Good morning, ladies and gentlemen. I'm Jorma Ollila, and I'm delighted to welcome you this morning to the annual general meeting of Royal Dutch Shell plc. I would like to start by introducing my fellow directors. Starting on my right, Ben van Beurden, our Chief Executive Officer, Simon Henry, Chief Financial Officer. On my other side, our Company Secretary, Michiel Brandjes, and Hans Wijers, our Deputy Chairman and Senior Independent Non-Executive Director. On the row behind, we have our other non-executive directors from my right to left, Euleen Goh, Guy Elliott, Chairman of the Audit Committee, Charles Holliday, Chairman of the Corporate and Social Responsibility Committee, Gerard Kleisterlee, Chairman of the Remuneration Committee, Linda Stuntz, Sir Nigel Sheinwald, Patricia Woertz, and Gerrit Zalm. Before I go any further, I would just like to say a few words about health and safety in our venue for the AGM today.
Firstly, if you see anything you consider to be unsafe or have concerns about, please bring it to the attention of one of the uniformed security staff you will see around the hall. Secondly, should there be a need to evacuate the building, an announcement will be made over the service theater Tannoy system instructing us to leave the building by the nearest exit. You will be directed to an assembly point where further information will be given. As you may have read in the notice of the meeting, we have again arranged for the meeting to be webcast. This means that shareholders who are unable to travel to The Hague can still follow the proceedings, and I welcome those of you who are watching the meeting in this way.
In accordance with the company's articles of association, as I stated in the notice of the meeting, the meeting will be held in English. There are Dutch translation facilities available. If you need a headset or any assistance, please ask one of the ushers. As in previous years, I would like to say something about the timing. Each year, we receive a number of comments and requests to try and reduce the length of the meeting. I would like to finish around lunchtime. I will, of course, try and give all shareholders the opportunity to speak during the question and answer period. To enable us to finish in a reasonable time, I would ask that shareholders avoid excessively long questions or lengthy statements. I will explain later how I would like to conduct that part of the meeting.
In the meantime, I would like to declare the annual general meeting formally open and suggest that, with your permission, the notice convening this meeting is taken as read. Thank you. Ben and I will now give a short presentation about your company and its activities. Before we start, let me highlight the disclaimer statement. 2014 was a year where we made continued progress in many areas, particularly with plans to improve financial performance and capital efficiency. Ben, our Chief Executive Officer, will talk to you in more detail about our operational performance and his short to medium-term priorities for Shell. Let me first say a few words about the global scene. The world population is growing rapidly from some 7 billion today to what will be an estimated 9 billion by 2050.
Even more importantly, hundreds of millions of people are leaving poverty behind, which can only be a good thing. This means that over the first half of the century, energy demand is expected to double, even when counting on a massive improvement in efficiency in what we do today. This will put pressure on the climate, on water and food resources, and require tremendous investment and innovation in energy projects. Shell will play its part here. In 2014, Shell's production was about 3.1 million barrels of oil equivalent per day. We produced some 2% of the world's oil and some 3% of the world's gas in 2014. CCS earnings last year were $22.6 billion. We declared dividends and bought back shares worth some $15 billion combined.
We invested $37 billion on capital projects, spent some $1.2 billion on research and development, and some $160 million on the communities in which we operate. All of this while paying some $18 billion of taxes and collecting another $73 billion for governments. We employ over 94,000 people and hired around 1,200 new graduates in the company last year. Skilled people in high-quality jobs. Shell plays a positive and sometimes understated role in many countries around the world. Turning to the nearer term and the weak oil price environment since the end of 2014. A year ago, when we had our AGM, oil prices were around $111. They are quite a bit lower than that today. Volatility is a fact of life in our industry. It is what it is, and we have to manage through it.
Short-term movements in oil prices can be driven by perception, and prices tend to overreact on both the upside as well as the downside. In the medium term, supply and demand fundamentals tend to reassert themselves around the marginal cost of supply. We have not changed our long-term planning assumptions of $70 to $90 to $110 Brent. The long-term demand outlook remains robust, and industry underinvestment today simply leads to more upside risk in oil prices in the future. Today, your company is taking steps to preserve Shell's financial flexibility. This includes a freeze in dividends and a slowdown in capital spending in 2015. Taking choices on Shell's rich portfolio funnel and opportunities to take out cost, where there are multibillion-dollar opportunities in our own cost base and in the supply chain. At the same time, we have to be careful not to overreact to spot prices.
We are continuing with a very attractive suite of new projects which are under construction, and are preserving, where we can, a competitive set of new options for medium-term shareholder value creation. Shell's approach to sustainable development runs across all our activities. The foundation of our approach is running a safe, efficient, responsible, and of course, profitable business, even in low oil price environments. This means having the processes in place to manage safety, environment, and community involvement. Secondly, we share wider benefits with the location where we operate. The long-term nature of our businesses means we can be a part of a community for decades. Thirdly, we want to be part of shaping a more sustainable energy future. The scale of the global challenges is immense, the effective collaboration is needed to shape a sustainable energy future.
