Earnings Call: Q3 2016

Nov 1, 2016

Welcome to today's presentation. Louise announced our 3rd quarter results this morning. Hopefully, you've had a chance to review. And I'll begin with a summary. And of course, there will be plenty of time for questions. I am also joined, I should note now, by Martin Wetzler, Director of Integrated Gas and New Energies. Martin will join for the Q and A session. We have a prompter slide for you, prompts you with a few questions. We thought it would be useful if business directors join me on these calls from time to time. So before we start, just let me highlight the disclaimer statement. Shell delivered better results this quarter, reflecting strong underlying operational and cost performance. Thus, lower oil prices continue to be a significant challenge across the business and the outlook does remain uncertain. We delivered some $3,000,000,000 of underlying CCS concussive supply earnings in the quarter, dollars 7,000,000,000 over the last 12 months. The integration of Shell and BG is now essentially done. It's been completed well ahead of plan. It's worth a reminder, it's essentially 19 months since we announced this deal. We spent 10 months completing it, 40 major regulatory approvals, no value given away, 9 months on integration, all the value now embedded in plans. The integration is proving a very important catalyst now though as we make significant and lasting changes to either combined company's working to the combined company's working practices, to our cost structures and, of course, overall to the portfolio. Our underlying operational costs in 2016 are already at an annualized run rate of $40,000,000,000 That's a quarter ahead of when we suggested we would achieve this, which is by the end of the year. And that's $9,000,000,000 lower than Shell and BG costs were together in 2014, $9,000,000,000 They should reduce even further on a like for like basis as the deal synergies and the ongoing other performance improvements continue to be delivered. We are delivering on lower and more predictable investment plans. That'd be around $29,000,000,000 this year, of which some $3,000,000,000 is non cash. Next year, capital investment 2017 is expected to be around $25,000,000,000 which is at the low end of the $25,000,000,000 to $30,000,000,000 range we've previously communicated. We are currently actively working 16 material asset sales, material meaning above $500,000,000 or more, that's as part of the $30,000,000,000 overall divestment program 2016 through 2018. And simultaneously delivering profitable new projects. This is the biggest driver of the long term performance. The start ups this year, 2016 alone, are expected to add more than 250,000 barrels of oil equivalent per day when we're fully ramped up. Turning now to the financial results. Excluding the identified items, Shell's CCS earnings were $2,800,000,000 That's an increase both year on year and quarter on quarter. On a Q3 to Q3 basis, we saw higher earnings in Upstream and in Integrated Gas and lower earnings in Downstream. The return on the average capital employed was 2.8 percent. Cash flow in the quarter, dollars 8,500,000,000 that's cash generated before investment. Dividends distributed in the 3rd quarter were $3,800,000,000 dollars 0.47 per share, of which $1,100,000,000 was settled under the scrip program, so $2,700,000,000 in cash. Brent oil prices, dollars 46 was some 10% lower than a year ago 20 15, though almost exactly the same as Q2 'sixteen. Realized gas prices, some 30 percent lower than we were in Q3 2015. Salvos lower oil and gas prices reduced the results year on year by around $1,000,000,000 and the refining and trading results were also significantly lower than the same quarter last year, reflecting relatively weaker global refining conditions. Offsetting this, of course, the uplift from the BG volumes, the lower costs despite the increase related to the consolidation of BG and lower well write offs, they all combined to deliver a profitable quarter despite those lower oil prices. The usual waterfall charts by business are provided in the backup material where you find details of the earnings for each business segment. As is normal for large transactions and it's worth reminding, BJ was a $64,000,000,000 transaction. We have been reviewing the accounting treatment quarter by quarter and we intended in Q3 to put as much of this on a sound basis to go forward as possible. That has resulted in an increase in the goodwill of around $1,500,000,000 total goodwill, dollars 10,500,000,000 and some adjustments to the premium price allocation and the way that we then depreciate that. So there was in the Q3 a help to earnings of some $250,000,000 in the Q3 earnings. This was as a result of the revision of that PPA. Now you see full details of this in the results announcement. Moving on to production. The headline oil and gas production for the Q3 was 3,600,000 barrels oil equivalent per day. That's 25% or a quarter higher than Q3 last year. Of course, the uplift from the BG acquisition accounts for most of this increase. But I think it's important to point out at the same time that our overall upstream operating performance continues to improve. There's a focus on margins, on reliability and available uptime for the facilities that's really delivering to the bottom line and doing all of that while we're seeing quite a substantive decline in the operating cost. The liquefied natural gas or LNG volumes also higher, obviously, also impacted and helped by the BG acquisition. Turning now to the cash. Priorities for cash have not and I expect will not change. Debt reduction is top of the agenda, followed by support for the dividend. And then we think about capital investment and share buybacks. Cash generated from operations 12 month rolling basis was some $17,000,000,000 or excluding working capital, dollars 21,000,000,000 And that $21,000,000,000 at an average Brent price of around $42 a barrel. The cash balances in the quarter on the balance sheet increased by $5,000,000,000 We had $20,000,000,000 or so on the balance sheet. And that was a result of the free cash flow performance and the increase in the gross debt. Depreciation for the Q3 was 6 $200,000,000 On an underlying basis, this is around $5,500,000,000 We are expecting an annual DD and A or depreciation charge of around $22,000,000,000 on today's portfolio. Downstream is just over $3,000,000,000 of that and that's been a relatively constant figure, the remainder being upstream. That is clearly $22,000,000,000 is a substantially increased number with the new portfolio. 2015, the number was around $17,000,000,000 That uptick reflects new projects on stream as well as the addition of BG. So, our gearing, net debt divided by total capital employed at the end of the quarter was 29%. Now, as we've said before, we manage the company through the down cycle pulling on significant financial and operating levers. So let me update you on that, all 4 of them. So firstly, asset sales. We are using divestments as an important element of the strategy to reshape the company, not just the balance sheet, but to focus our activities. So up to 10% of Shell's oil and gas production is earmarked for sale, including several country positions or exits and a number of midstream assets to the Masprit Limited Partnership or MLP in the U. S. And also some downstream positions. As of today, we have 16 separate asset sales transactions above $500,000,000 in progress. Only 6 of them are shown on this slide. This is the transactions that have been announced or completed and those that are known to be in progress. This is consistent with all previous statements, increasing cash contribution towards the $30,000,000,000 divestment program and the $6,000,000,000 to $8,000,000,000 to be visible this year. So it is a value driven and not a time driven divestment program. And clearly, it's an integral part of the portfolio improvement plan. It is about high grading the portfolio and focusing not just the balance sheet. We're not planning for asset sales that give away price and there is no reason today to think that we can't achieve the $30,000,000,000 figure with that proviso in mind. Year to date, there are $5,000,000,000 of divestments visible to you on the slide. Getting us closer to the $6,000,000,000 to $8,000,000,000 guidance we gave you for 20 16, we'd expect to be in that range. And we have clearly further deals in the pipeline to deliver and to progress at least a similar amount in 2017. I'll move on now to overall spending. The second and third investment and operating cost. We continue to reduce capital spending, and we continue to reduce costs across the board. Capital investment for 2016 is on track, dollars 29,000,000,000 of which $3,000,000,000 is non cash. Capital investment for next year, new statement, is expected to be around $25,000,000,000 the low end of the $25,000,000,000 to $30,000,000,000 range we previously advised and also likely be a couple of $1,000,000,000 there that is non cash. Our underlying operational costs in 2016 are already in Q3 at an annualized run rate of $40,000,000,000 That's a quarter ahead of the plan and the intent that we previously highlighted. In 2014, dollars 9,000,000,000 in 2014, dollars 9,000,000,000 And it should reduce further on a like for like basis. We haven't yet finished with all the deal synergies and some of the