remuneration metrics and targets. The Committee also
reviewed Shell companies’ operations and the challenges faced in
Nigeria and Brazil.

Together with the Audit Committee and Chief Ethics and Compliance
Officer, the Committee reviewed the controls and procedures for
managing changes to Shell’s portfolio. The Committee Chair also held
several meetings with senior leaders to discuss specific topics including
new fuels, carbon emissions reduction and decommissioning.

143

Shell Annual Report and Accounts 2020GovernanceSAFETY, ENVIRONMENT AND SUSTAINABILITY COMMITTEE continued

The Committee supported and contributed to Shell’s announcement in
2020 that it aims to become a net-zero emissions energy business by
2050, in step with society. The Committee believe this again demonstrates
Shell’s determination to play its full role in the energy transition. The
Committee has had in-depth discussions with management about how
Shell’s climate ambitions are being put into operation through portfolio
changes, the use of nature-based solutions, the development of carbon
capture utilisation and storage, and carbon abatement programmes at
operated facilities.

Following the Committee’s review of remuneration with management,
new safety and environment metrics will be introduced for 2021 along
with increased weighting for these metrics and energy transition metrics,
which should drive further performance improvements.

The Committee closely monitored and strongly supported Shell’s response
to the COVID-19 pandemic in terms of care for staff and the safe
management of operations. The Committee appreciated Shell’s rapid
deployment of virtual working technology from the start of the pandemic
to enable business continuity and support continued HSSE & SP assurance
activities across Shell.

The Committee continued to address wider questions of public concern
such as plastic waste, methane emissions and human rights. It looks
forward to resuming direct engagement with stakeholders once the
COVID-19 restrictions come to an end.

For further details on SESCo and how Shell manages sustainability
see www.shell.com

SITE VISITS
The Committee postponed its site visits of the Rheinland refinery in
Germany and LNG Canada project in British Columbia due to the
COVID-19 pandemic. The committee instead conducted a virtual site
visit of Rheinland via videoconference. The visit focused on safety and
environmental performance and the planned transformation of the
Rheinland site into an energy and chemicals park. It also included
a meeting with a minister of the state government of North
Rhine-Westphalia.

Activities performed

Frequency

Review Shell’s practices and performance relating to Safety, including in particular the safe condition and responsible operation of Shell’s assets

Review Shell’s practices and performance relating to environment, including in particular environmental protection and greenhouse gas emissions

Review any major incidents that impact Shell’s safety and environmental performance

Review progress towards meeting Shell’s climate targets

Endorse Shell’s annual Health, Security, Safety, Environment and Social Performance (HSSE & SP) assurance plan

Review execution of Shell’s HSSE & SP assurance plan and audit outcomes, and review relevant findings from Shell’s broader internal audit programme

Assess Shell’s overall sustainability performance and provide input to Shell’s annual reporting and disclosures regarding sustainability

Review how Shell addresses other major issues of public concern that could affect Shell’s reputation and licence to operate

Review and consider external stakeholder perspectives in relation to Shell’s business

Advise the Remuneration Committee on metrics relating to Sustainable Development and Energy Transition.

Committee Activity Key:

Annually

Periodically

Most meetings

Every meeting

As necessary

144

Shell Annual Report and Accounts 2020GovernanceAUDIT COMMITTEE REPORT

ANN GODBEHERE
Chair of the Audit Committee

Focus areas for 2020

■

Impacts of the COVID-19 pandemic and macroeconomic
conditions

■ Decommissioning and restoration
Integrated risk management
■
■ Trading and Supply
■ Treasury operations

Priorities for 2021

■ New business models and ventures
■ Pensions
■ Contracting and procurement
■ Reshape management framework
■ Oil and gas pricing methodology

“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 system of internal controls
as well as consideration of ethics
and compliance matters.”

Dear Shareholders,

I am pleased to present our Audit Committee Report for 2020 covering our
work over the course of the year including some areas of particular focus.

I begin this report by thanking Roberto Setubal for his contributions as
a member of the Audit Committee (AC) since October 2017. Gerrit and
I were delighted to be joined by new committee members Martina
Hund-Mejean and Dick Boer. Their respective expertise and insights
are a valuable addition to the AC.

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 system of internal
controls as well as consideration of ethics and compliance matters. We
are also responsible for assessing the quality of the audit performed by,
and the independence and objectivity of, the external auditor. The AC
also makes a recommendation to the Board on the appointment or
reappointment of the external auditor. In addition, we oversee
the work and quality of the internal audit function.

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;
briefings from the Chief Internal Auditor on the effectiveness of Shell’s risk
management and internal control system and on the outcomes of
significant audits and notable control matters, and briefings from the Chief
Ethics and Compliance Officer. Specific attention is given to topics that we
consider particularly significant, including key areas of judgement relating
to Shell’s Consolidated Financial Statements, as discussed in more detail
later in this report. In 2020, in addition to standing matters, the AC
addressed a variety of special focus areas including: the impacts of
the COVID-19 pandemic on the controls and assurance environment;
the impacts of the macroeconomic conditions on the outlook for
commodity prices and refining margin assumptions; the effectiveness of
decommissioning and restoration activities; a review of the integrated risk
management landscape across Shell; an in-depth look at Shell’s treasury
operations; and a review of Trading and Supply’s risk management
strategy and platform, data and systems update. The AC carried out
virtual site visits to Shell’s operations in Singapore, Krakow, and Kuala
Lumpur. In addition, in March prior to a travel ban prompted by COVID-19,
I spent three days in Houston visiting all of Shell’s operations. These site
visits contribute to the AC’s understanding of the risks and opportunities
arising in key markets and where important functions are carried out. The
visits also provide the opportunity for the AC to engage with a diverse
range of Shell staff in each location and to hear directly from them.

As climate change and energy transition gained further prominence and
to help the AC keep abreast of the Company’s efforts and strategies to
manage potential impacts on Shell’s assets, I became a member of the
Safety, Environment and Sustainability Committee in 2020. In addition,
the AC requested Ernst and Young LLP (EY), our external auditor, and the
Chief Internal Auditor to specify in their respective quarterly reports to the
AC what specific steps they have taken to incorporate climate change
considerations into all facets of their work.

On a final note, the AC congratulates Shell’s Annual Report team on
winning the FD Henri Sijthoff Prize for the best 2019 annual report in the
“listed companies” category in the Netherlands. The award recognises
Shell’s pursuit of continual transparency improvements in its
communications with external stakeholders.

ANN GODBEHERE
Chair of the Audit Committee
March 10, 2021

145

Shell Annual Report and Accounts 2020GovernanceAUDIT COMMITTEE REPORT continued

COMMITTEE MEMBERSHIP AND ATTENDANCE FOR 2020
During 2020, 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

Dick Boer [A]

May 20, 2020

Martina Hund-Mejean [B] May 20, 2020

Roberto Setubal [C]

October 1, 2017

Gerrit Zalm

March 8 2017

Maximum
possible
meetings

Number of
meetings
attended

% of
meetings
attended

100%

[A] Dick Boer was appointed to the Board and AC with effect from May 20, 2020.
[B] Martina Hund-Mejean was appointed to the Board and AC with effect from May 20, 2020.
[C] Roberto Setubal stepped down from the Board with effect from May 19, 2020.

All members of the AC are financially literate, independent Non-executive
Directors. In respect of the year ended December 31, 2020, for the
purposes of the UK Corporate Governance Code, Ann Godbehere and
Martina Hund-Mejean with effect from her appointment to the Board and
AC on May 20, 2020, both qualify as: a person with “recent and relevant
financial experience” and competence in accounting, and, for the
purposes of US securities laws, an “audit committee financial expert”.

The experience of the AC members outlined on pages 114-121
demonstrates that the AC as a whole has competence relevant to the
sector in which Shell operates, and 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 in-person and
virtual site visits since their respective appointments.

The AC invites the Chief Financial Officer, the Legal Director, the Chief
Internal Auditor, the Executive Vice President Taxation and Controller, the
Vice President Group Reporting and the external auditor to attend each
meeting. The Chief Executive Officer attends each meeting where the
quarterly, half-yearly and year-end results are discussed. The Chair of the
Board also regularly attends AC meetings. Other members of
management attend when requested on specific topics or to provide input
on more detailed technical matters that may arise. The AC regularly holds
private sessions separately with the Chief Internal Auditor and the external
auditor without members of management, except for the Legal Director,
being present. Outside of the formal AC meetings the AC Chair meets
regularly with each of the Chief Financial Officer, Executive Vice President
(EVP) Taxation and Controller, the Chief Internal Auditor, the external
auditor, and the Chief Information Officer.

AC REMIT
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, in the AC’s view, the Annual Report 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;
reviewing the functioning of the Shell Global Helpline and reports
arising from its operation;

■

146

of the internal audit function and the external auditor;

■ assessing the internal and external auditors’ performance and
effectiveness each year and approving related remuneration
for the external auditor; and
recommending to the Board for it to put to the Company’s
Shareholders for approval at the Annual General Meeting (AGM)
to appoint, reappoint, or remove the external auditor.

■

These responsibilities form the basis of the AC’s annual work plan which is
adjusted throughout the year as necessary. The AC is authorised to seek
any information it requires from management and external parties and to
investigate issues or concerns as it deems appropriate. The AC may also
obtain independent professional advice at the Company’s expense. No
such independent advice was required in 2020.

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 discusses with 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, which was updated in 2020 to
reflect references affected by the separation of the Annual Report and
Form 20-F, can be found at www.shell.com.

AC TOPIC COVERAGE IN 2020
The pie chart below shows the percentage of time the AC spent on various
activities during 2020.

2020 AC topic coverage

13%

23%

25%

13%

15%

11%

Risk management and internal controls
Financial reporting
Compliance and governance
Internal audit
External audit
2020 focus areas

FOCUS AREAS FOR 2020
The AC was briefed by senior leaders from various business and function
areas on the adequacy, design and operating effectiveness of risk
management and controls related to the critical activities carried out by
their respective business or function. The briefings included information
on any enhancements to strengthen controls and how areas identified

Shell Annual Report and Accounts 2020Governancefor improvement had been addressed. These discussions also covered
monitoring activities around risks, and steps being taken to address
identified gaps and emerging risk areas. In addition to the significant
accounting and reporting areas discussed on page 150, the business
and function areas reviewed by the AC in 2020 included the following:
■ Decommissioning and commissioning and restoration (D&R)

■

– The AC was briefed on the different aspects of the D&R management
process in Shell and the key risks and opportunities in D&R. The AC
discussed the approach to D&R provisions and the controls in place
to enable effective governance of D&R.
Integrated risk management – To provide the AC with further insights
into Shell’s integrated risk management framework across the
organisation, the AC received an overview of the approach to risks,
controls and assurance in two business areas: information risk
management and Shell aircraft. The AC noted the improvement measures
and best practices management has embedded within these two areas.
■ Treasury operations – Senior Treasury leaders provided the AC with
an overview of Shell’s centralised treasury operations, which include
central debt and capital market activities, liquidity and foreign
exchange, cash management and treasury functions. The AC reviewed
the overall governance, controls and assurance activities. The AC
gained a deeper understanding of how risks, including regulatory
and fiscal compliance, are managed. As part of this review, the AC
discussed future challenges and opportunities in this area.

■ Trading and Supply’s control framework – Reflecting the growth
in this area in recent years and increasing regulatory demands, the AC
continued to focus on key control and compliance matters in Trading
and Supply. Management updated the AC on the improvements being
made within Trading and Supply to strengthen controls and modernise
processes, data and systems and on the new hires in the areas of
compliance and risk management.

In 2020, the AC carried out three site visits that were conducted virtually
because of the travel restrictions in place during the COVID-19 pandemic.
The AC visited: Singapore in October 2020; Kuala Lumpur in Malaysia in
November and December 2020; and Poland in November 2020 and
January 2021. These visits provided the opportunity for the AC to gain a
deeper understanding of the various businesses and functions at each
location, the local external environment within which those activities take
place and how they contribute to Shell achieving its strategic ambitions.
In addition to in-depth examinations of specific business areas, topics
discussed during the site visits included: an overview of ethics and
compliance matters, the challenges of operating during the COVID-19
pandemic for both people and operations, the impact of the energy
transition at a local level and results from the Shell People Survey.

RISK MANAGEMENT AND INTERNAL CONTROL
The AC assists the Board in fulfilling its responsibilities in relation to risk
management and internal controls by reviewing 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 annual assessment includes the AC’s review of 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) and the Company’s
evaluation of the internal control over financial reporting as required under
Section 404 of the Sarbanes-Oxley Act (SOX 404). The AC updated the
Board on compliance with internal controls across the Shell Group and
on any major matters for which action or improvement was needed.

Throughout the year, the AC discussed with management the Company’s
overall approach to risk management and internal control, including
compliance, tax and information risk management matters and the
adequacy of disclosure controls and procedures. The AC received quarterly
reports from the Executive Vice President Taxation and Controller on the

status of actions to address control weaknesses identified during assurance
reviews, as well as trend information regarding business incidents and other
metrics used to monitor the robustness of the risk management framework
and internal control systems. As part of considering the risk management
framework, the AC was informed of developments in the legal, regulatory
and financial reporting landscape that could affect the Company. The AC
was also briefed on litigation matters (see “Governance” on page 187 and
Note 25 to the “Consolidated Financial Statements” on pages 260-262).

The AC reviewed on a quarterly basis the status of management’s SOX 404
testing of controls and remediation actions to address any identified
weaknesses. For 2020, these quarterly reviews also included consideration of
how the COVID-19 pandemic affected the controls and assurance landscape,
including the financial reporting process. The AC and management discussed
the steps taken to maintain an effective control environment to demonstrate
“management in control” during the pandemic and to address any new or
emerging risks due to the working from home setting during most of 2020.

In particular, the AC dedicated time to the following standing items
during 2020:
■ Tax risks – In addition to the regular review of Shell’s tax position,

the AC discussed with management new and potential tax legislation
developments in various countries and how their potential impact on Shell
is being managed. The AC also discussed with management Shell’s
updated Approach to Tax and proposed responses to the continued
demand for greater transparency of tax information, noting for example,
Shell’s publication of its second Tax Contribution Report in 2020.
Information risk management – The Chief Information Officer
briefed the AC on the diverse and expanding risk landscape, including
changes in cyber-attacks due to the COVID-19 environment, and
regulatory developments. The AC was briefed on activities undertaken
in 2020 to address and manage new and evolving risks as well as
improvements planned for 2021.

■

■ Oil and gas reserves control framework – The AC reviewed
the framework in place to support internal reporting and external
disclosures. The AC discussed the processes and controls for preventing
and/or mitigating the risks of non-compliance with regulatory reporting
requirements, and ensuring accurate reserves information is reported in
an efficient manner.

In addition to the above discussions with management, on a quarterly
basis, the AC and the Chief Internal Auditor discussed the Company’s risk
management and internal control system, any significant matters arising
from the internal audit assurance programme and management’s
response to significant audit findings and notable control weaknesses
including potential improvements and agreed actions. The AC held
similar discussions with EY on a quarterly basis.

FINANCIAL REPORTING
In 2020, the AC received comprehensive reports from management and
the external auditor on quarterly financial reporting, accounting policies
and judgements and reporting matters.

Shell’s annual report and accounts for the year ended December 31, 2019
was selected by the Financial Reporting Council (FRC) for their thematic
review of a sample of companies’ reporting on the impact of climate
change and the first full year of adoption of IFRS 16, Leases. The FRC
carried out a limited scope review of Shell’s disclosures relating to these
matters and did not conduct a full review of Shell’s 2019 Annual Report
and accounts. Following correspondence, the review was closed on
February 10, 2021 and certain disclosure improvements have been made
to the Consolidated Financial Statements for the year ended December
31, 2020. The AC reviewed Shell’s correspondence with the FRC and
discussed with management the disclosures incorporated in the
Consolidated Financial Statements in response to the FRC review.

147

Shell Annual Report and Accounts 2020GovernanceAUDIT COMMITTEE REPORT continued

The AC reviewed the Company’s 2020 quarterly unaudited interim
financial statements, half-yearly report and Annual Report with
management and the external auditor. Following the decision to produce
a separate Annual Report and Form 20-F beginning with financial year
2019, the AC reviewed the control framework put in place to ensure the
disclosures in both reports comply with relevant requirements.

In October 2020, the AC and the Safety, Environment and Sustainability
Committee held a joint session with the Chief Ethics and Compliance
Officer which facilitated an effective discussion of the controls, procedures
and governance for managing high risk transactions in Shell, with a
particular focus on proposed portfolio activities including new business
development opportunities, acquisitions, divestments and joint ventures.

Fair, balanced and understandable assessment
The AC advised the Board that in its view the 2020 Annual Report including
the financial statements for the year ended December 31, 2020, 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 189). To arrive at
this conclusion, the AC critically assessed drafts of the 2020 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 2020 Annual Report are
consistent with the information shared with the Board 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).

Going concern and viability statement
The AC 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; agreements like liquid natural gas contract renewals;
production levels and product demand, schedules of growth programmes;
the financial framework; Shell’s business portfolio developments including
consideration of the impacts of climate change and Shell’s commitment to
the Paris Agreement goals; the project funnel to support future growth; and
using severe but possible scenarios to run models of the financial impact if
certain of Shell’s principal risks materialised. 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 the merits of extending the viability statement 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 going concern basis of
accounting and the inclusion of Shell’s viability statement in “Governance”
on page 183-184 and considered such statement to be in line with best
practice guidance issued by the FRC.

Other matters
The AC 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 221-229 for further
information); and the effectiveness of financial controls.

COMPLIANCE AND GOVERNANCE
Ethics and compliance
The AC discussed with the Chief Ethics and Compliance Officer the
potential impact of COVID-19 on conduct risk at Shell. The Chief Ethics
and Compliance Officer summarised the macro factors affecting conduct
risk during the pandemic and the related economic downturn. The AC
was updated on management’s risk-based approach and mitigation
actions taken by Shell in response to these issues, including reinforcing
adherence to Shell’s compliance rules and Code of Conduct.

148

As part of the annual assessment of the system of risk management and
internal control, the AC discussed with the Chief Ethics and Compliance
Officer his annual report on compliance matters. The report included
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 necessary, appropriate disciplinary actions had been taken and
management had embedded learnings into Shell’s systems and controls.

Whistleblowing investigations
The AC is responsible for establishing and monitoring the implementation
of procedures for the receipt, retention, investigation and follow-up actions
of complaints received, including those from the Shell Global Helpline.
The AC reviewed whistleblowing reports and internal audit reports and
considered management’s responses to the findings in these reports.

Regulatory developments
The AC was briefed on regulatory developments in areas including:
sustainable finance (in particular management’s work on the EU Sustainable
Finance Taxonomy); non-financial reporting (in particular management’s
assessment of the EU Non-Financial Reporting Directive Revision);
accounting and reporting; environmental liabilities and treasury activities.

AC annual evaluation
The AC undertakes an annual evaluation of its performance and
effectiveness. Consistent with the Board’s annual performance evaluation
for 2020, the AC’s performance evaluation was facilitated by Lintstock
Limited, a London-based corporate advisory firm. Each AC member
responded to a confidential questionnaire about the AC’s performance
covering questions on: the management of the AC in areas such as the
annual cycle of work, agenda for meetings and time and input in
meetings; the quality of the information provided to the AC; the value
of the virtual site visits and the AC briefings on specific topics; the
effectiveness of the AC’s oversight in areas such as financial reporting, risk
management and internal control, compliance and governance and the
work of internal and external audit; rating the AC’s performance in
reviewing and assessing significant accounting and reporting judgements;
and how to improve the AC’s performance. When assessing progress
against 2019, the AC concluded it had achieved all the 2020 priorities
identified in the 2019 evaluation discussion (including visits to Shell’s
operations in Singapore, Krakow, and Kuala Lumpur, including the finance
operation centres in Krakow and Kuala Lumpur, and reviews related to
Trading and Supply, regulatory developments, decommissioning and
integrated risk management). The AC discussed the outcome of this review
as part of its annual evaluation. The AC concluded that its performance
in 2020 had been effective and that it had fulfilled its role in accordance
with its Terms of Reference.

In preparing its workplan for 2021, the AC has agreed the following
focus areas in addition to the standing items: New business models and
ventures; Pensions; Contracting and Procurement; Reshape management
framework and oil and gas pricing methodology. As part of its review
of new business models and ventures, the AC plans to visit one of Shell’s
new ventures in 2021.

Shell Annual Report and Accounts 2020GovernanceAUDIT COMMITTEE ACTIVITIES DURING 2020

Activities performed

Risk Management and Internal Control

Frequency

Reviewed the policies and practices and monitored the effectiveness relating to Shell’s risk management and internal control system.

Received briefings on regulatory developments.

Reviewed management's SOX 404 assessment.

Discussed significant matters arising from completed internal audits with the Chief Internal Auditor, management and the external auditors.

Assessed management’s response to significant audit findings, recommendations and notable control weaknesses, including potential improvements
and agreed actions.

Reviewed significant legal matters with Shell’s Legal Director.

Considered the oil and gas reserves control framework.

Reviewed Shell’s information risk management.

Reviewed Shell’s tax function, key tax risks and Shell’s approach to the evolving area of tax transparency.

Financial Reporting

Reviewed Shell’s accounting policies and practices, including compliance with accounting and reporting standards.

Assessed the appropriateness of key 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.

Reviewed Shell’s policies with respect to earnings releases; financial performance information and earnings guidance; and significant financial
reporting matters.

Reviewed Shell’s policies with respect to oil and gas reserves accounting and reporting including the outcome of the oil and gas reserves
booking/debooking process.

Reviewed the internal controls for 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.

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 and reported the results to the Board.

Reviewed and updated the AC’s Terms of Reference.

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.

Internal Audit

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.

External Audit

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 of EY.

Reviewed the Company’s representation letter prior to signing by management.

Assessed the performance, objectivity and effectiveness of EY, the audit process, the quality of the audit, EY’s handling of key judgements, and EY’s response to
questions from the AC

Recommended to the Board that the reappointment of EY be put to the Company’s shareholders for approval at the AGM.

Committee Activity Key:

Annually

Quarterly

Periodically

149

Shell Annual Report and Accounts 2020GovernanceAUDIT COMMITTEE REPORT continued

SIGNIFICANT ACCOUNTING AND REPORTING CONSIDERATIONS
The AC assessed the following significant accounting and reporting areas, including those related to Shell’s 2020 Consolidated Financial Statements.
The AC was satisfied with how each of the areas 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 accounting and reporting areas

Subject

Issue

How the AC addressed the issue

IMPAIRMENTS AND
IMPAIRMENT REVERSALS

See Notes 2, 7, 9 and 8 to
the “Consolidated Financial
Statements” on pages 221-229
and 233-238

The carrying amount of an asset should be tested for impairment
or impairment reversal whenever events or changes in
circumstances indicate that the carrying amount for that
asset may have changed, such as a change in the outlook
for commodity prices and refining margin assumptions
and revisions to future activity plans and developments.
On classification as held for sale, the carrying amounts
of property, plant and equipment (PP&E) and intangible
assets are also reviewed.

TAXATION

See Notes 2 and 16 to the
“Consolidated Financial
Statements” on pages 221-229
and 244-246

The determination of tax assets and liabilities requires the
application of judgement as to the ultimate outcome, which
can change over time. In particular, tax exposures and the
recognition of deferred tax assets require management to make
assumptions regarding future profitability and are therefore
inherently uncertain.

A review was carried out to consider the discount rate applied
for provisions due to a lower rate for 30-year US Treasury
bonds. Due to the significant drop in the rate, management
lowered the discount rate for provisions from 3% to 1.75%
in Q2 2020.

As a result of COVID-19 and the macro-environment uncertainty
and volatility, a number of accounting implications were
discussed with the AC throughout 2020, including:
■ impairments and discount rate for provisions (see above);
■ expected credit loss – in particular, the credit risk exposures

in Oil Products, Chemicals and Trading;

■ pension remeasurement – defined benefit pension plan
obligations and assets are remeasured quarterly, with
significant movements in 2020 due to volatility in discount
rates, inflation rates and financial markets; and

■ inventory write-down – due to the significant decline in prices
in March and April 2020, there was a write-down of some of
the Shell Group’s inventory to net realisable value.

Following Shell’s announcement in Q3 2020, the Company
intends to transform its refining portfolio during the energy
transition from 14 sites into six high-value energy and chemicals
parks integrated with Chemicals. Evaluations and decisions are
expected to follow on assets that could result in the recognition
of significant provisions and charges to earnings.

During 2020 a comprehensive portfolio and organisational
review called Reshape was announced which is expected to
result in between 7,000-9,000 redundancies and related
redundancy provisions and charges are expected to be
recognised in 2021.

Reflecting a change in the way Shell’s CEO reviews and
assesses performance, and makes decisions in allocating
resources, management reassessed Shell’s segment reporting.
From January 1, 2020, Shell’s reportable segments consist of:
Upstream, Integrated Gas, Oil Products, Chemicals, and
Corporate.

DISCOUNT RATE FOR
PROVISIONS

See Notes 2 and 18 to the
“Consolidated Financial
Statements” on pages 221-229
and 250

COVID-19 AND MACRO-
ENVIRONMENT

See Notes 2, 7, 8, 9, 12, 17 and 18
to the “Consolidated Financial
Statements” on pages 221-229;
233-238; 240; and 246-250

FUTURE REFINERY PORTFOLIO

See Notes 2 and 18 to the
“Consolidated Financial
Statements” on pages 221-229
and 250

RESHAPE RESTRUCTURING
PROVISIONS

See Notes 2 and 18 to the
“Consolidated Financial
Statements” on pages 221-229
and 250

SEGMENT REPORTING

See Note 4 to the
“Consolidated Financial
Statements” on pages 230-232

150

The AC reviewed the impairment assessments that were
performed each quarter. In doing so, the AC considered the
updated oil and gas price and refining margin outlooks against
market developments and benchmarks. The potential impact
of price sensitivities was reviewed and asset-specific risks were
considered together with the relevant discount rates applied.
The AC also reviewed other significant inputs to impairment
assessments, including the held-for-sale classification and the
potential impacts of climate change and energy transition.
The AC review of impairments covered a significant proportion
of the balance sheet.

The AC considered the uncertain tax positions and discussed
management’s assumptions of future taxable profits, and
evaluated the appropriateness of the recognition of deferred tax
assets and tax liabilities. While recognising that assumptions
regarding future taxable profits are inherently uncertain,
particularly in light of COVID-19 and the pace of economic
recovery in different countries as well as the potential impacts
of climate change and energy transition (for example see
“Future Refinery Portfolio” below), the AC deemed the resulting
assessments of uncertain tax exposures and the recognition of
deferred tax assets and tax liabilities to be reasonable.

The AC reviewed the impact of this change on provisions and
in particular considered the impact on decommissioning and
restoration provisions and corresponding assets.

The AC discussed and challenged the accounting implications
associated with the macro-environment conditions as they
evolved throughout 2020.

The AC discussed the accounting implications of these decisions
and the recognition of: (i) decommissioning and restoration
provisions; (ii) restructuring provisions; (iii) onerous contract
provisions; and (iv) impairment considerations.

The AC considered the accounting implications and whether the
criteria to recognise a restructuring provision as per IAS 37.72
were fulfilled in 2020. The AC agreed with management that the
criteria had not been met by December 31, 2020 and that it was
appropriate that the majority of the restructuring provision be
recognised in 2021.

The AC assessed the appropriateness of the revised reporting
segments for 2020 and the restatement of prior periods to the
new segments.

Shell Annual Report and Accounts 2020Governance
INTERNAL AUDIT
Internal audit remit
The internal audit function is an independent 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.

Annual internal audit plan and assessment of
internal audit’s effectiveness
In 2020, the AC considered and approved the internal audit function’s
annual audit plan, including focus areas for 2020 consisting of: (i) talent
and capability (professional audit development and technical
capabilities); (ii) quality (developing first-line staff competence and clarity
on self-verification and supervisory controls); (iii) alignment (improved
integration of risk management and alignment of assurance processes
across Shell); and (iv) engagement (mainly in the area of keeping staff and
Shell stakeholders engaged and informed on effective risk management
and internal control). The AC assessed the performance of the internal
audit function as effective. The AC also assessed the performance 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 internal audit’s activities, and evaluates
the conformance of these activities with the Chartered Institute of Internal
Auditors’ standards. The Chief Internal Auditor also assesses the efficiency
and effectiveness of internal audit’s activities and identifies opportunities
for improvement. The results of this annual assessment are discussed with
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 is
reviewed with the AC. An independent assessment of internal audit
was conducted in 2018. The next such external assessment is planned
to take place in 2023.

EXTERNAL AUDITOR
Annual external audit plan and assessment of external
audit’s effectiveness
EY reviewed with the AC its audit strategy, scope and plan for the 2020
audit, highlighting any areas which would receive special consideration.
The AC considered the annual audit plan, which included assessing
whether the planned materiality levels and proposed resources to
execute the audit plan were consistent with the audit scope.

EY regularly updated the AC on the status of their procedures and
preliminary findings, providing an opportunity for the AC to monitor the
execution and results of the audit. The AC and EY discussed how risks
to audit quality were addressed, key accounting and audit judgements,
material communications between EY and management and any issues
arising from them. Quarterly, the AC met privately with EY representatives
without management being present in order to encourage open and
transparent feedback from both parties. In addition, the AC Chair meets
separately with the external auditor on a regular basis.

As part of its oversight of the external auditor, the AC annually assesses
the performance and effectiveness of the external auditor and the audit
process, including an assessment of the quality of the audit, the handling
of key judgements by the auditor, and the auditor’s response to questions
from the AC. 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 and discussed: (i) the results of Shell
management’s internal survey relating to EY’s performance over the
financial year 2020, which reflected a broadly comparable performance
to 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; (iv) the forthcoming partner
rotation and measures EY has taken for an orderly transition; and (v) the
AC’s own experiences, including interactions with the external auditor,
throughout the year. 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.

The Committee also considered EY’s quality assurance procedures,
internal quality control procedures, competence and most recent
Transparency Report and opportunities for improvement. Taking into
account the above, the AC is satisfied that EY has continued to provide
a high-quality and effective audit in its fifth year as auditor and has
maintained its independence and objectivity.

As required under UK and US auditing standards, the AC received a
letter from EY confirming its independence. As required by applicable
regulations, EY also informed the AC in writing and discussed with the AC
any significant relationships and matters that may reasonably be thought
to have an impact on its objectivity and independence.

During 2020, there was no review of EY’s audits of Shell’s Consolidated
Financial Statements by the Audit Quality Review (AQR) team of the FRC.
EY reviewed Shell’s correspondence with the FRC relating to the FRC’s
thematic review of a sample of companies’ reporting on the impact of
climate change and the first full year of adoption of IFRS 16, Leases.

Reappointment
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 conducting a
tender process for the appointment of a different independent public
accounting firm. The AC is also responsible for making a recommendation
to the Board for it to put to the Company’s shareholders for approval at
the AGM, to appoint, reappoint or remove the external auditor.

151

Shell Annual Report and Accounts 2020GovernanceAUDIT COMMITTEE REPORT continued

At the AGM in May 2020, the shareholders approved a resolution to
reappoint EY as external auditor until the conclusion of the next AGM.
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 2020 financial year. The AC
acknowledges the UK and Dutch legal requirements relating to
mandatory audit rotation and audit tendering under which the Company
will be required to tender for the audit no later than the 2026 financial
year. The AC regularly reviews auditor performance and may elect to
carry out the tender earlier than the 2026 financial year if it determined
it would be in the interests of the Company’s shareholders to do so.

As 2020 represents the conclusion of EY’s first five-year term, the AC
reflected upon whether conducting an audit tender at this time would be
appropriate. The AC’s consideration took into account: the AC remains
satisfied with the quality and independence of the audit conducted by EY;
given Shell’s size and complexity, any new external auditor would need
a transition period to develop sufficient understanding of the business;
frequent changes of external auditor would be inefficient and could lead
to increased risk and the loss of cumulative knowledge; a change in
auditor would be expected to have a significant impact on Shell, including
on the Finance function; and any change in auditor should be scheduled
to limit operational disruption. The AC also considered that the current
external audit partner, Mr Allister Wilson, who has held this position since
EY’s initial appointment in 2016, is rotating off the Shell audit after the
2020 audit. Mr Gary Donald will serve as the audit partner beginning
with the 2021 audit engagement.

After due consideration the AC determined that it would not be
appropriate to re-tender for the external audit at this time and has
recommended to the Board to propose at the 2021 AGM that EY be
reappointed as the external auditor of the Company for the year ending
December 31, 2021. The recommendation is free from influence by a third
party and there are no contractual obligations that restrict the AC’s ability
to make such a recommendation.

NON-AUDIT SERVICES
The AC maintains an auditor independence policy (AIP) 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. This policy was updated in January 2020
(and became effective in March 2020) to incorporate the Revised
Ethical Standards issued by the FRC in December 2019.

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 because they represent a risk to the external auditor’s
independence. Prohibited services are any that relate to management
decision-taking or any other service that could 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 with
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 AIP, the AC will only approve services to be carried out by
the external auditor or its affiliates where such services do not present
a conflict of interest risk in fact or in appearance. The AC reviews quarterly
reports from management on the audit and non-audit services reported
in accordance with the policy or for which specific prior approval from the
AC is being sought. To the extent that the fee value of an additional audit
service contract does not individually exceed $500,000, no prior
approval of the AC is required. All non-audit services where the fee for an
individual contract exceeds $100,000 (from January 1 to March 15, 2020,
$50,000), including audit-related services, require individual prior
approval by the AC. In each case where the audit or non-audit service
contract does not exceed the relevant threshold, the matter is approved
by management by delegated authority from the AC and is subsequently
presented for approval by the AC at the next quarterly AC meeting. The
AC is mindful of the overall proportion of fees for audit and non-audit
services in determining whether to approve such services.

The scope of the non-audit services contracted with the external auditor
in 2020 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 5.4% and 3.6%,
respectively, of the external auditor’s audit and audit-related
remuneration.

FEES
After due consideration, the AC approved the auditor’s remuneration,
satisfying itself that the level of fees payable in respect of the audit and
non-audit services provided was appropriate and that an effective,
high-quality audit could be conducted for such fees.

Note 28 to the “Consolidated Financial Statements” on page 263
provides details of the auditor’s remuneration.

152

Shell Annual Report and Accounts 2020GovernanceDIRECTORS’ REMUNERATION REPORT

NEIL CARSON
Chair of the Remuneration Committee

“This year we have recognised
the challenges of 2020 faced
by all stakeholders, the resilience
of the business, and supported
achievement of our strategic
ambitions in the longer term.”

2020 pay compared to policy [A]

CEO (€m)

2020 realised pay

2020 policy target

2020 policy maximum

CFO (€m)

2020 realised pay

2020 policy target

2020 policy maximum

Fixed pay
Bonus
LTIP

[A] Policy target and maximum based on the scenarios as published on page 178

Pay outcomes for Executive Directors

Annual bonus: nil.

LTIP: below-target vesting based on three-year performance.

Single-figure outcome: realised pay below target and a single-figure
reduction of 41% for the CEO and 38% for the CFO.

Salary: no increases for 2021.

LTIP: one-off reduction of 2021 award to mitigate risk of
windfall gains.

Shareholding requirement: Executive Directors’ high personal
shareholdings ensured strong alignment with shareholders.

Aligning pay with strategy

LTIP:
■

Increased weighting of energy transition condition in the LTIP to 20%.

Annual bonus:
■ Refreshed annual bonus scorecard to give greater alignment with
updated strategy, with a focus on financial delivery, operational
excellence, progress in the energy transition and safety.

■ Metrics linked to production and LNG liquefaction volumes removed.
■ New Serious Injury and Fatality Frequency (SIF-F) safety metric

replaces Total Recordable Case Frequency (TRCF).

■ Weighting of safety performance measures increased to 15%.
■ Weighting of progress in the energy transition performance

measures of 15%.

THIS REPORT
This Directors’ Remuneration Report for 2020 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. This report consists of two further sections:
■

the Annual Report on Remuneration (describing 2020 remuneration
and the planned implementation of the Directors’ Remuneration Policy
in 2021); and
the Directors’ Remuneration Policy which was approved by
shareholders at the 2020 AGM.

■

Dear Shareholders,

The Remuneration Committee (REMCO) has worked hard in recent years
to engage with shareholders on decision-making and to improve the quality
of our disclosures. At the Annual General Meeting in May 2020, when my
predecessor, Gerald Kleisterlee, stepped down, there was strong support of
the 2019 Annual Report on Remuneration (95.44% in favour) and the 2020
Directors’ Remuneration Policy (92.91% in favour). I have since had the
opportunity to meet a considerable number of shareholders and I value the
openness of these discussions. In such challenging times, these engagements
have helped to shape and inform the REMCO’s decisions.

COVID-19
The COVID-19 pandemic and its consequences have had an enormous
impact in 2020, affecting people around the world and creating
extremely challenging conditions for Shell, the energy sector and wider
industry. Throughout this period, in addition to the steps to reinforce the
financial strength and resilience of its business, Shell’s priorities have been
the well-being and safety of employees, taking care of customers, and
supporting the communities where Shell operates.

153

GovernanceShell Annual Report and Accounts 2020DIRECTORS’ REMUNERATION REPORT continued

For Shell employees, the pandemic and the changes to the way in which
we live and work undoubtedly caused increased anxiety and stress. Shell
has sought to provide support in a variety of ways to help our people
manage their mental health and bolster resilience during these difficult
times. For example; additional leave policies were introduced and flexible
working patterns have been encouraged to support families juggling
home schooling and caring for dependent parents. Cash allowances for
ergonomic office equipment have been provided to those working from
home offices, dining tables and bedrooms around the world.

Given the scale of the challenge facing Shell and the uncertainty about
the speed of recovery, measures to ensure Shell’s financial resilience have
also impacted our people. Where required, Shell has sought to manage
these sensitively, giving employees certainty and choice wherever
possible. For example, towards the start of the pandemic, Shell made the
commitment that there would be no new redundancies for three months.
It then offered voluntary severance programmes giving those with a
preference to leave employment the chance to do so. On pay, base
salaries have been protected, with no cuts or temporary reductions
made to salary.

The deteriorating global economic situation and significant uncertainties
about mid- to longer-term economic conditions meant management and
the Board had to take decisive measures to ensure the financial resilience
of the Company. These included the decision by the Board to not proceed
with the next tranche of the share buyback programme and to rebase the
dividend. We have subsequently announced an intent to increase the
dividend annually, subject to Board approval. These measures have
had a significant effect on our shareholders, and accordingly have
influenced the REMCO’s decision-making in 2020.

Shell has also taken steps to support customers and communities. These
have included providing free food and drinks to health-care professionals
and delivery workers at more than 15,000 retail sites across more than 30
countries. We also delivered care packs to frontline workers and essential
service drivers in six countries. We have donated fuel vouchers, groceries,
hygiene kits and ingredients for sanitising products. In December 2020,
Shell made a $10 million donation to the GAVI vaccine alliance to help
fund the COVAX initiative for equitable global access to COVID-19
vaccines. Further information on Shell’s contribution to COVID-19 relief
efforts will be published in the Shell Sustainability Report in April 2021.

During 2020, many governments introduced packages to support
business and stimulate economies as the pandemic negatively affected
businesses and jobs. Shell recognises that much of this support was
intended to help smaller businesses. Shell has made very limited use
of these support measures, and only where it was considered
appropriate in the local context.

The REMCO has sought to balance two factors in its deliberations.
The first was the response to the headwinds of 2020 and how this has
affected our shareholders, our employees and our relationships with
customers and governments. Against this, the REMCO has had to
weigh the need to achieve Shell’s longer-term strategic ambitions as
it accelerates its transformation into a provider of net-zero emissions
energy products and services.

2020 PERFORMANCE AND REMUNERATION DECISIONS
In 2020, the REMCO was pleased to see improved safety performance,
with a reduction in the number of personal and process safety incidents.
There were no safety-related fatalities in 2020 in Shell-operated ventures,
but there were two COVID-19-related occupational illnesses resulting
in death.

Shell has demonstrated resilience despite facing significant headwinds in
2020. Cash flow from operations (CFFO) has been strong, with the Shell
Group clearly outperforming our competitors. This reflects the work done
over recent years to high-grade the portfolio, the value created from Shell’s
integrated business model, and the disciplined approach to managing
operating expenditure over the year.

For the avoidance of doubt, the Remuneration Committee made no changes
to targets under the in-flight annual bonus or LTIP awards.

The share price performance has, of course, been disappointing. The
mechanisms in the Remuneration Policy mean there is strong alignment of
interests between management and shareholders. The high shareholding
targets of 700% of base salary for the CEO and 500% for the CFO, and
the three-year post-delivery holding requirements attached to the Long-term
Incentive Plan (LTIP) and the 50% portion of the bonus delivered in shares.
This mean that Executive Directors have a large investment in Shell, so the
share price performance over 2020 has had significant personal impact.

2021 base salary
The REMCO decided in April 2020 that in light of the financial challenges
and the need for disciplined management of operating expenses, there
would be no salary increases for Executive Directors and Senior
Management for 2021. There will also be no salary increase for the
majority of Shell employees globally.

Annual bonus
The REMCO had approved a 2020 annual bonus scorecard at its meeting
on January 28, 2020, based on Shell’s operating plan, but this scorecard
was not communicated to participants as within a few weeks it became clear
that the operating plan had been overtaken by events and was no longer
appropriate. It was decided that targets would not be reset, but that
operating priorities would be recast to Care in terms of health, safety and
well-being for our people, Continuity for our business to support customers
and communities and to Cash management to ensure the financial resilience
of Shell. The approved scorecard was set aside and Care, Continuity and
Cash quickly became the new framework to reflect on performance.

It had also become clear that there would be difficult financial outcomes
ahead. Shell announced a change to the financial framework in March 2020.
This included stating that we would not proceed with the next tranche of the
share buyback programme and would be rebasing the dividend. In light of this,
the REMCO decided that there should be no 2020 annual bonuses for
Executive Directors and Senior Management. As no Group scorecard was
being published and there would be no measurement of performance against
the obsolete 2020 scorecard targets other employees were informed that
the Group scorecard outcome for 2020 would be set to zero. This was
communicated in April 2020 to allow employees to make financial plans.

After the depths of the crisis, there has been some recovery in commodity
prices and the business has been resilient in 2020, delivering strong cash
generation relative to our peers and performing strongly on safety. But
taking into account all relevant factors such as business performance,
impairments, dividend changes and the limited use of government
support, the REMCO confirmed that its decision that there should be
no 2020 annual bonuses for Executive Directors and Senior
Management remained appropriate.

Vesting of 2018 LTIP awards
The financial resilience of Shell and work in recent years to high-grade
the portfolio are evident in the vesting outcome of the LTIP, which was
90% out of a maximum of 200% based on relative total shareholder
return (TSR), CFFO growth, return on average capital employed
(ROACE), and absolute free cash flow (FCF).

154

GovernanceShell Annual Report and Accounts 2020 ■ CFFO is measured on a relative basis and Shell ranked first, leading to
a vesting outcome of 50%. Total CFFO was $34 billion in 2020, with
more than $129 billion generated over the three-year vesting period.
In absolute terms, this is more than double the CFFO generated in
2020 by our next closest competitor.

■ On TSR, Shell ranked third in the peer group. Returning $55 billion to

shareholders over three year performance period in the form of dividends
and share buybacks and leading to a vesting outcome of 20%.
■ The ROACE performance metric is assessed on a relative basis
and Shell ranked third, leading to a vesting outcome of 20%.

The challenges of 2020 are clearly evident in the outcome on the FCF,
which is measured on an absolute basis, based on the sum of the annual
operating plan targets over the three year performance period. The
outcome, $87 billion, was below the vesting threshold of $93 billion
(target $102 billion).

In making the final vesting decision, the REMCO considered the overall
performance of Shell during the three-year vesting performance period.
In its deliberations, the REMCO paid particular attention to:
■

the shareholder experience;

■ guidance issued by the investor community and feedback from

shareholders regarding the appropriate pay outcomes for 2020
in light of the COVID-19 pandemic;
the impact of the pandemic on financial outcomes;
the effectiveness of management over the performance period in
developing a high-quality portfolio capable of delivering resilient
cash flows;
the conclusion that there should be no 2020 annual bonuses, which
took into account business performance, impairments, dividend
changes and the limited use of government support;
the Committee assured itself that the limited use of government support
had not impacted the vesting outcomes; and
the impact of the high shareholding requirement, which has helped
align the interests of Executive Directors and shareholders.

■

The REMCO also noted it would mean a 10-year average vesting outcome
of the LTIP of 98%, demonstrating the effectiveness of the current LTIP
structure in delivering alignment with target pay and balancing cyclical
performance. Taking all these factors into account, the REMCO
determined to vest the 2018 LTIP awards at 90% without using discretion.
A formulaic outcome was also applied to the Performance Share Plan
(PSP) made to around 16,500 employees annually.

LTIP vesting

200

150

100

'09-'11

'10-'12

'11-'13

'12-'14

'13-'15

'14-'16

'15-'17

'16-'18

'17-'19

'18-'20

TSR
EPS/FCF

CFFO
Production/ROACE

Target
10 year average:
98% of target

2020 single figure of remuneration
The overall single figure of remuneration for 2020 is €5.8 million for the CEO
and €3.7 million for the CFO. This is one of the lowest CEO single figure
outcomes in ten years.

In finalising these amounts, the REMCO noted the decline in pay outcomes
from the previous year. These, as noted above, were a decline of 41% for the
CEO and 38% for the CFO. The REMCO considered that the decision that
there should be no 2020 annual bonuses appropriately reflected Shell’s
2020 performance outcomes, including the business performance, financial
impairments taken in the year and dividend changes. It also considered the
strong alignment between Executive Director and shareholder interests
through the shareholding requirements. The REMCO also took account of
the pay outcomes for employees, the majority of whom received no 2020
bonus and will not receive a 2021 salary increase. The REMCO was satisfied
that the remuneration policies had operated as intended and that realised
pay in 2020 was appropriate in the context of wider Company performance
and the target pay opportunity as illustrated on pages 174-175.

Ten year CEO single figure outcomes

)
d
n
a
s
u
o
h
t

€
(

30,000

25,000

20,000

15,000

10,000

5,000

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Base Salary and benefits
Bonus
LTI
Pension and tax equalisation

CEO target pay
(see pages 174-175)

2021 LTIP grants
In considering the response to the challenges of 2020, the REMCO
believes it is important to maintain the strong focus on variable pay. The
LTIP is an important element of the pay framework. It has been proven to
provide a robust link between pay and performance over a sustained
period of time. The usual awards are 300% of base salary for the CEO
and 270% for the CFO. When determining award sizes, the REMCO has
been mindful of the risk of windfall gains, given how the decline in the Shell
share price during 2020 affected the number of shares awarded. The
REMCO has sought to consider how shareholders will view this issue,
in light of their disappointment with returns and the rebasing of
the dividend. At the same time, the REMCO has sought to continue
paying competitively in line with the approved remuneration policy.

Taking this into account, the REMCO has decided to make a reduction
to the award level for 2021 as a one-off acknowledgement of the unique
circumstances. Shell’s share price has declined approximately 24% for
RDS A shares and 16% for RDS.A ADS since the 2020 share awards. The
REMCO has decided to reduce the 2021 awards by 50% of the fall in the
share price and has therefore reduced the usual LTIP awards for the CEO
and CFO. On this basis, the REMCO approved an award of 231,679 RDS
A shares for the CEO and 69,972 RDS.A ADS for the CFO on March 5,
2021. The number of shares awarded to the wider employee population
also increased to maintain a competitive pay opportunity.

155

GovernanceShell Annual Report and Accounts 2020

DIRECTORS’ REMUNERATION REPORT continued

Regardless of the number of shares awarded, the REMCO will closely
scrutinise performance over the vesting period to ensure the highest variable
pay outcomes are only achieved for the highest quality of performance
across all significant areas of activity. If required, discretion will be used to
address windfall gains on vesting. This will take into account the effect of any
recovery in demand and energy sector outlook on Shell’s share price as well
as shareholder experience and management’s success in delivering Shell’s
financial performance and strategic ambitions.

The connection to remuneration will strengthen with the updated
strategy. We intend to reflect them in the following ways:
■ As an energy user. Shell has a target to achieve net-zero operational
emissions (Scope 1 and 2) by 2050, in step with society. In the annual
bonus, progress will be linked to performance assessment based on
the greenhouse gas (GHG) intensity of our main business lines and,
from 2021, a new GHG-abatement target.

■ As an energy provider. We have significantly raised our net carbon

The REMCO will use discretion to override formulaic reward outcomes if
they fail to reflect the wider financial or non-financial performance of Shell,
or if management has benefited from a general economic or sectoral
improvement outside their control. The REMCO has a strong track record
of exercising discretion, having used it to adjust the outcome of the
annual bonus in five of the past ten years.

EVOLVING REMUNERATION IN LINE WITH STRATEGY
Turning now to the future, I would like to provide further detail on how
we intend to link pay to Shell’s evolving strategic ambitions.

Powering Progress sets out a strategy to accelerate the transition of our
business to net-zero emissions. Reflecting our evolving priorities, in future we
will place greater focus on measures connected to succeeding in the energy
transition, balanced with the fundamental requirements to deliver financial
success, while operating our assets safely, effectively and to plan.

Safety
Safety remains Shell’s number one priority, and as part of a refresh of Shell’s
safety framework, a new Serious Injury and Fatality Frequency (SIF-F) metric
will replace Total Recordable Case Frequency (TRCF) as the personal safety
metric on the annual bonus scorecard from 2021.

This adjustment is intended to increase attention on the most serious
outcomes, to ensure the focus is on identifying and preventing incidents with
the potential to cause life-altering injuries. The number of Tier 1 and 2 process
safety incidents will be retained as the measure of process safety, with
weighting for safety increasing from 10% to 15% (equally split between
personal and process safety).

Energy transition
Shell has been at the forefront of linking executive pay to progress towards
a lower-carbon future. We set a Net Carbon Footprint (NCF) target that
covers emissions from our customers’ use of our products as well as our own
operational emissions, and have directly linked employee and management
pay to three-year targets aligned with the NCF target. The LTIP energy
transition performance metric includes the short-term targets relating to the
NCF target and a number of other strategic business transformation targets
that measure Shell’s progress towards achieving our longer-term ambitions.

These measures extend the link between pay and the energy transition well
beyond the linkage provided by short-term sustainability metrics that focus
on operations. When we introduced these measures, Shell was the only
major energy company to link long-term incentive pay in this way. We
believe we are still among the front-runners in terms of the breadth and
detail of our energy transition pay metrics.

Our original targets were calibrated to keep Shell in step with a society
working to meet the goals of the 2015 Paris Agreement and to restrict the
rise in global average temperature this century to well below two degrees
Celsius above pre-industrial levels. But societal views have evolved rapidly
and large parts of society have now set their sights on the most ambitious
goal in the Paris Agreement: to limit the global temperature rise to
1.5 degrees Celsius. Shell recognised this, and in 2020 announced an
updated target to be a net-zero emissions energy business by 2050,
in step with society.

156

intensity target in step with achieving a 1.5 degrees Celsius future. We
will measure this using our NCF metric. Meaningful carbon intensity
reductions will require significant business transformations with
longer timescales and are therefore best reflected in the LTIP. We are
increasing the weighting of the energy transition condition to account
for 20% of the LTIP (up from 10%), putting it on the same level as the
financial measures (TSR, CFFO, FCF and ROACE), which will each
account for 20% of the LTIP.

■ As an energy partner. In our role as an energy supplier, we will work
with sectors which use energy to help them identify and implement
ways to decarbonise and make progress towards a net-zero emissions
future. New performance measures will need to be developed in this
area before it can be linked to remuneration. The REMCO will assess
such performance measures, as is appropriate, in the future.

The connections between remuneration and progress in the energy
transition received good support from shareholders during our
engagements. These measures will continue to mature as we implement
the updated strategy. I also know that many of you are keen to know
how we are progressing on the existing energy transition condition
and further information is provided on pages 164-165.

Other changes to 2021 remuneration
To ensure that Shell’s remuneration structures evolve in line with the recent
strategy developments, the following changes will also take place for the
2021 annual bonus scorecard:
■ The weighting of the CFFO metric will increase from 30% to 35%,
reflecting our commitment to the updated financial framework.
■ The strength of Shell is as an integrated energy business and our
updated strategy and portfolio choices emphasise operational
excellence and the delivery of value rather than volume. To reflect this,
we will retire the existing production and LNG liquefaction volume
measures. We will introduce a new asset management excellence
measure, based on Upstream controllable availability, midstream
availability and downstream availability. This is designed to encourage
an ongoing focus on running our assets effectively and to schedule.
Operational excellence will always be fundamental to our success,
but its weighting will decrease from 50% of the scorecard to 35%
to allow for increased weightings on CFFO, progress in the energy
transition and safety.

■ We will further emphasise the importance of achieving progress in the
energy transition by making this a separate section of our scorecard.
Performance will be based on GHG-emissions-intensity targets and
assessments of the delivery of GHG-abatement projects that support
our net-zero operational emissions target. These targets will account
for 15% of the scorecard.

LOOKING AHEAD
The year ahead promises to be another busy one as we look to continue
to enhance our alignment of pay with the updated strategy. I look forward
to continuing to engage with shareholders in the coming months and I
thank you for your continued support.

NEIL CARSON
Chair of the Remuneration Committee
March 10, 2021

GovernanceShell Annual Report and Accounts 2020ANNUAL REPORT ON REMUNERATION

The Annual Report on Remuneration sets out:

■

the REMCO’s responsibilities and activities, page 157;
remuneration at a glance, page 158;

■ Directors’ remuneration for 2020, page 159; and
■

the statement of the planned implementation of policy
in 2021, page 170.

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 114-120; and the REMCO meeting
attendance is set out below:

Committee Member

Member since

Neil Carson (Chair)

June 1, 2019

Gerard Kleisterlee [A]

May 21, 2014

Euleen Goh [B]

May 20, 2020

Catherine Hughes

July 26, 2017

Sir Nigel Sheinwald [C] May 24, 2017

Gerrit Zalm [D]

May 21, 2014

Maximum
possible
meetings

Number of
meetings
attended

% of
meetings
attended

100%

80%

[A] Gerard Kleisterlee retired from Shell after the 2020 Annual General Meeting, held on May

19, 2020.

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 2020, the REMCO met five times and its activities included:
■ carefully deliberating on pay quantum for the CEO;
■ determining vesting of the 2017 LTIP award for Senior Management;
■ deciding on 2019 annual bonus outcome, 2020 base salaries, 2020

target bonuses and 2020 LTIP awards for Senior Management;
■ developing the Directors’ Remuneration Policy in preparation for

the 2020 AGM vote, in consultation with shareholders;

■ approving the 2019 Directors’ Remuneration Report;
■

setting 2020 annual bonus and LTIP performance measures and
targets and subsequently making the decision that there should
be no annual bonus in 2020;

■ considering matters related to business performance, the implications

of the COVID-19 pandemic and its impact on employees, and
determining that no salary increases would apply for 2021 for
Executive Directors and Senior Management;

■ considering matters relating to the updated strategy and accelerated

transition of our business to net-zero emissions and the potential
implications for 2021 annual bonus and LTIP performance measures
and targets; and

■ monitoring external developments and assessing the impact on the

Directors’ Remuneration Policy.

In 2020, the REMCO reviewed benchmarking data and analysis on
executive pay market developments that were prepared by Shell’s
internal HR function. The REMCO has not incurred external
remuneration adviser fees.

[B] Euleen Goh was appointed to the REMCO with effect from May 20, 2020.
[C] Sir Nigel Sheinwald stood down as a member of the REMCO with effect from May 20, 2020.
[D] Gerrit Zalm was unable to attend the December 2020 meeting due to an agenda clash

arising from a late rescheduling of the meeting.

PRINCIPLES
The principles that underpin the REMCO’s approach to executive
remuneration are set out on page 173.

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

The REMCO is also responsible 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. When setting the policy for Executive Director remuneration, the
REMCO reviews and considers workforce remuneration and related policies,
and how incentives and rewards align with culture.

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, Chief Executive Officer;
■ Ronan Cassidy, Chief Human Resources and Corporate Officer and

Secretary to the REMCO; and

■ Stephanie Boyde, Executive Vice President Performance and Reward.

The REMCO considered the provisions of the UK Corporate Governance
code, and in deciding 2020 pay outcomes it has sought to reflect the
principles of clarity, simplicity, risk management, predictability,
proportionality and alignment with culture.

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 with Shell’s operating plan and
strategic ambitions. The same measures apply to Executive Directors and
Senior Management and to a significantly broader employee base. This
provides alignment throughout the organisation with 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. (Exceptionally in 2020,
updates on the annual bonus scorecard were not published, this is
discussed further on page 154.) 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, approved at the 2020 AGM, 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 to ensure proportionality,
the powers of the REMCO to apply malus and clawback and make
discretionary adjustments to variable pay outcomes were expanded, with
the intention that the REMCO will use discretion to ensure the highest pay
outcomes are delivered only for outstanding performance.

