Shell plc (LON:SHEL)

Earnings Call: Q4 2017

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Feb 1, 2018

Very good. We're live. Ladies and gentlemen, it's a pleasure to welcome you here again this afternoon, and I look forward to have a good afternoon with you talking about results, talking a little bit about some portfolio developments since Management Day. And I can sum it up actually already for those of you who are in a hurry in a few words. It has been a great year. It has been a transformational year. We said 2017 would be a year of delivery. Well, I think we delivered in 2017. That was all before the disclaimer statement. But let's talk about 2017. 2017 was a year, I think, in which we showed that we have what it takes to be a world class investment case. It was a year of very strong financial performance. And our relentless focus on value, on achievement and on competitiveness meant that we were able to deliver very strong earnings from a high graded portfolio. New projects more than offset the impact of divestments. We had a record LNG liquefaction but also LNG sales volumes. And in Downstream, the volumes also increased excluding divestments. But let's talk a little bit quickly about the financial results for 2017. So 2017, year of very strong financial delivery from each of our businesses, and we achieved this in a pretty volatile environment. Our 2017 current cost of supply earnings, excluding identified items, were around $16,000,000,000 Cash flow from operations, dollars 36,000,000,000 and free cash flow was more than $27,000,000,000 and all of this at an average Brent price of $54 a barrel. We also further reduced net debt in the year by $8,000,000,000 and the declared dividend for 2017 amounts to some $16,000,000,000 The Q4 dividend, you will have noticed, will be fully paid in cash this year. The dividend intentions for Q1 'eighteen is unchanged at $0.47 per share. So that's unchanged compared to Q1 'seventeen. So as I said, 2017 was a year of strong delivery. We made good progress with our divestment program. We now have $24,000,000,000 completed so far. That's at a headline level and that's since the beginning of 2016. And we said our capital investment would be around $25,000,000,000 Well, we ended with $1,000,000,000 below that. We said our underlying operating expenses would be less than $40,000,000,000 Again, we delivered $2,500,000,000 lower than that. And we continue to deliver in start up a lot of good new projects during the year. Now let's move to some of the portfolio highlights for the quarter. We completed some large divestment transactions during the quarter. Of course, we completed the sale of the package of U. K. North Sea assets for a total of up to $3,800,000,000 at headline level. We sold our shareholding in Woodside for a pretax proceeds of $2,700,000,000 and we completed the sales of our Gabon Onshore assets. And these divestments are, of course, completely consistent with our strategy and our portfolio ambitions, and they were all completed at competitive valuations. And all of them, of course, contributed significantly to the reduction in our gearing in 2017. So we're now pretty close to completing that $30,000,000,000 divestment program. As I said, dollars 24,000,000,000 of divestments completed so far and another $6,000,000,000 either announced or very significantly progressed. And again, these numbers are all at headline levels. And this program is crucial not only to simplify our portfolio, but also to deliver our world class investment case. Now also during the quarter, 1st oil was achieved from the Libra field. Libra is 180 kilometers off the coast of Rio de Janeiro in the Santos Basin. And since then, Petrobras has declared commerciality to the northwest part of the block indicated there is a total recoverable reserve, our resources estimated at $3,300,000,000 of oil. Another highlight concerns portfolio activity related to New Energies. At Management Day, we mentioned our ambition to accelerate the pace of our investment in New Energies. You saw evidence of that during Q4 of 2017, the three deals being signed. So firstly, we acquired New Motion, which is one of Europe's largest providers of vehicle charging technology. We also signed an agreement with Ionity, that's the operator of high powered vehicle charging network, And this agreement is to provide 500 charging points across 10 European countries, starting with 8 of Shell's biggest motor base stations. And this will allow electric vehicle drivers to travel long distances across Europe with confidence as we provide the first network of its kind on key routes through the continent. And the 3rd deal that we signed was the agreement to acquire First Utility, which is a leading independent household energy and broadband supplier based here in the U. K. And once completed, that will allow Shell to deliver power to the homes of an increasing number of customers, and all these steps are consistent with the new energy strategic intent that we presented at our Management Day in November last year. As we highlighted then, power is 1 of 2 focus areas in New Energies alongside new fuels. Power is the fastest growing segment in the energy system. And we see opportunities in different parts of the power value chain and additional opportunity through the integration of these parts in one single value chain. Now of course, the spend on new energies has been modest in 2017, but the recently announced deals, they will reflect our intention to increase spend in New Energies in 2018. So we expect our capital investments in New Energies to be $1,000,000,000 to $2,000,000,000 on average per year until the end of the decade. But as it is dependent on both organic and inorganic investment opportunities, this might be a little bit more or a little bit less depending on the year, but that's, of course, without changing the overall group capital investment budget for that year. Now to continue with portfolio developments, let's cover a number of significant exploration events. So yesterday, we announced that what is expected to be one of the largest U. S. Gulf of Mexico exploration finds in the past decade when we announced the Whale Deepwater well. The evaluation of this discovery is still ongoing. Appraisal drilling is underway to further establish the size of the discovery, but also to define the development opportunities. Existing Now Now this discovery, of course, strengthens our confidence in our exploration strategy, focused on near field explorations, seeking not only material volumes but also short lead times between discovery and development. And yesterday, you may also have seen that Shell and our partners won 9 exploration blocks located in the deepwater Mexican Gulf of Mexico. And this is really exciting news as it allows us to leverage our decades of expertise and leadership that we have developed on the U. S. Side of the Gulf of Mexico. And that will complement, of course, our existing position in the region. And I can assure you there will be more to come on this in the coming quarters years. Of course, we've also achieved significant success in Brazil during Q4. And as you know, this is a multifaceted and fast growing part of our business. The first of these achievements is the record level of production that we achieved in Q4 2017. So we produced 350,000 barrels of oil equivalent per day from Brazil in Q4 and the majority, of course, going from the presold. That's more than 3x PG's last reported presold volume in Q4 2014, which was 100,000 barrels of oil equivalent per day. But in Q4, we also started up Lula South, the FPSO there. The 2 FPSOs, so Libra and Lula, represent 50,000 barrels of oil equivalent per day production capacity on a Shell share basis. And growth will continue in 2018 as we expect 3 more FPSOs to start up. We have P67 coming on Lula North. We have P68 in Berbigao. We have P69 in Lula Extreme South. And altogether, that represents over 100,000 barrels of oil equivalent per day, peak production capacity, all Shell Shell Shell. Now the second achievement in the quarter, as I mentioned, was the declaration of commerciality at Libra. This was submitted by the Libra consortium at the end of November and it relates to the northwestern part of the Libra field. We now call this the marrow field. And this is a very important step in the development of Libra and the consortium now plans for 4 new FPSOs to be developed for this marrow field. In early December, Petrobras announced it had signed a contract to charter the first of these production FPSOs, all but a daily capacity of 180,000 barrels of oil, and the start up of that is planned in 2021. And then the remaining 3 FPSOs for the Miro field are expected to follow, and that will generate further growth well into the next decade. And then of course, in addition to all of this, the consortium will continue to explore the other parts of the Libra field. Now another achievement in Brazil has been what we have built on our growth platform with the successful bid for 3 production sharing contracts, each lasting 35 years for pre installed blocks, again located in the Santos Basin. The winning bids include a shell operated block, which is adjacent to our Gato D'Amato discovery as well as an area close to the Sipenao field operated by Petrobras. And the 3rd block is the new Shell operated Alto de Cabo Frio West block. Now these winning bids add strategic acreage to our already leading sets of global deepwater growth options and extend our opportunities in Brazil again well into the next decade. So that gives you an idea of some of the portfolio highlights for the quarter. Let's focus now a little bit on 2017 financial delivery. And I will start with 2 key drivers of our strategic agenda: capital discipline and lower operating costs. And I will then move to speak a little bit more generally about CapEx. So in 2017, capital investment was $24,000,000,000 of which $22,500,000,000 was actually cash. And that's lower than the €25,000,000,000 outlook that we provided, and it reflects to a very large extent, of course, continued improvement in capital efficiency, but also tremendous discipline in capital allocation. And later on in the presentation, Jessica will talk a little bit more about capital efficiency and project execution in general. Now at our Management Day in November, I confirmed an unchanged capital investment range until 2020, so $25,000,000,000 to $30,000,000,000 with a soft floor and a very hard ceiling. And this holds even in a high oil price environment. And I think this range fits very well within our financial framework. It is also consistent with our growth aspirations. And for 2018, you should expect us to maintain capital investments in the lower part of the €25,000,000,000 to €30,000,000,000 range. Our underlying operating expenses for 2017 amounted to some $38,000,000,000 That's about 13% lower than 2 years ago and $2,000,000,000 lower than our $40,000,000,000 guidance that we gave for the year. So we have now reduced operating expenses on a 4 quarter rolling basis for 12 consecutive quarters. Now looking forward, I can assure you we will continue to be intensely focused on the competitiveness of our cost base. There will, of course, be portfolio changes and growth, etcetera, that may affect the cost base. And of course, we will continue to spend where it adds value like in marketing or production optimization, etcetera. But I can also assure you that our focus on cost will go without compromising our focus on safety and asset integrity. Let's move to cash. In 2017, we delivered $39,000,000,000 in cash flow from operations, excluding working capital, and that is in a $55 oil price environment. That's what I believe an impressive number. It's a number which is 60% higher than in 2015 when the oil price was at a comparable level. In fact, it's close to the 2014 