performance improvement programs that have delivered the €9,000,000,000 still have some way to go. In short and very simple terms, we just did a $64,000,000,000 acquisition. We've absorbed BG's entire cost base and spend into Shell this year. No increase. We're running the combined company for the same cost and broadly speaking, the same investment level. So, no increase overall on a combined basis. The 4th lever, of course, is delivering profitable new projects that turn investment or negative cash flow into very positive free cash flow. This is the largest single lever over the medium and long term in terms of improving our financial framework. By 2018, the start ups since 2014, so over a 4 year period, in the 2 combined portfolios should be producing more than 1,000,000 barrels oil equivalent to date. Almost all of it high margin, equivalent to around $10,000,000,000 of annual CFFO at average $60 oil prices. The cash operating costs on this set of projects around $15 per barrel and the statutory tax rate around 35%. So, you can see high margin, both earnings and cash. In the 3rd quarter, just closed, saw the start up of stones in the Gulf of Mexico, it's 50,000 barrel a day, 100 percent Shell. The first cargo from Gorgon in Australia and the first export of crude oil was achieved at Kashagan in Kazakhstan. I'll just turn now to the LNG supply and demand and the market dynamics that we're seeing this year to date and maybe some questions arise for Martin later. The LNG industry is clearly in the midst of a large series of supply capacity additions, no surprise as most of them take 4 or 5 years to deliver. Over 100,000,000 tonnes per annum of LNG capacity is either under construction or has recently started operation. The majority of these capacity additions are in Australia and the United States and America. As a result, in comparing the same period last year, so far and this is a 9 month figure, So far during 2016, the market has grown by an additional 12,000,000 tonnes of volume and most of that has been supplied from Australia. But obviously, that gas has to go somewhere. So, we're seeing a healthy growth on the demand side and that's more than compensating for the declines in the North Asian markets and Latin American market, which in itself is more a reflection of rain in Brazil and extra hydropower. This year's demand growth has been especially strong in the Middle East, particularly in Egypt, in Jordan and Pakistan. Middle East LNG demand overall has gone up by around 8,000,000 tonnes. The growing role of India and China in the total global mix has been lower than the year's LNG growth as well. Each has increased by approximately 4,000,000 tonnes so far. In the case of China, the increase is mostly the result of a ramp up of contractual volumes including from ourselves. Whereas in India, we are observing the effects of lower prices, changes in policies around power generation and fertilizer and lower domestic production. As a result, the global LNG market is relying less on Europe as the LNG balancing market with benefits of LNG finding its way to an increasingly larger and more diversified customer base. And Martin, I'm sure, can go into more details on this in the Q and A because clearly, as we go forward, a lot of value delivery from Shell and from the acquisition rests in how we are able to take advantage of that great LNG position on a global basis. So, to summarize, our investment plans and the portfolio actions that we're now taking, they're focused firmly on reshaping Shell into a world class investment case. It will beat us at all points on the oil price cycle because we aim for stronger returns and improved free cash flow per share. We are making good progress. You can see it in the results today towards this aim in spite of the current challenging market conditions. In parallel with the integration of BG, we have actually been managing the company on an overall sense through the down cycle. We are reducing costs just about everywhere. We are reducing investment levels and we are simultaneously executing the divestment. And most of all, we are now seeing the start up and contribution from the profitable new projects. So with that, I'd like to move on to the questions. As I noted, Martin is here with me as well. Please could we try and restrict ourselves to 1 or 2 each so that everyone has the opportunity to ask a question. Come back again a second time if you want to follow-up. So thank you for listening. Operator, please could you poll for questions? Thanks. Thank you, sir. We will now begin the question and answer session. We will now take our first question from Oswald Clint from Bernstein. Please go ahead. Thank you very much. Yes, maybe one question each please. Simon, just on the gearing number, the 29%, I think you've guided it pretty well the last 6 months or so saying it should trend up in short term, which it has. But as you look at these numbers today and your CapEx guidance and your trajectory back towards the 20%, is that something you feel is certainly on the cards as we enter 20 17? Is that a kind of gearing number we should think about as maybe by the end of 2017, please? That would be the first question. And since Martin's here, I'd like to ask about the Singapore LNG contract that you've just announced. I mean, I'm curious, is this more of your short term gas in your portfolio or your short term gas you're allocating to Singapore? And is that happening at certainly a better price in terms of our modeling? And then also I noticed that the there's been a new 0.5% sulfur cap on Maritime fuels last week announced by 2020. Is that kind of feeding into your aspirations for LNG into transportation? Is that something we should pay particular attention to, Martin, please? Thank you. Oswald, thanks. I'll leave the second question to Martin. There's a great story there, particularly on your second point on sulphur and marine. 29% gearing, indeed, we guided well. If I just step back a year, we were talking about gearing in the mid-20s post BG. So what's changed since then? A couple of things. One is that the oil price has stayed lower. That's probably cost us several percentage points, probably 3 plus. The divestments have been percentage point. But importantly, you will have picked up hopefully that the finance leases that we have recognized will have added to the gearing. These were operating leases in the BG books and we've actually added further finance leases both in Brazil and in the Gulf of Mexico since we completed the acquisition. And the total effect of the leases has added 2 percentage points to the gearing. On the flip side, our overall performance has been better and we've delivered much lower costs, so that's helped the gearing. But overall, we're around 4 percentage points higher, but 2 of those don't really count on the grounds that it's just an accounting change. So, it's slightly better off in that sense than one would hope for. How do we feel for N 2017? Well, certainly N2016, it could go slightly up or slightly down in Q4. It will depend a little bit on divestments and oil price. But perhaps just to wind back to the CFFO, the cash flow statement and tell you how these numbers flow through to us. The Q3 was good cash generation, but it's never really insightful to look at a single quarter for cash generation. So if we look at the 12 months, let's go back 12 months, 8 months of the BG included there, of course, We delivered $21,000,000,000 of cash flow excluding working cap. If we that was a $42 $42 oil price. If we adjust that back to today's oil price, you can probably add $4,000,000,000 maybe more $1,000,000,000 If you adjust for not only an extra 4 months of BG, but a clearly improved performance in terms of production and lower cost. There's another few $1,000,000,000 there. And as we go forward into 2017, we will take more cost out and we will deliver more from the projects that are coming on stream now because most of the large ones, Gorgon, Stones, Kashagan haven't yet contributed to the bottom line. We've got 2 more FPSOs in Brazil to come in Q4. We have Playa, Esquhaly and Malachi. We are investing in the Permian. And there is quite significant cash flow growth to come. So you can easily see a logical path to a low 30s cash generation even at today's oil price. We are then looking at next year's capital investment, maybe $23,000,000,000 or so of cash and a $10,000,000,000 cash dividend. So absent divestments completely, it is not unreasonable to balance the books next year. Therefore, divestments could contribute directly to bringing the debt down. I would be a little disappointed if the oil price stayed where it is and the gearing was still 29% at the end of next year. If we deliver this plan, we should be in quite a bit better position than we expect to end 2016. So hopefully that helps cover a few of the issues around gearing because it's not as simple as just the outcome number. Martin, can you enlighten us on Singapore LNG and some of the opportunities in LNG into transport? Mr. Wetzler, please ensure your mute function is turned off. Thank you. Let me cover that question then. Singapore Can you hear me? I'm trying to speak into the phone, but I'm not sure. Is it working now? Simon? Yes. Martin, go ahead, please. Yes. Sorry, I appear to have lost the line for a moment. I'm dining in for someone else somewhere else. So yes, we're very