Our goal is to have zero fatalities and no leaks or other incidents that harm our employees, contractors, or neighbors. In 2014, we achieved the lowest recorded injury rates as well as our lowest ever recorded spill volume. Sadly, we still had five fatalities in our operations. In this area, we cannot be complacent. We manage safety through rigorous processes and by embedding a safety culture in the daily activities of our workforce. We continuously engage with staff on our commitment to our 12 life-saving rules and to reinforce their duty to intervene if they see any unsafe practices. Shell has a strong track record of transparency, and this is something we remain committed to. The sustainability report published in April is in its 19th year. We were the first oil major to publish details of oil spills in Nigeria online.
We also voluntarily publish country-by-country tax payments for significant countries where we are allowed to in an easily accessible single location online. As part of our commitment to transparency, the board also recommended that shareholders support the shareholder resolution on climate change, which you will have seen in the notice of the meeting. The shareholder resolution asks for enhanced reporting in a number of areas, several of which already form part of our ongoing reporting. We have provided further information this year in our sustainability report and our greenhouse gas website. All ahead of the resolution's requirement to build this into routine reporting as of 2016. All information on climate change, emissions management reporting, and other topics related to the resolution will also be put on the Shell greenhouse gas website, which will become the main point to get information on topics related to the special resolution.
Ben will go into further details around climate change in a moment. Turning to competitive performance. The slide shows the four drivers of the long-term incentive plans for the senior management in the company. Our cash flow growth has been competitive in the last few years, and our cash flow, $45 billion in 2014, was indeed strong in our peer group. This performance was underpinned by growth projects. We are making good progress, but there is a lot more we can do. The remuneration policies in the company reflect this performance. You will, I'm sure, have seen that we have made an offer to acquire BG earlier this year, and that this offer has been recommended by the board of BG. This is an important transaction for Shell. Shell and BG are a great fit.
The combination with BG will accelerate our financial growth strategy, particularly in deep water and liquefied natural gas. Both of these are growth priorities for Shell and areas where company is already one of the industry leaders amongst the IOCs, the International Oil Companies. The combination would have a great complementarity fit in a number of countries. This, plus the efficiencies that would come from joining the two companies together, should lead to substantial value creation for shareholders. All of this should be a springboard for a higher rate of portfolio change at Shell, with an increase in asset sales, a reduction in combined capital investment, and a reduction in the number of long-term portfolio themes. This should enhance our future dividend potential and enhance the potential for share buybacks.
I'm personally very pleased that your company has made this move, which I think will put us in a good place in the future. With that, let me hand over to our CEO. Ben, over to you.
Thank you very much. Ladies and gentlemen, I'm of course also very pleased to be here today at our 2015 AGM. Let me start with our strategy. Our strategy is to grow cash flow and to deliver competitive returns for you shareholders across the cycle. As you know, I set 3 priorities for the company in 2014: to improve the financial performance, to enhance capital efficiency, and to deliver new projects effectively. These priorities have not changed. We will have the same priorities also this year. We are allocating our capital on a global thematic basis, and as you can see, the main categories here, we have the engines businesses, which is the downstream and the upstream. They are mature businesses, and they are businesses that provide strong free cash flow.
We have the growth priorities, deep water and integrated gas, where Shell is one of the leaders in the industry amongst the International Oil Companies. We have also, as a third category, the longer term category that covers potentially very large and very exciting positions for Shell, but that's in the future. Here we have to balance the growth opportunity also with the non-technical risks that go with them. The plans that we set out in early 2014, in my mind, are yielding the results that we wanted as we are balancing growth and returns in a slightly different way. You will have hopefully agreed with me that we deliver more robust financial performance. We have made a lot of progress in restructuring in some of the problem areas of our products in the North American resources play.
Our capital efficiency drive is starting to show up in the results as well. Of course, our projects came online as planned. New deep water startups, especially in the Gulf of Mexico, with around 150,000 barrels of oil equivalent per day as a potential for Shell. Of course, last year also saw the implementation of the acquisition of the Repsol LNG portfolio. That delivered actually already $1 billion of additional cash flow from operations in 2014, well ahead of what we had assumed at the time we considered the acquisition. As I said, we want to continue this emphasis in 2015, and we continue to review also the appropriate spending levels in the company. We have been structurally reducing spending levels on capital projects. This was $37 billion in 2014, and it will be $33 billion or less in this year.
As I said, we are allocating our capital on a global thematic basis. This means investing in projects that generate the best returns, and cash flows and getting out of place where frankly, we don't add enough value for you, our shareholders. We are restructuring at the same time. There's three broad themes. I already mentioned the worldwide resources place, oil products, and we're also looking very hard at the, what we call the upstream engine, so the mature upstream positions. This is an area where collectively we have some $77 billion of capital employed on the balance sheet that we are restructuring, and we are making good progress there. For example, in our products, the return on capital employed on a clean CCS basis as the current cost of supplies was 13.9%, almost 14% in the last 12 months.