number when the oil price was at $99 per barrel. This exceptional delivery illustrates the cash generating capabilities of our current portfolio, which each of our businesses successfully following a strategy, which is focused on operational excellence, but also activities with high margins. Now this strong cash generating momentum combined with capital efficiency and discipline is what gives me the confidence that we are on track to deliver on the upgraded 2020 financial outlook that we presented in our November Management Day. So the performance delivered around $28,000,000,000 in free cash flow in 2017 with oil at $54 per barrel. By 2020, we expect to deliver $25 between $25,000,000,000 $30,000,000,000 in organic free cash flow, and that's at an oil price of $60 a barrel, real terms 2016. Now while this may look ambitious, our performance in 'seventeen gives us confidence that it's also very realistic. So we have close to $10,000,000,000 in cash flow from new projects yet to be delivered in the 'eighteen to 'twenty time frame, growth across our portfolio and continued cash delivery from operational improvements. So as we deliver on this strategy, I think the company is becoming a world class investment. We have canceled the scrip program and subject to progress with debt reduction and recovery in oil prices, we will start a buyback program of at least $25,000,000,000 in the period 'seventeen to 'twenty. And that will be another factor to enhance the per share metrics in the next decade. So as I said, it has been a great year. There's also plenty more for us to do. We must deliver. We must continue also to drive for higher returns as we are delivering on that world class investment case. Now let me first hand over to Jessica, and then we'll come back for Q and A. Thanks, Ben. Good afternoon, everyone. It's good to be here today. Let me update you further on our Q4 results, on our operational performance and on our financial framework. In summary, excluding identified items, on a current cost of supply basis, Shell's earnings in the 4th quarter were some $4,300,000,000 $2,500,000,000 more than in the Q4 of 2016, which represents an increase in earnings per share of more than 130%. On a Q4 to Q4 basis, we saw higher earnings in all business segments. This was driven primarily by higher oil and gas prices as well as improved business performance. You'll note that lower depreciation and a lower effective tax rate, excluding identified items, primarily driven by changes in deferred tax positions, also contributed to these strong earnings. Cash flow from operations was $7,300,000,000 or $8,400,000,000 excluding working capital movements. This is $1,400,000,000 lower than in Q4 2016, primarily as a result of higher tax payments in this quarter, dollars 1,600,000,000 more than Q4 2016. These higher tax payments reflect the outcome of positive developments. They were driven mostly by higher profitability, but also by divestment completions and the overall positive resolution of various tax matters. Cash flow was also impacted by margining on commodity derivatives in our Integrated Gas business. Our dividends distributed in the Q4 of 2017 were some $3,900,000,000 of which $1,600,000,000 were settled under the scrip program. Dividends per share were $0.47 to be compared with $0.52 per share on a CCS basis. Turning to reserves. Our SEC proved reserves at the end of 2017 were 12,200,000,000 barrels of oil equivalent, which is a decrease of around 1,000,000,000 from 2016. Excluding production and the impact of divestments, reserves additions in 2017 amounted to 1,800,000,000 barrels, a reserves replacement ratio of 127%. Our 3 year average RRR stands at an estimated 78%. Let me move to the financial and operational performance of each of our businesses. We delivered very strong earnings and cash in 2017, demonstrating significant improvement year on year. These are good results, which support the full year 2017 highlights already mentioned by Ben. $16,000,000,000 of earnings excluding identified items, $39,000,000,000 in cash flow from operations excluding working capital and $15,000,000,000 in organic free cash flow. This strong financial delivery is a result of improved performance, as well as underlying growth in all of our businesses. The financial transformation of our upstream business is notable. To understand what has happened, it is useful to compare our performance in 2017 with our 2015 performance as the oil price was comparable in these 2 years. Between 2015 2017, our CFFO per barrel of oil equivalent has increased by more than 2.5 times. We've increased our production by 20%, while at the same time we have reduced our costs by 20%. This is truly remarkable progress and we are confident that there's still more potential for us to improve. This will come as the upstream team continues to enhance the performance of our assets. By benchmarking every individual asset, each major activity to ensure we are achieving top quartile performance in terms of availability and cost. Moving on to Integrated Gas. The performance of this business reflects the strength of our integrated portfolio. In the low price environment since 2015, we've demonstrated the resilience of our Integrated Gas business. In 2017, Integrated Gas generated earnings excluding identified items above $5,000,000,000 and delivered $6,500,000,000 in cash flow from operations. This was achieved at $54 per barrel and despite the partial shutdown of Pearl during 2017. This resilience is a result of a diversified industry leading portfolio with supply and market positions around the globe and expertise in each step of the value chain, including the unique marketing and optimization capabilities we have developed. Our downstream business is another example of increased resilience, competitiveness and differentiation. In 2017, our downstream business delivered more than $12,000,000,000 in cash flow from operations. We continue to be the number one fuel retailer in the world. We have the number one lubricants brand, which is supported by integrated manufacturing assets in key markets around the world. And in Chemicals, we saw a record year from an earnings perspective. Operational performance has been an important driver of this financial transformation in each of the businesses. Let's take a bit more close look. Starting with production, our strong performance has allowed us to maximize returns in an improving price environment. Comparing Q4 2017 with Q4 2016, production, operational improvements and the delivery of new projects have played a key role in offsetting the impact of both natural declines and divestments. In Q4 2017, divestments affected production by around 270,000 barrels of oil equivalent per day compared with Q4 2016. I would like to mention 3 examples to illustrate the impact of operational improvement. In Malaysia's Sabah Deepwater, a multidisciplinary team was created to address reliability, resulting in a reliability increase from 86% in 2014 to 95% in 2017. In the Gulf of Mexico, we improved the way we manage the performance of our wells, reservoirs and topside processing equipment. The interventions made in 2017 have the potential to unlock up to 74,000 barrels of oil equivalent per day shell share by the end of 2018 for an investment of around $60,000,000 A third example is our initiative to achieve higher asset availability by increasing the intervals between planned shutdown maintenance activities. By doing this, we've saved around $200,000,000 in costs so far and reduced the deferment of volumes by around 20,000,000 barrels of oil equivalent, while maintaining asset integrity. Moving on to operational performance in LNG, which you can see on the slide as well. We've seen a steady growth in our liquefaction and sales volumes as Gorgon has continued to ramp up and the demand for LNG, particularly in China, has remained strong. And on the 3rd chart on the slide, you can see that in downstream availability for both chemicals and refining has been stronger than in 2016, despite the impact of Hurricane Harvey and a 1 month unplanned shutdown in Pernice during the year. This progress on operational efficiency does not mean we have lost our focus on capital spending. In fact, our capital efficiency continues to improve. Discipline, focus and capital efficiency have allowed us to maintain our investment levels at or below the $25,000,000,000 to $30,000,000,000 range. We can now create more value for every dollar spent compared to a few years ago. We delivered $6,000,000,000 in capital efficiency over the period 2014 to 2017 and we're now working to deliver some $9,000,000,000 to $10,000,000,000 of further capital efficiency savings in the next few years. This represents material savings against the original projected cost of projects. These savings are expected to materialize over time as projects are executed. Simply said, we are able to do the same for less, if not more, we can deliver more growth from the same capital investment budget. In deepwater and conventional oil and gas, we've achieved significant capital efficiency improvements, as can be seen on this slide and the unit development cost reduction. Overall, the portfolio unit development costs have been reduced by some 35% since 2014. Part of the savings comes from our supply chain, more actually comes from the changes in the way we design and execute projects. And new ways of working focused on the realization of value opportunities. Let me give you a few examples. We have structurally worked on key levers to deliver resilient and capital efficient projects. We have fundamentally changed the way we conceptualize and execute projects. We apply more cost effective design specifications, we increase efficiency through replication and improve efficiency further through leaner work processes. The objective is to sustain capital efficiency even if the contractor market heats up again. We are now choosing value and resiliency over engineering achievements. Our focus is on the competitive scoping of our designs, our effectiveness and execution, our ways of working as well as leveraging the supply chain. Through these improved ways of working, safety remains our first priority, with improved safety outcomes typically going hand in hand with better performance. We've also leveraged the benefits of digitalization and standardization to improve capital efficiency and boost operational performance. To cite a few examples, we now have sensors that work in the deepest waters, drones that patrol our most distant oil and gas fields and computerized tools that make use of the smallest pieces of data. The possibilities that technology brings are becoming more and more apparent. From the wearable technology of our teams on-site to the data associated with every action and the finely tuned sensors that yield results. In our drive to make operational improvements and to maximize the opportunities it brings, we work with our suppliers and often ask, is there a standard solution you have that we should be using? We look for something tried and tested, something that can be quickly put to work. We have transformed our supply chain, extracting more value, improving our own demand management, simplifying and standardizing our specifications, and by negotiating lower prices. We drill faster, require less supply vessels and we leverage data to have optimized designs. We're delivering across all of these areas. Let me move to our financial framework. We're making great progress on transforming the company into a world class investment case. 2017 was a year of delivery, an important step forward. We have clarity of purpose, we have a differentiated strategy, and we are reshaping the company to align the portfolio to that strategy. This clear direction is being combined with strong performance. We're pulling key levers to become a world