Royal Dutch Shell plc 2nd Quarter and Half Year 2017 Unaudited Results
THE HAGUE, Netherlands, July 27, 2017 /PRNewswire/ --
SUMMARY OF UNAUDITED RESULTS
----------------------------
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q12017 Q22016 %(1) Definition 2017 2016%
------- ------ ------ --- ---------- ---- ----
1,545 3,538 1,175 +31 Income/(loss) 5,083 1,659 +206
attributable
to shareholders
1,920 3,381 239 +703 CCS earnings A 5,301 1,053 +403
attributable
to shareholders
(1,684) (373) (806) Of which: B (2,057) (1,545)
Identified items
---
3,604 3,754 1,045 +245 CCS earnings 7,358 2,598 +183
attributable to
shareholders
excluding
identified
items
110 109 80 Add: CCS 219 163
earnings
attributable to
non-controlling
interest
---
3,714 3,863 1,125 +230 CCS earnings 7,577 2,761 +174
excluding identified
items
Of which:
1,169 1,181 868 Integrated Gas 2,350 1,862
339 540 (1,325) Upstream 879 (2,762)
2,529 2,489 1,816 Downstream 5,018 3,826
(323) (347) (234) Corporate (670) (165)
---- ---- ---- --------- ---- ----
11,285 9,508 2,292 +392 Cash flow 20,793 2,953 +604
from operating
activities
872 (4,324) (5,450) Cash flow (3,452) (22,366)
from investing
activities
12,157 5,184 (3,158) Free cash flow H 17,341 (19,413)
------ ----- ------ -------------- --- ------ -------
0.19 0.43 0.15 +27 Basic earnings per share ($) 0.62 0.22 +182
0.23 0.41 0.03 +667 Basic CCS earnings per share ($) A 0.65 0.14 +364
0.44 0.46 0.13 +238 Basic CCS earnings per share excl. identified
items ($) 0.90 0.34 +165
---- ---- ---- ---- --------------------------------------------- ---- ---- ----
0.47 0.47 0.47 - Dividend per share ($) 0.94 0.94 -
---- ---- ---- --- --------------------- ---- ---- ---
1. Q2 on Q2 change
Compared with the second quarter 2016, CCS earnings attributable to shareholders excluding identified items of $3.6 billion reflected higher contributions from Downstream, driven by improved operational performance and stronger chemicals and refining industry conditions. Earnings also benefited from higher contributions from Upstream and Integrated Gas which benefited from higher realised prices and increased production from new fields, offsetting the impact of reduced volumes from Pearl GTL in Qatar.
Cash flow from operating activities for the second quarter 2017 of $11.3 billion included favourable working capital movements of $2.3 billion, compared with $2.3 billion in the second quarter 2016, which included negative working capital movements of $2.5 billion.
Total dividends distributed to shareholders in the quarter were $3.9 billion, of which $0.9 billion were settled by issuing 33.9 million A shares under the Scrip Dividend Programme.
Royal Dutch Shell Chief Executive Officer Ben van Beurden commented:
"Shell's strong results this quarter show that we are reshaping the company following the integration of BG.
Cash generation has been resilient over four consecutive quarters, at an average oil price of just under $50 per barrel. This quarter, we generated robust earnings excluding identified items of $3.6 billion, while over the past 12 months cash flow from operations of $38 billion has covered our cash dividend and reduced gearing to 25%.
The external price environment and energy sector developments mean we will remain very disciplined, with an absolute focus on the four levers within our control, namely capital efficiency, costs, new project delivery, and divestments.
I am confident that we are on track to deliver a world-class investment to our shareholders."
ADDITIONAL PERFORMANCE MEASURES
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 %(1) Definition 2017 2016%
------- ------- ------- --- ---------- ---- ----
6,766 4,720 6,284 Capital investment(2) C 11,486 65,259
9,472 29 1,002 Divestments D 9,501 1,487
----- --- ----- ----------- --- ----- -----
3,495 3,752 3,508 - Total production available for 3,622 3,584 +1
sale (thousand boe/d)
--- --------
45.62 48.36 39.31 +16 Global liquids realised price
($) 47.02 34.20 +37
4.22 4.29 3.21 +31 Global natural gas realised
price ($) 4.26 3.56 +20
---- ---- ---- --- ---------------------------- ---- ---- ---
9,548 9,282 11,546 -17 Operating expenses G 18,830 21,660 -13
9,339 9,181 9,790 -5 Underlying operating expenses G 18,520 19,253 -4
----- ----- ----- --- ----------------------------- --- ------ ------ ---
4.0% 4.0% -1.4% ROACE (reported income basis) E 4.0% -1.4%
4.2% 3.3% 2.5% ROACE (CCS basis excluding
identified items) E 4.2% 2.5%
--- --- --- --------------------------- --- --- ---
25.3% 27.2% 28.1% Gearing F 25.3% 28.1%
1. Q2 on Q2 change
2. Half year 2016 included $52,904 million related to the acquisition of BG Group plc.
Supplementary financial and operational disclosure for this quarter is available at www.shell.com/investor.
SECOND QUARTER 2017 PORTFOLIO DEVELOPMENTS
Integrated Gas
During the quarter, Shell (NYSE: RDS.A) (NYSE: RDS.B) announced the sale of its interest in the Kapuni assets in New Zealand.
Shell announced an agreement to acquire Chevron's interests in Trinidad and Tobago, including its interests in the East Coast Marine Area Blocks 6b, 5a and E.
Upstream
During the quarter, Shell announced first production at the Lula South deep-water development with floating production, storage and offloading ("FPSO") P66 in the Brazilian pre-salt of the Santos Basin.
The non-operated Schiehallion Redevelopment (Shell interest 55%) in the United Kingdom reached first production.
Upstream divestments completed during the quarter totalled $8,084 million and included the sale of Shell's oil sands and in-situ interests in Canada.
In July, Shell announced that it will purchase the Turritella FPSO currently contracted for the Stones deep-water development in the Gulf of Mexico from SBM Offshore.
Also in July, Shell announced the sale of its interests in the Corrib gas venture in Ireland.
Downstream
During the quarter, Shell announced the sale of its LPG business in Hong Kong and Macau.
Downstream divestments completed during the quarter totalled $1,348 million and included the Motiva transaction in the United States (See Note 7), the sale of Shell's interests in Vivo Energy in Africa, and of the aviation business in Australia.
The information in this Report also represents Royal Dutch Shell plc's half-yearly financial report for the purposes of the Disclosure Guidance and Transparency Rules of the UK Financial Conduct Authority. As such: (1) the interim management report can be found on pages 1 to 7 and 16 to 20; (2) the condensed set of financial statements on pages 8 to 15; and (3) the directors' responsibility statement on page 21 and the auditors' independent review on page 22.
PERFORMANCE BY SEGMENT
INTEGRATED GAS
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 %(1) 2017 2016%
------- ------- ------- --- ---- ----
1,191 1,822 982 +21 Segment earnings 3,013 1,887 +60
22 641 114 Of which: Identified items (Definition B) 663 25
1,169 1,181 868 +35 Earnings excluding identified items 2,350 1,862 +26
----- ----- --- --- ----------------------------------- ----- ----- ---
1,951 1,951 2,730 -29 Cash flow from operating activities 3,902 5,387 -28
----- ----- ----- --- ----------------------------------- ----- ----- ---
831 805 1,153 -28 Capital investment (Definition C)(2) 1,636 23,977 -93
--- --- ----- --- ----------------------------------- ----- ------ ---
188 169 219 -14 Liquids production available for sale (thousand b/d) 178 222 -20
3,683 3,317 3,831 -4 Natural gas production available for sale 3,501 3,682 -5
(million scf/d)
--- -------
823 741 880 -6 Total production available for sale 782 856 -9
(thousand boe/d)
8.09 8.18 7.57 +7 LNG liquefaction volumes (million tonnes) 16.27 14.61 +11
---- ---- ---- --- ---------------------------------------- ----- ----- ---
16.08 15.84 14.25 +13 LNG sales volumes (million tonnes) 31.92 26.54 +20
----- ----- ----- --- --------------------------------- ----- ----- ---
1. Q2 on Q2 change
2. Half year 2016 included $21,773 million related to the acquisition of BG Group plc.
Second quarter identified items mainly reflected a gain on fair value accounting of certain commodity derivatives of $48 million, partly offset by an impairment of $34 million.