157

GovernanceShell Annual Report and Accounts 2020
ANNUAL REPORT ON REMUNERATION continued

REMUNERATION AT A GLANCE

2020

FIXED PAY AND SHAREHOLDING

ANNUAL BONUS

LONG-TERM INCENTIVE PLAN

Base salary

2020 annual bonus

2018 – 2020 LTIP vesting outcome

€1,588,000
Ben van Beurden (CEO)

€1,035,000
Jessica Uhl (CFO)

The REMCO determined that there should
be no 2020 annual bonuses.

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 December 31, 2020

700%
CEO

500%
CFO (from 400%)

Actual levels, % of base salary at December 31, 2020

637%
CEO

333%
CFO

2021

€3,697,574
CEO (49% reduction
from prior year)

$2,377,494
CFO (45% reduction
from prior year)

Vesting outcome
Measures Outcome

TSR

CFFO

ROACE
growth

FCF

1 2 3 4 5

Vesting

20%

50%

20%

90%
(out of a 200% maximum)

Shares are subject to a three-year holding period
which extends beyond an Executive Director’s tenure

FIXED PAY AND SHAREHOLDING

ANNUAL BONUS

LONG-TERM INCENTIVE PLAN

Target % of base salary

Target awards % of base salary

€1,035,000
CFO

Base salary

€1,588,000
CEO
No change from 2020

Pension
No change from 2020

Benefits
No change from 2020

Shareholding
Target levels, % of base salary 2021

700%
CEO

500%
CFO

Actual levels, % of base salary March 5, 2021

919%
CEO

526%
CFO

158

Target

125%
CEO

Maximum

250%
CEO

120%
CFO

240%
CFO

Scorecard architecture

15%

35%

Target – policy

300%
CEO

2021 adjusted awards

264.5%
CEO

Maximum

529%
CEO

270%
CFO

248.5%
CFO

497%
CFO

35%

Performance conditions

20%

Cash flow from operations
(weighted 35%)
Operational excellence
(Asset management excellence 25%,
Project delivery excellence 10%)

Progress in the energy transition
(GHG abatement 5%, GHG management 10%)
Safety
(SIF-F 7.5%, Tier 1 & 2 Process Safety 7.5%)

TSR

ROACE

CFFO

20%

FCF

Energy
transition

GovernanceShell Annual Report and Accounts 2020DIRECTORS’ REMUNERATION FOR 2020

Single total figure of remuneration for Non-executive Directors (audited)

Dick Boer [B]

Neil Carson [C]

Ann Godbehere

Euleen Goh

Charles O. Holliday [D]

Catherine J. Hughes

Martina Hund-Mejean [E]

Gerard Kleisterlee [F]

Sir Andrew Mackenzie [G]

Abraham Schot [H]

Roberto Setubal [I]

Sir Nigel Sheinwald

Linda G. Stuntz [J]

Gerrit Zalm

2020

184

206

201

850

180

184

177

Fees

2019

–

178

201

850

200

–

242

–

190

187

189

177

Taxable benefits [A]

2020

2019

2020

–

184

206

201

919

180

184

177

€ thousand

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 because for most Non-executive Directors this is
international travel and hence would not be taxable in the UK.

[B] Appointed as a Director with effect from May 20, 2020.
[C] Appointed as a Director with effect from June 1, 2019.
[D] Including the use of a Shell-provided apartment while in the Hague (2020: €68,942, 2019: €70,624)
[E] Appointed as a Director with effect from May 20, 2020.
[F] Stepped down as a Director with effect from May 20, 2020.
[G] Appointed as a Director with effect from October 1, 2020.
[H] Appointed as a Director with effect from October 1, 2020.
[I] Stepped down as a Director with effect from May 20, 2020.
[J] Stepped down as a Director with effect from May 20, 2020.

Single total figure of remuneration for Executive Directors (audited)

Salaries [A]

Taxable benefits [B]

Pension [C]

Total fixed remuneration

Annual bonus [D]

LTIP [E]

Total variable remuneration

Total remuneration

in dollars

in sterling

Ben van Beurden

€ thousand

Jessica Uhl

2020

1,588

540

2,144

–

3,698

5,841

6,671

5,197

2019

1,557

395

1,972

800

7,191

7,991

9,963

11,155

8,746

2020

1,035

418

288

1,741

–

1,993

3,734

4,264

3,322

2019

1,015

326

261

1,602

500

3,903

4,403

6,005

6,724

5,271

[A] As disclosed in the 2019 Directors’ Remuneration Report, the REMCO set Ben van Beurden’s base salary for 2020 at €1,588,000 (+2.0% compared with 2019) effective from January 1, 2020,

and Jessica Uhl’s base salary at €1,035,000 (+2.0% compared with 2019) effective from January 1, 2020.

[B] For Ben van Beurden these include motoring allowance (€14,400) and transport between home and the office (€1,150). Jessica Uhl’s benefits include tax equalisation (€392,250), medical

insurance (€14,921), transport between home and the office (€10,369) and tax return services (€430). Jessica Uhl’s benefits 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. Jessica Uhl’s benefits also include tax equalisation of employer contributions to benefits and certain US social taxes that are taxable in
the Netherlands. For 2020, the presentation of the single total figure of remuneration has changed to include tax equalisation costs within taxable benefits. The 2019 taxable benefits has been
adjusted on this basis and therefore differs from the value presented in the 2019 Annual Report.

[C] For Ben van Beurden, the amount reported for pension consists of a net pay defined contribution amount of €402,825. The amount to be reported for his defined benefit pension accrual is

€137,479 calculated in accordance with UK reporting requirements. For Jessica Uhl, the amount reported for pension consists of a defined contribution amount of €103,486 and a defined benefit
pension accrual €184,452.

[D] 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.

[E] Remuneration for performance periods of more than one year, comprising the value of released LTIP awards. The amounts reported for 2020 relate to the 2018 LTIP award, which vested on March
5, 2021, at the market price of €17.85 and $43.72 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. Share price depreciation accounted for -€1,620,234 on the LTIP for Ben van Beurden and -$1,058,065 on the LTIP for Jessica Uhl.

159

GovernanceShell Annual Report and Accounts 2020ANNUAL REPORT ON REMUNERATION continued

Notes to the single total figure of remuneration
for Executive Directors table (audited)
Annual bonus
As disclosed on pages 174-175, the annual bonus is intended to
reward delivery of short-term operational targets as derived from
Shell’s operating plan.

For reference, the redundant 2020 annual bonus framework is set
out below. Full information of Shell's performance against our Key
Performance Indicators can be found on pages 43-45.

2020 annual bonus framework (not used for
performance assessment)

Measures [A]

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)

Weight (% of
scorecard)

30%

50%

12.5%

6.25%

20%

[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.

Determination of the 2020 annual bonus
The REMCO had approved a 2020 annual bonus scorecard at its meeting
on January 28, 2020, based on Shell’s operating plan, which ultimately
was not communicated or shared with participants. In March, as the
implications of the pandemic became increasingly apparent, it became
clear that the operating plan and 2020 scorecard had been overtaken by
events and were no longer appropriate. It was decided that targets would
not be reset but operating priorities would be recast to Care in terms of
health, safety and well-being for our people, Continuity for our business to
support customers and communities, and Cash management to ensure the
financial resilience of Shell. The approved scorecard was set aside and
there was no review of the targets or performance against it (or any
other targets for the purposes of calculating bonus entitlements). Care,
Continuity and Cash quickly became the new framework to reflect
on performance.

It had also become clear that there would be difficult financial outcomes
ahead. In March 2020, Shell announced a change to the financial
framework. This included stating that we would not be proceeding with
the next tranche of the share buyback programme and would be rebasing
the dividend. In light of this, the REMCO decided there would be no 2020
annual bonuses for Executive Directors and Senior Management. As no
Group scorecard was being published, employees were informed that
the Group scorecard outcome for 2020 would be set to zero. This was
communicated in April 2020 to allow employees to make financial plans.

After the depths of the crisis, there has been some recovery in commodity
prices and the business has been resilient in 2020, delivering strong cash
generation relative to our peers and performing strongly on safety. But
we are far from the financial success in 2020 that would allow an annual
bonus. Taking into account all the relevant factors such as business
performance, impairments, dividend changes, and the limited use of
government support, the REMCO confirmed that its decision that there
should be no 2020 annual bonuses remained appropriate.

160

GovernanceShell Annual Report and Accounts 2020LTIP Vesting
In 2018, Ben van Beurden was granted a conditional LTIP award of 340%
(maximum 680%) of base salary and Jessica Uhl an award of 270%
(maximum 540%), excluding share price movement and dividends.

2018 LTIP vesting outcome – performance metrics

Shell

Comparator oil majors

In making the vesting decision, the REMCO considered Shell’s
performance over the three-year vesting period.

Relative CFFO
growth

25%

50%

Measures

Target

Outcome

Vesting

There was strong performance on free cash flow (FCF) in 2018, but Shell
failed to meet plan targets in 2019 and 2020, and the overall
performance outcome over three years fell below threshold.

The REMCO was encouraged by the resilience that Shell displayed over
the course of 2020, including its ability to deliver positive cash flows
despite very challenging headwinds. Shell ranked first among our
competitors in relative CFFO growth. Total CFFO was $34 billion in 2020,
with more than $129 billion generated over the three-year vesting period.
In absolute terms, this is more than double the CFFO generated in 2020
by our next closest competitor. On TSR, Shell ranked third in the
comparator group, with $55 billion distributed to shareholders in the form
of dividends and share buybacks. The work done in recent years to focus
on capital discipline and get the portfolio to the right size was also
reflected in the outcome for return on average capital employed
(ROACE), where Shell ranked third among the comparators.

The REMCO also considered the change in share price between award
and vesting, and the impact this had on the outcome. The REMCO also
reflected on the overall single outcome for the CEO and decided that
no adjustment to the vesting outcomes was required.

Relative TSR

25%

20%

Relative ROACE
growth

25%

20%

Absolute FCF
■ Maximum $117bn
■ Target $102bn
■ Threshold $93bn

25%

26.4

39.4

20.8

2018 2019 2020

Accordingly, the REMCO determined that the LTIP should vest at
90% without the use of discretion. This is illustrated opposite.

Total

100%

90%
(out of a 200% maximum)

The CEO’s and CFO’s vested awards are subject to a further three-year
holding period which extends beyond Executive Director tenure.

2018 LTIP vesting outcome

CEO

Vesting outcome: [A]

190,001 x 90% =
171,001 RDS A shares
(€4,672,602)

Change in
share price: [B]

171,001 x -€9.475
(-€1,620,234)

Accrued dividends: [C]

36,146 RDS A shares
(€645,206)

Total LTIP Vesting: [C][D]

207,147 RDS A shares
(€3,697,574)
49% reduction
from prior year

CFO

Vesting outcome: [A]

49,857 x 90% =
44,871 RDS.A ADS
($3,019,818)

Change in
share price: [B]

44,871 x -$23.58
(-$1,058,058)

Accrued dividends: [C]

9,509 RDS.A ADS
($415,733)

Total LTIP Vesting: [C][D]

54,380 RDS.A ADS
($2,377,494)
45% reduction
from prior year

[A] Based on the share price at award of €27.325 for CEO and $67.30 for CFO.
[B] Calculated as the opening share price March 5, 2021 minus the share price at the date of award for the CEO €17.85 - €27.325 = -€9.475 and for the CFO $43.72 - $67.30 = -$23.58
[C] Based on the opening share price on the date of vesting, March 5, 2021 of €17.85 for CEO and $43.72 for CFO.
[D] Vested shares are subject to a three-year holding period.

161

GovernanceShell Annual Report and Accounts 2020

ANNUAL REPORT ON REMUNERATION continued

In determining the final pay outcomes, the REMCO also considered the personal performance of the Executive Directors.

Personal performance 2018 – 2020

Key Goals

Ben van Beurden

Deliver a
world-class
investment case

Difficult times have demanded strong leadership, which the CEO has provided.

In the face of unprecedented headwinds, Shell has shown impressive resilience.
This reflects the value of the integrated portfolio and disciplined execution during
2020. The global economic conditions have required decisive action, including
the suspension of the share buyback programme and rebasing of the dividend.
Shareholder returns are fundamental to the investment case at Shell and the REMCO
pays close attention to this when considering performance. These were not easy
decisions to make, but the Board believes they were necessary to create resilience,
and in combination with other cost preservation measures have contributed to
making Shell stronger operationally and financially. The REMCO recognises the
central role of the CEO in providing the direction and clarity of purpose that
has guided the Company and underpinned this resilience during a challenging
12 months.

Thrive in the
energy transition

The CEO has continued to lead Shell’s NCF ambition by driving internal plans and
targets, and by integrating business and investment decisions with Shell’s longer-term
ambitions.

In 2020, Shell announced an updated strategic ambition to be a net-zero emissions
energy business by 2050, in step with society. It concluded a comprehensive strategy
update on how Shell intends to decarbonise energy customers while running legacy
businesses for value rather than volume. The design of the new organisation (Project
Reshape) necessary to support this strategy update was completed. These activities
culminated in the updated strategy announced in February 2021. The REMCO
acknowledges the fundamental importance of the CEO using these activities to
position Shell for long-term success in the energy transition.

Externally, the CEO has played a leading role in the energy transition debate
through such initiatives as the first joint statement with institutional shareholders,
encouraging other companies to adopt the NCF methodology. 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.

Jessica Uhl

The challenges of 2020 have required strong strategic
management of Shell’s financial framework, and the CFO has
played a critical role in ensuring the resilience of Shell during
a highly volatile and unpredictable period.

Key deliverables included the strong focus on cost discipline
and the development of a renewed cash allocation framework
which prioritises: capex and progressive dividend growth; net
debt reduction (targeting AA credit metrics in the near term);
additional shareholder distributions; and growth capex.

In terms of broader Company performance, the REMCO
recognised the strategic insight that the CFO has provided in
terms of effective capital allocation, and portfolio and
investment decisions that improve Shell’s world-class
investment case.

Over the performance period, the CFO has further matured
the internal management systems relating to carbon dioxide
(CO2) in decisions about portfolio, planning and resource
allocation. The CFO led the publication of the Shell Energy
Transition Report, which is aligned with the recommendations
of the Task Force on Climate-related Financial Disclosures
(TCFD). The report 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.

Strengthen
societal licence to
operate

During 2020, Shell’s priority has been the health and safety of our staff and
customers. The REMCO recognises the leadership that the CEO has displayed
in setting a tone of care and well-being across the organisation in 2020.

In terms of HSSE leadership, there was a notable improvement in both personal
and process safety in 2020. The number of fatalities under Shell operational
control was zero.

In 2019, Shell published the Industry Associations Climate Review, which
assesses alignment with 19 industry associations on climate-related policy.

The CFO maintained a strong financial disclosure, reporting
and control framework.

In 2020, Shell published its second Tax Contribution Report,
continuing to provide greater transparency around Shell’s
approach to paying taxes to governments. Over the
performance period, the CFO also played a key role in
Shell’s endorsement of the responsible tax principles set
out by the non-profit organisation, The B Team.

In finalising its remuneration decisions for 2020, the REMCO considered
a range of factors, including:
■ Shell’s performance in 2020 and over the LTIP performance period

2018-2020;

■

■ potential risk adjustment considerations, including safety, ethics and
compliance and feedback from the Audit Committee and the Safety,
Environment and Sustainability Committee;
the actions taken to protect value, strengthen the balance sheet and
preserve cash;
the final LTIP vesting outcome;
the internal relativity of remuneration compared with the variable pay
outcomes for the general workforce;

■

The REMCO considered the single-figure outcomes for the CEO and CFO.
It noted that the overall remuneration outcomes were 41% (CEO) and 38%
(CFO) lower than in 2019. The REMCO was satisfied that these single-
figure outcomes represented a fair level of remuneration. In deciding this,
the REMCO took account of the challenging global economic conditions
in 2020, and the steps necessary to reinforce the financial strength and
resilience of Shell. It also considered the strong and positive leadership
shown in setting out a clear strategic direction for Shell and ensuring it
was supported by the necessary organisational design.

162

GovernanceShell Annual Report and Accounts 2020 ■ government support received in 2020. Most of this support was

automatic, such as around SGD 55 million under the Singaporean Job
Support Scheme and £20 million of business rate relief in the UK. Relief
which Shell has applied for is very limited, with the most notable being
CAD 34 million received under the Canadian Emergency Wage
Subsidy scheme. Careful consideration was given prior to making an
application as to whether it was appropriate to take this support. We
are comfortable that doing so was appropriate from a Canadian
perspective and consistent with doing all that we could to protect jobs
and care for employees in the worst phase of the crisis, many of whom
work in small communities. The REMCO reviewed and was satisfied
that this support had no impact on the mathematical vesting outcome
of the LTIP;
the alignment of the Executive Directors with the shareholder
experience through their high shareholding requirements;
the decision that there should be no 2020 annual bonuses, which took
into account business performance, impairments, dividend changes
and the use of limited government support;
feedback from shareholders regarding the appropriate pay outcomes
in light of the COVID-19 pandemic; and
the personal performance of the Executive Directors.

■

After reflecting on the above factors, the REMCO was satisfied that the
remuneration policies had operated as intended.

Pension
Ben van Beurden’s pension arrangements comprise a defined benefit plan
with a maximum pensionable salary of €98,993; and a net pay defined
contribution pension plan with a 2020 employer contribution of 27%
of salary in excess of €98,993. 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 2020.

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 opposite.

Shell Netherlands Pension Stichting net pay
defined contribution ladder

Age

Employer contribution

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%

(2020 rate for Ben van Beurden)

27.02%

30.13%

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, which was 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 2020 under the former. Around 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 with 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.

At December 31, 2020, the average employer contribution rate for
Netherlands employees who participate in the net pay defined
contribution pension arrangement on the same terms as Ben van Beurden
was 20%. For reference, in the UK, the average employer contribution
rate to the Shell UK defined contribution plan is 20%.

The REMCO believes these arrangements are aligned with corporate
governance developments in the UK which emphasise the desirability
of Executive Directors’ pension arrangements being the same as those
for the general employee population.

Scheme interests awarded in 2020

Scheme interests awarded to Executive Directors in 2020 (audited)

Scheme interest type

LTIP

Type of interest
awarded

End of
performance
period

Performance
shares

December 31,
2022

Target award [A]

Ben van Beurden: 200,589 A shares, equivalent
to 3.0 x base salary or €4,764,000. Jessica Uhl:
59,062 A ADS shares, equivalent to 2.7 x base
salary or €2,794,500

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 the date of grant, January 31, 2020, for A shares of €23.75. The award for Jessica Uhl was based on the closing market

price on the date of grant, January 31, 2020, for A ADSs of $52.15.

[B] Minimum performance relates to the lowest level of achievement, for which no reward is given.

163

GovernanceShell Annual Report and Accounts 2020ANNUAL REPORT ON REMUNERATION continued

The measures and weightings applying to LTIP awards made in 2020
were: energy transition (10%), FCF (22.5%), TSR (22.5%), ROACE growth
(22.5%) and growth in cash flow from operating activities (22.5%).

Absolute measures
Energy transition
The energy transition condition supports delivery of Shell’s Net Carbon
Footprint (NCF) target.

Targets have been set for each element. Progress in the energy transition
is not expected to be linear, because it will reflect the pace of change of
society as a whole and the speed at which Shell progresses its strategic
business objectives. As a result, targets have been set as ranges. These
targets are commercially sensitive, so they will not be disclosed until the
end of the performance period (or until they are no longer considered to
be commercially sensitive). An update on our progress in relation to the
measures is provided on page 165.

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. They are as follows:
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: all decarbonisation scenarios

recognise that a key way to cut greenhouse gas emissions is to increase
electricity use and decarbonise electricity by shifting to renewables
and gas-fired power generation. Our ambition to grow our power
business is based on selective investments in generation, and in
business models based on reselling power generated by others.

■ Advanced biofuels and alternative fuels technology: biofuels are expected
to play a valuable role in the changing energy mix and are likely to be one
of 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.

■ 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.

Operation of energy transition measures in the 2020 LTIP

The vesting outcome for the part of the award weighted to the energy
transition condition ranges from 0% to 200% of award. The REMCO, at its
sole discretion, will determine vesting outcomes after considering 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, in step with society’s drive to
meet the goals of the Paris Agreement. The starting point for determining the
vesting outcome will be seeing 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. 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 importance to overall performance in relation to the
NCF than the other three elements. The REMCO believes this approach
is appropriate, given 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.

NCF reduction target
■ Measured against 2016 base year (79
grams of CO2 equivalent per megajoule)

2020 – 2022 target
■ 3-4% reduction

Drive future NCF reduction
■ Growing our power business
■ Advanced biofuels technology
■ Systems to capture and absorb carbon

Energy transition vesting (basis for the Remuneration Committee’s decision) [A]

Accelerate
the transition
to net-zero
emissions

4/4 targets
200%

3/4 targets
150%

1/4 targets
40%

2/4 targets
100%

■ 10% weighting
■ 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%, and 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, it may increase the weighting of NCF relative to the other performance conditions in making its vesting decision. Any use of discretion will be disclosed
and explained.

164

GovernanceShell Annual Report and Accounts 2020

FCF
The FCF performance condition supports the delivery of our cash flow
priorities, which are 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 that 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 the 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 are based on 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 US 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 43 because there is no adjustment for after-tax
interest expense; and

■ growth in cash flow from operating activities.

■

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
ranking fourth or fifth equals 0% vesting for the element weighted
to that metric.

■

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.

Performance update on energy transition metric
Lagging indicator – NCF
Performance measurement is subject to third-party limited assurance.
For the year ended December 31, 2020, NCF had reduced to 75 grams
of CO2 equivalent per megajoule, a 5% reduction against the baseline.

to be commercially sensitive). The REMCO, though, is committed to
sharing progress. To date we are seeing positive progress across a
range of indicators of future NCF reduction. Specific examples include:
■ developments towards growing a material power business, such as
the acquisition of ERM Ltd in Australia and investment in renewable
energy projects such as CrossWind; and

■ progress on the development of systems to capture and absorb carbon,
for example the Northern Lights CCS joint venture with our partners,
and nature-based solutions projects such as the acquisition of Select
Carbon and Climate Bridge.

While many of these initiatives will take time to scale, they represent
important steps towards building the organisational capacity
and commercial value chains that will lead to future large-scale
carbon reductions.

FCF
2019 LTIP award
At December 31, 2020, FCF performance is below target, with below-
threshold outcomes for 2019 of $26.4 billion (target $35 billion) and for
2020 of $20.8 billion (target $38 billion). As one year of FCF performance
remains, and 77.5% of the award is subject to relative and energy
transition performance conditions, this does not reflect the potential
vesting of the award.

2020 LTIP award
At December 31, 2020, FCF performance, $20.8 billion for 2020, is below
threshold (target $38 billion). As two years of FCF performance remain,
and 77.5% of the award is subject to relative and energy transition
performance conditions, this does not reflect the potential vesting
of the award.

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 500%. The shareholding requirement
extends post-employment, such that Executive Directors 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. There is a Company-sponsored nominee account
which allows for restrictions to be applied on the sale or transfer of shares
that are subject to holding periods and individual shareholding
requirements. The restrictions remain in force beyond the Executive
Director’s employment.

Only unfettered shares count. Shares delivered that are subject to holding
requirements also count towards the guidelines. The values of shares
counting towards the shareholding guideline (as a percentage of base
salary) for the CEO and CFO were 919% and 526%, respectively, at
March 5, 2021. Non-executive Directors are encouraged to hold shares
with a value equivalent to 100% of their fixed annual fee and to maintain
that holding during their tenure.

Executive Directors’ shareholding (audited)

Shareholding guideline
(% of base salary)

Value of shares
counting towards
guideline (% of base
salary at December
31, 2020) [A]

Leading indicators – power, advanced biofuels and systems
to capture and absorb carbon
These targets are commercially sensitive, so they will not be disclosed until
the end of the performance period (or until they are no longer considered

Ben van Beurden

Jessica Uhl

700%

500%

637%

333%

[A] Following the vesting of the 2018 LTIP on March 5, 2021 their respective holdings are Ben van

Beurden 919% and Jessica Uhl 526%.

165

GovernanceShell Annual Report and Accounts 2020ANNUAL REPORT ON REMUNERATION continued

Directors’ share interests
The interests (in shares of the Company or calculated equivalents) of the
Directors in office during 2020, including any interests of their connected
persons, are set out in the table below.

The only changes to Director’s shareholdings as at March 5, 2021
are that:
■ Sir Andrew Mackenzie acquired 7,396 RDS B shares on February 15, 2021;
■ on February 12, 2021, Bram Shot purchased (i) an additional 2,500

Directors’ share interests (audited)

January 1, 2020

December 31, 2020

A shares

B shares

A shares

B shares

Executive Directors [A]

Ben van Beurden

647,426

Jessica Uhl

116,168 [C]

Non-executive Directors

10,000 [E]

16,000

Dick Boer

Neil Carson

Ann Godbehere

Euleen Goh

Charles O. Holliday

–

866,433 [B]

240,557 [D]

10,000

16,000

–

4,700 [F]

12,895

50,000 [H]

–

10,000 [G]

12,895

50,000 [H]

Catherine J. Hughes

4,080

51,904 [I]

4,080

51,904 [I]

Martina Hund-Mejean

Gerard Kleisterlee

Sir Andrew Mackenzie

Abraham Schot [M]

–

5,254

–

Roberto Setubal

15,400 [N]

–

1,578 [J]

–

20,000 [K]

15,254 [L]

–

15,400 [O]

10,048

–

1,124

12,400 [Q]

–

1,124

12,400 [P]

–

Sir Nigel Sheinwald

Linda G. Stuntz

Gerrit Zalm

certificates Royal Dutch Shell A Turbo Long 8,2 BNP Paribas Markets
(ISIN: NL0009558519) at a price of €7.69 per certificate; and (ii) an
additional 50 Leonteq Express Euro Denominated Certificates on ING,
Royal Dutch Shell, Unilever (ISIN: CH0470808913), with a nominal
value of €1,000 each at price of €715 per certificate; and
following the vesting of the 2018 LTIP award, Ben van Beurden’s share
interests increased by 112,100 RDS A shares, and Jessica Uhl’s by
28,059 RDS.A ADS.

■

At March 5, 2021, the Directors and Senior Management (pages
114-123) 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, 2020. These are RDS A shares
for Ben van Beurden and A ADS for Jessica Uhl. During the period from
December 31, 2020, to March 5, 2021, scheme interests have changed as
a result of the vesting of the 2018 LTIP on March 5, 2021, and because of
the 2021 LTIP awards made on March 5, 2021, as described on pages
161 and 163 respectively.

2,026

–

2,026

–

Directors’ scheme interests (audited)

[A] Includes vested LTIP awards subject to holding conditions. Excludes unvested interests in

shares awarded under the LTIP.

[B] Includes 174,000 RDS A shares pledged with Van Lanschot N.V.
[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 34,069 RDS A shares and 103,244 ADS (RDS.A ADS). Each RDS.A represents

two A shares

[E] Interests at May 20, 2020, when he was appointed as a Director.
[F] Held as 2,350 ADSs (RDS.B ADS). Each RDS.B represents two B shares.
[G] Held as 5,000 ADSs (RDS.B ADS). Each RDS.B represents two B shares.
[H] Held as 25,000 ADSs (RDS.B ADS). Each RDS.B represents two B shares.
[I] Held as 46,904 RDS B shares and 2,500 ADS (RDS.B. ADS). Each RDS.B represents two B shares
[J] Interests at May 20, 2020, when she was appointed as a Director. Held as 789 ADS

(RDS.B ADS). Each RDS.B represents two B shares.

[K] Held as 10,000 ADSs (RDS.B ADS). Each RDS.B represents two B shares.
[L] Interests at May 19, 2020, when he stood down as a Director.
[M] On August 17, 2020, Bram Schot purchased 5,500 certificates Royal Dutch Shell A Turbo Long
8,2 BNP Paribas Markets (ISIN: NL0009558519) at a price of €5.37 per certificate. These
certificates are cash settlement instruments the value of which is linked to the share price of RDS
A Shares. In this case, the ratio of the turbo is 1:1 and accordingly 5,500 certificates represent
5,500 RDS A shares. As at March 10, 2021, the leverage is 1.69 but fluctuates depending on the
share price. If the share price increases, the leverage will decrease. The finance level is 7.57 and
the stop loss level is 8.2. The finance level is adjusted on the 15th of every month. Finance costs
are 1.44% on an annual basis. With a turbo long, there is a finance-level and a stop loss-level. If
the underlying share price drops below the stop loss-level, the turbo long is terminated. The
investor then receives the value of the difference between the finance-level and the level on
which the counterparty, in this case BNP Paribas, can close the turbo. Take for example a turbo
with a stop loss-level of 10 and a finance-level of 8. When the underlying share price drops
below 10, which is the stop loss-level, the buyer will still receive the amount 10-8=2. However, if
the shareprice would suddenly drop to 8 or below, the buyer will receive nothing and the total
investment is lost. In most cases however, the turbo would be terminated at the stop loss-level,
and the buyer receives the amount of the difference between the finance-level and the stop
loss-level. The actual amount will be determined by BNP. In addition, on August 27, 2020, Bram
Schot purchased 100 Leonteq Express Euro Denominated Certificates on ING, Royal Dutch
Shell, Unilever (ISIN: CH0470808913), with a nominal value of €1,000 each at a price of
€515 per certificate. These certificates are cash settlement instruments of which payment of a
conditional coupon depends for 1/3 on the development of the price of the RDSA A Shares on
Euronext Amsterdam and, as such, is a financial instrument linked to the RDSA A Shares. Both
transactions took place before Bram Schot became a Director of the Company.

[N] Held as 7,700 ADSs (RDS.A ADS). Each RDS.A represents two A shares.
[O] Interests at May 19, 2020, when he stood down as a Director. Held as 7,700 ADSs

(RDS.A ADS). Each RDS.A represents two A shares

[P] Held as 6,200 ADSs (RDS.A ADS). Each RDS.A represents two A shares.
[Q] Interests at May 19, 2020, when she stood down as a Director. Held as 6,200 ADSs

(RDS.A ADS). Each RDS.A represents two A shares.

Share plan interests [A]

LTIP subject to
performance
conditions [B]

DBP not subject to
performance
conditions [C]

2020

2019

2020

2019

2020

Total

2019

Ben van
Beurden [D]

662,751 660,814

– 56,783 662,751 717,597

Jessica Uhl [E]

179,565 173,509

–

– 179,565 173,509

[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, 2020, 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, 2019. DBP awards have been discontinued with the final
awards taking place in 2017. No DBP awards remain outstanding following the final vesting
of these awards in March 2020. Delivery of the original DBP award and the related accrued
dividend shares is not subject to performance condition.

[D] RDS A shares.
[E] RDS.A ADS.

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)
No payments to past Directors were made in 2020. Payments below
€5,000 are not reported as they are considered de minimis.

166

GovernanceShell Annual Report and Accounts 2020TSR performance and CEO pay
Performance graphs
The graphs compare the TSR performance of Royal Dutch Shell plc over the past 10 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, because 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-10

Dec-11

Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20

Dec-10

Dec-11

Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20

RDSA

Euronext 100

RDSB

FTSE 100

CEO pay outcomes
The following table sets out the single total figure of remuneration, the annual bonus payment and long-term incentive (LTI) vesting rates compared
with the respective maximum opportunity, for the CEO for the past 10 years.

CEO pay outcomes

Year

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

CEO

Ben van Beurden

Ben van Beurden [A]

Peter Voser

Single total figure
of remuneration (€000)

Annual bonus award
against maximum opportunity

LTI vesting against maximum
opportunity

5,841

9,963

20,138

8,909

8,593

5,576

24,198

8,456

18,246

9,941

21%

79%

81%

66%

98%

94%

44%

83%

90%

45%

74%

95%

35%

42%

49%

30%

88%

30%

[A] Ben van Beurden’s single total 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 2019 to 2020
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

Change in remuneration of Directors and employees

setting 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.

RDS
employees

UK, US & NL
employees

Executive Directors

CEO

-24%

CFO

28%

-100%

Salaries

Taxable benefits

Annual bonus

N/A

86%

16%

-2%

CJH

-10%

-62%

-2%

-64%

-100%

-61%

-93%

Non-executive Directors [A]

[A] Dick Boer, Martina Hund-Mejean, Sir Andrew Mackenzie and Abraham Schot were appointed as Directors during the course of 2020. They have been excluded from the table, because they

had no previous year’s remuneration for comparison.

167

GovernanceShell Annual Report and Accounts 2020ANNUAL REPORT ON REMUNERATION continued

Relative importance of spend on pay
The table below sets out distributions to shareholders by way of dividends
and share buybacks, and remuneration paid to or receivable by employees
for the last five years, together with annual percentage changes.

Relative importance of spend on pay

External appointments
The Executive Directors held no external appointments in 2020.

Statement of voting at 2020 AGM
Shell’s 2020 AGM was held on May 19, 2020, in the Netherlands.
The result of the poll in respect of Directors’ remuneration was as follows:

Dividends and share
buybacks [A]

Spend on pay (all
employees) [B]

Approval of Directors’ Remuneration Report

Year

2020

2019

2018

2017

2016

$ billion

Annual
change

$ billion

Annual
change

Votes

For

9.1

25.4

20.2

15.6

-64%

26%

29%

25%

12.1

13.2

13.4

14.3

15.7

-8%

-1%

-6%

-9%

-8%

Against

Total cast

Withheld [B]

Number

Percentage

3,806,079,000

181,791,609

3,987,870,609 [A]

25,782,042

95.44%

4.56%

100.00%

[A] Representing 51.08% 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 was
as follows:

Approval of Directors’ Remuneration Policy

Votes

For

Against

Total cast

Withheld [B]

Number

Percentage

3,705,707,055

282,966,810

3,988,673,865 [A]

24,979,832

92.91%

7.09%

100.00%

[A] Representing 51.09% 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.

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 179.

Further details of Non-executive Directors’ terms of appointment can be
found in the "Other regulatory and statutory information” on page 189
and the “Governance framework” report on page 128.

Compensation of Directors and Senior Management
During the year ended December 31, 2020, Shell paid and/or accrued
compensation totalling $36 million (2019: $38 million) to Directors and
Senior Management for services in all capacities while serving as a
Director or member of Senior Management, including $3 million (2019:
$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.

[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 2020, Ben van Beurden and Jessica Uhl accrued retirement
benefits under defined benefit plans. The pensions accrued under these
plans at December 31, 2020 are set out below. The exchange rates used
for conversion into euros and dollars are at December 31, 2020.

Accrued pension (audited)

Thousand

Ben van Beurden [A]

Jessica Uhl [B]

Local

1,313

1,247

€

1,313

1,014

1,615

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
is 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 latter, and the eventual lump-sum benefit is shown.
From 2019, she elected to accrue benefits as a lifetime annuity. The value of this accrued
benefit at December 31, 2020 was $8,156 per annum plus a lump sum of $227,029. 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 €3,427 per annum.

The age at which Ben van Beurden can receive any pension benefit
without actuarial reduction is 68 and for Jessica Uhl it is 65. Any pension
benefits on early retirement are reduced using actuarial factors to reflect
early payment. No payments were made in 2020 regarding early
retirement or in lieu of retirement benefits.

Please refer to page 163 for further details (Pension).

168

GovernanceShell Annual Report and Accounts 2020CEO pay ratio

2020

Option

Total pay and benefits:
Salary:

2019

Total pay and benefits:
Salary:

2018

Total pay and benefits:
Salary:

25th percentile
pay ratio

Median
pay ratio

75th percentile
pay ratio

93:1

£55,584
£49,117

147:1

£59,419
£40,417

202:1

£88,112
£53,528

57:1

£90,972
£75,365

87:1

£100,755
£56,721

143:1

£124,459
£80,407

38:1

£136,007
£118,291

54:1

£161,717
£79,991

92:1

£193,027
£96,074

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 the most statistically accurate method for
identifying the ratios. Under option A, a comparable single total figure for
all UK employees has been calculated in order to identify the employees
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 2020 for all employees
who were employed on December 31, 2020. 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 annual bonuses. The REMCO believes that this provides
a fair and reasonable calculation of the pay ratios for Shell
employees in the UK.

The ratio of the CEO’s pay to the median UK worker is 57. The global
pay ratio, calculated by comparing the CEO single figure to the average
employee headcount cost, is 50.The ratio has changed for 2020
compared with 2019, mainly because of the decrease in the single figure
of remuneration for the CEO as a result of no 2020 annual bonus and the
lower LTIP vesting outcome in comparison with 2019. The pay and benefits
for the 25th, 50th and 75th percentile employees have also reduced in
relation to 2019, primarily because there was no annual bonus for the
majority of employees. The REMCO believes this outcome is appropriate
and consistent with Shell’s philosophy of pay for performance.

Workforce engagement
The REMCO took a wide perspective in making the remuneration
decisions for 2020 and determining the 2020 policy. As examples,
in 2020 the REMCO reviewed the following:
■ Aspects of Shell’s response to the COVID-19 pandemic that affected
employees’ pay and benefits. These included the decisions not to
increase salaries for 2021 and to set the annual bonus scorecard
outcome at zero, as well as policies that supported the health,
safety and well-being of employees.

■ The provision of retirement benefits to employees across Shell.
■ Remuneration markers such as the CEO pay ratio and gender pay

reporting under the UK Equality Act 2010 (Gender Pay Gap
Information) Regulations and voluntary ethnicity pay reporting in the
UK. The REMCO noted Shell’s average UK gender pay gap had
narrowed in 2020 to 18.0% (from 18.7% in 2019), continuing the
positive trend since 2017 (22.2%). This is due to a continued upward
trend in the proportion of women in Shell’s upper and upper middle
pay quartiles, and the REMCO has confidence in the policies Shell
has to increase the representation of women at all levels in the
organisation. The REMCO also noted, that in the first year of
reporting, the average UK ethnicity pay gap was 8.5%.

Executive remuneration structures in Shell are strongly aligned with 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 LTIP. Around 150 Senior Executives participate in the same plan.
The measures and metrics for that plan also apply to 50% of the
Performance Share Plan (PSP) awarded to around 16,500 employees.

■ 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
practice. To support an ongoing dialogue with employees regarding how
pay connects to Company strategy, a video was shared with employees,
presented by the REMCO Chair, explaining the key features of the new
2020 Directors’ Remuneration Policy in March 2020, alongside an article
on the Shell intranet sharing why it matters for employees.

169

GovernanceShell Annual Report and Accounts 2020ANNUAL REPORT ON REMUNERATION continued

STATEMENT OF 2021 PLANNED IMPLEMENTATION
OF POLICY
The Directors’ Remuneration Policy as detailed on pages 173-181 took
effect from May 19, 2020, after it was approved by shareholders at the
2020 AGM. It will be effective until the 2023 AGM, unless a further
policy is proposed by Shell and approved by shareholders before then.
This section describes elements of the policy that will apply for 2021.

Executive Directors
Salaries
There will be no salary increases for 2021. Salaries will be maintained
at 2020 levels, which are €1,588,000 for Ben van Beurden and
€1,035,000 for Jessica Uhl. This is consistent with the approach
taken for the majority of employees for 2021.

Annual bonus
To ensure that the scorecard remains well aligned with our strategic and
operational priorities, the REMCO has reviewed the structure of the 2021
scorecard. The REMCO has decided to focus on four key areas: financial
delivery, operational excellence, progress in the energy transition,
and safety.

Cash flow from operations (CFFO) remains the metric we will use to
measure financial delivery. This reflects our ability to generate the cash
necessary to fund investment in our future business and distributions to
our shareholders. We are increasing the weighting of this metric from
30% to 35%.

Production and LNG Liquefaction volumes have been retired as
performance metrics. Reflecting the ongoing importance of operational
delivery, performance will be assessed against two measures:
■ Asset management excellence: measured against availability for

Upstream, midstream and downstream, each equally weighted, in
order to maintain a strong ongoing focus on operating our assets to
plan, delivering scheduled downtime activities on time and minimising
unscheduled shutdowns; and

■ Project delivery excellence: our ability to successfully execute large and
complex projects remains essential, and we will continue measuring
how well we deliver our material projects on time and to budget.

We are separating out energy transition to provide a clear and visible
focus on the importance of making progress in this area. Measures will
initially focus on the operational delivery of our ambitions, and we expect
this section of the scorecard to evolve and expand as we accelerate the
transition of our business to a net-zero emissions business by 2050, in
step with society. For 2021, performance will be assessed against:
■ GHG abatement: a new metric that measures execution of GHG
abatement projects and sets us on a trajectory towards achieving
net-zero operational emissions; and

■ GHG emissions intensity: no change to this measure, which sets

emission-intensity targets for our main lines of business.

Our commitment to safety remains at the heart of everything we do.
We are increasing the weighting on safety in the scorecard to 15%.
The measures relating to safety will be as follows:
■ Personal safety: a new Serious Injury and Fatality Frequency (SIF-F)

metric will replace Total Recordable Case Frequency as our measure
of personal safety performance. This is to ensure we focus our attention
and learning on those incidents with the potential to cause the most
serious harm; and

■ Process safety: no change to the number of Tier 1 and 2 operational

safety incidents as our measure of process safety.

170

The performance measures, weightings and link to strategy for the 2021
performance year are set out below:

2021 annual bonus scorecard measures and weightings

Performance measure

Weighting

Financial

35%

Operational excellence

35%

Progress in the Energy Transition

Safety

15%

Financial
■ Cashflow from

operating activities

Operational excellence
■ Asset management

excellence

■ Project delivery excellence

Progress in the
Energy Transition
■ GHG abatement
■ GHG management

Safety
■ Serious Injury and
Fatality Frequency

■ Tier 1 & 2 process safety

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.

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.

These metrics are focused on managing
and reducing our operational emissions,
supporting our ambition to reduce the
emissions from the manufacture of our
products by 2050.

These metrics are designed to ensure
an ongoing focus on personal and
operational safety.

Annual bonus scorecard targets are not disclosed prospectively
because to do so in a meaningful manner would require the disclosure
of commercially sensitive information. 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 March 5, 2021, a conditional award of performance shares under the
LTIP was made to the Executive Directors resulting in 231,679 Royal Dutch
Shell plc A shares (A shares) being conditionally awarded to Ben van
Beurden and 69,972 Royal Dutch Shell plc A American Depositary Shares
(A ADSs) being conditionally awarded to Jessica Uhl. The award had a
face value of 264.5% (maximum performance outcome 529%) of the
base salary for the CEO and 248.5% (maximum performance outcome
497%) 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 to use the closing share price on the award. But to
moderate the impact of any potential windfall gains arising from share
price volatility in 2020, the 2021 awards have been reduced 11.8% for the
CEO and 8.0% for the CFO from the usual target award levels. This is
equivalent to a 50% of the share price reduction since the previous award.
Further discussion on the REMCO’s approach to managing windfall gains
is set out on page 155.

For LTIP awards made in 2021, performance will be assessed over a
three-year period based on four financial measures and an energy
transition condition. The weighting of the energy transition condition has
been increased to 20%, reflecting the increasing importance of delivering
on the strategic business transformations required to succeed in the
energy transition.

GovernanceShell Annual Report and Accounts 2020Discretion, adjustment (malus) and recovery (clawback)
Variable pay elements are subject to adjustment (malus) and recovery
(clawback) provisions. 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 173, 175 and 177 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 €100,861 for
2021 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 163.

The target for the FCF metric over the three-year performance period will
be based on the annual operating plan and shareholder guidance. These
targets are considered commercially sensitive and will be disclosed
retrospectively, with annual updates on progress provided.

The NCF target range for the 2021-2023 LTIP grant is set as a 6-8%
reduction from the 2016 NCF of 79 grams of CO₂ equivalent per
megajoule. Our leading measures have also evolved as we have
deepened our understanding of the speed and direction of the energy
transition and revised our business strategies. For 2021-2023 we will
measure performance based on three baskets of leading measures:
■ building the foundations of a material Power business;
■ growing new clean(er) energy product offerings; and
■ developing carbon sinks.

The targets for these leading energy transition measures are commercially
sensitive, and will be disclosed retrospectively where possible.

2021 LTIP measures
and vesting schedule

Absolute measures
Relative measures

Energy transition

20%

Free cash flow

20%

TSR

ROACE growth

CFFO growth

Link to strategy

Energy transition
Metrics focused on the strategic business
transformations that will seek to enable
long-term success in the energy transition.

20%

Vesting schedule (% of initial
LTIP award)

Metrics:
a. NCF reduction target
b. Build the foundation of a
material Power business
c. Grow new clean(er) energy

product offerings
d. Develop carbon sinks

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 value created for
shareholders.

ROACE growth
Indicator of capital discipline.

CFFO 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 is capped at 50% of maximum.

Holding period
Three years post-vesting, which remains in force post-tenure.

171

GovernanceShell Annual Report and Accounts 2020ANNUAL REPORT ON REMUNERATION continued

Non-executive Directors’ fees

Non-executive Directors’ fees 2021

Chair of the Board

Non-executive Director

Senior Independent Director

Audit Committee

Chair [A]

Member

Safety, Environment and Sustainability Committee

Chair [A]

Member

Nomination and Succession Committee

Chair [A]

Member

Remuneration Committee

Chair [A]

Member

[A] The chair of a committee does not receive an additional fee for membership of that 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 2021. Mr Holliday will step down as
Chair following the 2021 AGM. Following a review of the competitive
positioning of the fee by the REMCO, the annual fee for the new Chair
will also be €850,000. 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 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 most Board meetings involving
intercontinental travel. Business expenses (including transport between
home and office and occasional business-required partner travel) and
associated tax are paid or reimbursed by Shell. The Chair has use of
a Shell-provided apartment while in The Hague.

€ Other fees

850,000 Non-executive Directors receive an

135,000

55,000

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.

60,000

25,000

35,000

17,250

25,000

12,000

40,000

17,250

The Board reviews Non-executive Directors’ fees periodically to ensure
that they are aligned with those of other major listed companies, using
the largest 30 companies by market capitalisation listed on the FTSE and
the European Comparator group as the primary points of reference. The
last general review was in 2018. There was a review of the Chair of the
Board’s fee in 2021 and the Nomination and Succession Committee
fees in 2019. Fees will remain unchanged for 2021.

172

GovernanceShell Annual Report and Accounts 2020DIRECTORS’ REMUNERATION POLICY

The Directors’ Remuneration Policy sets out:

seeks to ensure compliance with applicable laws and corporate
governance requirements when designing and implementing policies
and plans; and

■ A summary of proposed changes to the Directors’

■ Risk assessment: the remuneration structures and rewards should meet

Remuneration Policy, page 173;

■ Executive Directors’ Remuneration Policy, page 174; and
■ Non-executive Directors’ Remuneration Policy, page 180.

risk-assessment tests to ensure that shareholder’s interests are
safeguarded and that inappropriate actions are avoided.

This section describes the Directors’ Remuneration Policy (Policy) which,
following shareholder approval at the 2020 Annual General Meeting
(AGM), came 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

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, are 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 changes to the Policy for the Executive Directors is
outlined below. No significant changes were made to the Policy for
Non-executive Directors.

Remuneration
element

Annual Bonus

Proposed Changes to Policy

Rationale for the change

■ Reduction of the CEO’s target bonus from 150% to 125%; and
■ Removal of the individual performance factor for Executive Directors.

■ Simplification: the asymmetry in the CEO’s bonus

structure and the inclusion of individual performance
factors were 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
Shell's strategy and purpose.

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 and
Clawback

■ 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

■ Corporate governance: to 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.

Pension

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.

■ 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 so it applies 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.

173

GovernanceShell Annual Report and Accounts 2020
DIRECTORS’ 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.

174

GovernanceShell Annual Report and Accounts 2020Executive 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
relative 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 provide 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 177 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.

175

GovernanceShell Annual Report and Accounts 2020

DIRECTORS’ 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.

176

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 160.

The detailed weightings and metrics applicable to the 2020 grant
are set out on page 164.

GovernanceShell Annual Report and Accounts 2020Performance 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.

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.

inappropriate for any Executive Director, the REMCO will consider an
adjustment to the annual bonus outcome or the LTIP vesting outcome
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.

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.

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

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.

177

GovernanceShell Annual Report and Accounts 2020DIRECTORS’ 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)

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.

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

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.

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.

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.

178

GovernanceShell Annual Report and Accounts 2020Recruitment – 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 128 and
“Other Regulatory and Statutory Information” on page 189.

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 180.

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 180, 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.

179

GovernanceShell Annual Report and Accounts 2020
DIRECTORS’ 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

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.

Non-executive Directors (NEDs) receive a fixed
annual fee for their directorship. The size of the
fee will differ based on the position on the Board:
Chair of the Board fee or standard Non-
executive Director fee.

Additional annual fee(s) are payable to any
Director who serves as Senior Independent
Director, a Board committee chair, or a Board
committee member.

A NED receives either a chair or member fee
for each committee. This means that a chair of
a committee does not receive both fees.

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.

180

GovernanceShell Annual Report and Accounts 2020

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 128 and “Other Regulatory and
Statutory Information” on page 189.

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.

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 10, 2021

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
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.

181

GovernanceShell Annual Report and Accounts 2020OTHER 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, 2020. 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.

Directors’ Report: pages 124-181
Strategic Report: pages 4-111

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.

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 124-181

A statement, summarising the Directors’ business relationships with suppliers,
customers and others.

Strategic Report: pages 4-111

Employee engagement

Information on how Directors have engaged with employees.

Workforce Engagement: pages 138-139

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 157

Changes in Directors’ share interests during the period from December 31, 2020,
to March 10, 2021.

Likely future developments

Information relating to likely future developments.

Provided throughout the Strategic
Report: pages 4-111

Research and development

Information relating to Shell’s research and development, including expenditure.

Shell Story: pages 10-17

Diversity and inclusion

Employee communication
and involvement

Information concerning diversity and inclusion. This includes information on the equal
opportunities in recruitment, career development, promotion, training and rewards for
all our people, including those with disabilities.

Our people: pages 108-111

Information concerning employee communication and involvement.

Our people: pages 108-111

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 2020.

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 relating 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 85-93
Our people: pages 108-111

Additional Information, Appendix 1:
pages 308-323

Climate change and energy transition:
pages 94-107

Risk Factors: pages 28-37
Other regulatory and statutory
information: pages 182-189

Consolidated Financial Statements:
Note 19, pages 251-255

Consolidated Financial Statements:
Note 6, pages 233

Directors' Remuneration Report:
pages 153 - 181

Shareholder information:
pages 300-304

[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 183-189.

182

GovernanceShell Annual Report and Accounts 2020VIABILITY 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. It
also describes Shell’s business model, including competitive advantages
and key strengths. The Directors assess Shell’s prospects both at an
operating and strategic level, each involving different time horizons. To
this end, the Directors assess Shell’s portfolio and strategy against a wide
range of outlooks, including assessing the potential impacts of various
possible energy transition pathways and scenarios for changes in societal
expectations in relation to climate change. Shell recognises in its strategy
that the world is transitioning to a lower-carbon energy system (see
“Climate change and energy transition”). 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 contains assumptions in
relation to internal and external parameters, including recovery from the
impacts of the COVID-19 pandemic. Some of the key assumptions include
the impact of commodity prices, exchange rates, future carbon costs,
agreements like LNG contract renewals, production levels and product
demand, and schedules of growth programmes. Considering the degree
of change possible in these parameters, Shell has deemed a three-year
period of assessment appropriate for the longer-term viability statement.

In making the going concern and longer term viability assessment, Shell
has also considered the financial impact of each of the following severe
but possible scenarios that could threaten Shell’s viability. In reviewing
these stress tests, the Directors have considered possible mitigation steps
and have made certain assumptions regarding the availability of future
funding options, including credit lines, debt facilities, possible asset
disposals, changing levels of shareholder returns, and the ability to raise
future financing in line with the operating plan window.

Scenario

A significant HSSE event

Unplanned shutdown of a major cash-generating
asset for a year

A low oil and gas price environment
(Brent at 2021: $40, 2022: $40, 2023: $45 MOD)

A significant HSSE event in a low oil and gas price
environment

Link to principal risks

[A]

[B] and [D]

[A], [B] and [D]

Sustained impact from politically adverse developments,
lower growth in developing countries, as well as lower
growth in Europe

[C]

Global macroeconomic uncertainties (including those from
a pandemic) – low oil and gas price environment, negative
impact on oil product and chemical margins, and long-term
demand reduction

[B], [C] and [D]

MODERN SLAVERY ACT STATEMENT
We prioritise buying from and encouraging local providers by procuring
goods and services from local suppliers who meet the standards we
require. The standards include those relating to human rights, labour
practices and business integrity and are governed by the Shell Supplier
Principles. Monitoring is undertaken centrally in connection with the
preparation of the Shell Group’s Modern Slavery Act (MSA) Statement
which is prepared by taking proposed inputs from Shell companies in
scope of the MSA as to their steps taken to ensure modern slavery does
not occur in their supply chain or organisation. The Shell Group Statement
is approved by the Board of Royal Dutch Shell plc, after approval by the
boards of Shell companies which are in scope of the MSA.

DISCLOSURE 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 217 and 218 respectively.

Subject to Board approval, Shell aims to grow the dividend per share
by around 4% every year, and once the Shell Group’s net debt level has
reached $65 billion, Shell will target the distribution of 20-30% of its
cash flow from operations to shareholders. The Board may choose to
return cash to shareholders through a combination of dividends and
share buybacks. When setting the level of shareholder remuneration,
the Board looks at a range of factors, including the macro-environment,
the underlying business earnings and cash flow of the Shell Group, the
current balance sheet, future investment and divestment plans, and
existing commitments.

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.

Shell pays its dividend in USD, EUR or GBP 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 29, 2021, to shareholders on the
Register of Members at the close of business on February 19, 2021. The
closing date for dividend currency elections was March 5, 2021 [A] and
the euro and sterling equivalents announcement date is March 15, 2021.
[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.

183

GovernanceShell Annual Report and Accounts 2020OTHER REGULATORY AND STATUTORY INFORMATION continued

The list below is the sub-set of Group Principal Risks that may have
an impact on viability and have been assessed in the above stress
case scenarios.
A. The nature of our operations exposes us, and the communities in
which we work, to a wide range of health, safety, security and
environment risks.

B. We are exposed to macroeconomic 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, commodity price risk and
credit risk. We are affected by the global macroeconomic
environment and by financial and commodity market conditions.
D. We seek to execute divestments in pursuing our strategy. We may

be unable to divest these assets successfully in line with our strategy.

REPURCHASES OF SHARES
On July 26, 2018, the Company announced the start of a share buyback
programme of at least $25 billion, subject to further progress with debt
reduction and oil price conditions. On March 23, 2020, the Company
announced that in light of the economic and oil price environment, it had
decided not to continue with the next tranche of the share buyback
programme following the completion of the tranche announced on
January 30, 2020. On April 14, 2020, the seventh tranche of the share
buyback programme was completed, and no further tranches were
undertaken in 2020. As announced on October 29, 2020, the Shell
Group’s cash allocation framework includes a target to reduce net debt
to $65 billion and following that an aim to increase distributions to
shareholders through a combination of Shell’s progressive dividend
and share buybacks.

Furthermore, as a result of the events that have occurred in 2020,
including the COVID-19 pandemic and significant fall in oil and gas prices
during the first half of the year, the Board have received regular updates
in relation to the financial framework. The short-term cash preservation
measures, including opex and capex reduction, not to continue with the
next tranche of the share buyback programme, lower dividend payments,
and debt issuance, and the medium-term measures including the reshape
of Shell’s portfolio and organisation demonstrate the quantitative and
qualitative actions being taken to support the viability of the Company.

Taking account of Shell’s position and principal risks at December 31,
2020, 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.

GOING CONCERN
In assessing the appropriateness of the going concern assumption over
the period to 31 March 2022 (the ‘going concern period’), management
have stress tested Shell’s most recent financial projections to incorporate
a range of potential future outcomes by considering Shell’s principal risks,
further potential downside pressures on commodity prices and cash
preservation measures, including reduced future operating costs, capital
expenditure and dividend distributions. This assessment confirmed that
Shell has adequate cash, other liquid resources and undrawn credit
facilities to enable it to meet its obligations as they fall due in order to
continue its operations during the going concern period. Therefore, the
Directors consider it appropriate to continue to adopt the going concern
basis of accounting in preparing these audited Condensed Consolidated
Financial Statements.

NON-FINANCIAL INFORMATION STATEMENT
The Non-Financial Information Statement below forms part of the
Strategic Report on pages 4-111.

Non-Financial Information Statement

Reporting requirement

Where to read more in this report

Page

Business Model

Shell story

Non-financial KPIs

Performance indicators

Environmental matters

Environment and society, Climate
change and energy transition

85, 94

Employees

Social matters

Our people and Directors’ Report

108, 124

Environment and society

108

Respect for human rights

Environment and society

Anti-corruption and
anti-bribery matters

Our people

184

To ensure that the Company had the necessary authority to continue to
buy back its shares when the time is considered appropriate, at the 2020
AGM, shareholders granted an authority for the Company to repurchase
up to a maximum of 783 million of its shares (excluding purchases for
employee share plans). This authority expires on the earlier of the close
of business on August 19, 2021, or the end of the 2021 AGM.

