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Russ Ford, EVP Onshore Gas, presented an update to Shareholders at the UBS Global Oil & Gas conference. This included updates on Shell’s tight gas operations in the United States.
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1 Copyright of Royal Dutch Shell plc 24/05/2011
RUSS FORD EVP – ONSHORE GAS UPSTREAM AMERICAS UBS Global Oil & Gas Conference Austin, Texas May 24, 2011
ROYAL DUTCH SHELL PLC
2 Copyright of Royal Dutch Shell plc 24/05/2011
DEFINITIONS AND CAUTIONARY NOTE
Reserves: Our use of the term “reserves” in this presentation means SEC proved oil and gas reserves for all 2009 and 2010 data, and includes both SEC proved oil and gas reserves and SEC proven mining reserves for 2008 data. Resources: Our use of the term “resources” in this presentation includes quantities of oil and gas not yet classified as SEC proved oil and gas reserves or SEC proven mining reserves. Resources are consistent with the Society of Petroleum Engineers 2P and 2C definitions. Organic: Our use of the term Organic includes SEC proved oil and gas reserves and SEC proven mining reserves (for 2008) excluding changes resulting from acquisitions, divestments and year-average pricing impact. To facilitate a better understanding of underlying business performance, the financial results are also presented on an estimated current cost of supplies (CCS) basis as applied for the Oil Products and Chemicals segment earnings. Earnings on an estimated current cost of supplies basis provides useful information concerning the effect of changes in the cost of supplies on Royal Dutch Shell‟s results of operations and is a measure to manage the performance of the Oil Products and Chemicals segments but is not a measure of financial performance under IFRS. The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this presentation “Shell”, “Shell group” and “Royal Dutch Shell” are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. „„Subsidiaries‟‟, “Shell subsidiaries” and “Shell companies” as used in this presentation refer to companies in which Royal Dutch Shell either directly or indirectly has control, by having either a majority of the voting rights or the right to exercise a controlling influence. The companies in which Shell has significant influence but not control are referred to as “associated companies” or “associates” and companies in which Shell has joint control are referred to as “jointly controlled entities”. In this presentation, associates and jointly controlled entities are also referred to as “equity-accounted investments”. The term “Shell interest” is used for convenience to indicate the direct and/or indirect (for example, through our 24% shareholding in Woodside Petroleum Ltd.) ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest. This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch 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 Royal Dutch Shell to market risks and statements expressing management‟s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as „„anticipate‟‟, „„believe‟‟, „„could‟‟, „„estimate‟‟, „„expect‟‟, „„intend‟‟, „„may‟‟, „„plan‟‟, „„objectives‟‟, „„outlook‟‟, „„probably‟‟, „„project‟‟, „„will‟‟, „„seek‟‟, „„target‟‟, „„risks‟‟, „„goals‟‟, „„should‟‟ and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this presentation, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for the Shell‟s products; (c) currency fluctuations; (d) drilling and production results; (e) reserve 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 potential litigation and regulatory measures as a result of climate changes; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward-looking statements contained in this presentation 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. Additional factors that may affect future results are contained in Royal Dutch Shell‟s 20-F for the year ended 31 December, 2010 (available at www.shell.com/investor and www.sec.gov ). These factors also should be considered by the reader. Each forward-looking statement speaks only as of the date of this presentation, 24 May 2011. Neither Royal Dutch Shell 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 presentation. There can be no assurance that dividend payments will match or exceed those set out in this presentation in the future, or that they will be made at all. The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation, such as resources and oil in place, that SEC's guidelines strictly prohibit us from including in filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website www.sec.gov. You can also obtain these forms from the SEC by calling 1-800-SEC-0330.