Compared with the second quarter 2016, Integrated Gas earnings excluding identified items benefited from higher realised oil, gas, and LNG prices, higher LNG volumes, and lower operating expenses. This more than offset the impact of lower liquids production volumes and lower contributions from trading.
Despite higher earnings, cash flow from operating activities decreased compared with the same quarter a year ago which benefited from favourable working capital movements of $2,043 million.
Compared with the second quarter 2016, production volumes decreased mainly as a result of the Pearl GTL shutdown in the first quarter, which was ramping up again in the second quarter. Pearl GTL is now operating at full planned production. New field start-ups and the continuing ramp-up of existing fields, in particular Gorgon in Australia, contributed some 79 thousand boe/d to production compared with the second quarter 2016.
Compared with the second quarter 2016, LNG liquefaction volumes mainly reflected the start-up of Gorgon in Australia and lower maintenance, partly offset by lower feedgas availability mainly at QGC in Australia.
LNG sales volumes mainly reflected increased trading of third-party volumes and higher liquefaction volumes compared with the same quarter a year ago.
Half year identified items primarily reflected a gain of $492 million related to the impact of the strengthening Australian dollar on a deferred tax position and a gain on fair value accounting of certain commodity derivatives of $216 million.
Compared with the first half 2016, Integrated Gas earnings excluding identified items benefited from higher realised oil, gas, and LNG prices, higher LNG volumes, and lower exploration expense. This more than offset the impact of lower liquids production volumes, the accounting reclassification of Shell's investment in Woodside in the second quarter 2016, and increased depreciation.
Despite higher earnings, cash flow from operating activities decreased compared with the first half 2016 which benefited from favourable working capital movements of $3,671 million.
Compared with the first half 2016, production volumes decreased mainly as a result of the shutdown of Pearl GTL in the first quarter, which was ramping up again in the second quarter. New field start-ups and the continuing ramp-up of existing fields, in particular Gorgon in Australia, contributed some 76 thousand boe/d to production compared with the first half 2016.
Compared with the first half 2016, LNG liquefaction volumes mainly reflected the start-up of Gorgon in Australia.
LNG sales volumes mainly reflected increased trading of third-party volumes and higher liquefaction volumes compared with the same period a year ago.
UPSTREAM
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 %(1) 2017 2016%
------- ------- ------- --- ---- ----
(544) (530) (1,974) +72 Segment earnings (1,074) (3,324) +68
(883) (1,070) (649) Of which: Identified items (Definition B) (1,953) (562)
339 540 (1,325) +126 Earnings excluding identified items 879 (2,762) +132
--- --- ------ ---- ----------------------------------- --- ------ ----
4,501 3,849 (297) +1,615 Cash flow from operating activities 8,350 151 +5,430
----- ----- ---- ------ ----------------------------------- ----- --- ------
4,504 2,854 3,700 +22 Capital investment (Definition C)(2) 7,358 38,738 -81
----- ----- ----- --- ----------------------------------- ----- ------ ---
1,626 1,697 1,526 +7 Liquids production available for sale (thousand b/d) 1,662 1,541 +8
6,064 7,618 6,395 -5 Natural gas production available for sale (million scf/d) 6,837 6,884 -1
----- ----- ----- --- --------------------------------------------------------- ----- ----- ---
2,672 3,011 2,628 +2 Total production available for sale (thousand boe/d) 2,840 2,728 +4
1. Q2 on Q2 change
2. Second quarter 2017 includes $1,465 million related to the acquisition of Marathon Oil Canada Corporation in Canada. Half year 2016
included $31,131 million related to the acquisition of BG Group plc.
Second quarter identified items comprised impairments of $695 million, mainly related to the divestments of Shell's oil sands interests in Canada and Shell E&P Ireland Limited, and a charge of $183 million related to the impact of the weakening Brazilian real on a deferred tax position.
Compared with the second quarter 2016, Upstream earnings excluding identified items benefited from higher realised oil and gas prices, lower depreciation including the impact of assets held for sale and divestments, and increased production volumes mainly from assets ramping up.
Cash flow from operating activities increased driven by higher earnings and favourable working capital movements of $673 million, compared with negative working capital movements of $455 million in the same quarter a year ago.
New field start-ups and the continuing ramp-up of existing fields, in particular Lula Alto, Lula Central, Lula South and Iracema North in Brazil, Kashagan in Kazakhstan, and Stones in the Gulf of Mexico, contributed some 184 thousand boe/d to production compared with the second quarter 2016, which more than offset the impact of field declines.
Half year identified items primarily reflected the impact of a $1,453 million net charge on the divestment of Shell's oil sands interests in Canada representing an impairment partly offset by the recognition of a deferred tax asset. Identified items also included an impairment charge of $348 million related to the divestment of Shell E&P Ireland Limited.
Compared with the first half 2016, Upstream earnings excluding identified items benefited from higher realised oil and gas prices, increased production volumes mainly from assets ramping up, and lower depreciation including the impact of assets held for sale.
Cash flow from operating activities increased driven by higher earnings, compared with the same period a year ago, which also included negative working capital movements of $1,989 million.
New field start-ups and the continuing ramp-up of existing fields, in particular Lula Central, Lula Alto and Lapa in Brazil, Kashagan in Kazakhstan, Sabah Gas Kebabangan in Malaysia, and Stones in the Gulf of Mexico, contributed some 162 thousand boe/d to production compared with the same period a year ago, which more than offset the impact of field declines.
DOWNSTREAM
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 %(1) 2017 2016%
------- ------- ------- --- ---- ----
2,157 2,580 1,717 +26 Segment earnings(2) 4,737 3,417 +39
(372) 91 (99) Of which: Identified items (Definition B) (281) (409)
2,529 2,489 1,816 +39 Earnings excluding identified items(2) 5,018 3,826 +31
Of which:
1,905 1,653 1,568 +21 Oil Products 3,558 3,201 +11
760 715 459 +66 Refining & Trading 1,475 1,121 +32
1,145 938 1,109 +3 Marketing 2,083 2,080 -
624 836 248 +152 Chemicals 1,460 625 +134
--- --- --- ---- --------- ----- --- ----
5,126 3,705 571 +798 Cash flow from operating activities 8,831 (863) +1,123
1,419 1,046 1,389 +2 Capital investment (Definition C) 2,465 2,481 -1
2,476 2,630 2,648 -6 Refinery processing intake (thousand b/d) 2,553 2,646 -4
6,467 6,508 6,595 -2 Oil products sales volumes (thousand b/d) 6,487 6,410 +1
4,465 4,546 4,248 +5 Chemicals sales volumes (thousand tonnes) 9,011 8,298 +9
1. Q2 on Q2 change
2. Earnings are presented on a CCS basis (See Note 2).
Second quarter identified items primarily reflected the impact of the Motiva transaction resulting in a net charge of $546 million which included a non-cash charge on a taxable gain (see Note 7). This was partly offset by a gain of $339 million, mainly related to the divestment of assets in Africa and Australia. Other identified items included an onerous contract provision of $71 million and impairments of $62 million.
Compared with the second quarter 2016, Downstream earnings excluding identified items benefited from stronger chemicals and refining industry conditions, improved operational performance, and lower operating expenses.
Cash flow from operating activities included favourable working capital movements of $1,744 million compared with negative working capital movements of $3,415 million in the same quarter a year ago.
Oil Products
-- Refining & Trading earnings excluding identified items benefited from
stronger refining industry conditions, improved operational performance
and lower operating expenses. Refinery processing intake volumes
decreased mainly as a result of the Motiva transaction and the
divestment of the Port Dickson refinery in Malaysia. Excluding these
portfolio impacts, intake volumes were 7% higher compared with the same
period a year ago. Refinery availability increased to 91% compared with
89% in the second quarter 2016, mainly as a result of lower unplanned
maintenance.