That's a major improvement from where we were a year ago. At the same time, we also recognize that we are not done yet, neither in oil products nor in the other two themes. You can expect there's more to come here. Of course, I already mentioned the startups that we had. I already mentioned the Repsol LNG acquisition, which we completed. For the startups, we had major startups in Malaysia, in Nigeria, and of course, I already mentioned the Gulf of Mexico where we brought on the Mars B tension leg platform, which in itself already has a capacity of more than 100,000 barrels per day. I also want to focus, even though it was something that happened in 2015, on the proposed combination that Jorma mentioned, the combination between Shell and BG.
This chart here shows the uplift that we will get in our production, which is some 600,000 barrels of oil equivalent per day, or an uplift of 20% more production. In our upstream engine, there will be a complementary fit, such as in the North Sea. There will be some new additions to our portfolio, countries where we are currently not present. At the top of the chart, in the longer-term themes, BG brings new barrels in places like Kazakhstan, and also in some new potential in North American shales again. This combination will be a particularly good fit in Shell's two strategic growth priorities, so integrated gas, LNG, and deep water.
Here the combination of the two LNG portfolios, really world-class LNG supply and trading portfolios, particularly in the Atlantic Basin and Australia, and some important offtake contracts from third parties actually will create a very, very strong position for the combined company going forward. In Brazil, in deep water, BG will add a lot of growth production from non-operated fields in the Santos Basin, including the super giant Lula field, which is in the pre-salt. Many of these positions still to be developed, but many also already in operation. Let me then have a short update on some of the areas where I'm sure there will be further questions to come, but I thought I'd just also update you already on a high level on some of the areas where there's actually quite a lot of change in the portfolio. Let me start with Nigeria.
As you may know, we have three main businesses in Nigeria. We have the SPDC joint venture, where Shell has a 30% interest. That is an onshore joint venture. We have Nigeria LNG, and we have the deep water. The last two are very successful, perhaps much lower profile businesses than the joint venture we have onshore. In 2013, our longer-term shareholders here, you will remember that we set out a strategic review of our footprint in Nigeria, particularly focused on the onshore portfolio, where we had a lot of difficulties. We wanted to refocus SPDC much more to a gas company, gas value chains, rather than onshore oil. I am quite pleased with the progress that we have made in the last 12 months. That progress actually involves quite a significant divestment. We have sold some $4.8 billion of assets in the last five years altogether.
That is actually pretty much in line also with what the federal government of Nigeria wants. They want to develop Nigerian companies in the country in upstream oil and gas operations. Of course, that combines very well with our aim to have a smaller oil-based footprint in Nigeria as well. I want to be very clear again that this does not mean a wholesale exit from Nigeria. We will still be very much focused on continuing to invest in gas and liquefied natural gas and in deep water. The onshore part of the portfolio, frankly, the reality is that others are much better placed to operate that acreage than we are. As I said, we will continue to invest also in the onshore, but probably a little bit more in pipelines and in gas infrastructure.
Some of the projects that we are investing in, gas projects that is onshore, such as Southern Swamp and the Forcados Yokri project, they are projects to reduce flaring. They have had quite a few difficulties already for years, but also in the last year. That is mainly due to lack of funding. The main venture partner in SPDC, which is the Nigerian National Petroleum Corporation, has funding difficulties. They do not come forward with their part of the investment, therefore these projects continue to be impacted and delayed by that very fact. The whole situation in Nigeria showed some sign of improvement in 2014, but it does remain very challenging. The security situation, of course, first and foremost, is very challenging. Just last year, we had altogether 19 staff and dependents and contractors kidnapped in 2014.
Oil theft continued very vigorously, unfortunately, impacting, of course, our SPDC joint venture. Altogether, on average, last year, some 37,000 barrels every day were stolen from us. Of course, on top of that, there was production deferment as we had to shut down, repair, and remediate some of the consequences of these criminal activities. It remains our largest challenge, crude theft. We had 139 spills as a result of sabotage and theft by others just in 2014. That is more than 90% of the total spill volume in Nigeria in 2014. We continued to make progress there by increased vigilance and more surveillance. We have surveillance also built into agreements that we have with local communities, we have a much earlier identification and sealing of non-leaking theft points, remove them as much and as fast as we can. It remains a long journey.
If I then move to Alaska. As you know, and I'm sure will be commented on later on as well, we are planning to drill in the Chukchi Sea in this year and in 2016. Now, that is, of course, dependent still on successful permitting. We have some legal obstacles that still need to be cleared. Of course, we have to also determine for ourselves that we are fully prepared to explore safely and successfully. Now, recently, we received very encouraging support from the Department of the Interior in the U.S. with the Record of Decision that reaffirmed the 2008 Lease Sale 193. Just last week, we received approvals from the authorities on our exploration plan, which, of course, is a very important milestone. Of course, we need a few more permits before we are completely ready and equipped to start drilling this summer.
Now, on the health and safety and environmental side, we continue to upgrade our assets in the period that we paused the last two years. We have successfully tested the Arctic containment system, which was purpose-built for this campaign. We've added, again, additional oil spill response equipment. As you can see, lots of activities that took place to prepare us as fully as appropriate for the 2015 drilling season. Now then, let me move to Canada. Let me just again remind you that your company has a 60% stake in the Athabasca Oil Sands Project, or AOSP. AOSP has a production capacity of about 255,000 barrels of oil per day. Now the mine and the upgrader that is associated with it, where the bitumen is upgraded into synthetic crude oil, that produces around 6.5 million tons of carbon dioxide in 2014.
