RESPONSE TO SHAREHOLDER RESOLUTION ON CLIMATE CHANGE 2015 AGM 19 MAY 2015 ROYAL DUTCH SHELL PLC 1
DEFINITIONS & CAUTIONARY NOTE Reserves: Our use of the term reserves in this presentation means SEC proved oil and gas reserves. Resources: Our use of the term resources in this presentation includes quantities of oil and gas not yet classified as SEC proved oil and gas reserves. Resources are consistent with the Society of Petroleum Engineers 2P and 2C definitions. Organic: Our use of the term Organic includes SEC proved oil and gas reserves excluding changes resulting from acquisitions, divestments and year-average pricing impact. Resources plays: our use of the term resources plays refers to tight, shale and coal bed methane oil and gas acreage. The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this presentation Shell, Shell group and Royal Dutch Shell are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words we, us and our are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. Subsidiaries, Shell subsidiaries and Shell companies as used in this presentation refer to companies in which Royal Dutch Shell either directly or indirectly has control. Companies over which Shell has joint control are generally referred to as joint ventures and companies 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 presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as anticipate, believe, could, estimate, expect, 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 presentation, 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. All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional risk factors that may affect future results are contained in Royal Dutch Shell s 20-F for the year ended December 31, 2014 (available at www.shell.com/investor and www.sec.gov ). These risk factors also expressly qualify all forward looking statements contained in this presentation and should be considered by the reader. Each forward-looking statement speaks only as of the date of this presentation, 19 May, 2015. 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 presentation. We may have used certain terms, such as resources, in this presentation 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. You can also obtain these forms from the SEC by calling 1-800-SEC-0330. 2
SHELL AND CLIMATE CHANGE Long recognised importance of climate challenge and role of energy in enabling quality of life. The challenge is to provide more energy and less CO 2. Energy transition underway: Renewables will become a significant part of the global energy system; To address shortcomings in availability, intermittency, storage and energy density, renewables will need a combination with cleaner hydrocarbons. Society will struggle to achieve its climate goals without a meaningful carbon price and, longer term, without CCS. Shell will play its role to bring more energy and less CO 2, especially in areas where we have the skills such as natural gas, biofuels and CCS. 3
TRANSPARENCY Sustainability reporting Revenue transparency 1997 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Nigeria spills website Oil sands performance report Nigeria briefing notes CDP 1 Climate change Sustainability report 1 Previously called Carbon Disclosure Project 4
SHAREHOLDER RESOLUTION: CLIMATE CHANGE DISCLOSURE RESOLUTION INFORMATION REQUEST 2013 2014 2015 Ongoing emissions management Asset portfolio resilience to post-2035 scenarios Low-carbon R&D and investment strategies Strategic KPIs and executive incentives Public policy position Information disclosed by Shell Board decision to support shareholder resolution at the 2015 AGM 5
ONGOING EMISSIONS MANAGEMENT 2005-2014 PERFORMANCE Energy intensity Gj/tonne (energy required to produce a tonne of oil equivalent) index Emissions Million tonnes CO 2 equivalent Upstream excl. Oil sands Refining Chemicals Flaring performance Million tonnes hydrocarbon flared 2015 endorsed the World Bank s Initiative to Reduce Global Gas Flaring "Zero Routine Flaring by 2030" www.shell.com/ghg * Indirect emissions were not recorded before 2009 6
ONGOING EMISSIONS MANAGEMENT REDUCING DIRECT EMISSIONS Design and operations Future energy technology GHG emissions plans in both design phase and operation of assets New projects include energy efficient design Amal steam using renewables for enhanced oil recovery Glasspoint 7
ONGOING EMISSIONS MANAGEMENT LNG Clean fuels CCS LNG for transport Indirect emissions reduction through efficient operations and cleaner products Clean fuels 8
PORTFOLIO RESILIENCE ENERGY TRANSITIONS EMBEDDED IN SHELL STRATEGY DEVELOPMENT Long-term energy supply mix Million boe per day +50% 2050 outlook Population increases from 7 to 9 billion Enabled by cheap and reliable energy +50% Realities Requirement to mitigate climate change Oil supply -70% by 2030 without new investment Key role of gas & CCS Shell activities Gas Oil Biomass Wind Coal Nuclear Other renewables Solar Energy transitions underway 9
PORTFOLIO RESILIENCE SHELL ENERGY SCENARIOS FRAME OUR THINKING Energy demand by source Exajoules 40 years of scenarios 2000 2030 2060 Oil Gas Biomass/Biofuels Wind Coal Nuclear Other Renewables Solar Designed to stretch management thinking Testing business models Contrasting plausible views of the future Are not a forecast of likely events 10