-- Marketing earnings excluding identified items benefited from lower
taxation, stronger underlying margins and lower operating expenses, more
than offsetting the impact of adverse exchange rate effects and
divestments. Oil products sales volumes reflected lower marketing
volumes mainly as a result of portfolio impacts, partly offset by higher
trading volumes.
Chemicals
-- Chemicals earnings excluding identified items benefited from improved
operational performance and stronger industry conditions and lower
operating expenses.Chemicals sales volumes benefited from improved
operational performance. Chemicals manufacturing plant availability
increased to 92% from 85% in the second quarter 2016, mainly reflecting
lower downtime.
Half year identified items primarily reflected the impact of the Motiva transaction resulting in a net charge of $546 million which included a non-cash charge on a taxable gain (see Note 7). This was partly offset by a gain of $315 million, mainly related to the divestment of assets in Africa and Australia. Identified items also included impairments of $162 million, and an onerous contract provision of $110 million. These charges were partly offset by a net gain on fair value accounting of commodity derivatives of $301 million.
Compared with the first half 2016, Downstream earnings excluding identified items benefited from stronger chemicals and refining industry conditions and improved operational performance.
Cash flow from operating activities included favourable working capital movements of $1,523 million compared with negative working capital movements of $6,997 million in the same period a year ago.
Oil Products
-- Refining & Trading earnings excluding identified items benefited from
improved refining industry conditions and operational performance,
partly offset by lower contributions from trading. Refinery processing
intake volumes decreased mainly as a result of the Motiva transaction
and the divestment of the Port Dickson refinery in Malaysia. Excluding
these portfolio impacts intake volumes were 7% higher compared with the
same period a year ago. Refinery availability increased to 92% compared
with 89% in the first half 2016, mainly as a result of lower unplanned
maintenance.
-- Marketing earnings excluding identified items benefited from lower
taxation, stronger underlying margins and lower operating expenses, more
than offsetting the impact of adverse exchange rate effects and
divestments.Oil products sales volumes reflected higher trading volumes
partly offset by lower marketing volumes, mainly as a result of
portfolio impacts.
Chemicals
-- Chemicals earnings excluding identified items benefited from stronger
industry conditions and improved operational performance.Chemicals sales
volumes benefited from improved operational performance. Chemicals
manufacturing plant availability increased to 93% from 86% in the first
half 2016, mainly reflecting lower downtime.
CORPORATE
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 2017 2016
------- ------- ------- ---- ----
(774) (410) (423) Segment earnings (1,184) (879)
(451) (63) (189) Of which: Identified items (Definition B) (514) (714)
(323) (347) (234) Earnings excluding identified items (670) (165)
---- ---- ---- ----------------------------------- ---- ----
(293) 3 (712) Cash flow from operating activities (290) (1,722)
---- --- ---- ----------------------------------- ---- ------
Second quarter identified items mainly reflected a non-cash charge of $550 million related to the restructuring of the funding of our businesses in North America, partly offset by a tax credit of $87 million related to an exchange rate loss on financing of the Upstream business.
Compared with the second quarter 2016, Corporate earnings excluding identified items were impacted by higher net interest expense, lower tax credits, and adverse currency exchange rate effects, partly offset by lower costs.
Half year identified items mainly reflected a non-cash charge of $550 million related to the restructuring of the funding of our businesses in North America.
Compared with the first half 2016, Corporate earnings excluding identified items were impacted by higher net interest expense, partly offset by lower costs.
OUTLOOK FOR THE THIRD QUARTER 2017
Compared with the third quarter 2016, Integrated Gas production volumes are expected to be positively impacted by some 60 thousand boe/d mainly associated with the start-up of Gorgon, partly offset by higher expected maintenance in the LNG plants.
Compared with the third quarter 2016, Upstream earnings are expected to be negatively impacted by a reduction of some 190 thousand boe/d associated with completed divestments, by some 40 thousand boe/d associated with the impact of lower production at NAM in the Netherlands, and by some 30 thousand boe/d associated with higher maintenance. Earnings are expected to be positively impacted by some 90 thousand boe/d associated with restored production in Nigeria; however, security conditions remain sensitive.
Refinery availability is expected to increase in the third quarter 2017 as a result of lower levels of maintenance compared with the same period a year ago.
Chemicals manufacturing plant availability is expected to increase in the third quarter 2017 reflecting improved operational performance at Bukom and lower maintenance compared with the third quarter 2016.
As a result of completed divestments in Malaysia, Australia, and the separation of Motiva assets, oil products sales volumes are expected to decrease by some 240 thousand barrels per day compared with the same period a year ago.
Corporate earnings excluding identified items, excluding the impact of currency exchange rate effects and interest rate movements, are expected to be a net charge of $350 - 450 million in the third quarter and a net charge of around $1.4 - 1.6 billion for the full year.
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016(1) 2017 2016(1)
------- ------- --------- ---- ------
72,131 71,796 58,415 Revenue(2) 143,927 106,969
931 1,198 946 Share of profit of joint ventures and associates 2,129 1,735
(360) 317 910 Interest and other income(3) (43) 1,299
---- --- --- --------------------------- --- -----
72,702 73,311 60,271 Total revenue and other income 146,013 110,003
------ ------ ------ ------------------------------ ------- -------
53,237 51,266 40,362 Purchases 104,503 73,648
6,934 6,658 8,076 Production and manufacturing expenses 13,592 14,841
2,394 2,412 3,227 Selling, distribution and administrative expenses 4,806 6,333
220 212 243 Research and development 432 486
255 443 535 Exploration 698 992
6,181 7,838 6,097 Depreciation, depletion and amortisation4 14,019 12,244
935 1,112 770 Interest expense 2,047 1,140
--- ----- --- ---------------- ----- -----
70,156 69,941 59,310 Total expenditure 140,097 109,684
------ ------ ------ ----------------- ------- -------
2,546 3,370 961 Income/(loss) before taxation 5,916 319
904 (274) (319) Taxation charge/(credit)5 630 (1,416)
--- ---- ---- ------------------------- --- ------
1,642 3,644 1,280 Income/(loss) for the period(2) 5,286 1,735
97 106 105 Income/(loss) attributable to non-controlling interest 203 76
--- --- --- ------------------------------------------------------ --- ---
1,545 3,538 1,175 Income/(loss) attributable to Royal Dutch Shell plc shareholders 5,083 1,659
----- ----- ----- ---------------------------------------------------------------- ----- -----
0.19 0.43 0.15 Basic earnings per share ($)6 0.62 0.22
0.19 0.43 0.15 Diluted earnings per share ($)6 0.62 0.22
---- ---- ---- ------------------------------- ---- ----
1. Second quarter 2016 and Half year 2016 have not been revised to include credits, of $167 million and $254 million after taxation respectively, that resulted from adjustments made in the third quarter 2016 to
the fair value of net assets acquired from BG Group plc.
2. See Note 2 "Segment information"
3. Second quarter 2017 includes a net charge of $546 million related to the Motiva transaction (See Note 7) and a pre-tax foreign exchange loss of $545 million related to the restructuring of the funding of our
businesses in North America.
4. Second quarter 2017 includes a pre-tax impairment charge of $836 million (Q1 2017: $2,442 million; Q2 2016: $218 million). Half year 2017 includes a pre-tax impairment charge of $3,278 million (Half year
2016: $859 million).
5. Second quarter 2017 includes a loss of $77 million driven by exchange rate movements on tax balances (Q1 2017: $535 million gain; Q2 2016: $53 million loss). Half year 2017 includes a $458 million gain driven
by exchange rate movements on tax balances (Half year 2016: $521 million gain) and a $329 million gain from a deferred tax asset recognition following the oil sands divestment.