To mitigate some of that carbon dioxide emission and to ensure that these facilities remain competitive, we are at the moment installing a carbon capture and storage facility in Canada in that project, in a project we call Quest. Quest will be the first large-scale commercial CCS project to reduce CO2 emissions in oil sands, and is expected to start up this year. As a matter of fact, it is mechanically complete. We are starting it up as we speak, and I hope we will have the opening ceremony in September. Now, Quest, when it has started up, will capture and store more than 1 million tons of CO2 produced in that bitumen processing facility. It will be a very important step for the acceptability of our heavy oil activities there. Now, let me then move closer to home to gas production here in the Netherlands.
The Groningen gas field, which of course is operated by NAM, which is a joint venture that we have with Exxon, and that is partnering, of course, with the Dutch government. That venture has been producing gas, as many of our Dutch shareholders here know, for many decades. Following increased seismicity in the area, the Dutch government has now proposed measures including reduced production and damage prevention, repair and reinforcement of buildings, as well as some further investments in the regional economy. Now, February of this year, the Dutch Safety Board, or OVV, published a report on how the safety of residents was taken into account in the decisions up to January 2013. The report, frankly, is quite critical of the parties involved.
Report has also come with recommendations. NAM will fully implement these recommendations. NAM has also apologized for the unrest and the nuisance that has been caused by earthquakes due to gas production in Groningen. Of course, we, as a major shareholder in NAM, support them very much, respect the proposals, of course, that are outlined by the minister, because we also think that this is a very important area that we have to get right. Let me move to another area where I'm sure we will have some discussion later on, which is the area of climate change. Again, let me remind you that your company was the first company to actually acknowledge that there was a link between CO2 emissions and climate change.
We have thought through a pretty pragmatic strategy to position your company in the long term in the energy transition that is currently underway. I'm happy to talk about it in a bit more detail later. Of course, Shell is taking action in a number of areas to manage our own CO2 emissions. We are producing more natural gas, which is a low carbon dioxide fuel. We are producing low carbon biofuels. We are helping, as I said earlier on, to develop carbon capture and storage, a key tool to combat CO2 emissions and climate change. We are working to improve the energy efficiency of our own operations. For instance, with cogeneration facilities in our refineries and in chemical plants and other investments to reduce energy use and CO2 emissions. Of course, we consider climate change in our investment decisions.
We invest in projects using a $40 per ton of CO2 as a screening value, even though that price may not actually be payable in the projects as we start them up. We factor that in into the economics to make sure that these projects are economically robust in that sort of pricing environment. Of course, we use $70-$110 oil, so a relatively high oil price also to impact the economics of our projects. Let me also make some comments on stranded assets, because this concept of stranded assets or the carbon bubble has attracted a lot of attention in the media. Our view on stranded assets, which I think we have been pretty clear and vocal on, is that particular theory in effect also ignores the reality of our industry.
As a matter of fact, it actually risks distraction from the real issues around the energy transition needs. If there would be no further investment in oil production, the gap between supply and demand could be 70 million barrels per day by 2040. That's the equivalent of six times Saudi Arabia or 80 times the U.K. North Sea in oil production. We will need sustained and substantial investment to just meet the demand to fuel economic growth, especially, of course, in the developing world. Of course, at the same time, we need to also support the energy transition that is currently underway. Now let me also update you on our own emissions. This is CO2 and flaring overall. We report out on this in our sustainability report to the Carbon Disclosure Project, which we've been in since 2003.
All this, of course, also comes together on a greenhouse gas website that Jorma already referred to. Our total emissions have been stable in the 70 million-80 million tons per annum band for the last few years. Within that, there has been a big improvement in energy efficiency at the downstream in our refineries and in chemical plants. They actually account for some 45% of our overall emissions. Overall flaring levels have been in the band between seven and 11 million tons of CO2 equivalent for some seven years, that is actually in a growing company. Of course, you will see in 2014, there was an uptick in flaring. That is due to a number of projects, so increased associated gas from production in our Majnoon operations in Iraq.
We started up a deepwater project in the South China Sea, Gumusut-Kakap, both of which growth projects and gas capture in these two projects will come at a slightly later stage. You will see this trend again come down when these projects are up and running and we are constructing them at the moment. In Nigeria, of course, historically a very important country when it comes to flaring. Our flaring has decreased, of course, over the period that we started focusing on it by some 78% in the last 10 years, a great achievement, again by our joint venture there, SPDC. I'm pleased to also say that we recently signed up for the World Bank Zero Routine Flaring by 2030 initiative.
A very important initiative because it brings together governments and oil companies and development institutions who then agree to cooperate to eliminate routine flaring altogether no later than 2030. At Shell, we understand the benefits of research & development and new technologies. We are a technology company, we are spending around $150 million a year of R&D on low carbon R&D, that is out of a budget of a little bit more than $1 billion a year. We see gas as a way towards a lower carbon energy system. We also look, as I said earlier on, at technologies such as carbon capture and storage and biofuels. We invest in wind and in solar and our Shell Technology Ventures, that is a particular venture that we have funds businesses across these renewable areas as well.