As at December 31, 2020, 496 million A shares with a nominal value of
€34.7 million ($41.8 million) and 39 million B shares with a nominal value
of €2.8 million ($3.2 million) (6.85% of the Company’s total issued share
capital at December 31, 2020) had been cumulatively purchased and
cancelled since the beginning of this programme, for a total cost of
$15.8 billion including expenses, at an average price of $29.45 per share.
The purpose of the shares repurchased in 2020 under the share buyback
programme was 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 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. Since the completion of
the tranche announced on January 30, 2020, no further shares have been
bought back by the Company. This means that 783 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 new resolution will be proposed at the 2021 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 2021 Notice of Annual General Meeting.

BOARD OF DIRECTORS
The names of the Directors who held office during the year can be
found on pages 144-121. 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

GovernanceShell Annual Report and Accounts 2020against 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.

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.

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 US Securities and
Exchange Commission.

RELATED PARTY TRANSACTIONS
Save as set out below and other than disclosures given in Notes 9 and 27
to the “Consolidated Financial Statements” on pages 238 and 262-263,
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.

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 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. Both transactions completed on April 1,
2020. As consideration for the assets and the elimination of incentive
distribution rights, Shell received 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.

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. All employees’
contributions comply with federal and state law and are publicly
reported in accordance with US election laws. Shell Oil Company
does not exercise control over SEPAC’s funding decisions.

RECENT DEVELOPMENTS AND POST-BALANCE
SHEET EVENTS
See Note 30 to the “Consolidated Financial Statements” on page 264.

SHARE CAPITAL
The Company’s issued share capital at December 31, 2020, is set out
in Note 8 to the “Parent Company Financial Statements” on pages
289-290. The percentage of the total issued share capital represented
by each class of share is given below.

Share capital percentage

Share class

Sterling deferred

52.53

47.47

de minimis

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 2021 will be proposed at the 2021 AGM.

ANNUAL GENERAL MEETING
The AGM will be held on May 19, 2021, at Carel van Bylandtlaan 16,
2596 HR, 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 Company's Articles, the Board may
authorise any matter that otherwise may involve any 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 Shell website.

SIGNIFICANT COMMITMENTS OF THE CHAIR
The Chair's other significant commitments are given in his biography
on page 114.

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 pages 28-37.

185

GovernanceShell Annual Report and Accounts 2020OTHER REGULATORY AND STATUTORY INFORMATION continued

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 28 -
37). 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.

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 US 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.

RISK MANAGEMENT AND CONTROLS
The Board is responsible for maintaining a sound system of risk
management and internal control, and for regularly reviewing
its effectiveness.

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
reasonable and not absolute assurance against material
misstatement or loss.

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 define 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 Control Framework diagram illustrates the key components –
“Foundations”, “Management processes” and “Structural” – that make up
the Control Framework. “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.

Risk management
The “Statement on Risk Management” is a foundation element of Shell’s
Control Framework and a key enabler of many of its management
processes. We assess risks across the Shell Group in terms of three
distinct categories:
■ Strategic risks: we consider current and future portfolio considerations,
examining parameters such as country concentration or exposure to
higher-risk countries. We also consider long-range developments in
order to test key assumptions or beliefs in relation to energy markets.
■ Operational risks: we consider material operational exposures across
Shell’s entire value chain, and promote a more granular assessment of
key risks facing the organisation.

■ Conduct and culture risks: we consider alignment of our policies,
practices and behaviours against our purpose and core values.

186

GovernanceShell Annual Report and Accounts 2020To support risk assessment across each category, Shell has developed a
risk appetite framework, which helps management establish and articulate
the level of risk that they are willing to accept in pursuit of Shell’s strategy
and objectives, noting that there are also risks that Shell accepts or does
not seek to fully mitigate. The financial framework sets an overarching
boundary condition 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.

The Board confirms it has carried out a robust assessment of Shell’s
principal risks, including a robust process for identifying, evaluating and
managing Shell’s principal risks. The Board confirms it has carried out a
robust assessment of Shell’s emerging risks, the procedures in place to
identify the emerging risks, and how risks are being managed or mitigated
to help Shell achieve its strategy and objectives. This has been in place
throughout 2020 and up to the date of this Report; is regularly reviewed
by the Board; and accords with the FRC Guidance on risk management,
internal control and related financial and business reporting.

Shell’s principal risks and the broad array of measures used to manage
each risk are described on pages 28-37. During the year, management
regularly reviews these principal risks and associated risk responses
and implements further remedial actions as appropriate. The Executive
Committee and the Board regularly consider Group-level risks, framed
across the three categories above, together with the associated control
mechanisms and risk responses. In 2020, specific attention was given
to our response to the COVID-19 pandemic (see “Responding to the
COVID-19 Pandemic” on page 188.

Management and the Board also consider emerging risks, defined as risks
where the scope, impact and likelihood are still uncertain, but which could
have a material effect on achieving Shell’s strategy and objectives in the
future. These risks are identified through, (among other procedures), the
monitoring of external developments, scenario planning, the status of
risk indicators, learnings from incidents and assurance findings, and the
appraisal of Shell’s forward-looking plans. Once identified, we undertake
activities to monitor, prepare for and/or reduce the future impact, where
possible, should such emerging risks materialise.

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.

Shell has a climate change risk management structure which is supported
by standards, policies and controls (see “Risk factors” on page 29 and
“Climate change and energy transition” on pages 94-107). 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 35).
In each case, Shell appoints a representative to manage its interests
who seeks to ensure that such projects operate under equivalent Shell
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 30). 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.

Review of the effectiveness of risk management and
internal control
The Board has delegated authority to the Audit Committee to assist it
in fulfilling its responsibilities in relation to the effectiveness of the risk
management framework and internal control system, the integrity of
financial reporting as well as consideration of compliance matters.
(see “Audit Committee Report” on pages 145-152).

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
all Directors. These aspects, together with the 2020 Reports respectively
produced by the Executive Vice President Taxation and Controller and
Chief Internal Auditor, the External Auditors, the Chairs of the Disclosure
Committee and the Financial Reporting Control Committee 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-level risk reviews
and 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
input 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 Board confirms that it has conducted its annual review of the
effectiveness of Shell’s system of risk management and internal control
in respect of 2020, such review covering all material controls, including
financial, operational and compliance controls.

187

GovernanceShell Annual Report and Accounts 2020OTHER REGULATORY AND STATUTORY INFORMATION continued

Responding to the COVID-19 pandemic
The COVID-19 pandemic has transformed economies, government
policies, markets and businesses globally. Shell has been responding to
the pandemic with a broad, structured approach to ensure we support
our colleagues, suppliers, customers and the communities where we
work, while ensuring resilience in our day-to-day operations and overall
financial framework. A dedicated Group Coordination Team, under the
direct supervision of the Executive Committee, has been in place to
oversee Shell’s risk response plans globally.

We have taken many steps to protect the health of our colleagues,
including requiring or encouraging office-based staff to work from home,
depending on the advice of local authorities. We are providing the
technology support to ensure up to 70,000 colleagues can work remotely
each day. We have developed comprehensive COVID-safe return to site
approaches across Shell’s offices with small-scale proof-of-concept tests.

For people working on our platforms offshore, or our facilities onshore, we
enforce social distancing, carry out health screening and have procedures in
place to allow the safe evacuation of any suspected cases of COVID-19.

To keep our customers safe at our retail sites we launched Clean+, a
global initiative to provide enhanced cleaning, regular sanitation of
common touchpoints, free sanitiser and/or wipes, protection for staff
and reminders to maintain safe distancing.

Management at all levels continue to engage extensively with staff to
understand and respond to the stresses placed on them as a result of
the pandemic. A confidential counselling service is available to help
colleagues experiencing the psychological impact of the pandemic,

and we continue to provide extra online resources to help people
manage their physical and mental well-being.

To sustain our operations and supply chains, which in turn support our
suppliers and customers, we have business continuity plans in place
across all our businesses, functions and operating sites. These plans are
adjusted as needed by considering short- and medium-term “likely” and
“worst case” scenarios developed by the Group Coordination Team.
Examples of specific enhanced controls include the strengthening of our
global web content filtering capability in response to the switch from
office to remote working and additional measures to improve
cyber-awareness. We have reiterated and emphasised adherence to
Shell’s compliance rules (including the Code of Conduct). Shell’s Crisis
Management Standard is also being used to guide our operational risk
responses, and our country chair network has been strengthened to
address specific challenges that arise at local levels.

Throughout the pandemic, we have maintained a strong focus on our cash
allocation framework, using a bespoke COVID-19 risk register to monitor the
effectiveness of our risk responses to ensure the financial resilience of our
portfolio. These responses included the implementation of certain cash
preservation measures. More details are provided on pages 81 - 84.

We expect many of our risk response measures to stay in place in 2021. We
continue to adjust and apply our learnings from this experience to ensure we
remain resilient in this new macroeconomic environment. Detailed information
about the impact of the pandemic on Shell’s principal risks and our responses
to these impacts is provided on pages 28-37.

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, 2020. Based on that evaluation,
they concluded that Shell’s disclosure controls and procedures are effective.

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, 2020,
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, 2020. On the basis of this evaluation, these officers have
concluded that the disclosure controls and procedures of the Trust are effective.

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, 2020, 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 294-297 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 “The Board of Royal Dutch Shell
plc” on page 114 and Senior Management on page 122.

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

DIRECTORS’ SHAREHOLDING QUALIFICATION
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.

188

GovernanceShell Annual Report and Accounts 2020The CEO is expected to build up a shareholding of seven times base salary
over five years from appointment and the CFO is expected to build up a
shareholding of five times 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 to maintain that holding
during their tenure. Information on the Directors with shares in the Company
can be found in the “Directors’ Remuneration Report” on pages 153-156,

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 114-121. However, Directors follow the direction laid
out in the Code and stand for re-election annually.

During the year, Dick Boer and Martina Hund-Mejean (effective May 20,
2020), Sir Andrew Mackenzie and Bram Schot (effective October 1,
2020) were appointed to the Board. Further, Gerard Kleisterlee, Linda
Stuntz and Roberto Setubal stood down from the Board at the 2020
AGM held on May 19, 2020.

On March 11, 2021, the Company announced the appointment of Sir
Andrew Mackenzie as Chair of the Board of Royal Dutch Shell plc, with
effect from the conclusion of the 2021 AGM. Andrew replaces Chad
Holliday, who stands down following the 2021 AGM after more than 10
years’ service. Sir Nigel Sheinwald will also stand down following the 2021
AGM, after serving nine years on the Board. Jane Lute will be proposed to
shareholders for appointment as a Non-executive Director, effective May
19, 2021. The 2021 AGM is currently scheduled for May 18, 2021.

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.

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 (i) Consolidated Financial
Statements in accordance with international accounting standards in
conformity with the requirements of the UK Companies Act 2006, and
therefore in accordance with International Financial Reporting Standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union; and (ii) Parent Company Financial Statements in
accordance with international accounting standards in conformity with the

requirements of the UK Companies Act 2006. 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 international accounting standards in conformity with the
requirements of the UK Companies Act 2006, International Financial
Reporting Standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union and International
Financial Reporting Standards 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 114-121, confirms that, to the best of their knowledge:
■

the financial statements, which have been prepared in accordance with
international accounting standards in conformity with the requirements
of the UK Companies Act 2006, International Financial Reporting
Standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union and International Financial Reporting
Standards 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.

The Directors consider that the Annual Report, including the financial
statements, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess Shell’s
position and performance, business model and strategy.

The Directors 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 10, 2021

189

GovernanceShell Annual Report and Accounts 2020FINANCIAL
STATEMENTS AND
SUPPLEMENTS

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

192

216
265

283
292

294

190

Shell Annual Report and Accounts 2020Financial Statements and SupplementsGENER ATING
SHARE HOLDE R
VALUE

191

Shell Annual Report and Accounts 2020Financial Statements and SupplementsINDEPENDENT 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 or Group):
■ give a true and fair view of the state of Shell’s and of the Parent Company’s affairs as at December 31, 2020 and of Shell’s loss and the Parent

Company’s income for the year then ended;

■ have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act

2006 and, as regards the Group financial statements, both International Financial Reporting Standards (IFRS) adopted pursuant to Regulation (EC)
No. 1606/2002 as it applies in 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.

1.2 What we have audited
We have audited the financial statements of Royal Dutch Shell plc and its subsidiaries for the year ended December 31, 2020, which are included in the
Annual Report and comprise:

Shell

Parent Company

Consolidated Balance Sheet as at December 31, 2020

Balance Sheet as at December 31, 2020

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 30 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 International Accounting
Standards in conformity with the requirements of the Companies Act 2006 and, as regards the Group financial statements, both IFRS adopted pursuant
to Regulation (EC) No. 1606/2002 as it applies in the European Union 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.

3. CONCLUSIONS RELATING TO GOING CONCERN
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements of the Group is appropriate. Our evaluation of the directors’ assessment of the Shell Group and Parent Company’s ability to
continue to adopt the going concern basis of accounting included the following:
■ we obtained an understanding of the controls over management’s going concern evaluation. We then evaluated the design of these controls and

tested their operating effectiveness. We tested management’s controls over the review and approval of the business operating plan and the
underlying economic assumptions;

■ we assessed the information used in the going concern assessment for consistency with the operating plan and information obtained through auditing
other areas of the business, obtained an understanding of the business planning process and challenged the central assumptions, including those
relating to climate risk and the energy transition. We involved our economist to review Shell’s global economic scenarios as well as their economic
projections in 10 major countries;

■ given that management prepare forecasts for other business purposes that go beyond March 31, 2022 (the going concern period), we have used
such forecasts in our management challenge process and considered events and conditions beyond the period of management’s assessment that
may cast significant doubt over the entities’ ability to continue as going concerns; and

■ we conducted severe but plausible independent stress testing and a reverse stress test to determine the conditions under which Shell could potentially
experience a liquidity shortfall. This included assuming lower Brent prices of $20/bbl for 2021 and 2022 and overlaying the assumptions that Shell
will not achieve any further asset sales over this period, will not have access to new capital raising and no access to commercial paper programmes.
Under this stress testing, we concluded that there would still be sufficient facilities available for Shell to continue as a going concern.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively,
may cast significant doubt on the Group’s and Parent Company’s ability to continue as going concerns until 31 March 2022.

192

Shell Annual Report and Accounts 2020Financial Statements and SupplementsIn relation to the Group and Parent Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt
the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant section of this report. However,
because not all future events or conditions can be predicted, this statement is not a guarantee as to the Company’s or Group’s ability to continue as a
going concern.

4. 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 and commodity trading organisations. 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. In 2020, the oil and gas industry suffered severe macro-economic shocks
due to factors such as the impact of COVID-19 on the global economy and on GDP growth, the pace of decarbonisation and the
energy transition and the volatility in the oil price, refining margins and in demand for petroleum products.

In planning our 2020 audit, we were mindful that there is increased importance on companies providing stakeholders with
information on significant judgements applied in the preparation of the financial statements, including the sources of estimation
uncertainty and other key assumptions in light of economic and market uncertainty, climate risk and the energy transition. Shell has
focused on cost control, capital spending, cash flow management, tackling climate change and is undertaking a fundamental
restructuring. As part of our audit, we understood Shell’s energy transition strategy and how this is reflected in setting oil and gas
commodity price assumptions, refining margin assumptions, the estimation of oil and gas reserves, the recoverable amounts of
assets and the recognition and measurement of provisions. This assessment was conducted in light of the commitments that Shell
has made with respect to decarbonisation in order to be a net-zero emissions energy business by 2050.

Our updated understanding of Shell’s business and the environment in which it operates informed our risk assessment
procedures.

The current macro-economic environment has created heightened estimation uncertainty and an elevated risk of material
misstatement of Shell’s asset and liability carrying values. These factors had a pervasive impact on Shell’s financial statements
and increased the risk around key areas of accounting judgement, such as impairment, inventory valuation and provisioning. We
also faced additional audit risk due to the fact that the entire 2020 audit was conducted under remote working conditions. We
have therefore clarified, and shown as a separate risk, the risk of employee and management fraud as a result of remote working
and the potential implications of the restructuring announcement on the stability of the control environment.

The risks we identified were as follows:
■ impairment of PP&E (including exploration and production assets and refineries) and joint ventures and associates (JVA);
■ 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;

■ risk of fraud through management override within other significant revenue streams; and
■ the risk of both employee and management fraud, including financial statement fraud to overstate financial results or position,

misappropriation of assets and illegal acts in responding to the current environment.

Our additional areas of audit focus were:
■ the estimation of decommissioning and restoration provisions;
■ legal proceedings and other contingencies, with specific emphasis on OPL 245;
■ uncertain tax positions;
■ trading valuation (including mark-to-market, hedging, impairment and credit losses);
■ identification of onerous regasification contracts in the LNG portfolio;
■ inventory valuation (in relation to net realisable value);
■ recognition and measurement of deferred tax assets;
■ pension asset and liability valuations;
■ recoverability of government receivables;
■ the impact of climate change and the energy transition on the financial statements;
■ 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); and

■ the recoverable amount of investments held by the parent company (this area of audit focus relates to the parent

company only).

In conducting our audit procedures, we changed the nature of our testing compared to the prior year through developing
alternative means of obtaining sufficient and appropriate audit evidence, including through our enhanced use of technology
and digital audit techniques.

The use of these digital audit tools provided us with an integrated view of risk, thus enabling us to focus our audit effort on
operating units with higher risk profiles. They also enabled us to perform risk-led analyses of entire populations of data.

193

Shell Annual Report and Accounts 2020Financial Statements and SupplementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ROYAL DUTCH
SHELL PLC continued

4. OVERVIEW OF OUR AUDIT APPROACH continued

Our determination of materiality in uncertain times
For the purposes of determining whether the financial statements are free from material misstatement due to fraud or error, we
define materiality as the magnitude of misstatement that, either individually or in the aggregate, could reasonably be expected
to influence the economic decisions of the users of these financial statements. In determining this year’s materiality, we have
considered both Shell’s changing risk landscape and the unique combination of macro-economic factors, including current
market volatility, disruption in demand and production and global supply chain oversupplies in 2020.

The world is in an uncertain place and will be so for some time. However, we believed that it was important that, in setting
materiality in these uncertain times, we did not overreact to what is expected to be a relatively temporary phenomenon –
especially when Shell continues to be the same company structurally. In the 4th Quarter of 2020 and post year-end, the oil price
has more than recovered to the levels it was before the pandemic and oil price collapse in March 2020. Our key criterion in
determining materiality remained our perception of the needs of Shell’s investors. We considered which earnings, activity or
capital-based measure aligned best with the expectations of the Audit Committee 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.

For the previous four years, we believed that investor needs were best met by basing materiality on normalised adjusted
earnings, which excludes identified items and are adjusted for tax (adjusted earnings). However, for 2020, in light of the
extraordinary circumstances under which Shell was operating, we undertook a fundamental review of the possible alternative
bases on which to determine materiality. We considered alternative benchmarks to adjusted earnings, including revenue,
EBITDA, total assets and equity. These indicated a range for materiality of $1.1 billion to $2.0 billion, with the capital-based
measures being at the top end of this range.

We believed that an adjusted earnings approach remained appropriate, despite the fact that the difficult trading environment
would distort short-term earnings-based measures. Although this was an unprecedented time for Shell and the industry and there
was uncertainty around how long negative price impacts would last, views of economists and market participants were that
demand would return and that the supply/demand balance would be re-addressed over time. By applying an adjusted earnings
approach, the materiality range narrowed to $1.0 billion to $1.3 billion. We planned our 2020 audit using the bottom end of this
range, which resulted in the following materiality measures for 2020:
■ planning materiality: $1,000 million (2019: $1,200 million);
■ performance materiality: $500 million (2019: $900 million); and
■ reporting differences threshold: $50 million (2019: $60 million).

Our determination of performance materiality was underpinned by our assessment of the potential impact of remote working
on Shell throughout the year and the potential impact on Shell’s control environment of the restructuring programme (Project
Reshape). 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.

Our scope was tailored to the circumstances of our audit of Shell and was influenced by our determination of materiality and our
assessed risks of material misstatement.

We reassessed our 2020 audit scope following the completion of our 2019 audit. Our starting point was the consolidated
2019 financial reporting data by Area of Operation (AoO). We identified those AoOs that were significant by virtue of their
contribution to Shell’s results or significant by virtue of their associated risk or complexity. In doing this we considered the history
or expectation of unusual or complex transactions, potential for or history of material misstatements, the previous effectiveness
of controls, our assessment in relation to fraud, bribery or corruption; and internal audit findings. We then considered the
adequacy of account coverage and remaining audit risk of AoOs not directly covered by audit procedures. Finally, we sense
checked our scope to the prior year, ensured that there was appropriate unpredictability and made the necessary changes
where appropriate.

By following this approach, our audit effort focused on higher risk areas, such as management judgements. Our group wide
procedures enabled us to obtain audit evidence over the AoOs that were not full, specific or specified procedure scope.

ASSESSING MATERIALITY
(SECTION 5)

DETERMINING THE SCOPE OF
OUR AUDIT (SECTION 6)

194

Shell Annual Report and Accounts 2020Financial Statements and SupplementsIDENTIFYING KEY AUDIT
MATTERS (SECTION 7)

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 impact of climate risk and the energy transition on the financial statements;
■ 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 in the estimation of
decommissioning and restoration 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 assets;
■ the estimation of decommissioning and restoration (D&R) provisions;
■ 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 the group’s trading positions;

■ 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); and

■ the recoverable amount of investments held by the Parent Company (this key audit matter relates to the Parent Company only).

In the current year, in response to the changes in the economic environment, we have added two key audit matters that were not
reported as key audit matters in our 2019 report. These relate to: (1) the impact of climate risk and the energy transition on the
financial statements; and (2) impairment of investments held by the Parent Company.

5. OUR ASSESSMENT 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

$1,000m
(2019: $1,200m)

$500m
(2019: $900m)

$50m
(2019: $60m)

195

Shell Annual Report and Accounts 2020Financial Statements and SupplementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

5. OUR APPLICATION OF MATERIALITY continued

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 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 $1,000 million (2019: $1,200 million). We kept this under review
throughout the year and reassessed the appropriateness of our original assessment
in 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 $1.0 billion
(2019: $2.6 billion), which is 0.4% of equity (2019: 1% of equity). We concluded
that equity remains an appropriate basis to determine materiality for an investment
holding company. However, we identified an indicator of impairment in the
carrying value of the Parent Company’s investments, which represent the majority
of the equity value of the Parent Company. As a result, we concluded it was
appropriate to align the Parent Company materiality with the lower materiality
of the Group. 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 of determining materiality in uncertain times

Our assessment of overall materiality was $1,000 million. This was derived from an average of Shell’s earnings for 2018 and 2019 and the estimated result for 2020 on an
adjusted earnings basis reported by Shell in its quarterly results announcements, and adjusted for an effective tax rate.

In determining materiality, auditing standards require us to use benchmark measures, such as pre-tax income, total revenue, total assets and equity. 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 this year’s materiality, we have considered both Shell’s changing risk landscape and various macro-economic factors, such as the impact of the pandemic on
the global economy and on GDP growth, the pace of decarbonisation and the energy transition and volatility in oil and gas prices and in demand for petroleum products.

We considered which earnings, activity or capital-based measure aligned best with the expectations of the Audit Committee 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.

For the previous four years, we believed that investor needs were best met by basing materiality on adjusted earnings. However, for 2020, in light of the extraordinary
circumstances under which Shell was operating, we undertook a fundamental review of the possible alternative bases on which to determine materiality. We considered
alternative benchmarks to adjusted earnings, including revenue, EBITDA, total assets and equity. These indicated a range for materiality of $1.1 billion to $2.0 billion, with
the capital-based measures being at the top end of this range.

In light of this analysis, we re-considered whether or not an adjusted earnings approach remained appropriate, despite the fact that the difficult trading environment would
distort short-term earnings-based measures. In so doing, we reflected on the following factors:
■ the use of adjusted earnings allows investors to understand how management has performed despite the commodity price environment, as opposed to because of it;
■ analyst forecasts predominately feature adjusted earnings, which exclude identified items, as the basis for their forecasts. The analyst consensus data supports our

judgement that adjusted earnings, excluding identified items, remains the key indicator of performance from a reasonable investor perspective;

■ although this is an unprecedented time for Shell and the industry and there is uncertainty around how long negative price impacts will last, views of economists and

market participants are that demand will return and that the supply/demand balance will be re-addressed over time; and

■ Shell were not forecasting a significant drop in volumes in 2020 (although there would be some impacts as capital expenditure reductions flowed through later in the

year). This provided further support to this being a price driven impact on earnings rather than one relating to Shell’s fundamental business model, underlying activities
and produced and manufactured volumes.

On the basis of our analysis of these factors, we concluded that we should continue to focus on Shell’s adjusted earnings reported by Shell in its quarterly results
announcements and adjusted for an effective tax rate.

By applying an adjusted earnings approach, the materiality range narrowed from our initial range of $1.1 billion to $2.0 billion to $1.0 billion to $1.3 billion. We planned our
2020 audit using the bottom end of this range.

The identified items excluded in 2020 were: net divestment gains ($0.3 billion), net impairments ($28.1 billion charge), fair value accounting of commodity derivatives and
certain gas contracts ($1.2 billion charge), onerous contract provisions ($1.4 billion charge), redundancy and restructuring ($0.9 billion charge), and the aggregate of other
individually small items (net $0.7 billion charge).

The identified items excluded in 2019 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).

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Shell Annual Report and Accounts 2020Financial Statements and SupplementsPerformance 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 $1,000 million for Shell’s financial statements as a whole.

Once we had 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

In assessing the appropriate level of performance materiality, we consider the nature, the number and impact of the audit differences identified in 2019 as well as the overall
control environment.

At the planning stage of the audit, which was at the very start of the pandemic, we set our performance materiality at 75% (2019: 75%) of planning materiality, namely
$750 million (2019: $900 million). However, we noted that the developing macro-economic environment was creating heightened estimation uncertainty and an elevated
risk of material misstatement of Shell’s asset and liability carrying values. These factors had a pervasive impact on Shell’s financial statements and increased the risk around
key areas of accounting judgement. We also faced additional audit risk due to the fact that the entire 2020 audit was conducted under remote working conditions.

Consequently, we kept our planning and performance materiality under ongoing review. Whilst we confirmed that the overall materiality level of $1,000 million remained
appropriate, in the second half of 2020, we revised performance materiality downwards to be 50% of planning materiality ($500 million). This decision was based on the
following considerations:
■ the potential impacts of remote working through the year-end close;
■ the heightened estimation uncertainty;
■ the potential impact on Shell’s control environment of the restructuring programme (Project Reshape); and
■ corrected and uncorrected errors.

The primary impact of reducing our performance materiality was a reduction in the testing thresholds that were assigned to our component teams, which led to larger
sample sizes for the purposes of our substantive audit testing.

In 2020, the range of performance materiality allocated to operating units was $75 million to $325 million (2019: $135 million to $450 million). This is set out in more detail
in section 6 below.

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.

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 light of other relevant qualitative considerations in forming our opinion.

Level set

We agreed with the Audit Committee that we would report to the Committee all audit differences more than $50 million (2019: $60 million), as well as differences below
that threshold that, in our view, warranted reporting on qualitative grounds.

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Shell Annual Report and Accounts 2020Financial Statements and SupplementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

6. OUR SCOPE OF THE AUDIT OF SHELL’S FINANCIAL STATEMENTS

What we mean

Criteria for
determining our
audit scope and
selection of in-scope
operating units

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.

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.

We reassessed our 2020 audit scope following the completion of our 2019 audit. Our starting point was the consolidated 2019 financial
reporting data by Area of Operation (AoO). We identified those AoOs that were significant by virtue of their contribution to Shell’s results or
significant by virtue of their associated risk or complexity. In doing this we considered the history or expectation of unusual or complex
transactions, potential for or history of material misstatements, the previous effectiveness of controls, our forensic assessment in relation to
fraud, bribery or corruption, and internal audit findings. We then considered the adequacy of account coverage and remaining audit risk of
AoOs not directly covered by audit procedures. Finally, we sense checked our scope to the prior year and also ensured that there was
appropriate unpredictability in our scope and made the necessary changes where appropriate.

By following this approach, our audit effort focused on higher risk areas, such as management judgements. Our group wide procedures
enabled us to obtain audit evidence over the AoOs that were not full, specific or specified procedure scope.

The reduction in our 2020 ($1,000 million) planning materiality compared to 2019 ($1,200 million) did not increase the number of components
in our audit scope. However, what did change was the nature of our testing, where we developed alternative means of obtaining sufficient and
appropriate audit evidence, including through our enhanced use of technology and digital audit techniques.

Full and specific
scope

Specified
procedures

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 48 operating units (2019: 49) across 14 countries (2019: 11) based on their size or risk characteristics. We performed full scope
audits of the complete financial information of 17 operating units (2019: 17). For 31 operating units (2019: 32) 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 48 operating units (2019: 49) discussed above, we selected a further 45 operating units (2019: 41) 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.

Group procedures

In addition, specified procedures were performed at the group level on a further 90 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, 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 and procedures
over unusual accounting transactions including acquisitions, divestments and redundancies.

For the remaining 607 operating units (2019: 614), 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 throughout the year, homogenous processes and controls at the Business Service Centres (BSCs) and testing
of group wide IT systems. We performed a disaggregated analytical review 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 inform us of higher
risk components to be included in scope. This allowed us to risk rate each of the 742 operating units whereby we identified 230 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, adjusted earnings and
Revenue. Overall, our full, specific and specified procedures accounted for 61% of Shell’s absolute adjusted earnings reported by Shell in its
quarterly results announcements and adjusted for an effective tax rate. The remaining adjusted earnings were covered by Group wide
procedures.

The Parent Company is located in the United Kingdom and audited directly by the Group engagement team.

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Shell Annual Report and Accounts 2020Financial Statements and Supplements Full scope

Specific scope

Specified
procedures

Covered
by other
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 2020 the range of materiality applied at the operating unit level
was $75 million to $325 million (2019: $135 million to $450 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

Oil Products and Chemicals

Bahamas, Singapore, The Netherlands, UAE, UK, USA

Trading and Supply

Total full scope operating units

Specific scope operating units:

Malaysia, UK, Indonesia

Singapore, USA

Upstream

Oil Products and Chemicals

Singapore, The Netherlands, UK, USA

Corporate

Canada, Singapore, UAE, UK, USA, South Korea

Trading and Supply

Total specific scope operating units

Total full and specific scope operating units

No. of
operating units

Range of
materiality applied
$ million

100-150

100

187-325

100

100-150

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Shell Annual Report and Accounts 2020Revenue44%40%6%10%TotalAssets43%16%18%23%AdjustedEarnings41%14%6%39%Financial Statements and SupplementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

6. OUR SCOPE OF THE AUDIT OF SHELL’S FINANCIAL STATEMENTS continued

Group evaluation,
review and oversight
of component teams

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 14 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 EY’s 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.

The group engagement team provided detailed instructions to our BSC and in-country teams to drive the audit strategy and execution in
a coordinated manner. However, travel restrictions presented challenges to us exercising sufficient and appropriate direction, supervision,
oversight and review of overseas EY audit teams such that we had adequate involvement in their work.

Under normal circumstances, Allister Wilson and other group audit partners and directors would visit in-scope operating units and Shell’s BSCs.
The purpose of these visits would be to discuss the audit approach with the local EY teams and any issues arising from their work, meet with
local management, attend planning and closing meetings and review key audit working papers on risk areas. However, in planning our audit,
we assumed a worst-case scenario where travel restrictions and lockdowns would persist throughout the period of the audit. As a result, we
developed an audit strategy that enabled the group engagement team to fulfil its responsibilities under auditing standards to evaluate, review
and oversee the work of component teams on a remote basis.

In the absence of group team members being able to travel to visit local EY teams at component locations, this process included maintaining
a continuous and open dialogue with our component teams, as well as holding formal closing meetings quarterly, to ensure that we were fully
aware of their progress and results of their procedures. Between quarters, and during critical periods of the audit, we increased the use of
online collaboration tools to facilitate team meetings, information sharing and the evaluation, review and oversight of component teams. We
requested more detailed deliverables from component teams and we utilised fully the interactive capability of EY Canvas, our global audit
workflow tool, to review remotely the underlying work performed. Our experience of this way of working – with both Shell and our teams
– was positive. The technology proved to be robust and resilient in supporting the new way of working.

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 90 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.

During 2020, the group team were unable to carry out physical site visits. However, we performed virtual site visits at those locations that we
would normally have visited in person. We also joined the virtual site visits at 3 locations carried out by the Audit Committee.

The Senior Statutory Auditor and other group audit partners, associate partners and directors conducted virtual site visits of operating units
across 7 countries as well as each of Shell’s four BSCs. The countries and the BSC locations visited were as follows:

Countries visited

Australia
Brazil [A]
Nigeria [A]
Singapore
Qatar
UK [A]
USA [A]

[A] These were visited multiple times on a virtual basis

BSCs

India [A]
Malaysia [A]
Philippines [A]
Poland [A]

200

Shell Annual Report and Accounts 2020Financial Statements and Supplements7. 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 2020 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 2020
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 the current year, we have added two key audit matters that were not reported as key audit matters in our 2019 report. These relate to: (1) the impact
of climate risk and the energy transition on the financial statements; and (2) the recoverable amount of investments held by the Parent Company (this
key audit matter relates to the Parent Company only).

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Shell Annual Report and Accounts 2020Financial Statements and SupplementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

7. OUR ASSESSMENT OF KEY AUDIT MATTERS continued

THE IMPACT OF CLIMATE RISK AND THE ENERGY TRANSITION ON THE FINANCIAL STATEMENTS

Description of the key audit matter

Our response to the risk

Our audit procedures took account of the content of a letter dated 5 November
2020 sent by Sarasin and Partners to the Audit Committee Chair regarding their call
for "Paris-aligned" accounts, as well as the document published on the same date
by the Institutional Investors Group on Climate Change (IIGCC) entitled ”Investor
Expectations for Paris-aligned Accounts” and the FRC’s climate change thematic
review.

The procedures we carried out included the following:
■ understanding Shell’s processes around the climate change and energy

transition-related disclosures in the Annual Report, including risk assessment,
viability and greenhouse gas emissions’ reporting;

■ assessing the reasonableness of Shell’s carbon prices included as part of the

forecast operating plan, going concern and viability assessments with assistance
of EY auditors with expertise in climate change;

■ assessing the consistency of Shell’s public statements on energy transition and

climate change with significant judgements and estimates reflected in the financial
statements (for example oil and gas reserve estimates, future capital and
operating expenses assumptions and assumed refining margins);

■ assessing the historical accuracy of disclosures made in the Annual Report. This
included considering the disclosure recommendations of the TCFD and the
appropriateness of Shell’s disclosures in respect thereof;

■ we made inquiries of management relating to Shell’s assessment of its resilience

to the energy transition;

■ we evaluated Shell’s long-term pricing assumptions against the IEA outlook;
■ we assessed the energy transition assumptions within the estimation of oil and

gas reserves;

■ we assessed the reasonableness of Shell’s refining margin estimation

methodology, particularly in light of the expected impacts of a lower carbon
world. For example, we read reports from independent, third-party sources in
order to identify potential contrary evidence and to assess the reasonableness
of key inputs and assumptions used in Shell’s refining margin model. These inputs
included refining capacity additions, expected refinery closures, carbon dioxide
costs and the strategic and political behaviour of National Oil Companies;

■ we mapped the climate change and energy transition risks to key audit areas; and
■ with the assistance of EY auditors with expertise in climate change, we assessed

and challenged the reasonableness of Shell’s narrative disclosures around
material climate risk. In addition, we evaluated the consistency between these
narrative disclosures and the financial statements.

The audit procedures were performed principally by the group engagement team.

The financial impacts of climate change and the energy transition
remain an area of audit focus, as they have a pervasive impact on
many areas of accounting judgement and estimate and,
therefore, our audit. Risk is elevated compared to 2019 due to the
increased focus on climate change of investors and regulators.

Climate change presents financial risk both to business and to the
global economy. The Financial Stability Board established the
Task Force on Climate-related Financial Disclosures (TCFD) to
develop recommendations for more effective climate-related
disclosures that could promote more informed investment, credit
and insurance underwriting decisions and, in turn, enable
stakeholders to understand better the concentrations of
carbon-related assets in the financial sector and the financial
system’s exposures to climate-related risks.

Shell has incorporated climate-related risks and opportunities into
their risk management and strategic planning processes and is
focused on increasing transparency and promoting investors’
understanding of its strategies to respond to the risks and
opportunities presented by climate change (see page 94).

Shell states that its Energy Transition Report is aligned with the 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 page 162.

The audit risk is that critical accounting estimates or judgements do not
reflect material climate risks and could, as a result, mislead investors. For
example, forecast assumptions that underpin management’s operating plan
used in assessing the recoverable amount of assets, particularly oil and gas
price assumptions relevant to upstream oil and gas PP&E assets, and refining
margins relevant to manufacturing assets, may not appropriately reflect the
macro-economic impacts of the pandemic, combined with changes in supply
and demand due to climate risk and the energy transition.

Similarly, there is an audit risk that the narrative disclosures around material
climate risk in the Annual Report and the financial statements are not aligned.

The critical accounting judgements and estimates that are impacted by
climate risk and the energy transition include the following:
■ the estimation of oil and gas reserves and resources;
■ the useful economic lives of PP&E and the estimation of depreciation,

depletion and amortisation (DD&A);

■ impairment assessments for goodwill, PP&E and joint ventures and

associates, including the recovery of exploration and evaluation assets
that may no longer be considered to be economic due to the impact of
climate risk and the energy transition on oil and gas prices;

■ the recognition and measurement of decommissioning and restoration

(D&R) provisions, including operations that historically have been
assumed to have indefinite lives;

■ the recognition and measurement of Deferred Tax Assets; and
■ climate change-related litigation brought against Shell that may lead

to an outflow of resources or otherwise impact Shell’s business.

Key observations communicated to the Shell Audit Committee
Critical accounting judgements and estimates
In January 2021, we reported to the Audit Committee that we did not see any evidence that Shell’s balance sheet overstated assets or understated liabilities. For
Upstream and Integrated Gas assets, we were satisfied that the reserves used in the DD&A calculation do not extend to an unrealistic period in the future based
on our current understanding of expected future developments. For Oil Products and Chemicals assets, we considered the fundamental shift in the refining market
driven by overcapacity in the mid-term, energy transition in the long-term, and further exacerbated by the impacts of COVID-19 in the short to medium term. Given
the headroom that supports the carrying amount of goodwill that is allocated to CGUs at the segment level, we were satisfied that the carrying amount of
goodwill was appropriately recorded.

Also, based on our assessment of the relevant facts and circumstances as well as the audit evidence obtained from legal counsel, we were satisfied with
management’s assertion that no provision should currently be made in respect of climate change-related litigation.

Key observations in relation to the other financial impacts of climate change and the energy transition are included in the other key audit matters below.

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Shell Annual Report and Accounts 2020Financial Statements and SupplementsInvestor expectations for ‘Paris-aligned Accounts’

The IIGCC expect auditors to provide reassurance that the accounts incorporate material climate risks, and whether or not the accounts can be
considered ‘Paris-aligned’. In order to meet this expectation, the IIGCC’s paper outlines the following four steps auditors should take to
‘encourage Paris-aligned financial statements’:

Key steps investors expect auditors to take

Our response communicated to the Audit Committee

Consideration of material climate risks:
Confirmation that critical accounting estimates or
judgements reflect material climate risks, in line with
accounting standards.

Paris-alignment: Confirmation as to whether or not
these critical assumptions and estimates can be
considered consistent with a 2050 net zero emissions
pathway and, if not, whether Paris-aligned assumptions
have been adequately considered in the Notes to the
Financial Statements. If not, the auditor should indicate
what reasonable Paris-aligned assumptions would be.

Pathway to consistency: Alert shareholders to any
inconsistency between the narrative disclosures around
climate risks, the company’s strategy and the financial
statements.

Dividend resilience: Confirm that capital maintenance/
solvency tests have appropriately considered climate
risks, such as dividend legality. In many jurisdictions these
rules are additional to following accounting standards,
and often they demand greater prudence when dealing
with foreseeable losses and liabilities.

The other key audit matters below include details of the audit procedures performed in considering
climate risk and the energy transition in the execution of our audit, together with the conclusions
that we reached.

Meeting the goals of the Paris agreement is a global aspiration that must be cemented in reality.
It requires the world economy to transform in a number of complex and connected ways. Shell’s
financial statements reflect the world as it currently exists and what management reasonably
expects based on current facts and evidence. It does not reflect what management and the world
wishes and desires – a Paris-compliant world. Shell’s pathway to Paris alignment is reflected in
the Group’s strategy. Like the rest of society, Shell is at the beginning of a journey, the speed and
direction of which will change as facts and circumstances change and as management reflect
these changes in the Group’s evolving strategy.

There is significant uncertainty surrounding the ways in which society and the world economy will
change over the next 30 years and the extent to which such changes will meet the aspirations of the
Paris Agreement. Whilst companies can commit to these aspirations, financial reporting under IFRS
is based on reasonable and supportable assumptions that represent management’s current best
estimate of the range of economic conditions that will exist in the foreseeable future.

To fulfil the aspirations of the Paris Agreement, Shell’s strategy will need continuously to evolve as
the world economy transforms itself. For example, for Shell to reach net-zero emissions by 2050,
it would also be necessary for Shell’s customers to de-carbonise. Importantly also, Shell has
reported in Note 2 to the Consolidated Financial Statements that their operating plan and pricing
assumptions do not yet reflect Shell’s 2050 net-zero emissions target. For these reasons, it is neither
possible nor appropriate for EY, as Shell’s auditor, to attempt to provide in our audit opinion
Paris-aligned assumptions that are not in our remit to determine, and the impact that any such
assumptions might be expected to have on the financial statements.

We are satisfied that the disclosure in relation to the Board’s current view on the ways in which
Shell’s critical accounting judgements and estimates are impacted by climate risk and the
energy transition are sufficient and appropriate. However, it is not within our professional remit,
responsibility or expertise to disclose in our audit opinion what we would consider to be reasonable
assumptions taking the net-zero transition into account, and the impact such assumptions might
have on Shell’s financial statements.

These are the board’s financial statements, and it is up to the board to provide appropriate
disclosures and for us to audit them and to express our professional opinion thereon. We have
reported in this unqualified independent auditor’s report to the members of Royal Dutch Shell plc
that, in our opinion, Shell’s financial statements as a whole provide a true and fair view of the group’s
state of affairs and loss for the year.

As part of reviewing the Annual Report and Accounts, with the assistance of EY auditors with
expertise in climate change, we assessed and challenged the reasonableness of Shell’s narrative
disclosures around material climate risk and their consistency with the financial statements. We
are not aware of any inconsistency between the narrative disclosures around climate risks, the
company’s strategy, the financial statements and our understanding of the business.

See the key audit matter below on ‘The dividend distribution process, including the determination of
realised profits and losses for the purposes of making distributions under the Companies Act 2006’.

Cross-reference: See the Audit Committee Report on page 150 for details on how the Audit Committee reviewed the potential impact of climate change and energy transition.
Also, see Notes 2, 8 and 25 to the Consolidated Financial Statements.

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SHELL PLC continued

7. OUR ASSESSMENT OF KEY AUDIT MATTERS continued

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
EXPLORATION AND OF PRODUCTION ASSETS AND IN THE ESTIMATION OF DECOMMISSIONING AND RESTORATION
(D&R) PROVISIONS

Description of the key audit matter

Our response to the risk

This is a forecast-based valuation. Risk is unchanged
compared to 2019.

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, Exploration and evaluation assets amounted to
$9,226 million, and Production assets amounted to $131,763
million. Production assets had an associated DD&A charge of
$33,806 million. The accounting for these financial statement
amounts relies on management’s estimation of oil and gas
reserves. As further described in Note 8, impairment charges
of $20,155 million of Exploration and Production assets
were recorded during the year. As described in Note 18,
D&R provisions amounted to $23,175 million.

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 other 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, which are an input to the cash flows used in the
measurement of Exploration and Production assets and D&R provisions.

Auditing these financial statement areas is complex because we are
required to evaluate the work of reservoir engineers and assess the
appropriateness of the inputs selected by management described
above. These inputs are used by reservoir engineers in estimating
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 oil and gas reserves;

■ we tested whether significant additions or reductions in 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
– 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 the determination of oil and
gas reserves 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 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 period. This evaluation
was made by assessing consistency of the development projections with Shell’s
drilling, development and capital expenditure plans;

■ we tested the existence and completeness of the 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 with 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 or not the energy transition assumptions used in the asset plans
reflected the commitments that Shell has made with respect to decarbonisation in
order to be a net-zero emissions energy business by 2050, 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, Norway, Nigeria, Qatar, Russia and the USA.

Key observations communicated to the Shell Audit Committee
We reported that our reserves audit team included a partner with significant oil and gas reserves expertise and valuation experience. He is a graduate of the
‘Ecole Polytechnique’, the industrial and engineering school in France, holds a post graduate diploma from the French Petroleum School (Institut Francais du
Pétrôle) and lectures on oil and gas reserves. Other audit team members had relevant industry experience through working for many years on the audits of oil and
gas companies.

Based on our testing, we did not identify any significant errors in the oil and gas reserves and resources and concluded that the inputs and assumptions used to
estimate reserves and resources were reasonable. We reported that we had verified that significant additions to or reductions in reserves had been recorded in the
appropriate period, and that they were in compliance with Shell’s reserves and resources guidance.

We reported to the Audit Committee that, in light of the commitments that Shell has made to be a net-zero emissions energy company by 2050, 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 assets or understatement of D&R provisions.

Cross-reference: See the Audit Committee Report on page 147 for details on how the Audit Committee reviewed assurances for oil and gas reserves. Also, see Notes 2, 8 and 18 to the
Consolidated Financial Statements, and Supplementary information – oil and gas (unaudited) on page 265.

204

Shell Annual Report and Accounts 2020Financial Statements and Supplements
IMPAIRMENT OF PP&E (INCLUDING EXPLORATION AND PRODUCTION ASSETS AND REFINERIES) AND JOINT
VENTURES AND ASSOCIATES (JVA)

Description of the key audit matter

Our response to the risk

This is a forecast-based estimate. Risk is elevated compared
to 2019 due to the increased uncertainty in future commodity
prices, refining margins and demand for petroleum products,
as well as the impact of the energy transition.

As described in Notes 8 and 9 to the Consolidated Financial
Statements, Shell recognised $141 billion of Exploration and
Production assets, $50 billion of manufacturing, supply and
distribution assets (refineries), as well as investments in joint
ventures and associates of $22 billion. As disclosed in Note 8
and Note 9, Shell recorded impairment charges of $27 billion
and $0.6 billion of PP&E and JVAs respectively.

Auditing the recoverable amounts of PP&E and investments in JVAs is
complex and subjective due to the significant amount of judgement
involved. The most complex judgements in forecasting future cash flows
relate to management’s view on the long-term oil and gas price outlook
and refining margins appropriate to local markets. These judgements are
particularly difficult because of increased demand uncertainty due to
factors such as the macro-economic impacts of the pandemic and the
pace of decarbonisation and the energy transition.

Other judgements relate to oil and gas reserve estimates, future
expected production volumes, the risking of cash flows and the
expected useful lives of the assets.

Further, given the long timeframes involved, the recoverable amounts of
assets are often sensitive to the extent of the risking of the future cash flows.
There is a risk of material misstatement in the event that the future cash
flows do not reflect appropriately the risks specific to the asset.

Production assets, including JVAs
Producing assets’ operational performance and the impact of external
factors have a significant bearing on the estimate of the recoverable
amounts of Shell’s Upstream and Integrated Gas assets.

The most complex judgement in determining the recoverable amount of
Production assets within Upstream and Integrated Gas is the estimation
of future oil and gas price, both in the short term and the long term. The
estimation of future oil and gas prices is subject to increased uncertainty,
given climate change, the energy transition and the impact of the
pandemic on the demand for petroleum products. There is a risk that
management’s oil and gas price assumptions are not appropriate,
potentially leading to a material misstatement.

A further management judgement relates to the estimation of oil and
gas reserves as there is significant estimation uncertainty in the process
of assessing the quantities of Shell’s reserves and resources. We have
described the risk within the Estimation of oil and gas reserves key
audit matter above.

Overall
We obtained an understanding of the controls over Shell’s asset impairment process for: (1)
production assets, including joint ventures and associates; (2) exploration and evaluation
assets; and (3) manufacturing, supply and distribution assets. 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 and refining margins, discount rates and oil and gas reserves.

We evaluated Shell’s asset impairment methodology and 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.

In order to evaluate the cash flow inputs of the impairment models, our procedures
included the following:
■ tested whether operating expenditure profiles, capital costs to complete construction

and refinery turnaround costs, agreed to approved operator budgets and
management forecasts;

■ tested whether carbon pricing was included in cash flows, where applicable;
■ reconciled reserves volumes in the impairment models and tested whether 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,
refining margins, production and the risking of cashflows).

Where impairment tests were undertaken, we performed sensitivity analyses of the
models using different price scenarios and asset specific risks taking into account the
nature of the asset, its location, its stage of development and associated risks.

Oil and gas price assumptions
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.

Risking of cash flows
We assessed the basis for adjusting the cash flows to reflect the risks of each individual asset
that were not reflected in the impairment discount rate. In so doing, we considered, for
Upstream and Integrated Gas, the stage of the life of the asset, the nature of the asset and
tested the consistency across similar fields. In respect of refineries, we considered refining
margins, refinery availability and estimated unplanned maintenance costs.

Oil and gas reserves estimates
The procedures we performed in relation to oil and gas estimates are described above
within the Estimation of oil and gas reserves key audit matter.

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SHELL PLC continued

7. OUR ASSESSMENT OF KEY AUDIT MATTERS continued

IMPAIRMENT OF PP&E (INCLUDING EXPLORATION AND PRODUCTION ASSETS AND REFINERIES) AND JOINT
VENTURES AND ASSOCIATES (JVA) continued

Description of the key audit matter

Our response to the risk

Exploration and evaluation assets
Exploration and evaluation (E&E) expenditures are capitalised on a
project-by-project basis. E&E activity is inherently risky given the level of
uncertainty considered in the run up to Final Investment Decision (FID).
Where FID is not achieved, there is a significant judgement relating to the
risk that certain E&E costs are not written off in the appropriate reporting
period. Given the current environment, there is a heightened risk that
projects will no longer proceed, in which case they may need to be
written off. It is possible that a greater than usual number of projects
will not proceed in the current environment.

Manufacturing, supply and distribution assets
In the event that there is a prolonged period of low refining margins, there
may be a need to assess refineries for impairment. 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.

Exploration and evaluation assets
We performed a licence-by-licence risk assessment of Shell’s E&E assets to identify assets
with a significant risk of impairment. We assessed each significant licence area against
the impairment criteria within IFRS 6, with a particular focus on those assets that were
expected to be developed over the medium and long term, or those assets where the
dominant commodity that will be produced is oil.

We considered whether the development of E&E projects would be inconsistent with
Shell’s current strategy and may no longer be considered to be economic due to the
impact of climate risk and the energy transition on oil and gas prices.

Manufacturing, supply and distribution
In addition to the procedures described above, the procedures we performed are
described within the Estimation of future refining margins to evaluate the recoverability
of manufacturing assets key audit matter below.

The audit procedures were performed by our group engagement teams as well as our local
audit teams in Australia, Brazil, Malaysia, Nigeria, Qatar, the UK and the USA, which
covered 49% of PP&E and investments in joint ventures and associates across the Group.

We also performed specified procedures over the recoverability of PP&E balances in
Argentina, Australia, Brunei, Canada, Cyprus, Denmark, Egypt, Germany, Indonesia, Iraq,
Italy, Kazakhstan, Malaysia, Mexico, the Netherlands, Nigeria, Philippines, Qatar, Russia,
South Africa, Tanzania, Tunisia, Trinidad and Tobago and the USA which covered an additional
17% of PP&E and investments in joint ventures and associates across the Group.

Key observations communicated to the Shell Audit Committee
Oil and gas price assumptions
We obtained external evidence, including price forecasts by banks, brokers, consultants and published data from Shell’s peer group, to support the
reasonableness of Shell’s price assumptions. Overall, Shell’s assumptions for both Brent and Henry Hub lie comfortably within the benchmarks that we had
identified. In the short-term, Shell’s Brent price assumption is the most conservative compared to our sector benchmarks and Shell’s forecast aligns broadly
with the sector averages from 2023 onwards.

For Henry Hub, compared to the sector, Shell’s forecast is below the average in the short-term, converging with the bank/broker, consultant and peer group
averages by 2024.

Refining margins
Key observations in relation to refining margins are set out in the key audit matter below.

Impairment discount rates
Shell applied a discount rate of 6% to estimate the recoverable amount in impairment tests, with additional risking included in the cashflows. Whilst the risking
of cashflows is highly judgemental, we were satisfied that the cash flows had been risked appropriately.

Production assets, including Joint ventures and associates
We reported that management’s review to determine whether or not any indicators of impairment were present had considered all relevant information available
at the end of each reporting period, including: the reserves and resources review process, the output of Shell’s operating plan and strategic changes in Shell’s
intended future use of assets, including the refining portfolio, some of which were driven by the energy transition.

For the assets where management’s impairment assessment resulted in an impairment charge, the charges were within an acceptable range. Also, we were
satisfied that the impairment charges were recorded in the appropriate period.

Exploration and evaluation (E&E) assets
The E&E assets that were being carried were consistent with Shell’s strategy and operating plan, including the impacts of the energy transition. We were satisfied
that it remained appropriate to continue to carry the E&E assets whilst the technical feasibility and commercial viability of extracting commercial reserves were
being assessed.

Manufacturing, supply and distribution assets
The significant reduction in future margin assumptions represents an impairment trigger, which resulted in Shell’s entire refinery portfolio being tested for
impairment. We reported that, in our view, management had performed extensive and rigorous impairment assessments covering 14 refineries. Management’s
forecasts included appropriate risking covering margin, availability and cost downside risks. We were satisfied that the risking had been applied appropriately
across the portfolio of refineries. We reported that the outcome of the impairment assessments was consistent with our analysis of expected future refining margins,
based on the configuration of each individual refinery, including the fact that refineries that are able to produce the most beneficial mix of products, in particular
low density products, are expected to fare more favourably and therefore have a higher recoverable amount.

A pre-tax impairment charge of $4.8 billion was recorded. The impairment models were most sensitive to refining margins. A +/-10% change in the long-term
refining gross margin across the portfolio would have had an impact of approximately $1.5-$2.5 billion of additional impairment or $1.7-$2.7 billion of
impairment reversal.

Impairment disclosures
We agreed that the disclosure of the impairments recorded during the year, including sensitivity analysis, performed by the company was appropriate.

Cross-reference: See the Audit Committee Report on page 150 for details on how the Audit Committee considered impairments. Also, see Notes 2, 8 and 9 to the Consolidated Financial Statements.

206

Shell Annual Report and Accounts 2020Financial Statements and SupplementsTHE ESTIMATION OF FUTURE REFINING MARGINS TO EVALUATE THE RECOVERABILITY OF REFINERIES

Description of the key audit matter

Our response to the risk

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.

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 design and implementation of Shell’s new methodology and
the resulting model;

■ we involved our oil and gas valuations specialists to assess the reasonableness
of Shell’s refining margin estimation methodology and reasonableness of their
assumptions;

■ we read reports from independent, third-party sources in order to identify potential
contrary evidence and to assess the reasonableness of key inputs and assumptions
used in the model. These inputs included refining capacity additions, expected refinery
closures, carbon dioxide costs and the strategic and political behaviour of National
Oil Companies;

■ we undertook numerical analysis of the indicative refining margins for the three key
refining hubs (US Gulf Coast, North West Europe and Singapore) and compared
these to market and consultant forecasts;

■ we reviewed analysts’ views of refining margins for each of the three refining hubs;
■ we recreated refining margins from Shell’s price forecasts and benchmarked these

to the refining margins derived from traded futures; and

■ we reperformed management’s calculations for taking the forecast margins at
the three regional hubs and turning them into localised margin forecasts on a
refinery-by-refinery basis.

The audit procedures were performed principally by the group engagement team.

This is a forecast-based valuation. Risk is elevated compared
to 2019 due to Shell reshaping its refining portfolio and
refocusing its downstream strategy.

