Downstream Open House: Shell gives profitable growth outlook as Downstream business transforms

• $6-7 billion annual organic free cash flow outlook for Downstream by 2020 and $9-12 billion by 2025, at $60 per barrel (real terms 2016) and mid-cycle Downstream market conditions.
• Marketing plans to generate more than $2.5 billion additional earnings a year by 2025.
• Chemicals earnings expected to reach $3.5-4.0 billion a year by 2025.
• Refining and Trading to focus on integration and resilience, with around 25% lower indicative integrated break-even margins expected by 2020 compared to 2011-13.
• Strategy to ensure resilience and capture opportunities through the energy transition.

Royal Dutch Shell plc (Shell) today updated investors on its Downstream growth ambitions, underlining the important role they will play in delivering Shell’s world-class investment case.

“Our unique Downstream business is fundamental to delivering a world-class investment case,” said Chief Executive Officer Ben van Beurden. “Its unparalleled breadth, depth and the strength of our brand make our Downstream business highly competitive, helping to generate strong free cash flows and returns, while making Shell more resilient over the coming decades.”

John Abbott, Downstream Director, explained how the business will help Shell thrive through the energy transition. “We have a customer-centric mindset and the most integrated Downstream business in the world. We have a strong track record of delivery, a diversified portfolio and ambitious growth plans – underpinned by operational excellence – that all ensure our business remains resilient today and for the future,” he said.

“This business will continue to create value for shareholders and customers. We believe our Marketing business is the most profitable in the industry, and Chemicals had a record year in 2017. Meanwhile, our refining and trading teams make the most of our scale, global presence and customer reach. We have a unique strength in our brand and a fully integrated business model that our competitors find difficult to match,” Abbott said.

“Downstream is helping Shell to thrive during the global shift to a lower-carbon energy system. As the energy system evolves, our marketing businesses will provide agile platforms for meeting the changing needs of our customers. We are making products from today’s technologies as good as they can be, with better fuels and lubricants. We are also helping to deliver tomorrow’s products, services and technologies. From battery-electric vehicle charging to next-generation biofuels; LNG for transport to hydrogen; and smartphone apps that enable more efficient driving. We are also working to reduce emissions from our own operations.”

Shell reiterated its expectation of $6-7 billion annual organic free cash flow from Downstream by 2020, at $60 per barrel (real terms 2016) and mid-cycle Downstream conditions, with $9-12 billion expected by 2025. The company plans to invest $7-9 billion a year across Downstream, and to deliver a return on average capital employed (ROACE) above 15%.

A customer-centric mindset and business integration are fundamental to our approach. Shell’s Downstream leadership position is based on the unrivalled strength of customer relationships across Retail, Global Commercial and Chemicals, built over decades. The integrated management of our businesses and the unique reach of our trading operation allows us to capture and maximise value across the value chain as market conditions change, enhancing the resilience of our business.

Across its Marketing businesses, Shell is leveraging its iconic global brand and technically differentiated fuels and lubricants, while growing in new markets and sectors that will be resilient through the energy transition.

Chemicals, a growth priority for Shell, has been through a transformational and profitable journey and proved robust across a range of crude oil and natural gas prices. Meanwhile, the reshaping of how Refining and Trading work, to focus on complex, highly integrated and competitive sites in the three main trading hubs – the US Gulf Coast, Singapore and Rotterdam – is nearing completion. The success of these businesses is enhanced by teams working constantly to capture maximum value in all our markets. We can make, buy or blend products – providing the right product, at the right cost, to the right market.

Marketing: the largest and most profitable marketing business among international oil companies

The Marketing businesses (Retail and Global Commercial) represented around 50% of Downstream’s earnings in the last five years, generating $1.4 billion in additional earnings in 2017, compared with 2013. It is the largest, most profitable marketing business among international oil companies.

The combined growth strategies across Retail and Global Commercial are expected to generate more than $1 billion in additional annual earnings by 2020, and more than $2.5 billion by 2025, an average annual growth rate greater than 7%, while maintaining a ROACE of more than 20%.