class investment case. To be successful in our industry requires financial strength and a disciplined approach to financial management is an integral part of the world class investment case. The pillars of our financial framework have not changed. To remind you these are, firstly, a conservative gearing level consistent with AA credit rating. Secondly, a dividend policy of growing the U. S. Dollar dividend per share through time, in line with our view of Shell's underlying earnings and cash flow. And thirdly, the distribution of surplus free cash flow to shareholders in the form of share buybacks. This financial framework is underpinned by a clear commitment to strict capital discipline, with a firm ceiling of $30,000,000,000 even in a high oil price scenario. In 2017, we generated some 28,000,000,000 dollars of free cash flow, of which more than $15,000,000,000 in organic free cash flow. In line with our cash priorities, free cash flow was allocated to the service and repayment of our debt, some $16,000,000,000 in total in 2017, and the payment of our dividend, some $11,000,000,000 in cash in total. Gearing was reduced to 24.8% at the end of 2017, down from 28% at the end of 2016. This represents an $8,000,000,000 reduction in net debt over the last 4 quarters. As expected, divestment proceeds have supported debt reduction. At a headline level, we have now completed around $24,000,000,000 of divestments since the beginning of 2016. We've announced a further $3,000,000,000 of divestments, and we can confirm that more than 3,000,000,000 dollars worth of additional divestments are well advanced, all at a headline level. Since 2016, we received some $19,000,000,000 in cash proceeds from divestments and from the MLP with $14,000,000,000 received in 2017. We have clear visibility on bringing Gearing to 20% and generating the cash flow to support a AA credit rating. Over time, I expect gearing to move below 20% to ensure robustness of our financial framework. This will build further resilience to a changing macro environment and provide balance sheet strength to prepare us for the future. I would, however, like to emphasize that although divestments have driven debt reduction, the overall strengthening of our financial framework runs much deeper. It is fundamentally about the strength of the underlying cash flows, improved business performance and a disciplined approach to capital investment. You've already heard about our business performance and our commitment to our financial framework. So before I wrap up, I want to emphasize where we are on cash flow generation. Because of our strategy and our delivery, our ability to generate organic cash flow has grown significantly and we've demonstrated resilience at lower prices. Our cash flow from operations at $54 per barrel is in line with the cash flow from operations we achieved when oil was at $99 per barrel. In 2017, our organic free cash flow achieved levels in line with our declared dividend. This demonstrates the quality of our portfolio, the strength of our underlying performance and our resilience through the cycle. We are confident that we can continue to grow our organic free cash flow in the years to come, with revenues from new projects coming on stream and further operational and cost efficiencies to be realized. As Ben has outlined, we expect to generate organic free cash flow of some $25,000,000,000 to $30,000,000,000 around the end of the decade at $60 per barrel, real terms 2016. We have close to $10,000,000,000 in cash flow from operations still to be delivered in the 2018 to 2020 timeframe, growth across our portfolio and continued cash delivery from operational improvements. So we've made great progress on all fronts. It was this progress and confidence in our financial framework that enabled the Board to cancel the scrip starting with the payment of the Q4 2017 dividend. The scrip was intended as a short term measure. With the cancellation now behind us and with strong performance and delivery against our commitments, we're entering the next phase in delivering the world class investment case. We will maintain our commitment to the financial framework, continue to grow the company and look to increase shareholder distributions over time. We remain committed to our intention to undertake a share buyback program of at least $25,000,000,000 in the 2017 to 2020 timeframe, subject to debt reduction and recovery in oil prices. To offset the shares issued under the scrip dividend program and over time to significantly reduce the equity issued in connection with the BG transaction, and therefore grow distributions to shareholders. We will also balance buyback levels with meeting our ambition to achieve AA equivalent credit metrics as well as the need to fund growth. As we move into this next phase, our financial framework remains unchanged. We are as committed today as we were before to ensure we build our financial strength as our industry evolves. We will continue to strengthen our balance sheet, high grade our portfolio and deliver performance in line with our strategy and purpose. Looking forward to 2018, we remain on track to deliver a wave of new projects. Most of these projects are either already on stream and ramping up or are close to completion. In 2018, we expect more from operational excellence, but also from simplification, standardization and digitalization. With that, let me hand you back to Ben. Thanks, Jessica. So strong Q4 earnings, concluding a very strong 2017. And we entered 2018 with continued discipline, confidence, committed to delivering very strong returns and very strong cash. And with that, let's do some Q and As. Just 1 or 2 questions at a time, and I'm sure we will be able to cover everybody. Can I start with you? Sorry. It's Michele Della Vigna from Goldman. I was wondering if you could elaborate a bit on what would be the trigger to start the buyback program? Is it a 20% gearing? And what would be the key drivers to determine the pace at which you'll execute the buyback from there? Okay. We anticipated that question actually. Jessica has the answer for that. Great. Thank you, Mikael. And we covered this a bit this morning as well. So I'll be consistent with what I said earlier. I can understand the attraction to try and have one metric that will be the trigger when we'll start the buyback program. What we've tried to do is be clear on our decision framework. And what I mean by that is, clear on our attention. So we're very much committed as a leadership team, as a company to increase shareholder distributions. We are clear about our commitment of achieving the $25,000,000,000 in the 'seventeen to 'twenty timeframe. We've been clear in terms of how much cash we believe this company can generate, so the $25,000,000,000 to $30,000,000,000 in 2020. We've been clear in terms of our financial framework. We want gearing to reach 20%. I'd say it's more of a line of sight number than a hard number that we must meet, but we need to have clarity in terms of line of sight with that. But of course, there's other factors as well. There's the macro environment, there's the performance of the business. And all of these pieces come together for a very holistic approach and integrated approach to making that decision. What I can tell you is we have confidence in the cash generation capability of this company. We believe this company will be able to achieve the organic free cash flow of 25% to 30%. We believe we can move the gearing down to 20% and in that time frame be able to start the buyback program. Let me add a little point to that. We have a tremendous sense of urgency, of course, to do this. There's 2 things we have to balance, of course, making sure that our credit metrics are resilient, but at the same time, of course, getting into a buyback program as quickly as is sensible because obviously it's the most expensive way to fund the company. So don't get me wrong, it's the same argument that I made on the script, and you all wanted to have an algorithm for when exactly would we cancel the script, and it's the same sentiment as quickly as possible because it is just not a good position to be in or it's a better position to start buying back. So but again, the algorithm, I'm afraid, will not be revealed today. You are next. And then we go to Deepan. Jason Gammel with Jefferies. Clearly, the cash generation trajectory is quite impressive. But I would say that based on what we were expecting, 4Q seemed a little bit light. And recognize you have made reference to some timing differences. But if I look for instance at the upstream cash generation in the quarter, if I just take earnings less BD and A, the cash performance was less by a couple of $1,000,000,000 So I was hoping you might be able to quantify what some of these timing differences are and whether this is something we get back over time and maybe just emphasize this is not systemic if nothing else. And then just one other quick question on the $1,800,000,000 reserve additions you've made this year. Can you quantify how much of that was price revision related? I'm sorry, just the last piece, I missed that. $1,800,000,000 yes? There was $1,800,000,000 of reserve additions from other. Can you quantify how much of that was price revisions? Okay. Good. So okay. So, indeed, 4th quarter, I think it's important to keep in mind that our Q4 typically is relatively soft from a cash generation perspective. So if you looked at the last 4, 5 years, you would see cash flow typically softens in the Q4. That has to do with normal seasonality of our business, particularly in the downstream business. One, there's seasonality in terms of kind of top line growth, but it's also the tax paying season as well. And so we make some important tax payments in the Q4, which also affects cash flow from operations. So that's in general what happens in the 4th quarter. Specifically what happened in this quarter were a couple of things. Tax played a major role in the story for the Q4. It was a help to our earnings and a hurt to our cash flow. So you had kind of 2 different effects. But the underlying story of what's happening in tax is a positive one. So what's generating the higher tax payment? Three main things. The first one is higher profitability that generates higher taxes. That was around $400,000,000 $500,000,000 of that number was driven by profitability. The second piece of that is divestments. As you divest, there's usually a tax component. Happened to be relatively higher in the 4th quarter as we've been closing out the transactions. And then the third component of that was settlement of some tax issues that we had around the world. We're pleased with how those have been settled. Those are relatively one off. So I'd say about $500,000,000 of that was the profitability piece and the balance are these relatively more one off elements of divestments and settlements. I think that's the main story. There's another piece of the story around kind of the mark to market movements in our business and the margining in our business, those are timing differences. So as you put hedges in place, what you recognize in the financial statement is relative to the future price, but it depends on how those contracts actually close out with the physical. So those are true timing differences. Turning to your reserves question on the 1.8, I'd say around let me I was trying to do the math on that. Less than onethree of that was price related. Yes. I think you had the mic there already or not? Yes. Okay. Sorry. And then I will come to Tippon here. Christian Malek from JPMorgan. Just first of all, I just want to be clear about your capital allocation. So you get to 20%. You've got all this free cash. What do you do then? Do you de gear more? Or do you return it back to shareholders? I just want to understand the priorities beyond your 20% target. And