Let me then close out with a few words on dividend and share price performance. I'm sure many of you shareholders will also be interested in that aspect. I hope you will agree with me that Shell has a very strong track record when it comes to dividends. Dividends are your company's main route to return money back to you. Over the last five years, we have declared more dividends than any of our sector peer group. In 2014, we continued dividend growth with a rise of over 4% for the year, and the dividend is expected to be maintained at $1.88 per share in 2015. That is despite the lower oil prices that we are seeing today. In addition to that, as Jorma also mentioned, we have just returned an additional $3.3 billion of cash to shareholders as share buybacks last year.
All of this, in my mind, a very strong statement, very much underlining your company's dividend track record and our commitment to return money to shareholders. With that, Jorma, I hand back over to you.
Thank you very much, Ben. Now, we have come to that part of the meeting where you have the opportunity to ask questions or make comments. You may have seen in the notice of the meeting, or in the leaflet you were handed this morning, that there are 21 resolutions for you to consider, most of which are indeed mainly routine nature for a listed PLC. However, as I mentioned earlier, we do have a resolution submitted by a group of shareholders, which we will come to later. I intend to invite all questions or comments of a general or operational nature when we consider the first resolution, which concerns the annual report and accounts. This includes any questions or comments about the recommended cash and share offer announcement for BG Group that we spoke about earlier.
I will take all other questions on more specific matters when we reach the relevant resolution. If you have any questions or points you wish to raise relating to, for instance, remuneration, please raise them when we get to that part of the meeting. Given the issues raised by the shareholder resolution, if you have any questions or comments about climate change, please raise these questions, i.e. questions on climate change, when we get to Resolution 21. Although I may ask one of my fellow directors to answer or comment on a particular question you are making, please direct your question to me as chairman of the meeting. I would also ask that you give your name when asking a question or making a comment. Please introduce yourself.
Voting will take place at the end of the meeting using the white paper poll card, which, if you are entitled to vote, you were handed at the registration. You will be asked to deposit your signed poll card in any one of the ballot boxes located at the exits to the auditorium. The votes will be counted by the company's registrar, Equiniti, who I formally appoint thereby to act as scrutinizers for today's meeting. Thank you. If you wish to ask a question, please go to one of the designated question points. If you need any assistance, please ask one of the ushers to help you out.
As mentioned earlier, to allow as many shareholders and proxies to speak as possible and to keep the meeting to a reasonable length, I would ask that questions and comments are kept as brief as possible and relevant to the business of today's meeting. If I believe your question or statement gets to be excessively long, I may ask you to bring it to a close, so bear with me. Please, let's be concise. As last year, I intend that where possible, all questions or comments of a similar nature will be grouped together. That may mean on Resolution One, for example, that we take all questions and comments relating to dividends together, and indeed any other issues you wish to raise that are relevant to the meeting in the same way together.
Grouping questions and comments in this way will help to avoid repetition and ensure that we address as many issues as possible. However, please be patient if there's a lot of interest on any one particular issue. Your turn will come. As chairman of the meeting, I have the duty to ensure that today's proceedings are conducted in a proper and orderly fashion, and I will do my utmost to ensure that all shades of opinion will be given a fair hearing. To help me fulfill these responsibilities, I would ask that you respect the procedures that I just laid down. On that note, may we turn now to Resolution One, which is an ordinary resolution concerning the 2014 report and accounts. I propose that the report of the directors and the accounts of the company for the year ended December 31, 2014 be received.
The full unqualified auditor's report is set out on pages 99-104 of the annual report. I will now move to take questions, I'll take the first question from the question point number one, please.
Thank you, Mr. Chairman. My name is Marianne Oomkes, I represent TKP Investments. TKP Investments is the asset manager for 20 Dutch pension plans. On behalf of these long-term shareholders of Royal Dutch Shell, we engage with the management of Shell on various sustainability issues. One of the issues has our special attention, that's why we have decided to come to speak at the AGM today to voice our concerns in public. Our concerns are related to the Groningen issue, the seismic activity in the province of Groningen, the Netherlands, as a result of the gas drilling activities by the NAM. The NAM, as mentioned, is the joint venture of Shell and ExxonMobil. These earthquakes cause damage to houses and buildings, the residents are worried about their safety. Shell has strict safety procedures to which all staff and contractors have to adhere.
We as shareholders have experienced the Shell safety procedures at the start of today's meeting. Being aware of the escape routes is good and important. In Groningen, however, where earthquakes occur as a result of the drilling operations, there is no escape route for residents. Therefore, they need to be sure they are safe. Residents should be able to lead their normal life and live safely today and tomorrow. We believe that the safety of the local residents is essential to secure the license to operate for Shell. Our offices are located in the Groningen area, and I can tell that many families in Groningen do not feel confident about their safety. Apart from the financial impact caused by the damage to their houses, there is a negative impact on the well-being of many families.