pleased to get the Singapore license awarded. We inherited from BG, of course, a 3,000,000 tonne exclusive license that was almost full in the sense that they had contracted 2,700,000 tons. And these are this is a right to contract long term volumes. So, we've now been able to add to that another 1,000,000 tonne long term tranche into Singapore. So in total, we'll be selling 4,000,000 tons of LNG long term into Singapore. And so this will go this will come from our portfolio, but it will reduce our near term and long term length by another 1,000,000 tonne of premium market access. So, we're very pleased with it, but it's not necessarily only focused on short term volume. The volumes will be well into the 20s early 30s. And interesting in this case, we are able to serve our own demand. We have 700,000 tonnes of LNG demand with the Phukom refinery and the Jurong Chemicals Complex that we are now able, as of 2018, to serve through the Shell network and integrate the whole value chain. On the transport, indeed, we've been focused on LNG to transport as a transport, because the heavy transport can't electrify. So gas would is quite likely the kind of destination energy source for heavy transport. And if you convert the current shipping market to LNG in its totality, you would find about 250,000,000 tons of extra LNG demand. And on the onshore heavy trucking and long distance market, it would be about 500,000,000 tons. So that would together be 3x the current global LNG supply. So very, very important material sector for us to slowly unlock. Also, these sectors have good affordability. They don't have coal as an alternative of other sources. Essentially, the alternative is oil. And that's a price link that we like competing with in the gas side. So the IMO decision to cap sulphur emissions down from 3.5% to 0.5% is a very big step change in the shipping business. And what it will require ship owners to do is to either install scrubbers to try and bring their shipping missions back to within this limit or to shift to LNG. And what we see now at quite a rapid rate is that new builds in shipping are shifting to adopting LNG and that some of the over ships are actually being considered for putting gas turbines into the ships. So very positive development for the LNG business. We are well placed. We've been investing ahead of the curve in this business. We have supply points in Europe. We have won the supply points rights in Singapore. We are setting up supply points in Gibraltar, in the Middle East and in the Americas and recently celebrated a somewhat iconic contract with Carnival Cruisers and who ordered a total of potentially up to 13 big cruise ships to run on LNG. We ordered we got the exclusive rights to supply them as they come on stream. So I think this is big news for the industry. It will still be a ramp up of volume over time as shipping industry and trucking industry converts. But it is a major new sector with good affordability and a sector that given our downstream industry our downstream footprint, we are very well placed to serve. Many thanks. It's a great story. We'll take the next question. Our next question comes from Thomas Adolff from Credit Suisse. Please go ahead. Afternoon, guys. Two questions for me as well. One for Simon and one for Martin. Let me begin with Simon. Maybe if we talk about if we look at your priorities for cash, you've mentioned that debt reduction is a top priority. But perhaps if I put it differently, is maintaining the A credit rating status more important than preserving the dividend? That's my question for Simon. And for Martin, I think you talked about or you've given some unrisked figures in terms of upside from LNG to transport, etcetera. But if you had to give a risk figure for the IMO related demand growth to say 2025 in addition to a risk figure for SSRU related demand growth to 2025, what would that be for the LNG market? That would be good. Thank you very much. Thanks, Thomas. Again, I'll obviously leave the LNG for Martin. Priorities, number 1 is debt reduction. We need to bring the debt down. The question between credit rating and dividend is one I hope not to have to face in practice. At the moment, as I hopefully just indicated, it's tight and it's close and it does require oil price to stay roughly around 50. But we should be able to manage reasonably well through the next 12 months. It is clearly important. The debt reduction is a proxy for maintaining the credit rating. The credit rating is very important. I think we could effectively survive 1 notch further and we're AA with 1 rate agency and A with the other, so 3 notches different. So we could survive some level of downgrade as long as it was clear how we were going to get those ratings back. And the best way of getting the ratings back is fundamentally to work on the numerator of all the ratios. So take costs out, keep it out and deliver those new projects. So each quarter, we see a little bit more there. But clearly, it's the divestments that reduce the denominator, the debt in the short term. I think we have to do both to ensure that we keep both the debt markets and the equity markets happy and comfortable. And I'm always quietly confident that the underlying performance of the portfolio is moving into a position where we can achieve that. Martin? Yes. Thanks, Simon. If I start with the with LNG to transport and that's the one with the biggest range of uncertainty, but that range probably crept up this week with the IMO announcement. The range I would use for the 2025 volumes something in the range of 35,000,000 to 60,000,000 tonnes of LNG to go into transport. That does include road, which isn't affected by IMO. IMO is only for ships, but road LNG for road transport is also ramping up over that period. It would then into the 2030s could well potentially break 100,000,000 tonnes before the end of the decade if growth indeed continues. And this partly depends on the infrastructure being built, of course. If you then look at the rest of the LNG market, we see it grow between 150,000,000 and 170,000,000 tons between now and 2025. And your question was about FSRUs. And there's, of course, also market growth into onshore terminals that are not floating regas units, but basically countries like China and India, but also Europe where basically where not FSRU is used, but larger tanks on tanks in imports. The shift it's probably about a third FSRU is 2 thirds bigger onshore import facilities, if I got your question correct. The FSRUs are predominantly Africa, Latin America, Middle East and Southeast Asia, on land infrastructure very much built into China, into Europe and to some extent and India is a bit of a mix. So that's what the import picture looks like. So you've been looking at a range of about 420,000,000 tons and a high end of 440,450, depending on exactly how fast the transport business indeed grows. All by 25,000,000. Our next question comes from Deepan Doddlingen from Exane BNP Paribas. Please go ahead. Yeah. Afternoon, gents. Two questions, please. Firstly, Simon, could you just talk about the scenario then beyond paying down debt, how we should think about the group turning off the script? So what type of debt metrics should the market look for? Or is there a signal on the oil price at a particular level where you think the script can be removed? Because it is arguably dilutive or increasing that dividend burden in the long term. Second question is hopefully relatively vanilla. Just could you give us an update on Prelude and start up and what remains to be done in terms of commissioning? Thank you. Many thanks, Deepan. It's quite handy having Martin available. I'll pass probably to you because it's your project, Martin, but not too many details, please. Scenario beyond debt reduction, a key trigger, you will feel and we will feel comfortable that the financial framework is rebalancing in our favor will be to turn off the scrip dividend. Fully agree with you that the dilution and the additional dividend are not something we want to live with forever and would like to address as soon as possible. It's this combination of 2 factors likely, Tipan. First, we actually have to get the metrics moving in the right direction. The debt must be coming down, but it must be doing it in a sustainable way so that we don't take the script off and 6 months later find ourselves having to put it back on again or feeling that was the prudent thing to do. So I've said before, we need to have line of sight to gearing of 20%. That, to be honest, is just a good proxy for the overall rating metrics. And indeed, where the oil price settles out will be important. Now for the next 12 months, we see the oil market by and large imbalance in terms of supply and demand. Thereafter, it's likely that demand that continues as it is will outstrip supply. And where the oil price settles out in that period will be a factor, no question. But before then, I think we need not only to deliver, if you like, the organic cash balance that I talked about, getting the cash generation up into the low 30s, but we need to deliver some divestments and that will start to turn the metrics. But really you need the net debt heading down more towards 50s and running in the 70s before we would look at the script. But it's really about being confident in the sustainability and not just one offset of numbers. And Martin, prelude? Yes. Thanks, Simon. I was and Deepan, of course. I was recently on Prelude to review progress. We've been busy steam blowing in the Q3. That's getting close to being finalized. So we're really into a period now where the major construction work is over and we're into starting commissioning, handing over to operations and working things up. So previous progress is solid. It is as per our plan, which means that the message about getting substantial cash flow from Prelude in 2018 is still very much on and increasingly looking derisked as we progress this project. So going well and looking forward to cash in 2018. Great. Thanks, Martin. Next question, please. Our next question comes from Jon Rigby from UBS. Please go ahead. Yes. Thank you. Two questions. First is, the quarter this quarter looks resembles much more like a quarter at the current macro that I expect Shell to deliver. 