leading into the second question, to what extent will you dig here to prepare yourself for future M and A? And within that M and A, whether it's even if it's a bolt on or more wholesale, what's the priority? Is it short cycle? So U. S. Shale or is it energy? Because you've obviously got the €1,000,000,000 to €2,000,000,000 but I'd like to understand sort of life beyond 2020, what does that actually incur in terms of competing for capital allocation? And third question, your CapEx target of €25,000,000,000 to €30,000,000,000 does that include the efficiencies you've talked about today? Or is that downside to that range? Does that include the efficiencies that you framed in terms of the further technologies and things you're doing on the well? Or does it incorporate? Or could we look at that as downside to that range potentially? Let me have a first go at answering your questions. So I think we've been pretty clear. I think Jessica has also been pretty clear in the priorities for cash going forward. So there's a number of things that we need to achieve. Yes, we need to get the gearing to 20%. That's the point that we have made a number of times. Will we then sort of stick with 20%? No, probably over time, we will continue to get to a the sort of gearing level that we were at before the last downturn happened. When and how that will happen and how we will sort of pace that in conjunction with buying back is going to be, of course, very much an optimization on a quarter by quarter basis depending on how much excess free cash flow we have, etcetera, etcetera. And that's basically the game that we believe me, we will be playing with intense concentration to get it right. Ultimately, we've been very clear on it. We're going to buy back, for starters, dollars 25,000,000,000 worth of shares. The intention, of course, is to significantly take away the dilution that we've had in recent years, both from the scrip program as well as from the BG acquisition. But at the same time, we need to get the balance sheet back into the shape that it was before the down cycle because we want to be ready for whatever comes next. Now whatever comes next is kind of hard to predict. It may be another sort of macro event. May be another set of opportunities or both. We have a policy of not trailing what our intentions are exactly, and I'm not going to make an exception here. But of course, we want to be able to play the game again when the next set of opportunities will come. The capital piece fits in that. We've been very clear. We have been working, of course, very clearly also through what we think are going to be the options, the opportunities and the choices that we have to make in the 2020s. We think the €25,000,000,000 to €30,000,000,000 range is the right range for us to play with. And again, if oil prices are softer, we will have no hesitation and plenty of flexibility to come down. And of course, improved capital efficiency will help us to basically still get enhanced bank for the fewer bucks that we will be spending. But at the same time also, we want to have a company that is resilient, strong, has multiple options going forward. So we still believe 25% to 30% is the right range based on relatively detailed planning and modeling that we have done for all our strategic themes. And 30% is the hard ceiling because we are also very clear that we need to return more to our shareholders if we want to be a world class investment case. I hope that sort of deals with all your points. Tipan, next. Yes. It's Tipan Joffe Lincoln at Exane BNP. Just coming back to cash generation, and I know you may be reticent to talk about one specific quarter. But when I was think when we're thinking about 2018 versus 2017 and the impact on cash taxes of disposals, Just trying to get a bridge. I was just wondering what the impact do you sort of see preliminary in terms of an 'eighteen versus 'seventeen sort of delta, if that's possible? And the second point, could you perhaps explain in layman's terms what happened in terms of the Integrated Gas business? And you talk about the increased margining. Is that transitory? Is that something now that's done and the cash is consumed? I think, Vafi, your Jessica. Good. And I'll do my best to make it in layman terms and I'll get that in a moment. Of it as well. Okay. So your question on 2018, it's a bit difficult and it's not because I don't want to be transparent, but every transaction is completely different. And so for me to give you a sense of kind of steady state, it depends on which transactions close, how they close, their ultimate structuring, etcetera. So that's difficult. I don't think it should be a material differentiator for you in terms of 2018 in terms of thinking about a modeling of our cash flow is what I would say. Okay. Now hedging. So what's the business fundamentals? Let me try and start there. So for a relatively small portion of our portfolio, I think that's important to start with. There's parts that we try and risk manage and in particular cross commodity exposure. So for perhaps buying or selling Brent or buying and selling Henry Hub, where we have kind of a net cross commodity difference, we may choose to try and use derivatives to manage that risk to essentially lock in a margin. That's the business fundamental. Whatever derivative you use will be mark to market depending on those forward curves. So if you have a derivative that's a call or a put on Brent or on Henry Hub, that will be marked over the life of that contract. And depending on how curves move, you either have an unrealized gain or an unrealized loss. This is part of our business. You'll see every quarter for a very long time going back. You'll see that we'll have in our Integrated Gas business unrealized gains losses in the headline number we take that out. And it's not part of our clean earnings. So that's kind of the business piece of it. Now what's the there's another element of it, which is the margining. So those mark to market positions with the exchanges, if you're in or out of the money, you need to post margin. Again, this happens in our business every quarter. You may not always fully appreciate that and kind of all of the entries associated with it. In this quarter, it was part of we had a margin call and that was part of what reduced the cash flow from operations for the Integrated Gas business. Again, it's normal course of business. It's in our numbers. Unfortunately, it was also happening when a lot was happening on the working capital side. So we had some major payables paid down in Integrated Gas Business. We also had inventory increase as well as prices have gone up. That also impacts our inventory obviously and then our working capital. So all of those things came together and made the cash flow from operations look rather low, particularly relative to our earnings at a group level and in the Integrated Gas business. Okay. Ian Reid from Macquarie. Ben, just a question on your kind of new energy activities recently. Like you've now bought utility. So how much of Shell should we kind of think about as a utility style business going forward? I know it's going to take, obviously, some time to be material, but is this a path we should think about in terms of where you're going as a business? And what are you buying utilities for? Is it for the customers? Is it to learn about how they work? Or what exactly are you trying to build here? And should we have a kind of targeted mind for what the size of the market you're trying to access here in regional terms? Okay. Only one question? Okay, good. Yes, let me maybe address something that you didn't say, but what I think I also heard with the word utility, I sort of sense that you were thinking of a relatively low grade business that we are buying. Sometimes we use utility rate of returns to characterize a certain part of the business. Let me just characterize it completely differently. So yes, in New Energies, we said we would focus our strategy on 2 main streams. 1 is basically new fuels, so think of hydrogen, biofuels. These are relatively well established activities, of course, have great adjacencies and similarities to our existing businesses, particularly, of course, the biofuels piece. We are already one of the largest global players. And the other one was to focus on the power value chain. Now what we have done or rather what our strategy is on the power value chain is we want to be an integrated player. So that means that we will be exposed to the generating part of the chain, but also on the midstream part, particularly the optimization and trading end of the chain and on the customer part of the chain. So it will pretty much be analogous to how we participate in the core products value chain, with refining, supply and trading and in the end marketing. And the way we play that chain, of course, is in integrated value optimization, which gives us superior returns than just being exposed to just one part of the chain. And we typically tend to be underexposed to the manufacturing ends, so in the OP analogy refining and in the power analogy generating. So now we think we have, because of that adjacency, very relevant competencies and skills that we will bring to bear. As a matter of fact, we are doing that already in several parts of the world. We are very accomplished power traders. We make significant money on it in places like North America where there is the liquidity and availability of counterparties to do so. But increasingly, we will want to build that capability in different regions as well, and we want to be, as I said, able to optimize and integrate. Now it does require therefore that we are also acquiring customers. You have to be able to have that part of the chain too. That is relatively new or it is a little bit more new than what we have been doing before. We have been selling power to sort of commercial customers already for some time. We have been acquiring companies in the United States in order to extend our trading position much more in a more structured marketing capability. And we have seen that indeed significant additional value can be unlocked. Now we're going to try that and we're going to prove that up, that it works also in places like Northwest Europe, where we believe there is great opportunity to do so. And again, we have expectations that we will have very competitive returns coming from that, particularly in relation to the risks that you run-in that business. So now how big is that? Relatively small, of course, at this point in time. A lot of people tend to think of it for now in terms of capital employed or investment levels. And we said $1,000,000,000 to $2,000,000,000 That is, of course, still relatively modest compared to our overall investment level. If you look at it in terms of capital employed margin, it's even smaller, yes. So but the point is we want to create that platform for us to continue to grow it much faster going forward. What is our ambition? Well, our ambition is to significantly participate in that growing power market. Power is the fastest growing segment of the energy system. We don't know how that growth will continue, where it will end up. There is some expectation that by the second half of the century, power will be more than 50% of the final energy consumption. And we just want to, as a company with capabilities to deploy that, we want to be a competent player in it. That's the philosophy. We are now in the point of proving there are hypotheses and our business models that they actually work in practice. So we are assembling these value chains through inorganic acquisitions. You cannot grow that from scratch like you can, but it takes you years. So that's why we acquire a number of companies in a number of positions, put them together and then accelerate the growth. Okay. I was going to leave next and then pass on to Oswald. It's