We have expressed our concerns on various occasions in meetings with Mr. Ollila, Mr. Wijers, and the investor relations department. From these conversations, we understand that the Groningen issue is on the agenda of the board, we have heard that in the presentation of Mr. van Beurden. Mr. Chairman, can you please confirm that Shell has indeed a focus on securing the safety of local residents in all your operations worldwide? More specific for Groningen, can you please confirm that securing the safety of the residents in Groningen is a priority on Shell's agenda?
Thank you very much for your question. We certainly do sympathize with your concern, which as you noted, we have had a chance of having a dialogue about in the meetings during the last 12 months or so. I can assure you that we do have in the board very closely followed the situation being obviously in good cooperation between the board and the management in Shell, as well as in direct dialogue with the NAM management who has the responsibility of addressing these issues. The safety and security of the people in the area, the local residents, is of our utmost concern, and we continue to work very hard to make sure that the issues will be addressed properly. On a daily basis, obviously, our management team is at it. Ben, do you have anything to add more concretely?
Thank you very much for the question and the comment. Of course, we fully understand that issue. We fully share the concern of the local communities as well, it's a very basic thing. It's a fundamental right of people to live safely in their own home. I can only imagine how stressful it must be to be 24 hours a day in your own home, not in the full knowledge that this is actually a safe place. This is why we have homes, to be safe at. Of course, as a shareholder in NAM, as you almost asked, we follow this very closely. We support NAM wherever we can.
At the same time, being very close to NAM and following with them and serving them with any technical and other advice that they may need, I must say I'm also quite confident that NAM is attacking this problem in the right way, in a transparent way, and I have confidence that they will manage it also in a responsible way. Let's be very clear. All the damage that will occur will be repaired. There is no question about it whatsoever, neither legally nor morally or in any other way. I think also the last few years, the company has made a lot of progress in dealing with it. Since 2011, we've had more than 40,000 claims in Groningen that NAM had to deal with. A very large number of that been addressed, 75% been addressed.
There is a number of cases that are difficult to resolve, about 200 of them, but also there is a very focused effort on making sure that they are all closed out in the course of this year. As a dedicated center issue, I'm sure are very aware of Centrum voor Veilig Wonen in Groningen that completely professionalizes this process of handling of claims. I'm sure that the national coordinator who will come in place on the 1st of June will also bring a lot of focus, also state focus on the area and will also help to make Groningen not only a safer place but also a better place to live. As Jorma says, I can assure you that it is on the agenda of the executive committee in Shell, again, to see in what measure or in what way we can help and support NAM.
Of course, we respect all the decisions that are being made around winning of gas, production of gas in the Netherlands. We are in a close dialogue with the Ministry of Economic Affairs on how best to handle that. It's a very difficult situation. It is also a situation that cannot be immediately reversed or wished away. It is a situation, of course, that is new to the Netherlands, but it is a situation that we are determined to continue to resolve, as much as possible, of course, by understanding the mechanism of the earthquakes and what can be done about it.
This is one of the recommendations of the OVV report that I mentioned, we will be focusing on that a lot as well, and on being very transparent and very open in the conversations that we have, or rather that NAM has with the local community, so that everybody understands what is happening. In addition, of course, to the unrest and the discomfort of not being safe in one's own home, the added problem of not being sure what is going to happen next is, of course, a level of distress that we should address and we can address, hopefully quite effectively.
Thank you.
Thank you, Ben. I would now like to ask whether there are any other questions relating to Groningen so that we would now deal with those questions. On question point number 1, the lady there, please.
Good morning. My name is Nicolette Marie De Clercq, I am one of those 200 cases that you say that are going to be resolved. I live in Groningen, I am here representing some 400,000 people living on top of the Groningen field. That is not just nuisance. We have tens of thousands of homes that are damaged. We have recently had reports that 152,000 homes and 18,000 other buildings, hospitals, schools, churches that stood there for hundreds of years, that are now broken. They all have to be dramatically reinforced because we are to expect quakes with a ground acceleration that is virtually the same as the ground acceleration in the aftermath of the big quake in Nepal. These will be lethal quakes that we are expecting. It is not that we do not feel safe, we are not safe.
Pertaining to this, I have a few questions because I have understood that repair, just the reinforcement of 152,000 homes and 18,000 other buildings will cost EUR 30 billion on top of material damage. Our homes will be safe. They will not collapse, but still we will have damage with every quake. This will not stop unless you go away, if you stop the gas extraction. I have a few questions. Because recently NAM, your subsidiary, has announced that it has to cut costs. Apparently, it is not so attractive anymore to extract gas from Groningen. It is not as profitable as it has been for decades for you, for Exxon, and for the Dutch government, but not for the people living on top of the Groningen field. Is Shell thinking about selling or retracting its share, the 50% share in NAM as exit strategy?
Is there an Article 2:403 statement liability declaration between Shell and its subsidiary, NAM? If so, does this mean that Shell will remain responsible for the risks and consequences of gas extraction, gas storage, and waste products even after you have exited Groningen? Can NAM hand over the concession to another party without this having consequences for Shell or Exxon? If so, is there a chance that NAM will hand over the concession to another mining company within the next two years? Whether or not this is the issue, I'm not sure. We have heard that NAM is cutting costs. I hope this does not mean that NAM is going bankrupt, but if it is going bankrupt, this means that we, the citizens, will have to go to the Guarantee Fund Mining Damage, the Waarborgfonds Mijnbouwschade.