6. See Note 3 "Earnings per share"
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 2017 2016
------- ------- ------- ---- ----
1,642 3,644 1,280 Income/(loss) for the period 5,286 1,735
Other comprehensive income net of tax:
Items that may be reclassified to income in later periods:
2,027 1,222 (434) - Currency translation differences 3,249 1,885
(122) 129 (128) - Unrealised gains/(losses) on securities 7 (140)
171 88 (538) - Cash flow hedging gains/(losses) 259 (214)
- - (863) - Net investment hedging gains/(losses) - (727)
72 60 (77) - Share of other comprehensive income/(loss) 132 (69)
of joint ventures and associates
--- ----------
2,148 1,499 (2,040) Total 3,647 735
Items that are not reclassified to income in later periods:
1,419 1,753 (2,795) - Retirement benefits remeasurements 3,172 (4,429)
----- ----- ------ ------------------------------------- ----- ------
3,567 3,252 (4,835) Other comprehensive income/(loss) for the period 6,819 (3,694)
----- ----- ------ ------------------------------------------------ ----- ------
5,209 6,896 (3,555) Comprehensive income/(loss) for the period 12,105 (1,959)
152 116 96 Comprehensive income/(loss) attributable to non-controlling interest 268 100
--- --- --- -------------------------------------------------------------------- --- ---
5,057 6,780 (3,651) Comprehensive income/(loss) attributable to Royal Dutch Shell plc shareholders 11,837 (2,059)
----- ----- ------ ------------------------------------------------------------------------------ ------ ------
CONDENSED CONSOLIDATED BALANCE SHEET
$ million Jun 30, 2017(1) Dec 31, 2016
--------- -------------- ------------
Assets
Non-current assets
Intangible
assets 24,507 23,967
Property,
plant and
equipment2,3 231,544 236,098
Joint ventures
and
associates 28,785 33,255
Investments in
securities4 8,829 5,952
Deferred tax 16,045 14,425
Retirement
benefits 4,403 1,456
Trade and
other
receivables5 8,620 9,553
------------- ----- -----
322,733 324,706
------- -------
Current assets
Inventories 22,318 21,775
Trade and
other
receivables5 41,742 45,664
Cash and cash
equivalents 23,992 19,130
------------- ------ ------
88,052 86,569
------ ------
Total assets 410,785 411,275
------------ ------- -------
Liabilities
Non-current liabilities
Debt 80,731 82,992
Trade and
other
payables5 5,471 6,925
Deferred tax 14,570 15,274
Retirement
benefits 13,031 14,130
Decommissioning
and other
provisions6 29,480 29,618
--------------- ------ ------
143,283 148,939
------- -------
Current liabilities
Debt 9,616 9,484
Trade and
other
payables5 48,518 53,417
Taxes payable 9,043 6,685
Retirement
benefits 446 455
Decommissioning
and other
provisions 3,622 3,784
--------------- ----- -----
71,245 73,825
------ ------
Total
liabilities 214,528 222,764
------------ ------- -------
Equity
attributable
to Royal
Dutch Shell
plc
shareholders 193,042 186,646
Non-
controlling
interest 3,215 1,865
------------ ----- -----
Total equity 196,257 188,511
------------ ------- -------
Total
liabilities
and equity 410,785 411,275
------------ ------- -------
1. See Note 7 "Motiva joint venture"
2. Divestments in the second quarter 2017 resulted in a
decrease of $8,642 million in the carrying amount of
property, plant and equipment, principally related to the
divestment of Shell's oil sands interests in Canada.
3. At June 30, 2017, the carrying amount includes $5,336
million of assets held for sale (December 31, 2016: $282
million).
4. At June 30, 2017, investments include $2,829 million for
shares in Canadian Natural Resources Limited received in the
second quarter 2017 as partial consideration for the oil
sands divestment.
5. See Note 6 "Derivative contracts and debt excluding
finance lease liabilities"
6. At June 30, 2017, provisions of $2,534 million relate to
assets held for sale (December 31, 2016: $482 million).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity attributable to Royal Dutch Shell plc
shareholders
---------------------------------------------
$ million Share Shares Other Retained Total Non- Total
capital(1) held in reserves(2) earnings controlling equity
trust interest
--- --- --- ---
At January 1, 2017 683 (901) 11,298 175,566 186,646 1,865 188,511
Comprehensive income/(loss) - - 6,754 5,083 11,837 268 12,105
for the period
Dividends paid - - - (7,778) (7,778) (196) (7,974)
Scrip dividends 6 - (6) 2,183 2,183 - 2,183
Share-based compensation - 561 (410) 2 153 - 153
Other changes in non-
controlling interest(3) - - - 1 1 1,278 1,279
------------------------ --- --- --- --- --- ----- -----
At June 30, 2017 689 (340) 17,636 175,057 193,042 3,215 196,257
---------------- --- ---- ------ ------- ------- ----- -------
At January 1, 2016 546 (584) (17,186) 180,100 162,876 1,245 164,121
Comprehensive income/(loss) - - (3,718) 1,659 (2,059) 100 (1,959)
for the period
Dividends paid - - - (7,411) (7,411) (69) (7,480)
Scrip dividends 9 - (9) 2,717 2,717 - 2,717
Shares issued 120 - 33,930 - 34,050 - 34,050
Share-based compensation - (168) 266 133 231 - 231
Other changes in non-
controlling interest - - - 266 266 560 826
--------------------- --- --- --- --- --- --- ---
At June 30, 2016 675 (752) 13,283 177,464 190,670 1,836 192,506
---------------- --- ---- ------ ------- ------- ----- -------
1. See Note 4 "Share capital"
2. See Note 5 "Other reserves"
3. Primarily reflects the 50% non-controlling interest share in the acquisition of Marathon Oil Canada Corporation in Canada in the second quarter 2017.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 2017 2016
------- ------- ------- ---- ----
1,642 3,644 1,280 Income/(loss) for the period 5,286 1,735
Adjustment for:
1,508 1,882 119 - Current tax 3,390 872
757 952 671 - Interest expense (net) 1,709 943
6,181 7,838 6,097 - Depreciation, depletion and amortisation 14,019 12,244
68 70 (535) - Net (gains)/losses on sale and revaluation of 138 (710)
non-current assets and businesses(1)
2,258 (1,828) (2,474) - Decrease/(increase) in working capital 430 (6,383)
(931) (1,198) (946) - Share of (profit)/loss of joint ventures and associates (2,129) (1,735)
1,493 776 964 - Dividends received from joint ventures and associates 2,269 1,652
(876) (2,039) (533) - Deferred tax, retirement benefits, decommissioning and other provisions (2,915) (2,288)
521 501 (346) - Other(2) 1,022 (638)
(1,336) (1,090) (2,005) Tax paid (2,426) (2,739)
------ ------ ------ -------- ------ ------
11,285 9,508 2,292 Cash flow from operating activities 20,793 2,953
------ ----- ----- ----------------------------------- ------ -----
(5,660) (4,306) (5,796) Capital expenditure (9,966) (11,120)
- - - Acquisition of BG Group plc, net of cash and cash equivalents acquired - (11,421)
(157) (194) (216) Investments in joint ventures and associates (351) (548)
5,584 122 516 Proceeds from sale of property, plant and equipment and businesses(3) 5,706 562
1,081 1 23 Proceeds from sale of joint ventures and associates4 1,082 39
207 123 93 Interest received 330 229
(183) (70) (70) Other (253) (107)
---- --- --- ----- ---- ----
872 (4,324) (5,450) Cash flow from investing activities (3,452) (22,366)
--- ------ ------ ----------------------------------- ------ -------
(578) (290) 1,870 Net increase/(decrease) in debt with maturity period (868) 2,743
within three months
Other debt:
247 364 9,472 - New borrowings 611 9,736
(3,593) (1,322) (972) - Repayments (4,915) (2,941)
(1,002) (850) (725) Interest paid (1,852) (1,259)
6 2 397 Change in non-controlling interest 8 819
Cash dividends paid to:
(2,941) (2,654) (2,436) - Royal Dutch Shell plc shareholders (5,595) (4,694)
(165) (31) (34) - Non-controlling interest (196) (69)
- - - Repurchases of shares - -
7 (60) 6 Shares held in trust: net sales/(purchases) and dividends received (53) 2
--- --- --- ------------------------------------------------------------------ --- ---
(8,019) (4,841) 7,578 Cash flow from financing activities (12,860) 4,337
------ ------ ----- ----------------------------------- ------- -----
259 122 (217) Currency translation differences relating to cash and 381 (1,454)
cash equivalents
--- ----------
4,397 465 4,203 Increase/(decrease) in cash and cash equivalents 4,862 (16,530)
----- --- ----- ------------------------------------------------ ----- -------
19,595 19,130 11,019 Cash and cash equivalents at beginning of period 19,130 31,752
------ ------ ------ ------------------------------------------------ ------ ------
23,992 19,595 15,222 Cash and cash equivalents at end of period 23,992 15,222
------ ------ ------ ------------------------------------------ ------ ------
1. Second quarter 2017 includes $546 million related to the Motiva transaction (See Note 7).
2. Second quarter 2017 includes a $545 million foreign exchange loss related to the restructuring of the funding of our businesses in North America.