Lydia from Barclays. Two questions, if I could. The first one, can you talk about the decision making process on CapEx now, just in terms of if you're going from €25,000,000,000 to even up to the top of the range, How are you making a decision on the marginal projects and sort of in keeping that disciplined approach going forward? And how is that different from what it might have been 3 years ago? And then secondly, just picking up on Jessica, the digitization and efficiency program, I think you said €97,000,000,000 of additional opportunities there. Can you walk us through in more detail what you're doing on that and how you're deploying that across the organization? Sure. Do you want me to touch on both or No. Yes, and then I will talk about CapEx as well. Okay. I'll make just a couple of quick comments on capital stewardship and then go to digitalization. And you probably have some things to add to digitalization as well. So capital stewardship, so it has it's been a central theme in terms of driving improvements in the organization. We've put a number of important governance pieces in place in terms of how we think about capital, how we govern and how we make decisions. I think it starts with being clear on what our strategy is and what is the portfolio you want aligned with that strategy and being clear where you want more or less exposure. And I think we've done a very good job in the last couple of years bringing clarity to that. So you all know where there's going to be more capital, it's going to be in our deepwater and our chemicals businesses, because those are our growth priorities. So I think that clarity and thought is important in terms of how you then engage in the choices. I think relatively speaking, we're rich with options. So we've got a lot of internal competition that's allowed for a natural, I think upgrading and high grading of the choices that we have. The last couple of years, the low price environment and our requirement that projects not only are value accretive, but they're resilient. So they work in a $40 world, dollars 50 world, again, has driven a whole new way of thinking about projects. And as I mentioned before, how we design them, how we deliver them, execute them in a very different place. And I don't see how that will shift. And we're maintaining all of those same practices, ways of thinking, decision models as prices have gone up over the next over the last couple of quarters. Digitalization has been probably one of the more important topics for the executive team over the last year. We spent a lot of time on it as a team. There's a lot of things we could spend time on. This has been one of the important ones because we recognize the potential and how important that will be in terms of potentially disrupting our industry. And of course, we want to be the one who's in charge of that. And it really affects now and potentially affects every part of our business, whether it's treasury to operational excellence on a platform, etcetera. There's a lot of initiatives that have been happening over the last couple of years. We've put more thought in terms of how do we really drive that in a different way in the company. We've brought some great external hires in, VP of Digitalization, who is helping us think better about it, who's done these things in other companies, bringing that external thinking in, recruiting a lot of people with the right experience, complementing it with the people who know our business very well. And then we've put in place these pilot lighthouse projects around the group where we're really trying to demonstrate ideas. People have to come up with an idea, translate it into action and impact within a 3 or 4 month period. It's causing us to rethink our ways of working, creating agile teams, etcetera. So it's not just the technology, but it's also the ways of working. So there's a lot of different elements to this that we're working, and I'm really optimistic in terms of what we're seeing in the organization that's organically happening. I think probably for us, the challenge is more how do you take a great idea and replicate it as quickly as possible around the organization. And I think we're getting our arms around that. I expect to see a lot more from the space in the coming years. Not much to add. Okay, good. Oswald? Thank you very much. I'd like to ask a question on marketing. There was some commentary this morning about improved underlying marketing unit margins in the Q4. I just want to know is that a meaningful step up? Where that's coming from? Is that the strategy coming through of non fuel fuel? Or is that more of an umbrella effect, just slightly higher prices in the 4th quarter for marketing? Or is that really the marketing strategy starting to show up? Secondly, I guess in the upstream, the only area that's still a bit negative is South America on an earnings basis with obviously Brazil's in there. I know there's a lot of BG acquisition money in there on the depreciation, but with 2 more FPSOs this year, oil prices where they are. Should we expect some operating leverage in that South American upstream business this year to get back to positive net income? And then finally, I'm just curious, I see your move into Mexico with obviously with Qatar Petroleum getting them in there in quite a big fashion. Does that help you? Or is there something going on where that might help you get into the LNG expansion in their country? Thank you. Okay. Let me take the first and the last one, and then Jessica will talk about South America. Marketing, of course, it's an established strength. It was a little bit of a maybe, I wouldn't say, hidden gem because I think everybody in this room will no doubt fill up with V Power. But it is, I think, maybe something that was a little bit underappreciated in terms of the magnitude, the size, the resilience, but also the potential that it has. We have focused on us an awful lot in the last years, of course, to not only high grade the portfolio, but then also to be very clear with our growth. That's where we want to push a lot harder. John Abbott has come at a strategy called Plus Ultra to not only invest a little bit in network and in growth, but also have a much more aggressive approach to growing margin. And I think what you see is basically the beginnings of that strategy working out. Digitization has tremendously helped us well. It and not only in terms of neat little things that we can do with customers like tap up the filling up pilot that we are running in Rotterdam. You can fill up without being in your car or fare pilots. Maybe some of you will have seen the speculation that we would be going into taxi business in London. We are not, but it is a position we had to take in order to roll out another app. And there are many ways in which we are using digitization to access other segments of the market, but also access a much more sophisticated price management methodology throughout the portfolio using big data, really understanding much more intelligently from multiple sources what is happening and how we should dynamically price in the market. I think that is a is something that again is another example of digitization where we take advantage of complete new opportunities. On Mexico, yes, we are very happy with Mexico, as you can imagine, 9 blocks being 1 out of 19 that have been awarded. We were going after 13, so that was a pretty good result. I like that. What I also like about it, Oswald, is that we had an extremely disciplined process to get to the bid parameters that we would be going for. It's always tempting, of course, at the last moment because you never know how this will behave, but we had a very disciplined process We had exactly figured out which were the tiers, the high quality positions that we needed to be in. Needless to say that we had a little bit of an inside track on Perdido, which we didn't want to disclose. Hence, we only disclosed the well discovery after the bid round. But we I think we knew what we were doing there. We had very clearly staked out what would be the Tier 1 acreage, the Tier 2 acreage and the Tier 3 acreage. And we had some really good bid parameters, which I will not disclose about what it would mean for life cycle breakeven prices. And on the basis of that, we did indeed win all the Tier 1 positions that we were in. I think we won everything that we were going after the PDO, which was good. And indeed, I think 4 or 5 of the blocks we did together with QP, which is good as well. QP is one of our top strategic partners, not just in Qatar but also internationally. There are no quid pro quo. It doesn't work like that. We just have a very good working relationship with QP. So we just exchanged WhatsApp messages between myself and Sal to congratulate ourselves with how we have won. So and that's the extent of it, I would say, at this point in time. Good. So South America, of course, we run the business from a strategic theme basis. So I'll Indeed, DD and A Indeed, DD and A has been significant and impacting our earnings and causing a disconnect between the earnings and the cash flow. As projects come online and ramp up, there should be some natural adjustment to that. Also, more reserves additions also will help the DD and A profile going forward. So it's on our mind and making sure we get that in the right place, but it's also why we focus more on the cash. And the cash generation for the Upstream business, I think you see, has completely transformed over the last couple of years, some $4,000,000,000 for the quarter. And I think that's the substance of it and the value of it's coming out of the cash side more than the earnings side, and that's really what we're focused on. I'll come to Thomas in a moment, but I first want to go to the phones and see whether we have a question there that we can answer. And for our first question, we go to Jason Kinney with Santander. Hi, thanks for your time and for allowing me to ask a question. I just wondered if you could give us some more guidance on where Integrated Gas earnings could move and has the potential to move over the next 3 to 4 years. I know there's a lot of growth. There's a few moving parts in volumes and sales, but ultimately, it's still a bit of a black box exercise on trying to find where the margin is shifting and how supportive earnings and cash flow that business might be? Yes. Thanks very much, Jason. Good question. Integrated Gas, of course, is a very important part of our portfolio, cash engine and a very strong cash engine going forward. Think we gave some pretty clear guidance on Management Day, where we think it will be at the end of the decade. Maybe you want to deepen it out a little bit, Jessica? Indeed. So underlying performance of the business, very strong. We had Gorgon ramping up that will have the full effect of that hopefully in 2018. We also have Prelude coming on stream over the next couple of years, which will also contribute to growing earnings. We're also growing the business aside from our projects. You see increased LNG sales volumes. It's also contributing to more earnings and more cash going forward. We do provide our ambition from a cash generation perspective more than an earnings perspective, and that's the basis of our world class investment case is the $25,000,000,000 to $30,000,000,000 in organic free cash flow at the end of the decade in 2020. And we expect IG to be a major contributor of that of some 1 third or just under 1 third of the contribution to that organic free cash flow. So very strong today and continuing to grow in up to 2020. Okay. Thank you. Let's go back to the room, Thomas first and then pass the front to you. Thank you. Thomas from Credit Suisse. I do apologize. I have three quick questions. Firstly, just on the scorecard for 2017, and we've talked about the positive aspects of 2017. Perhaps we