2Q didn't. And I know at 2Q, it was a bit of backwards and forwards about why it was such an odd quarter. And I just wondered whether with a bit of time after the 2nd quarter and also reviewing the 3rd quarter results, whether there's any more insight into that delta 1Q to 2Q, 2Q now to 3Q that can share with us? And maybe sort of confirm that the Q3, as you would see it, is much more sort of resembling the financial operating performance of the underlying business, if that were possible? The second question is just on the Downstream. The marketing result looks a very, very strong result. If I look back against history, when you have disclosed those numbers, it looks right at the top end. And yet, if I look at the macro, it's not obvious that it was a quarter where marketing should do fantastically well. It wasn't we didn't see a huge drop in oil prices. It wasn't obvious that demand was going very strongly. So I just wondered, are you able to sort of share something about why marketing was such a standout result in the quarter? Thanks. Sure. Thanks, John. Important question in the first one, certainly. It was not easy to explain Q2 because there were quite a lot of small factors that in and of themselves were a bit one off and some of them have reversed in this quarter as well. So about $400,000,000 has come back into the Q3, most of which, in fact, all of which shows in the upstream results. In fact, Martin has got $100,000,000 negative, upstream probably got close to 500,000,000 positive. I talked about the adjustment to the PPA or the purchase price allocation, premium allocation from the BG acquisitions. So there's been a true up of depreciation. And actually, in practice, a reduction of that step up on the PPA, while we previously talked about $300,000,000 a quarter. I think going forward, that step up will be more like $200,000,000 a quarter, although it will grow over time as the production continues to increase. And then there's a couple of tax items, which also either reversed or a one off in the Q3. So Q2 underlying understated to an extent, Q3 slightly overstated, Q3 is more representative, although I would note that refining margins in downstream were particularly weak and the chemicals still have more earnings and cash generation power when all the crackers are running. So there is clearly in the Q4, what we will be watching is, 1, the oil price 2, that the costs come out and stay out sustainably and 3, that the new projects is all the ones I sort of talked about, Gorgon, Stones, Kashagan, 2 FPSOs in Brazil, they didn't actually contribute a lot to the Q3 financials. They should all contribute more to the Q4 financials. So an uptick of revenue generation, continuing lower cost and the oil price being at 50 for at least a month should help the 4th quarter and both should be more representative than the 2nd quarter was. I did also say that we expect that '16 is a transition year. We just banked together 2 enormous companies. There will be a little bit of noise in the results. We tried to take as much out as possible in Q3 so that we are cleaner going forward into the new year and that 2017 would be an easier year, not just for you, but for us. Downstream marketing, indeed, it's strong, but fundamentally, we are seeing premium marketing. It's working for us. In retail, we're getting a stronger unit margin from penetration of V Power and management of the price demand elasticity. Lubricants, we are very well placed in some very important markets, particularly in China. It continues to grow successfully. And again, premium product penetration, so stronger unit margins, is making a difference. We're about 30% up year on year in terms of contribution from marketing and that's good. But it is sustainable. It is a result of a significant number of genuine marketing problems. We're not just wholesaling and moving the molecules. We are marketing. Finally, we did actually, So, So, our actual aviation margins were better as well. So, strong performance across the board, but sustainable. It's not just a one off. Thanks, John. Take the next question, please. Next question is from Rob West from Redburn. Please go ahead. Hi. Thank you very much. I'd like to ask my first one on the GOM. I think there's a couple of wells in the Southwest part of your North Flat acreage, Leesburg, Castle Valley, one other called Dover. Is there any update on that this quarter? And just looking back at the well you announced last quarter, is that something that could become a hub around the Southwest of that position? Or is this stuff all just tiebacks to Appomattox? That's the first question. The second one is just maybe for Martin, maybe for whoever you who prefers it. So I was just interested if you can say anything about the onerous contract provisions you took in LNG and just a bit of what's behind that? Thank you. Many thanks, Rob. I'll handle the GOM. I think the owner's contract really is gas tolling into Spain. So Martin, can you cover that? But on the GOM, you're right, the North Look Place in the Eastern Gulf of Mexico, and we were the 1st in there. And we're effectively partnered with Nexon, but there aren't many other people in the region. The Apo discovery keeps growing, both from nearby discoveries and itself. We took the FID on Appomattox last year. We have seen the original breakeven price around $55 We've continued to take costs out so that breakeven prices now starts with a $4,000,000 and we're continuing to look for further opportunity. And one of the things that's helping is greater volumes. You're right that Rydberg last quarter was a success that we are now drilling in Castle Valley and I'm not sure about Leesburg at the moment, but we are effectively not announcing anything there at the moment. We have used the early mover advantage to take further acreage in the region. And is it a hub region? Well, absolutely, once APO is up and running, we're talking of 220,000 to 30,000 barrels a day, but we are already looking at whether and how we could debottleneck because it is quite clear that the discoveries we already have will keep that full for quite a lot of years and there is still further potential. So it will be at least 1 hub, 1 pipeline back into the Gulf Coast. So it's looking like a great opportunity. And on average, we're something close to 80% of the holding in the acreage with most of the rest being in fact, nearly all the rest being held by Nexon. So it's a good partnership, great prospects. The hub development already in play 2 to 3 years before it produces, but it will be one of the major, major cash generators for Shell into the 2020s. Martin, onerous contracts? Yes. I think that's a contract that was from the middle of the last decade for 2,005, a tolling deal in Spain, the type of which we haven't really done since then. We had a few tolling deals in the States as well in that period. None of them worked out very well. This deal has particularly has been underwater for most of its duration. We only now had 4 years to go and there were no plausible price scenarios anymore where this contract would ever get back into the money. And therefore, we wrote it off as a the last 4 years of it off as an owner's contract. You can't do that too early in the life of a contract, although we even 4 years ago, we didn't have much hope with our rules around how far in advance you can recognize this given that markets are volatile. But this is why we're so far out of the money that we were able to take it out of the books and forget about it. Thank you, Martin. Move to the next question, please. Our next question is from Irene Himona from Societe Generale. Please go ahead. Thank you. Good afternoon, Simon. Two questions. First on the cash flow. So capital expenditure in the 9 months is shown at around €16,400,000,000 You're guiding today to effectively €26,000,000 cash CapEx for 2016. Are we looking at EUR 9,000,000,000 to EUR 10,000,000,000 for the 4th quarter CapEx? And related to that, your DD and A guidance for this year, €22,000,000,000 Could you kindly give us some guidance, some sense of what happens to DD and A next year, please? And my second question, just on Brazil, where obviously they've changed the legislation recently to relax the requirement for Petrobras to operate everything in the pre sold. How is Shell strategically thinking about this opportunity, please? Thank you. Irene, thank you. On the capital investment, I have to say we focus more on 'seventeen, 'eighteen, 'nineteen than we have been doing on the next 3 