3. Second quarter 2017 includes $5,188 million related to the oil sands divestment.
4. See Note 7 "Motiva joint venture"
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
These unaudited Condensed Consolidated Interim Financial Statements ("Interim Statements") of Royal Dutch Shell plc ("the Company") and its subsidiaries (collectively referred to as "Shell") have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board and as adopted by the European Union, and on the basis of the same accounting principles as, and should be read in conjunction with, the Annual Report and Form 20-F for the year ended December 31, 2016 (pages 122 to 127) as filed with the U.S. Securities and Exchange Commission.
The Directors consider it appropriate to continue to adopt the going concern basis of accounting in preparing these Interim Statements.
The financial information presented in the Interim Statements does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006 ("the Act"). Statutory accounts for the year ended December 31, 2016 were published in Shell's Annual Report and a copy was delivered to the Registrar of Companies in England and Wales. The auditors' report on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under sections 498(2) or 498(3) of the Act.
2. Segment information
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. Sales between segments are based on prices generally equivalent to commercially available prices.
INFORMATION BY SEGMENT
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 2017 2016
------- ------- ------- ---- ----
Third-party revenue
7,734 8,419 5,373 Integrated Gas 16,153 11,052
1,816 1,609 1,711 Upstream 3,425 3,633
62,575 61,752 51,315 Downstream 124,327 92,244
6 16 16 Corporate 22 40
72,131 71,796 58,415 Total third-party revenue 143,927 106,969
------ ------ ------ ------------------------- ------- -------
Inter-segment revenue
873 805 896 Integrated Gas 1,678 1,639
7,558 8,661 6,049 Upstream 16,220 11,086
1,099 726 341 Downstream 1,825 672
- - - Corporate - -
--- --- --- --------- --- ---
CCS earnings
1,191 1,822 982 Integrated Gas 3,013 1,887
(544) (530) (1,974) Upstream (1,074) (3,324)
2,157 2,580 1,717 Downstream 4,737 3,417
(774) (410) (423) Corporate (1,184) (879)
2,030 3,462 302 Total 5,492 1,101
----- ----- --- ----- ----- -----
RECONCILIATION OF INCOME FOR THE PERIOD TO CCS EARNINGS
Quarters Half year
-------- ---------
Q2 2017 Q1 2017 Q2 2016 2017 2016
------- ------- ------- ---- ----
1,642 3,644 1,280 Income/(loss) for the period 5,286 1,735
Current cost of supplies adjustment:
515 (217) (1,158) Purchases 298 (760)
(143) 60 323 Taxation (83) 203
16 (25) (143) Share of profit/(loss) of joint
ventures and associates (9) (77)
--- --- ---- -------------------------------- --- ---
388 (182) (978) 206 (634)
--- ---- ---- --- ----
2,030 3,462 302 CCS earnings 5,492 1,101
----- ----- --- ------------ ----- -----
3. Earnings per share
EARNINGS PER SHARE
Quarters Half year
-------- ---------
Q2 2017 Q1 2017 Q2 2016 2017 2016
------- ------- ------- ---- ----
1,545 3,538 1,175 Income/(loss) attributable to
Royal Dutch Shell plc
shareholders 5,083 1,659
($ million)
Weighted average number of
shares used as the basis for
determining:
8,212.9 8,154.8 8,000.0 Basic earnings per share
(million) 8,184.0 7,586.7
8,292.3 8,222.9 8,053.3 Diluted earnings per share
(million) 8,257.7 7,641.8
------- ------- ------- -------------------------- ------- -------
4. Share capital
ISSUED AND FULLY PAID ORDINARY SHARES OF EUR0.07 EACH(1)
Number of shares Nominal value ($
million)
---------------- -----------------
A B A B Total
--- --- --- --- -----
At January
1, 2017 4,428,903,813 3,745,486,731 374 309 683
Scrip
dividends 81,713,949 - 6 - 6
---------- ---------- --- --- --- ---
At June 30,
2017 4,510,617,762 3,745,486,731 380 309 689
----------- ------------- ------------- --- --- ---
At January
1, 2016 3,990,921,569 2,440,410,614 340 206 546
Scrip
dividends 116,249,778 - 9 - 9
Shares
issued 218,728,308 1,305,076,117 17 103 120
------- ----------- ------------- --- --- ---
At June 30,
2016 4,325,899,655 3,745,486,731 366 309 675
----------- ------------- ------------- --- --- ---
1. Share capital at June 30, 2017 also included 50,000 issued and fully paid sterling deferred shares of BPS1 each.
At Royal Dutch Shell plc's Annual General Meeting on May 23, 2017, the Board was authorised to allot ordinary shares in Royal Dutch Shell plc, and to grant rights to subscribe for or to convert any security into ordinary shares in Royal Dutch Shell plc, up to an aggregate nominal amount of EUR190 million (representing 2,714 million ordinary shares of EUR0.07 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 23, 2018, and the end of the Annual General Meeting to be held in 2018, unless previously renewed, revoked or varied by Royal Dutch Shell plc in a general meeting.
5. Other reserves
OTHER RESERVES
$ million Merger Share premium reserve Capital redemption reserve Share plan Accumulated other comprehensive income Total
reserve reserve
--- ------- -------
At January 1, 2017 37,311 154 84 1,644 (27,895) 11,298
Other comprehensive income/
(loss) attributable to Royal
Dutch Shell plc shareholders - - - - 6,754 6,754
Scrip dividends (6) - - - - (6)
Share-based compensation - - - (410) - (410)
------------------------ --- --- --- ---- --- ----
At June 30, 2017 37,305 154 84 1,234 (21,141) 17,636
---------------- ------ --- --- ----- ------- ------
At January 1, 2016 3,398 154 84 1,658 (22,480) (17,186)
Other comprehensive income/
(loss) attributable to Royal
Dutch Shell plc shareholders - - - - (3,718) (3,718)
Scrip dividends (9) - - - - (9)
Shares issued 33,930 - - - - 33,930
Share-based compensation - - (268) 534 266
------------------------ --- --- ---- --- ---
At June 30, 2016 37,319 154 84 1,390 (25,664) 13,283
---------------- ------ --- --- ----- ------- ------
The merger reserve and share premium reserve were established as a consequence of Royal Dutch Shell plc becoming the single parent company of Royal Dutch Petroleum Company and The "Shell" Transport and Trading Company, p.l.c., now The Shell Transport and Trading Company Limited, in 2005. The 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.
6. Derivative contracts and debt excluding finance lease liabilities
The table below provides the carrying amounts of derivatives contracts held, disclosed in accordance with
IFRS 13 Fair Value Measurement.