As described in Note 8 to the Consolidated Financial
Statements, manufacturing, supply and distribution
assets were $50 billion. As further described in Note 8,
an impairment charge of $6,859 million was recorded in
respect of manufacturing, supply and distribution assets.
As described in Note 2, forecast refining margins are
a key input to:
■ assessing whether or not there are indicators that refining

assets might be impaired;

■ estimating the recoverable amount of refining assets; and
■ whether or not there is a need for D&R 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. In prior years, Shell’s estimation of
long-term refining margins focused on the concept of reversion to
mean, as opposed to attempting to forecast refining cycles. The
previous approach was, by nature, backward looking and assumed
that the refining margin will revert to the mean over time, unless a
fundamental shift in markets had been identified.

Shell viewed the expected increase in supply of refined products with
new refineries being constructed, as well as the ongoing impact of
energy transition on the demand side as a fundamental shift in markets.
Consequently, Shell revised its approach to estimating refining
margins. The revised estimation process represented a significant shift
in terms of margin methodology, reflecting energy market demand and
supply fundamentals, including the energy transition, as well as the
shorter-term impacts of the pandemic.

The approach incorporates long-run demand forecasts, including the
impacts of the energy transition, and supply dynamics, including the
speed of the industry’s response to changing demand through either
constructing new refineries or closing older refineries.

Under Shell’s new estimation methodology, forecast average gross
refining margins between 2020 and 2030 have decreased compared
to the historic reversion to mean approach. As a result of over-capacity
in the market, a significant decrease in refining margins is estimated
between 2021 and 2025. As market rationalisation occurs, margins
are forecast to recover between 2025 and 2030. The refineries that
remain in operation are forecast to generate stronger margins
from 2030.

Key observations communicated to the Shell Audit Committee
We reported to the Audit Committee in July 2020 that the more significant assumptions in the new estimation methodology related to demand change, primarily
as a result of the energy transition and, on the supply side, non-economic behaviour, such as investment in refineries for strategic rather than economic reasons. The
structural shifts in energy markets were likely to result in more volatile future margins, as well as prolonged periods of abnormally high or low margins. This means
that in an uncertain future, the risk of operating a refinery would increase and therefore a reversion to mean methodology may no longer be appropriate; this was
particularly the case in an environment where the outlook was unstable and refinery owners begin to act in a manner driven by different economic fundamentals.

We confirmed to the Audit Committee that we involved our oil and gas valuations specialists in assisting us in concluding on the appropriateness of management’s
revised methodology and reasonableness of their assumptions. We also confirmed that we used external broker reports to support our expectations with respect
to future refining margins and assessed whether or not management’s projections were consistent with our independent analysis. Based on our benchmarking
against these external sources, we satisfied ourselves that Shell’s demand forecast assumptions and refining margins were consistent with industry forecasts;
however, we noted that Shell’s view was at the conservative end of the industry.

Shell’s revised refining assumptions were conservative compared to other market benchmarks and represented approximately a 30% decrease compared to
previous views on refining margins. We benchmarked Shell’s key assumptions in estimating future refining margins to external data, where possible, and concluded
that the assumptions used were reasonable and supportable, albeit conservative. The company followed a rigorous and robust process to determine the revised
assumptions.

The significant reduction in future margin assumptions represented an impairment indicator (see key audit matter above).

Cross-reference: See the Audit Committee Report on page 150 for details on how the Audit Committee reviewed refining margins. Also, see Notes 2 and 8 to the Consolidated Financial Statements.

207

Shell Annual Report and Accounts 2020Financial Statements and Supplements
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

7. OUR ASSESSMENT OF KEY AUDIT MATTERS continued

THE ESTIMATION OF DECOMMISSIONING AND RESTORATION (D&R) PROVISIONS

Description of the key audit matter

Our response to the risk

This is an estimation based on uncertain outcomes.
Risk is elevated compared to 2019 due to the
rationalisation of Shell’s manufacturing portfolio.

As described in Note 18 of the Consolidated Financial
Statements, at December 31, 2020, Shell recognised
$23 billion of D&R provisions.

D&R provisions are a highly judgemental area. They
are based on a number of estimates and assumptions
that are impacted by future activities, economic
factors and the legislative environments in which
Shell operates.

D&R provisions are also affected by changes in the oil and
gas reserve estimates and price assumptions, which
determine the date on which production will cease.

The main judgements in determining the D&R provisions
include the appropriateness of the cost, inflation, capital cost
outlook escalation rates, estimated asset lives, discount rate,
cessation of production (COP), the number of days to
decommission an asset and contingency rate assumptions
used in the models and the consistency of their application
across the portfolio.

Industry practice has been not to recognise D&R provisions
associated with refineries and petrochemicals facilities. This
was on the basis that the assets were considered to have
indefinite lives and, therefore, that it was considered remote
that an outflow of economic benefit would be required. This
was driven by the assumption that demand for oil products
would continue to grow and there would be a need for more,
rather than less, refining capacity; hence it was not expected
that existing refineries would be shut down and
decommissioned for the foreseeable future.

During the second quarter of 2020, Shell revised
downwards its discount rate for D&R provisions from
3% to 1.75%. The reduction in the rate was driven by
unprecedent macroeconomic conditions due to COVID-19,
which resulted in a significant drop in US treasury bond rates.
The impact of the change in discount rate was to increase
Shell’s decommissioning liabilities by $3.6 billion as at
June 30, 2020.

The procedures we performed included the following:
■ we obtained an understanding of the controls over Shell’s D&R estimation process. We then

evaluated the design of these controls and tested their operating effectiveness. For example, we
tested controls over the review of the estimation and completeness of costs in accordance with
Shell’s internal guidelines;

■ we considered the increasing expectation that demand for oil products will fall, particularly in

developed economies, together with Shell’s plans to rationalise their manufacturing portfolio. In
so doing, we challenged management’s assessment of whether or not the expected useful lives
of manufacturing assets remained appropriate. In particular, we challenged management’s
conclusion that manufacturing assets could no longer be considered to have indefinite lives,
and that therefore D&R provisions were required for certain refineries. We also challenged
management’s assessment of the need for contingent liability disclosure in respect of certain
other assets;

■ we obtained an understanding of the procedures performed by management to estimate the
D&R provisions. This included understanding the processes to establish whether or not a legal
or constructive obligation existed;

■ we understood changes in D&R cost estimates, and assessed whether they reflected the latest

regulatory requirements and technical developments;

■ we read case studies relating to previously decommissioned sites and compared the cost of those

decommissioning activities to management’s assumptions;

■ we agreed key inputs such as site acreage and distillation capacity to publicly available sources;
■ we evaluated changes in assumptions for labour rates, rig type and rates, number of wells, well

durations and any contingency applied;

■ we assessed changes in assumptions for the anticipated date of decommissioning;
■ in the case of non-operated assets, we understood and challenged whether management

applied their own assumptions to the D&R estimate or used the operator-provided estimates;

■ we tested the D&R accounting models and assumptions therein, including discount rates,

equity percentages and inflation rates. We involved our valuation specialists in testing these
assumptions, including the change in Shell’s discount rate assumption from 3% to 1.75%
during the year;

■ we challenged the timing of recognition of D&R provisions related to projects in development;
■ we evaluated contingent liabilities and D&R provisions arising from assets previously disposed of;
■ we ensured key assumptions used were aligned with the assumptions used in other areas of

measurement, such as impairment;

■ we assessed the counterparty risk of prior disposals to ascertain the risk of the related D&R

provision becoming a liability of Shell; and

■ we reviewed and challenged the disclosures in the financial statements.

The audit procedures were performed principally by the group engagement team and our
component teams in Australia, Brazil, Trinidad and Tobago, the UK and the USA.

Key observations communicated to the Shell Audit Committee
Upstream and Integrated Gas
In January 2021, we reported that the Upstream and Integrated Gas D&R provisions recorded as at December 31, 2020 were fairly stated and that changes in
D&R provisions during the year, including the application of the revised discount rate and capital cost outlook escalation rates, had been reflected appropriately in
the financial statements.

Refineries
In January 2021, we confirmed to the Audit Committee that:
■ we agreed with management’s conclusion that it was no longer appropriate to consider refineries to have indefinite lives and that for manufacturing assets

either D&R provisions or contingent liability disclosures were required;

■ for those provisions recorded, that the amounts recorded fell within a reasonable range and that the provisions were supported by appropriate evidence;
■ estimating refinery useful lives is highly judgemental, particularly when considering time periods of 50 to 100 years. In our view, management had appropriately
stratified the refining portfolio and, in doing so, had made reasonable judgements as to which refineries required a provision and which required contingent
liability disclosure;

■ we considered Shell’s risk-free rate assumption to be reasonable and supported by our analysis, based on data from the US Department of Treasury and

Oxford Economics. We also concluded that changes in D&R provisions as a result of the revised discount rate, were reflected appropriately in the financial
statements; and

■ we agreed that the disclosure of contingent liabilities was appropriate.

Cross-reference: See the Audit Committee Report on page 147 on how the Audit Committee reviewed D&R provisions. Also, see Notes 18 and 25 to the Consolidated Financial Statements.

208

Shell Annual Report and Accounts 2020Financial Statements and SupplementsRECOGNITION 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 2019 due to the increased
uncertainty in forecasting future profits in the current
macro-economic environment.

As described in Note 16 of the Consolidated Financial
Statements, at December 31, 2020 Shell recognised
gross deferred tax assets (DTAs) totalling $33 billion,
which are recognised within two balance sheet line
items, DTAs and as an offset against deferred tax
liabilities (DTLs), depending on the overall tax
position in a particular jurisdiction.

The recognition of material DTA balances is supported by
the unwinding of DTLs and forecast future taxable profits,
which are underpinned by Shell’s assumptions, including
commodity price assumptions and the timing of the
unwinding of DTAs.

Auditing the recognition and measurement of DTAs is
complex because the estimation requires significant
judgement, including the timing of reversals of DTLs and the
availability of future profits against which tax deductions
represented by the DTAs can be offset.

A key judgement applied by management in assessing
whether it is appropriate to recognise certain DTAs includes
the expectation of probable taxable profits arising beyond
Shell’s 10-year planning horizon. There is greater uncertainty
regarding future taxable profits that exist outside the 10-year
planning period.

We obtained an understanding of the controls over Shell’s processes for the recognition and
measurement of DTAs. 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
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 and deductible temporary differences. This included the
ability to carry tax losses forward or back and any restrictions arising from ring fencing losses for
tax purposes.

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,
including the risking of forecast profit, that underpin Shell’s assessment of forecast probable
taxable profits;

■ we evaluated the extent to which sufficient probable taxable profits would arise in the period

within which the related losses and/or deductible temporary differences 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;

■ we evaluated management’s negative stress test to enable us to understand the tolerance of

the estimation uncertainty to further risking; and

■ we confirmed that the tax balances were calculated using substantively enacted tax laws

and rates.

For the tax planning strategies necessary to justify the recognition of the relevant DTAs, we involved
our tax professionals to evaluate whether the Company’s proposed tax planning strategies were
achievable.

Our audit procedures over the recognition and valuation of DTAs were performed by our tax
specialist teams in Australia, Brazil, Canada, the Netherlands, Malaysia, Nigeria, Singapore,
Qatar, the UK and the USA, which covered 77% of the gross DTA balance. We also performed
specified procedures over the recognition and valuation of DTAs in Albania, Austria, China,
Egypt, France, Germany, Kazakhstan, Norway, Oman, Philippines, South Africa,
Spain, Switzerland, Tanzania, Trinidad and Tobago and Tunisia, which covered an additional
14% of the gross DTA balance.

Key observations communicated to the Shell Audit Committee
In January 2021, we reported to the Audit Committee that the majority of the DTAs are either offset against DTLs or are expected to be recovered from forecast
profits within the operating planning horizon. In aggregate, these factors supported 97% of the recognised DTAs. The remaining 3% relied on estimated future
profits between 2031 and 2040. Whilst the application of risking is judgemental, we satisfied ourselves that management’s risking of forecast profit was
appropriate to reflect the uncertainty throughout the forecast period.

The COVID-19 impact on the global economy and on GDP growth, together with the dramatic fall in the oil price and in demand for petroleum products, had
increased the level of pressure on the recoverability of DTAs that were supported by estimated future taxable profits. However, we have concluded that there is
sufficient evidence to support Shell’s recognition of DTAs, although there is a greater degree of judgement required when profits beyond Shell’s operating plan
planning horizon are necessary to support the asset recognition.

Cross-reference: See the Audit Committee Report on page 150 for details on how the Audit Committee reviewed certain tax matters, in particular the recoverability of deferred tax assets.
Also, see Notes 2 and 16 to the Consolidated Financial Statements.

209

Shell Annual Report and Accounts 2020Financial Statements and SupplementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ROYAL DUTCH
SHELL PLC continued

7. OUR ASSESSMENT OF KEY AUDIT MATTERS continued

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 POSITIONS

Description of the key audit matter

Our response to the risk

This is a risk of error in revenue due to the complexity
of Shell’s trading and supply function. Risk is
unchanged compared to 2019.

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 and controls around the review of valuation models.

As described in Note 4 of the Consolidated Financial
Statements, at December 31, 2020 Shell recognised
$181 billion of revenue. As described in Note 19, Shell
recognised derivative financial instrument assets
of $9 billion and derivative financial instrument
liabilities of $6 billion.

Our trading audit professionals comprise individuals who have significant experience of auditing
both large commodity trading organisations and financial institutions.

To audit the existence, completeness and valuation of open positions, we focused specifically on
over-the-counter (OTC) physical and financial transactions. Our audit procedures included the
following:

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 positions.

Existence:
■ we obtained external confirmations for a sample of open trading positions with brokers and

counterparties and, where necessary, we evaluated the existence of the position by agreement
to signed contracts.

Shell’s trading and supply function is integrated within the
Oil Products, Chemicals, 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. Further, in 2020, trading margins
have been under pressure due to the volatility of commodity
prices and demand since the start of the pandemic.

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 or loss allocations.

Completeness:
■ we performed additional confirmation testing by obtaining confirmations from a sample of
counterparties who had open positions in the prior trading year, but no reported trading
positions in the current year; and

■ we performed procedures to identify unrecorded liabilities by comparing sales to trade

receivables and purchases to trade payables that occurred near the end of the financial year to
evaluate whether or not transactions were recorded in the correct period.

Valuation:
■ we analysed the key valuation inputs to the valuation models;
■ we assessed Shell’s valuation methodology against market practice. This included comparing the

price curves and volatility assumptions adopted by Shell to external broker quotes, market
consensus providers, and our independent assessments;

■ for a sample of non-complex derivatives (Level 1 and 2), we performed an independent

recalculation of their fair value at the end of the year; and

■ we involved EY valuation specialists to assist us in performing independent testing of the

valuation models of Level 3 contracts. We evaluated the contract terms and key assumptions
against independent market information.

The other audit procedures we performed included:
■ we enquired of management whether or not there were any breakdowns of trading controls or

instances of rogue trading reported or known or suspected frauds;

■ we assessed the design of key controls and performed independent testing of key trading

controls throughout the financial year;

■ we assessed the relevant accounting policies against IFRS and considered their appropriateness

under current market conditions; and

■ we evaluated the appropriateness of presentation on both the income statement and balance

sheet based on the standards required by IFRS.

The audit procedures were performed principally by the group engagement team and the UK and
US component teams.

Key observations communicated to the Shell Audit Committee
In March 2021, we reported to the Audit Committee that:
■ the valuation of derivative contracts as at December 31, 2020 was appropriate;
■ our testing 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;
■ our completeness testing did not identify any unrecorded liabilities or significant cut-off issues; and
■ our testing did not identify any indications of unauthorised trading activity or deliberate misstatement of Shell’s trading positions.

Cross-reference: See the Audit Committee Report on page 147 for details on how the Audit Committee reviewed the Trading and Supply’s control framework. Also, see Note 4 to the
Consolidated Financial Statements.

210

Shell Annual Report and Accounts 2020Financial Statements and SupplementsTHE 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. Risk is unchanged
compared to 2019.

Royal Dutch Shell plc has $19.2 billion of
distributable profits at December 31, 2020. In
2020, Shell distributed $7.3 billion of dividends
and repurchased $1.2 billion of shares.

There is considerable public interest in ensuring that
companies pay dividends and buy back shares out of profits
available for distribution. Although Shell has reduced
quarterly dividends and the share buyback programme
was paused during 2020, shareholders’ returns are a
fundamental part of Shell’s financial framework and it
remains a major dividend-paying company. Given the
uncertainty surrounding a prolonged period of economic
crisis, volatility, weaker commodity prices and demand
outlook, this remains a key matter of interest to stakeholders.

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 distributions. We also reperformed the calculation of
distributable profits available for distribution of the Parent Company by reference to the relevant
accounts;

■ we confirmed that, as at December 31, 2020, the Parent Company had a merger reserve

of $234 billion and that, in the event that the investment in Shell Petroleum N.V. held by RDS plc
were to be impaired (see the key audit matter below), this would have no impact on Shell’s
distributable profits. We confirmed further that this is because, under the Companies Act 2006,
any such impairments would first be charged to the income statement and then transferred to
the merger reserve, as opposed to impacting distributable reserves; and

■ we satisfied ourselves that distributions made in 2020 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 March 2021, 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

■ we were satisfied that the profits available for distribution, by reference to the relevant accounts, were sufficient to support the distributions made by the Parent

Company.

Cross-reference: See Note 23 to the Consolidated Financial Statements and Note 8 to the Parent Company Financial Statements.

211

Shell Annual Report and Accounts 2020Financial Statements and SupplementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ROYAL DUTCH
SHELL PLC continued

7. OUR ASSESSMENT OF KEY AUDIT MATTERS continued

THE RECOVERABLE AMOUNT OF INVESTMENTS HELD BY THE PARENT COMPANY

Description of the key audit matter

Our response to the risk

This is a forecast-based valuation. The risk is elevated
compared to 2019 due to the impact of the pandemic
on the Global economy and on Shell’s profitability.
This key audit matter relates to the Parent
Company only.

As described in Note 4 to the Parent Company
Financial Statements, at December 31, 2020, RDS
plc held investments in subsidiaries of $257 billion,
mainly related to its investment in Shell Petroleum
N.V. (SPNV).

The weak macro-economic environment and the impact
of the pandemic have led to a shortfall of the market
capitalisation of the group versus the carrying value of the
investment held in SPNV of around of $100 billion at year
end. This is an indicator of impairment and management
have tested SPNV for impairment as a result.

SPNV holds directly and indirectly the entire Shell group.
Therefore, both the operational performance of the group’s
assets and external factors have a significant impact on the
estimate of the recoverable amount of SPNV.

Accounting standards require the recoverable amount to be
determined at the higher of fair value less cost of disposal
and value in use (VIU). Management have estimated the
recoverable amount of SPNV on the basis of an aggregation
of the VIU of the group’s CGUs discounted at a pre-tax
nominal discount rate of 6%.

The most significant judgement applied in determining the
VIU of SPNV is the projection of cashflows form Shell’s
business plan. A further significant judgement applied is
in the risking of the projected cashflows. In order to assess
how sensitive the VIU is to fluctuations in assumptions,
management performed a reverse stress test to determine
the level at which an impairment would be recorded.

We tested the controls over the management approval of key inputs, metrics and adjustments made
to Shell’s Operating Plan which supports the recoverable value of the investment, including oil and
gas prices, oil and gas reserves and future refining margins.

In order to evaluate the cash flow inputs of the impairment model, we gained an understanding of
the methodology behind the model and verified its mathematical accuracy and completeness.

We assessed the conclusions reached in the asset impairment tests performed during the year and
Shell’s impairment assessment of the goodwill allocated at the Upstream and IG segment level and
whether any contrary evidence existed from those tests that would call into question the validity of
mangement’s SPNV VIU methodology.

We challenged the appropriateness of the extent to which the cashflows had been risked
and considered the sensitivity of the impairment assessment to further risking. We reviewed
management’s reverse stress test, which adjusted the extent to which cashflows were risked until the
headroom was removed entirely; we also evaluated corroborative and contrary evidence to assess
whether this level of risking of the cashflows was within a range of reasonably possible outcomes.

We engaged our EY valuations specialists to assist in the review and challenge of the
appropriateness of the VIU approach applied by management. Our specialists applied alternative
approaches to calculate the VIU of SPNV at December 31, 2020. We also carried out sensitivity
analyses by applying further adjustments and risking and determined a reasonable range for the
recoverable amount of SPNV. We considered whether the outcome of these analyses supported
the carrying value of SPNV.

Our valuation specialists also estimated the fair value of SPNV at December 31, 2020 on the basis
of data observed in historic market transactions. This confirmed that the VIU of SPNV was higher
than its fair value and that, therefore, it was appropriate to estimate the recoverable amount of
SPNV at its VIU.

The audit procedures were performed by the group engagement team and local audit teams
through a combination of substantive and control procedures.

Key observations communicated to the Shell Audit Committee
In March 2021, we reported to the Audit Committee that:
■ we were satisfied that the overall VIU methodology was appropriately applied by management and was consistent with the impairment assessments performed

at an asset level and provided a reasonable basis for estimating the VIU of SPNV;

■ we did not identify any contrary evidence from the goodwill and asset impairment tests performed by management during the year and we were satisfied that

the conclusions reached in those impairment tests did not contradict the results of management’s SPNV impairment assessment;

■ the VIU of SPNV was higher than its fair value and that, therefore, it was appropriate to estimate the recoverable amount of SPNV at its VIU;
■ based on our analysis, we determined a reasonable range for the recoverable amount of SPNV and confirmed that the carrying value of the investment lies

within our range; and

■ we were satisfied that, whilst the recoverable amount has decreased significantly in 2020, no impairment was required.

Cross-reference: See Note 23 to the Consolidated Financial Statements and Note 4 to the Parent Company Financial Statements.

212

Shell Annual Report and Accounts 2020Financial Statements and Supplements
8. 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 189 and 298 to 327 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 contained within the Annual Report.

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 on which we are required to report by exception.

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.

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.

We are required to report by exception whether, in 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.

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
We have nothing to report in this regard.

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 have nothing to report by exception.

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.

Under the Companies Act 2006, we are also required to report by exception whether certain disclosures
of directors’ remuneration specified by law are not made.

We have nothing to report by exception.

CORPORATE GOVERNANCE STATEMENT

Our responsibility
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term
viability and that part of the Corporate Governance Statement relating to the group and company’s
compliance with the provisions of the UK Corporate Governance Code specified for our review.

Based on the work undertaken as part of our audit, we are required to consider whether each of the
following elements of the Corporate Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
■ Directors’ statement with regards to the appropriateness of adopting the going concern basis of

accounting and any material uncertainties identified set out on page 184;

■ Directors’ explanation as to its assessment of the company’s prospects, the period this assessment

covers and why the period is appropriate set out on page 183;

■ Directors’ statement on fair, balanced and understandable set out on page 189;
■ Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks

set out on page 28;

■ the section of the annual report that describes the review of effectiveness of risk management and

internal control systems set out on page 186; and;

■ the section describing the work of the Audit Committee set out on page 145.

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
Based on the work undertaken as part of our audit, we have
concluded that each of these elements of the Corporate
Governance Statement is materially consistent with the
financial statements or our knowledge obtained during
the audit.

Our reporting
We have nothing to report by exception.

213

Shell Annual Report and Accounts 2020Financial Statements and SupplementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ROYAL DUTCH SHELL PLC continued

9. RESPONSIBILITIES OF THE DIRECTORS
As explained more fully in the statement of Directors’ responsibilities set out on page 22, 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’s and the Parent Company’s ability to continue as going
concerns, 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.

10. 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.

11. EXPLANATION AS TO WHAT EXTENT OUR AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES,
INCLUDING FRAUD
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined
above, to detect irregularities, including fraud.

The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.

The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. 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.

■ 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 the 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
on a risk-based approach.

214

Shell Annual Report and Accounts 2020Financial Statements and Supplements ■ 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.

■

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.

12. 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 19, 2020, 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 July 16, 2020. Our total uninterrupted period of engagement is five years covering periods from our appointment through to the period
ending December 31, 2020.

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.

13. 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)

ALLISTER WILSON
Senior Statutory Auditor
for and on behalf of Ernst & Young LLP
London
March 10, 2021

215

Shell Annual Report and Accounts 2020Financial Statements and SupplementsCONSOLIDATED
FINANCIAL
STATEMENTS

217

218

219

Consolidated Statement of Income

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

220

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Note 1 Basis of preparation

Note 2 Significant accounting policies, judgements and estimates

Note 3 Changes to IFRS not yet adopted

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 Emission schemes and related environmental plans

Note 30 Post-balance sheet events

221

229

230

233

234

238

239

240

241

244

246

250

251

256

257

259

260

262

263

264

216

Shell Annual Report and Accounts 2020Financial Statements and SupplementsCONSOLIDATED 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

(Loss)/income before taxation

Taxation (credit)/charge

(Loss)/income for the period

Income attributable to non-controlling interest

(Loss)/income attributable to Royal Dutch Shell plc shareholders

Basic earnings per share ($)

Diluted earnings per share ($)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Loss)/income for the period

Other comprehensive income/(loss) net of tax

Items that may be reclassified to income in later periods:

Currency translation differences

Debt instruments remeasurements

Cash flow hedging (losses)/gains [A]

Net investment hedging (losses)/gains [A]

Deferred cost of hedging

Share of other comprehensive loss of joint ventures and associates

Total

Items that are not reclassified to income in later periods:

Retirement benefits remeasurements

Equity instruments remeasurements

Share of other comprehensive income of joint ventures and associates

Total

Other comprehensive (loss)/income for the period

Comprehensive (loss)/income for the period

Comprehensive income attributable to non-controlling interest

Notes

2020

2019

$ million

2018

180,543

344,877

388,379

1,783

869

183,195

117,093

24,001

9,881

907

1,747

52,444

4,089

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

210,162

326,621

360,935

(26,967)

(5,433)

(21,534)

146

25,485

9,053

16,432

590

35,621

11,715

23,906

554

(21,680)

15,842

23,352

(2.78)

1.97

1.95

2.82

2.80

Notes

2020

(21,534)

2019

16,432

1,179

(160)

(423)

100

(42)

677

344

(276)

(76)

(2,702)

(2,102)

119

(2,519)

(1,842)

(30)

(2,130)

(2,034)

$ million

2018

23,906

(3,171)

(15)

730

(1)

(209)

(10)

(2,676)

3,588

(153)

193

3,628

952

(23,376)

14,398

24,858

136

625

383

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

(23,512)

13,773

24,475

[A] As from 2020, ‘Cash flow hedging (losses)/gains’ and ‘Net investment hedging (losses)/gains’ have been separately disclosed. Prior period comparatives for these items have been revised to

conform with current year presentation (see Note 22).

217

Shell Annual Report and Accounts 2020Financial Statements and SupplementsCONSOLIDATED FINANCIAL STATEMENTS continued

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

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 10, 2021

218

Notes

Dec 31, 2020

Dec 31, 2019

$ million

22,822

210,847

22,451

3,222

16,311

2,474

7,641

2,805

23,486

238,349

22,808

2,989

10,524

4,717

8,085

689

288,573

311,647

19,457

33,625

5,783

31,830

90,695

379,268

91,115

2,304

420

10,463

15,168

27,310

24,071

43,414

7,149

18,055

92,689

404,336

81,360

2,342

1,209

14,522

13,017

21,799

146,780

134,249

16,899

41,677

5,308

6,006

437

3,624

73,951

220,731

651

(709)

12,752

142,616

155,310

3,227

158,537

379,268

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

190,463

404,336

Shell Annual Report and Accounts 2020Financial Statements and SupplementsCONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Equity attributable to Royal Dutch Shell plc shareholders

Share capital
(see Note 20)

Shares
held in trust

657

(1,063)

Retained
earnings

172,431

Non-
controlling
interest

Total

186,476

3,987

At January 1, 2020

Comprehensive (loss)/income for the period

Transfer from other comprehensive income

Dividends (see Note 23)

Repurchases of shares

Share-based compensation

Other changes in non-controlling interest

At December 31, 2020

At January 1, 2019 (as previously published)

Impact of IFRS 16

At January 1, 2019 (as revised)

Comprehensive income/(loss) for the period

Transfer from other comprehensive income

Dividends (see Note 23)

Repurchases of shares [C]

Share-based compensation

Other changes in non-controlling interest

At December 31, 2019

At January 1, 2018

Comprehensive income for the period

Transfer from other comprehensive income

Dividends (see Note 23)

Repurchases of shares [C]

Share-based compensation

Other changes in non-controlling interest

Other
reserves
(see Note 22)

14,451

(1,832)

270

—

(143)

—

12,752

16,615

—

16,615

(2,069)

(74)

—

(49)

—

354

—

(709)

(1,260)

—

(1,260)

—

197

—

(1,063)

(917)

14,451

16,794

—

(343)

—

1,123

(971)

—

(342)

—

(6)

—

651

685

—

685

—

(28)

—

657

696

—

(11)

—

(21,397) [A]

(23,229)

(270)

(7,270)

(1,214)

(230)

566

142,616

182,606

182,610

15,842

(15,198)

(10,286)

(613)

172,431

177,733

23,352

971

(15,675)

(4,519)

693

—

(7,270)

(1,214)

(19)

566

155,310

198,646

198,650

13,773

—

(15,198)

(10,286)

(465)

186,476

194,306

24,475

—

(15,675)

(4,519)

$ million

Total
equity

190,463

(23,093)

—

(7,581)

(1,214)

(19)

158,537

202,534

136

—

(311)

—

(585) [B]

3,227

3,888

—

3,888

202,538

625

—

(537)

—

3,987

3,456

383

—

(586)

—

635

3,888

14,398

—

(15,735)

(10,286)

(465)

190,463

197,762

24,858

—

(16,261)

(4,519)

686

202,534

At December 31, 2018

685

(1,260)

16,615

182,606

198,646

[A] Comprehensive loss for the period of $21,397 million recognised in retained earnings includes a gain of $283 million, recognised in equity, that relates to remeasurement of a share of interest in a

joint venture in respect of prior years.

[B] The change is mainly related to the non-controlling interest in Shell Midstream Partners, L.P. (SHLX) following the completion of the sale of Shell’s 79% interest in the Mattox Pipeline Company LLC

and certain logistics assets at the Shell Norco Manufacturing Complex to SHLX.

[C] The repurchase of shares recognised through retained earnings includes the aggregate maximum consideration to which Shell was contractually bound to under the tranches of the buyback

programme, plus associated stamp duty (see Note 20).

219

Shell Annual Report and Accounts 2020Financial Statements and SupplementsCONSOLIDATED FINANCIAL STATEMENTS continued

CONSOLIDATED STATEMENT OF CASH FLOWS

(Loss)/income before taxation for the period

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

Decrease/(increase) in inventories

Decrease/(increase) in current receivables

Decrease in current payables

Derivative financial instruments

Retirement benefits

Decommissioning and other provisions

Other

Tax paid

Cash flow from operating activities

Capital expenditure

Investments in joint ventures and associates

Investment in equity securities

Proceeds from sale of property, plant and equipment and businesses

Proceeds from sale of joint ventures and associates

Proceeds from sale of equity securities

Interest received

Other investing cash inflows

Other investing cash outflows

Notes

2020

(26,967)

3,316

52,444

815

(286)

(1,783)

2,591

4,477

9,625

(9,494)

977

568

1,104

(3,290)

34,105

(16,585)

(1,024)

(218)

2,489

1,240

281

532

3,239

(3,232)

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

$ million

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)

Cash flow from investing activities

Net decrease in debt with maturity period within three months

(13,278)

(15,779)

(13,659)

(63)

(308)

(396)

Other debt:

New borrowings

Repayments

Interest paid

Derivative financial instruments [A]

Change in non-controlling interest

Cash dividends paid to:

Royal Dutch Shell plc shareholders

Non-controlling interest

Repurchases of shares

Shares held in trust: net purchases and dividends received

Cash flow from financing activities

Currency translation differences relating to cash and cash equivalents

Increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

23,033

(17,385)

(4,105)

1,157

(42)

(7,424) [B]

(311)

(1,702)

(382)

(7,224)

172

13,775

18,055

31,830

11,185

(14,292)

(4,649)

(48)

—

(15,198)

(537)

(10,188)

(1,174)

3,977

(11,912)

(3,574)

678

(15,675)

(584)

(3,947)

(1,115)

(35,209)

(32,548)

124

(8,686)

26,741

18,055

(449)

6,429

20,312

26,741

[A] As from 2019, a new line item 'Derivative financial instruments' has been introduced for derivatives related to debt.
[B] Cash dividends paid represents the payment of net dividends (after deduction of withholding taxes where applicable) and payment of withholding taxes on dividends paid in the previous quarter.

220

Shell Annual Report and Accounts 2020Financial Statements and Supplements
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 international accounting standards in
conformity with the requirements of the UK Companies Act 2006 (the
“Act”), and therefore in accordance with International Financial Reporting
Standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as
it applies in the European Union. As applied to Shell, there are no material
differences from IFRS as issued by the International Accounting Standards
Board (IASB); therefore, the Consolidated Financial Statements have been
prepared in accordance with IFRS as issued by the IASB.

As described in the accounting policies in Note 2, the Consolidated
Financial Statements have been prepared under the historical cost
convention except for certain items measured at fair value. Those
accounting policies have been applied consistently in all periods, except
for the accounting for lease contracts following the prospective adoption
of IFRS 16 Leases from January 1, 2019.

The Consolidated Financial Statements were approved and authorised
for issue by the Board of Directors on March 10, 2021.

2 – SIGNIFICANT ACCOUNTING POLICIES,
JUDGEMENTS AND ESTIMATES
This Note describes Shell’s significant accounting policies, which are those
relevant to an understanding of the Consolidated Financial Statements.
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 year except for the adoption as from January 1, 2020 of
amendments to IFRS 9 Financial Instruments (IFRS 9) and IFRS 7
Financial Instruments: Disclosures (IFRS 7), and IFRS 3 Business
Combinations (IFRS 3).

The transition to the accounting pronouncements as listed below has
no or no material impact.

IFRS 9 Financial Instruments and IFRS 7 Financial
Instruments: Disclosures
Inter-Bank Offered Rate (IBOR) Reform – Phase 1
IFRS 9 and IFRS 7 contain a temporary targeted exception from applying
specific hedge accounting requirements pre-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. However, any hedge ineffectiveness continues to
be recorded in the income statement. The exception ceases to apply
when the uncertainty arising from interest rate benchmark reform is
no longer present.

IFRS 3 Business Combinations
The amendment to IFRS 3 resolves the difficulties that arose when an
entity determined whether it acquired a business or a group of assets.
Under the amended definition of a business, an acquisition qualifies as a
business combination when the assets and liabilities acquired include an
input and a substantive process that together significantly contribute to
the ability to create outputs. The amended definition of a business is
applied prospectively.

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, 2020, 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.

Climate change and energy transition
Meeting the goals of the Paris Agreement is a global and Shell target.
Shell’s pathway to Paris alignment is reflected in the Group’s strategy and
in 2020 we announced a long-term target to become a net-zero emissions
energy business by 2050, in step with society.

It is important to note that the world needs to transform in a number of
complex and interconnected ways. While the world has made some
movement towards the goals of Paris, unfortunately, society is not yet on
a path to meet Paris. Getting the energy system on a path to net-zero
emissions will require coordinated action between energy providers,
energy users and governments.

One of the key aspects that underpin Shell’s financial statements are the
oil and gas price and refining margin assumptions. These price
assumptions are developed with input from our scenarios and other
factors. The mid-price is our reasonable best estimate and the basis for our
operating plans, outlooks and impairment testing.

Shell’s operating plan and outlook (including portfolio changes) are
forecasted for a 10-year period and include significant actions to reduce its
greenhouse gas (GHG) emissions in its journey towards its net-zero emissions
target by 2050 as outlined in this report. However, our plan and pricing
assumptions do not yet reflect Shell’s 2050 net-zero emissions target,
because our planning timeframe is 10 years and there is significant
uncertainty on how society will transition to net-zero emissions. Instead these
reflect the current economic environment, the pace of the world’s energy
transition and Shell’s reasonable expectation of how the next 10 years will
evolve. As society moves towards net-zero emissions, Shell expects its
operating plan, outlook and assumptions to be revised accordingly.

Long term, it is expected that the current Shell portfolio will change and
evolve with the energy transition. Decision-making on the future portfolio is
guided by the pace of society’s progress and the aim of being in step with
society as it moves towards the goal of the Paris Agreement. Shell has set
out its strategy of how it will achieve its target to be a net-zero emissions
energy business by 2050, in step with society’s progress towards
achieving net-zero emissions.

221

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

2 – SIGNIFICANT ACCOUNTING POLICIES, JUDGEMENTS
AND ESTIMATES continued
Currency translation
Foreign currency transactions are translated using the exchange rate at
the dates of the transactions or valuation where items are remeasured.
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 unless
when recognised in other comprehensive income in respect of cash flow or
net investment hedges. Foreign exchange gains and losses in income are
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 is generally recognised in income.

Revenue recognition
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 stand-alone 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.

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 the 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”) 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, emission certificates,
software costs and trademarks. Interest is capitalised as an increase in
property, plant and equipment, on major capital projects during
construction.

Property, plant and equipment and intangible assets are subsequently
carried at cost less accumulated depreciation, depletion and amortisation
(including any impairment). Gains and losses on sale are determined by
comparing the proceeds with the carrying amounts of assets sold and
are recognised in income, within interest and other income.

An asset is classified as held for sale if its carrying amount will be
recovered principally through sale rather than through continuing use,
which is when the sale is highly probable, and it is available for immediate
sale. Assets classified as held for sale are measured at the lower of the
carrying amount upon classification and the fair value less costs to sell.

222

Shell Annual Report and Accounts 2020Financial Statements and SupplementsDepreciation, 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 Integrated Gas
and 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. (See Note 8)

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 lease 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 of disposal (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, mainly related to CO₂,

and forecast product and refining margins. In addition, management takes
into consideration the expected useful lives of the manufacturing facilities,
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 determined 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. Generally, in the normal course of business the
diversity of the asset portfolio will limit the net 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 reserves base, is presented in Note 8.

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2 – 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 and
refining margins. In addition, management uses other assumptions such
as potential costs associated with operational GHG emissions and
expected production volumes 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 assumptions could affect
the carrying amounts of assets, and any impairment losses and
reversals will affect income. Changes in economic conditions can
affect the rate used to discount future cash flow estimates or the
risk-adjustment in the future cash flows.

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.

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.

In assessing the value in use, the estimated risk adjusted future cash
flows are discounted to their present value using a pre-tax discount
rate that reflects Shell’s marginal cost of debt, current market
assessments of the time value of money and residual risks (e.g.
normal operational and other generic uncertainties). The discount
rate applied does not reflect risks for which future cash flow
estimates have been adjusted.

Significant estimates
Future commodity price assumptions used in the impairment testing in
Integrated Gas and Upstream, 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.

224

Until 2019 management’s estimate of longer-term refining margins used
in the impairment testing in Oil Products was based on the reversion to
mean methodology, unless a fundamental shift in markets had been
identified, over the life of the refineries. Under this approach, it was
assumed that refining margins would revert to historical averages over
time. As from 2020, a different price methodology applies, based on
Shell management’s understanding and interpretation of demand and
supply fundamentals in the near term and taking into account various
other factors such as industry rationalisation and energy transition
in the long term.

Future commodity prices and refining margins used in impairment
testing provide a source of estimation uncertainty as referred to
in paragraph 125 of IAS 1 Presentation of Financial Statements
(IAS 1.125).

Information about the carrying amounts of assets and impairments
and their sensitivity to changes in significant estimates are presented
in Notes 7 and 8.

Leases (from January 1, 2019)
A contract, or part of a contract, 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) is accounted for as a lease. 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 on which
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.

Shell Annual Report and Accounts 2020Financial Statements and SupplementsWhere 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 and obtains
substantially all of the economic benefits from using the asset.

Impairment 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 Shell will 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. When assessing the lease term
at the commencement date, Shell takes into consideration the broader
economics of the contract. Reassessment of the lease term is
performed upon changes in circumstances that may affect the
probability that an option to extend or to terminate the lease
will be exercised.

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.

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, 2020, 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.

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.

225

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2 – SIGNIFICANT ACCOUNTING POLICIES,
JUDGEMENTS AND ESTIMATES continued

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 health care 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

226

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, require significant estimation as these
are subject to 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.

Actuarial assumptions applied in determining defined benefit
obligations provide a source of estimation uncertainty as referred
to in IAS 1.125.

Information about the amounts reported in respect of defined benefit
pension plans, assumptions applicable to the principal plans and their
sensitivity to changes in significant estimates 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 and the discount rate
applied are regularly reviewed and adjusted for new facts or changes in
law, technology or financial markets.

Provisions for decommissioning and restoration costs, which arise
principally in connection with hydrocarbon production facilities, oil
products manufacturing 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 a legal or
constructive obligation arises to dismantle an item of property, plant
and equipment and to restore the site on which it is located and 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.

Shell reviews its refinery and chemical sites on a regular basis to determine
whether any changes in assumptions, including expected life, trigger the
need to recognise a provision for decommissioning and restoration.

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 cost
and an appropriate timeline, and the employees affected have been
notified of the plan’s main features.

Shell Annual Report and Accounts 2020Financial Statements and SupplementsAn onerous contract provision is recognised when the unavoidable cost of
meeting the obligations under the contract exceed the economic benefits
expected to be received under it. The unavoidable cost under a contract
is the lower of the cost of fulfilling the contract and any compensation
or penalties arising from failure to fulfil it. The cost of fulfilling a contract
comprises the costs that relate directly to the contract. Before an onerous
provision is recognised Shell first recognises any impairment loss that has
occurred on assets dedicated to that contract.

Other provisions are recognised in income in the period in which
an obligation arises and the amount can be reasonably estimated.
Provisions are measured based on current legal requirements and existing
technology where applicable. Recognition of any joint and several liability
is based on management’s best estimate of the final pro rata share of the
liability. Provisions are determined independently of expected insurance
recoveries. Recoveries are recognised when virtually certain of realisation.

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 cash
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.

Significant estimate
The discount rate applied to reflect the time value of money in the
carrying amount of provisions requires estimation. The discount rate
applied is reviewed regularly and adjusted following changes in
market rates.

The discount rate applied to determine the carrying amount of
provisions provides a source of estimation uncertainty as referred
to in IAS 1.125.

Information about decommissioning and restoration provisions and
their sensitivity to changes in estimates are presented in Note 18.

Financial instruments
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.

Debt instruments are 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 or 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 which 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 or loss. For trade receivables, a simplified
impairment approach is applied recognising expected lifetime
losses from initial recognition.

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 generally have a maturity of
three months or less at the date of purchase.

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 at fair value through profit or 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 and the host contract of
which is not a financial asset are separated from their host contract
and recognised at fair value with the associated gains and losses
recognised in income.

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2 – SIGNIFICANT ACCOUNTING POLICIES,
JUDGEMENTS AND ESTIMATES continued
Contracts to buy or sell a non-financial item that can be settled net in cash
are accounted for as financial instruments, with the exception of those
contracts that were entered into and continue to be held for the purpose
of the receipt or delivery of a non-financial item in accordance with Shell’s
expected purchase, sale or usage requirements. Gains or losses arising
from changes in the fair value of derivatives that are not designated as
effective hedging instruments are 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; or as a net investment
hedge of the change in foreign exchange rates associated with net
investments in foreign operations with a different functional currency
than Shell’s functional currency.

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); a net investment hedge is accounted for similarly to a cash flow
hedge. Gains or losses on the hedging instrument relating to the effective
portion of the hedge are recognised in other comprehensive income while
any gains or losses relating to the ineffective portion are recognised in the
income statements. On disposal of the foreign operation, the cumulative
value of any such gains or losses recorded in other comprehensive income
is reclassified to the income statement.

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.

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.

228

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.

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.

Environmental schemes and related environmental plans
Emission trading schemes
Emission certificates acquired for compliance purposes are initially
recognised at cost and classified under intangible assets. In the schemes
where a cap is set for emissions, the associated emission certificates
granted are recognised at cost, which may be zero. Emission certificates
held for trading purposes are recognised at cost or net realisable value,
whichever is lower, and classified under inventory. An emission liability is
recognised under other liabilities when actual emissions occur that give
rise to an obligation. To the extent the liability is covered by emission
certificates held for compliance purposes, the liability is measured with
reference to the value of these emission certificates held and for the

Shell Annual Report and Accounts 2020Financial Statements and Supplementsremaining uncovered portion at fair market value. The associated expense
is presented under “production and manufacturing expenses”. Both the
emission certificates and the emission liability are derecognised upon
settling the liability with the respective regulator.

Biofuels certificates
Self-generated biofuel certificates are recognised at nil value, as they
primarily offset the obligation. Biofuel certificates acquired that are held
for compliance purposes are recognised at cost under intangible assets.
A biofuel liability is recognised under other liabilities when the number of
biofuel certificates available from own activities is less than required. To
the extent covered by biofuel certificates held for compliance purposes,
the liability is measured with reference to the value of these certificates
held and for the remaining uncovered portion at market value. Biofuel
certificates and the biofuel liability are both derecognised upon settling
the liability with the respective regulator.

Renewable power schemes
Renewable power certificates acquired for compliance purposes are
recognised at cost as an intangible asset. Self-generated renewable
power certificates are generally transferred to the customer upon sales of
electricity. A renewable power liability is recognised under other liabilities
when electricity sales take place that give rise to an obligation to retire
renewable power certificates. The associated cost is recognised in
“Purchases” in the income statement. If the obligation relates to power
consumed in business operations, it is presented in other liabilities with
cost reflected in “Production and manufacturing expenses”. To the extent
covered by renewable power certificates held for compliance purposes,
the liability is measured with reference to the value of these renewable
power certificates and for the remaining uncovered portion at market
value. Renewable power certificates and the renewable power liability
are derecognised upon settling the liability with the respective regulator.

Consolidated Statement of Income presentation
Purchases reflect all costs related to the acquisition of inventories and the
effects of the changes therein, and include associated costs incurred in
conversion into finished or intermediate products. Production and
manufacturing expenses are the costs of operating, maintaining and
managing production and manufacturing assets. Selling, distribution and
administrative expenses include direct and indirect costs of marketing
and selling products.

3 – CHANGES TO IFRS NOT YET ADOPTED
Inter-Bank Offered Rate (IBOR) Reform – Phase 2
Amendments to IFRS 9 Financial Instruments (IFRS 9), IFRS 7 Financial
Instruments: Disclosures (IFRS 7) and IFRS 16 Leases (IFRS 16) were issued
in August 2020 that complement those amendments issued in 2019 (IBOR
Reform – Phase 1) and focus on the effects of IBOR reform on a company’s
financial statements that arise when, for example, an IBOR used to
calculate interest on a financial asset is replaced with an alternative
benchmark rate.

In Phase 2 the IASB amended requirements relating to: changes in the
basis for determining contractual cash flows of financial assets, financial
liabilities and lease liabilities; hedge accounting; and disclosures. These
amendments apply only to changes required by the IBOR reform to
financial instruments and hedging relationships.

The amendments are effective for periods beginning on or after January 1,
2021 and are to be applied retrospectively. Early application is permitted.

Shell’s fixed-rate debt hedged to floating rate will be affected by the
market-wide replacement of London Inter-Bank Offered Rate (LIBOR)
by 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, 2020.

The notional amount of hedging instruments designated in hedge
relationships affected by the reform, at December 31, 2020, was
$23,010 million. Furthermore, Shell has one floating rate note of
$500 million tied to LIBOR, maturing in 2023, which will be affected.

A Group-wide project is in progress to manage the transition to
alternative benchmark rates disclosures.

UK-adopted international accounting standards
On December 31, 2020 at 11pm BST, legislation made under the
European Union (Withdrawal) Act 2018 brought into UK law IFRS
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union (EU) (previously referred to as “IFRS as adopted
by the EU”) to provide continuity. These standards are referred to as
UK-adopted international accounting standards.

For reporting periods beginning on or after January 1, 2021, Shell’s filing of
the Annual Report to the Registrar of Companies for England and Wales
(“Companies House”) and other UK regulatory filings will be prepared in
accordance with these UK-adopted international accounting standards.

The IFRS endorsement powers for the UK have been transferred from the
European Commission to the Secretary of State for Business, Energy and
Industrial Strategy (BEIS).

There are currently no material differences between the UK-adopted
international accounting standards and IFRS adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the EU. But if divergence
occurs between the two accounting frameworks this may result in the need
to report against both accounting frameworks to meet the UK and Dutch
reporting requirements. However, if the EU determines that UK-adopted
international accounting standards are equivalent to IFRS adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the EU, any
divergence between the two accounting frameworks would have no
impact on Shell’s future reporting. The EU has not yet accepted the
UK-adopted international accounting standards at the time of
publishing this Report.

It is expected that in the short term there will be no material differences
between IFRS as issued by the IASB, UK-adopted international accounting
standards and IFRS adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the EU.

IFRS 17 Insurance contracts (IFRS 17)
IFRS 17 was issued in 2017, and is required to be adopted for annual
reporting periods beginning on or after January 1, 2023. 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 standard.

229

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES 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 segments. With
effect from 2020, Shell’s reporting segments consist of Integrated Gas,
Upstream, Oil Products, Chemicals and Corporate, reflecting the way
Shell reviews and assesses its performance. The Oil Products and
Chemicals businesses were previously reported under the Downstream
segment. Oil sands mining activities, previously included in the Upstream
segment, are reported under Oil Products. Comparative information has
been reclassified.

The Integrated Gas segment manages liquefied natural gas (LNG)
activities and the conversion of natural gas into gas-to-liquids (GTL) fuels
and other products, as well as the New Energies portfolio. It includes
natural gas and liquids exploration and extraction, and the operation of
the upstream and midstream infrastructure necessary to deliver gas and
liquids 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.

The Upstream segment explores for and extracts crude oil, natural gas
and natural gas liquids. It also markets and transports oil and gas, and
operates the infrastructure necessary to deliver them to market.

Upstream segment. The Marketing class of business includes the Retail,
Lubricants, Business-to-Business (B2B), Pipelines and Biofuels businesses.

The Chemicals segment operates manufacturing plants and its own
marketing network.

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). 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. CCS
earnings attributable to RDS plc shareholders is the earnings measure
used by the Chief Executive Officer for the purposes of making decisions
about allocating resources and assessing performance.

The Oil Products segment comprises the Refining and Trading, and
Marketing classes of business. The Refining and Trading class of business
turns crude oil and other feedstocks into a range of oil products which are
moved and marketed around the world for domestic, industrial and
transport use. With effect from 2020, this class of business includes the oil
sands mining activities which were previously reported under the

Finance expense and income related to core financing activities, as well as
related taxes, are included in the Corporate segment earnings rather than
in the earnings of the business segments.

Information by segment on a current cost of supplies basis is as follows:

2020

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

Interest expense

Taxation (credit)/charge (CCS basis)

CCS earnings

Integrated Gas

Upstream

Oil Products

Chemicals

Corporate

Total

$ million

33,287

3,410

562

218

(210)

21,112

5,723

729

103

611

17,704

12,221

(2,507)

(6,278)

6,767

21,564

(7)

542

431

4,505

10,521

(23)

486

1,136

23,119

8,697

374

(467)

(10,785)

128,717

6,213

988

(93)

(9)

(112)

113,177

5,942

7,360

209

—

10,473

6,531

(898)

(494)

11,721

2,850

567

—

(2)

9,969

1,787

1,339

109

—

1,116

808

—

(268)

406

589

(207)

476

—

3,580

(983)

(2,952)

180,543 [A] [B]

34,037

1,842

869

679

286

(96)

148,771

24,001

9,881

907

1,747

52,444

27,463 [C]

4,089

(4,848)

(19,701)

[A] Includes$10,008 million of revenue from sources other than from contracts with customers, which mainly comprises the impact of fair value accounting of commodity derivatives. This amount
includes both the reversal of prior gains of $1,136 million related to sales contracts and prior losses of $539 million related to purchase contracts that were previously recognised and where
physical settlement has taken place during 2020.

[B] With effect from 2020, additional contracts are classified as held for trading purposes and consequently revenue is reported on a net rather than gross basis. The effect on revenue for the full year

was a reduction of $46,289 million.

[C] Impairment losses comprise Property, plant and equipment ($26,676 million) and Intangible assets ($787 million).

230

Shell Annual Report and Accounts 2020Financial Statements and Supplements
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 [A] Oil Products [A] Chemicals [A]

Corporate

41,322

4,280

1,791

263

—

282

(19)

23,498

5,768

716

181

281

6,238

579

—

104

2,242

8,628

9,482

35,735

379

2,180

—

1,888

292

6,982

11,102

450

2,073

16,881

2,576

—

526

5,878

3,855

280,460

7,819

1,179

273

—

305

(32)

262,004

7,536

7,976

219

—

4,461

622

(190)

1,319

6,139

13,568

3,917

546

(7)

—

(8)

13,039

1,995

1,323

112

—

1,074

—

(2)

478

—

(307)

916

899

(35)

(6)

449

—

3,978

(578)

(3,273)

[A] Revised to conform with reporting segment changes applicable from 2020.
[B] 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.
[C] Impairment losses comprise Property, plant and equipment ($3,639 million) and Intangible assets ($143 million).
[D] See Note 8.

2018

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 [A] Oil Products [A] Chemicals [A]

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

9,459

37,125

316,409

10,613

18,704

4,864

285

605

—

717

(112)

5,948

11,169

493

1,132

12,871

1,065

(1,265)

586

8,756

6,490

1,101

393

—

350

300,417

8,226

9,183

205

—

3,165

346

—

1,211

6,025

684

(53)

—

(53)

—

17,332

2,362

1,130

102

—

1,034

—

339

1,884

—

(222)

896

772

104

(157)

560

—

215

—

2,847

(1,270)

(1,479)

[A] Revised to conform with reporting segment changes applicable from 2020.
[B] 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.
[C] Impairment losses comprise Property, plant and equipment ($1,515 million) and Intangible assets ($181 million).
[D] See Note 8.

$ million

Total

344,877 [B]

51,751

3,588

3,625

899

2,519

207

305,517

26,438

10,493

962

2,354

28,701

3,782 [C]

(190) [D]

4,690

8,859

15,827

$ million

Total

388,379 [B]

57,633

4,121

4,071

772

3,265

351,473

26,970

11,360

986

1,340

22,135

1,696 [C]

(1,265) [D]

3,745

11,831

24,364

231

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

4 – SEGMENT INFORMATION continued

Reconciliation of CCS earnings to income for the period

(Loss)/income attributable to Royal Dutch Shell plc shareholders

Income attributable to non-controlling interest

(Loss)/income for the period

Current cost of supplies adjustment:

Purchases

Taxation

Share of profit of joint ventures and associates

Current cost of supplies adjustment

Of which:

Attributable to Royal Dutch Shell plc shareholders

Attributable to non-controlling interest

CCS earnings

Of which:

CCS earnings attributable to Royal Dutch Shell plc shareholders

CCS earnings attributable to non-controlling interest

Information by geographical area is as follows:

2020

Third-party revenue, by origin

Intangible assets, property, plant and equipment, joint ventures
and associates at December 31

[A] Includes $12,958 million that originated from the UK.
[B] Includes $23,302 million located in the UK.

2019

Third-party revenue, by origin

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 $24,696 million located in the UK.

2018

Third-party revenue, by origin

Intangible assets, property, plant and equipment, joint ventures
and associates at December 31

[A] Includes $54,659 million that originated from the UK.
[B] Includes $21,863 million located in the UK.

232

2020

(21,680)

146

(21,534)

2,359

(585)

1,833

1,759

2019

15,842

590

16,432

(784)

194

(15)

(605)

(572)

(33)

$ million

2018

23,352

554

23,906

559

(116)

458

481

(23)

(19,701)

15,827

24,364

(19,921)

220

15,270

557

23,833

531

Europe

Asia,
Oceania,
Africa

50,138 [A]

65,139

USA

50,856

$ million

Total

Other
Americas

14,410

180,543

38,785 [B]

104,450

62,976

49,909

256,120

Europe

Asia,
Oceania,
Africa

98,455 [A]

139,916

USA

83,212

$ million

Total

Other
Americas

23,294

344,877

43,262 [B]

119,732

67,105

54,544

284,643

Europe

Asia,
Oceania,
Africa

118,960 [A]

153,716

USA

89,876

$ million

Total

Other
Americas

25,827

388,379

38,617 [B]

117,127

59,625

56,721

272,090

Shell Annual Report and Accounts 2020Financial Statements and Supplements
5 – INTEREST AND OTHER INCOME

Interest income

Dividend income (from investments in equity securities)

Net gains on sale and revaluation of non-current assets and businesses

Net foreign exchange (losses)/gains on financing activities

Other

Total

2020

679

286

(391)

273

869

2019

899

2,519

179

3,625

$ million

2018

772

104

3,265

(174)

104

4,071

In 2020, ‘Other’ income mainly related to amounts recognised in respect of sublease income from partners in joint operations.

In 2019, net gains on sale of non-current assets and businesses arose mainly in respect of gains on the sale of Integrated Gas assets in Australia,
Upstream assets in the USA and Denmark, as well as Oil Products assets in Saudi Arabia and China.

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 an Oil Products divestment in Argentina, partly offset
by a charge related to the disposal of our Upstream assets in Ireland.