months because that tends to be locked in. And maybe at 'twenty nine, it's a little bit rich, but that's not going to drive the metrics too much one way or the other. We do have a couple of 1 off items in the 4th quarter, including the payment to enter the chemicals development in Guangdong province to CNOCC in China. And we have additional FPSO coming on in Brazil. So let's see how it turns out. I would regard 29 as a maximum. DD and A is 22 for this year, that will be how it starts next year. But I think over the year, as we see the following come on stream and ramp up, it will increase. We will see cash again kick in for a full year. We will see Gorgon, Train 2, Train 3 hopefully come on stream. We will see Skyhallion and we will likely see some of the tiebacks in the Gulf and a ramp up in activity in the Permian. So I'd expect all of those to drive depreciation up, but it will then be driven down by proved reserves bookings at the end of 2016. I don't yet have a fix on that simply because we don't do the work in detail until basically November, December. So over the next quarter, we will get a fix on the DD and A. But the figures I gave earlier on the cash flow are not impacted by DD and A, but obviously, the earnings that go with them would be. Hopefully, that helped. In Brazil, it's early days really. Indeed, there have been statements about changes in requirement on operatorship, level of ownership, how local content plays in. And in principle, we're interested. Brazil is going to be one of the top 4 countries in Shell along with Qatar, Australia and the U. S. That probably already is in terms of current value generation today. And we're investing up to $3,000,000,000 a year there for the foreseeable future as we continue to build out the FPSOs. So clearly, we're interested in consolidating on the good assets in the country and looking at further opportunities to create value from the assets we're already involved in. But it's still a little early. I think Petrobras is an excellent operator while we work together with them in the sub salt. BG had good relationships. Shell had the relationship in Libra. And on the back of what both BG and Shell have been able to bring, I would like to think that we would have further opportunity in the future either on assets or in the way that we govern and operate. That's for the future. Right now, we're focused very much on 2 FPSOs this year, another 2 next year. That will take us to 11. There are another 4 on order under construction, 15 FPSOs on BMS-nine and 11 and get those up and running while we also start the first one or 2 on Libra. That's quite a challenge and a fantastic business. Okay. Hopefully, that was of interest to everybody, important areas of performance. Can you take the next question please? Our next question comes from Guy Barber from Simmons. Please go ahead. Thanks very much. You're giving clarity on 2017 CapEx a little bit earlier than normal, which we very much appreciate. But relative to that prior range of $25,000,000,000 to $30,000,000 can you just discuss the rationale behind the decision to guide to $25,000,000,000 at this point? Is it reflective of efficiency capture, meaning the low end accomplishes pretty much everything that you wanted to accomplish before? And I'm just curious how fluid that guidance is at this point in time to better understand the commodity price assumptions and under what pricing scenarios you might flex that higher or lower? And then I had a follow-up. Thanks, Guy. Good spot. This is at least 3 months earlier than we would normally communicate next year's capital investment. And to an extent, it's slightly easier than it normally is because the reason it's going down from this year is we actually finished projects. I won't repeat the list of projects that I've just stated, but we stopped spending on those projects. And we're not taking significant new investment decisions. I mentioned Appomattox earlier. We're investing in chemicals, both in Pennsylvania and China. We continue to finish off, obviously, Prelude. And we're investing in subsea activities, whether it's Nigeria, Gulf of Mexico or the North Sea. So there's still quite a lot going on and we gave a range of 25 to 30 as being bookends that were not necessarily associated with the top and bottom of the price cycle. But in terms of affordability, obviously, they are. $25,000,000,000 was seen to be a soft floor. So if we have to, we can drop below. And $30,000,000,000 is a hard feeling. We will not go above $30,000,000,000 even if we have the cash until we have embarked on a buyback program, which is post script and certainly when we're in a better financial framework overall. So we're several years away from that. So that's why what we stated on the range. Why 25% now? Well, we are coming off very significant investment. Our priorities are reduce the debt and therefore it's appropriate when we don't have to jump into new investments that we focus on maximizing the value from the investment we've just been making. Can we go lower? Is it flexible? To an extent, yes. And lower oil prices would drive that. So it will be driven by affordability in the short term, not necessarily the medium term, but very much so in the short term. What else has driven it down? Well, supply chain costs have helped. But to be honest, it's a lot more than that. The whole industry, but particularly Shell, we've taken a pretty close look at why did costs go up so much in the first place. And some of it was just the ways of working, the methodology, whether it's simple things like how you manage the logistics, the boats out to offshore platforms or design, standard valves, etcetera. And there's been a huge momentum working in many cases positively with the supply chain just to take cost out. But we're not doing a lot less. We're doing a bit less for a lot less cash. So a bit less activity for a lot less cash. That will continue and gives us some hope we can keep at 25 if we need to or go lower without compromising medium and longer term growth prospects. So the 25 was actually stated as being a level we were we believe gave us some moderate growth, not significant growth portfolio. Remembering the balance sheet is, well, currently take the cash out, it's $245,000,000,000 of assets employed in the business. So, dollars 25,000,000,000 is only 10% and is only slightly higher than the ongoing depreciation. So, to go much further down is possible. I wouldn't say it was likely in 2017, but it's simply because of commitments already in place. But if as we go forward, there are the prices further pressured downwards, we will continue to take cost out or activities out. You said you had the second question, Guy. We will take the next question from Lydia Rainforth from Barclays. Please go ahead. Thanks. And I just had one question actually, please. Coming back to the OpEx numbers and the underlying costs already being at the 40 dollars 1,000,000,000 run rate that you talked about back in June. What has actually driven that? Can you give us some examples of where the costs have come down? And just any indication in terms of how much further they could go also when we might see that coming through? Thanks, Simon. Yes. We'll do. Thanks, Lydia. Interesting tables at the back end of our results announcement now on Pages 21, 23, give a bit more detail around things like returns, divestments, CapEx, gearing and operating expenses. What we've done is actually split out off the face of the P and L statement the total operating expense, which this quarter was almost $10,000,000,000 exactly and therefore $40,000,000,000 run rate, but also adjusted for the one off items that we effectively include in identified items in the earnings statement. So you can actually see underlying operating expense, dollars 9,200,000,000 in Q3 and is 28.5 for the year to date. And that includes 8 months of BG. And that compares with 9 months last year, dollars 29,000,000,000 not including BG, hence the comments I made earlier. The where does it come from? Well, pretty much everywhere, I have to say. If we look at our costs above the asset, so think finance, IT, HR, legal, we've taken out, if we look 2015 through to 2017, something like 25%. That's been done partly by delivering the synergies from the deal. We don't need to do certain things twice. But it's been done through doing things differently fundamentally simplification, offshoring of work to centers in Chennai, Bangalore, Manila, Krakow and simply by doing things simply. On the asset, we have had quite significant programs in the upstream and operational excellence that have focused on better availability, effectively managing the wells, the facilities and the reservoir in a more farsighted manner and one that sort of builds in the cost over a period of time and is actually driving unit cost down in particular. And I think there is it's a bit of an intangible, but bringing the BG guys into Shell is always a bit of internal competition as to how far we can can we go. So, good ideas and almost everywhere we look, the cost is improving. Now, the total figures have benefited from foreign exchange movements to an extent. So some of that reduction, it depends how you measure it, maybe up to a third is FX driven. But again, while the dollar remains strong, that remains the situation. If the dollar gets weaker, typically the oil price goes up. So, there's a