can talk about the negative aspects or areas where things didn't go according to plan excluding per GTL and what measures you're putting into place? Secondly, you had a chart where you showed upstream platform availability or uptime and it's improved significantly now to 95%. But I wondered and I'm assuming the definition is different between availability and utilization rate. So there's spare capacity in Egypt, there's spare capacity in Oman as far as LNG is concerned, and I'm guessing there's a lot of spare capacity in the U. S. Gulf of Mexico. And then finally, a And then finally, a question both to Ben and Jessica. If you had if you can pick one thing, a key lesson from 2017, where you said, wow, what would it be? Thank you. Yes. I think the problem with quick questions, of course, is that I do not have quick answers. But let me try a few, and I'm sure that Jessica will fill out as well if you can specifically talk to availability and utilization. I think on the scorecard, I think you would if you would ask some of our employees, they would probably say, wow, fantastic year, didn't quite show up in the scorecard. And I would say, well, now the scorecard was exactly reflective of the performance because we have a balanced scorecard. So I think we had some outstanding financial delivery. We had some outstanding project delivery. And of course, we have been on a long track record of improving our project delivery, both in terms of schedule as well as cost delivery. And again, these scored very strongly in the scorecard. In general, our sustainability metrics scored pretty good with one exception, which is process safety. So we had more process safety incidents that we had planned or allowed for. We are, if you look at it in the main, still on a downward trend, But that trend was broken a little bit. We bumped up again. We didn't improve as much as we thought we could or should. Now we take a deeper view on process safety incidents. In the past, we only looked at Tier 1s. We now look at Tier 1s and Tier 2s. Tier 2 definition has a lower threshold, which makes it perhaps harder to predict and to meet because there is more variability in it. But I think that part we missed. And I hammer on that very, very stringently because I think process safety goes at the heart of our license to operate. So I do think that competitively, we are not bad when it comes to process safety, but we just need to continue to improve. The other thing which and you said, well, excluding it, but I think in terms of the biggest delta in our scorecard was Pearl. And of course, you could argue, well, we could have seen Pearl coming. It we decided already before Christmas to bring Pearl down, but we decided also not to adjust the scorecard for that. Even though it was before the beginning of the year, we said, well, this is a this was not supposed to happen even though it was a very sophisticated failure mechanism that was very hard to forecast. And we dealt with it all fantastically well and everything else, but it's one of our best performing assets from a cash perspective. If it falls over, the company should feel it. And that's why we kept it unadjusted, and that I think was the single biggest hit to our scorecard. I think the what is the sort of the wow factor for the year? Well, I think it's a little bit what and this is probably my take on it. It is a little bit what I feel about Shell in general. The moment the problem is clear to the organization, the moment people know what it is that we need to focus on, you will see the full power of the matrix, the resourcefulness, the capacity of the people working on it, and we can achieve fantastic results. And quite often, the problem is therefore not so much that we do not have the means or the resources or whatever else to work on stuff. The problem is that we're not clear about the problem. The moment you define Ron very clearly with clear strategic intents and you define it very clearly with linking everybody in the matrix to the bottom line that they are connected to and it needs to be delivered, you will see some amazing performance. And that I think is what we showed in 2017. And that's why I'm confident that we will extend the track record all the way to the ambition that we put out there for the end of the decade. That's good. And maybe just to build a bit on that because what came to mind for me was the power of delivery. So when the organization challenged itself to reduce capital costs and operating costs, particularly in the deepwater business. A couple of years ago, I think many people in the leadership team thought what we're delivering today was not actually possible. And to see why Al Suwan who runs that business set a very high bar, high level of ambition, constructively lead and manage the organization to those outcomes. And now they're looking for the next level of ambition. And that's just been a really fantastic thing to watch and see. And I mean that sincerely. So I think when people deliver, the sense of ambition and what's possible grows. And I think it's been great to watch in a number of our businesses how that's really taken off. So utilization, spare capacity, indeed, I think this is a multibillion dollar opportunity for us. I'd start with availability. It's been a focus of the organization. Operational excellence has been one of the key focus areas in downstream integrated gas. Upstream, there's been improvements. There's definitely improvements you see in the numbers. But I wouldn't say we think we're entirely where we need to be. So I think in upstream in particular, getting above the 90% consistently, I think, is important and there's real value there. Another element of it is the WRFM, Well Reservoir Facilities Management. That's also been an important piece of driving more cash from our business the last year. I think again there's more room for us to deliver in that space. The utilization piece is important. That's part of what's driven our exploration strategy being more focused on near field exploration, because we recognize that's more likely than not the most value accretive lowest cost barrel is the one that feeds into an existing pipeline, an existing platform, etcetera. So in places like the Gulf of Mexico and places where we have older assets, that's been a clear part of our strategy. Also in our Integrated Gas business, a number of our older LNG facilities, There's availability in those facilities as well. So that's an important part of that strategy. Again, we're in a relatively short time frame if we can solve either the resource challenge or the commercial challenge, because it depends on the place, whether it's a resource issue or kind of a non technical risk issue, There's multibillion dollars at play and we've got a lot of teams working these issues across the company. And you would have seen the progress in places like Trinidad and Tobago, but also places like Brunei, Oman, is a very great focus point. I think when we talked about the sort of updated strategy for Integrated Gas, it was very, very clear the number one strategic priority for investment needed to be to backfill the others that we have in existing value chains. Thanks very much, Kerry. Ben, Jessica, thanks very much. Slightly unfair one to start with, but forgive me. If you have a choice to invest, what would you rather invest in? A Canadian oil sands company, Canadian gas company or Shell, given that opportunity is open to you at the moment? Or do your actions tell me where you think the better investment opportunity and returns actually reside? Just a comment on that. Secondly, I just wanted Jessica some detail. Deferred tax or deferred tax and provisions as ever is a large chunk of the cash flow statement €3,500,000,000 or so of cash out. If you could give us any definition and also any commentary on how we might expect that number to move in 2018? That's also probably slightly unfair. And thirdly, just if you want to comment on Hoeghnergen and everything going on offshore the Netherlands at the present time and the potential impact of various pronouncements on the business and liabilities to the business? That's a fair question, isn't it? I thought the others were fair as well. Let me take the first and the last one to start with. We haven't forgotten about the fact that we have some highly liquid securities sitting in the cupboards that we can do something with. And indeed, we have a reasonable position still in CNRL. It's about $3,500,000,000 worth. And indeed, you could argue, why don't you just liquidate it and just use that towards for the debt retirement or whatever? Yes. And again, let me reassure you, we haven't forgotten about it. It's not as if I needed reminding on it. But in the end, we also need to make value decisions on how we play this. So when we divested our Oil Sands position, which was, I think, a very strategic move, the way we could see the assets being valued or rather the value being compensated was partly in cash. That was clear. A certain expectation on what the shares would be worth at the time that we wanted to liquidate them, but also a number of other ways and means we could take cost out, we could do further optimization in the value chain, etcetera. All these things, in my mind, need to play out for value. And therefore, I tend to take a slightly more sort of strategic view on what is the best way to go about realizing all this into cash. And I'm not at all oblivious to the idea that, yes, of course, the longer you hold this, the well, the shares may appreciate, but at the same time, you're also delaying the opportunity to do something with the cash. And that's part of all the equation as well. But it's evident that until now, we have decided to hold on. I'm not going to give you a forecast what I expect of the CNRL share price and what that would mean. That would be unfair. But it but again, let me reassure you that we don't forget about these things. We know what we are doing, and we're optimizing our decisions for value here. On Groningen? And Schuld is a better investment. You said it. It's on Groningen, yes, there is there has been a lot of commotion, which I think is understandable in the Dutch context. And many of you may not be aware of what happened. And I talked about this morning in the media, as you can imagine. And some of the our Dutch guests here today will be able to relate to some of it. I think much to surprise, I should say, and chagrin as well for that matter, the fact that we basically started or rather non started publishing its own accounts last year, which it hadn't done. It was always a part of the Kjell Nederland consolidated accounts. The fact that we disclosed the accounts made it redundant for the company to have a 403 declaration, which was basically a guarantee for suppliers to Nam to just say, you can't see the financial statements of the company, but don't worry, you can rely on Shell to back them up, yes, your the commitments. The fact that we published the accounts, made the declaration redundant was, I think, a straightforward thing. And somehow, in last weekend, this got reinterpreted as Shell walking away from its legal liabilities that it would have if none could not fulfill its liabilities. That was completely unwarranted. It was completely not intended. We tried to explain this. It sort of got a little bit away from us in a very sort of free trial environment with earthquakes, etcetera. So we had to be very categorical about that position. Num is a very strong company financially. It can take on all the liabilities that will flow from damage that has been caused by earthquakes. But the main point is we had to be very clear also to the population of Groningen that they don't have to worry that from its responsibility and that we don't walk away from Nam. That was a commotion that was being caused. It I think it has been sort