6 – INTEREST EXPENSE

Interest incurred and similar charges

Less: interest capitalised

Other net losses on fair value and cash flow hedges of debt

Accretion expense

Total

2020

2019

4,359 [A]

4,592 [A]

(799)

497

4,089

(752)

132

718

4,690

$ million

2018

3,550

(876)

169

902

3,745

[A] Includes $2,185 million (2019: $2,186 million) of interest expense related to leases, of which $1,031 million (2019: $1,137 million) related to those leases which before January 1, 2019 were classified

as operating leases.

The rate applied in determining the amount of interest capitalised in 2020 was 4.5% (2019: 4.5%; 2018: 4.0%).

7 – INTANGIBLE ASSETS

2020

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 [A]

Sales, retirements and other movements

Currency translation differences

At December 31

Carrying amount at December 31

[A] Includes $787 million related to impairments, of which $472 million in ‘Other’ related to Integrated Gas. (See Note 8)
[B] Includes $1,013 million related to emission certificates held for compliance purposes. (See Note 29)

LNG off-take
and sales
contracts

Goodwill

Software

Other

Total

$ million

14,973

10,211

247

(64)

—

(181)

—

15,213

10,030

2,958

133

(77)

100

3,114

768

276

—

1,062

14,151

4,014

2,524

835

(181)

—

4,668

5,362

156

(129)

2,627

487

3,908

1,448

(637)

4,813

1,258

695

1,991

2,822 [B]

32,050

1,828

(959)

251

33,170

8,564

1,962

(301)

123

10,348

22,822

233

Shell Annual Report and Accounts 2020Financial Statements and Supplements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

7 – INTANGIBLE ASSETS continued

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 [A]

Sales, retirements and other movements

Currency translation differences

At December 31

Carrying amount at December 31

[A] Includes $143 million related to impairments.

LNG off-take
and sales
contracts

Goodwill

Software

Other

Total

$ million

14,338

10,365

674

(46)

—

(154)

—

14,973

10,211

2,910

137

(100)

2,958

3,482

449

(22)

(1)

31,095

1,260

(322)

3,908

32,050

622

135

(1)

768

14,205

3,293

2,425

876

(155)

—

4,014

6,197

176

(87)

2,524

434

1,169

178

(85)

(4)

1,258

2,650

7,509

1,365

(328)

8,564

23,486

Goodwill at December 31, 2020, principally related to the acquisition of BG Group plc in 2016, allocated to Integrated Gas ($4,800 million) and
Upstream ($5,946 million) at the operating segment level, and to Pennzoil-Quaker State Company ($1,609 million), a lubricants business in the Oil
Products segment based largely in North America.

8 – PROPERTY, PLANT AND EQUIPMENT

2020

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 [A]

Sales, retirements and other movements

Currency translation differences

At December 31

Carrying amount at December 31

[A] Includes $26,676 million relating to impairment losses (see table ‘Impairments’ below).

Exploration and production

Exploration
and evaluation

Production

Manufacturing,
supply and
distribution

$ million

Other

Total

18,596

1,728

(5,928)

286,666

104,817

9,659

600

3,632

6,287

(5,510)

2,282

29,081

3,460

(1,109)

970

439,160

21,134

(11,947)

6,976

14,488

300,557

107,876

32,402

455,323

4,010

3,336

(2,148)

5,262

9,226

136,300

34,209

(5,075)

2,805

168,239

132,318

48,872

11,680

(4,129)

1,819

58,242

49,634

11,629

1,693

(1,091)

502

12,733

19,669

200,811

50,918

(12,443)

5,190

244,476

210,847

234

Shell Annual Report and Accounts 2020Financial Statements and Supplements
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

Exploration and production

Exploration
and evaluation

Production

Manufacturing,
supply and
distribution

$ million

Other

Total

21,181

2,659

(5,442)

198

285,252

11,374

(11,253)

1,293

97,694

10,945

(3,683)

(139)

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

Sales, retirements and other movements in 2020 includes to sales of the Appalachia shale gas position and the Martinez refinery, both in the USA.

The carrying amount of property, plant and equipment at December 31, 2020, included $31,611 million (2019: $27,779 million) of assets under
construction. This amount excludes exploration and evaluation assets. The carrying amount at December 31, 2020, included $1,159 million of assets
classified as held for sale (2019: $1,401 million).

The carrying amount of exploration and production assets at December 31, 2020, included rights and concessions in respect of proved and unproved
properties of $11,485 million (2019: $14,355 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, 2020, for which an alternative reserves base was applied in the calculation of the depreciation charge
(see Note 2), was $1,707 million (2019: $173 million). If no alternative reserves base had been used, the pre-tax depreciation charge for the year
ended December 31, 2020, would have been $1,012 million higher (2019: $77 million, 2018: $1,003 million).

Contractual commitments for the purchase and lease of property, plant and equipment at December 31, 2020, amounted to $5,699 million
(2019: $4,599 million (as revised)).

235

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

8 – PROPERTY, PLANT AND EQUIPMENT continued
Right-of-use assets
Within property, plant and equipment the following amounts relate to leases:

2020

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

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

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.

236

Exploration and production Manufacturing,
Exploration
supply and
and evaluation
distribution

Production

—

15,213

502

(1,370)

14,440

5,761

1,898

(712)

6,997

7,443

$ million

Other

Total

5,759

1,580

(75)

120

34,551

3,652

(2,120)

272

13,574

1,570

(675)

14,526

7,384

36,355

2,936

2,675

(627)

5,013

9,513

1,164

760

(158)

1,793

5,591

9,861

5,333

(1,497)

106

13,803

22,552

$ million

Exploration and production Manufacturing,
Exploration
supply and
and evaluation
distribution

Production

Other

Total

—

16,379

664

(1,867)

15,213

5,209

1,632

(1,091)

5,761

9,452

10,718

3,124

(268)

—

13,574

1,110

1,855

(30)

2,936

10,638

5,017

917

(157)

(18)

5,759

589

703

(128)

—

1,164

4,595

2020

2019

20,155

6,490

26,676

—

2,983

654

3,639

—

190

32,114

4,710

(2,292)

34,551

6,908

4,190

(1,249)

9,861

24,690

$ million

2018

1,066

441

1,515

1,265

—

1,265

Shell Annual Report and Accounts 2020Financial Statements and SupplementsImpairment losses in 2020 were mainly triggered by Shell’s revision of the mid- and long-term commodity price and refining margin outlook reflecting
the expected effects of the macroeconomic environment and the COVID-19 pandemic as well as energy market demand and supply fundamentals.
The impairment losses for exploration and production assets related primarily to Integrated Gas ($11,539 million), including the Queensland Curtis LNG
and Prelude floating LNG operations, and Upstream ($8,629 million), including assets in the Gulf of Mexico, unconventional assets in North America,
offshore assets in Brazil and Europe and a project in Nigeria (OPL 245). The impairment losses for manufacturing, supply and distribution related
primarily to Oil Products ($6,493 million), including assets in Europe and the shutdown of the Convent refinery in the USA.

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 Oil Products 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.

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 2). These cash flows were adjusted for the risks specific to the assets, and therefore these risks were not included in the
determination of the discount rate applied. The nominal pre-tax rate applied in 2020 was 6% (2019: 6%; 2018: 6%).

Oil and gas price assumptions applied for impairment testing are reviewed and, where necessary, adjusted on a periodic basis. Reviews include
comparison with available market data and forecasts that reflect developments in demand such as global economic growth, technology efficiency,
policy 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 2020 were as follows:

Commodity price assumptions [A]

Brent crude oil ($/b)

Henry Hub natural gas ($/MMBtu)

[A] Money of the day.

2021

2.50

2022

2.50

2023

2.75

2024

3.03

For periods after 2024, the real-terms long-term price assumptions applied were $60 per barrel (/b) (2019: $60/b)for Brent crude oil and
$3.00 per million British thermal units (/MMBtu) (2019: $3.00/MMBtu) for Henry Hub natural gas, both at real-terms 2020.

Until 2019 management’s estimate of longer-term refining margins in Oil Products was based on the reversion to mean methodology, unless a
fundamental shift in markets had been identified, over the life of the refineries. Under this approach, it was assumed that refining margins will revert
to historical averages over time. As from 2020, a different price methodology has been applied, based on management’s understanding and
interpretation of demand and supply fundamentals in the near term and taking into account various other factors such as industry rationalisation
and energy transition in the long term. This resulted in a downward revision of average long-term refining margins by around 30% from previous
assumptions applied.

Some 53% of the Group’s combined “Property, plant and equipment”, “Investments in Joint Ventures and Associates” and “Intangible assets” were
tested for impairment in 2020. Of the assets tested, some 56% were subject to either partial or full impairments. At December 31, 2020, the recoverable
amounts principally determined through value in use of assets subject to impairment were $17.2 billion for Integrated Gas, $39.1 billion for Upstream
and $1.8 billion for Oil Products respectively.

The main sensitivities in relation to impairment are the commodity price assumptions in Integrated Gas and Upstream and refining margins in Oil
Products. A change of -10% or +10% of the commodity price assumptions would ceteris paribus result in some $6.0-$8.0 billion impairment or of some
$6.0-$9.0 billion impairment reversal respectively in Integrated Gas and Upstream. A change of -10% or +10% in long-term refining margins would
ceteris paribus result in some $1.5-$2.5 billion impairment or some $1.7-$2.7 billion impairment reversal respectively in Oil Products.

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 [A]

At December 31

[A] Includes $750 million impairment of capitalised exploration drilling costs.

2020

5,668

1,016

(815)

(1,385)

(830)

3,654

2019

6,629

2,036

(1,218)

(1,655)

(124)

5,668

$ million

2018

6,981

2,588

(449)

(2,461)

(30)

6,629

237

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

8 – PROPERTY, PLANT AND EQUIPMENT continued

Between 1 and 5 years

Between 6 and 10 years

Between 11 and 15 years

Between 16 and 20 years

Total

Number

—

Projects

$ million

1,666

975

213

—

2,854

Wells

Number

$ million

151

1,275

1,309

217

2,854

Exploration drilling costs capitalised for periods greater than one year at December 31, 2020, analysed according to the most recent year of activity,
are presented in the table above. These comprise $82 million relating to two projects where drilling activities were under way or firmly planned for the
future, and $2,772 million relating to 50 projects awaiting development concepts.

9 – JOINT VENTURES AND ASSOCIATES

Shell share of comprehensive income of joint ventures and associates

Joint
ventures

Associates

629 [A]

1,154

705

1,155

2020

Total

1,783

1,860

Joint
ventures

Associates

1,121

2,483

2019

Total

3,604

Joint
ventures

Associates

1,307

2,799

(82)

1,039

(74)

2,491

3,530

172

1,479

2,810

$ million

2018

Total

4,106

183

4,289

Income for the period

Other comprehensive
income/(loss) for the period

Comprehensive income for the period

[A] Includes $599 million impairment losses recognised in share of profit of joint ventures and associates.

Carrying amount of interests in joint ventures and associates

Net assets

Transactions with joint ventures and associates

Dec 31, 2020

$ million

Dec 31, 2019

Joint
ventures

Associates

Total

Joint
ventures

Associates

Total

14,406

8,045

22,451

13,426

9,382

22,808

Sales and charges to joint ventures and associates

Purchases and charges from joint ventures and associates

[A] As revised, following the reassessment of contractual relationships, by $2,008 million (2019) and $2,546 million (2018).

2020

5,426

8,262

2019

7,748

$ million

2018

8,270

11,581 [A]

13,758 [A]

These transactions principally comprise sales and purchases of goods and services in the ordinary course of business. Related balances outstanding
at December 31, 2020, and 2019, 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, 2020

Dec 31, 2019

1,674

900

2,177

897

[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.

238

Shell Annual Report and Accounts 2020Financial Statements and Supplements10 – INVESTMENTS IN SECURITIES

Investments 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 or loss

Total

At fair value

Measured by reference to prices in active markets for identical assets

Measured by reference to other observable inputs

Measured using predominantly unobservable inputs

Total

At cost

Total

$ million

Dec 31, 2020

Dec 31, 2019

1,396

1,826

1,165

649

3,222

1,637

1,505

3,210

3,222

1,437

1,552

1,086

455

2,989

1,669

1,253

2,978

2,989

Equity securities at December 31, 2020, 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

Gains/(losses) recognised in other comprehensive income

Purchases

Sales

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.

11 – TRADE AND OTHER RECEIVABLES

2020

1,253

329

(60)

(62)

1,505

$ million

2019

1,193

(42)

340

(237)

(1)

1,253

Trade receivables

Lease receivables

Other receivables

Amounts due from joint ventures and associates

Prepayments and deferred charges

Total

Dec 31, 2020

$ million

Dec 31, 2019

Current

Non-current

Current

Non-current

21,781

186

7,251

726

3,681

33,625

—

1,380

4,109

829

1,323

7,641

30,216

213

7,791

912

4,282

43,414

—

1,528

4,039

1,078

1,440

8,085

The fair value of financial assets included above approximates the carrying amount and was determined from predominantly unobservable inputs.

Other receivables at December 31, 2020, include receivables from certain governments in their capacity as joint arrangement partners of $1,357 million
(2019: $1,209 million), after provisions for impairments, that are overdue in part or in full. Recoverability and timing thereof are 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 $968 million at December 31, 2020 (2019: $649 million).

239

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

11 – TRADE AND OTHER RECEIVABLES continued
Allowance for expected credit losses – trade receivables
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, 2020 is $112 million (2019: $83 million), which represents 0.27%-0.51% (2019: 0.08%-0.27%) of all trade receivables. The increase compared
with prior year is mainly due to changes in the macroeconomic environment and the COVID-19 pandemic.

A loss allowance provision of $349 million (2019: $193 million) was established, in addition to all other impairments to trade receivables as at
December 31, 2020, that are outside of the provision matrix calculations.

Lease receivables
Lease contracts where Shell is the lessor are classified as finance leases or operating leases. Receivables for lease contracts classified as finance leases
are as follows:

Less than one year

Between 1 and 5 years

5 years and later

Total undiscounted lease payments receivable

Unearned finance income

Net investment in leases

$ million

Dec 31, 2020

Dec 31, 2019

262

859

852

1,973

407

1,566

305

953

1,019

2,277

536

1,741

In addition at December 31, 2020, Shell is entitled to contractual payments under operating leases of $248 million (2019: $344 million).

12 – INVENTORIES

Oil, gas and chemicals

Other including materials

Total

[A] As revised, following the reclassification of non-physical trading inventories of $1,001 million from ‘Oil, gas and chemicals’ to ‘Other including materials’.

Inventories at December 31, 2020, include write-downs to net realisable value of $239 million (2019: $546 million).

13 – CASH AND CASH EQUIVALENTS

Cash

Short-term bank deposits

Money market funds, reverse repos and other cash equivalents

Total

Dec 31, 2020

Dec 31, 2019

$ million

16,949

2,508

19,457

21,653 [A]

2,418 [A]

24,071

$ million

Dec 31, 2020

Dec 31, 2019

4,831

2,220

24,779

31,830

4,168

2,665

11,222

18,055

Included in cash and cash equivalents at December 31, 2020, were amounts totalling $65 million (2019: $431 million) subject to currency controls or
other legal restrictions. Money market funds and reverse repos used in cash management provided higher yields compared with other cash equivalents
available in 2020. Information about credit risk is presented in Note 19.

240

Shell Annual Report and Accounts 2020Financial Statements and Supplements14 – DEBT AND LEASE ARRANGEMENTS

Debt

Short-term debt

Long-term debt due within 1 year

Current debt

Non-current debt

Total

Net debt

Debt
(excluding
lease
liabilities)

7,535

5,221

12,756

66,838

79,594

Dec 31, 2020

Lease
liabilities

—

4,143

24,277

28,420

Total

7,535

9,364

16,899

91,115

108,014

Debt
(excluding
lease
liabilities)

3,962

6,146

10,108

55,779

65,887

$ million

Dec 31, 2019

Lease
liabilities

—

4,956

25,581

30,537

Total

3,962

11,102

15,064

81,360

96,424

$ million

Asset/(liability)

Non-current
debt

Derivative
financial
instruments

Cash and cash
equivalents
(see Note 13)

At January 1, 2020

Cash flow

Lease additions

Other movements

Currency translation differences and foreign exchange gains/(losses)

At December 31, 2020

At January 1, 2019

Cash flow

Lease additions

Other movements

Currency translation differences and foreign exchange gains/(losses)

Current
debt

(15,064)

7,536

(870)

(8,380)

(121)

(16,899)

(13,046)

10,333

(971)

(11,453)

(81,360)

(13,121)

(2,268)

8,354

(2,720)

(91,115)

(79,815)

(7,269)

(3,547)

9,179

18,055

13,603

—

172

31,830

26,741

(8,810)

—

124

Net debt

(79,093)

6,861

(3,138)

498

(514)

(75,386)

(67,465)

(5,395)

(4,518)

(1,821)

106

(724)

(1,157)

524

2,155

798

(1,345)

351

453

(183)

(724)

At December 31, 2019

(15,064)

(81,360)

18,055

(79,093)

Management’s priorities for applying Shell’s cash are first the reduction of net debt to $65 billion and, on achieving this milestone, distribution of a
total of 20%—30% of cash flow from operations to shareholders. Remaining cash will be allocated to disciplined and measured capital expenditure
growth and further debt reduction.

Gearing

Net debt

Total equity

Total capital

Gearing

$ million, except where indicated

Dec 31, 2020

Dec 31, 2019

75,386

158,537

233,923

32.2%

79,093

190,463

269,556

29.3%

Gearing is a measure of Shell’s capital structure and is defined as net debt (total debt less cash and cash equivalents) as a percentage of total capital
(net debt plus total equity).

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.

241

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES 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, 2020

Dec 31, 2019

Dec 31, 2020

Dec 31, 2019

20,000

unlimited

—

22,651

20,000

unlimited

10,000

13,254

N/A

16,610

N/A

22,651

10,000

Under the CP programmes, Shell can issue debt of up to $10 billion with maturities not exceeding 270 days and $10 billion with maturities not
exceeding 397 days.

The EMTN programme is updated each year, most recently in August 2020. In 2020, debt issued under this programme amounted to $6,734 million
(2019: $3,322 million).

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. The US shelf registration expired in December 2020. Concurrent with the filing of our Annual Report on Form 20-F with the
Securities and Exchange Commission (SEC) on March 11, 2021, a new US shelf registration statement will be filed with the SEC and be effective upon
filing. During 2020, debt totalling $6,250 million (2019: $4,000 million) 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 Notes 2 and 3), were
linked to the new Secured Overnight Financing Rate (SOFR). Under the terms of the facilities, the LIBOR interest rate was replaced by SOFR on 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 2021 and $8 billion expiring in 2025. Each facility includes a remaining one-year extension option 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 April 2020, Shell entered into a dual currency $7,200 million
and €4,432 million revolving credit facility expiring in April 2021, with two 6 month extension options at the discretion of Shell. The extension options
have not been exercised, and the facility will expire in April 2021.

In addition, other subsidiaries have access to undrawn short-term bank facilities totalling $3,115 million at December 31, 2020 (2019: $2,784 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.

Between
1 and 2
years

Between
2 and 3
years

Between
3 and 4
years

Between
4 and 5
years

5 years
and later

—

4,720

162

4,882

1,707

—

5,408

5,441

1,630

—

4,633

215

4,848

1,527

Contractual payments

Total

6,746

—

8,043

41,853

69,737

8,090

1,412

417

42,270

15,985

1,818

78,301

24,095

$ million

Carrying
amount

6,731

71,045

1,818

Difference
from carrying
amount

(15)

1,308

—

1,293

79,594

2020

Commercial paper

Bonds

Bank and other borrowings

Total (excluding interest)

Interest

Less than
1 year

6,746

5,080

944

12,770

1,834

242

Shell Annual Report and Accounts 2020Financial Statements and Supplements2019

Contractual payments

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

Commercial paper

Bonds

Bank and other borrowings

Total (excluding interest)

Interest

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

Total

3,390

—

2,091

38,323

60,003

2,106

1,263

412

38,735

14,618

1,838

65,231

21,892

$ million

Carrying
amount

3,352

60,697

1,838

65,887

Difference
from carrying
amount

(38)

694

—

656

Interest 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, 2020, was $88,294 million (2019: $71,163 million), mainly determined from the prices quoted
for those securities.

Lease arrangements
Lease liabilities are secured on the leased assets. Shell has lease contracts in Integrated Gas and Upstream, principally 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 Oil Products, principally for tankers, storage capacity and retail sites; in Chemicals, principally for plant pipeline and machinery 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

2020

1,156

1,209

$ million

2019

834

1,091

The total cash outflow in respect of leases representing repayment of principal and payment of interest in 2020 was $6,891 million (2019: $7,866
million), recognised in the Consolidated Statement of Cash Flows from financing activities.

The future lease payments under lease contracts and the carrying amounts at December 31, by payment date are as follows:

2020

Less than 1 year

Between 1 and 5 years

5 years and later

Total

Contractual
lease payments

6,059

16,681

19,999

42,739 [A]

Interest

1,916

5,617

6,786

14,319

$ million

Lease
liabilities

4,143

11,064

13,213

28,420

[A] 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 being 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.

2019

Less than 1 year

Between 1 and 5 years

5 years and later

Total

Contractual
lease payments

7,337

17,435

21,340

46,112

Interest

2,381

6,141

7,053

15,575

$ million

Lease
liabilities

4,956

11,294

14,287

30,537

243

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

15 – TRADE AND OTHER PAYABLES

Trade payables

Other payables [A]

Amounts due to joint ventures and associates

Accruals and deferred income

Total

Dec 31, 2020

$ million

Dec 31, 2019

Current

Non-current

Current

Non-current

22,664

6,941

3,281

8,791

41,677

—

1,843

422

2,304

29,497

6,356

3,312

10,043

49,208

—

2,060

242

2,342

[A] Includes obligations under environmental schemes for compliance purposes of $2,053 million as at December 31, 2020. (See Note 29)

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 (credit)/charge

2020

2019

3,272

(56)

3,216

(9,063)

(16)

430

(8,649)

(5,433)

7,597

(1)

7,596

1,377

(67)

147

1,457

9,053

$ million

2018

10,415

10,475

1,438

(157)

(41)

1,240

11,715

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

(Loss)/income before taxation

Less: share of profit of joint ventures and associates

(Loss)/income before taxation and share of profit of joint ventures and associates

Applicable tax (credit)/charge at standard statutory tax rates

Adjustments in respect of prior periods

Tax effects of:

Derecognition/(recognition) of deferred tax assets

Expenses not deductible for tax purposes

Incentives for investment and development

Exchange rate differences

Disposals

Changes in tax rates and legislation

Income/(loss) not subject to tax at standard statutory rates

Other reconciling items

Taxation (credit)/charge

244

2020

(26,967)

(1,783)

(28,750)

(8,330)

374

1,458

1,239

(557)

339

(34)

(16)

2019

25,485

(3,604)

21,881

7,214

146

846

1,493

(757)

(34)

(235)

(67)

159

288

$ million

2018

35,621

(4,106)

31,515

11,641

(381)

1,176

(557)

623

(524)

(157)

(286)

161

(5,433)

9,053

11,715

Shell Annual Report and Accounts 2020Financial Statements and SupplementsThe weighted average of statutory tax rates was 29% in 2020 (2019: 33%; 2018: 37%). The loss before taxation was significantly impacted by asset
impairments which occurred in jurisdictions subject to relatively lower tax rates, resulting in a lower weighted average statutory tax rate as compared
with 2019.

Taxes payable

Income taxes

Sales taxes, excise duties and similar levies

Total

$ million

Dec 31, 2020

Dec 31, 2019

3,111

2,895

6,006

3,478

3,215

6,693

Included in other receivables at December 31, 2020 was income tax receivable of $1,293 million (2019: $1,328 million) (see Note 11).

2020 – Deferred tax

Deferred tax asset

At January 1, 2020

Credit/(charge) to income

Currency translation differences

Other

At December 31, 2020

Deferred tax liability

At January 1, 2020

Credit to income

Currency translation differences

Other

At December 31, 2020

Net deferred tax asset at December 31, 2020

Deferred tax asset/liability as presented in the balance
sheet at December 31, 2020

Deferred tax asset

Deferred tax liability

2019 – Deferred tax

Deferred tax asset

At January 1, 2019

Credit/(charge) to income

Currency translation differences

Other

At December 31, 2019

Deferred tax liability

At January 1, 2019

(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

Decommissioning
and other
provisions

Property, plant
and equipment

Tax losses and
credits
carried forward

Retirement
benefits

11,629

685

286

(104)

12,496

3,660

(250)

122

242

3,774

5,380

1,057

140

(10)

6,567

3,014

1,975

163

5,232

(28,040)

4,355

(143)

(23,801)

(1,093)

(2,909)

(32,042)

(2)

418

(673)

218

(39)

(101)

4,577

(184)

344

(2,831)

(27,305)

$ million

Total

28,044

4,072

769

268

Other

4,361

605

5,084

33,153

5,848

16,311

(10,463)

$ million

Total

29,330

(1,219)

109

(176)

Other

4,276

(2)

4,361

28,044

(1,674)

(2,769)

(32,070)

(6)

541

(57)

(5)

(78)

(1,093)

(2,909)

(238)

(140)

406

(32,042)

(3,998)

10,524

(14,522)

245

Decommissioning
and other
provisions

Property, plant
and equipment

Tax losses and
credits carried
forward

Retirement
benefits

12,167

(647)

11,629

3,310

(76)

(8)

434

3,660

5,859

(550)

5,380

3,718

(521)

(189)

3,014

(27,627)

(227)

(129)

(57)

(28,040)

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

16 – TAXATION continued
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.

The amount of deferred tax assets which are 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 $12,759 million at December 31, 2020
(2019: $8,773 million). The increase of the amount compared with 2019
is primarily due to the reduction in deferred tax liabilities or increase in
deferred tax assets resulting from impairments recorded in 2020, as
well as a greater number of entities having incurred a loss in 2020.

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.

Deferred tax assets of $16,311 million (2019: $10,524 million) 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 be recovered, and a judgement as to whether or not there will be
sufficient taxable profits available to offset the assets. It is considered
probable based on business forecasts that such taxable profits will be
available. For Oil Products additional judgement is required; in some
European jurisdictions the assessment of forecasted taxable profits
resulting in deferred tax asset recognition of $778 million (2019: $1,194
million) extends for an additional 10 years beyond Shell’s regular 10 years
planning horizon. In those situations, additional risking has been applied
to the forecast of taxable profits.

Unrecognised taxable temporary differences associated with
undistributed retained earnings of investments in subsidiaries, joint
ventures and associates amounted to $6,705 million at December 31,
2020 (2019: $6,356 million). These retained earnings are subject to
withholding tax upon distribution.

Unrecognised deductible temporary differences, unused tax losses and
credits carried forward amounted to $42,836 million at December 31,
2020 (2019: $33,068 million), including amounts of $31,873 million
(2019: $24,295 million) 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 $39,402 million as at the end of
the most recent PRRT fiscal year, June 30, 2020 (June 30, 2019: $36,905
million). 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.

17 – RETIREMENT BENEFITS
Retirement benefits are provided through a number of funded and unfunded defined benefit plans and defined contribution plans, the most significant
of which are in the Netherlands, UK and USA. Benefits comprise principally pensions; retirement health care and life insurance are also provided in
certain countries.

$ million

Dec 31, 2020

Dec 31, 2019

(115,792)

(103,545)

102,678

94,826

(17)

(13,131)

2,474

(15,168)

(437)

(13,131)

(8,719)

4,717

(13,017)

(419)

(8,719)

Financial position

Obligations

Plan assets

Asset ceilings

Deficit

Retirement benefits in the Consolidated Balance Sheet:

Non-current assets

Non-current liabilities

Current liabilities

Total

246

Shell Annual Report and Accounts 2020Financial Statements and SupplementsRetirement benefit expense

Defined benefit plans:

Interest expense on obligations

Interest income on plan assets

Current service cost, net of plan participants’ contributions

Other

Total

Defined contribution plans

Total retirement benefit expense

2020

2019

1,828

(1,657)

1,431

(174)

1,428

423

1,851

2,364

(2,253)

1,188

1,325

428

1,753

$ million

2018

2,282

(2,087)

1,494

(221)

1,468

410

1,878

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 (losses)/gains 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] Mainly 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] Mainly relates to updates in mortality assumptions.

Defined benefit plan obligations

At January 1

Current service cost

Interest expense

Actuarial losses

Benefit payments

Other movements

Currency translation differences

At December 31

Comprising:

Funded pension plans

Weighted average duration

Unfunded pension plans

Weighted average duration

Unfunded OPEB plans [A]

Weighted average duration

[A] Mainly related to post-retirement medical benefits in the USA.

2020

2019

(10,150)

(11,711)

804

1,375

(7,971)

4,509

(3,455)

232

(75)

(11,554)

8,460

(12)

(3,106)

$ million

2018

8,186

(268)

(459)

7,459

(2,312)

5,213

$ million, except where indicated

2020

103,545

1,435

1,828

7,971

(4,059)

(444)

5,516

2019

91,856

1,186

2,364

11,554

(3,961)

194

352

115,792

103,545

105,338

18 years

5,086

13 years

5,368

15 years

93,727

17 years

4,793

13 years

5,025

14 years

247

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

17 – RETIREMENT BENEFITS continued

Defined benefit plan assets

At January 1

Return on plan assets in excess of interest income

Interest income

Employer contributions

Plan participants’ contributions

Benefit payments

Other movements

Currency translation differences

At December 31

Comprising:

Quoted in active markets:

Equities

Debt securities

Real estate

Other:

Equities

Debt securities

Real estate

Investment funds

Cash

$ million, except where indicated

2020

94,826

4,509

1,657

614

(3,843)

(281)

5,154

2019

85,803

8,460

2,253

1,462

(3,741)

160

387

102,678

94,826

25%

52%

26%

51%

Employer contributions to defined benefit pension plans are based
on actuarial valuations in accordance with local regulations and
are estimated to be $1.6 billion in 2021.

Characteristics of significant defined benefit and defined
contribution plans and regulatory framework
The Netherlands
The principal defined benefit pension plan in the Netherlands is a funded
career-averaged pension arrangement with retired employees drawing
benefits as an annuity. The duration of the related Dutch defined benefit
obligation is 19 years (2019: 19 years). Whilst the plan was closed to
employees hired or rehired after July 1, 2013, it currently remains open
for ongoing accrual for existing active members. 31% (2019: 34%) of
the overall defined benefit liability in the Netherlands relates to active
members. From July 1, 2013 onwards new employees in the Netherlands
are entitled to membership of a defined contribution pension plan.

In line with Dutch regulations, the defined benefit pension plan has a joint
Trustee Board with trustee representatives nominated by the company, the
Central Staff Council and retired members. The defined benefit pension
plan also has an Accountability Council comprised of members nominated
by the company, the Central Staff Council and retired members.
Furthermore, there is a Supervisory Committee which includes external
experts from the pension industry to oversee management, compliance
and operations of the fund. The defined contribution pension plan has a
one-tier Trustee Board with an independent chairperson, and trustee
representatives nominated by the company and the Central Staff Council
(currently no retired members in the fund to act as trustee) as well as two
executive board members. The defined contribution fund also has an
Accountability Council comprised of members nominated by the
company and the Central Staff Council.

The Dutch government is currently drafting a new regulatory framework
for pensions in the Netherlands. The government aims to complete
development of new regulations by January 2022 with subsequent
implementation by January 2026. It is expected that these regulatory
changes will have an impact on both the defined benefit pension plan
and the defined contribution pension plan with anticipated changes
currently being discussed with the Central Staff Council.

UK
The principal defined benefit pension plan in the UK is a funded final
salary pension arrangement with retired employees mainly drawing
benefits as an annuity with the option to take a portion as a lump sum.
The duration of the related UK defined benefit obligation is 19 years
(2019: 18 years). Whilst the plan was closed to employees hired or rehired
on or after March 1, 2013, it currently remains open for ongoing accrual
for existing active members. 21% (2019: 21%) of the overall defined liability
in the UK relates to active members. From March 1, 2013 onwards new
employees in the UK are entitled to membership of a defined contribution
pension plan.

In line with UK regulations, the defined benefit pension plan is governed
by a corporate trustee whose board is comprised of four trustee directors
nominated by the company including the chair and four member-
nominated trustee directors. The defined contribution pension plan is
governed by a corporate trustee whose board is comprised of three
company nominated directors including the chair and two member-
nominated trustee directors. The trustees are responsible for administering
the plans in line with the Trust Deed and Regulations, including setting the
investment strategy for the pension plans’ assets and paying member
benefits, and are required to act in the best interests of the members
of the pension plans.

248

Shell Annual Report and Accounts 2020Financial Statements and SupplementsUSA
The principal defined benefit pension plan in the USA is a funded average
final pay pension plan. At retirement, all retirees can choose to draw their
benefit as an annuity, whereas some also have the choice to take their
benefit as a lump sum. The duration of the related US defined benefit
obligation is 13 years (2019: 13 years). In addition, the company provides
a defined contribution plan. Each of these plans is subject to the provisions
of the Employee Retirement Income Security Act (ERISA). 25% (2019: 31%)
of the overall defined liability of the funded defined benefit plan in the
USA relates to active members.

Both the defined benefit pension plan and the defined contribution
pension plan are governed by trustees who are appointed by the Plan
Sponsor and are named fiduciaries with respect to the plans. The trustees
are generally responsible for investment-related matters, appointing the
Plan Administrator, maintaining general oversight and deciding appeals
of participants.

The company also sponsors “other post-retirement employee benefit”
(OPEB) plans in the USA that provide medical, dental, and vision benefits
as well as life insurance benefits to eligible retired employees. The plans
are unfunded, and the company and retirees share the costs. The plan that
provides post-retirement medical benefits is closed to employees hired
or rehired on or after January 1, 2017. Certain life insurance benefits
are paid by the company.

Significant funding requirements:
■ Additional contributions to the Dutch 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 (2020) funding valuation the local funding percentage was
above this level;

■ There are no set minimum statutory funding requirements for the UK
plans. A professional qualified independent actuary, appointed by
the trustee board, undertakes a local funding valuation typically
every three years. The most recent completed funding valuation for
the principal defined benefit plan was undertaken as at December 31,
2017. A funding valuation as at December 31, 2020 is currently under
way. The most recent completed funding valuation (2017) revealed
a funding ratio of 108% and the resulting Schedule of Contributions
was for no Sponsor contribution (except for salary sacrifice
contributions); 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.

Associated risks to which retirement benefits
are exposed
There are inherent risks associated with defined benefit pension and OPEB
plans. These risks are related to various assumptions made on valuation
of the liabilities and the cash funding requirement of the underlying plans.
Volatility in capital markets or government policies, and the resulting
consequences for investment performance, interest and inflation 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, and in case of a shortfall,
there could be a requirement to make substantial cash contributions
(depending on the applicable local regulations).

These inherent risks are managed by a pension forum, chaired by the
Chief Financial Officer, which oversees Shell’s pension strategy, policy
and operations. The forum is supported by a risk committee in reviewing
the results of the assurance process with respect to the pension risk.

Investment strategies
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.

Principal and actuarial assumptions
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 health-care 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.

Assumptions used
at nominal rates

$ million, except where indicated

Effect of using alternative assumptions

Increase/(decrease) in defined benefit obligations

December 31,
2020 [A]

December 31,
2019

Range
of assumptions

December 31, 2020

December 31, 2019

3.8%

1.6%

6.0%

1.5%

2.6%

4.1%

1.6%

6.1%

2.1%

3.2%

-1% to +1%

(1,780) to

1,948

(1,975) to

-1% to +1%

(10,937) to

13,523

(9,541) to

-1% to +1%

(605) to

751

(546) to

2,266

11,757

675

-1% to +1%

21,463 to

(16,382)

18,431 to

(14,155)

-1% to +1%

791 to

(624)

704 to

(558)

Rate of increase in pensionable remuneration

Rate of increase in pensions in payment

Rate of increase in health-care costs [B]

Discount rate for pension plans

Discount rate for health-care plans [B]

Expected age at death for persons aged 60:

Men

Women

87 years

88 years

87 years

-1 year to +1 year

(2,022) to

89 years

-1 year to +1 year

(1,985) to

2,112

2,070

(1,717) to

(1,631) to

1,782

1,694

[A] The weighted average inflation rate used in the calculation of the defined benefit obligation is 1.7%.
[B] Mainly related to post-retirement medical benefits in the USA.

249

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

18 – DECOMMISSIONING AND OTHER PROVISIONS

Decommissioning
and restoration

Legal

Environmental

Redundancy

Other

Total

$ million

At January 1, 2020

Current

Non-current

Additions

Amounts charged against provisions

Accretion expense

Disposals

Remeasurements and other movements

Currency translation differences

At December 31, 2020

Current

Non-current

At January 1, 2019

Current

Non-current

Additions

Amounts charged against provisions

Accretion expense

Disposals

Remeasurements and other movements

Currency translation differences

At December 31, 2019

Current

Non-current

755

18,264

19,019

1,697 [A]

(433)

448

(154)

2,090

508

4,156

900

22,275

23,175

876

17,057

17,933

625

(797)

644

(1,238)

1,696

156

1,086

755

18,264

19,019

626

1,185

1,811

502

(522)

—

(59)

(61)

521

1,229

1,750

213

1,247

1,460

585

(216)

—

(45)

(1)

351

626

1,185

1,811

263

934

1,197

199

(138)

(7)

(73)

273

952

1,225

264

1,074

1,338

229

(223)

(8)

(155)

—

(141)

263

934

1,197

295

220

515

986

(375)

—

(241)

423

673

265

938

441

280

721

290

(304)

—

(192)

(3)

(206)

295

220

515

872

1,196

2,068

2,386

(388)

(18)

(265)

1,778

1,257

2,589

3,846

1,547

1,528

3,075

535

(562)

(14)

(988)

(3)

(1,007)

872

1,196

2,068

2,811

21,799

24,610

5,770

(1,856)

497

(179)

1,452

640

6,324

3,624

27,310

30,934

3,341

21,186

24,527

2,264

(2,102)

716

(1,260)

316

149

2,811

21,799

24,610

[A] Includes $798 million additions for the recognition of decommissioning and restoration provisions in Integrated Gas and Upstream and $899 million for the recognition of decommissioning and

restoration provisions for manufacturing facilities in Oil Products.

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 regularly.
The discount rate applied at December 31, 2020 was 1.75% (2019: 3%). This decrease resulted from the significant decrease in capital markets rates
in 2020. An increase of 0.5% or a decrease of 0.5% in the discount rate could result in a decrease of $1.7 billion or an increase of $2.2 billion of
decommissioning and restoration provisions, respectively. Such increase/decrease will be reflected in the carrying amount of the related asset.
Where applicable that carrying amount is tested for impairment.

In 2020, there was an increase of $3,999 million (2019: $2,241 million) 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 $1,909 million (2019: $545 million), reported within
remeasurements and other movements.

Of the decommissioning and restoration provision at December 31, 2020, an estimated $3,921 million is expected to be utilised within one to five years,
$2,206 million within six to 10 years, and the remainder in later periods.

Other provisions include amounts recognised in respect of onerous contracts ($1,739 million) and employee benefits. At December 31, 2020, the
onerous contract provision includes onerous contracts that relate to Lake Charles terminals and the closure of the Convent refinery, both in the USA.

250

Shell Annual Report and Accounts 2020Financial Statements and Supplements19 – 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, the majority of the debt portfolio at December 31, 2020, is at fixed
rates and this reduces Shell’s adverse exposure to rising floating dollar
interest rates (see Notes 2 and 3).

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 cash position at December 31, 2020
(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 increased 2020 income before taxation by
$62 million (2019: $98 million decrease, based on the floating rate
net debt position at December 31, 2019).

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 Oil Products and Chemicals 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:

Euro

Malaysian ringgit

Australian dollar

Sterling

Canadian dollar

Increase/(decrease)
in income before taxation

2020

2019

(263)

255

179

(166)

243

(55)

(58)

(97)

$ million

Increase in net assets

2020

451

270

598

328

1,299

2019

1,227

290

835

581

1,380

251

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES 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, 2020

December 31, 2019

$ 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 higher-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 of credit exposure 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:

2020

Assets:

Within trade receivables

Within derivative financial instruments

Liabilities:

Within trade payables

Within derivative financial instruments

252

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

10,658

12,798

10,580

10,502

6,470

6,125

6,467

5,893

4,188

6,673

4,113

4,609

1,573

797

1,750

1,761

4,095

3,350

4,033

2,051

Shell Annual Report and Accounts 2020Financial Statements and Supplements2019

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

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

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, 2020, presented within trade and
other receivables, was $1,909 million (2019: $1,948 million). The carrying amount of collateral held at December 31, 2020, presented within trade and
other payables, was $1,675 million (2019: $718 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:

2020

Interest rate swaps

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Other contracts

Total

2019

Interest rate swaps

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Other contracts

Total

Designated

Not
designated

451

—

1,890

—

2,341

—

276

5,534

424

6,247

Designated

Not
designated

227

—

324

236

6,914

341

7,514

Assets

Total

451

276

1,903

5,534

424

8,588

Assets

Total

235

243

105

6,914

341

7,838

Designated

Not
designated

—

280

—

398

651

4,565

5,330

Designated

Not
designated

932

—

968

309

5,281

—

5,670

Liabilities

Total

651

343

4,657

5,728

Liabilities

Total

311

988

5,281

—

6,638

$ million

Net

403

(375)

1,560

877

395

2,860

$ million

Net

177

(68)

(883)

1,633

341

1,200

253

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

19 – FINANCIAL INSTRUMENTS continued
Net gains before tax on derivative contracts, excluding realised commodity contracts and those accounted for as hedges, were $1,676 million in 2020
(2019: $2,004 million losses; 2018: $1,818 million losses). The International Financial Reporting Interpretation Committee (IFRIC) guidance concerning
the physical settlement of a contract to buy or sell a non-financial item has been applied prospectively as from 2020. The result of this decision is that
$597 million of prior gains that would have previously reversed at the time of trade delivery, have been excluded from the amount disclosed in 2020.

Certain contracts, mainly to hedge price risk relating to forecast commodity transactions, were designated in cash flow hedging relationships and are
presented after the offset of related margin balances with exchanges. Contracts to hedge foreign exchange risks were also designated in cash flow
hedging relationships and the net carrying amount of these contracts at December 31, 2020, was an asset of $556 million (2019: $167 million liability).
See Note 22 for the accumulated balance recognised within other comprehensive income.

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, 2020, was an asset of $1,422 million (2019: $518 million liability).

In 2020, €3 billion of debt instruments were designated as hedges of net investments in foreign operations, relating to the foreign exchange risk arising
between certain intermediate holding companies and their subsidiaries. See Note 22 for the accumulated balance recognised within other
comprehensive income.

In the course of trading operations, certain contracts are entered into for delivery of commodities that are accounted for as derivatives. The resulting
price exposures are managed by entering into related derivative contracts. These contracts are managed on a fair value basis and the maximum
exposure to liquidity risk is the undiscounted fair value of derivative liabilities.

For a minority of commodity derivatives 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 2021-2025, 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:

2020

Interest rate swaps

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Other contracts

Total

[A] Mainly related to the effect of discounting.

2019

Interest rate swaps

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Other contracts

Total

[A] Mainly related to the effect of discounting.

254

Contractual maturities

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

504

174

2,990

3,695

743

837

265

—

324

—

174

—

219

—

159

115

—

279

—

391

—

397

Total

620

374

4,678

5,751

Contractual maturities

$ million

Difference
from carrying
amount [A]

Carrying
amount

(1)

(31)

(21)

(1)

651

343

4,657

(23)

5,728

$ 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

—

475

756

—

3,976

1,279

444

349

—

805

—

201

189

—

394

118

204

123

—

450

—

1,777

511

—

Difference
from carrying
amount [A]

Carrying
amount

(2)

(69)

(2,368)

(119)

—

311

988

5,281

—

Total

380

3,356

5,400

—

2,292

9,196

(2,558)

6,638

Shell Annual Report and Accounts 2020Financial Statements and SupplementsFair 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:

2020

Interest rate swaps

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Other contracts

Total

2019

Interest rate swaps

Forward foreign exchange contracts

Currency swaps and options

Commodity derivatives

Other contracts

Total

Prices in active
markets for
identical
assets/liabilities

Other
observable
inputs

Unobservable
inputs

—

403

(375)

1,560

(237)

375

1,726

—

1,077

—

1,077

Prices in active
markets for
identical
assets/liabilities

Other
observable
inputs

Unobservable
inputs

—

(6)

177

(68)

(883)

895

304

425

$ million

Total

403

(375)

1,560

877

395

2,860

$ million

Total

177

(68)

(883)

1,633

341

1,200

$ million

2019

(27)

1,085

453

(633)

—

(125)

754

—

744

754

2020

754

564

217

(450)

(9)

(12)

1,077

Net carrying amounts of derivative contracts measured using predominantly unobservable inputs

At January 1

Net gains recognised in revenue

Purchases

Sales

Settlements

Recategorisations (net)

Currency translation differences

At December 31

Included in net gains recognised in revenue in 2020 were unrealised net gains totalling $743 million relating to assets and liabilities held at December
31, 2020 (2019: $612 million gains).

Unrecognised day one gains or losses
Certain long-term commodity purchase contracts extend to periods where observable pricing data are limited and so their value may include estimates
for a portion of the value. Where this is more than an insignificant part of the overall contract valuation, any gains or losses will be deferred. Valuation
techniques are further described in Note 2. The unrecognised gains on these derivative contracts at December 31, 2020 were as follows:

At January 1

Movements

At December 31

2020

929

968

$ million

2019

388

541

929

255

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

20 – SHARE CAPITAL

Issued and fully paid ordinary shares of €0.07 each [A]

At January 1, 2020

Repurchases of shares

At December 31, 2020

At January 1, 2019

Repurchases of shares

At December 31, 2019

Number of shares

4,151,787,517

3,729,407,107

(50,548,018)

(23,223,271)

4,101,239,499

3,706,183,836

4,471,889,296

3,745,486,731

(320,101,779)

(16,079,624)

4,151,787,517

3,729,407,107

349

(4)

345

376

(27)

349

Nominal value ($ million)

308

(2)

306

309

(1)

308

Total

657

(6)

651

685

(28)

657

[A] Share capital at December 31, 2020, and 2019, also included 50,000 issued and fully paid sterling deferred shares of £1 each.

At the Company’s Annual General Meeting (AGM) on May 19, 2020, 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 €182.7 million
(representing 2,611 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 19, 2021, and the end of the AGM to be held in 2021, unless previously renewed, revoked or varied by the Company
in a general meeting.

At the May 19, 2020 AGM, shareholders granted the Company the authority to repurchase up to 783 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
19, 2021, and the end of the AGM of the Company to be held in 2021. 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.

On March 23, 2020, in light of the economic and oil price environment, the Board decided not to continue with the next tranche of the share buyback
programme following the completion of the tranche announced on January 30, 2020.

21 – SHARE-BASED COMPENSATION PLANS AND SHARES HELD IN TRUST

Share-based compensation expense

Equity-settled [A]

Total

[A] On an incidental basis awards may be cash-settled, where an equity settlement is not possible under local regulations.

2020

359

2019

537

$ million

2018

531

The principal share-based employee compensation plans are the PSP and LTIP. Awards of shares and American Depositary Shares (ADS) 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.

256

Shell Annual Report and Accounts 2020Financial Statements and Supplements
Share awards under the PSP and LTIP

At January 1, 2020

Granted

Vested

Forfeited

At December 31, 2020

At January 1, 2019

Granted

Vested

Forfeited

At December 31, 2019

Number of A
shares
(million)

Number of B
shares
(million)

Number of A
ADSs
(million)

Weighted Average
remaining
contractual life
(years)

(9)

(1)

(11)

(1)

(4)

—

(5)

—

(3)

—

(3)

—

1.0

Other 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, 2020, they held 14.3 million A shares (2019: 17.4 million), 5.2 million B shares (2019: 6.5 million) and 5.1 million
A ADSs (2019: 5.3 million).

22 – OTHER RESERVES

Other reserves attributable to Royal Dutch Shell plc shareholders

At January 1, 2020

Other comprehensive loss attributable to Royal Dutch Shell plc shareholders

Transfer from other comprehensive income

Repurchases of shares

Share-based compensation

At December 31, 2020

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

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

Merger
reserve

37,298

Share
premium
reserve

Capital
redemption
reserve

Share plan
reserve

154

123

1,049

—

37,298

—

37,298

—

154

—

154

—

37,298

154

—

129

—

123

—

(143)

906

1,098

—

(49)

1,049

1,440

—

(342)

1,098

Accumulated
other
comprehensive
income

(24,173)

(1,832)

270

—

(25,735)

(22,030)

(2,069)

(74)

—

(24,173)

(22,182)

1,123

(971)

—

(22,030)

$ million

Total

14,451

(1,832)

270

(143)

12,752

16,615

(2,069)

(74)

(49)

14,451

16,794

1,123

(971)

(342)

16,615

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
merger reserve increased in 2016 following the issuance of shares for the acquisition of BG Group plc. The capital redemption reserve was established
in connection with repurchases of shares of Royal Dutch Shell plc. The share plan reserve is in respect of equity-settled share-based compensation plans.

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 comprises the net of the charge
for the year and the release as a result of vested awards and is after deduction of tax of $4 million in 2020 (2019: $45 million; 2018: $71 million).

257

Shell Annual Report and Accounts 2020Financial Statements and Supplements
NOTES 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

Currency
translation
differences
[A]

Equity
instruments
remeasurements

Debt
instruments
remeasurements

Cash flow
hedging
(losses)/
gains [A]

Net
investment
hedging
(losses)/
gains [A]

Deferred
cost of
hedging

Retirement
benefits
remeasurements

Total

$ million

At January 1, 2020

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

(9,415)

1,204

(28)

—

1,179

Other comprehensive income/(loss) for the period

1,230

Less: non-controlling interest

Attributable to Royal Dutch Shell plc shareholders

1,240

At December 31, 2020

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 loss for the period

Less: non-controlling interest

Attributable to Royal Dutch Shell plc shareholders

At December 31, 2019

At January 1, 2018

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

(8,175)

(9,722)

302

—

344

(2)

342

(35)

307

(9,415)

(6,711)

(3,793)

651

—

(29)

(3,171)

(25)

Other comprehensive loss/income for the period

(3,196)

Less: non-controlling interest

185

Attributable to Royal Dutch Shell plc shareholders

(3,011)

At December 31, 2018

(9,722)

793

—

169

(4)

233

118

351

—

351

1,144

906

(17)

—

(85)

(13)

(115)

(113)

—

(113)

793

1,975

(147)

—

(1,108)

(6)

(1,261)

193

(1,068)

(1)

(1,069)

906

(8)

—

(21)

—

(6)

(15)

—

(15)

—

(15)

—

(15)

(21)

(233)

(2,016)

(287)

(13,023)

(24,173)

(9)

(173)

—

(160)

(92)

(252)

—

(252)

(485)

(423)

—

(423)

(2,439)

117

(2,025)

(592)

268

—

(276)

(74)

(350)

—

(350)

(233)

(627)

722

(30)

—

(12)

730

744

—

744

117

—

(4)

(2,016)

(2,024)

(1)

—

(1)

(2,025)

—

(11)

100

—

100

—

100

(187)

(353)

—

(29)

—

(287)

(144)

(362)

—

(209)

—

(209)

—

(209)

(353)

(3,455)

(2,567)

—

101

753

(115)

270

747

(2,601)

(1,649)

—

(2,601)

(1,572)

—

(2,601)

(1,562)

(15,624)

(25,735)

(10,932)

(22,030)

(3,106)

(3,367)

—

1,004

(2,091)

—

397

(74)

999

(2,034)

(74)

(2,091)

(2,108)

—

(35)

(2,091)

(2,143)

(13,023)

(24,173)

(14,645)

(22,182)

5,213

—

137

(1,625)

3,725

3,726

(13)

3,713

945

1,468

(30)

(971)

(1,614)

(202)

183

(19)

171

152

(10,932)

(22,030)

[A] As from 2020, ‘Net investment hedging (losses)/gains” are presented separately. Prior to 2020, these were aggregated within ‘Currency translation differences’ and ‘Cash flow hedging (losses)/

gains’. Prior period comparatives for these categories have been revised to conform with current year presentation.

258

Shell Annual Report and Accounts 2020Financial Statements and Supplements23 – DIVIDENDS

Interim dividends

A shares:

Cash:

March

June

September

December

Total – A shares

B shares:

Cash:

March

June

September

December

Total – B shares

Total

$ per share

$ million

2020

2019

2018

2020

2019

2018

0.47

0.16

0.1665

0.9565

0.47

0.16

0.1665

0.9565

0.47

1.88

0.47

1.88

0.47

1.88

0.47

1.88

1,862

653

654

691

3,860

1,620

586

582

622

3,410

7,270

2,100

2,062

2,007

1,978

8,147

1,775

1,762

1,765

1,749

7,051

15,198

2,176

2,140

2,165

2,124

8,605

1,794

1,746

1,784

1,746

7,070

15,675

In addition, on February 4, 2021, the Directors announced a further interim dividend in respect of 2020 of $0.1665 per A share and $0.1665 per
B share. The total dividend is estimated to be $1,300 million and is payable on March 29, 2021, to shareholders on the register at February 19, 2021.

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

(Loss)/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 of shares)

Diluted earnings per share (million of shares)

2020

(21,680)

2019

15,842

2018

23,352

7,795.6

8,058.3

8,112.5

8,282.8

8,348.7

Basic earnings per share are calculated by dividing the income attributable to Royal Dutch Shell plc shareholders for the year by the weighted average
number of A and B shares outstanding during the year. The weighted average number of shares outstanding excludes shares held in trust.

Diluted earnings per share are based on the same income/(loss) figures. The weighted average number of shares outstanding during the year is
increased by dilutive shares related to share-based compensation plans. If the inclusion of potentially issuable shares could decrease diluted loss per
share, the potentially issuable shares are excluded from the weighted average number of shares outstanding used to calculate diluted earnings per
share. The number of potentially issuable shares that has been excluded from the calculation for 2020 is 36.0 million shares.

Earnings per share are identical for A and B shares.

259

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

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 authorities, 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 decommissioning
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 the primary obligor
is not able to meet its obligation. These potential obligations arising
from issuance of these guarantees are assessed to be remote.

Decommissioning and restoration of
manufacturing facilities
Industry practice has been not to recognise decommissioning and
restoration provisions associated with manufacturing facilities in Oil
Products and Chemicals. This was on the basis that these assets were
considered to have indefinite lives and, therefore, that it was considered
remote that an outflow of economic benefits would be required.

In 2020, the changed macroeconomic fundamentals were considered,
together with Shell’s plans to rationalise the Group’s manufacturing
portfolio. It was also reconsidered whether it remained appropriate
not to recognise decommissioning and restoration provisions for
manufacturing facilities.

It was concluded that the assumption of indefinite lives for manufacturing
facilities is no longer appropriate, and the need for either recognition of
decommissioning and restoration provisions or contingent liability
disclosure was reviewed. In 2020, provisions have been recognised
for certain shorter-lived manufacturing facilities (See Note 18). For the
remaining longer-lived facilities, where decommissioning would generally
be more than 50 years away, it was concluded that, while there is a
present obligation that has arisen from past events, the amount of the
obligation cannot be measured with sufficient reliability. This conclusion
was reached on the basis that the settlement dates are indeterminate;
and that other estimates, such as extremely long-term discount rates for
which there is no observable measure, are not reliable. Consequently,
a decommissioning and restoration obligation exists that cannot be
recognised or quantified and that is disclosed as a contingent liability.

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, water storage districts, and private
landowners alleging responsibility for groundwater contamination caused
by applications of chemical pesticides. There are approximately 60 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. Effective
January 2018, 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. Water systems deemed out
of compliance with the 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, 2020, 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, 18 lawsuits have been filed by several municipalities and/or
states against oil and gas companies, including Royal Dutch Shell plc. The
plaintiffs seek damages for a variety of claims including harm to their
public and private infrastructure from rising sea levels and other alleged
impacts of 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 emission levels from Shell’s
activities and sold energy products are unlawful and that by 2030 it
should reduce those emissions by least (net) 45%, alternatively 35% or
25% (as compared with 2019 levels). Management believes the outcome
of these matters should be resolved in a manner favourable to Shell, but
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

260

Shell Annual Report and Accounts 2020Financial Statements and Supplementsconfirmation 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 $5,473 million as
of end 2020.

Louisiana coast litigation
The State of Louisiana and multiple local governments have initiated 43
lawsuits against 200 oil and gas companies, claiming either current or
historical oil and gas operations caused or contributed to contamination,
land loss and the erosion of the Louisiana coastline. Shell entities are
named in 14 of the suits. Although the State and local parishes fail to claim
specified amounts, these claims represent potentially material matters.
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 authorised at the time.
Management believes the outcome of these matters should ultimately 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
outcomes, as well as their potential effects on future operations, earnings,
cash flows, reputation and Shell’s financial condition.