bit of a hedge in there as well. And what we are still seeing is we've got quite a long way to go on those performance improvement programs that I referred to in the functional cost area, for example, I just gave you the 2017 target, which is quite intent versus 2015. So, it's quite a lot better than 2016 in and of itself. Don't know how far it will go. Reluctant to give a headline target because in the downstream, for example, we are allowing them to spend more in certain areas such as trading and supply where they're taking margins from new short positions and then the marketing back to the earlier question, which I think was from John. You can't get premium marketing margins without spending a bit of marketing money. But if you get $2 back for every dollar you spend, it's the right thing to do. Therefore, we don't set headline OpEx targets, but we do look very carefully through what are now quite well defined cost management frameworks. Each dollar, where it's being spent, is it benchmarked, is it competitive, can we afford the ultimate impact on the performance unit that's actually delivering and there's quite a well established rhythm now of performance appraisal on that basis. And it is just working. I probably shouldn't say it, but it's actually positively surprised us internally as to how quickly the momentum has been achieved. Many thanks, Lydia. Go to the next question, please. Our next question is from Lucas Herman from Deutsche Bank. Please go ahead. Simon, hi, Martin. Good afternoon. Couple if I might. Simon, you've mentioned the Permian 2 or 3 times on this call. I think Ben described them as Sleeping Beauties, but it sounds as though they're starting to wake up. Can you talk a little bit more around the way you may be thinking about that acreage plans, rigs activity, etcetera, at this moment in time? Secondly, I wondered if you could give us a little more flavor on the 16, €500,000,000 plus divestments that are ongoing. Just flavor in terms of to what extent or how near or far some of those may, may not be to actually hitting the headlines for want of a better phrase? And finally, I've got to ask this, South America, Brazil, if I look at the regional profit performance, we've seen a $700,000,000 net income turnaround in that business. I wonder if you could provide some explanation. I know barrels are up, but the profit improvement is dramatic. Sure. The simplest answer on the last question, I think Luca says some of those one off reversals that I mentioned earlier relate to depreciation in Brazil. So something around €200,000,000 €250,000,000 positive in Q3 that was negative in Q1, Q2. There's a bit of tax assistance as well, plus more barrels, lower cost. Probably is the big driver. At Permian, what will we do? We have 300,000 of acres. We bought most from Chesapeake some time ago. It's great acreage. We're in some of the sweet spots. And to date, we've been investing somewhere between $500,000,000,000 a year, but it's been on appraising rather than producing. I think it's fair to say. What we a lot of that acreage is in joint venture with Anadarko. We are operating 4 rigs at the moment, likely to go up to 5. Anadarko is operating similar that we are certainly from a shell perspective in our operating acreage, we're now looking at moving to what we call the harvest phase. We know what we have. Now we start to harvest some value. About well, just over half of our Permian acreage, we believe, is breakeven price below 40. We have 2,500 locations that we've already identified that should work at below $50 And there are 3 particular, what we call common value areas that we're now looking to develop. And we will start developing those and this is really genuine pad drilling moving to the manufacturing approach as opposed to drilling 1 or 2 wells in a section and moving on once you know what you have. So you move on to 10, 15 maybe more wells per pad, multiple horizons, etcetera. So it's actually quite exciting as we look forward. It's good acreage and we want to be part of developing that. We've also recently recontracted some of our evacuation infrastructure and half the pipeline costs going out for us, which is one of the reasons we've not developed previously as well. So we're in a pretty good place in the Permian. Sometimes you like a bit more, sometimes you might want to sell at the margin, but the core of the activity is a great core to our overall shales business. 16 divestments, well, 6 on the slide, 2 of which we just announced in Canada, shales and in the Gulf of Mexico, Brutus. The other four of the 6 were at the bottom of the slide that I showed, Thailand, New Zealand, U. K, I think, Gabon. So there are a series of transactions currently close to a milestone. When I say a milestone, it's either we agree or we don't. So a price and a deal. So when we have $5,000,000,000 announced there on the slide, we talked about $6,000,000,000 to $8,000,000,000 clearly in progress during 2016. I would expect a small number, but certainly not a zero number of announcements between now and the year end that will take us into the 6% to 8% range, hopefully closer to 8% than 6%. Behind that, there are other transactions And of the total, a third of well, 6 are downstream, 11 are sorry, 5 are downstream, 11 are upstream. So it's basically, it's a third, 2 thirds. And they're not the only things we're working on either. They're more either smaller or slightly further down the queue. But the 16 are the ones that I see on virtually a weekly basis at the moment. The progress that we are moving through on that will deliver the next 6,000,000,000 to 8,000,000,000 next year. We fully understand and appreciate the importance to get some momentum in this program to see some significant runs on the board and cash in the bank in the first half of next year, while the uncertainty around the oil price is greatest. Let's see where the oil price goes beyond that. It's not to say we stopped the divestment program, but it's a question of balance in terms of the priorities. So hopefully that gives some flavor. I don't want to go into naming names of the ones that are not on the list already, but none of them is $5,000,000,000 or above, but they're all above $500,000,000 That's all I can say really. We're not going to do $3,000,000,000 $10,000,000,000 deals. We may end up doing $15,000,000,000 to 20 solid significant deals and we do have the resource and the asset base on which to do that. Okay, thank you. Next question please. Our next question is from Ian Reid from Macquarie. Please go ahead. Yes. Hi, Simon, Martin. First question for you, Simon. You probably saw what Exxon said on Friday about looking at their reserves. They did a kind of pre release of this. I know you said you're going to be doing it at the end of the year, but appreciate a comment if you could. They basically said they're going to de book oil sands due to the current environment. And you've got a pretty similar asset there. So I'd be interested to get your view on that. And question on Martin, U. S. LNG. You seem to be saying that it's not going to Europe at the moment, but you've got other areas where it's more profitable to take it. But I presume when we get the big volumes coming, it's going to have to go to Europe. And I'm just wondering what your outlook is for European gas prices when that starts to happen? Ian, thanks. Obviously, I'll leave the second question to Martin. On reserves, indeed, we look at these in November, December. I won't comment on competitors directly, but Oil Sands Mining, we have obviously, the Athabasca Oil Sands project is 2 mines. There's 1,940,000,000 barrels of oil in proved reserves today. And the $100,000,000 also of positive earnings and roughly that amount slightly less in positive free cash flow in the 3rd quarter earnings. So at $46 falls under both earnings positive and importantly free cash flow positive. And I say importantly because the challenge with reserves in a low price environment is the need to pass the economic limit test. You need enough reserves to be able to show positive forward cash flow. That's probably all I can say is if we're positive at 46, we should just about be okay, I would have thought, at whatever the average price for the year turns out to be. Elsewhere in the portfolio, low prices could possibly have an impact. But of course, it would not necessarily make much difference to the operation or the value embedded because it merely is a mechanical spreadsheet extrapolation of a price, the historic price based on approved volume number only, which may not be anything like the total resource associated with an asset and the current balance sheet. So it's basically into a sausage machine. I can't comment either way until we've done the work. But all sense, interestingly, it looks reasonably positive. Martin, on U. S. LNG. Yes. Thanks, Simon, and thanks, Ian, for that question. Indeed, in the early days of U. S. LNG, the best way to deal with those cargoes has been to keep them in the Americas and send them to Chile or Brazil, and that's where they've sort of our allotments have been ending up. But you're right to say, as that production volume ramps up, there won't be enough demand in Latin America necessarily to absorb it all. And it's going to have to go somewhere. There's just a long term comment in that and then a short term comment. The long term, the way I see prices move