of put back to bed again. So tax was an important part of the Q4 story. In terms of deferred tax assets, A lot moves in that space given the size of our company. We're operating in 70 plus countries, dollars 16,000,000,000 of earnings. Tax movements will be material and significant. And a lot of the movements that happened in the Q4 reflect agreements we made with different countries on different items and as part of the normal kind of course of business of a company of our size. Going into 2018, it would be difficult for me to kind of give you a sense of how that might play out. What I did say earlier was on the cash tax piece, I think I can be clear what were the main drivers of the variance between last year and this year. I think that's relatively straightforward in terms of the increment of $1,600,000,000 more of cash taxes in the Q4 of 2017 versus 2016. I stepped through that. So I think that gave you a sense of what portion of that might be recurring versus one off. Hopefully, that was sufficiently clear. But in terms of all the other movements, it would be very difficult. And a lot of those, of course, are non cash as well, and that's important to keep in mind. It's John Rigby from UBS. Can I ask 2 related questions on shareholder distribution and one on the numbers? So on distributions, the first is, I think you referenced the conditions in which you'd start a buyback. And I think you talked about strategic performance, visibility on 20%, gearing and recovery in the oil price. Given what you said about visibility on disposals, reference what Lucas just said about €3,500,000,000 in your cupboard. I think you wouldn't that suggest that you have visibility on each of those three conditions for a share buyback right now. The second is on your dividend. I think you said you'd progressed the dividend on underlying performance, which I guess your preferred measure is share is cash flow. But you have quite a big step up in target cash flow over the next couple of years. So should I understand it, there is a certain threshold you would expect to get to, which is sort of consistent with your existing payout before you start to then grow the dividend on the underlying progression thereafter? I'm sorry, that sounds a bit complicated. And then lastly, just on your Downstream. When you do this presentation, you tend to reference Q4 to Q4 on your Downstreams. My impression was that Q4 'sixteen was something of a disappointing result for your Downstream. Q3 'sixteen and particularly Q3 'seventeen were pretty spectacular quarters for your Downstream. So could you just talk through some of the moving parts that get you from Q3 'seventeen to Q4 'seventeen? I understand that refining margins have come down somewhat and marketing margins have come down somewhat, but it looks like there's a significantly greater delta than the macro conditions would suggest. Let me make a start with both of them, and then Jessica will sort it out a bit more. I appreciate the desire for clarity on how exactly the use of the excess free cash flow will be. And we are resisting to sort of reveal exactly how that will work because much of it, of course, will also depend on how things will play out. So there is not going to be an algorithm or a formula that can show you and say, if X and Y and Z happens, the following is going to happen as a result of it. I think what is very important to note is, first of all, that yes, you're right, John, there will be a very significant step up in the free cash flow of this company going forward. And yes, we will have no hesitation to say we are going to limit the amount of use for the free cash flow for extra growth. So in other words, we are going to cap very clearly our investments. And how then exactly the mix of that excess free cash flow will be deployed to buybacks, to dividend growth and to further debt retirement is something that we will play on a quarter by quarter basis. But let's be very, very clear. There will be, 1st of all, a strengthening of the balance sheet. There will be enhanced distributions to shareholders. And we will listen very clearly to what shareholders to say in terms of this. And you may, of course, appreciate it, different shareholders have different expectations as well. Now on the quarters and the comparisons and particularly on the old product side because you talk about Downstream, I think it's probably fair to say let's take Chemicals out of this. Chemicals are pretty straightforward story. The chemicals results for the year are the best ever results of $2,600,000,000 It shows the strength of that business when it's more or less firing on all cylinders and also the reason why we want to continue to grow our exposure to that segment of the economy. But if you look at all products only, yes, you look at Q3, Q3 this year sorry, last year was the best quarter ever. The refining margins were significantly bolstered by Hurricane Harvey and a number of other events that gave sort of almost a blowout of margins, particularly, of course, in North America but also in Europe. We were very well positioned to take advantage of it. So Q3 was our best downstream quarter on record. If you look at Q4, it's therefore a little bit difficult to say, well, let's take Q3 and then do a little bit of a haircut to deal for the with the seasonality effect that we typically tend to have in the Downstream in quarter 4, I think it is more appropriate to look at a Q4 to Q4 basis. Now you may say, well, Q4 '16 was weak, so therefore, it's easy enough to say, well, if it's better, it should be a good story. But let me put it in a slightly wider perspective. This Q4 for the Downstream was the 3rd best Q4 on record for Shell. So this was not a weak quarter per se. This was actually pretty much in line with what we had been seeing and actually on the high end of things, also on our products. Now you said refining margins were just a little bit weak. Well, okay, October was good, November was not good and December was atrocious. So it has been a very significant falloff in margins, particularly in the last few weeks of the year. So I think altogether, if you take that into account, I think we had a pretty credible quarter on our products and a pretty good quarter on the whole Downstream. So on the buybacks and the dividends question, I think Ben did a pretty good job covering that, but I'll say a few more points as well and going back to what I said before. It's very much an integrated decision. I think all the points that you raised in terms of line of sight are valid. We've tried to be very clear in terms of what we think the company will generate over the next couple of years. And I think having that perspective is important. Again, our commitment is to embark on this buyback program as soon as we think it's prudent to do so. It's on the horizon. If you kind of look at our numbers and what we think we're going to achieve by 2020 in terms of organic free cash flow generation, We and which far exceeds our dividend commitments. And through that period between the underlying cash generation of our business, further divestment proceeds that we'll realize this year and next year, our ability to get to the gearing level, I think, is again on the horizon for us. So I think we're very clear in terms of what we're trying to achieve. Ben said it's we're urgent. I was with the upstream leadership team a week or so ago talking about 2018 and what our priorities were. And of course, prices increases, there's a certain amount of buoyancy in the room and also very strong delivery. So the team is feeling really good. It's also a team that wants to grow their business and they'd love to have more capital. And talking about that with them and being very clear that our priorities are as we've said, we're going to pay down the debt, we're going to keep capital investment between $25.30 even in the $70 price environment. And it's important that we embark on this buyback program sooner rather than later. And that's the exact words that I use. So that prioritization in terms of where the excess cash is going to go, I think is very clear in the organization. But again, we want to do this prudently. We want to do it in the right sequence. We started with the script. We're going to work through that. We're going to keep paying down the debt as we've done. We paid down some $12,000,000,000 of our debt last year. That's important to know and recognize. And we'll continue on that journey. And we think the cash generation in the business will be sufficient to not only do that, but to start the buyback program within a good time frame. Okay. We go to Chris and then we do Irene. Thank you. It's Chris Coopman from Bank of America Merrill Lynch. One for you, Ben, and one for Jessica. I was going to refer to your buckets, as you like to call them. There's lots of cash engines there, which I suppose are great. And I've noticed that in terms of reserve replacement, reserve life, your growth and future opportunities, those 3 remaining buckets, don't really contribute, whether it's chemicals, shale or new energies. So would it be fair to say that you are increasingly comfortable with not your 1P, but your 2P reserve life as you look at the future and go, you know what, even deepwater, even LNG now is a cash engine. So just wanted to see whether you could broadly put that into context how you're thinking about the next decade. And lastly, for you, Jessica, I wanted to see, you referred to the internal competition. I'm sure people are keen in this macro environment to FID projects. Whether you could give us a flavor, a, how much of that €25,000,000,000 €30,000,000,000 is committed already and earmarked and spoken for in 2018 2019? And which projects are currently in the lead? That's probably unfair, but maybe a handful. Thanks, Chris. I think I've said it here before. It's and it's not because I do not have a reservoir engineering background, but I am somehow less obsessed with reserves and reserve life than perhaps others might be, including some of you. For me, it's all about the longevity and the running room in the business from a cash perspective. Of course, it is very important to understand how much do we have to work on. So like for instance on the deepwater business that you referenced, it is important for me to understand when is the stock of opportunities that we have in the pipeline, when is that going to run out and when will this business go in decline unless I do something about it? Well, for the we just actually did a very detailed strategic review of the Deepwater business in the board yesterday, so I can use the numbers that are current. But our business, our Deepwater business will be at the level where we will get it to by the end of the decade, well into the next decade. And by 2026, you will see that if we have no success, nowhere and don't add to it, this business will go into decline. So that's the reason why we are working now well in advance on restocking the opportunity set, participating in bid rounds in Mexico and in Brazil. We will continue to look at other bid rounds and other opportunities, also some modest amount of frontier exploration with a view that come 'twenty six, 'twenty seven, we will be ready to start up another tranche and another wedge of new projects. That's the way I look at it. And that's the only sensible way I look at it. I'm not going to look at some sort of R for the deepwater business, which is completely meaningless. I will not make any better decisions as a result of that particular number, particularly in deepwater, which the numbers are all distorted by the way we have to account for the reserves. And the same is true for shales and the same is true for many of the other businesses. We have I have no hesitation to say that all our strategic themes have tremendous running room well into the 2020s. And if there are