NAM (Groningen gas field) litigation
Since 1963 NAM – a joint venture between Shell and ExxonMobil
(50%—50%) – has been producing gas from the Groningen field, the
largest gas field in Western Europe. After smaller tremors in the 1990s and
the late 2000s, an earthquake measuring 3.6 on the Richter scale
occurred in 2012, causing damage to properties in the affected area, and
the area continues to experience tremor/earthquake-type events. NAM
has received more than 100,000 claims for physical damage to property
– the majority of which have been successfully settled. The Dutch State
has taken over the damage-claim-handling from NAM for all claim
categories (physical damage to property, housing value loss, emotional
damages and loss of living enjoyment) while NAM remains financially
responsible. NAM still faces claims in civil litigation from claimants who
elect not to use the government arrangement or from claims pre-dating the
governmental arrangements. These claims include, but are not limited to:
■ housing claims where NAM was found liable for value loss;
■ emotional damages and loss of living enjoyment ~5,000 claimants; and
■ other civil litigation matters.

There remains a high degree of uncertainty concerning the ultimate
outcomes and their potential effects on future operations, earnings,
cash flows, reputation 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.

OPL 245
Authorities 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 and anti-corruption 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 (NAE). 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 July 3, 2019, the Nigerian Federal High
Court upheld objections from SNEPCO and NAE and struck the lawsuit
filed by HEDA. The suit was struck because of the statute of limitations and
the determination by the court that it lacked jurisdiction to hear the matter.
HEDA has appealed the judgement.

On December 12, 2018, the Federal Republic of Nigeria (FRN) issued a
claim form in the UK against Shell and six of its 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 with
proceedings in April and May 2019, following which they, and other
defendants, challenged the jurisdiction of the English courts. Following a
hearing in April 2020, the English High Court rendered judgement in May
2020, dismissing the claims in England and refusing the FRN’s request for
permission to appeal. In September 2020, the UK Court of Appeal also
refused the FRN’s permission to appeal, meaning the case is now
concluded.

On February 14, 2017, Royal Dutch Shell plc received a notice of request
for indictment from the Milan public prosecutor with respect to this matter.
On December 20, 2017, Royal Dutch Shell plc and 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. The
FRN was admitted as a civil claimant by a court decision on July 20, 2018.
On September 18, 2018, Shell was joined to the proceedings as the civilly
responsible party 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
Exploration and Production Africa Ltd.) also joined the proceedings as
responsabile civile for their respective former employees at that phase of
the proceedings. The trial is ongoing with closing arguments completed in
January and rebuttals scheduled for February. Based on Shell’s review of
the Milan public prosecutor’s file and the information and facts currently
available to Shell, management does not believe there is a basis to
convict Shell or the four former Shell employees.

261

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

25 – LEGAL PROCEEDINGS AND OTHER CONTINGENCIES continued
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 for or on behalf of Shell. That decision is under appeal. Separate OPL 245 pre-trial criminal proceedings are
pending against another individual who also did not work for or on behalf of Shell.

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 US 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. On April 22, 2020, the United States
Securities and Exchange Commission notified us that it had also closed its inquiry into Shell in relation to OPL 245. 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 anti-bribery, anti-corruption or anti-money laundering legislation could have a material adverse effect on Royal Dutch
Shell plc’s earnings, cash flows and financial condition.

26 – EMPLOYEES

Employee costs

Remuneration

Social security contributions

Retirement benefits (see Note 17)

Share-based compensation (see Note 21)

Total [A]

[A] Excludes employees seconded to joint ventures and associates.

Average employee numbers

Integrated Gas

Upstream [A]

Oil Products [A]

Chemicals [A]

Corporate [B]

Total [C]

[A] Due to the resegmentations. (See Note 4)
[B] Includes all employees working in business service centres irrespective of the segment they support.
[C] Excludes employees seconded to joint ventures and associates (2020: 2,000 employees; 2019: 3,000 employees; 2018: 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

2020

9,128

793

1,851

359

12,131

2019

10,075

844

1,753

537

13,209

$ million

2018

10,167

810

1,878

531

13,386

2020

2019

Thousand

2018

2020

2019

$ million

2018

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 2020 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 153-156.

262

Shell Annual Report and Accounts 2020Financial Statements and Supplements

Directors and Senior Management expense

Short-term benefits

Retirement benefits

Share-based compensation

Termination and related amounts

Total

2020

2019

$ million

2018

—

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 [A]

Total

2020

2019

$ million

2018

—

[A] Various services that were classified as ‘Audit-related’ in the past are classified as ‘Other non-audit services’ under the revised UK auditor rules that apply since March 15, 2020.

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 2020 (2019: $1 million; 2018: $1 million).

29 – EMISSION SCHEMES AND RELATED ENVIRONMENTAL PLANS
Emission trading schemes
Generally, emission trading schemes (ETS) are mandated governmental schemes to control emission levels and enhance clean energy transition,
allowing for the trading of emission certificates. In most ETS, governments set an emission cap for one or more sectors. Generally, entities in scope of
the scheme are allowed to buy emission certificates to cover shortages or sell surplus emission certificates. In certain countries emissions are priced
through a carbon tax. For Shell, the most significant carbon pricing mechanisms are established in the EU, Canada, Singapore and the USA.

Biofuel schemes
Biofuel schemes are mandated schemes that set binding national targets on the share of renewables in fuel consumption or measures on reducing GHG
emissions by fuel suppliers. Biofuels are blended with existing fuels such as gasoline and diesel to reduce net emissions. The share of biofuel in the total
sales mix of fuel is used to comply with regulatory requirements. This can be achieved by biofuel production through ‘selfblending’ in jurisdictions that
grant the biofuel certificates at blending stage or through purchase of renewable, certified feedstock like ethanol used subsequently in the
manufacturing process.

Renewable power schemes
Renewable power schemes create a financial incentive to consume power that is sourced from renewable origins or requires that a minimum percentage
of power sold meets the green definition of the relevant standard. These regulations are typically accompanied by schemes supporting investments in
the renewable technology. Renewable power schemes generally use certificates to monitor compliance, where renewable power credits are granted for
each MWh of energy generated that meets the predefined renewable criteria. Shell’s compliance obligation under renewable power schemes comes
primarily from energy supply and results from regulations applying in Europe, North America and Australia.

263

Shell Annual Report and Accounts 2020Financial Statements and Supplements$ million

Total

1,651

1,013

(2,053)

(1,993)

(60)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

29 – EMISSION SCHEMES AND RELATED ENVIRONMENTAL PLANS continued

2020

Emission and related cost recognised in the Income Statement

150 [A]

1,137 [B]

364

ETS and related
schemes

Biofuels

Renewable
power

Purchased certificates presented under intangible assets

Obligation at the end of the period presented under other liabilities

Of which:

Short term

Long term

Net asset/(liability) at the end of the period

157

(154) [C]

(154)

—

780

(1,603)

(1,549)

(54)

(296)

(290)

(6)

(823)

(220)

(1,040)

[A] Includes cost of emission certificates that were allocated free of charge, with an equivalent fair value at grant date of $377 million.
[B] Represents the cost of biofuel certificates required in addition to own blending activities performed.
[C] Includes emission certificates that were allocated free of charge with a carrying amount of zero and an equivalent fair value at grant date of $398 million.

Emission certificates acquired that are held for compliance purposes are recognised at cost under intangible assets. In addition, a portfolio of emission
certificates is held for trading purposes and classified under inventory (see Notes 2 and Note 12).

Cost recognised in the Consolidated Statement of Income represents the compliance cost associated with emissions or with products sold during the
year. The liability at year-end represents the compliance cost recognised over current and past compliance periods to the extent not settled to date.
Liabilities are settled in line with compliance periods, which depend on the scheme and may not coincide with the calendar year.

Due to the increasing importance of emission schemes and related environmental plans, this Note is newly included in 2020 and comparatives are
not provided. The figures present compliance schemes only, excluding voluntary activities.

30 – POST-BALANCE SHEET EVENTS
A restructuring plan named Reshape was announced in the third quarter 2020. Under Reshape, between 7,000 and 9,000 job reductions are expected
by the end of 2022, including around 1,500 people who have already elected to take selective voluntary severance in 2020. In January 2021 the
impact of Reshape was communicated to employees, establishing for some employees, a constructive obligation that satisfies the IFRS criteria for
recognising a provision. This represents a non-adjusting post-balance sheet event under IFRS. The costs for this phase of the plan, and where the IFRS
recognition criteria have been satisfied, are in the range of $650 million to $850 million (Shell share pre-tax) and will be recognised in the first quarter
of 2021. Further redundancy costs will be recognised once the IFRS recognition criteria are met during 2021 and 2022.

On February 17, 2021, an agreement was reached with publicly listed Canadian energy company Crescent Point Energy Corp. to sell the Duvernay
shale light oil position in Alberta, Canada, for a total consideration of $707 million (C$900 million). The transaction has an effective date of January 1,
2021. The consideration is comprised of $550 million in cash and 50 million shares (valued at $157 million) in Crescent Point Energy common stock
(TSX: CPG). Subject to regulatory approvals, the transaction is expected to close in April 2021.

On March 9, 2021, we announced that Shell Egypt and one of its affiliates have signed an agreement with a consortium made up of subsidiaries
of Cheiron Petroleum Corporation and Cairn Energy plc to acquire Shell’s upstream assets in Egypt’s Western Desert for a base consideration
of $646 million and additional payments of up to $280 million between 2021 and 2024, contingent on the oil price and the results of further
exploration. The transaction is subject to government and regulatory approvals and is expected to complete in the second half of 2021.

264

Shell Annual Report and Accounts 2020Financial Statements and SupplementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED)

ABOUT THIS SECTION
The purpose of this section is to comply with the requirements of the
Financial Accounting Standards Board (FASB) “Extractive Activities –
Oil and Gas (Topic 932)”. Extractive activities for this purpose include
exploration and production activities to extract oil, condensates, natural
gas liquids, oil sands and natural gas from their natural reservoirs.

In Shell, extractive activities, or oil and gas exploration and production
activities, are undertaken within the Upstream segment, Integrated Gas
segment and Oil Products segment (oil sands). Shell’s extractive activities
do not represent the full extent of the Upstream, Integrated Gas and Oil
Products activities and exclude downstream GTL, some LNG activities,
Marketing business in Oil Products, Power and New Energies, trading and
optimisation, as well as other non-extractive activities. The information in
this “extractive activities” section is therefore not suitable for modelling
Shell’s integrated businesses for which we refer to the segment information.
Full segment information to the Consolidated Financial Statements is
available on pages 230-232.

The information set out on pages 265-282 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 FASB’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, 2020, were divided into
85% developed and 15% undeveloped on a barrel of oil equivalent basis.
For the Shell share of joint ventures and associates, the proved reserves at
December 31, 2020, were divided into 88% developed and 12%
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, 2020,
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 2,044 million barrels of crude oil and natural gas liquids,
and 12,133 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 31 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 25
years’ experience in the oil and gas industry, undertake the primary
assurance of the proved reserves bookings. This group of experts is part
of the Resources Assurance and Reporting (RAR) organisation within Shell.
A Vice President with 35 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
266-268. 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 2020–2019
Shell subsidiaries
Asia
The net increase of 181 million barrels in revisions and reclassifications was
mainly in Kazakhstan and Oman.

USA
The net decrease of 116 million barrels in revisions and reclassifications of
which half was mainly in Permian and Belridge Light Oil.

Canada
The net increase of 55 million barrels in revisions and reclassifications was
mainly in Jackpine Mine and Muskeg River mine.

South America
The net decrease of 82 million barrels in revisions and reclassifications
was mainly in Brazil.

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 the Mars and Ursa fields 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 the
Lula (recently renamed Tupi) and Lapa fields (Brazil). The net increase
of 60 million barrels in extensions and discoveries was mainly in
Mero (Brazil).

265

Shell Annual Report and Accounts 2020Financial Statements and SupplementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

Proved developed and undeveloped reserves 2020

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
noncontrolling interest in Shell
subsidiaries at December 31

274

1,551

(46)

181

121

(41)

395

982

(116)

–

(1)

–

(49)

178

(182)

1,573

(7)

(58)

(165)

379

728

(5)

–

(1)

271

(27)

–

(34)

210

–

(2)

–

(9)

–

607

–

(20)

644

–

184

1,783

379

728

644

322

[A] Includes 1 million barrels consumed in operations for synthetic crude oil.

Proved developed reserves 2020

–

1,033

4,374

(82)

(63)

607

–

(1)

–

(136)

(606)

815

3,761

(20)

644

–

(1)

–

283

(32)

–

(36)

216

–

815

3,977

644

322

Europe

Asia Oceania

Africa

USA

North America

Canada

South
America

–

4,981

(6)

(1)

(626)

4,405

283

(32)

–

(36)

216

4,621

322

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

156

103

1,403

1,417

240

192

106

–

314

316

641

539

–

607

644

–

675

674

3,310

3,130

607

644

–

251

199

–

3,917

3,774

251

199

Proved undeveloped reserves 2020

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

266

118

–

149

156

–

341

189

–

358

141

1,064

633

–

1,064

633

Shell Annual Report and Accounts 2020Financial Statements and SupplementsProved 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

Canada

North America

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

124

118

185

149

—

388

341

—

394

358

1,199

1,064

—

1,199

1,064

267

Shell Annual Report and Accounts 2020Financial Statements and SupplementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

Proved 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

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

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

(2)

—

(1)

301

(2)

—

(37)

281

—

377

1,783

129

420

1,017

661

—

331

—

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

[A] Includes 1 million barrels consumed in operations for synthetic crude oil.

Proved developed reserves 2018

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

268

106

124

118

185

—

330

388

—

295

394

1,026

1,199

—

1,026

1,199

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNATURAL 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 270-272. 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 2020–2019
Shell subsidiaries
Oceania
The net decrease of 3,512 thousand million scf in revisions and
reclassifications was mainly in Gorgon, Jansz-Io and Surat QGC.

USA
The net decrease of 319 thousand million scf in revisions and
reclassifications was mainly in Permian. The 542 thousand million
scf of Sales of minerals in place are mainly in Tioga.

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).

269

Shell Annual Report and Accounts 2020Financial Statements and SupplementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

Proved developed and undeveloped reserves 2020

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

10,618

249

8,360

(3,512)

2,608

2,998

(209)

—

(28)

(319)

—

(29)

(913)

2,442

9,927

595

(200)

4,198

(62)

—

(133)

262

2,703

(459)

3,678

13,605

—

(705)

4,176

(343)

2,363

—

(22)

—

1,868

(319)

—

(542)

(272)

801

—

1,281

—

122

—

(167)

1,295

—

South
America

Total

1,259

162

28,992

(3,477)

—

(293)

1,128

—

(1)

—

228

—

(599)

(3,012)

22,132

4,829

(234)

—

(615)

3,982

26,114

4,219

2,363

801

1,295

1,128

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

—

[A] Includes 225 thousand million standard cubic feet consumed in operations.
[B] Includes 42 thousand million standard cubic feet consumed in operations.

Proved developed reserves 2020

Thousand million standard cubic feet

Europe

Asia

Oceania

Africa

USA

Canada

North America

2,060

1,590

555

227

10,091

9,675

3,519

3,175

5,769

3,656

1,523

1,341

—

1,615

670

—

781

720

—

South
America

968

924

—

Total

22,807

18,576

4,110

3,445

Thousand million standard cubic feet

Europe

Asia

Oceania

Africa

USA

Canada

North America

937

852

528

252

680

502

2,591

520

1,085

1,022

—

254

132

—

499

575

—

South
America

291

203

—

Total

6,185

3,556

719

537

Shell subsidiaries

At January 1

At December 31

Shell share of joint ventures and associates

At January 1

At December 31

Proved undeveloped reserves 2020

Shell subsidiaries

At January 1

At December 31

Shell share of joint ventures and associates

At January 1

At December 31

270

Shell Annual Report and Accounts 2020Financial Statements and SupplementsProved 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

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

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

271

Shell Annual Report and Accounts 2020Financial Statements and SupplementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

Proved 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

3,600

10,631

8,427

3,100

1,183

—

(192)

(494)

11,822

(483)

—

354

—

(157)

(906)

5,125

(3,653)

4,964

—

(37)

(273)

1,163

4,763

—

(450)

4,581

15,212

7,978

1,438

2,082

896

—

(232)

(757)

—

(20)

—

(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

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

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

272

Shell Annual Report and Accounts 2020Financial Statements and SupplementsSTANDARDISED 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

2020 – 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

2020 – 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%

Europe

16,581

6,776

4,352

4,525

928

338

590

–

Europe

1,209

2,801

948

–

-2,540

-583

North America

USA

Canada

South
America

$ million

Total

27,891

22,447

34,502

222,262

Asia

Oceania

75,128

26,896

12,416

12,585

23,231

9,791

13,440

–

25,970

10,240

7,441

254

8,035

1,316

6,719

–

Africa

19,743

9,837

3,354

4,713

1,839

-50

1,889

–

20,341

7,274

222

-1,469

1,691

–

15,475

4,559

407

2,006

1,231

775

398

Asia

Oceania

Africa

USA

Canada

North America

22,209

11,472

5,165

3,026

2,546

412

139

136

111

–

-108

-35

–

19,137

108,702

7,440

1,847

6,078

1,369

4,709

–

South
America

–

46,836

24,385

42,339

12,526

29,813

398

$ million

Total

23,578

14,426

6,226

3,026

-100

-206

106

Standardised measure of discounted future net cash flows

-1,957 [A]

2,134

-73 [A]

[A] While proved reserves are economically producible at the 2020 yearly average price, the standardised measure of discounted future net cash flows was negative for those proved reserves at

December 31, 2020, due to addition of overhead, tax and abandonment costs and ongoing commitments post production of proved reserves.

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

—

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

—

Asia

Oceania

Africa

USA

Canada

North America

$ million

South
America

Total

31,046

55,800

31,522

64,957

400,664

30,139

11,137

2,397

12,127

1,815

10,312

—

16,651

4,603

2,313

7,955

5,571

2,384

1,371

32,362

157,298

13,219

5,429

13,947

4,094

9,853

—

62,639

62,920

117,807

44,953

72,854

1,371

273

Shell Annual Report and Accounts 2020Financial Statements and Supplements
SUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

2019 – Shell share of joint ventures and associates

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

41,836

21,227

7,917

6,882

5,812

917

4,893

South
America

—

[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

2018 – Shell share of joint ventures and associates

North America

Europe

Asia

Oceania

Africa

USA

Canada

50,392

122,037

72,355

36,080

68,546

18,400

32,773

22,219

13,237

32,533

8,649

12,603

10,739

3,024

7,715

—

12,301

30,994

45,969

20,957

11,598

5,899

32,639

12,130

25,012

20,509

—

4,672

12,805

11,486

1,948

5,366

22,578

572

4,794

—

5,039

17,539

—

34,719

17,378

4,674

3,257

9,411

6,446

2,964

1,638

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

Asia

Oceania

Africa

USA

Canada

North America

5,260

44,327

104

2,712

1,083

1,136

329

(76)

405

20,886

6,726

7,128

9,588

2,759

6,829

(13)

(8)

(5) [A]

—

$ million

South
America

Total

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

$ million

Total

49,691

23,677

7,844

8,265

9,904

2,675

7,229

South
America

—

[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.

274

Shell Annual Report and Accounts 2020Financial Statements and SupplementsCHANGE IN STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES

2020

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

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

Shell
subsidiaries

Shell share
of joint ventures
and associates

72,854

(69,363)

695

(540)

2,906

(16,904)

8,197

9,881

22,063

29,813

4,893

(6,097)

(459)

(426)

(1,954)

759

832

2,541

106

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

$ million

Total

77,747

(75,460)

712

(540)

(435)

2,480

(18,858)

8,956

10,713

24,604

29,919

$ 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)

50,524

58,128

15,265

8,936

(3,401)

(3,876)

(38,014)

10,724

7,060

(15,501)

89,845

7,109

6,156

(1,447)

532

(20)

(308)

(4,858)

(42,872)

666

994

(1,595)

7,229

11,390

8,054

(17,096)

97,074

275

Shell Annual Report and Accounts 2020Financial Statements and SupplementsSUPPLEMENTARY 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

2020

276,762

14,563

10,803

302,128

158,149

5,342

5,031

168,522

133,606

2020

50,592

2,512

5,037

58,141

36,876

473 [B]

3,070

40,419

17,722

$ million

2019

265,700

18,669

11,043

295,412

129,809

4,089

4,078

137,976

157,436

$ million

2019

46,895

2,428

4,882

54,205

34,120

—

2,817

36,937

17,268

[A] Includes capitalised asset decommissioning and restoration costs and related depreciation.
[B] The major part of this cost consists of an impairment charge for the year.

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 years 2020 and 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

2020

Acquisition of properties

Proved

Unproved

Exploration

Development

Europe

Asia

Oceania

Africa

USA Other [A]

North America

115

287

1,612

156

102

—

1,018

1,465

168

807

—

951

4,186

—

275

325

$ million

Total

165

448

2,206 [B]

South
America

—

180

390

1,930

11,343

[A] Comprises Canada and Mexico.
[B] Includes $504 million of Shales-related exploration activities. In 2020, we participated in 161 Shales productive exploratory wells with proved reserves allocated (Shell share: 77 wells).

276

Shell Annual Report and Accounts 2020Financial Statements and Supplements2019

Acquisition of properties

Proved

Unproved

Exploration

Development

Europe

Asia

Oceania

Africa

USA Other [A]

North America

—

428

2,054

105

165

1,434

—

117

1,225

253

1,480

—

118

1,723

4,455

—

402

287

$ million

Total

118

204

3,588 [B]

13,353

South
America

—

500

2,418

[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).

2018

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).

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 or 2018.

2020

Acquisition of properties

Unproved

Exploration

Development

2019

Exploration

Development

2018

Exploration

Development

Europe

Asia

Oceania

Africa

USA

Canada

North America

South
America

—

124

2,173

—

128

105

Europe

Asia

Oceania

Africa

USA

Canada

116

1,400

—

North America

Europe

Asia

Oceania

Africa

USA

Canada

—

229

1,026

—

North America

South
America

—

South
America

—

$ million

Total

128

209

2,366

$ million

Total

129

1,559

$ million

Total

104

1,334

277

Shell Annual Report and Accounts 2020Financial Statements and Supplements

SUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES EARNINGS
In Shell, extractive activities, or oil and gas exploration and production activities, are undertaken within the Integrated Gas segment, the Upstream
segment and the Oil Products segment. Shell’s extractive activities do not represent the full extent of Integrated Gas, Upstream and Oil Products
activities, and exclude downstream GTL, some LNG activities, Marketing business in Oil Products, Power and New Energies, trading and optimisation,
as well as other non-extractive activities.

The earnings disclosed in this “extractive activities” section are only a subset of Shell’s total earnings and are therefore not suitable for modelling Shell’s
integrated businesses, for which we refer to the full segment earnings and descriptions of the Integrated Gas, Upstream and Oil Products businesses,
which are available on page 46, 53 and 70 respectively. The earnings disclosed in this “extractive activities” section are not adjusted for items such
as impairment charges, restructuring charges and charges for onerous contract provisions. Full segment information to the Consolidated Financial
Statements is available on pages 230-232.

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

2020

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.

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, Honduras and Mexico.

278

Europe

Asia

Oceania

Africa

USA Other [A]

North America

767

2,879

3,646

2,023

256

3,618

553

(2,868)

(423)

(2,445)

2,104

6,360

8,464

1,811

389

149

2,120

1,127

2,868

1,854

1,014

589

1,951

2,540

1,040

234

10,178

(981)

(8,024)

(3,175)

(4,849)

1,540

1,816

3,356

1,064

245

202

2,589

645

(1,389)

(104)

(1,285)

1,008

5,239

6,247

2,615

325

7,927

230

(4,914)

(790)

(4,124)

753

943

1,696

735

—

108

2,147

631

(1,925)

(449)

$ million

Total

7,328

23,844

31,172

10,224

2,349

1,747

34,861

2,366

South
America

567

4,656

5,223

936

1,494

473

6,282

161

(4,123)

(20,375)

(300)

(3,387)

(1,476)

(3,823)

(16,988)

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)

$ million

Total

11,303

40,814

52,117

10,812

4,065

2,354

19,764

3,217

11,905

7,352

4,553

South
America

844

7,647

8,491

1,135

2,613

288

3,929

1,379

(853)

(78)

(775)

Shell Annual Report and Accounts 2020Financial Statements and Supplements
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 charge/(credit)

Earnings after taxation

[A] Comprises Canada, Honduras and Mexico.

Shell share of joint ventures and associates

2020

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

2019

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 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

Canada

North America

514

272

366

296

(444)

(281)

(163)

3,464

726

423

1,219

365

634

162

472

—

270

(14)

(268)

—

(268)

—

(7)

(1)

—

Europe

Asia

Oceania

Africa

USA

Canada

North 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)

South
America

1,023

7,154

8,177

1,401

2,767

237

3,271

849

(348)

1,162

(1,510)

South
America

—

(15)

(9)

(6)

South
America

—

$ 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

4,075

1,078

454

1,871

658

(85)

(126)

$ million

Total

6,789

1,006

1,118

1,581

1,153

1,876

996

880

279

Shell Annual Report and Accounts 2020Financial Statements and Supplements
SUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

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

Europe

Asia

Oceania

Africa

USA

Canada

North America

South
America

1,395

307

318

595

5,884

674

1,259

1,016

615

2,275

975

1,300

105

—

163

(26)

(167)

—

(167)

—

$ million

Total

7,358

1,086

1,345

1,497

1,184

2,196

982

1,214

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)

2020

2019

Thousand acres

2018

Developed

Undeveloped

Developed

Undeveloped

Developed

Undeveloped

Gross

Net

Gross

Net Gross

Net

Gross

Net

Gross

6,075 1,900

13,399

5,663

6,278 [B]

1,910 [B]

13,844 [C] 6,077 [C] 6,022

21,360

7,651

34,545 18,003

21,387

3,151

1,275

9,156

4,974

3,025

4,764

1,996

69,194 37,743

4,663

7,672

1,215

1,938

31,486

14,880

22,087

11,720

6,260

62,965

32,564

3,202

4,666

Net

1,954

7,885

1,220

1,940

Gross

Net

13,732 [D] 6,322 [D]

31,676

15,433

15,319

10,095

38,874

22,732

Europe [A]

Asia

Oceania

Africa

North America – USA

1,145

728

1,916

1,408

1,346 [E]

906 [E]

2,483 [F]

1,911 [F]

1,548 [G]

977 [G]

2,133

1,638 [H]

North America – Mexico

–

5,178

3,291

–

490

1,449

336

609

1,689

1,177

483

20,147

11,731

1,393

–

329

595

5,178

1,783

3,291

1,265

16,446

10,214

–

1,108

1,490

–

752

710

5,178

1,681

10,352

3,885

1,193

6,725

38,434 14,495 155,224 83,990 38,575

14,565

145,905

76,462

40,123

15,438

118,945

68,023

North America – Canada

South America

Total

[A] Includes Greenland for 2018.
[B] Corrected from 6,289 Gross (1,915 Net)
[C] Corrected from 13,864 Gross (6,082 Net)
[D] Corrected from 14,385 Gross (6,540 Net)
[E] Corrected from 1,333 Gross (877 Net)
[F] Corrected from 2,489 Gross (1,917 Net)
[G] Corrected from 1,541 Gross (952 Net)
[H] Corrected from 1,635 Net

280

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNumber of productive wells [A] (at December 31)

Europe

Asia

Oceania

Africa

Oil

Net

197

Gross

814

8,505

3,105

Gross

1,055

342

2020

Gas

Net

336

193

—

3,394

1,927

567

235

—

179

—

209

401

757

141

223

684

Oil

Gross

894 [B]

Net

217

Gross

1,095 [C]

7,860 [E] 2,874 [E]

336

2019

Gas

Net

345

193

—

514

—

206

3,348 [G]

1,891 [G]

202

139

Gross

1,077

Oil

Net

277

7,449 [F] 2,728

—

478

—

189

2018

Gas

Gross

1,205 [D]

331

3,411

195

Net

379

189

1,924

132

14,953 [H] 7,650 [H]

824 [I]

518 [I]

15,238 [J] 7,755 [J]

1,481 [K]

674 [K]

—

137

—

748

676

117

936

846

24,570

11,021

6,221

3,541

24,358

11,010

6,611

3,798

24,360

11,002

7,622

4,185

North America – USA

14,505

7,402

North America – Canada

South America

Total

[A] The number of productive wells with multiple completions at December 31, 2020, was 956 gross (416 Net); December 31, 2019: 950 Gross (418 net) corrected from 955 Gross, December 31, 2018:

1,055 Gross (454 net) corrected from 1,061 Gross

[B] Corrected from 893
[C] Corrected from 1,091 Gross
[D] Corrected from 1,201 Gross
[E] Corrected from 7,767 Gross (2,841 Net)
[F] Corrected from 7,455
[G] Corrected from 3,352 Gross (1,896 Net)
[H] Corrected from 14,935 Gross (7,638 Net)
[I] Corrected from 822 Gross (516 Net)
[J] Corrected from 15,224 Gross (7,745 Net)
[K] Corrected from 1,479 Gross (672 Net)

Number of net productive wells and dry holes drilled

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

Productive

–

169

110

–

340

2020

Dry

6 [B]

81 [C]

107

–

[A] Productive wells are wells with proved reserves allocated. Wells in the process of drilling are excluded and presented separately below.
[B] Includes 4 Wells in Shell Australia (SAL) which were relinquished in June 2020
[C] Includes 75 sold wells in Tioga that were pending determination at time of sale

Productive

2019

Dry

Productive

2018

Dry

–

154

182

280

532

–

104

153

198

276

614

–

281

Shell Annual Report and Accounts 2020Financial Statements and SupplementsSUPPLEMENTARY INFORMATION – OIL AND GAS (UNAUDITED) continued

Number of wells in the process of exploratory drilling [A]

Wells in the process of
drilling at January 1 and
allocated proved reserves
during the year

Wells in the process of
drilling at January 1 and
determined as dry during
the year

At January 1

New wells in the process
of drilling at December 31

At December 31

Gross

44 [B]

36 [C]

219 [D]

421

Net

17 [B]

24 [C]

132 [D]

15 [E]

237

Gross

Net

Gross

Net

Gross

Net

Gross

Net

—

(7)

(1)

—

(3)

—

(1)

(3)

(7)

(11)

(7)

(101)

(38)

(90)

(16)

(7)

(133)

(16)

(3)

(61)

—

(5)

(123)

(1)

(2)

(6)

(4)

(79)

—

(3)

(95)

—

106

—

271

130

Europe

Asia

Oceania

Africa

North America – USA

North America –
Canada

South America

Total

[A] Wells in the process of exploratory drilling includes wells pending further evaluation.
[B] Corrected from 40 Gross (15 Net); Includes 8 Gross (4 Net) in Shell Australia (SAL) which were relinquished in June 2020
[C] Corrected from 45 (28 Net)
[D] Corrected from 197 (126 Net); Includes 75 Gross (75 Net) sold wells in Tioga that were pending determination at time of sale
[E] Corrected from 16

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 11
[B] Corrected from 123

At January 1

2020

At December 31

Gross

9 [A]

122 [B]

–

242

Net

–

139

Gross

191

–

303

Net

124

–

192

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).

282

Shell Annual Report and Accounts 2020Financial Statements and Supplements
PARENT COMPANY
FINANCIAL
STATEMENTS

The Parent Company Financial Statements have not been audited in accordance with
the standards of the Public Company Accounting Oversight Board (United States).

284

285

286

287

288

289

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

290

Note 9 Other reserves

291

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

283

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNotes

2020

8,481

(58)

(1)

$ million

2019

21,051

101

(54)

(146)

8,433

20,952

(567)

8,441

20,385

2020

8,441

$ million

2019

20,385

$ million

Notes

Dec 31, 2020

Dec 31, 2019

256,663

256,654

256,663

256,654

1,488

1,489

1,864

1,868

258,152

258,522

1,250

1,775

651

235,419

20,832

256,902

258,152

657

235,561

20,529

256,747

258,522

PARENT COMPANY FINANCIAL STATEMENTS continued

STATEMENT OF INCOME

Dividend income

Interest and other income

Administrative expenses

Interest and other expense

Income before taxation

Taxation credit/(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

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 10, 2021

284

Shell Annual Report and Accounts 2020Financial Statements and SupplementsSTATEMENT OF CHANGES IN EQUITY

At January 1, 2020

Comprehensive income for the period

Dividends

Repurchases of shares

Share-based compensation

At December 31, 2020

At January 1, 2019

Comprehensive income for the period

Dividends

Repurchases of shares

Share-based compensation

At December 31, 2019

STATEMENT OF CASH FLOWS

Income before taxation for the period

Adjustment for:

Dividend income

Interest income

Interest expense

Share-based compensation

Decrease 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

Share
capital

Other
reserves

Retained
earnings

$ million

Total
equity

657

235,561

20,529

256,747

—

(6)

—

651

685

—

(28)

—

657

—

(148)

235,419

235,536

—

(3)

8,441

(7,270)

(1,214)

346

20,832

25,458

20,385

(15,199)

(10,286)

171

8,441

(7,270)

(1,214)

198

256,902

261,679

20,385

(15,199)

(10,286)

168

235,561

20,529

256,747

Notes

2020

8,433

$ million

2019

20,952

(8,481)

(21,051)

(11)

—

501

467

8,481

164

8,656

(7,424)

(1,702)

—

(101)

111

4,008

3,938

21,051

101

408

21,560

(15,198)

(10,188)

(111)

(9,126)

(25,497)

(3)

[A] Cash dividends paid represents the payment of net dividends (after deduction of withholding taxes where applicable) and payment of withholding taxes on dividends paid in the previous quarter.

285

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES 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 international accounting standards in
conformity with the requirements of the Companies Act 2006 (the “Act”).
As applied to the Company, there are no material differences from
International Financial Reporting Standards (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 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 216-264. 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 294-297.

The Company’s principal activity is being the parent company for Shell,
as described in Note 1 of the Consolidated Financial Statements (see
page 221).

2 SIGNIFICANT ACCOUNTING POLICIES
The Company’s accounting policies follow those of Shell as set out in
Note 2 to the Consolidated Financial Statements on pages 221-229.
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 future cash flows for value-in-use measures include future oil
and gas prices, market supply and demand, potential costs associated
with operational greenhouse gas (GHG) emissions, and expected product
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 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.

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 subsequently became 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 a 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. This
change had no impact on the cost of investment in subsidiaries.

Dividend income
Dividends are recognised on a paid basis unless the dividend has been
confirmed by a general meeting of Shell Petroleum, in which case income
is recognised on the date at which receipt is deemed virtually certain.

Share-based compensation plans
The fair value of share-based compensation for equity-settled plans
granted to employees of subsidiaries under the Company’s plans is
recognised as an investment in subsidiaries from the date of grant over
the vesting period with a corresponding increase in equity.

In the year of vesting of a plan, the costs for the actual deliveries are
charged to the relevant employing subsidiaries. This is recognised as a
realisation of the investment originally booked. If the actual vesting costs
are higher than the cumulatively recognised share-based compensation
charge, the difference is recognised in income.

See Note 21 of the Consolidated Financial Statements (see page 256)
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. The recognition and derecognition of
deferred tax assets and or liabilities, as applicable, may be done either
by the Company or by any of its subsidiary members. Any current tax
receivable or payable (and deferred tax asset or liability) recognised
by the Company for the fiscal unit as a whole is 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 subsidiary 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 the income statement
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.

286

Shell Annual Report and Accounts 2020Financial Statements and Supplements3 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

2020

$ million

2019

—

(1)

101

(111)

(35)

(146)

2020

$ million

2019

256,654

256,920

332

(323)

506

(772)

256,663

256,654

As at December 31, 2020, the market capitalisation of the Royal Dutch Shell plc and its subsidiaries (collectively referred to as the “Group”) was less than the
Company’s carrying value of its investment in the Group. As such, management has performed an impairment test in order to compare the carrying value
of the investment in the Group to the associated value in use. Cash flow projections have been derived from internally approved business plans, and reflect
management’s forecasts of commodity prices, market supply and demand, potential costs associated with GHG emissions, product margins including refining
margins and expected production volumes. Cash flows include a balanced view of risk arising from the integrated nature of the portfolio. The nominal pre-tax
rate applied was 6% (see Note 8 to the Consolidated Financial Statements).

Oil and gas price assumptions applied for impairment testing are reviewed and, where necessary, adjusted on a periodic basis. Reviews include
comparison with available market data and forecasts that reflect developments in demand such as global economic growth, technology efficiency,
policy 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 were as follows:

Commodity price assumptions [A]

Brent crude oil ($/b)

Henry Hub natural gas ($/MMBtu)

[A] Money of the day.

2021

2.50

2022

2.50

2023

2.75

2024

3.03

For periods after 2024, the real-terms long-term price assumptions applied were $60 per barrel (/b) (2019: $60/b) for Brent crude oil and
$3.00 per million British thermal units (/MMBtu) (2019: $3.00/MMBtu) for Henry Hub natural gas, both at real-terms 2020.

Underlying cash flow forecasts used in determining value in use are consistent with those used to assess the recoverable amount of individual cash
generating units in the Consolidated Financial Statements.

Based on the impairment test analysis performed, management remains satisfied that the carrying amount of the investment remains recoverable
under the reasonable range of anticipated outcomes.

5 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Amounts due to subsidiaries (see Note 13)

Accruals and other liabilities

Withholding tax payable

Unclaimed dividends

Total

Dec 31, 2020

$ million

Dec 31, 2019

Current

Non-current

Current

Non-current

874

322

1,250

—

750

730

291

1,775

—

Accruals and other liabilities at December 31, 2019, principally comprise commitments for share repurchases undertaken on the Company’s behalf
under irrevocable, non-discretionary arrangements. There is no such liability outstanding as at December 31, 2020. See Note 20 to the Consolidated
Financial Statements.

287

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS continued

6 TAXATION

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 (credit)/charge

2020

$ million

2019

—

(8)

—

(8)

539

558

567

In 2020, current taxes of nil and deferred taxes of $8 million have been recognised in the Company’s accounts. Derecognition of deferred tax assets
of $517 million (representing unused tax losses and tax credits related to the fiscal unit) have not been recognised in the Company, but in the income
statement of Shell Petroleum, a subsidiary of the Company forming part of the same fiscal unit. The amount derecognised in the Company’s accounts
in 2019 was $539 million.

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% (2019: 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 (credit)/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

2020

8,433

2,108

—

$ million

2019

20,952

5,238

539

(2,120)

(5,253)

—

(8)

567

2020

—

(8)

—

$ million

2019

355

(558)

203

—

As at December 31, 2020, in the Company’s capacity as head of the fiscal unit, no deferred tax assets have been recognised (2019: nil). The Dutch
Fiscal Unit has unrecognised unused tax losses amounting to $3,776 million (2019: $1,683 million) and unrecognised credits carried forward amounted
to $349 million (2019: $273 million). Unused tax losses are available for relief against future taxable profits for a period of up to six to nine years,
depending on the year in which the losses were incurred. Unused tax credits are available indefinitely. Under the proposed new tax legislation, which
is not considered substantively enacted as at December 31, 2020, the losses are expected to be available indefinitely, to the extent not yet expired
as at January 1, 2022.

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,
2020, and December 31, 2019, approximates their carrying amount.

Information on financial risk management is presented in Note 19 of the Consolidated Financial Statements (see pages 251-255). 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. No derivative financial instruments were held at December 31, 2020, or December 31, 2019.

288

Shell Annual Report and Accounts 2020Financial Statements and Supplements8 SHARE CAPITAL

Issued and fully paid ordinary shares of €0.07 each [A]

At January 1, 2020

Repurchases of shares

At December 31, 2020

At January 1, 2019

Repurchases of shares

At December 31, 2019

Number of shares

4,151,787,517

3,729,407,107

(50,548,018)

(23,223,271)

4,101,239,499

3,706,183,836

4,471,889,296

3,745,486,731

(320,101,779)

(16,079,624)

4,151,787,517

3,729,407,107

349

(4)

345

376

(27)

349

Nominal value ($ million)

308

(2)

306

309

(1)

308

Total

657

(6)

651

685

(28)

657

[A] Share capital at December 31, 2020, and 2019, also included 50,000 issued and fully paid sterling deferred shares of £1 each.

At the Company’s Annual General Meeting (AGM) on May 19, 2020,
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 €182.7 million
(representing 2,611 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 19, 2021, and the end of the AGM to
be held in 2021, unless previously renewed, revoked or varied by the
Company in a general meeting.

At the May 19, 2020 AGM, shareholders granted the Company the
authority to repurchase up to 783 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 19, 2021 and the end of the AGM of the Company to
be held in 2021. 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.

On March 23, 2020, in light of the economic and oil price environment,
the Board decided not to continue with the next tranche of the share
buyback programme following the completion of the tranche announced
on January 30, 2020.

A and B shares repurchased in 2020 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 page 256).

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.

289

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS continued

8 SHARE CAPITAL continued
Operation of the dividend access mechanism
If, in connection with the announcement of a dividend by the Company on
B shares, the Board of Shell Transport and/or the Board of BG elects to
declare and pay a dividend on their respective dividend access shares to
the Trustee, the holders of B shares will be beneficially entitled to receive
their share of those dividends pursuant to the declaration of trust (and
arrangements will be made to ensure that the dividend is paid in the
same currency in which they would have received a dividend from
the Company).

If any amount is paid by Shell Transport or BG by way of a dividend on
the dividend access shares and paid by the Trustee to any holder of B
shares, the dividend which the Company would otherwise pay on B
shares will be reduced by an amount equal to the amount paid to such
holders of B shares by the Trustee.

The Company will have a full and unconditional obligation, in the event
that the Trustee does not pay an amount to holders of B shares on a cash
dividend payment date (even if that amount has been paid to the Trustee),
to pay immediately the dividend announced on B shares. The right of
holders of B shares to receive distributions from the Trustee will be reduced
by an amount equal to the amount of any payment actually made by the
Company on account of any dividend on B shares.

If for any reason no dividend is paid on the dividend access shares,
holders of B shares will only receive dividends from the Company directly.
Any payment by the Company will be subject to Dutch withholding tax
(unless an exemption is obtained under Dutch law or under the provisions
of an applicable tax treaty).

The Dutch tax treatment of dividends paid under the dividend access
mechanism has been confirmed by the Dutch Revenue Service in an
agreement (vaststellingsovereenkomst) with the Company and N.V.
Koninklijke Nederlandsche Petroleum Maatschappij (Royal Dutch
Petroleum Company) dated October 26, 2004, as supplemented and
amended by an agreement between the same parties dated April 25,
2005, and a final settlement agreement in connection with the acquisition
of BG dated November 9, 2015. The agreements state, among other
things, that dividend distributions on the dividend access shares by Shell
Transport and/or BG will not be subject to Dutch withholding tax provided
that the dividend access mechanism is structured and operated
substantially as set out above.

The Company may not extend the dividend access mechanism to any
future issuances of B shares without prior consultation with the Dutch
Revenue Service.

Accordingly, the Company would not expect to issue additional B shares
unless confirmation from the Dutch Revenue Service was obtained or the
Company were to determine that the continued operation of the dividend
access mechanism was unnecessary. Any further issue of B shares is
subject to advance consultation with the Dutch Revenue Service.

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, 2020

Repurchases of shares

Share-based compensation

At December 31, 2020

At January 1, 2019

Repurchases of shares

Share-based compensation

At December 31, 2019

Merger
reserve

234,231

—

234,231

—

234,231

Share
premium
reserve

Capital
redemption
reserve

154

—

154

—

154

123

—

129

—

123

Share
plan
reserve

1,053

—

(148)

905

1,056

—

(3)

$ million

Total

235,561

(148)

235,419

235,536

(3)

1,053

235,561

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.

290

Shell Annual Report and Accounts 2020Financial Statements and Supplements10 DIVIDENDS
See Note 23 of the Consolidated Financial Statements (see page 259).

11 LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
See Note 25 of the Consolidated Financial Statements (see page 260).

12 DIRECTORS AND SENIOR MANAGEMENT
See Note 27 of the Consolidated Financial Statements (see page 262) for the remuneration of Directors of the Company. In 2020, the Company
recognised $25 million (2019: $25 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, 2020, is set out in ‘Appendix 1: Significant Subsidiaries and Other Related Undertakings’.

Shell Petroleum

Shell Treasury Centre Limited

Other

Total

Amounts due from subsidiaries

2020

—

1,484

1,488

2019

—

1,862

1,864

$ million

Amounts due to subsidiaries
(see Note 5)

2020

855

874

2019

748

—

750

The amount due from Shell Treasury Centre Limited (STCL) comprises call deposits and overdrafts in dollars, sterling and euros. Interest is calculated
at US LIBOR (2019: US LIBOR less 0.21%) on dollar balances, at GBP LIBOR less 0.03% (2019: GBP LIBOR less 0.19%) on sterling balances and at Euro
Overnight Index Average (EONIA) (2019: EONIA) on euro balances, unless this results in a negative interest rate in which case no interest is earned.
Net interest income in 2020 from STCL was $11 million (2019: $41 million).

The Company received no interest from Shell Petroleum in 2020 (2019: $60 million). In 2019 interest was calculated at US LIBOR less 0.21%. At both
December, 31 2020 and 2019 the closing amount due from Shell Petroleum was $nil.

Other transactions and balances
The Company periodically enters into forward and spot foreign currency contracts with Treasury companies, which are subsidiaries. There were no open
foreign currency contracts at December 31, 2020, or December 31, 2019.

The Company settles general and administrative expenses of the Trust, including the auditor’s remuneration.

The Company has guaranteed contractual payments totalling $63,146 million at December 31, 2020 (December 31, 2019: $52,357 million), and
related interest, in respect of listed debt issued by Shell International Finance B.V. The fair value of this guarantee was considered to be immaterial
at initial recognition and since the likelihood of default is considered remote no subsequent expected credit losses have been recognised.

14 AUDITOR’S REMUNERATION
See Note 28 of the Consolidated Financial Statements (see page 263).

291

Shell Annual Report and Accounts 2020Financial Statements and SupplementsINDEPENDENT AUDITOR’S REPORT 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

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
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, 2020 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
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, 2020 and of its income for the year then ended; and have been
properly prepared in accordance with IFRS as issued by the IASB.

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. 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
In auditing the financial statements, we have concluded that 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 appropriate.

Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Trust’s ability to continue
as a going concern until 31 March 2022 (the going concern period).

Our responsibilities and the responsibilities of the directors with respect
to going concern are described in the relevant sections of this report.
However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the company’s ability to continue
as a going concern.

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 contained within the annual report.

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.

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 themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of the other information,
we are required to report that fact.

We have nothing to report in this regard.

Responsibilities of the Trustee
The Trustee is responsible for the preparation of the Financial Statements
and for being satisfied that they give a true and fair view, and for such
internal control as the Trustee determines is necessary to enable the
preparation of Financial Statements that are free from material
misstatement, whether due to fraud or error.

In preparing the Financial Statements, the Trustee is responsible for
assessing the Trust’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern
basis of accounting unless the Trustee either intends to liquidate the Trust
or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about whether the
Financial Statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was considered
capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws
and regulations. We design procedures in line with our responsibilities,
outlined above, to detect irregularities, including fraud. The risk of not
detecting a material misstatement due to fraud is higher than the risk of
not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional misrepresentations,
or through collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below. However, the
primary responsibility for the prevention and detection of fraud rests with
both the Trustee and those charged with governance of Royal Dutch Shell
plc and its management.
■ We obtained an understanding of the legal and regulatory frameworks
that are applicable to the Trust and determined that the most significant
are those that relate to the reporting framework (IFRS and the US
Securities Exchange Act of 1934).

■ We understood how the Trust is complying with those frameworks by
making enquiries of the Trustee, Royal Dutch Shell plc management
and those responsible for legal and compliance procedures over the
Trust. We corroborated our enquiries through our review of Resolutions
of the Trust Committee of the Trustee, papers provided to the Royal
Dutch Shell plc Audit Committee and correspondence received from
regulatory bodies and noted that there was no contradictory evidence.

292

Shell Annual Report and Accounts 2020Financial Statements and Supplements ■ We assessed the susceptibility of the Trust’s financial statements to
material misstatement, including how fraud might occur by regular
meetings with the Trustee, Royal Dutch Shell plc management and
those responsible for legal and compliance procedures over the Trust
to understand where it was considered there was susceptibility to
fraud. We considered the programmes and design, implementation
and maintenance of internal controls that the Trustee and Royal Dutch
Shell plc have established to prevent and detect fraud over the Trust
and how the Trustee, Royal Dutch Shell plc management and those
responsible for legal and compliance procedures over the Trust
monitor those programmes and controls.

■ Based on this understanding we designed our audit procedures
to identify noncompliance with such laws and regulations. Our
procedures involved review of Resolutions of the Trust Committee
of the Trustee and Royal Dutch Shell plc Audit Committee minutes to
identify noncompliance with laws and regulations, journal entry testing
with a focus on journals meeting our defined risk criteria based on our
understanding of the Trust and enquiries of the Trustee, Royal Dutch
Shell plc management and those responsible for legal and compliance
procedures over the Trust.

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 Board of Directors and
Shareholders of Royal Dutch Shell plc 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 Board of Directors and Shareholders of Royal
Dutch Shell plc 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 Trustee and the Board of Directors and Shareholders of Royal Dutch
Shell plc as a body, for our audit work, for this report, or for the opinions
we have formed.

/s/ Paul Sater

for and on behalf of Ernst & Young LLP, Statutory Auditor
London
March 10, 2021

293

Shell Annual Report and Accounts 2020Financial Statements and SupplementsROYAL 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

295

296

297

294

Shell Annual Report and Accounts 2020Financial Statements and SupplementsSTATEMENT 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

Other current assets

Cash and cash equivalents

Total assets

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/ John Le Marquand

JOHN LE MARQUAND
March 10, 2021

/s/ Martin Fish

MARTIN FISH

2020

2,777

2020

2,777

2019

5,484

2019

5,484

£ million

2018

5,328

£ million

2018

5,328

£ million

Notes

Dec 31, 2020

Dec 31, 2019

—

295

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNotes

Capital
account

—

Revenue
account

—

2,777

(2,777)

—

5,484

(5,484)

—

5,328

(5,328)

—

2020

2,777

2019

5,484

(2,777)

(5,484)

—

2,772

(2,775)

(3)

—

5,484

(5,484)

—

£ million

Total
equity

—

2,777

(2,777)

—

5,484

(5,484)

—

5,328

(5,328)

—

£ million

2018

5,328

(5,328)

—

5,328

(5,327)

ROYAL DUTCH SHELL DIVIDEND ACCESS TRUST
FINANCIAL STATEMENTS continued

STATEMENT OF CHANGES IN EQUITY

At January 1, 2020

Comprehensive income for the period

Distributions made

At December 31, 2020

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

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

296

Shell Annual Report and Accounts 2020Financial Statements and SupplementsNOTES TO THE ROYAL DUTCH SHELL DIVIDEND ACCESS TRUST
FINANCIAL STATEMENTS

Distributions made
Amounts are recorded as distributed once a payment is made in the
appropriate currency using various electronic transfer methods, or an
unconditional payment obligation is established. Shell Transport or BG
(as appropriate) may, each at their respective discretion, withhold any
part of the funding relating to an unpayable dividend until such time as
the relevant B shareholder provides accurate or complete details for
payment of any such dividend.

4 UNCLAIMED DIVIDENDS
Unclaimed dividends of £7 million (2019: £3 million) include any
pre-electronic transfer dividend cheque payments that have not been
presented within 12 months, have expired or have been returned
unpresented. Dividends are also classified as unclaimed where amounts
have been withheld due to incomplete or incorrect electronic payment
details. Dividends which are unclaimed after 12 years will unconditionally
revert to Shell Transport and BG once forfeited.

5 CAPITAL ACCOUNT
The capital account is represented by the dividend access share of 25
pence settled in the Trust by Shell Transport and the dividend access share
of 10 pence settled in the Trust by BG. There have been no changes in the
capital account in the current or prior year.

6 DISTRIBUTIONS MADE
Distributions are made to the B shareholders of the Company in
accordance with the Trust Deed. See Note 23 of the Consolidated
Financial Statements (see page 259) for information about dividends
per share.

7 RELATED PARTIES
The Trust recognised dividend income of £1,805 million (2019: £3,573
million; 2018: £3,470 million) in respect of the dividend access share
from Shell Transport and £972 million (2019: £1,911 million; 2018: £1,858
million) in respect of the dividend access share from BG. The Trust made
distributions of £2,777 million (2019: £5,484 million; 2018: £5,328
million) to the B shareholders of the Company.

As at December 31, 2020 the Trust recorded amounts due from Shell
Transport of £5 million and BG of £2 million relating to unclaimed
dividends, following a move to electronic settlement of dividend
payments in the year.

The Company pays the general and administrative expenses of the Trust,
including the auditor’s remuneration.

8 AUDITOR’S REMUNERATION
Auditor’s remuneration for 2020 audit services was £33,750
(2019: £33,750; 2018: £33,750).

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”), 13 Castle Street, St Helier, Jersey, JE1 1ES. The Trust
was established as part of a dividend access mechanism.

Shell Transport and BG Group Limited (BG), have each issued a dividend
access share to the Trustee. Following the announcement of a dividend by
the Company on the B shares, Shell Transport and BG may declare a
dividend on their dividend access shares.

The primary purposes of the Trust are to receive, on behalf of the B
shareholders of the Company and in accordance with their respective
holdings of B shares in the Company, any amounts paid by way of
dividend on the dividend access shares and to pay such amounts to
the B shareholders on the same pro rata basis. The Trust is not subject
to significant market risk, credit risk or liquidity risk.

The Trust shall not endure for a period in excess of 80 years from May 19,
2005, being the date on which the Trust Deed was executed.

2 BASIS OF PREPARATION
The Financial Statements of the Trust have been prepared in accordance
with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).

The Financial Statements have been prepared under the historical cost
convention. The accounting policies described in Note 3 have been
applied consistently in all periods presented.

The Financial Statements were approved and authorised for issue
by the Trustee on March 10, 2021.

The financial results of the Trust are included in the Consolidated
and Parent Company Financial Statements on pages 216-264
and pages 283-291 respectively.

3 SIGNIFICANT ACCOUNTING POLICIES
The Trust’s accounting policies follow those of Shell as set out in Note 2
of the Consolidated Financial Statements (see pages 221-229).
The following are Trust-specific policies.

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. Dividend income includes amounts
receivable from Shell Transport and BG in respect of dividends declared
but unclaimed (see Note 4).

297

Shell Annual Report and Accounts 2020Financial Statements and SupplementsADDITIONAL
INFORMATION

Shareholder information
Non-GAAP measures reconciliations
Appendix 1: significant subsidiaries and
other related undertakings (audited)
Appendix 2: five-year financial dataset

300
305
308

324

298

Shell Annual Report and Accounts 2020Additional InformationRESPECTING
NATURE

299

Shell Annual Report and Accounts 2020Additional InformationSHARE CAPITAL
The issued and fully paid share capital of the Company at February 12,
2021, was as follows:

Share capital

Ordinary shares of €0.07 each

A shares

B shares

Issued and fully paid

Number

Nominal value

4,101,239,499

€287,086,765

3,706,183,836

€259,432,869

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 2020
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, 2020, trusts and trust-like entities holding shares for the
benefit of employee share plans of Shell held (directly and indirectly)
25 million shares of the Company with an aggregate market value
of $526 million and an aggregate nominal value of €2 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 300-304.
[A] At February 12, 2021, 307,263,635 A ADSs and 292,034,995 B ADSs were outstanding,

representing 14.98% and 15.76% of the respective share capital class, held by 4,872 and 910
holders of record with an address in the USA, respectively. In addition to holders of ADSs, at
February 12, 2021, 21,790 A shares and 929,184 B shares of €0.07 each were outstanding,
representing 0.0002% and 0.119% of the respective share capital class, held by 299 and
3,063 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 for shares

ISIN for ADS

CUSIP

SEDOL Number Amsterdam

SEDOL Number London

SEDOL Number New York

Weighting on FTSE 100 at 31/12/20

Weighting on AEX at 31/12/20

A shares

B shares

RDSA

RDS.A

RDSB

RDS.B

GB00B03MLX29 GB00B03MM408

US7802592060

US7802591070

G7690A100

G7690A118

B09CBL4

B03MLX2

B03MM62

3.09%

10.58%

B09CBN6

B03MM40

B03MM73

2.71%

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.

300

Shell Annual Report and Accounts 2020Additional InformationNotification of major shareholdings
The Company received two notifications pursuant to Disclosure Guidance and Transparency Rule (DTR) 5 from the Capital Group Companies, Inc.
during the year and up to February 12, 2021, (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]

Number

42,482,002

A shares

0.54

Number

349,161,475

B shares

4.45

Number

391,643,477

Total[A]

4.99

[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] Notifications were announced on 20 January 2020 and 24 February 2020. The figures in the table above reflect that of the latest announcement, made on 24 February 2020.