in the kind of medium term is that a recovery in oil price is going to drive initially mostly Asian prices up simply because a lot of the Asian businesses is oil linked and that will drag prices in the Asian Pacific basin up. Also that's where most demand growth will sit. And then Europe will kind of sit in between depending a little bit on whether on the balance in the market on that moment in time, whether it will more follow Asia or whether it will sit at a kind of US plus freight differential. In the near term, what we've been seeing is two things. It's actually price spreads widening. So, at the moment, we see Henry Hub sales of 3, European gas prices back to about 6, and we're setting LNG spot in the Asia Pacific at 7 again. So these are our prices where certainly the way our Sabine Pass contract is established, we would be able to send the volumes either into Asia and or into Europe and make a margin. The demand trends that Simon highlighted on the slide he showed on the LNG market are quite profound. You saw the Middle East grow by 8,000,000 tons. That is from a total of 8,000,000 tons last year in the 1st 9 of the months. So that's a doubling of the market. And we've just had Egypt announce a tender for 96 cargoes for 20 seventeentwenty 18, 96 cargoes, that's about 6,000,000 tonnes of LNG. And we see similar numbers or similarly large standards coming out of India and other places by new customers. So, I think in the near term, there is more opportunistic demand, partly driven by lower prices that I think will attract that LNG from the U. S. But clearly, the lower priced contracts, and we have the best one in the business through Sabine Pass, XBG, will be the ones to benefit first. In a very negative outcome, you could see the higher price contracts running into a place where they don't actually operate at all. But I say that I rate it as a lower probability and certainly we are not in those contracts. Thank you, Martin. Kristian, next question please. Our next question comes from Christopher Kuplent from Bank of America. Please go ahead. Hello, thanks. I'm going to keep it very short, Simon. I know this sounds like Groundhog Day, me asking the same question on every call. But given that we've seen Total again in the market issuing hybrid bonds with coupons near 3%, wanted to test yet again your appetite for doing the same. We've talked about protecting your single A credit rating, etcetera. How attractive do you think is that route relative to asset disposals or indeed accepting another notch downgrade to A minus? Thank you. Thanks, Chris. My memory is good enough to remember it's always you, so you're off the hook. Hybrid bonds, we go to market and we get very tight pricing even with the lower credit rating that we've been achieving with S and P. Hybrid bonds are not cheap financing. They might contribute to the rating, but they are expensive. And the carrying costs, it is expensive as is discounting your dividend. We do not need to do that. If I needed to do that, then maybe we think about it, but we don't need to do that. I will continue to stay plain vanilla in the capital market, the debt capital market for as long as that is by far the cheapest and easiest available source of debt to me. And it's really probably the same answer I gave last time, Chris. It's relatively low quality source of finance and not cheap. And just for avoidance of doubt with everybody, I do understand that nor is equity issued through scrip, hence the earlier comment about high priority reduce the debt so that we can take the scrip off. So thanks, Chris. I'll move to the next question. Our next question is from Jason Gammel from Jefferies. Please go ahead. Thanks very much. I had two questions, please. First, Simon, I wanted to come back to some of the comments you made around both the divestiture process and the Permian. The Permian does seem to be one of the few places globally where upstream assets are attracting some pretty solid valuations. And you referenced obviously being in a very good neighborhood there. So what do you think about the idea of monetizing some of the acreage position while maintaining your core and putting a pretty solid set of runs on the board from a transaction there? 2nd question is on the LNG business. The sales volumes are now up about 50% from prior to the BG merger. I was just wondering, Martin, if you could talk about how the scale and flexibility have changed and how that affects how you run that business? I'm thinking in particular in terms of accessing new customers and of even potentially terming out some of your hub linked and spot contracts into longer term? Jason, thanks. Obviously, I'll leave the second one for Martin. You're absolutely right, Jason. The hottest property on earth at the moment seem to be in the Permian where 50,000 an acre appears to be the going rate. We actually have 2 smaller packages on the market at the moment that are very good acreage. They're not that contiguous or close to our likely development activity. So let's see how that process unfolds. More generally, in terms of the shales businesses, we're thinking why do we want 1 as shale? Well, partly because we can. We have great acreage, 12,000,000,000 barrels of total resource we've talked about previously, 5 basins, Argentina, 2 in Canada and 2 in the U. S. And as a strategic element of the portfolio, it offers an optionality and a flexibility that we don't get in the rest of the portfolio, I. E. We can ramp investment and development up and down according to price and opportunity. If we don't have that in the portfolio, then we don't have that business. The Permian is to an extent currently and possibly for quite some time, it is the crown jewel, not just in terms of the value and quality of the asset, but also the capability that is being developed there. We and the industry learn more when there is more activity ongoing about how to maximize the value. So, it is important for us to be in the Permian, but that doesn't mean we need every acre that we currently hold nor that we're not interested in adding acreage. And then the patchwork nature or the patchwork quilt nature of the acreage across the basins in which we're interested may offer opportunities over time there as well. But the aim is focus so that we end up with a more efficient development program and that areas or acreage that we're not likely to invest in, in the near term that we sell them rather than leave them sleeping. So that is the aim. So we're actually at the moment following your advice. They were small enough packages not to be on the list of 16 because there was a materiality criteria. It would be interesting to see if by the time they get priced, they creep onto the list of 16. And Martin, sales volumes and LNG in general, what the thinking is? Yes, thanks for the question. It's we could spend a bit of time on this if we want to, but I'll try to keep it short. Indeed, our LNG volumes, our sales are now about 15,000,000 tonnes a quarter. So that brings us up to well over 50,000,000 and actually close to 60,000,000 tonnes a year, which is almost 25 percent of the current LNG market. So, that clearly gives us enormous footprint in terms of supply options. And it does a few things for us. One is that in the LNG market, the business model of finding a big Asian utility to take 4,000,000 tonnes at a high oil linked price off your hands at high seas is still going to be relevant going forward, but it's not where the growth is. The growth is in smaller customers that look for smaller volumes, often have worse credit. And also often only have 1 or 2 contracts in their portfolio and they need security of supply, they need certainty of delivery. And in many cases, what we're actually finding is that it's easier for us to win the business with those customers because we have so many supply options to give them security, but also because we are one of the very, very few suppliers and the state of Qatar will probably be the other one that doesn't need a condition precedent on the future FID when we make supply promise, because we have enough size and flexibility in the portfolio to promise someone 1,000,000 or 2,000,000 tons without having to take an FID to back that up. And that isn't only the case with customers. That is also very much the case with countries who are starting to import LNG for the first time. Jordan is a case in point. We didn't get the business in Pakistan, so it doesn't always work. They went to Qatar. But in many cases, these countries are looking for certainty of supply because they're betting a part of their energy system on gas and they don't want to be beholden to an uncertain FID. There are also other ways in which this footprint helps us. And it's not only about size, but it's also about the ability to absorb and manage risks into our portfolio where customers can't take by themselves. We find people that in the rush to commit to U. S.