going to be issues with some of them, it's going to be towards the end of the 2020s. And these are just the normal issues that any business needs to address. I do not want to have discoveries, FID ready projects sitting on the shelf for 10 years that, that would be a very bad use of our capital and our assets as well. So a certain degree of just in time management is appropriate, yes, Not to the point that, of course, you tend to become sort of rather constrained towards the end. So that's the way I look at the business, the longevity, the continuity and the way we can continue to have that business running forward. You're absolutely right also by noting that we're not a pure E and P company. We have a very significant part of our cash flow, free cash flow comes from non upstream activities, whether it's all products, whether it's chemicals. I think in 10 years' time, we'll be standing here hopefully saying, large part of our New Energy's cash flow is meaningful as well. And that gives another form of resilience. It may not give you the massive upside and downside to oil price movements, but it's very, very good free cash flow with relatively limited capital maintenance, which is what I like about that business as well. So I think we have the right approach. We have the right strategy. I don't think we are sort of unhelpfully myopically obsessed with metrics that are meaningless, and that's the way I like to run the business anyway. So indeed competition is strong for capital within the organization, and I think that will continue for coming years. I think we're fortunate for the suite of opportunities that we have in all of our businesses. So all of them are consistently coming to the executive committee and asking if they can grow more with most, if not all, having, I think, good opportunities. In terms of what's committed, so of the $25,000,000,000 of spend, I think it depends what question you're trying to answer. So I think we've tried to give an indication, the composition of that. So if that's what you're interested, there's an important part of that is asset integrity. There's another piece of that, which is kind of small projects, kind of easy growth options that you have within an asset. And then you have kind of the next generation of truly kind of greenfield new projects. Most of our spend is kind of the first couple of categories and kind of a smaller portion of that $25,000,000,000 is that kind of true greenfield new project opportunity for us. If you're interested in kind of the resiliency question, how much flexibility do you have in that 25? I think that's a different question. We can there's a lot of choice we have in that span of 25. It gets increasingly more value destructive, but there is flexibility. We can choose not to grow as much in Mexico with our marketing business. We can choose not to grow as much in Permian, things like that. So if you're there's still a decent amount of flexibility, but it's increasingly value destructive and would not make sense to go below 25. But in general, in January 2018, we have a good sense what we're going to spend the 25 on. So in that sense, it's relatively committed, if you will. There's a little bit of flexibility and choice in there, but most of it is clear in terms of what we're going to do for this year and next. Important decisions that are on the horizon for us with no preference because that's not appropriate, but we're looking at things like our Vito project in the Gulf of Mexico, LNG Canada, another important decision for us in the next couple of years. Our marketing business, which Ben mentioned, we're growing in Mexico, China, India, these are either new or expanding markets for us, relatively low, but those are decision points in terms of how we're growing our business. Irene Himona, Cite Generale. You conduct a lot of your business through associates and JVs. In fact, about onethree of your earnings is from associates. And if I look at the cash dividend, you've got about €5,000,000,000 last year, which is a material amount. I wonder if you can give us some granularity, some rule of thumb, anything as you move on to the journey of delivering the €25,000,000,000 to €30,000,000,000 of free cash flow, what can we expect to see in terms of that €5,000,000,000 cash dividend that you got last year? You want to have a go at it? I don't think I have the number quite to hand, but Indeed. It's an important contributor. Do I see it growing disproportionately? I don't. So we're not relying on that as a major contribution. Most of our growth and our cash flow is going to come from the growth of our underlying our own business. So I think it remains important. It's an important contribution to our cash, but it's not going to be a growing portion of our cash as we grow the business. Okay. We'll do a final question. And you have been very patient with me. So that's the question from me. It's Colin Smith from Panmure Gordon. Just firstly, on the underlying operating expenses that popped up about $600,000,000 quarter on quarter to just under €10,000,000,000 And I was curious to know what was driving that, particularly in the context, I think last year you were talking about being able to keep that number under €40,000,000,000 And given that you've got growth coming through you're already at €9,800,000,000 in Q4, that maybe starts to look a bit of a stretch. Then completely separately, obviously, congratulations on the whale discovery. We look forward to seeing more detail on that. But from my memory, really there has not been much going on in Perdido, at least visibly, since the Perdido project was put in place. So in that sense, it sort of feels like it came out of nowhere. I'm not quite sure whether you think of that as being near field exploration or something that's in a completely different category, because I think when we hear near field, it tends to mean smaller than really big discoveries. And here you apparently have got a very large discovery. So I'd be interested to understand the context of that a little bit more and what you think the follow on potential in this play might be? Okay. Let me take the second question a bit. And then, Jessica, if you want to talk a little bit more about OpEx, where I know you have a particular passion. I think well, I you may have a better and longer history on Perdido. You're absolutely right that it's an area where we have been before quite some time ago. It's an area where we have looked at quite a bit of opportunity, particularly also on the Mexican side. This was long before the opening of Mexico with a view that some of the knowledge we have of that fold belt stretching into Mexico would give us a perhaps unique way of working together with Panex. I think in the end nothing came off it, of course. But it was always knowledge that has intrigued us to look and to go after new opportunities, which we have now indeed materialized in 2 ways. 1st of all, the well discovery. We're not disclosing exactly how big it is. We're also still in the appraisal phase. But the fact that we have 427 meters of pay is perhaps an indication that this is not trivial. It's not going to be tieback project. This is going to be a very material development in its own right. What we would like to do also, and our thinking is reasonably advanced on that, is to see whether we can really accelerate the development of this. Typically, if you look at developments in the Gulf of Mexico, we have been looking at between discovery and first almost a decade. We have set ourselves a target to significantly reduce that time frame, also to significantly reduce our unit development costs. And I think you saw some of that in the slides that Jessica showed, the ambitions that we have. The Whale project will be a great test bed to see how fast we can go and whether we can indeed take advantage of certain replication ideas to just really bring this into a fast track development. So fast track development in this way will not be a tieback, but a new development, but on a really rapid pace. Maybe you want to close out on OpEx, I think it would be actually quite appropriate. Good. Excellent. So OpEx, perhaps give you a little bit more of a flavor in terms of what's driving that performance in the year. Very pleased with where we landed the year in terms of underlying $37,500,000,000 well below the $40,000,000 And that reflects delivery across the portfolio, huge focus on our above asset costs, our overhead corporate costs, whatever you want to call it, where we've had a real impact. Finance function, we've reduced costs by roughly a third over the last couple of years, either by offshoring being an important piece of that. So the growth of our business centers in places like India, Poland, Manila. Increasingly more work is being moved there. So that I think is real sustainable change. And important to note, it's not just about costs, they're also creating a lot of value for us in the company as well. So a lot of good underlying delivery that's translating to that lower cost basis. There's also some one off helps in there. So speaking to your point around how sustainable it is, and I think it's an important piece in there is a lot of reduction in our D and R in the year. If you looked at our balance sheet, our D and R provisions went from $25,000,000,000 to $20,000,000,000 over the year. Some of that flowed through the OpEx as well. Great story. So the same impact we've had with our P and T organization reducing cost in places like the Gulf of Mexico and our unconventionals business. We've applied the similar thinking to our decommissioning and restoration And that value is coming through both on the in terms of our balance sheet exposure, but also in the OpEx. A lot of change in the portfolio. There'll be some pluses and minuses with that reducing cost. But importantly, with the Motiva transaction, we're now consolidating. That will bring another $700,000,000 or so of OpEx onto into our financial statements in 2018 relative to in total. So there's actually some of it showed up in Q4 as well. So those are indeed headwinds. What I'd say is our ambition is to keep on pushing the organization and we think there's more opportunity. I personally believe there's more opportunity with standardizations, simplification and digitalization. I don't think we're done. But there are some headwinds and we are growing the business. My business reminds me of that quite often. But again, I still think there's opportunity, and we need to keep on that agenda, and we will in 2018. And let me reassure you that Jessica is not the only one who thinks that there are more opportunities in OpEx. I think that is completely shared not only by me but also by our Business Directors. Let me just remind you a few dates before we close. And first of all, thank you very much for all your questions. I know there are a few more questions in the room, so we will be available, of course, after this presentation outside as well. But just a few dates. On the 26th February, we will have the LNG team present to you here in London the outlook for supply demand. I know that LNG is still very much a topic on people's mind, how is that playing out, And maybe less so than a year ago, but it's still very important and instructive to come listen. And then we have the Downstream leadership team, and they will host a Downstream open house for investors on the 21st March also here in London. And then of course, we have our Q1 results on the 26th April, and Jessica will be presenting those. And I'm sure we'll be looking forward to them. So with that, thank you very much for your attention, all your questions, bearing with us a little bit longer than we had planned. But hopefully, we can continue discussion for those of you here in London outside the room as well. Thank you again.

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