I would like to know from you, as a mining company, you are funding this fund, how much money is in the Guarantee Fund Mining Damage, and is this enough to cover the cost for rebuilding the entire province of Groningen? I have one other question, and this is very important for your shareholders. There are secondary risks to the quakes. I live close to the production facility, the largest production facility near the sea dike. 4 billion cubic meters of gas are extracted from underneath the dike, underneath the Waddenzee, near a dike which has not yet been reinforced. It cannot withstand the severe quakes that we are expecting. If a severe quake hits near the dike, it might burst and half of the province of Groningen will be flooded. Your production facilities will be flooded. People will lose their homes, and they will lose their lives.
This is what is at stake. We are not safe. Another secondary risk that I would like to draw the attention of the shareholders is that since Loppersum, the production is closed. Now we have the quakes slowly migrating towards Delfzijl, which has Chemiepark Delfzijl. 10%-15% of the national chemical industry in the Netherlands is hosted in Delfzijl. We have the tanks with natural gas condensate, the byproduct of your gas extraction. These tanks host all of the natural gas condensate in Delfzijl. This is highly flammable and toxic. Should a severe quake take place in Delfzijl, you know this, I know this, and now your shareholders know this, Delfzijl will be obliterated. It will be gone. 20,000-25,000 people will be dead. Royal Dutch Shell will then be responsible for destroying a Dutch city. This is what is at stake.
It's not enough that you propose to operate safely and that you say that this is a nuisance. You are destroying Groningen, and I really want to have answers to these questions. What impact will this have for your shareholders' value? What impact will this have for your reputation?
Thank you very much for your questions. There were quite many questions, Ben, perhaps you-
I can repeat them if you want to.
Thank you very much for your questions and your comments. I am very sorry to hear that you are indeed one of the 200 more difficult-
It's not so difficult. Just make sure that you buy my home, which is broken.
Yeah.
I can go away and lead a safe life with my family.
I am sure that NAM will deal with your case also in the course of 2015 in a method that is clear and respectful and responsible. You have a number of questions to do with the commitment of NAM and the cost savings. Let me be very clear. Indeed, as a company, any company, and certainly also a company that is dependent on revenues of a product which at the moment sells at a lower price, always has the responsibility to look at cost and look at efficiencies because it has the obligation to remain a strong and vital company to meet its commitments and to have long life. NAM is no exception to that.
It doesn't mean, by the way, that we are going to, or rather, NAM is going to take shortcuts on things that are vital or important, or certainly not things that are legally prescribed or are in the interest of our neighbors. I can reassure you that cost-cutting measures that are being considered throughout Shell, and NAM joint venture, no exception in that area, always make sure that our priorities to have safety and security and the environment and compliance with the law being covered is always safeguarded and ring-fenced. It's more efficiency focused than anything else. On your questions to do with do we have a long-term commitment to NAM, there is no plans whatsoever to look at an alternative future. We are not in any way considering divesting that position.
We are of course committed to working with NAM to see how we see to this difficult period. You have been very vocal for very understandable reasons to explain how difficult and how large the nature of the problem is. Many of the points that you bring out, indeed, we are right in the middle of understanding exactly how we need to mitigate this in NAM together with the Staatstoezicht op de Mijnen, the regulator, together with the ministry. Sort of precautionary, the minister has decided in February already to lower production levels in the first half of the year, not being sure and clear yet what it will be in the second half of the year in anticipation and in preparation of being on the prudent side.
State Supervision of the Mines has said 12 billion cubic meters. We're now at 40. It's not been lowered to the level that State Supervision of the Mines determined safe.
Let me stay away from the specific comments there. I think the minister is very clear in the 16.5 BCM that we have for the first half of the year, that is exactly what NAM I think is adhering to. We do have, and we have been very clear, we have a commitment in all our companies to completely comply with the requirements that we have. The requirements that NAM has in relation to the Dutch mining law, the claims that flow from it, they will be fulfilled. There has never been any hesitation or any concern on our part to walk away from that. Some of the technical challenges that you have, I don't think I am in a position to comment on them in detail. I think that is a dialogue you need to have with NAM.
Like I asked, can you state that you have an Article 403 statement between Shell and NAM, which means that the responsibility will remain with Shell even after all of the gas has been extracted from our field?
I have to come back. I'm not familiar with that article. I apologize.
I would really like to know. Also, I would really like to know how much money is there in the guarantee fund mining-
I'm not familiar with what is in the fund at the moment. There is obviously a relationship that-
Okay. I really would like an official answer on behalf of Shell. How much money is in that fund, and is it enough for the repairs?
I think the answers to your question will come from NAM, who are the operator in this case. I will make sure that your questions are being asked.
Okay. Give them a call because we've asked them before, and they won't answer.
Yeah.
Please do.
Thank you.
Also, can you respond to my question about the reputational damage should something happen in Delfzijl or with the dike?