Designation of the Netherlands as EU Home Member State for regulatory purposes
Following the exit of the UK from the EU and the end of the transition period, the Company has announced that the EU Home Member State of the
Company for the purposes of the EU Transparency Directive will be the Netherlands as from January 1, 2021. As a consequence, going forward the
Company will file Transparency Directive and Market Abuse Regulation-related regulatory information with the Netherlands Authority for the Financial
Markets (Autoriteit Financiële Markten, or AFM). Major shareholders will have to report substantial holdings in Shell to the AFM in accordance with
applicable Dutch law, in addition to their ongoing disclosure obligations under the UK Disclosure Guidance and Transparency Rules (DTR). The
Company’s status as a UK PLC, headquartered in the Netherlands, remains the same.

DIVIDENDS
The following tables show the dividends on each class of share and each class of ADS for the years 2016-2020.

A and B shares

Total announced in respect of the year

A shares

Q4 [B]

Total announced in respect of the year [B]

Amount paid during the year

[A] Euro equivalent, rounded to the nearest euro cent.
[B] Q4 2020 euro equivalent will be announced on March 15,2021.

2020

0.16

0.17

0.65

2020

0.14

TBA

0.84

2019

0.47

1.88

2019

0.42

0.43

0.42

1.68

2018

0.47

1.88

2018

0.4

0.41

0.42

1.64

1.60

2017

0.47

1.88

2017

0.42

0.39

0.4

0.38

1.59

1.65

2016

0.47

1.88

€ [A]

2016

0.42

0.44

1.72

1.70

301

Shell Annual Report and Accounts 2020Additional InformationSHAREHOLDER INFORMATION continued

B shares

Q4 [B]

Total announced in respect of the year [B]

Amount paid during the year

[A] Sterling equivalent.
[B] Q4 2020 sterling equivalent will be announced on March 15, 2021

A and B ADSs

Total announced in respect of the year

Amount paid during the year

2020

12.68

12.09

12.48

TBA

73.65

2020

0.32

0.33

1.31

1.91

2019

36.97

38.01

35.73

36.4

147.11

146.65

2019

0.94

3.76

2018

35.18

36.5

36.77

35.94

144.39

142.36

2018

0.94

3.76

2017

37.12

36.28

35.02

33.91

142.33

147.06

2017

0.94

3.76

Pence [A]

2016

32.98

35.27

37.16

38.64

144.05

138.19

2016

0.94

3.76

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.

The Depositary will receive all cash dividends and other cash distributions
made on the deposited shares underlying the ADSs and, where possible
and on a reasonable basis, will distribute such dividends and distributions
to holders of ADSs. Rights to purchase additional shares will also be made
available to the Depositary who may make such rights available to
holders of ADSs. All other distributions made on the Company’s shares will
be distributed by the Depositary in any means that the Depositary thinks is
equitable and practical. The Depositary may deduct its fees and expenses
and the amount of any taxes owed from any payments to holders and it
may sell a holder’s deposited shares to pay any taxes owed. The
Depositary is not responsible if it decides that it is unlawful or impractical
to make a distribution available to holders of ADSs.

The Depositary will notify holders of ADSs of shareholders’ meetings of
the Company and will arrange to deliver voting materials to such holders
of ADSs if requested by the Company. Upon request by a holder, the
Depositary will endeavour to appoint such holder as proxy in respect of
such holder’s deposited shares entitling such holder to attend and vote at

shareholders’ meetings. Holders of ADSs may also instruct the Depositary
to vote their deposited securities and the Depositary will try, as far as
practical and lawful, to vote deposited shares in accordance with such
instructions. The Company cannot ensure that holders will receive voting
materials or otherwise learn of an upcoming shareholders’ meeting in time
to ensure that holders can instruct the Depositary to vote their shares.

Upon payment of appropriate fees, expenses and taxes: (i) shareholders
may deposit their shares with the Depositary and receive the
corresponding class and amount of ADSs; and (ii) holders of ADSs may
surrender their ADSs to the Depositary and have the corresponding class
and amount of shares credited to their account.

Further, subject to certain limitations, holders may, at any time, cancel
ADSs and withdraw their underlying shares or have the corresponding
class and amount of shares credited to their account.

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 301.

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, 2020, to February 12,
2021, the Company received $6,418,504.69 from the Depositary.

302

Shell Annual Report and Accounts 2020Additional InformationPersons 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

Registration and transfer fees

Expenses of the Depositary

other property;

■ Cancellation of ADSs for the purpose of their withdrawal, including if the deposit

agreement terminates; and

■ Distribution of securities to holders of deposited securities by the Depositary to

ADS registered holders.

■ Registration and transfer of shares on the share register to or from the name of the

Depositary or its agent when they deposit or withdraw shares.

■ Cable, telex and facsimile transmissions (when expressly provided in the deposit

agreement); and

■ Converting foreign currency into dollars.

Taxes and other governmental charges the Depositary or the custodian has to pay
on any ADS or share underlying an ADS, for example, share transfer taxes, stamp
duty or withholding taxes

■ As necessary.

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.

In addition to the above, the Depositary may charge: (i) a dividend fee of
$5.00 or less per 100 ADSs (or portion of 100 ADSs) for cash dividends or
issuance of ADSs resulting from share dividends and (ii) an administrative
fee of $5.00 or less per 100 ADSs (or portion of 100 ADSs) per calendar
year. The Company and Depositary have agreed not to charge these fees
at this time.

EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
Other than restrictions affecting those individuals, entities, government
bodies, corporations or agencies that are subject to European Union (EU)
sanctions for example, regarding Syria, and those sanctions adopted by
the government of the UK, and the general EU prohibition to transfer funds
to and from 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.

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 289). Dividends paid on the dividend
access shares are treated as UK-source for tax purposes and there is no
UK withholding tax on them.

In 2020, 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.

303

Shell Annual Report and Accounts 2020Additional InformationSHAREHOLDER INFORMATION continued

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.

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.

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.

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

304

Shell Annual Report and Accounts 2020Additional InformationNON-GAAP MEASURES RECONCILIATIONS

These non-GAAP measures, also known as alternative performance
measures, are financial measures other than those defined in International
Financial Reporting Standards, which Shell considers provide useful
information.

EARNINGS ON A CURRENT COST OF SUPPLIES BASIS
Segment earnings are presented on a current cost of supplies basis (CCS
earnings), which is the earnings measure used by the Chief Executive
Officer for the purposes of making decisions about allocating resources
and assessing performance. On this basis, the purchase price of volumes
sold during the period is based on the current cost of supplies during the
same period after making allowance for the tax effect. CCS earnings
therefore exclude the effect of changes in the oil price on inventory
carrying amounts. The current cost of supplies adjustment does not impact
cash flow from operating activities in the “Consolidated Statement of
Cash Flows”.

Reconciliation of income for the period to CCS earnings

Adjusted Earnings per share

Adjusted Earnings

$ million

2020

2019

2018

4,846

16,462

21,404

Basic weighted average number of shares

7,796

8,058

8,283

Adjusted EPS

0.62

2.04

2.58

Identified Items

The objective of identified items is to remove material impacts on net
income/loss arising from transactions which are generally uncontrollable
and unusual (infrequent or non-recurring) in nature or giving rise to a
mismatch of accounting and economic results, or certain transactions
that are generally excluded from underlying results in the industry.

$ million

2020

2019

2018

(31,877)

(1,844)

3,089

316

2,611

3,283

(28,061)

(4,155)

(1,020)

(1,151)

(883)

602

1,145

(132)

(203)

(2,098)

(770)

(116)

$ million

Identified items before tax

2020

2019

2018

Of which:

Income/(loss) attributable to Royal Dutch
Shell plc shareholders

(21,680)

15,842

23,352

Divestment gains/(losses)

Impairments

Income/(loss) attributable to
non-controlling interest

Income/(loss) for the period

146

590

554

(21,534)

16,432

23,906

Current cost of supplies adjustment

1,833

(605)

458

Fair value accounting of commodity derivatives
and certain gas contracts

Redundancy and restructuring

Other

Of which:

Attributable to Royal Dutch Shell plc shareholders

1,759

Attributable to non-controlling interest

(572)

(33)

481

(23)

Total identified items before tax

(31,877)

(1,844)

3,089

Tax impact

7,100

674

(660)

Identified items after tax

(24,777)

(1,170)

2,429

CCS earnings

Of which:

(19,701)

15,827

24,364

Attributable to Royal Dutch Shell plc shareholders

(19,921)

15,270

23,833

Attributable to non-controlling interest

220

557

531

ADJUSTED EARNINGS
The “Adjusted Earnings” measure aims to facilitate a comparative
understanding of Shell’s financial performance from period to period by
removing the effects of oil price changes on inventory carrying amounts and
removing the effects of identified items. These items are in some cases driven
by external factors and may, either individually or collectively, hinder the
comparative understanding of Shell’s financial results from period to period.

Adjusted Earnings

Income/(loss) attributable to Royal Dutch Shell
shareholders

(21,680)

15,842

23,352

$ million

2020

2019

2018

Add: Current cost of supplies adjustment
attributable to Royal Dutch Shell plc
shareholders

Less: Identified items attributable to Royal Dutch
Shell plc shareholders

Adjusted Earnings

Of which:

Integrated Gas

Upstream

Oil Products

Chemicals

Corporate

less: Non-controlling interest

1,759

(572)

481

(24,767)

(1,192)

2,429

4,846

16,462

21,404

4,383

8,955

(2,852)

4,452

5,995

6,231

962

741

9,399

6,472

5,794

2,076

(3,412)

(3,383)

(1,806)

(230)

(535)

(531)

Of which:

Divestment gains/(losses)

Impairments

2,170

3,064

(21,267)

(3,162)

(1,112)

Fair value accounting of commodity derivatives
and certain gas contracts

(1,034)

650

863

Redundancy and restructuring

(644)

(89)

(150)

Impact of exchange rate movements on tax
balances

Other

(240)

(69)

(338)

(1,596)

(670)

102

Impact on CCS earnings

(24,777)

(1,170)

2,429

Of which:

Identified items attributable to
Royal Dutch Shell plc shareholders

Identified items attributable to
Non-controlling interest

(24,767)

(1,192)

2,429

(10)

—

CASH CAPITAL EXPENDITURE
Cash capital expenditure monitors 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.

With effect from January 1, 2020, "Capital investment" is no longer
presented in this announcement since Cash capital expenditure is
considered to be more closely aligned with management's focus
on free cash flow generation.

305

Shell Annual Report and Accounts 2020Additional InformationNON-GAAP MEASURES RECONCILIATIONS continued

The reconciliation of “Capital expenditure” to “Cash capital expenditure”
is as follows.

Cash capital expenditure

Capital expenditure [A]

Investments in joint ventures and associates [A]

Investments in equity securities [A]

Cash capital expenditure

Of which:

Integrated Gas

Upstream

Oil Products

Chemicals

Corporate

$ million

2020

2019

2018

16,585

22,971

23,011

1,024

218

743

205

880

187

17,827

23,919

24,078

4,301

4,299

3,819

7,296

10,205

12,134

3,328

2,640

262

4,907

4,090

418

4,643

3,212

269

[A] Included within Cash flow from investing activities in the “Consolidated Statement of

Cash Flows”.

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

24,001

26,438

26,970

Selling, distribution and administrative expenses

9,881

10,493

11,360

$ million

2020

2019

2018

Research and development

Total

Of which

Integrated Gas

Upstream

Oil Products

Chemicals

Corporate

907

962

986

34,789

37,893

39,316

6,555

6,667

6,014

10,983

11,582

11,690

13,511

15,730

3,235

3,430

505

486

17,615

3,594

402

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.

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 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.

Free cash flow and Organic free cash flow

$ million

2020

2019

2018

Cash flow from operating activities

34,105

42,178

53,085

Cash flow from investing activities

(13,278)

(15,779)

(13,659)

Free cash flow

20,828

26,399

39,426

Less: Cash inflows related to divestments [A]

4,010

7,871

10,465

Add: Tax paid on divestments

—

187

482

Add: Cash outflows related to inorganic
capital expenditure [B]

Organic free cash flow

817

17,634

1,400

20,116

1,740

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".

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

Cash dividends paid to Royal Dutch
Shell plc shareholders

Repurchases of shares

Shareholder distribution

$ million

2020

2019

2018

(7,424)

(15,198)

(15,675)

(1,702)

(10,188)

(3,947)

(9,126)

(25,386)

(19,622)

DIVESTMENT PROCEEDS
Divestment proceeds represent cash received from divestment activities in
the period. Management regularly monitors this measure as a key lever to
deliver sustainable cash flow.

Calculation of Divestment proceeds

Calculation of return on average capital employed

$ million

Proceeds from sale of property, plant and
equipment and businesses

Income for the period

Interest expense after tax

2020

2019

2018

(21,534)

16,432

23,906

2,822

3,024

2,513

Income before interest expense

(18,712)

19,456

26,419

Capital employed – opening

286,887 295,398 283,477

Capital employed – closing

266,551 286,887 279,358

Capital employed – average

276,719

291,142

281,417

ROACE

(6.8)%

6.7%

9.4%

Proceeds from sale of joint ventures and
associates [A]

Proceeds from sale of equity securities

Divestment proceeds

Of which:

Integrated Gas

Upstream

Oil Products

Chemicals

Corporate

$ million

2020

2019

2018

2,489

4,803

4,366

1,240

2,599

1,594

4,505

469

7,871

10,465

723

5,384

1,517

225

3,156

3,364

540

3,405

281

4,010

503

1,909

1,368

205

306

[A] includes $313 million (2019: $155 million) of long-term of loan repayments received from joint

ventures and associates

Shell Annual Report and Accounts 2020Additional InformationAPPENDICES

307

Shell Annual Report and Accounts 2020Additional InformationAPPENDIX 1

SIGNIFICANT SUBSIDIARIES AND OTHER RELATED UNDERTAKINGS (AUDITED)
Significant subsidiaries and other related undertakings at December 31, 2020, 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 216-264, 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, Partnership capital; [g] Ordinary,
Redeemable; [h] Ordinary, Redeemable, Non-redeemable; and [i] Redeemable, Non-redeemable.

Company by country and address of incorporation

ARGENTINA

QGC Train 2 Pty Ltd

AVENIDA PTE. ROQUE SÁENZ PENA 788, 2ND FLOOR, CIUDAD DE BUENOS AIRES, 1035

QGC Train 2 Tolling No.2 Pty Ltd

Bandurria Sur Investments S.A.

Shell Argentina S.A.

AUSTRALIA

C/O ALANDS ACCOUNTANTS, LEVEL 1/293 QUEEN STREET, BRISBANE, QLD 4000

Alliance Automation Pty Ltd

C/O JEFFERY ZIVIN, UNIT 4, 4 GEORGE STREET, CAMBERWELL, VIC 3124

Solpod Pty Ltd

INFRASTRUCTRURE CAPITAL GROUP, LEVEL 15 MARTIN PLACE, SYDNEY, NSW 2000

NewGen Neerabup Pty Ltd [b]

LEVEL 30, 275 GEORGE STREET, BRISBANE, QLD 4000

BC 789 Holdings Pty Ltd

BG CPS Pty Limited

BNG (Surat) Pty Ltd

Condamine 1 Pty Ltd

Condamine 2 Pty Ltd

Condamine 3 Pty Ltd

Condamine 4 Pty Ltd

Condamine Power Station Pty Ltd

ERM Power Limited

New South Oil Pty Ltd

OME Resources Australia Pty Ltd

Petroleum Resources (Thailand) Pty. Limited

Pure Energy Resources Pty Limited

QCLNG Operating Company Pty Ltd [g]

QCLNG Pty Ltd

QGC (B7) Pty Ltd

QGC (Exploration) Pty Ltd

QGC (Infrastructure) Pty Ltd

QGC Common Facilities Company Pty Ltd

QGC Holdings 2 Pty Ltd

QGC Holdings 3 Pty Ltd

QGC Holdings 4 Pty Ltd

QGC Holdings 5 Pty Ltd

QGC Holdings 6 Pty Ltd

QGC Holdings 7 Pty Ltd

QGC Holdings 8 Pty Ltd

QGC Holdings 9 Pty Ltd

QGC Midstream Holdings Pty Ltd

QGC Midstream Investments Pty Ltd

QGC Midstream Land Pty Ltd

QGC Midstream Services Pty Ltd

QGC Northern Forestry Pty Ltd

QGC Pty Limited

QGC Sales Qld Pty Ltd

QGC Train 1 Pty Ltd

QGC Train 1 Tolling Pty Ltd

QGC Train 1 UJV Manager Pty Ltd

308

100

QGC Train 2 Tolling Pty Ltd

QGC Train 2 UJV Manager Pty Ltd

QGC Upstream Finance Pty Ltd

QGC Upstream Holdings Pty Ltd

QGC Upstream Investments Pty Ltd

Queensland Gas Company Pty Ltd

Roma Petroleum Pty Limited

Select Carbon Pty Ltd

SGA (Queensland) Pty Ltd

SGAI Pty Limited

Shell Energy Australia Pty Ltd

Shell New Energies Australia Pty Ltd

Shell QGC Pty Ltd

Starzap Pty Ltd

Sunshine 685 Pty Limited

Walloons Coal Seam Gas Company Pty Limited [g]

LEVEL 39, 111 EAGLE STREET, BRISBANE, QLD 4000

Arrow Energy Holdings Pty Ltd

LEVEL 4, 13 CREMORNE STREET, RICHMOND, VIC 3121

ESCO Pacific Holdings Pty Ltd

LEVEL 4, 459 LITTLE COLLINS STREET, MELBOURNE, VIC 3000

1st Energy Pty Ltd

LEVEL 42, BOURKE PLACE, 600 BOURKE STREET, MELBOURNE, VIC 3000

QGC Midstream Limited Partnership

QGC Upstream Limited Partnership

LEVEL 52, 111 EAGLE STREET, BRISBANE, QLD 4000

Braemar 3 Holdings Pty Ltd

CCM Energy Solutions Pty Ltd

E.R.M. Oakey Power Pty Ltd

ERM Braemar 3 Power Pty Ltd

ERM Braemar 3 Pty Ltd

ERM Employee Share Plan Administrator Pty Ltd

ERM Energy Solutions Holdings Pty Ltd

ERM Financial Services Pty Ltd

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

ERM Oakey Power Holdings Pty Ltd

ERM Power Developments Pty Ltd

ERM Power Engineering Pty Ltd

ERM Power Generation Pty Ltd

ERM Power International Pty Ltd

ERM Power Investments Pty Ltd

100

Shell Annual Report and Accounts 2020Additional InformationCompany by country and address of incorporation

ERM Power Projects Pty Ltd

ERM Power Retail Pty Ltd

ERM Power Services Pty Ltd

ERM Power Utility Systems Pty Ltd

ERM Wellington 1 Holdings Pty Ltd

Greensense Pty Ltd

Lumaled Pty Ltd

Oakey Power Holdings Pty Ltd

Out Performers Trading Pty Ltd

Powermetric Metering Pty Ltd

Queensland Electricity Investors Pty Ltd

Richmond Valley Solar Thermal Pty Ltd

SHELL HOUSE, 562 WELLINGTON STREET, PERTH, WA 6000

Austen & Butta Pty Ltd

North West Shelf LNG Pty Ltd

SASF Pty Ltd

Shell Australia FLNG Pty Ltd

Shell Australia Pty Ltd

Shell Australia Services Company Pty Ltd

Shell Development (PSC19) Pty Ltd

Shell Development (PSC20) Pty Ltd

Shell Energy Holdings Australia Limited

Shell Energy Investments Australia Pty Ltd

Shell Global Solutions Australia Pty Ltd

Shell Tankers Australia Pty Ltd

Trident LNG Shipping Services Pty Ltd

TENANCY 6, LIONSGATE BUSINESS PARK, 180 PHILIP HIGHWAY, ELIZABETH SOUTH,
SA 5112

Sonnen Australia Pty Limited

AUSTRIA

INNSBRUCKER BUNDESSTRASSE 95, SALZBURG, 5020

Salzburg Fuelling GmbH

KIENBURG 11, MATREI IN OSTTIROL, 9971

Transalpine Ölleitung in Österreich GmbH

RETTENLACKSTRASSE 3, SALZBURG, 5020

TBG Tanklager Betriebsgesellschaft m.b.H.

SCHULHOF 6/1, VIENNA, 1010

Shell China Holding GmbH

TECH GATE, DONAU-CITY-STR. 1, VIENNA, 1220

Shell Austria Gesellschaft mbH

Shell Brazil Holding GmbH

BAHAMAS

GTC CORPORATE SERVICES LIMITED, SASSOON HOUSE, SHIRLEY STREET & VICTORIA
AVENUE, NASSAU

Shell Western Supply and Trading Limited

P.O. BOX N4805, ST. ANDREW’S COURT, FREDERICK STREET STEPS, NASSAU

Shell Bahamas Power Company Inc.

BARBADOS

ONE WELCHES, WELCHES, ST. THOMAS, BB22025

Shell Trinidad and Tobago Resources SRL

BELGIUM

BORSBEEKSEBRUG 34/1, ANTWERPEN, 2600

The New Motion Belgium BV

CANTERSTEEN 47, BRUSSELS, 1000

Belgian Shell S.A.

New Market Belgium S.A.

PANTSERSCHIPSTRAAT 331, GENT, 9000

Shell Catalysts & Technologies Belgium N.V.

100

Company by country and address of incorporation

BERMUDA

3RD FLOOR CONTINENTAL BUILDING, 25 CHURCH STREET, HAMILTON, HM 12

Gas Investments & Services Company Limited

Pecten Somalia Company Limited

Qatar Shell GTL Limited

Shell Australia Natural Gas Shipping Limited

Shell Bermuda (Overseas) Limited

Shell Deepwater Borneo Limited

Shell EP International Limited

Shell Holdings (Bermuda) Limited

Shell International Trading Middle East Limited

Shell Markets (Middle East) Limited

Shell Oman Trading Limited

Shell Petroleum (Malaysia) Ltd

Shell Saudi Arabia (Refining) Limited

Shell Trading (M.E.) Private Limited

Shell Trust (Bermuda) Limited

Solen Life Insurance Limited

CLARENDON HOUSE, 2 CHURCH STREET, HAMILTON, HM 11

Egypt LNG Shipping Limited

Sakhalin Energy Investment Company Ltd

BRAZIL

AVENIDA BRIGADEIRO FARIA LIMA Nº 3.311, CONJUNTO 82, ITAIM BIBI, SÃO PAULO,
04538-133

Shell Energy do Brasil Ltda.

AVENIDA BRIGADEIRO FARIA LIMA, 4100, 11TH FLOOR, PART V, ITAIM BIBI, SÃO PAULO,
04538-132

Raizen Energia S.A.

AVENIDA DAS ALMIRANTE BARROSO, Nº 81, 36º ANDAR, SALA 36A104, RIO DE JANEIRO,
20031-004

Raizen Combustíveis S.A.

AVENIDA DAS REPUBLICA DO CHILE 330, 23º ANDAR (PARTE) – TORRE 2, CENTRO, RIO DE
JANEIRO, 20031-170

BG Petroleo & Gas Brasil Ltda.

AVENIDA DAS REPUBLICA DO CHILE 330, 23º ANDAR, TORRE 2, CENTRO, RIO DE JANEIRO,
20031-170

BG Comercio e Importacao Ltda.

Avenida Paulista, 1274, 8º andar, Conjunto 23, Sala B, Bela Vista, São Paulo, 01310-100

Marlim Azul Energia S.A.

AVENIDA REPÚBLICA DO CHILE Nº 330, BLOCO 2, SALA 2001, CENTRO, RIO DE JANEIRO,
20031-170

Shell Energy do Brasil Gás Ltda.

AVENIDA REPÚBLICA DO CHILE Nº 330, BLOCO 2, SALA 2301, CENTRO, RIO DE JANEIRO,
20031-170

Pecten do Brasil Servicos de Petroleo Ltda.

AVENIDA REPÚBLICA DO CHILE Nº 330, BLOCO 2, SALA 2401, CENTRO, RIO DE JANEIRO,
20031-170

Seapos Ltda.

AVENIDA REPÚBLICA DO CHILE Nº 330, BLOCO 2, SALAS 2001, 2301, 2401, 2501, 3101,
3201, 3301 E 3401, CENTRO, RIO DE JANEIRO, 20031-170

Shell Brasil Petroleo Ltda.

BRUNEI

100

BRUNEI SHELL PETROLEUM COMPANY, SENDIRIAN BERHAD, SERIA, KB2933

Brunei Shell Marketing Company Sendirian Berhad

100

C/O BSP HEAD OFFICE, NDCO BLOCK, GROUND FLOOR, JALAN UTARA, PANAGA SERIA,
KB3534

Shell Borneo Sendirian Berhad

JALAN UTARA, PANAGA, SERIA, KB2933

Brunei Shell Petroleum Company Sendirian Berhad

Brunei Shell Tankers Sendirian Berhad

LUMUT, SERIA, KC2935

Brunei LNG Sendirian Berhad

100

309

Shell Annual Report and Accounts 2020Additional InformationAPPENDIX 1 continued

Company by country and address of incorporation

BULGARIA

48, SITNYAKOVO BLVD., SERDIKA OFFICES, 8TH FLOOR, SOFIA, 1505

Shell Bulgaria Ead

CAMBODIA

186C, STREET NO. 155, N/A – TUOL TUMPUNG MUOY, CHAMKAR MON, PHNOM PENH

Angkor Resources Company Limited

CANADA

1701 HOLLIS STREET, SUITE 1400, HALIFAX, NOVA SCOTIA, B3J 3M8

Sable Offshore Energy Inc.

199 BAY STREET, SUITE 5300, COMMERCE COURT WEST, TORONTO, ONTARIO, M5L 1B9

SFJ Inc.

2100, 855 – 2ND STREET S.W., CALGARY, ALBERTA, T2P 4J8

1745844 Alberta Ltd.

400 4TH AVENUE S.W., CALGARY, ALBERTA, T2P 0J4

10084751 Canada Limited

7026609 Canada Inc.

7645929 Canada Limited

Cansolv Technologies Inc.

Coral Cibola Canada Inc.

FP Solutions Corporation

LNG Canada Development Inc. [b]

SCL Pipeline Inc.

Shell Americas Funding (Canada) Limited

Shell Canada BROS Inc.

Shell Canada Energy [c]

Shell Canada Limited

Shell Canada OP Inc.

Shell Canada Products

Shell Canada Resources [c]

Shell Canada Services Limited

Shell Catalysts & Technologies Canada Inc.

Shell Chemicals Canada [c]

Shell Energy Merchants Canada Inc.

Shell Energy North America (Canada) Inc.

Shell Global Solutions Canada Inc.

Shell Quebec Limitée

Shell Trading Canada [c]

Zeco Systems (Canada) Inc.

45 VOGEL ROAD, SUITE 310, RICHMOND HILL, ONTARIO, L4B 3P6

Trans-Northern Pipelines Inc.

5305 MCCALL WAY N.E., CALGARY, ALBERTA, T2E 7N7

Alberta Products Pipe Line Ltd.

830 HIGHWAY NO. 6 NORTH, FLAMBOROUGH, ONTARIO, L0R 2H0

Sun-Canadian Pipe Line Company Limited

CAYMAN ISLANDS

C/O APPLEBY GLOBAL SERVICES (CAYMAN) LIMITED, 71 FORT STREET, P.O. BOX 500,
GEORGE TOWN, GRAND CAYMAN, KY1-1106

KE STP Company

KE Suriname Company

Portfolio Holdings

C/O APPLEBY GLOBAL SERVICES (CAYMAN) LIMITED, 71 FORT STREET, PO BOX 500,
GEORGE TOWN, GRAND CAYMAN, KY1-1106

KE Namibia Company

CALEDONIAN TRUST (CAYMAN) LIMITED, CALEDONIAN HOUSE, 69 DR ROY’S DRIVE P.O.
BOX 1043, GEORGE TOWN, GRAND CAYMAN, KY1-1102

Schiehallion Oil & Gas Limited

CAMPBELLS, FLOOR 4, WILLOW HOUSE, CRICKET SQUARE, GEORGE TOWN, GRAND
CAYMAN, KY1-9010

BG Exploration and Production India Limited

MAPLES CORPORATE SERVICES LIMITED, UGLAND HOUSE, P.O. BOX 309, GEORGE
TOWN, GRAND CAYMAN, KY1-1104

Shell North Sea Holdings Limited

310

PICCADILLY CENTRE, 28 ELGIN AVENUE, SUITE 201, P.O. BOX 2570, GEORGE TOWN,
GRAND CAYMAN, KY1-1103

BG Egypt S.A.

Gas Resources Limited

Shell Bolivia Corporation

STERLING TRUST (CAYMAN) LIMITED, WHITEHALL HOUSE, 238 NORTH CHURCH STREET,
P.O. BOX 1043, GEORGE TOWN, GRAND CAYMAN, KY1-1102

Beryl North Sea Limited

CHILE

C/O CAREY Y CIA ABOGADOS, MIRAFLORES 222, PISO 28, SANTIAGO

Shell Chile S.A.

CHINA

18TH FLOOR, TOWER 1, YONGLI INTERNATIONAL FINANCE CENTRE, JINYE NO. 1 ROAD,
HIGH-TECH DISTRICT, XI’AN, 710075

Yanchang and Shell Petroleum Company Limited

23F, YANLORD SQUARE, SECTION 2, RENMIN SOUTH ROAD, CHENGDU, SICHUAN,
610016

Yanchang and Shell (Sichuan) Petroleum Company Limited

30/F UNIT 01-02, NO. 16 BUILDING, NO. 1 COURTYARD, JIAN GUO MEN WAI AVENUE,
CHAOYANG DISTRICT, BEIJING, 100004

Shell (China) Limited

39TH FLOOR AS PLANNING-DESIGNED (41ST FLOOR AS SELF-DESIGNATED), LEATOP
PLAZA, NO. 32 EAST ZHUJIANG ROAD, ZHUJIANG NEW TOWN, TIANHE DISTRICT,
GUANGZHOU

Yanchang and Shell (Guangdong) Petroleum Co., Ltd.

8/F, BUILDING 1, NO. 818 SHENCHANG ROAD, MINHANG DISTRICT, SHANGHAI, 201106

Shell Management and Consulting Company Limited

Shell Ventures Company Limited

BAISHA, HEKOU, SANSHUI DISTRICT, FOSHAN, GUANGDONG, 528133

Shell Road Solutions Xinyue (Foshan) Co. Ltd.

BUILDING 4, JIN CHUANG BUILDING, NO. 4560, JIN KE ROAD, PILOT FREE TRADE ZONE,
SHANGHAI

Shell (Shanghai) Technology Limited

BUILDING NO. 2, HEBEI GUOKONG NORTHERN SILICON VALLEY HI, NO. 28 EAST
ZHANQIAN STREET, QIAODONG DI, ZHANGJIAKOU, 075000

Zhangjiakou City Transport and Shell New Energy Co., Ltd

DAYAWAN PETROCHEMICAL INDUSTRIAL PARK, HUIZHOU, GUANGDONG, 516086

CNOOC and Shell Petrochemicals Company Limited

NANJIN WAN, GAOLAN DAO, GAOLAN HARBOUR ECONOMIC ZONE, ZHUHAI, 519050

Shell (Zhuhai) Lubricants Company Limited

NO. 1 DONGXIN ROAD, JIANGSU YANGTZE RIVER INTERNATIONAL, CHEMICAL
INDUSTRY PARK, ZHANGJIAGANG, JIANGSU, 215600

Infineum (China) Co. Ltd.

NO. 1 WANGJIABA, XINMIAOZHI VILLAGE, PUYUAN TOWN, TONGXIANG, JIAXING,
ZHEJIANG, 314502

Shell (Zhejiang) Petroleum Trading Limited

NO. 100, XINGANG DADAO, NANJING ECONOMIC AND TECHNOLOGICAL
DEVELOPMENT ZONE, NANJING, JIANGSU, 210000

Sinopec and Shell (Jiangsu) Petroleum Marketing Company Limited

NO. 196, SHUANG YUAN STREET, BEIBEI ZONE, CHONGQING, 400700

Chongqing Shell Energy Company Limited

NO. 286 NANSAN ROAD, TIANJIN HARBOUR NANJIANG DEV. ZONE, TANGGU, BINHAI
NEWDISTRICT, TIANJIN, 300452

Shell (Tianjin) Oil and Petrochemical Company Limited

NO. 358 ZHUHUI ROAD, SUZHOU, 215000

Suzhou Liyuan Retail Site Management Co., Ltd.

NO. 4, 5, 12/F, UNIT A, OCEANWIDE INTERNATIONAL CENTER OFFICE, 187 YUNXIA
ROAD, CBD, JIANHAN DISTRICT, WUHAN, 430000

Hubei Shell Energy Company Limited

NO. 68 XIANIEJIA, DAGANG, ZHENJIANG NEW DISTRICT, ZHENJIANG, 212132

Shell Road Solutions (Zhenjiang) Co. Ltd

NORTH TO GANG BEI ROAD AND EAST TO HAI GANG ROAD, NANGANG INDUSTRIAL
ZONE, TIANJIN ECONOMIC-TECHNOLOGICAL DEVELOPMENT AREA, TIANJIN, 300280

Shell (Tianjin) Lubricants Company Limited

RM 1503, BUILDING 2, PLAZA OF ZBA, NO. 939 MINHE ROAD, NINGWEI STREET,
XIAOSHAN, HANGZHOU, ZHEJIANG, 311215

Zhejiang Transfar and Shell Energy Company Limited

100

Shell Annual Report and Accounts 2020Additional InformationCompany by country and address of incorporation

Company by country and address of incorporation

ROOM 1801, BUILDING 1, INTERNATIONAL FINANCE CENTER, NO. 347, JIANGDONG
MIDDLE ROAD, JIANYE DISTRICT, NANJING, JIANGSU, 210019

Jiangsu Shell Energy Company Limited

100

ROOM 2103, NORTH TOWER, YEFENG MODERN CENTER, NO. 161, SHAOXING ROAD,
XIACHENG DISTRICT, HANGZHOU, ZHEJIANG, 310004

Zhejiang Shell Fuels Company Limited

ROOM 2407-2409, BUILDING 15, FANGMAOYUAN (PHASE II), NO. 1177 HUANHU ROAD,
YUELU DISTRICT, CHANGSHA, 410006

Hunan 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

Anhui Shell Energy Company Limited

ROOM 518, 5TH FLOOR, OFFICE BUILDING, TIANJIN FOOD GROUP COMPANY LTD, NO.
96, QIXIANGTAI ROAD, HEXI DISTRICT, TIANJIN, 300074

Shell North China Petroleum Group Co., Ltd.

ROOM 522, THE BRITISH ROAD NO. 38, CHINA (SHANGHAI) PILOT FREE TRADE ZONE,
SHANGHAI, 200131

Shell (Shanghai) Petroleum Company Limited

ROOM 530, 5TH FLOOR, BUILDING 1, NO. 239 GANG’AO ROAD, CHINA (SHANGHAI)
FREE TRADE ZONE, SHANGHAI, 200137

Shell Energy (China) Limited

ROOM 609, BUILDING NO. 1, NO. 388 NORTH MU HUA ROAD, FENGXIAN DIST,
SHANGHAI, 200120

Climate Bridge (Shanghai) Ltd.

THE PORT OF ZHAPU, JIAXING MUNICIPALITY, ZHEJIANG, 314201

Zhejiang Shell Oil and Petrochemical Company Limited

100

EGYPT

127 ABDEL AZIZ FAHMY ST., HELIOPOLIS, P.O. BOX 5958, CAIRO, 5958

Alam El Shawish Petroleum Company [b]

Badr Petroleum Company [b]

North Alam El-Shawish Petroleum Company [b]

North Um Baraka Petroleum Company [b]

100

Obaiyed Petroleum Company [b]

Sitra Petroleum Company [b]

Tiba Petroleum Company [b]

100

West Sitra Petroleum Company [b]

28 ROAD 270, MAADI, CAIRO

Burullus Gas Company S.A.E. [b]

38 STREET NO. 270, MAADI, CAIRO

Rashid Petroleum Company S.A.E. [b]

BUSINESS VIEW BUILDING, NO. 79, 90 STREET (SOUTH), FIFTH SETTLEMENT- NEW CAIRO,
CAIRO, 11835

100

Shell Egypt Trading

100

Shell Lubricants Egypt

CITY OF RASHID, EL BEHERA GOVERNORATE

El Behera Natural Gas Liquefaction Company S.A.E.

IDKU Natural Gas Liquefaction Company S.A.E.

The Egyptian LNG Company S.A.E.

The Egyptian Operating Company for Natural Gas Liquefaction Projects S.A.E.

UNIT 01, 32/F, NO. 16 BUILDING, NO. 1 COURTYARD, JIAN GUO MEN WAI AVENUE,
CHAOYANG DISTRICT, BEIJING, 100004

FINLAND

Shell (Beijing) Real Estate Consulting Ltd.

100

TEKNOBULEVARDI 3-5, VANTAA, 01530

UNIT 01-08, LEVEL 31, NO. 16 BUILDING, NO. 1 JIAN GUO MEN WAI AVENUE, CHAOYANG
DISTRICT, BEIJING, 100004

Shell (China) Projects & Technology Limited

UNIT 09, LEVEL 31, NO. 16 BUILDING, NO. 1 JIAN GUO MEN WAI AVENUE, CHAOYANG
DISTRICT, BEIJING, 100004

Cansolv Technologies (Beijing) Company Limited

UNIT 1101-1104, LEVEL 11, BUILDING 1, NO. 19 CHAOYANG PARK ROAD, CHAOYANG
DISTRICT, BEIJING, 100125

Beijing Shell Petroleum Company Ltd.

UNIT 604, 6/F, BUILDING C, NO. 3 YUNAN FOURTH ROAD, FTPZ XIAMEN SUB-ZONE
(TARIFF-FREE ZONE), XIAMEN, 361000

Fujian Xiangyu and Shell Petroleum Company Limited

COLOMBIA

CALLE 90 NO. 19 – 41, OFICINA 702- EDIFICIO QUANTUM, BOGOTÁ, 452

100

Shell Aviation Finland Oy

FRANCE

10 PLACE DE CATALOGNE, PARIS, 75014

Accurasea

Airefsol Energies

Airefsol Energies 2

Airefsol Energies 8

Airefsol Energies 9

Centrale Photovoltaïque Bouches-du-Rhône 1

Centrale Photovoltaïque Haute-Vienne 1

Centrale Photovoltaïque Landes 1

Centrale Photovoltaïque Var 1

Shell Colombia S.A.

COOK ISLANDS

BERMUDA HOUSE, TUTAKIMOA ROAD, RAROTONGA

Branstone (International) Limited [g]

CÔTE D’IVOIRE

14, BLVD CARDE, IMM. LES HEVEAS, PLATEAU, ABIDJAN, BP V 194

Cote d’Ivoire GNL

CYPRUS

METOCHIOU STR, 37, AGIOS ANDREAS, NICOSIA, CY-1101

Rosneft-Shell Caspian Ventures Limited

CZECH REPUBLIC

ANTALA STAŠKA 2027/77, PRAHA 4, 140 00

Shell Czech Republic a.s.

DENMARK

BREDGADE 30, KØBENHAVN K, 1260

TetraSpar Demonstrator ApS

EGESKOVVEJ 265, FREDERICIA, 7000

A/S Dansk Shell

Shell EP Holdingselskab Danmark ApS

NÆRUM HOVEDGADE 8, NAERUM, 2850

DCC & Shell Aviation Denmark A/S

100

Eolfi Offshore France

Eolfi SAS

Eoliennes du Gentilhomme

100

Ferme Eolienne Flottante de Groix & Belle-Ile

Ferme Eolienne Flottante Stenella Rhône

Parc Eolien Aisne 1

Parc Eolien Corrèze 1

Parc Eolien Côtes Armor 1

Parc Eolien de la Vrine

Parc Eolien De Mervent

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

Parc Eolien Somme 2

Parc Eolien Yonne 1

92 AVENUE CHARLES DE GAULLE, CS 30082, NEUILLY SUR SEINE, 92522

The New Motion France SAS

100

311

Shell Annual Report and Accounts 2020Additional InformationAPPENDIX 1 continued

Company by country and address of incorporation

FRANCE continued

AÉROPORT ROISSY CHARLES DE GAULLE, ZONE DE FRÊT 1, 3 RUE DES VIGNES,
TREMBLAY-EN-FRANCE, 93290

Groupement Pétrolier Aviation SNC

CHEMIN DÉPARTEMENTAL 54, BERRE-L’ETANG, 13130

Infineum France

ORLY SUD NO. 144 – BAT. 438, ORLY AEROGARES, 94541

Service Aviation Paris SNC

ROUTE D’ARLES, LA FENOUILLÈRE, FOS-SUR-MER, 13270

Ste du Pipeline Sud Européen S.A.

TOUR PACIFIC, 11/13 COURS VALMY – LA DÉFENSE, PUTEAUX, 92800

Avitair SAS

Shell Retraites SAS

Société de Gestion Mobilière et Immobilière SAS

Société des Pétroles Shell SAS

GERMANY

AM HAUPTTOR, BAU 8322, LEUNA, 06237

CRI Deutschland GmbH

Shell Catalysts & Technologies Leuna GmbH

AM RIEDBACH 1, WILDPOLDSRIED, 87499

Sonnen eServices Deutschland GmbH

Sonnen eServices GmbH

Sonnen GmbH

Sonnen Holding GmbH

AUF DEM SCHOLLBRUCH 24-26, GELSENKIRCHEN, 45899

Rheinland Kraftstoff GmbH

BERGHAUSENER STRASSE 96, LANGENFELD, 40764

AGES Maut System GmbH & Co. KG

BRUEHLER STR. 95, WESSELING, 50389

Wasserbeschaffungsverband Wesseling-Hersel

CAFFAMACHERREIHE 5, HAMBURG, 20355

BEB Holding GmbH [b]

DEA-SCHOLVEN-STR., KARLSRUHE, 76187

Mineraloelraffinerie Oberrhein Verwaltungs GmbH

Oberrheinische Mineraloelwerke GmbH [b]

EINSTEINSTR. 47, VAIHINGEN AN DER ENZ, 71665

Enersol GmbH

EUREF-CAMPUS 10-11, BERLIN, 10829

H2 Mobility Deutschland GmbH and Co. KG

FRANZÖSISCHE STRASSE 33 A-C, BERLIN, 10117

Toll4Europe GmbH

GODORFER HAUPTSTRASSE 186, KÖLN, 50997

Rhein-Main-Rohrleitungstransportgesellschaft mbH [b]

HOHE-SCHAAR-STRASSE 36, HAMBURG, 21107

Shell Global Solutions (Deutschland) GmbH

NEUSSER LANDSTRASSE 16, KÖLN, 50735

Deutsche Infineum GmbH & Co. KG

PASSOWER CHAUSSEE 111, SCHWEDT/ODER, 16303

PCK Raffinerie GmbH [b]

PAUL WASSERMANN STR. 3, MUNICH, 81829

Deutsche Transalpine Oelleitung GmbH

RIETHORST 12, HANNOVER, 30659

BEB Erdgas und Erdoel GmbH & Co. KG [b]

Erdoel-Raffinerie Deurag-Nerag GmbH

ST.-LEONHARD-STRASSE 26, BALZHAUSEN, 86483

Energeticum Energiesysteme GmbH

SUHRENKAMP 71 – 77, HAMBURG, 22335

Carissa Verwaltungsgesellschaft mbH

Deutsche Shell GmbH

Deutsche Shell Holding GmbH

312

euroShell Deutschland GmbH & Co. KG

euroShell Deutschland Verwaltungsgesellschaft mbH

Shell Deutschland Additive GmbH

Shell Deutschland Oil GmbH

Shell Energy Deutschland GmbH

Shell Energy Retail GmbH

Shell Erdgas Beteiligungsgesellschaft mbH

Shell Erdgas Marketing GmbH & Co. KG

Shell Erdoel und Erdgas Exploration GmbH

Shell Exploration and Development Libya GmbH I

Shell Exploration and Production Colombia GmbH

Shell Exploration and Production Libya GmbH

Shell Exploration et Production du Maroc GmbH

Shell Exploration New Ventures One GmbH

Shell Exploration und Produktion Deutschland GmbH

Shell Hydrogen Deutschland GmbH

Shell Tunisia Offshore GmbH

Shell Verwaltungsgesellschaft für Erdgasbeteiligungen mbH

SPNV Deutschland Beteiligungsges. mbH

WATTSTRASSE 11, BERLIN, 13355

The New Motion Deutschland GmbH

WEWORK EUROPAPASSAGE, HERMANNSTRASSE 13, HAMBURG, 20095

OLF Deutschland GmbH

WILLINGHUSENER WEG 5 D-E, OSTSTEINBEK, 22113

Carissa Einzelhandel- und Tankstellenservice GmbH & Co. KG

ZUM OELHAFEN 207, WILHELMSHAVEN, 26384

Nord-West Oelleitung GmbH [b]

GHANA

NO 4 MOMOTSE AVENUE, ADABRAKA, ACCRA, GP 1632

Shell Energy Ghana Limited

GIBRALTAR

57/63 LINE WALL ROAD, P.O. BOX 199, GIBRALTAR

Shell LNG Gibraltar Limited

GREECE

151 KIFISIAS AVE., MAROUSI, ATHENS, 15124

Shell & MOH Aviation Fuels A.E.

GREENLAND

P.O. BOX 510, ISSORTARFIMMUT 6, 102, NUUSSUAQ, 3905

Shell Greenland A/S

GUAM

643 CHALAN SAN ANTONIO, SUITE 100, TAMUNING, GU 96911

Shell Guam Inc.

HONG KONG

3 SCENIC ROAD, CHEK LAP KOK, LANTAU

AFSC Operations Limited

AFSC Refuelling Limited

35/F AIA KOWLOON TOWER, LANDMARK EAST, 100 HOW MING STREET, KWUN TONG,
KOWLOON

Fulmart Limited

Ocean Century Tf Limited [g]

Shell Developments (HK) Limited [g]

Shell Hong Kong Limited

Shell Korea Limited

Shell Macau Limited

ESSO TSING YI TERMINAL, LOT 46 TSING YI ROAD, TSING YI ISLAND, NEW TERRITORIES

Hong Kong Response Limited

HUNGARY

BOCSKAI ÚT 134-146., BUDAPEST, 1113

Shell Hungary Trading close Company Limited by shares

100

Shell Annual Report and Accounts 2020Additional InformationCompany by country and address of incorporation

Company by country and address of incorporation

INDIA

102, PRESTIGE SIGMA, VITTAL MALLYA ROAD, BANGALORE, 560001

VIA SUSA 40, TORINO, 10138

Shell Fleet Solutions Consorzio

Shell MRPL Aviation Fuels and Services Limited

VIA TORTONA 25, MILANO, 20144

2ND FLOOR, CAMPUS 4A, RMZ MILLENIA BUSINESS PARK II, 143 DR MGR ROAD,
KANDHANCHAVADY, PERUNGUDI, CHENNAI, TN 600096

Shell Energy Marketing and Trading India Private Limited

Shell India Markets Private Limited

3-C WORLD TRADE TOWER, NEW BARAKHAMBA LANE, NEW DELHI, 110001

BG India Energy Private Limited

BG India Energy Services Private Limited

BG India Energy Solutions Private Limited

BG LNG Regas India Private Limited

OFFICE NO 2008, WESTGATE – D BLOCK, NR YMCA CLUB, S.G.HIGHWAY, MAKARBA,
AHMEDABAD, GUJARAT, 380051

Hazira Port Private Limited

Shell Energy India Private Limited

PLATINA TOWER MG ROAD, NEAR SIKANDARPUR METRO STATION, SECTION, HARYANA,
GURUGRAM, 122001

Greenlots Technology India LLP

TIKI TAR INDUSTRIES VILLAGE ROAD, NEAR BHANDUP VILLAGE, BHANDUP WEST
MUMBAI, MUMBAI, MH 400078

Tiki Tar and Shell India Private Limited

INDONESIA

TALAVERA OFFICE PARK 22-26TH FLOOR, JL. LETJEN. TB SIMATUPANG KAV. 22-26, JAKARTA
SELATAN, JAKARTA, 12430

PT Shell LNG Indonesia

PT. Shell Indonesia

PT. Shell Manufacturing Indonesia

IRAQ

KHOR AL ZUBAIR, BASRAH

Basrah Gas Company

IRELAND

1ST FLOOR, TEMPLE HALL, TEMPLE ROAD, BLACKROCK, CO. DUBLIN, A94 K3K0

Asiatic Petroleum Company (Dublin) Limited

Irish Shell Trust Designated Activity Company

SUITE 7 NORTHWOOD HOUSE, NORTHWOOD BUSINESS PARK, SANTRY, DUBLIN, 9

Shell and Topaz Aviation Ireland Limited

ISLE OF MAN

EUROMANX HOUSE, FREEPORT, BALLASALLA, IM9 2AP

Shell Marine Personnel (I.O.M.) Limited

Shell Ship Management Limited

FIRST NAMES HOUSE, VICTORIA ROAD, DOUGLAS, IM2 4DF

Petrolon Europe Limited

Petrolon International Limited

ISRAEL

DERECH ABA HILEL 16, RAMAT GAN, 5250608

Ravin AI Ltd.

ITALY

PIAZZA SAN SILVESTRO 8, ROME, 00187

Shell International Exploration and Development Italia S.p.A.

Shell Italia E&P S.p.A.

STRADA DI SCORRIMENTO 2, VADO LIGURE, SAVONA, 17047

Infineum Italia S.R.L.

VIA AUTOSTRADA 32, BERGAMO, 24126

Sonnen eServices Italia S.R.L.

Sonnen S.R.L.

VIA GIORGIO RIBOTTA 51, ROME, 00144

Societa’ Oleodotti Meridionali S.p.A.

VIA MUGGIA #1, SAN DORLIGO DELLA VALLE, TRIESTE, 34147

Societa Italiana per l’Oleodotto Transalpino S.p.A.

BG Italia Power S.r.l

Brindisi LNG S.r.l.

VIA VITTOR PISANI 16, MILANO, 20124

Alle S.R.L.

Aquila S.p.A.

Development S.R.L.

Marco Polo Solar S.R.L.

Ramacca Solar S.R.L

Shell Energy Italia S.R.L.

Shell Italia Holding S.p.A.

Shell Italia Oil Products S.R.L.

JAPAN

1-1-5 WAKAMIYA-CHO, SUMA-KU, KOBE-SHI, HYOGO, 654-0049

Y.K. Nishi-Kobe Bosai Center

16F PACIFIC CENTURY PLACE MARUNOUCHI, 1-11-1, MARUNOUCHI, CHIYODA-KU,
TOKYO, 100-6216

Shell Japan Limited

Sonnen Japan Kabushiki Kaisha

2-3, KANDA, AWAJI-CHO, CHIYODA-KU, TOKYO, 101-0063

Sakhalin LNG Services Company Ltd.

4052-2 NAKATSU, AIKAWA-CHO, AIKO-GUN, KANAGAWA, 243-0303

K.K. SVC Tokyo

DAIBA FRONTIER BUILDING. 2-3-2, DAIBA, MINATO-KU, TOKYO, 135-8074

100

K.K. Red and Yellow

Shell Lubricants Japan K.K.

JERSEY

13 CASTLE STREET, ST. HELIER, JE1 1ES

Shell Service Station Properties Limited

LUXEMBOURG

412F, ROUTE D’ESCH, LUXEMBOURG, L-2086

Denham International Power SCSp [d]

7, RUE DE L’INDUSTRIE, BERTRANGE, LUXEMBOURG, L-8005

Shell Luxembourgeoise Sarl

7, RUE DE L’INDUSTRIE, BERTRANGE, LUXEMBOURG, L-8069

Shell Finance Luxembourg Sarl

Shell Treasury Luxembourg Sarl

MACAU

876 AVENIDA DA AMIZADE, EDIFICIO MARINA GARDENS, ROOM 310, 3RD FLOOR

Shell Macau Petroleum Company Limited

MALAYSIA

100

12TH FLOOR, MENARA SYMPHONY, NO. 5, JALAN PROF. KHOO KAY KIM, SEKSYEN 13,
PETALING JAYA/SELANGOR DARUL EHSAN, 46200

P S Terminal Sendirian Berhad

Pertini Vista Sdn. Bhd.

Provista Ventures Sdn. Bhd.

Sarawak Shell Berhad

Shell Business Service Centre Sdn. Bhd.

Shell Global Solutions (Malaysia) Sdn. Bhd.

Shell Malaysia Trading Sendirian Berhad

Shell MDS (Malaysia) Sendirian Berhad

Shell New Ventures Malaysia Sdn. Bhd. [g]

Shell People Services Asia Sdn. Bhd.

Shell Sabah Selatan Sendirian Berhad

Shell Timur Sdn. Bhd.

100

313

Shell Annual Report and Accounts 2020Additional InformationAPPENDIX 1 continued

Company by country and address of incorporation

MALAYSIA continued

KENSINGTON GARDENS, NO. U1317, LOT 7616, JALAN JUMIDAR BUYONG,
LABUAN F.T., 87000

Shell Treasury Malaysia (L) Limited

100

BG Gas Sao Paulo Investments B.V.

BJS Oil Operations B.V.

BJSA Exploration and Production B.V.

LEVEL 30, TOWER 1, PETRONAS TWIN TOWERS, KLCC, KUALA LUMPUR/FEDERAL
TERRITORY, 50088

P S Pipeline Sendirian Berhad

Chosun Shell B.V.

CrossWind Beheer B.V. [b]

Crosswind C.V. [b] [d]

LEVEL 8, SYMPHONY HOUSE, BLOCK D13, PUSAT DAGANGAN DANA 1, JALAN PJU 1A/46,
PETALING JAYA/SELANGOR DARUL EHSAN, 47301

Geocombinatie Leeuwarden B.V.

Bonuskad Loyalty Sdn. Bhd. [g]

LOT 7689 AND LOT 7690, SECTION 64, KUCHING TOWN LAND DISTRICT, JALAN
PENDING, KUCHING, SARAWAK, 93450

IOT Management Sdn. Bhd.

Tanjung Manis Oil Terminal Management Sdn. Bhd.

SUITE 13.03, 13 FLOOR, MENARA TAN & TAN, 207 TUN RAZAK, KUALA LUMPUR/FEDERAL
TERRITORY, 50400

Kebabangan Petroleum Operating Company Sdn. Bhd. [b]

MAURITIUS

33 EDITH CAVELL STREET, PORT LOUIS, 11324

Pennzoil Products International Company

6TH FLOOR, TOWER A, 1 CYBERCITY, EBENE, 72201

BG Mauritius LNG Holdings Ltd

BG Mumbai Holdings Limited

MEXICO

AVENIDA CERRO GORDO DEL CAMPESTRE, NUMBER 201, INTERIOR 202, OF COLONIA
LAS QUINTAS, LEÓN, GUANAJUATO, 37125

Mega Gasolineras SA de CV

AVENIDA PASEO DE LAS PALMAS 340, 1ST FLOOR, COLONIA LOMAS DE CHAPULTEPEC,
DELEGACIÓN MIGUEL HIDALGO, CIUDAD DE MÉXICO, 11000

Gas Del Litoral, S. de R.L. de C.V.

Shell Energy Mexico, S.A. de C.V.

Shell Exploración y Extracción de México, S.A. de C.V.

Shell México Gas Natural, S. de R.L. de C.V.

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.

GUILLERMO GONZÁLEZ CAMARENA NO. 400, SANTA FÉ, ALVARO OBREGÓN,
CIUDAD DE MÉXICO, 01210

Comercial Importadora S.A. De C.V.

Concilia Asesores y Servicios, S.A. de C.V.

NETHERLANDS

2E HAVENSTRAAT 5B, IJMUIDEN, 1976 CE

Noordzeewind B.V.

Noordzeewind C.V. [d]

AMSTERDAMSEWEG 55, 1182 GP AMSTELVEEN, P.O. BOX 75650, LUCHTHAVEN
SCHIPHOL, 1118 ZS

Amsterdam Schiphol Pijpleiding Beheer B.V.

ANTARESLAAN 39, P.O. BOX 3068, 2130 KB, HOOFDDORP, 2132 JE

Multi Tank Card B.V.

BUTAANWEG 215, VONDELINGPLAAT, ROTTERDAM, 3196 KC

N.V. Rotterdam-Rijn Pijpleiding Maatschappij [b]

CAREL VAN BYLANDTLAAN 16, THE HAGUE, 2596 HR

Shell International Exploration and Production B.V.

CAREL VAN BYLANDTLAAN 30, THE HAGUE, 2596 HR

Attiki Gas B.V.

B.V. Dordtsche Petroleum Maatschappij

B.V. Petroleum Assurantie Maatschappij

BG Gas Brazil E&P 12 B.V.

BG Gas Brazil Holdings B.V.

BG Gas International B.V.