3 Copyright of Royal Dutch Shell plc 24/05/2011
0
100
200
300
400
1980 1990 2000 2010 2020 2030 2050
Mln Boe/d
GLOBAL ENERGY MIX
SHELL ESTIMATES
ENERGY OUTLOOK
Industry outlook
Hydrocarbons dominate outlook
Growth required in all sectors of energy mix
Energy policy + sustained investment
Shell
Crude oil & oil products
Natural gas & LNG
Biofuels, wind, carbon capture + storage
Petrochemicals
OIL GAS
COAL BIOMASS WIND
SOLAR
OTHER RENEWABLES
NUCLEAR
SHELL ACTIVITIES
4 Copyright of Royal Dutch Shell plc 24/05/2011
2,000
2,500
3,000
1990 2000 2010E
NATURAL GAS DEMAND
NATURAL GAS OUTLOOK
SHELL GAS CAPABILITIES
CCGT: COMBINED CYCLE GAS TURBINE
Abundant, Affordable, Acceptable Global gas resources ~250 years reserves at
current production
CCGT: gas-fired power compared to coal:
• 40% more energy efficient
• 50-70% less CO2 • Better complements with wind power
BCM
SOURCE: IEA
ATTRACTIVE ECONOMICS FOR ELECTRICITY PRODUCERS
SOURCE: SHELL ANALYSIS BASED ON EU DATA
GALLINA LNG SHIP - SINGAPORE
CAPITAL COST
NATURAL GAS ADVANTAGE: EXAMPLE CCGT Inaugural cargo QatarGas 4 arriving at Hazira terminal
$/MW hour
LONG-RUN MARGINAL COST
0 50 100 150 200
CCGT
Coal
Nuclear
Wind
Solar Thermal
5 Copyright of Royal Dutch Shell plc 24/05/2011
Upstream Profitable growth; price upside
>80% of total capital spending
Sustained exploration investment
Downstream Stable capital employed
Fewer refineries; upgrade chemicals assets
More concentrated marketing positions
Financial outlook Generating surplus cashflow through cycle
Investing for growth; competitive payout
Substantial cashflow growth
STRATEGY CAPITAL INVESTMENT
STRATEGY & CAPITAL ALLOCATION
$ Bln
GROWTH INVESTMENT – THROUGH CYCLE RETURNS
0
50
100
150
2007-10 2011-14
UP- STREAM
DOWN- STREAM
0%
50%
100%
2007-10 2011-14
EXPLORATION
HEAVY OIL & EOR
TIGHT GAS
INTEGRATED GAS
DEEPWATER
TRADITIONAL
MARKETING
REFINING
CHEMICALS
SOUR
Down- stream
6 Copyright of Royal Dutch Shell plc 24/05/2011
ROYAL DUTCH SHELL PROJECT UPDATE
7 Copyright of Royal Dutch Shell plc 24/05/2011
Pearl GtL plant under construction
PEARL GTL (QATAR) QATARGAS 4 (QATAR)
GROWTH DELIVERY INTEGRATED GAS
Inaugural Qatargas 4 cargo arriving at Shell Hazira Regasification Terminal
GORGON (AUSTRALIA)
Barrow Island
Part of Shell’s new integrated gas potential of ~500 kboe/d 2015
Commissioning underway; ~12 months start-up
1.6 bcf/d wet gas:
• 120 kboe/d NGL/ethane
• 140 kboe/d GTL
100% Shell in partnership with QP
7.8 mtpa LNG + 70 kboe/d condensates
First gas into plant – Jan 2011
First LNG export – Feb 2011
At capacity – Apr 2011
Shell 30%
3 LNG trains; 15 mtpa
Carbon capture & storage
Exploration upside
Shell 25%
8 Copyright of Royal Dutch Shell plc 24/05/2011
Development concept
MARS-B (GULF OF MEXICO) BC-10 PHASE 2 (CAMPOS, BRAZIL)
GROWTH DELIVERY DEEPWATER
GUMUSUT-KAKAP (MALAYSIA)
TLP capacity ~100 kboe/d
New resources at Mars field
West Boreas + South Deimos
Water depth 950 meters
Shell 72% (operator)
Peak production ~30 kboe/d
Argonauta O-North field
Tie-back to Phase 1 FPSO
Water depth 1,600 meters
Shell 50% (operator)
Peak production ~135 kboe/d
Semi submersible Floating Platform System
Water depth 1,200 meters
Shell 33% (operator)
Phase 1 FPSO
Part of Shell’s new deepwater potential of ~200 kboe/d 2015
Construction yard at Johor Bahru
9 Copyright of Royal Dutch Shell plc 24/05/2011
AOSP-1 (CANADA) SCHOONEBEEK (NETHERLANDS)
GROWTH DELIVERY HEAVY OIL & EOR
PDO (OMAN)
Qarn Alam steam development
New heavy oil potential of ~90 kboe/d 2013-14
AOSP Exp. mine & upgrader onstream ~100 kboe/d
255 kboe/d capacity built in ~10 years
Next focus: optimization + debottlenecking
Shell 60% (operator)
Started up Jan 2011
Steam injection for 20 kboe/d
~120 mln bbls potential over 25 years
Shell 30% (operator)
Qarn Alam steam injection Harweel miscible gas flood Amal Steam Increased recovery factors:
<10% to >30% ~90 kboe/d 100% peak
production potential Shell 34%
Schoonebeek EOR development AOSP Jackpine mine
10 Copyright of Royal Dutch Shell plc 24/05/2011
ROYAL DUTCH SHELL NA ONSHORE GAS FOCUS
11 Copyright of Royal Dutch Shell plc 24/05/2011