PORTFOLIO RESILIENCE ENERGY-RELATED CARBON EMISSIONS: SCENARIOS Shell and IEA scenarios 1 Life-cycle CO 2 intensity of electricity generation 2 GtCO 2 /year CO 2 equivalent/ KWh 50 40 30 20 10 0 2000 2020 2040 2060 2080 2100 Oceans Mountains Current policies New policies 450 ppm Shell has to plan in a range of possible futures Advantage of gas over coal in power generation 1 The New Lens Scenarios were based on 2011 IEA data, whereas the IEA World Energy Outlook 2014 scenarios are based on 2013 IEA data 2 IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation, 2011 11
PORTFOLIO RESILIENCE OIL SUPPLY & DEMAND Oil supply & demand million barrels of oil per day Natural decline IEA new policies IEA 450 Oceans Mountains Transport underpins oil demand, despite electric vehicle growth IEA current policies Substantial supply gap 70 million barrels per day 80% replacement of today s production Equivalent to ~6 x Saudi Arabia or ~80 x UKCS ~$15 trillion investment Shell has to plan in a range of possible futures Stranded assets/carbon bubble thesis ignores supply/demand realities Advantage of gas over coal in power generation 12
PORTFOLIO RESILIENCE SHELL AND IEA PRICE ASSUMPTIONS Oil price $/barrel Europe CO 2 cost $/tonne IEA Current Policies IEA New Policies Shell base case IEA 450 Shell Planning 13
PORTFOLIO RESILIENCE ASSET PORTFOLIO POTENTIAL RESILIENCE TO SCENARIOS Strategic theme Oil price effect % difference in NPV vs Shell $90 scenario CO 2 cost effect % difference in NPV vs Shell $40/ tonne scenario Combined cost effect % difference in NPV Future Opportunities Resource Plays Deep Water Integrated Gas Upstream Engine Downstream Engine IEA Current Policies IEA New Policies IEA 450 *The final outcome will include factors such as actual energy and CO 2 prices, and portfolio choices made by Shell 14
PORTFOLIO RESILIENCE PROJECT ECONOMICS EXAMPLE NPV analysis: example $ /yr $ cumulative 3 12 2 8 NPV sensitivities: example Oil Price 1 4 CO 2 price 0-1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 0-4 Capex -2 Annual cashflow -8 Opex -3 Undiscounted Cumulative cashflow Discounted Cumulative cashflow -12 Recovery factor -4 Shell project screening values -16 - impact Base NPV (inc $40/t CO 2 ) + impact $40 / tonne CO 2 e $70-$110 / bbl Brent oil $3-$5 / mmbtu Henry Hub gas Future oil, gas and carbon price sensitivities are incorporated in project economics for all Shell projects 15
LOW CARBON R&D AND INVESTMENT STRATEGIES SHELL IS A MAJOR PLAYER IN LOW CARBON ACTIVITY Gas Energy Efficiency Biofuels Carbon Capture & Storage 16
LOW CARBON R&D AND INVESTMENT STRATEGIES Total R+D spend $mln Significant R+D spend >$1bn year since 2007 Averaging ~15% low-carbon R+D Shell Peer group Full size hydraulic test rig, The Netherlands 17
LOW CARBON R+D AND INVESTMENT STRATEGIES SHELL HAS DEVELOPED A SUBSTANTIAL OPPORTUNITY FUNNEL A Commercial operation 1 Gas CCS Biofuels Solar Alternative energy carriers Exploration Future energy technologies R&D LNG 7.7mtpa FEED Westhollow research centre ( cellulosic biofuels ) Solar PV Shell Technology Ventures 2 B Energy LNG 6.5mtpa Peterhead (1 mtpa) Glasspoint Solar EOR FID LNG 7.4mtpa Gorgon (3-4 mtpa) Raizen 2G (Iogen cellulose ethanol) H2 network (Germany) B C On stream Quest (>1 mtpa) Technology demonstration/research Used in Shell operations LNG 24mtpa GTL Mongstad Cansolv Otway Raizen 1G (sugar cane ethanol) Showa shell PV manufacture LNG for transport Offshore Onshore (50 MW net) (450 MW net) Wind Technology Efforts Define Execute Operate 1 Volumes in Shell share 18
STRATEGIC KPIS AND EXECUTIVE INCENTIVES SUSTAINABILITY AND SAFETY EMBEDDED IN PAY STRUCTURES 2015 EXECUTIVE BONUS STRUCTURE 30% weight CFFO 50% weight Operational Excellence 20% weight Sustainable Development 10% weight Safety 10% weight Sustainability 5% weight Personal Safety 5% weight Process Safety 4% weight Energy Intensity 4% weight Oil Spill volumes 2% weight Water use 19
CLIMATE CHANGE PUBLIC POLICY POSITION SHELL HAS CLEAR AND PRO-ACTIVE ADVOCACY POSITIONS Pro-active advocacy A robust price on carbon Government support for early stage low carbon technologies Explore plausible futures in Shell scenarios Work with governments on energy transitions Member of / supported: World Bank Carbon Pricing statement (2014) World Bank Zero routine flaring initiative International Emissions Trading Association Prince of Wales Corporate Leaders Group Zero Emissions Platform WEF Oil & Gas Climate Initiative 20
SHAREHOLDER RESOLUTION: CLIMATE CHANGE DISCLOSURE RESOLUTION INFORMATION REQUEST Ongoing emissions management SHELL Driving improved performance in our facilities Investing in lower-carbon products Ongoing updates via CDP and Shell materials Asset portfolio resilience to post-2035 scenarios Portfolio and strategy robust against wide-ranging demand and price scenarios Low-carbon R&D and investment strategies Major player in gas & biofuels Evolving renewable energy portfolio and options Averaged ~15% of R&D spend Strategic KPIs and executive incentives Embedded targets and linkages to executive pay Sustainable development is 20% of annual bonus scorecard Public policy position Clear and proactive public policy positions 21
RESPONSE TO SHAREHOLDER RESOLUTION ON CLIMATE CHANGE 2015 AGM 19 MAY 2015 ROYAL DUTCH SHELL PLC 22