BG Gas International Holdings B.V.

BG Gas Netherlands Holdings B.V.

314

100

HKN LP 1 B.V.

HKN LP 2 B.V.

HKN LP 3 B.V.

HKN LP 4 B.V.

HKN LP 5 B.V.

HKN LP 6 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.

Integral Investments B.V.

Jordan Oil Shale Company B.V.

LNG Shipping Operation Services Netherlands B.V.

Netherlands Alng Holding Company B.V.

Raffinaderij Shell Mersin N.V.

RESCO B.V.

Rotterdam Hydrogen Company B.V.

Salym Petroleum Development N.V. [b]

Salym Petroleum Services B.V. [b]

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.

Shell Brazil Holding B.V.

Shell Business Development Central Asia B.V.

Shell Caspian B.V.

Shell Caspian Pipeline Holdings B.V.

Shell China B.V.

Shell China Holdings B.V.

Shell Deepwater Tanzania B.V.

Shell Development Iran B.V.

Shell E and P Offshore Services B.V.

Shell Egypt N.V. [e]

Shell Energy Europe B.V.

Shell EP Holdings (EE&ME) B.V.

Shell EP Middle East Holdings B.V.

Shell EP Oman B.V.

Shell EP Russia Investments (III) B.V.

Shell EP Russia Investments (V) B.V.

Shell EP Somalia B.V.

Shell EP Wells Equipment Services B.V.

Shell Exploration and Production (100) B.V.

Shell Exploration and Production (101) B.V.

Shell Exploration and Production (102) B.V.

Shell Exploration and Production (103) B.V.

Shell Exploration and Production (105) B.V.

Shell Exploration and Production (106) B.V.

Shell Exploration and Production (107) B.V.

100

Shell Annual Report and Accounts 2020Additional InformationCompany by country and address of incorporation

Shell Exploration and Production (82) B.V.

Shell Exploration and Production (84) B.V.

Shell Exploration and Production (89) B.V.

Shell Exploration and Production (90) B.V.

Shell Exploration and Production (91) B.V.

Shell Exploration and Production (92) B.V.

Shell Exploration and Production (93) B.V.

Shell Exploration and Production (94) B.V.

Shell Exploration and Production (96) B.V.

Shell Exploration and Production (99) B.V.

Shell Exploration and Production (LI) B.V.

Shell Exploration and Production (LVIII) B.V.

Shell Exploration and Production (LXI) B.V.

Shell Exploration and Production (LXII) B.V.

Shell Exploration and Production (LXV) B.V.

Shell Exploration and Production (LXVI) B.V.

Shell Exploration and Production (LXXI) B.V.

Shell Exploration and Production (LXXV) B.V.

Shell Exploration and Production (XL) B.V.

Shell Exploration and Production Brunei B.V.

Shell Exploration and Production Holdings B.V.

Shell Exploration and Production Investments B.V.

Shell Exploration and Production Mauritania (C10) B.V.

Shell Exploration and Production Mauritania (C19) B.V.

Shell Exploration and Production Services (RF) B.V.

Shell Exploration and Production South Africa B.V.

Shell Exploration and Production Ukraine I B.V.

Shell Exploration and Production Ukraine Investments (I) B.V.

Shell Exploration and Production Ukraine Investments (II) B.V.

Shell Exploration and Production West-Siberia B.V.

Shell Exploration B.V.

Shell Exploration Company (RF) B.V.

Shell Exploration Company (West) B.V.

Shell Exploration Company B.V.

Shell Exploration Venture Services B.V.

Shell Finance (Netherlands) B.V.

Shell Gas & Power Developments B.V.

Shell Gas (LPG) Holdings B.V.

Shell Gas B.V.

Shell Gas Iraq B.V.

Shell Gas Nigeria B.V.

Shell Gas Venezuela B.V.

Shell Generating (Holding) B.V.

Shell Geothermal B.V.

Shell Global Solutions (Eastern Europe) B.V.

Shell Global Solutions Services B.V.

Shell Hydrogen Operations & Production BV

Shell Information Technology International B.V.

Shell Integrated Gas Oman B.V.

Shell International B.V.

Shell International Finance B.V. [a]

Shell Internationale Research Maatschappij B.V.

Shell Internet Ventures B.V.

Shell Iraq Petroleum Development B.V.

Shell Iraq Services B.V.

Shell Kazakhstan B.V.

Shell Kazakhstan Development B.V.

Shell Kuwait Exploration and Production B.V.

Company by country and address of incorporation

Shell LNG Bunkering B.V.

Shell LNG Port Spain B.V.

Shell Manufacturing Services B.V.

Shell Mozambique B.V.

Shell Namibia Upstream B.V.

Shell Nanhai B.V.

Shell Nederland B.V.

Shell Netherlands Canada Financing B.V.

Shell New Energies Holding Europe B.V.

Shell New Energies NL B.V.

Shell Offshore (Personnel) Services B.V.

Shell Offshore Services B.V.

Shell Offshore Upstream South Africa B.V.

Shell OKLNG Holdings B.V.

Shell Olie OG Gas Holding B.V. [i]

Shell Oman Exploration and Production B.V.

Shell Overseas Holdings (Oman) B.V.

Shell Overseas Investments B.V.

Shell Petroleum N.V. [a]

Shell Philippines Exploration B.V.

Shell Project Development (VIII) B.V.

Shell RDS Holding B.V.

Shell Sakhalin Holdings B.V.

Shell Sakhalin Services B.V.

Shell Salym Development B.V.

Shell Sao Tome and Principe B.V.

Shell Services Oman B.V.

Shell Shared Services (Asia) B.V.

Shell South Syria Exploration B.V.

Shell Trademark Management B.V.

Shell Trading Russia B.V.

Shell Upstream Albania B.V.

Shell Upstream Development B.V.

Shell Upstream Indonesia Services B.V.

Shell Upstream Turkey B.V.

Shell Ventures B.V.

Shell Ventures Investments B.V.

Shell Western LNG B.V.

Shell Windenergy Netherlands B.V.

Shell Windenergy NZW I B.V.

Syria Shell Petroleum Development B.V. [h]

Tamba B.V.

The Green Near Future 5 B.V.

CHEMIEWEG 25, P.O. BOX 6060, MOERDIJK, 4780 LN

Shell Nederland Chemie B.V. [g]

DR. HUB VAN DOORNEWEG 183, TILBURG, 5026 RD

Travis Road Services International B.V.

EUROPAWEG 975, MAASVLAKTE, ROTTERDAM, 3199 LC

Maasvlakte Olie Terminal C.V. [d]

HENRI BERSSENBRUGGESTRAAT 9, DEVENTER, 7425 SB

B.R.E. B.V.

Waalbrug Exploitatie Maatschappij B.V.

HERENSTREEK 47, NIEUW-DORDRECHT, 7885 AT

Energiepark Pottendijk B.V.

Pottendijk Energie B.V.

Pottendijk Wind B.V.

Pottendijk Zon B.V.

100

315

Shell Annual Report and Accounts 2020Additional InformationAPPENDIX 1 continued

Company by country and address of incorporation

NETHERLANDS continued

HERIKERBERGWEG 238, AMSTERDAM, 1101 CM

Bogstone Holding B.V.

Cicerone Holding B.V.

Infineum Holdings B.V.

HOFPLEIN 20, ROTTERDAM, 3032 AC

Shell TapUp B.V.

LANGE KLEIWEG 40, RIJSWIJK, 2288 GK

Shell Global Solutions International B.V.

MUIDERSTRAAT 1, AMSTERDAM, 1011 PZ

Caspi Meruerty Operating Company B.V. [b]

OOSTDUINLAAN 2, THE HAGUE, 2596 JM

North Caspian Operating Company N.V. [b]

OOSTERHORN 36, FARMSUM, 9936 HD

Zeolyst C.V.

P.O. BOX 477, GRONINGEN, 9700 AL

Gasterra B.V.

POLARIS AVENUE 81, P.O. BOX 2047, 2130 GE, HOOFDDORP, 2132 JH

Loyalty Management Netherlands B.V.

POSTBUS 157, THE HAGUE, 2501 CD

Shell Pensioenbureau Nederland B.V.

REACTORWEG 301, UNIT 1.3, UTRECHT, 3542 AD

Paqell B.V.

RIGAKADE 20, AMSTERDAM, 1013 BC

The New Motion B.V.

SCHEPERSMAAT 2, ASSEN, 9405 TA

Nederlandse Aardolie Maatschappij B.V.

STATIONSPLEIN 45, ROTTERDAM, 3013 AK

Fitzroy C.V. [d]

W2C GP B.V.

STRAWINSKYLAAN 1343, AMSTERDAM, 1077 XX

Shell & AMG Recycling B.V [d]

STRAWINSKYLAAN 1345, AMSTERDAM, 1077 XX

Karachaganak Petroleum Operating B.V. [b]

STRAWINSKYLAAN 3127 8E ETAGE, AMSTERDAM, 1077 ZX

Shell Technology Ventures Fund 1 B.V.

VONDELINGENWEG 601, VONDELINGENPLAAT, ROTTERDAM, 3196 KK

Ellba B.V. [b]

Ellba C.V. [b] [d]

Shell MSPO 2 Holding B.V.

Shell Nederland Raffinaderij B.V.

WEENA 70, ROTTERDAM, 3012 CM

Blauwwind II C.V. [d]

Blauwwind Management II B.V.

Euroshell Cards B.V.

Shell Chemicals Europe B.V.

Shell Downstream Services International B.V.

Shell Lubricants Supply Company B.V.

Shell Nederland Verkoopmaatschappij B.V.

Shell Trading Rotterdam B.V.

Snijders Olie B.V.

Tankstation Exploitatie Maatschappij Holding B.V.

WEENA 762, 9E VERDIEPING, ROTTERDAM, 3014 DA

Guara B.V.

Iara B.V.

Lapa Oil & Gas B.V.

Libra Oil & Gas B.V.

Tupi B.V.

WINTHONTLAAN 200, UTRECHT, 3526 KV

Solar-EW II B.V.

316

ZEELANDSESTRAAT 1, MILLINGEN AAN DE RIJN, 6566 DE

SolarNow B.V.

NEW ZEALAND

C/O BAKER TILLY STAPLES RODWAY TARANAKI LIMITED, 109-113 POWDERHAM STREET, P.O.
BOX 146, NEW PLYMOUTH, TARANAKI, 4340

Energy Finance NZ Limited

Energy Holdings Offshore Limited

Shell (Petroleum Mining) Company Limited

Shell Energy Asia Limited

Shell Investments NZ Limited

Southern Petroleum No Liability

MERCER (N.Z.) LIMITED, FLOOR 2, 20 CUSTOMHOUSE QUAY, WELLINGTON, 6011

Shell New Zealand Pensions Limited

NIGERIA

CORPORATE OFFICE, INTELS ABA ROAD ESTATE, KM16 ABA EXPRESSWAY, PORT
HARCOURT, 500211

Nigeria LNG Limited

NLNG Shipping Management Limited

FREEMAN HOUSE, 21/22 MARINA, P.M.B. 2418, LAGOS

BG Exploration and Production Nigeria Limited

BG Upstream A Nigeria Limited

Delta Business Development Limited

Shell Exploration and Production Africa Limited

Shell Nigeria Business Operations Limited

100

Shell Nigeria Closed Pension Fund Administrator Ltd

Shell Nigeria Exploration and Production Company Ltd

Shell Nigeria Exploration and Production Echo Limited

Shell Nigeria Exploration Properties Alpha Limited

Shell Nigeria Exploration Properties Beta Limited

Shell Nigeria Exploration Properties Charlie Limited

Shell Nigeria Gas Ltd (SNG)

Shell Nigeria Infrastructure Development Limited

Shell Nigeria Offshore Prospecting Limited

Shell Nigeria Ultra Deep Limited

Shell Nigeria Upstream Ventures Limited

Shell Thrift & Loan Fund Trustees Nig Ltd

SHELL INDUSTRIAL AREA, P.O. BOX 263, RIVERS STATE, PORT HARCOURT, 500272

The Shell Petroleum Development Company of Nigeria Limited

NORWAY

BYGG 6, DRAMMENSVEIEN 134, OSLO, 0277

Aviation Fuelling Services Norway AS

HELGANESVEGEN 59, AVALDSNES, KARMØY, 4262

Gasnor AS

KARENSLYST ALLÉ 2, OSLO, 0278

Shell New Energies Norway AS

KONGSGÅRDBAKKEN 1, STAVANGER, 4005

Enhanced Well Technologies Group AS

MONGSTAD 71A, MONGSTAD, 5954

Technology Centre Mongstad DA

NYHAMNA, AUKRA, 6480

Ormen Lange Eiendom DA

TANKVEGEN 1, TANANGER, 4056

A/S Norske Shell

OMAN

P.O. BOX 38, MINA AL FAHAL, MUSCAT, 116

Shell Oman Marketing Company SAOG

P.O. BOX 398, SOHAR FREE ZONE, NORTH AL BATINAH GOVERNORATE, SOHAR, 322

Sohar Solar Qabas (FZC) LLC

P.O. BOX 560, MINA AL FAHAL, MUSCAT, 116

Oman LNG LLC

100

Shell Annual Report and Accounts 2020Additional InformationCompany by country and address of incorporation

Company by country and address of incorporation

P.O. BOX 74, MINA AL FAHAL, MUSCAT, 116

Shell Development Oman LLC

P.O. BOX 81, MINA AL FAHAL, MUSCAT, 113

Petroleum Development Oman LLC

PAKISTAN

E110, KHAYABAN E JINNAH, LAHORE CANTONEMENT, PUNJAB, CANTONEMENT, 54810

Pakistan Energy Gateway Limited

HOUSE NO. 2-B, NAZIMUDDIN ROAD, F-8/1, ISLAMABAD, 75400

Pak Arab Pipeline Company Limited

SHELL HOUSE, 6 CH. KHALIQUZZAMAN ROAD, KARACHI, 75530

Shell Energy Pakistan (smc-private) Limited

Shell Pakistan Limited

PERU

CALLE DEAN VALDIVIA 111, OFICINA 802, SAN ISIDRO, LIMA, LIMA 27

Shell GNL Peru S.A.C.

Shell Operaciones Peru S.A.C.

PHILIPPINES

2ND FLOOR, BONIFACIO TECHNOLOGY CENTER, 31ST STREET CORNER 2ND AVENUE,
BONIFACIO GLOBAL CITY, TAGUIG, METRO MANILA, 1635

Bonifacio Gas Corporation

41ST FLOOR, THE FINANCE CENTER, 26TH STREET CORNER 9TH AVENUE, BONIFACIO
GLOBAL CITY, TAGUIG, METRO MANILA, 1635

Connected Freight Solutions Philippines, Inc.

Pilipinas Shell Petroleum Corporation

Shell Chemicals Philippines, Inc.

Shell Energy Philippines Inc

Shell Gas and Energy Philippines Corporation

Shell Solar Philippines Corporation

NDC BLDG., 116 TORDESILLAS ST., SALCEDO VILLAGE, MAKATI CITY, METRO MANILA, 1227

Kamayan Realty Corporation

SUBIC BAY FREE PORT ZONE, OLANGAPO CITY, 2200

Shell Gas Trading (Asia Pacific), Inc.

UNIT D 9TH FLOOR INOZA TOWER, 40TH STREET, NORTH BONIFACIO, BONIFACIO
GLOBAL CITY, TAGUIG, METRO MANILA, 1634

Tabangao Realty, Inc.

POLAND

UL. BITWY WARSZAWSKIEJ 1920 R. NR 7A, WARSAW, 02-366

Shell Polska Sp. z o.o.

UL. BITWY WARSZAWSKIEJ 1920R. 7A, WARSZAWA, 02-366

Shell Mobility Polska Sp. z o.o.

UL. PAWIA 21, KRAKOW, 31-154

Shell Energy Retail Poland Sp. z o.o.

PUERTO RICO

P.O. BOX 186, YABUCOA, PR 00767-0186

Station Managers of Puerto Rico, Inc.

QATAR

1ST FLOOR, AL-MIRQAB TOWER, DOHA

Marine LNG Solutions LLC [b]

AL MIRQAB TOWER, WEST BAY, P.O. BOX 3747, DOHA

Qatar Shell Service Company W.L.L.

P.O. BOX 22666, DOHA

Qatar Liquefied Gas Company Limited (4)

QATAR SCIENCE & TECHNOLOGY PARK TECH1, OFFICE 101, P.O. BOX 3747, DOHA

Qatar Shell Research & Technology Centre QSTP-LLC

RUSSIA

24 A YAKUBOVICHA UL., SAINT PETERSBURG, 190000

Khanty-Mansiysk Petroleum Alliance Closed Joint Stock Company [b]

9 LESNAYA STREET, FLOOR 3, MOSCOW, 125196

Limited Liability Company “Shell Neft”

9 LESNAYA STREET, FLOOR 4, MOSCOW, 125196

100

Limited Liability Company “Shell Neftegaz Development (V)”

100

LLC Shell NefteGaz Development

Syriaga Neftegaz Development LLC

SINOPSKAYA NABEREZHNAYA, 22 A, OFFICE 811, SANKT-PETERBURG, 191167

Gazpromneft-Aero Bryansk LLC [b]

SAINT KITTS AND NEVIS

MORNING STAR HOLDINGS LIMITED, MAIN STREET, SUITE 556, CHARLESTOWN, NEVIS,
WEST INDIES

Shell Oil & Gas (Malaysia) LLC

SAINT LUCIA

MERCURY COURT, CHOC ESTATE, CASTRIES

BG Atlantic 1 Holdings Limited

BG Atlantic 2/3 Holdings Limited

BG Atlantic 4 Holdings Limited

BG Central Holdings Ltd.

BG West Indies No. 2 Limited

SAUDI ARABIA

P.O. BOX 41467, RIYADH, 11521

Al Jomaih and Shell Lubricating Oil Co.Ltd.

SINGAPORE

1 COMMONWEALTH LANE, #09-30, ONE COMMONWEALTH, SINGAPORE, 149544

Zeco Systems Pte. Ltd.

1 HARBOURFRONT AVENUE, #08-01/08, KEPPEL BAY TOWER, SINGAPORE, 098632

Infineum Singapore LLP

15, AIRLINE ROAD, SINGAPORE, 819828

Changi Airport Fuel Hydrant Installation Pte. Ltd.

160 TUAS SOUTH AVENUE 5, SINGAPORE, 637364

Singapore Lube Park Pte. Ltd. [b]

25 CHURCH STREET, 03-04 CAPITAL SQUARE THREE, SINGAPORE, 049482

Cleantech Renewable Assets Pte Ltd

50 GUL ROAD, SINGAPORE, 629351

Fuelng Pte. Ltd [b]

50 RAFFLES PLACE #06-00, SINGAPORE LAND TOWER, SINGAPORE, 048623

Orb Energy Pte Ltd.

THE METROPOLIS TOWER 1, 9 NORTH BUONA VISTA DRIVE, #07-01, SINGAPORE, 138588

BG Asia Pacific Holdings Pte. Limited

BG Asia Pacific Services Pte. Ltd.

BG Exploration & Production Myanmar Pte. Ltd.

BG Insurance Company (Singapore) Pte Ltd

100

BG Myanmar Pte. Ltd.

Connected Freight Pte. Ltd.

Ellba Eastern (Pte) Ltd

100

QPI and Shell Petrochemicals (Singapore) Pte Ltd

Shell Catalysts & Technologies Pte. Ltd.

Shell Chemicals Seraya Pte. Ltd.

Shell Eastern Petroleum (Pte) Ltd [g]

Shell Eastern Trading (Pte) Ltd [g]

Shell Gas Marketing Pte. Ltd.

Shell Integrated Gas Thailand Pte.Limited

Shell Myanmar Energy Pte. Ltd.

Shell Pulau Moa Pte Ltd

Shell Seraya Pioneer (Pte) Ltd

Shell Tankers (Singapore) Private Limited

Shell Treasury Centre East (Pte) Ltd

Sirius Well Manufacturing Services Pte. Ltd. [b]

100

317

Shell Annual Report and Accounts 2020Additional InformationAPPENDIX 1 continued

Company by country and address of incorporation

SLOVAKIA

EINSTEINOVA 23, BRATISLAVA, 851 01

SHELL Slovakia s.r.o.

SLOVENIA

BRAVNICARJEVA ULICA 13, LJUBLJANA, 1000

Shell Adria d.o.o.

SOUTH AFRICA

Shell Holdings Switzerland AG

Shell Trading Switzerland AG

100

Shell Treasury Company Switzerland AG

Solen Versicherungen AG

ROUTE DE PRÉ-BOIS 17, COINTRIN, 1216

100

Saraco SA

ROUTE DE VERNIER 132, VERNIER, 1214

1ST FLOOR OXFORD PARKS, 199 OXFORD ROAD, DUNKELD, GAUTENG, 2196

SOGEP Sociéte Genevoise des Pétroles SA

Sekelo Oil Trading (Pty) Limited

HONSHU ROAD, DURBAN, 4001

Blendcor (Pty) Ltd. [b]

REUNION, DURBAN, 4001

Shell & BP South African Petroleum Refineries (Pty) Limited [b]

SUITE OE/2, THE NAUTICA, THE WATERCLUB, BEACH ROAD, GRANGER BAY, CAPE TOWN,
8001

STISA (Pty) Limited

TWICKENHAM, THE CAMPUS, 57 SLOAN STREET, EPSOM DOWNS, BRYANSTON, 2021

Bituguard Southern Africa (Pty) Ltd

Shell Downstream South Africa (Pty) Ltd

Shell South Africa Energy (Pty) Ltd

Shell South Africa Exploration (Pty) Limited

Shell South Africa Holdings (Pty) Ltd

SOUTH KOREA

#704-3, TOWER B. HYUNDAI KNOWLEDGE INDUSTRIAL CENTER, 70 DUSAN-RO,
GEUMCHEON-GU, SEOUL, 08584

Korea Impact Carbon Corporation

640-6, DAEJUK-RI, DAESAN-EUP, SEOSAN-SHI, CHUNGCHONGNAM-DO, 356-713

Hyundai and Shell Base Oil Co., Ltd

NO. 250, SINSUN-RO, NAM-GU, BUSAN, 48561

Hankook Shell Oil Company

SPAIN

PASEO DE LA CASTELLANA, 257-6º, MADRID, 28046

BG Energy Iberian Holdings, S.L.

Shell España, S.A.

Shell Spain LNG, S.A.U.

RIO BULLAQUE, 2, MADRID, 28034

Shell & Disa Aviation España, S.L.

SUDAN

SHELL HOUSE, P.O. BOX 320, KHARTOUM

Shell (Sudan) Petroleum Development Company Limited

SWEDEN

DELOITTE, P.O. BOX 450, ÖSTERSUND, 831 26

BG International Services AB

GUSTAVSLUNDSVÄGEN 22, BROMMA, 16751

Shell Aviation Sweden AB

P.O. BOX 135, STOCKHOLM-ARLANDA, 190 46

A Flygbränslehantering Aktiebolag

P.O. BOX 2154, GOTHENBURG, 438 14

Gothenburg Fuelling Company AB

P.O. BOX 85, STOCKHOLM-ARLANDA, 190 45

Stockholm Fuelling Services AB

STURUP FLYGPLATS, P.O. BOX 22, MALMÖ, 230 32

Malmö Fuelling Services AB

SWITZERLAND

AUTOSTRADA A2 (DIREZIONE GOTTARDO), HOTEL BELLINZONA SUD, MONTE
CARASSO, 6513

Stazioni Autostradali Bellinzona SA

BAARERMATTE, BAAR, 6340

Shell (Switzerland) AG

Shell Brands International AG

Shell Corporate Services Switzerland AG

Shell Finance Switzerland AG

318

100

STEIGERHUBELSTRASSE 8, BERN, 3008

Shell Lubricants Switzerland AG

ZWÜSCHETEICH, RÜMLANG, 8153

UBAG – Unterflurbetankungsanlage Flughafen Zürich AG

SYRIA

DAMASCUS NEW SHAM WESTERN DUMMAR, ISLAND NO. 1 – PROPERTY 2299, P.O. BOX
7660, DAMASCUS

Al Badiah Petroleum Company

Al Furat Petroleum Company

TAIWAN

INTERNATIONAL TRADE BUILDING, ROOM 2001, 20TH FLOOR, 333, KEELUNG ROAD
SECTION 1, TAIPEI, 110

Shell Taiwan Limited

NO. 2, TSO-NAN ROAD, NAN-TZE DISTRICT, P.O. BOX 25-30, KAOHSIUNG, 811

CPC Shell Lubricants Co. Ltd

TANZANIA

1ST FLOOR KILWA HOUSE, PLOT 369, TOURE DRIVE, OYSTER BAY, P.O. BOX 105833, DAR ES
SALAAM

Fahari Gas Marketing Company Limited

Mzalendo Gas Processing Company Limited

Ruvuma Pipeline Company Limited

Tanzania LNG Limited

THAILAND

10 SOONTHORNKOSA ROAD, KLONGTOEY, BANGKOK, 10110

Pattanadhorn Company Limited

Sahapanichkijphun Company Limited

Shell Global Solutions (Thailand) Limited

Shell Global Solutions Holdings (Thailand) Limited

Shell Global Solutions Service (Thailand) Company Limited

Thai Energy Company Limited

Unitas Company Limited

100

TRINIDAD AND TOBAGO

100

1 INTERNATIONAL DRIVE, WESTMOORINGS

The International School of Port of Spain Limited

5 SAINT CLAIR AVENUE, SAINT CLAIR, PORT OF SPAIN

BG 2/3 Investments Limited

Point Fortin LNG Exports Limited

Shell Gas Supply Trinidad Limited

Shell LNG T&T Ltd

Shell Manatee Limited

Shell Trinidad Central Block Limited

Shell Trinidad North Coast Limited

TRINLING Limited

SHELL ENERGY HOUSE, 5 ST. CLAIR AVENUE, PORT OF SPAIN

Shell Trinidad Ltd

TUNISIA

IMMEUBLE LE TANIT DU LAC, RUE DU LAC WINDERMERE, LES BERGES DU LAC, TUNIS, 1053

Shell Tunisia LPG S.A.

IMMEUBLE LE TANIT DU LAC, RUE DU LAC WINDERMERE, LES BERGES DU LAC, TUNIS, 1053

Tunisian Processing S.A.

IMMEUBLE MEZGHENNI, RUE DU LAC WINDERMERE, LES BERGES DU LAC, TUNIS, 1053
– BP 36

Amilcar Petroleum Operations S.A.

100

Shell Annual Report and Accounts 2020Additional InformationCompany by country and address of incorporation

Company by country and address of incorporation

TURKEY

MAIN ROAD, WATERSTON, MILFORD HAVEN, PEMBROKESHIRE, SA73 1DR

DILOVASI ORGANIZE SANAYI BOLGESI 1.KISIM, 1004 SOKAK NO:10, DILOVASI, KOCAELI

Dragon LNG Group Limited [b]

Samsun Akaryakit VE Depolama A.S.

ONE BARTHOLOMEW CLOSE, LONDON, EC1A 7BL

GULBAHAR MAH.SALIH TOZAN SOK., KARAMANCILAR IS MERKEZI B BLOK NO:18,
ESENTEPE, SISLI, ISTANBUL, 34394

Manchester Airport Storage and Hydrant Company Limited

PANNONE CORPORATE LLP, 378-380 DEANSGATE, CASTLEFIELD, MANCHESTER, M3 4LY

Shell & Turcas Petrol A.S.

Shell Enerji A.S.

Shell Petrol A.S.

LIMAN MAHALLESI 60. SOKAK NO. 25, KONYAALTI, ANTALYA, 07070

Cekisan Depolama Hizmetleri Ltd. Sti.

SULTANKOY MAHALLESI MALTEPE SOKAK NO:66, MARMARA EREGLISI, TEKIRDAG, 59750

Marmara Depoculuk Hizmetleri A.S.

YAKUPLU MAH. GENCOSMAN CAD. NO:7, BEYLIKDUZU, ISTANBUL, 34524

Ambarli Depolama Hizmetleri Ltd. Sti.

1 ALTENS FARM ROAD, NIGG, ABERDEEN, AB12 3FY

Shell Trustee Solutions Limited

15 ATHOLL CRESCENT, EDINBURGH, EH3 8HA

Eolfi Scotland Limited

4TH FLOOR, DAVIDSON BUILDING, 5 SOUTHAMPTON STREET, LONDON, WC2E 7HA

100

Steama Company Limited

SHELL CENTRE, LONDON, SE1 7NA

Angkor Shell Limited

BG Central Holdings Limited

BG Cyprus Limited

BG Delta Limited

BG Employee Shares Trustees Limited

BG Energy Capital Plc

BG Energy Holdings Limited

BG Energy Marketing Limited

BG Equatorial Guinea Limited

BG Gas Services Limited

BG Gas Supply (UK) Limited

BG General Holdings Limited

The New Motion EVSE Limited

100

BG Great Britain Limited

50 LOTHIAN ROAD, FESTIVAL SQUARE, EDINBURGH, EH3 9WJ

BG Group Employee Shares Trustees Limited

BG General Partner Limited

BG Pension Funding Scottish Limited Partnership [j]

5-7 ALEXANDRA ROAD, HEMEL HEMPSTEAD, HERTFORDSHIRE, HP2 5BS

British Pipeline Agency Limited

United Kingdom Oil Pipelines Limited [b]

Walton-Gatwick Pipeline Company Limited [b]

West London Pipeline and Storage Limited [b]

ATHENA HOUSE, ATHENA DRIVE, TACHBROOK PARK, WARWICK, CV34 6RL

Autogas Limited

BUILDING 1204, SANDRINGHAM ROAD, HEATHROW AIRPORT, HOUNSLOW, MIDDLESEX,
TW6 3SH

Heathrow Airport Fuel Company Limited

Heathrow Hydrant Operating Company Limited

CANTERBURY COURT, KENNINGTON PARK, 1-3 BRIXTON ROAD, LONDON, SW9 6DE

Limejump Energy Limited

Limejump Intermediate 1 Limited

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

LEVEL 39, ONE CANADA SQUARE, LONDON, E14 5AB

Applied Blockchain Ltd

100

BG Group Limited

BG Group Pension Trustees Limited

BG Group Trustees Limited

BG Intellectual Property Limited

BG International Limited

BG Karachaganak Limited

BG Kenya L10A Limited

BG Kenya L10B Limited

BG LNG Investments Limited

BG Mongolia Holdings Limited

BG Netherlands

BG Netherlands Financing Unlimited

BG Norge Limited

BG North Sea Holdings Limited

BG OKLNG Limited

BG Overseas Holdings Limited

BG Overseas Investments Limited

BG Overseas Limited

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

B-Snug Limited

CRI Catalyst Company Europe Limited

Derivatives Trading Atlantic Limited

Eastham Refinery Limited [b]

Enterprise Oil Limited

Enterprise Oil Middle East Limited

Enterprise Oil Norge Limited

Enterprise Oil U.K. Limited

[j] Established by BG Group plc and the BG Trustee in 2013 as part of the 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.

100

319

Shell Annual Report and Accounts 2020Additional InformationAPPENDIX 1 continued

Company by country and address of incorporation

UK continued

Gainrace Limited

Gatwick Airport Storage and Hydrant Company Limited

Glossop Limited

GOGB Limited

Khmer Shell Limited

Machine Max Limited

Methane Services Limited

Murphy Schiehallion Limited

Private Oil Holdings Oman Limited

Sabah Shell Petroleum Company Limited

Saxon Oil Limited

Saxon Oil Miller Limited

SELAP Limited

Shell Aircraft Limited

Shell Aviation Limited

Shell Business Development Middle East Limited

Shell Caribbean Investments Limited

Shell Catalysts & Technologies Limited

Shell Chemical Company of Eastern Africa Limited

Shell Chemicals (Hellas) Limited

Shell Chemicals Limited

Shell Chemicals U.K. Limited

Shell China Exploration and Production Company Limited

Shell Clair UK Limited

Shell Club Corringham Limited

Shell Company (Hellas) Limited

Shell Company (Pacific Islands) Limited

Shell Corporate Director Limited

Shell Corporate Secretary Limited

Shell Distributor (Holdings) Limited

Shell Employee Benefits Trustee Limited

Shell Energy Europe Limited

Shell Energy Investments Limited

Shell Energy Supply UK LTD.

Shell EP Offshore Ventures Limited

Shell Exploration and Production Tanzania Limited

Shell Finance GB Limited

Shell Gas Holdings (Malaysia) Limited

Shell Gas Marketing U.K Limited

Shell Global LNG Limited

Shell Hasdrubal Limited

Shell Holdings (U.K.) Limited

Shell Information Technology International Limited

Shell International Gas Limited

Shell International Limited

Shell International Petroleum Company Limited

Shell International Trading and Shipping Company Limited

Shell Malaysia Limited

Shell Marine Products Limited

Shell New Energies UK Ltd

Shell Overseas Holdings Limited

Shell Overseas Services Limited

Shell Pension Reserve Company (SIPF) Limited

Shell Pension Reserve Company (SOCPF) Limited

320

100

Shell Pension Reserve Company (UK) Limited

Shell Pensions Trust Limited

Shell Property Company Limited

Shell QGC Holdings Limited [g]

Shell QGC Midstream 1 Limited [g]

Shell QGC Midstream 2 Limited

Shell QGC Upstream 1 Limited

Shell QGC Upstream 2 Limited

Shell Research Limited

Shell Response Limited

Shell South Asia LNG Limited

Shell Supplementary Pension Plan Trustees Limited

Shell Tankers (U.K.) Limited

Shell Trading International Limited

Shell Treasury Centre Limited

Shell Treasury Dollar Company Limited

Shell Treasury Euro Company Limited

Shell Treasury UK Limited

Shell Trinidad 5(A) Limited

Shell Trinidad and Tobago Limited

Shell Trinidad Block E Limited

Shell Tunisia Upstream Limited

Shell U.K. Limited

Shell U.K. North Atlantic Limited

Shell U.K. Oil Products Limited

Shell Upstream Overseas Services (I) Limited

Shell Ventures New Zealand Limited

Shell Ventures U.K. Limited

Shell-Mex and B.P. Limited

STT (Das Beneficiary) Limited [a]

Synthetic Chemicals (Northern) Limited

Telegraph Service Stations Limited

The Anglo-Saxon Petroleum Company Limited

The Asiatic Petroleum Company Limited

The Consolidated Petroleum Company Limited

The Mexican Eagle Oil Company Limited

The Shell Company (W.I.) Limited

The Shell Company of Hong Kong Limited

The Shell Company of India Limited

The Shell Company of Nigeria Limited

The Shell Company of Thailand Limited

The Shell Company of The Philippines Limited

The Shell Company of Turkey Limited

The Shell Marketing Company of Borneo Limited

The Shell Petroleum Company Limited

The Shell Transport and Trading Company Limited

Thermocomfort Limited

UK Shell Pension Plan Trust Limited

Wonderbill Limited

SHELL ENERGY HOUSE, WESTWOOD BUSINESS PARK, WESTWOOD WAY, COVENTRY,
CV4 8HS

First Telecommunications Limited

First Utility Limited

Impello Limited

Shell Energy Retail Limited

Shell Energy UK Limited

100

Shell Annual Report and Accounts 2020Additional InformationCompany by country and address of incorporation

Company by country and address of incorporation

UKRAINE

4 MYKOLY GRINCHENKA STREET, KIEV, 03038

Shell Ukraine Exploration and Production I LLC

N. GRINCHENKO, 4, KIEV, 03038

Alliance Holding LLC [d]

Invest Region LLC [d]

UNITED ARAB EMIRATES

EMDAD AVIATION FUEL STORAGE FZCO, P.O. BOX 261781, JEBEL ALI, DUBAI

Emdad Aviation Fuel Storage FZCO

P.O. BOX 665, ABU DHABI

Abu Dhabi Gas Industries Limited (GASCO)

URUGUAY

LA CUMPARSITA, 1373 4TH FLOOR, MONTEVIDEO, 11200

BG (Uruguay) S.A.

Dinarel S.A.

Gasoducto Cruz del Sur S.A.

USA

10000 MING AVENUE, BAKERSFIELD, CA 93311

Aera Energy LLC [b]

Aera Energy Services Company

1013 CENTRE ROAD, COUNTY OF NEW CASTLE, DELAWARE, WILMINGTON, DE 19805

Zeco Holdings, Inc.

Zeco Systems, Inc.

10346 BRECKSVILLE RD, BRECKSVILLE, OH 44141

True North Energy LLC

11111 WILCREST GREEN, SUITE 100, HOUSTON, TX 77042

Texas Petroleum Group LLC

1191 2ND AVENUE, SUITE 1900, SEATTLE, WA 98101

Airbiquity Inc.

150 N. DAIRY ASHFORD, HOUSTON, TX 77079

Gaviota Terminal Company [d]

Ship Shoal Pipeline Company [d]

16285 PARK TEN PLACE, SUIT 300, HOUSTON, TX 77084

Bluware Headwave Ventures Inc.

1740 ED TEMPLE BLVD, NASHVILLE, TN 37208

Tri Star Energy LLC

1900 EAST LINDEN AVENUE, LINDEN, NJ 07036

Infineum USA Inc.

2048 WEEMS ROAD, BLDG C, TUCKER, GA 30084

Sonnen Inc.

2050 PLAINFIELD PIKE, CRANSTON, RI 02921

Colbea Enterprises, LLC

2100 GENG ROAD, SUITE 210, SANTA CLARA, PALO ALTO, CA 94303

D.Light Design Inc.

2237 HATCHER HILL ROAD, BACONTON, GA 31716

Baconton Power LLC [c]

2441 HIGH TIMBERS DRIVE, SUITE 220, THE WOODLANDS, TX 77380

Asset Management and Power Services LLC

Distributed Generation Solutions LLC

3333 HWY 6 SOUTH, HOUSTON, TX 77082

Zeolyst International

3450 E. COMMERCIAL CT., MERIDIAN, ID 83642

Pacwest Energy, LLC.

4080 WEST JONATHAN MOORE PIKE, COLUMBUS, IN 47201

RDK Ventures, LLC

41805 ALBRAE STREET, FREMONT, CA 94538

Au Energy, LLC

BECHTEL ENTERPRISES, 12011 SUNSET HILLS ROAD, RESTON, VA 20190

Maple Power Holdings LLC [b]

100

C T CORPORATION SYSTEM, 1999 BRYAN STREET, SUITE 900, DALLAS, TX 75201

EPP LLC [c]

J & J Lubrication, LLC [c]

Lazlyng Real Estate Company, LLC [c]

MP2 Energy LLC [c]

MP2 Energy NE LLC [c]

MP2 Energy NY LLC [c]

MP2 Energy Retail Holdings LLC [c]

MP2 Energy Texas LLC [c]

MP2 Generation LLC [c]

MP2 Mesquite Creek Wind LLC [c]

Mpower2 LLC [c]

Noble Assurance Company

CORPORATION SERVICE COMPANY, 251 LITTLE FALLS DRIVE, WILMINGTON, DE 19808

Atlantic Shores Offshore Wind, LLC [c]

Bengal Pipeline Company LLC

Colonial Pipeline Company

Cumulus Digital Systems, Inc.

EcoSmart Solution LLC

West Shore Pipe Line Company

CORPORATION SERVICE COMPANY, 2711 CENTERVILLE ROAD, SUITE 400, WILMINGTON,
DE 19808

Infineum USA L.P. [f]

CT CORPORATION SYSTEM, 7700 E ARAPAHOE RD, STE 220, CENTENNIAL, CO
80112-1268

Positive Energies, LLC [c]

RL & F SERVICE CORP, 920 N KING ST FLOOR 2, NEW CASTLE, WILMINGTON, DE 19801

Atlantic 1 Holdings LLC [c]

Atlantic 2/3 Holdings LLC [c]

Atlantic 4 Holdings LLC [c]

THE CORPORATION TRUST COMPANY OF NEVADA, 311 SOUTH DIVISION STREET,
CARSON CITY, NV 89703

Pennzoil-Quaker State Nominee Company

THE CORPORATION TRUST COMPANY, CORPORATION TRUST CENTER, 1209 ORANGE
STREET, WILMINGTON, DE 19801

Amberjack Pipeline Company LLC [c]

Arizona A1 LLC [c]

Arizona B1 LLC [c]

BG Brasilia, LLC [c]

BG Energy Finance, Inc.

BG Energy Merchants, LLC [c]

BG Gulf Coast LNG, LLC [c]

BG LNG Services, LLC [c]

BG LNG Trading, LLC

BG North America, LLC [c]

BG US Services, Inc.

Brazil Crude Services, LLC [c]

Brazos Wind Ventures, LLC [c]

Caesar Oil Pipeline Company, LLC [c]

Concha Chemical Pipeline LLC [c]

Crestwood Permian Basin LLC

CRI Sales and Services Inc.

CRI Zeolites Inc.

Deer Park Refining Limited Partnership [b] [d]

100

321

Shell Annual Report and Accounts 2020Additional InformationAPPENDIX 1 continued

Company by country and address of incorporation

USA continued

Ellwood Land Holdings, LLC [c]

Endymion Oil Pipeline Company, LLC [c]

Enterprise Oil North America Inc.

Equilon Enterprises LLC [c]

Explorer Pipeline Company

GI Energy Storage LLC [c]

Husk Power Systems, Inc.

LOOP LLC

Mars Oil Pipeline Company LLC [c]

Mattox Pipeline Company LLC [c]

Mayflower Wind Energy LLC [c]

Odyssey Pipeline L.L.C. [c]

Oryx Caspian Pipeline, L.L.C. [c]

Pecten Arabian Company

Pecten Brazil Exploration Company

Pecten Midstream LLC [c]

Pecten Orient Company

Pecten Orient Company LLC [c]

Pecten Producing Company

Pecten Trading Company

Pecten Victoria Company

Pecten Yemen Masila Company

Pennzoil-Quaker State Company

Pennzoil-Quaker State International Corporation

Peru LNG Company LLC [c]

Poseidon Oil Pipeline Company, LLC

Power Limited Partnership [d]

PR Microgrids LLC [c]

Premium Velocity Auto LLC [c]

Proteus Oil Pipeline Company, LLC [c]

Quaker State Investment Corporation

RK Caspian Shipping Company, LLC [c]

S T Exchange, Inc.

Salamander Solutions Inc.

Sand Dollar Pipeline LLC [c]

SCOGI GP [d]

Shell (US) Gas & Power M&T Holdings, Inc.

Shell California Pipeline Company LLC [c]

Shell Catalysts & Technologies Americas LP [d]

Shell Catalysts & Technologies Company

Shell Catalysts & Technologies Holdings Inc.

Shell Catalysts & Technologies LP [d]

Shell Catalysts & Technologies US LP [d]

Shell Catalysts Ventures Inc.

Shell Chemical Appalachia LLC [c]

Shell Chemical LP [d]

Shell Chemicals Arabia L.L.C. [c]

Shell Communications, Inc.

Shell Deepwater Royalties Inc.

Shell Downstream Inc.

Shell Energy Company

Shell Energy Holding GP LLC [c]

Shell Energy North America (US), L.P. [d]

Shell Energy Resources Company

322

Shell EP Holdings Inc.

100

Shell Expatriate Employment US Inc.

Shell Exploration & Production Company

100

Shell Exploration Company Inc.

Shell Frontier Oil & Gas Inc.

Shell Gas Gathering Corp. #2

Shell Global Solutions (US) Inc.

Shell GOM Pipeline Company LLC [c]

Shell Gulf of Mexico Inc.

Shell Information Technology International Inc.

Shell International Exploration and Production Inc.

Shell Lake Charles Operations, LLC [c]

Shell Leasing Company

Shell Marine Products (US) Company

Shell Midstream LP Holdings LLC [c]

Shell Midstream Operating LLC [c]

Shell Midstream Partners GP LLC [c]

Shell Midstream Partners, L.P.

Shell NA Gas & Power Holding Company

Shell NA LNG LLC [c]

Shell New Energies US LLC [c]

Shell North America Gas & Power Services Company

Shell Offshore and Chemical Investments Inc.

Shell Offshore Inc.

Shell Offshore Response Company LLC [c]

Shell Oil Company

Shell Oil Company Investments Inc.

Shell Oil Products Company LLC [c]

Shell Onshore Ventures Inc.

Shell Petroleum Inc.

Shell Pipeline Company LP [d]

100

Shell Pipeline GP LLC [c]

Shell Rail Operations Company

Shell Retail and Convenience Operations LLC [c]

Shell RSC Company

Shell Thailand E&P Inc.

Shell Trademark Management Inc.

Shell Trading (US) Company

Shell Trading North America Company

Shell Trading Risk Management, LLC [c]

Shell Trading Services Company

Shell Transportation Holdings LLC [c]

Shell Treasury Center (West) Inc.

Shell US E&P Investments LLC [c]

Shell US Gas & Power LLC [c]

Shell US Hosting Company

Shell Ventures LLC [c]

Shell WindEnergy Inc.

Shell WindEnergy Services Inc.

Silicon Ranch Corporation

SOI Finance Inc.

SOPC Holdings East LLC [c]

SOPC Holdings West LLC [c]

SOPC Southeast Inc.

Studio X LLC [c]

100

Shell Annual Report and Accounts 2020Additional InformationCompany by country and address of incorporation

SWEPI LP [d]

Tejas Coral GP, LLC [c]

Tejas Coral Holding, LLC [c]

Tejas Power Generation, LLC [c]

Texas-New Mexico Pipe Line Company

The Valley Camp Coal Company

Three Wind Holdings, LLC [c]

TMR Company LLC

Triton Diagnostics Inc.

Triton Terminaling LLC [c]

Triton West LLC [c]

URSA Oil Pipeline Company LLC [c]

Zydeco Pipeline Company LLC [c]

VENEZUELA

AVENIDA LEONARDO DA VINCI, EDIFICIO PDV SERVICIOS, CARACAS, DISTRITO CAPITAL

Sucre Gas, S.A.

AVENIDA ORINOCO, EDIFICIO CENTRO EMPRESARIAL PREMIUM, PISO 2, OFICINAS 2-A Y
2-B, URBANIZACIÓN LAS MERCEDES, CARACAS, DISTRITO CAPITAL, 1060

Shell Venezuela Productos, C.A.

Shell Venezuela, S.A.

VIETNAM

GO DAU INDUSTRIAL ZONE, PHUOC THAI COMMUNE, LONG THANH DISTRICT, DONG
NAI PROVINCE

Shell Vietnam Ltd

ZIMBABWE

BLOCK 1, TENDESEKA OFFICE PARK, CNR SAMORA MACHEL AVENUE, RENFREW ROAD,
HARARE

Central African Petroleum Refineries (Private) Limited

100

323

Shell Annual Report and Accounts 2020Additional InformationAPPENDIX 2

FIVE-YEAR FINANCIAL DATA SET

CONSOLIDATED STATEMENT OF INCOME

Revenue

Share of profit of joint ventures and associates

Interest and other income

Total revenue and other income

Purchases

Production and manufacturing expenses

Selling, distribution and administrative expenses

Research and development

Exploration

Depreciation, depletion and amortisation

Interest expense

Total expenditure

(Loss)/income before taxation

Taxation (credit)/charge

(Loss)/income for the period

Income attributable to non-controlling interest

2020

2019

2018

2017

$ million

2016

180,543

344,877

388,379

305,179

233,591

1,783

869

183,195

117,093

24,001

9,881

907

1,747

52,444

4,089

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

3,545

2,897

240,033

162,574

28,434

12,101

1,014

2,108

24,993

3,203

210,162

326,621

360,935

293,740

234,427

(26,967)

(5,433)

(21,534)

146

25,485

9,053

16,432

590

35,621

11,715

23,906

554

18,130

4,695

13,435

458

12,977

1.58

1.56

2017

12,977

458

13,435

5,606

829

4,777

202

4,575

0.58

$ million

2016

4,575

202

4,777

(964)

(1,085)

(1,042)

(43)

3,692

3,533

159

(Loss)/income attributable to Royal Dutch Shell plc shareholders

(21,680)

15,842

23,352

Basic earnings per share ($)

Diluted earnings per share ($)

(2.78)

1.97

1.95

2.82

2.80

RECONCILIATION OF INCOME FOR THE PERIOD TO CCS EARNINGS

Income/(loss) attributable to Royal Dutch Shell plc shareholders

Income/(loss) attributable to non-controlling interest

Income/(loss) for the period

Current cost of supplies adjustment

Of which:

Attributable to Royal Dutch Shell plc shareholders

Attributable to non-controlling interest

CCS earnings

Of which:

2018

23,352

554

23,906

458

2020

(21,680)

146

(21,534)

1,833

1,759

2019

15,842

590

16,432

(605)

(572)

(33)

(19,701)

15,827

24,364

12,471

481

(23)

(896)

(68)

Attributable to Royal Dutch Shell plc shareholders

Attributable to non-controlling interest

(19,921)

220

15,270

557

23,833

531

12,081

390

TAXATION CHARGE/(CREDIT)

Current tax

Deferred tax

Total taxation charge/(credit)

As a % of income before taxation

2020

3,216

(8,649)

(5,433)

2019

7,596

1,457

9,053

2018

10,475

1,240

11,715

$ million unless indicated

2017

6,591

(1,896)

4,695

2016

2,731

(1,902)

829

324

Shell Annual Report and Accounts 2020Additional InformationCONSOLIDATED BALANCE SHEET

Dec 31, 2020

Dec 31, 2019

Dec 31, 2018

Dec 31, 2017

Dec 31, 2016

$ 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

22,822

210,847

22,451

3,222

16,311

2,474

7,641

2,805

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

24,180

226,380

27,927

7,222

13,791

2,799

8,475

919

23,967

236,098

33,255

5,952

14,425

1,456

9,148

405

288,573

311,647

301,712

311,693

324,706

19,457

33,625

5,783

31,830

90,695

24,071

43,414

7,149

18,055

92,689

21,117

42,431

7,193

26,741

97,482

379,268

404,336

399,194

91,115

2,304

420

10,463

15,168

27,310

81,360

2,342

1,209

14,522

13,017

21,799

66,690

2,735

1,399

14,837

11,653

21,533

146,780

134,249

118,847

10,134

48,888

7,184

7,497

451

3,659

77,813

16,899

41,677

5,308

6,006

437

3,624

73,951

220,731

651

(709)

12,752

142,616

155,310

3,227

158,537

379,268

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

190,463

404,336

25,223

44,565

5,304

20,312

95,404

407,097

73,870

3,447

981

13,007

13,247

24,966

129,518

11,795

51,410

5,253

7,250

594

3,465

79,767

21,775

39,707

5,957

19,130

86,569

411,275

82,992

3,610

3,315

15,274

14,130

29,618

148,939

9,484

46,999

6,418

6,685

455

3,784

73,825

196,660

209,285

222,764

685

(1,260)

16,615

182,606

198,646

3,888

202,534

399,194

696

(917)

16,932

177,645

194,356

3,456

197,812

407,097

683

(901)

11,298

175,566

186,646

1,865

188,511

411,275

325

Shell Annual Report and Accounts 2020Additional InformationAPPENDIX 2 continued

CONSOLIDATED STATEMENT OF CASH FLOWS

(Loss)/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

Acquisition of BG Group plc, net of cash and cash equivalents acquired

Investments in joint ventures and associates

Investments 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

2020

(26,967)

3,316

52,444

815

(286)

(1,783)

2,591

4,477

9,625

(9,494)

977

568

1,104

(3,290)

34,105

(16,585)

—

(1,024)

(218)

2,489

1,240

281

532

3,239

(3,232)

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)

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)

53,085

35,650

(23,011)

(20,845)

–

(880)

(187)

4,366

1,594

4,505

823

1,373

–

(595)

(93)

8,808

2,177

2,636

724

2,909

$ million

2016

5,606

2,752

24,993

834

(2,141)

(3,545)

3,820

(5,658)

(4,127)

1,359

1,461

127

(649)

217

(4,434)

20,615

(22,116)

(11,421)

(1,330)

(132)

2,072

1,565

470

1,744

(3,563)

(2,242)

(3,750)

(1,818)

(13,278)

(15,779)

(13,659)

(8,029)

(30,963)

Net decrease in debt with maturity period within three months

(63)

(308)

(396)

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

Increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

23,033

(17,385)

(4,105)

1,157

(42)

11,185

(14,292)

(4,649)

(48)

—

3,977

(11,912)

(3,574)

Check

678

(869)

—

760

(11,720)

(3,550)

—

293

(7,424) [C]

(15,198)

(15,675)

(10,877)

(311)

(1,702)

(382)

(537)

(10,188)

(1,174)

(584)

(3,947)

(1,115)

(406)

–

(717)

(7,224)

(35,209)

(32,548)

(27,086)

172

13,775

18,055

31,830

124

(8,686)

26,741

18,055

(449)

6,429

20,312

26,741

647

1,182

19,130

20,312

(360)

—

18,144

(6,710)

(2,938)

—

1,110

(9,677)

(180)

–

(160)

(771)

(1,503)

(12,622)

31,752

19,130

[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.
[C] Cash dividends paid represents the payment of net dividends (after deduction of withholding taxes where applicable) and payment of withholding taxes on dividends paid in the previous quarter.

326

Shell Annual Report and Accounts 2020Additional Information
FREE CASH FLOW AND ORGANIC FREE CASH FLOW

Cash flow from operating activities

Cash flow from investing activities

Free cash flow

Less: Cash inflows related to divestments [A]

Add: Tax paid on divestments

Add: Cash outflows related to inorganic capital expenditure [B]

Organic free cash flow

2020

34,105

2019

42,178

(13,278)

(15,779)

20,828

4,010

—

817

17,634

26,399

7,871

187

1,400

20,116

2018

53,085

(13,659)

39,426

10,465

482

1,740

31,183

2017

35,650

(8,029)

27,621

13,619

[C]

1,138

15,140

$ million

2016

20,615

(30,963)

(10,348)

3,641

[C]

11,481

(2,507)

[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".

[C] Tax paid on divestments included in Cash flow from operating activities.

RETURN ON AVERAGE CAPITAL EMPLOYED

Income for the period

Interest expense after tax

Income before interest expense

Capital employed – opening

Capital employed – closing

Capital employed – average

ROACE

GEARING

Current debt

Non-current debt

Total debt [A]

Add: Debt-related derivative financial instruments: net liability/(asset)

Add: Collateral on debt-related derivatives: net liability/(asset)

2020

(21,534)

2,822

(18,712)

286,887

266,551

276,719

(6.8)%

2020

16,899

91,115

108,014

(1,979)

1,181

2019

16,432

3,024

19,456

295,398

286,887

291,142

6.7%

2019

15,064

81,360

96,424

701

2018

23,906

2,513

26,419

283,477

279,358

281,417

9.4%

2018

10,134

66,690

76,824

1,273

$ million unless indicated

2017

13,435

2,995

16,430

280,988

283,477

282,233

5.8%

2016

4,777

2,730

7,507

222,500

280,988

251,744

3.0%

$ million unless indicated

2017

11,795

73,870

85,665

591

–

2016

9,484

82,992

92,476

–

Less: Cash and cash equivalents

(31,830)

(18,055)

(26,741)

(20,312)

(19,130)

Net debt [A]

Add: Total equity [A]

Total capital [A]

Gearing [A]

75,386

158,537

233,923

32.2%

79,093

190,463

269,556

29.3%

51,428

202,534

253,962

20.3%

65,944

197,812

263,756

25.0%

73,346

188,511

261,857

29.1%

[A] Shell used the modified retrospective transition method for implementing IFRS 16 Leases. Comparative information was not restated, and continues to be presented as previously reported under

IAS 17 Leases.

327

Shell Annual Report and Accounts 2020Additional InformationNOTES

FINANCIAL CALENDAR IN 2021

The Annual General Meeting will be held on May 18, 2021.

Results announcements

Interim dividend timetable

Announcement date

Ex-dividend date for ADS.A and ADS.B [D]

Ex-dividend date for RDS A and RDS B

Record date

Closing of currency election date [E]

Pounds sterling and euro equivalents announcement date

Payment date

2020 Fourth
quarter [A]

February 4

2021 First
quarter [B]

April 29

2021 Second
quarter [B]

2021 Third
quarter [B]

July 29

October 28

February 4 [C]

February 18

February 19

March 5

March 15

March 29

April 29

May 13

May 14

May 28

July 29

October 28

August 12

November 10

August 12

November 11

August 13

November 12

August 27

November 26

June 7

September 6

December 6

June 21

September 20

December 20

[A] In respect of the financial year ended December 31, 2020.
[B] In respect of the financial year ending December 31, 2021.
[C] The Directors do not propose to recommend any further distribution in respect of 2020.
[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, which 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.

CONTACT US
The best way to get in touch is via the “Contact us” section of the Shell website. From here questions are properly directed to the Shell team
that can assist. In addition, we have introduced an automated question response tool to assist with the most popular questions that we
receive and reviewed and updated the “Frequently asked questions” section of our website to provide the most time efficient information for
our investors.

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informational/contact-us/
www.adr.com/shareholder

vii

Shell Annual Report and Accounts 2020

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