Conventional
Tight
Shale
CBM
GLOBAL GAS RESOURCES
~12,000 TCF
GRAND ANIVA SHALE GAS TIGHT GAS
CBM
Key Shell positions
Marcellus
Haynesville Eagle Ford
Foothills Groundbirch
Deep Basin Germany Ukraine
Arrow - CBM
Changbei
Fushun (JAA) study Jinqui
South Africa (JAA) Study
Sao Francisco
North Shilou Pinedale
GROWTH OPPORTUNITY SHELL GLOBAL GAS OPPORTUNITY
12 Copyright of Royal Dutch Shell plc 24/05/2011
2001 - Pinedale
1951 - Foothills Panther Well
2007 – Haynesville 2004 - Deep Basin
2010 – Marcellus/Eagle Ford
~40 tcfe of resource potential Acreage positions in low marginal cost plays
Pinedale Deep Basin Haynesville Groundbirch Marcellus Foothills
2008 - Groundbirch
Eagle Ford 0 1,000 2,000
Acres (thousands)
GROWTH OPPORTUNITY HISTORY OF SHELL IN NORTH AMERICA GAS
Haynesville
Pinedale
Groundbirch
Eagle Ford
Marcellus
Deep Basin Foothills
13 Copyright of Royal Dutch Shell plc 24/05/2011
COMPETITIVE PERFORMANCE COMPETITVE POSITIONING
SOURCE: 2009 PUBLIC REGULATORY PUBLICATIONS
0
1
2
Petrohawk Ultra Shell EnCana EOG XTO Chesapeake Talisman
Other Direct Operating Cost
LEARNING CURVE ACCELERATION
Indexed Well Delivery Time per year since first production
SHELL ASSET BREAK EVEN PRICE
Years
Built significant, contiguous positions in resource plays across North America
Acreage growth (+ 1.3 million net acres in 2010)
Resource growth: East Resources Inc. + Eagle Ford acquisition 2010
High value positions: exploration running room, low break even prices
Lifting costs $/mcfe
COMPETITIVE LIFTING COSTS
0
20
40
60
80
100
120
0 1 2 3 4 5 6 7 8 9
Pinedale - 2002 Early Deep Basin - 2006
Deep Basin - 2008 Haynesville - 2008
Groundbirch - 2008
0
2
4
6
8
Mature plays Emerging plays Total
BREAKEVEN PRICE ENTRY COST
$/mcfe – End 2010
14 Copyright of Royal Dutch Shell plc 24/05/2011
COMPETITIVE DRILLING COSTS
* Shell Share production
MULTIPLE WELLS FROM SINGLE PAD
COMPETITIVE PERFORMANCE HAYNESVILLE
Well Drilling Cost ($millions) Drilling costs lowered by ~50%
Underbalanced and Hard Rock Drilling
Pad drilling (2011)
Drill days reduced from 98 days to 35 days
Completion costs lowered by ~30%:
Consistent HF design yields improved efficiency
Cycle time reduced ~50%
DRILLING COST REDUCTIONS
Production up by 40% since 2010
Q1 2011 production ~300 mmcfe/d*
93% acreage retention by year end
Strong cashflow
Haynesville drilling environment
0
6
12
2008 2009 2010 Q1 2011
Magnolia Drilling Performance Improvement
15 Copyright of Royal Dutch Shell plc 24/05/2011
SHELL APPALACHIA – DRILLING RIG
COMPETITIVE PERFORMANCE MARCELLUS
Advantages
Contiguous acreage
Liquids potential in SW Pennsylvania
Market proximity
Challenges
Regulatory Environment
Gas Infrastructure
Purchased in mid-2010
650,000 contiguous acres
10 Shell rigs
Several wells drilling in <10 days
Q1 2011 production ~50 mmcfe/d
Appalachia drilling environment
TYPICAL WELL SCHEMATIC
16 Copyright of Royal Dutch Shell plc 24/05/2011
~2015 PRODUCTION SCENARIOS INVESTMENT FLEXIBILITY
2011-2015 Investment
0
1
2
3
4
~$15 Bln ~$25 Bln ~$20 Bln
Bcf/d
Flexibility in capital allocation
Gas price, Affordability, Lease expiry
Creates a range of production growth outcomes
Budget for a rolling 6-12 month program
Operational continuity
Performance vs. Plan
GROWTH DELIVERY NORTH AMERICAN GAS GROWTH POTENTIAL
0
500
1,000
1,500
2,000
0
100
200
300
2006 2007 2008 2009 2010 2011 2012
PRODUCTION GROWTH
Mmscf/d Kboe/d
2011 investment: ~$3 billion; >400 wells
Deep Basin
Foothills
Groundbirch
Pinedale
Haynesville
Marcellus
Eagle Ford
Canada
USA
17 Copyright of Royal Dutch Shell plc 24/05/2011
PINEDALE: SHELL OPERATED JONAH: NON-OPERATED
Adjacent gas fields, different development impacts Shell setting new standards for surface footprint reduction
SQUARE MILE OVERVIEW SQUARE MILE OVERVIEW
Up to 4 pads each pad having up to 32 wells Up to 64 pads with each pad having a single well
SUSTAINABLE GROWTH PAD DRILLING: REDUCING SURFACE FOOTPRINT
18 Copyright of Royal Dutch Shell plc 24/05/2011
Robust Portfolio
Competitive Performance
Strong Cash Generation
SUMMARY
19 Copyright of Royal Dutch Shell plc 24/05/2011
ROYAL DUTCH SHELL
Q&A