-based LNG supply, signed up for supply from the U. S. To Asia and now regret having the contract in their portfolio and really can't manage it. And we have a number of instances where we actually take over those regret contracts, we absorb them and we do much more plain vanilla, often longer term higher volume deals with them in return. And we can absorb the risks that they don't want anymore much easier than them. So it's risk management, it's volume, and it's basically the ability to make offers that have no CPs to them that I think differentiated in the market and that make sure that we are at every we are aware of every piece of demand and every piece of open supply in the market. And quite often, we're able to connect the 2 much easier than individual parties who just basically are not in all these conversations at the same time. So, the network of people and contacts we've built up is unique and gives us trading opportunities every day. Thanks, Martin. Next question? Our next question comes from Biraj Borkhataria from Royal Bank of Canada. Please go ahead. Hi, thanks for taking my question. I had one for Simon, one for Martin. For Simon, just following up on your comments on gearing. You're currently at 29%, but you did say that 2% of that doesn't really count. So I was wondering if I should think of your should I think of your gearing ceiling as 32% rather than the 30% you previously talked about? And I know that's a fairly small margin, but given you're quite close to that, I thought it's worth asking. And then for Martin, just an easy question. Could you provide any kind of update on Lake Charles and how that's progressing? Thanks. Thanks Biraj. I mean, you're absolutely right. The like for like, when we started talking about 30%, the 2% is different because it's on balance sheet finance leases. The rating agencies look through that anyway. Their debt figure is considerably higher than the 77 that you see on the balance sheet today. So 30 is just a proxy for their overall metrics. It's not an immediate trigger either to them or else if we go through 30. It's just a signal that we need to be giving extreme priority to bringing it down again because if we stay above 30%, whether it's 30% or 32%, that becomes a less sustainable financial framework over time. So stick with 30 as the proxy. That's what we like to manage to it's easy to remember. But like for like indeed really it's 2% higher in terms of the economic substance. Martin, Lake Charles? Yes. Thanks, Simon and Biraj. Lake Charles is I think Lucas earlier on the call mentioned the Permian as one of the sleeping beauties in the Shell portfolio. I think Neu Charles probably is in its own way a sleeping beauty from the XBG portfolio that we are very that I am very, very pleased to have in the portfolio. It is extremely it is an extremely competitive U. S. LNG project. Obviously, brownfield, but the way BG has built this up, has designed it and has pulled it together is 1st class. And so it's a very good opportunity to build LNG supply right at the left hand side of the low end side of the cost curve that we will benefit from. So the trick here really is to try and judge when is the LNG market going to need this volume again. As you would have seen, if you track this market, in the last 18 months, we've really only had one FID, that was the new train on Tangu by BP. And most of that LNG is actually going to stay in Indonesia. But apart from that, it's been drive in the industry. And it could remain drive for a bit. And that's not a bad thing because there's a lot of LNG coming into the market as has been noted before on the call. But somewhere in the course of the early 2020s and whether that's 'twenty two or 'twenty three is going to depend more on demand than on supply and there's some good signs on demand. This market is going to rebalance and inevitably then go short because the supplier reaction is always delayed of course. So the trick is really when do you take your best supply projects into an FID to be there when the market needs the volume and is willing to pay good prices for the volume. That is not today. It's my feeling if that would and has been our decision. So we don't really think this is the right time to take an FID at the moment. And also, we look, of course, at the affordability in the company and we say that's actually quite convenient that we are able to postpone this piece of capital. But it is certainly a project that I'm very pleased to have in the portfolio, an option that is a good one for us to have and hopefully find the right time to exercise it and bring it into the onstream portfolio. And we review that periodically. Thanks, Martin. Next question. Our next question comes from Alastair Syme from Citi. Please go ahead. Thanks very much. Hi, Simon and Martin. Can you just talk about your long term strategic planning? I think you've traditionally done this in the Q3. And I just wanted to confirm that you've done this exercise again this year and did you change your internalized long term view around oil and gas markets? And secondly, just a very quick question. Can you remind us of the state of play on the Sherwood Shell and Motiva disposals? Thank you. Thanks, Alastair. The first one could be a long or short, so I'll keep it short as it's a call. What we do in essence is a more 3 year strategic planning cycle where we do a full bottom up around the portfolio once every 3 years and reaffirm strategic intents. We really did that last year as we were still doing the BG deal. So this year, we updated it in an assessment. That in itself has thrown up some questions around gas markets, gas pricing and actually Martin has pretty much given you the oversight of how we think about those already. Oil, we've long been of the opinion that demand will peak before supply. And that peak may be somewhere between 5 15 years hence, and it will be driven by efficiency and substitution more than offsetting the new demand for transport. We still have that view. We still have a view that there will still be a substantive business for us for many decades to come as a result. And that also the reason Martin also has a new energies business in his mandate is that actually new forms of energy used for transport such as gas or electricity or biofuels or hydrogen will actually form part of the future energy system after the transition. And therefore, even if oil demand declines, its replacements will be in products that we are very well placed to supply one way or the other. So we need to be the energy major of the 2050s and that underpins our strategic thinking. It's part of the switch to gas. It's part of the work we do in biofuels both now and in the future, 2nd gen, 3rd gen. And hopefully, it will be part of how we develop the New Energies business overall in the electric or electricity value chain. Share O'Shell is a 2 part transaction. We sell the shares to Idemitsu and then Idemitsu and Shoa shall merge. The first part of that transaction is subject only to completion of the competition review within Japan. And it has been our intent to complete that deal when we receive that competition authority approval. The second part of the transaction, the merger is the piece that has created some issues with some of the shareholders of Idemitsu. And I can't really comment further on that because that's partly an issue for Showa Shell and Idemitsu to resolve. But we are still of the intent to conclude the first part of the deal as and when competition authority approval is received. Cannot give you a date on that, could be this year, could be next year. Motiva, we basically agreed a non binding agreement earlier this year stating how we will split the assets after 17, 18 years together. And that is from a fifty-fifty joint venture, Saudi Aramco will take slightly more of the value. So likely that would lead to some form of sort of cash balancing payment when we actually close the deal. Closure is expected early next year. Not sure if we've given a specific date. We're working on the final agreement, and I can't say any more than that at the moment. It won't complete this year is one thing I can be sure about. So I think that was it. Do we have any more questions? We seem to have run out of questions. So good morning. Ladies and gentlemen, this concludes the question and answer session. I would now like to hand the call back to Mr. Simon Henry, CFO. Thank you very much. Well, thanks everybody for calling in. I realize it's been a busy day with 2¢ of results and more. Thanks for the questions. Pretty good coverage today and some really important issues covered. Hopefully, both in the presentation and the answers, you can see evidence that the portfolio, both the Shell portfolio and the way it now combines with BG has quite some power, power to perform as we're going forward, power to generate cash and power to deliver the value that we stated when we first did the BG deal. And I keep on needing to repeat $64,000,000,000 acquisition. We are 19 months since announcement, job done, synergies being delivered, value being identified. We know who's delivering it, how it's going to be delivered. 2 companies together, same cost base as one company. We've done this years ahead of expectation, not our expectation, but the expectation external to the company. And that is really having an impact today now on the underlying financials that you see. Now we will be having an Investor Day in New York next week on November 8, actually, 1 week today. Ben, myself and several other members of the executive team will be in attendance. And we really look forward to talking with you face to face then and giving you the chance to hear a bit more and ask a few more questions about the substance behind the comments made today and the performance that you see. So, thank you for your time today and look forward to seeing you.