DERIVATIVE CONTRACTS
$ million Jun 30, 2017 Dec 31, 2016
--------- ------------ ------------
Included within:
Trade and other receivables -
non-current 551 405
Trade and other receivables -
current 4,810 5,957
Trade and other payables - non-
current 1,584 3,315
Trade and other payables -
current 4,888 6,418
-------------------------- ----- -----
As disclosed in the Consolidated Financial Statements for the year ended December 31, 2016, presented in the Annual Report and Form 20-F for that year, Shell is exposed to the risks of changes in fair value of its financial assets and liabilities. The fair values of the financial assets and liabilities are defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Methods and assumptions used to estimate the fair values at June 30, 2017 are consistent with those used in the year ended December 31, 2016. The carrying amounts of derivative contracts measured using predominantly unobservable inputs have not changed materially since December 31, 2016.
The table below provides the comparison of the fair value with the carrying amount of debt excluding finance lease liabilities, disclosed in accordance with IFRS 7 Financial Instruments: Disclosures.
DEBT EXCLUDING FINANCE LEASE LIABILITIES
$ million Jun 30, 2017 Dec 31, 2016
--------- ------------ ------------
Carrying
amount 75,139 77,617
Fair
value(1) 77,683 80,408
--------- ------ ------
1. Mainly determined from the prices quoted for these securities
7. Motiva joint venture
On May 1, 2017, Shell and Saudi Refining Inc. ("SRI") completed the separation of assets, liabilities and businesses of Motiva Enterprises LLC ("Motiva"), a 50:50 joint venture. Following the transaction, Shell assumed sole ownership of two refineries, eleven distribution terminals and certain Shell-branded fuel retail markets in the United States. The transaction enables Shell to combine the assets retained from the joint venture with other Shell Downstream assets in North America, in line with its strategy to deliver increased cash and returns through simpler and highly integrated businesses. It is accounted for as a disposal of Shell's 50% interest in the Motiva joint venture and a subsequent business acquisition.
The fair value of Shell's interest in the joint venture on May 1, 2017 was $3,847 million. This fair value was used, for accounting purposes, as the consideration recognised for the disposal. The disposal gave rise to a taxable gain, leading to a non-cash charge of $574 million on completion of the transaction. Consequently, income for the second quarter 2017 included a net charge of $546 million representing the difference between the net carrying amount of Shell's interest in the joint venture (including associated deferred tax liabilities) of $3,819 million and its fair value, and the tax charge which crystallised upon the disposal. This net charge was reported under "Interest and other income".
The fair value of $3,847 million also served as the consideration paid for the net assets acquired, in combination with $862 million received in cash from SRI. The fair value of net assets acquired was $2,544 million. As a result, goodwill of $441 million was recognised on the business acquisition, as set out in the table below. The fair value of Shell's interest in the joint venture, the fair value of the net assets acquired, and therefore the resultant goodwill, are provisional and subject to the outcome of post close settlements expected in the second half of 2017.
GOODWILL RECOGNISED (AT MAY 1, 2017)
$ million
---------
Fair value of Shell's interest in the
Motiva joint venture (1) 3,847
Less: Cash received 862
Less: Fair value of net assets acquired (2)
Intangible assets 641
Property, plant and equipment 2,719
Other non-current assets 69
Inventories 945
Debt (non-current) (115)
Trade and other payables (non-current) (64)
Deferred tax (non-current liabilities) (312)
Retirement benefits (non-current
liabilities) (982)
Decommissioning and other provisions
(non-current) (156)
Current liabilities (201)
------------------- ----
2,544
-----
Goodwill 441
-------- ---
1. Based on Shell's assessment.
2. Based on an independent valuation using cash flow projections
based on the historical performance of the newly acquired
assets, forecasted pricing for various related commodities and
existing business plan information.
The total cash impact of this transaction was $792 million reported under "Proceeds from sale of joint ventures and associates" in the Condensed Consolidated Statement of Cash Flows for the second quarter 2017, being the net effect of the $862 million cash received from SRI and a payment by Shell of $70 million to settle the transfer of certain retirement benefit liabilities to SRI.
DEFINITIONS
A. Earnings on a current cost of supplies basis attributable to shareholders
CCS earnings is defined in Note 2 "Segment information" to the Interim Statements in this Report. CCS earnings attributable to Royal Dutch Shell plc shareholders excludes the non-controlling interest share of CCS earnings and is reconciled to income/(loss) attributable to Royal Dutch Shell plc shareholders as follows.
Quarters $ million Half year
-------- --------- ---------
Q2
2017 Q1 2017 Q2 2016 2017 2016
---- ------- ------- ---- ----
1,545 3,538 1,175 Income/(loss) attributable to
Royal Dutch Shell plc shareholders 5,083 1,659
388 (182) (978) CCS adjustment 206 (634)
(13) 25 42 CCS adjustment attributable to non-
controlling interest 12 28
--- --- --- ----------------------------------- --- ---
375 (157) (936) CCS adjustment attributable to
Royal Dutch Shell plc shareholders 218 (606)
--- ---- ---- ----------------------------------- --- ----
1,920 3,381 239 CCS earnings attributable to Royal
Dutch Shell plc shareholders 5,301 1,053
----- ----- --- ----------------------------------- ----- -----
Basic CCS earnings per share is calculated as CCS earnings attributable to Royal Dutch Shell plc shareholders divided by the weighted average number of shares used as the basis for basic earnings per share, provided in Note 3 "Earnings per share" to the Interim Statements in this Report.
B. Identified items
Identified items comprise: divestment gains and losses, impairments, fair value accounting of commodity derivatives and certain gas contracts, redundancy and restructuring, the impact of exchange rate movements on certain deferred tax balances, and other items. These items, either individually or collectively, can cause volatility to net income, in some cases driven by external factors, which may hinder the comparative understanding of Shell's financial results from period to period. The impact of identified items on Shell's CCS earnings is shown below.
IDENTIFIED ITEMS AFTER TAX
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 2017 2016
------- ------- ------- ---- ----
(139) 197 252 Divestment gains/(losses) 58 415
(791) (1,525) (192) Impairments (2,316) (805)
100 504 (253) Fair value accounting of commodity
derivatives and certain gas contracts 604 (635)
(156) (45) (1,065) Redundancy and restructuring (201) (1,119)
(77) 535 (53) Impact of exchange rate movements on tax
balances 458 521
(621) (67) 488 Other(1) (688) (37)
---- --- --- ------- ---- ---
(1,684) (401) (823) Impact on CCS earnings (2,085) (1,660)
------ ---- ---- ---------------------- ------ ------
Of which:
22 641 114 Integrated Gas 663 25
(883) (1,070) (649) Upstream (1,953) (562)
(372) 91 (99) Downstream (281) (409)
(451) (63) (189) Corporate (514) (714)
---- --- ---- --------- ---- ----
- (28) (17) Impact on CCS earnings attributable to non-
controlling interest (28) (115)
--- --- --- ------------------------------------------- --- ----
(1,684) (373) (806) Impact on CCS earnings attributable to
shareholders (2,057) (1,545)
------- ---- ---- --------------------------------------- ------ ------
1. Second quarter 2017 includes a non-cash charge of $550 million (pre-tax: $545 million) related to the restructuring of the funding of our businesses
in North America.
The categories above represent the nature of the items identified irrespective of whether the items relate to Shell subsidiaries or joint ventures and associates. The after-tax impact of identified items of joint ventures and associates is fully reported within "Share of profit and joint ventures and associates" on the Consolidated Statement of Income. Identified items related to subsidiaries are consolidated and reported across appropriate lines of the Consolidated Statement of Income. Only pre-tax identified items reported by subsidiaries are taken into account in the calculation of "underlying operating expenses" (Definition G).
Fair value accounting of commodity derivatives and certain gas contracts: In the ordinary course of business, Shell enters into contracts to supply or purchase oil and gas products as well as power and environmental products. Derivative contracts are entered into for mitigation of resulting economic exposures (generally price exposure) and these derivative contracts are carried at period-end market price (fair value), with movements in fair value recognised in income for the period. Supply and purchase contracts entered into for operational purposes are, by contrast, recognised when the transaction occurs; furthermore, inventory is carried at historical cost or net realisable value, whichever is lower. As a consequence, accounting mismatches occur because: (a) the supply or purchase transaction is recognised in a different period; or (b) the inventory is measured on a different basis. In addition, certain contracts are, due to pricing or delivery conditions, deemed to contain embedded derivatives or written options and are also required to be carried at fair value even though they are entered into for operational purposes. The accounting impacts of the aforementioned are reported as identified items.