• 2025 growth ambition of 40 million daily customers across 55,000 sites, from 30 million across 44,000 sites today.
• Annual earnings expected to grow by more than $1.5 billion by 2025 – from $2.2 billion in 2017 to close to $4.0 billion in 2025.
• Expected ROACE in excess of 20% a year.
• Growth driven by:
  
  1. more than 10,000 new sites, with 5,000 located in the fast-growing markets of China, India, Indonesia, Mexico and Russia;
  2. further penetration of premium fuels and differentiated marketing programmes, including expansion of markets and services for the fleet solutions business (B2Bsegment);
  3. 5,000 new convenience stores and selective upgrades to existing convenience stores worldwide; and
  4. new digital and e-mobility services.
  
  

• Annual earnings expected to grow by more than $1.0 billion by 2025 – from $1.4 billion in 2017 to close to $2.5 billion in 2025, $400 million of which is expected by 2020.
• Expected ROACE of more than 25% a year.
• Growth driven by:
  
  1. growth in the premium lubricants sector, aiming for 70% penetration of the passenger car motor oil segment by 2025 (from around 40% in 2017);
  2. expansion of market share in the priority growth markets of China, India, Indonesia, Mexico and Russia;
  3. growth in resilient sectors, such as bitumen, aviation and industrial lubricants; and
  4. new digital businesses and services.
  
  

• Portfolio management, operational excellence and further integration of the Refining and Trading businesses have allowed us to capture more value and improve our resilience:
  
  1. We have reduced our Refining and Trading indicative integrated break-even margin by more than $1.5/barrel in the 2014-2017 period, compared with 2011-13.
  2. By 2020, we expect to reduce our Refining and Trading indicative integrated break-even margin by another $0.5-0.9/barrel, making us increasingly resilient in times of lower margins.
  
  
• $2-3 billion annual capital investment programme, primarily focused on strengthening further the resilience of our Refining portfolio.
• ROACE between 10% and 15% a year over the cycle.

• Earnings expected to reach $3.5-4.0 billion a year by 2025.
• Growth driven by:
  
  1. Global demand for petrochemicals (expected to be at least 3% per year);
  2. $3-4 billion annual capital investment, primarily focused on growth through uniquely differentiated world-scale projects; and
  3. $0.5 billion improvement in annual earnings (vs. 2015), achieved by increasing the returns of our base business through cost-reduction and margin-improvement interventions. Some of these improvements have already been delivered. By the end of 2018, we expect to have delivered 80% of this;
  
  
• Identified opportunities to continue to grow beyond 2025. Value, competitiveness and strategic fit with the world-class investment case will be key decision criteria.
• ROACE of the base of our Chemicals business around 15% by 2025, with total ROACE dependent on total investment levels in Chemicals in the 2020s.

--------

Cautionary note

The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal entities. In this press release “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 Royal Dutch Shell plc and 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’’, “Shell subsidiaries” and “Shell companies” as used in this press release refer to entities over which Royal Dutch Shell plc either directly or indirectly has control. Entities and unincorporated arrangements over which Shell has joint control are generally referred to as “joint ventures” and “joint operations”, respectively. Entities over which Shell has significant influence but neither control nor joint control are referred to as “associates”. 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.

This press release contains forward-looking statements (within the meaning of the U.S. Private Securities Litigation Reform Act of 1995) 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 “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 Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this press release, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including regulatory measures addressing climate change; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. No assurance is provided that future dividend payments will match or exceed previous dividend payments. All forward-looking statements contained in this press release 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 risk factors that may affect future results are contained in Royal Dutch Shell’s 20-F for the year ended December 31, 2017 (available at www.shell.com/investor and www.sec.gov). These risk factors also expressly qualify all forward looking statements contained in this press release and should be considered by the reader. Each forward-looking statement speaks only as of the date of this press release, 21 March 2018 Neither Royal Dutch Shell plc 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 press release. We may have used certain terms, such as resources, in this press release that United States Securities and Exchange Commission (SEC) strictly prohibits us from including in our 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.