Impacts of exchange rate movements on tax balances represent the impact on tax balances of exchange rate movements arising on (a) the conversion to dollars of the local currency tax base of non-monetary assets and liabilities, as well as losses (this primarily impacts the Integrated Gas and Upstream segments) and (b) the conversion of dollar-denominated inter-segment loans to local currency, leading to taxable exchange rate gains or losses (this primarily impacts the Corporate segment).
Other identified items represent other credits or charges Shell's management assesses should be excluded to provide additional insight, such as certain provisions for onerous contracts or litigation.
C. Capital investment
Capital investment is a measure used to make decisions about allocating resources and assessing performance. It comprises capital expenditure, exploration expense excluding well write-offs, new investments in joint ventures and associates, new finance leases and investments in Integrated Gas, Upstream and Downstream securities, all of which on an accruals basis. In 2016, it also included the capital investment related to the acquisition of BG Group plc.
The reconciliation of "Capital expenditure" to "Capital investment" is as follows.
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 2017 2016
------- ------- ------- ---- ----
5,660 4,306 5,796 Capital expenditure(1) 9,966 11,120
- - - Capital investment related to the
acquisition of BG Group plc - 52,904
157 194 216 Investments in joint ventures and
associates 351 548
231 157 336 Exploration expense, excluding exploration
wells written off 388 560
391 41 (9) Finance leases 432 405
327 22 (55) Other(1) 349 (278)
--- --- --- ------- --- ----
6,766 4,720 6,284 Capital investment 11,486 65,259
Of which:
831 805 1,153 Integrated Gas 1,636 23,977
4,504 2,854 3,700 Upstream 7,358 38,738
1,419 1,046 1,389 Downstream 2,465 2,481
12 15 42 Corporate 27 63
--- --- --- --------- --- ---
1. Second quarter 2017 includes capital expenditure of $911 million and, under "Other", a payable position of $375 million, related to the acquisition
of Marathon Oil Canada Corporation in Canada.
D. Divestments
Divestments is a measure used to monitor the progress of Shell's divestment programme. This measure comprises proceeds from sale of property, plant and equipment and businesses, joint ventures and associates, and other Integrated Gas, Upstream and Downstream investments, reported in "Cash flow from investing activities", adjusted onto an accruals basis and for any share consideration received or contingent consideration recognised upon divestment, as well as proceeds from the sale of interests in entities while retaining control (for example, proceeds from sale of interest in Shell Midstream Partners, L.P.), which are included in "Change in non-controlling interest" within "Cash flow from financing activities".
With effect from January 1, 2017, consideration received in the form of shares is valued and included in this measure upon completion of the divestment transactions, instead of when these shares are disposed of. This change in timing of recognition enables Shell to better evaluate its progress against its divestment programme. The share or contingent consideration is not remeasured thereafter, including if and when the shares received are eventually disposed of, or contingent consideration is realised. Comparative information for 2016 has been adjusted to include the share consideration received upon the divestments of Shell's interests in the Deep Basin and Gundy acreages (Canada) and the Brutus TLP and Glider subsea production system (USA), both in the fourth quarter 2016.
In future periods, the proceeds from any disposal of shares received as divestment consideration, and proceeds from realisation of contingent consideration, will be included in "Cash flow from investing activities".
The reconciliation of "Proceeds from sale of property, plant and equipment and businesses" to "Divestments" is as follows.
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 2017 2016
------- ------- ------- ---- ----
5,584 122 516 Proceeds from sale of property, plant and 5,706 562
equipment and businesses(1)
--- ----------
1,081 1 23 Proceeds from sale of joint ventures and associates(2) 1,082 39
2,829 - - Share and contingent consideration(3) 2,829 -
3 - 398 Proceeds from sale of interests in entities while retaining control 3 819
(25) (94) 65 Other adjustments (119) 67
--- --- --- ----------------- ---- ---
9,472 29 1,002 Divestments 9,501 1,487
Of which:
22 12 269 Integrated Gas 34 285
8,084 17 42 Upstream 8,101 80
1,348 - 691 Downstream 1,348 1,118
18 - - Corporate 18 4
--- --- --- --------- --- ---
1. Second quarter 2017 includes $5,188 million related to the oil sands divestment. As reflected in Definition C, capital expenditure of $911 million and a payable position of $375 million, together
$1,286 million, were also recorded as part of the oil sands transaction and are integral to the divestment programme.
2. See Note 7. Also integral to the divestment programme is $1,426 million primarily related to net debt assumed by the counterparty in the Motiva transaction, which would have otherwise increased the
cash consideration received by Shell.
3. Second quarter 2017 includes $2,829 million for shares in Canadian Natural Resources Limited received as partial consideration for the oil sands divestment.
E. Return on average capital employed
Return on average capital employed (ROACE) measures the efficiency of Shell's utilisation of the capital that it employs. In this calculation, ROACE is defined as income for the current and previous three quarters, adjusted for after-tax interest expense, as a percentage of the average capital employed for the same period. Capital employed consists of total equity, current debt and non-current debt.
$ million Quarters
--------- --------
Q2 2017 Q1 2017 Q2 2016
------- ------- -------
Income for current
and previous three
quarters 8,328 7,966 (4,716)
Interest expense
after tax 3,056 3,268 1,139
---------------- ----- ----- -----
Income before
interest expense 11,384 11,234 (3,576)
----------------- ------ ------ ------
Capital employed -
opening 282,835 278,887 230,949
Capital employed -
closing 286,604 284,382 282,835
------------------ ------- ------- -------
Capital employed -
average 284,720 281,635 256,892
------------------ ------- ------- -------
ROACE 4.0% 4.0% -1.4%
----- --- --- ----
Return on average capital employed on a CCS basis excluding identified items is defined as the sum of CCS earnings attributable to shareholders excluding identified items for the current and previous three quarters, as a percentage of the average capital employed for the same period.
$ million Quarters
--------- --------
Q2 2017 Q1 2017 Q2 2016
------- ------- -------
CCS earnings excluding
identified items for
current and previous three
quarters 11,945 9,386 6,546
--------------------------- ------ ----- -----
Capital employed - average 284,720 281,635 256,892
ROACE on a CCS basis
excluding identified items 4.2% 3.3% 2.5%
--------------------------- --- --- ---
F. Gearing
Gearing is a key measure of Shell's capital structure and is calculated as follows.
$ million Quarters
--------- --------
Jun 30, 2017 Mar 31, 2017 Jun 30, 2016
------------ ------------ ------------
Current debt 9,616 8,620 10,863
Non-current
debt 80,731 83,009 79,466
----------- ------ ------ ------
Total debt(1) 90,347 91,629 90,329
Less: Cash and
cash
equivalents (23,992) (19,595) (15,222)
-------------- ------- ------- -------
Net debt 66,355 72,034 75,107
-------- ------ ------ ------
Add: Total
equity 196,257 192,753 192,506
---------- ------- ------- -------
Total capital 262,612 264,787 267,613
------------- ------- ------- -------
Gearing 25.3% 27.2% 28.1%
------- ---- ---- ----
1. Includes finance lease liabilities of $15,208 million at June 30, 2017, $14,704 million at March 31,
2017 and $11,954 million at June 30, 2016.
G. Operating expenses
Operating expenses is a measure of Shell's total operating expenses performance, comprising the following items from the Consolidated Statement of Income: production and manufacturing expenses; selling, distribution and administrative expenses; and research and development expenses. Underlying operating expenses measures Shell's total operating expenses performance excluding identified items.
Quarters $ million Half year
-------- --------- ---------
Q2 2017 Q1 2017 Q2 2016 2017 2016
------- ------- ------- ---- ----
6,934 6,658 8,076 Production and manufacturing expenses 13,592 14,841
2,394 2,412 3,227 Selling, distribution and administrative
expenses 4,806 6,333
220 212 243 Research and development 432 486
--- --- --- ------------------------ --- ---
9,548 9,282 11,546 Operating expenses 18,830 21,660
----- ----- ------ ------------------ ------ ------
Less identified items:
(209) (73) (1,391) Redundancy and restructuring charges (282) (1,460)
- (28) (365) Provisions (28) (525)
- - - BG acquisition costs - (422)
--- --- --- -------------------- --- ----
(209) (101) (1,756) (310) (2,407)
---- ---- ------ ---- ------
9,339 9,181 9,790 Underlying operating expenses 18,520 19,253
----- ----- ----- ----------------------------- ------ ------
H. Free cash flow
Free cash flow is used to evaluate cash available for financing activities, including dividend payments, after investment in maintaining and growing our business. It is defined as the sum of "Cash flow from operating activities" and "Cash flow from investing activities" as shown on page 1.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties affecting Shell are described in the Risk Factors section of the Annual Report and Form 20-F for the year ended December 31, 2016 (pages 12 to 15) and are summarised below. There are no material changes in those Risk Factors for the remaining 6 months of the financial year.
-- We are exposed to fluctuating prices of crude oil, natural gas, oil
products and chemicals.
-- Our ability to deliver competitive returns and pursue commercial
opportunities depends in part on the accuracy of our price assumptions.
-- Our ability to achieve strategic objectives depends on how we react to
competitive forces.
-- We seek to execute divestments in the pursuit of our strategy. We may
not be able to successfully divest these assets in line with our
strategy.
-- Our future hydrocarbon production depends on the delivery of large and
complex projects, as well as on our ability to replace proved oil and
gas reserves.
-- The estimation of proved oil and gas reserves involves subjective
judgements based on available information and the application of complex
rules; therefore, subsequent downward adjustments are possible.
-- Rising climate change concerns have led and could lead to additional
legal and/or regulatory measures which could result in project delays or
cancellations, a decrease in demand for fossil fuels and additional
compliance obligations, and therefore could adversely impact our costs
and/or revenue.
-- Our operations expose us to social instability, civil unrest, terrorism,
piracy, acts of war and risks of pandemic diseases that could have a
material adverse effect on our business.
-- 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.
-- The nature of our operations exposes us, and the communities in which we
work, to a wide range of health, safety, security and environmental
risks.
-- A further erosion of the business and operating environment in Nigeria
could have a material adverse effect on us.
-- Production from the Groningen field in the Netherlands continues to
cause earthquakes that affect local communities.
-- Our future performance depends on the successful development and
deployment of new technologies and new products.
-- We are exposed to treasury and trading risks, including liquidity risk,
interest rate risk, foreign exchange risk, commodity price risk and
credit risk. We are affected by the global macroeconomic environment as
well as financial and commodity market conditions.
-- We have substantial pension commitments, whose funding is subject to
capital market risks.
-- 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.
-- An erosion of our business reputation could have a material adverse
effect on our brand, our ability to secure new resources and our licence
to operate.
-- Many of our major projects and operations are conducted in joint
arrangements or associates. This could reduce our degree of control, as
well as our ability to identify and manage risks.
-- We rely heavily on information technology systems for our operations.
-- Violations of antitrust and competition laws carry fines and expose us
and/or our employees to criminal sanctions and civil suits.
-- Violations of anti-bribery and corruption laws and anti-money laundering
laws carry fines and expose us and/or our employees to criminal
sanctions and civil suits.
-- Violations of data protection laws carry fines and expose us and/or our
employees to criminal sanctions and civil suits.
-- Violations of trade compliance laws and regulations, including
sanctions, carry fines and expose us and our employees to criminal
sanctions and civil suits.
-- The Company's Articles of Association determine the jurisdiction for
shareholder disputes. This could limit shareholder remedies.
FIRST QUARTER 2017 PORTFOLIO DEVELOPMENTS
Integrated Gas
During the quarter, Shell announced the sale of its interest in the Bongkot field in Thailand.
In April, Shell signed an agreement with Nord Stream 2 AG to provide a long-term funding facility of EUR285 million expected to be drawn down in 2017 and funds of up to EUR665 million to cover a combination of short and long-term funding and guarantees for a pipeline project.
Upstream
During the quarter, Shell made a final investment decision ("FID") for the Kaikias deep-water project in the Gulf of Mexico.
Shell announced the sale of a package of United Kingdom North Sea assets, oil sands and in-situ interests in Canada, and onshore interests in Gabon.
Downstream
During the quarter, Shell announced the sale of its interest in the SADAF chemicals joint venture in Saudi Arabia.
RESPONSIBILITY STATEMENT
It is confirmed that to the best of our knowledge: (a) the Condensed Consolidated Interim Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union; (b) the interim management report includes a fair review of the information required by Disclosure Guidance and Transparency Rule (DTR) 4.2.7R (indication of important events during the first six months of the financial year, and their impact on the Condensed Consolidated Interim Financial Statements, and description of principal risks and uncertainties for the remaining six months of the financial year); and (c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes thereto).
The Directors of Royal Dutch Shell plc are shown on pages 61-63 in the Annual Report and Form 20-F for the year ended December 31, 2016.
On behalf of the Board
Ben van Beurden Jessica Uhl
Chief Executive Officer Chief Financial Officer
July 27, 2017 July 27, 2017
INDEPENDENT REVIEW REPORT TO ROYAL DUTCH SHELL PLC
Introduction
We have been engaged by Royal Dutch Shell plc to review the Condensed Consolidated Interim Financial Statements in the half-yearly financial report for the six months ended June 30, 2017, which comprise the Consolidated Statement of Income, the Consolidated Statement of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and Notes 1 to 7. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to Royal Dutch Shell plc in accordance with guidance contained in the International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than Royal Dutch Shell plc, for our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
The annual Consolidated Financial Statements of Royal Dutch Shell plc and its subsidiaries are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU). The condensed set of financial statements included in the half-yearly financial report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, as issued by the IASB and as adopted by the EU.
Our responsibility
Our responsibility is to express to Royal Dutch Shell plc a conclusion on the Condensed Consolidated Interim Financial Statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements 2410 (UK and Ireland), "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the Condensed Consolidated Interim Financial Statements in the half-yearly financial report for the six months ended June 30, 2017 are not prepared, in all material respects, in accordance with International Accounting Standard 34 as issued by the IASB and as adopted by the EU and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
July 27, 2017
The maintenance and integrity of the Royal Dutch Shell plc website (www.shell.com) are the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Condensed Consolidated Interim Financial Statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
CAUTIONARY STATEMENT
All amounts shown throughout this announcement are unaudited. All peak production figures in Portfolio Developments are quoted at 100% expected production.
The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal entities. In this announcement "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 announcement refer to companies 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 a venture, partnership or company, after exclusion of all third-party interest.
This announcement 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'', ''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 announcement, 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 announcement 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 Form 20-F for the year ended December 31, 2016 (available at www.shell.com/investor and www.sec.gov). These risk factors also expressly qualify all forward-looking statements contained in this announcement and should be considered by the reader. Each forward-looking statement speaks only as of the date of this announcement, July 27, 2017. 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 announcement.
This Report contains references to Shell's website. These references are for the readers' convenience only. Shell is not incorporating by reference any information posted on www.shell.com
We may have used certain terms, such as resources, in this announcement that the 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. You can also obtain this form from the SEC by calling 1-800-SEC-0330.
This announcement contains inside information.
July 27, 2017
The information in this Report reflects the unaudited consolidated financial position and results of Royal Dutch Shell plc. Company No. 4366849, Registered Office: Shell Centre, London, SE1 7NA, England, UK.
Contacts:
- Linda Szymanski, Company Secretary
- Investor Relations: International + 31 (0) 70 377 4540; North America +1 832 337 2034
- Media: International +44 (0) 207 934 5550; USA +1 832 337 4355
LEI number of Royal Dutch Shell plc: 21380068P1DRHMJ8KU70
Classification: Half yearly financial reports and audit reports / limited reviews; Inside Information
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SOURCE Royal Dutch Shell plc