Well, of course, we are not only concerned about the immediate risks, but of course, things like this have a much wider implication. It has reputational damage as well, and although that is an important consideration, the more important, the more acute consideration is indeed the safety of the inhabitants, the safety of the environment. That is what the company is focusing on first and foremost, and then reputation will follow from that.
Okay. Well, the company is now focusing on the reinforcement, which will take 30 years. It means that many people will have to wait for decades before their home is safe. I would really like to know if Shell, together with NAM, will make sure that people who want to leave, like me, I really, really want to leave. I don't want to stay there for any more minutes. That we can go away, that we have an exit strategy, that we can sell our houses, which are now unsellable because they are broken and worthless, and if we can sell them for a reasonable price because I don't want to wait decades.
As I understand, there is an arrangement in place, which I think has been the outcome of the Dialogtafel, dialogue table.
The arrangement is only if you sell your house, and it's unsellable. I've tried for four years. It won't sell.
I hope you will appreciate that in particular cases, like in your case, it's the only thing I can recommend, and we'll also make sure that that takes place, that your case, of course, gets considered by NAM. I'm not in a position at this point in time, I hope you will appreciate, to comment in detail on your particular circumstances.
Just that you focus on helping the people to get away because this takes too long, and it takes too much effort, and people are broken, just like the province of Groningen is. Also I'd like to close in Dutch. Mr. Van Beurden, you know I have two young daughters.
I know you have two young daughters. I have a son of 12. I have a daughter of 10. When you go home tonight and you'll be putting your children to bed, and you will be telling them I love them, and I'm sure they do. Tell them also that they are safe, that they do not live in a house that's going to collapse possibly as a result of the actions of the company led by their father. I'll be going home to my children tonight late. I'll be back at home in Groningen, and I'll be putting them to bed, and I'll be telling them that I love them, but I cannot tell them that they are safe. I have no future to offer them. I can only tell them I love them. That's all I have. Thank you.
Thank you very much. I did not see any hands raised for any further questions on Groningen. That just leaves me to confirm what I said earlier. This topic will very much be on the agenda of the board, and we will be very much working together with the leadership team, liaising with NAM, whose shareholder Shell is. NAM will take most of the operational decisions on how to go ahead. We will have our eyes and ears there, and we will follow that very closely as a company. Your comments were heard loud and clear. The two issues that were raised through the questions of the two ladies. Thank you, and we will move to the next question on question point number two.
Thank you very much, Mr. Chairperson. My name is Don Gerritsen from the Investors Association for Sustainable Development in the Netherlands. Our collective members represent the assets under management of $1,600 billion, for your information. Let me start with a compliment. We have seen your continued efforts towards more transparency in the field of sustainability. We highly commend also your efforts in the next few years about transparency on climate change. Compliments with regard to that development over the last year. I have two questions for you that we would like to address on behalf of the Investors Association. The first one revolves about integrating externalities, and the second one is about strategic long-term targets. In the first place, about integrating externalities.
Qualifying, quantifying, and monetizing externalities within business operations provides an excellent opportunity to see what the threats and opportunities are within the short, medium, and long run for a company. A lot of companies are already piloting a number of social and environmental profit and loss accounts projects. My question is, are you willing to start piloting for your social and environmental externalities in 2015, and are your shareholders and stakeholders able to read more about that in your annual report over 2015? My second question is about key strategic areas. For example, the area of renewable energy, the area of waste reduction, the area of biodiversity, and a number of other strategic sustainability areas. Unfortunately, we have not been able to see strategic directions for the issues I mentioned. Long-term directions, long-term Key Performance Indicators, operationalized in a smart way for these key strategic areas.
My question is, are you willing to provide more transparency about these key strategic areas in the annual report of 2015? If there is no strategy in place, if there is no KPIs in place, there are no smart targets in place, are you willing to set these targets in 2015? One question about integrating externalities, one question about key strategic targets. Thank you.
Thank you very much for your two good concrete forward-looking questions. Ben will address those questions.
Thank you very much. Thank you. Just one follow-up question, please.
Please.
Thank you very much for your answer. Much appreciated. We see Shell as a leader in its field, with a lot of progress and a lot of initiatives, as you just mentioned. We are very curious to hear when Shell is about to publish its first social and environmental profit and loss account. We know that accounting for social and environmental externalities is still in its infancy, but we are very interested to see when you expect to issue your first EP&L. I don't think we have quite set a date for that.
When we do so, I'm sure there will be a very valuable dialogue with you and many other of our stakeholders as well. Thank you very much in your continued interest and in your encouraging comments as well.
Looking forward.
Yeah.
Thank you very much. Thank you. Next question from Question Point number 1.
Good morning. My name is Henry Pace. I work for Global Witness. We’ve been talking to Shell about one oil block in Nigeria since 2008. We’ve still yet to get proper answers. Today, I have some short questions for you that will hopefully get to the truth of the matter today. In 2011, Shell and its partner, Eni, paid $1.1 billion for the oil block OPL 245, which is one of the largest off the coast of Nigeria. The money should have ended up in state coffers, where it’s badly needed. However, while the payment was made by Eni and Shell to the Nigerian government, there was a separate agreement to pay the same amount to a company called Malabu Oil & Gas, which is controlled by the convicted money launderer and former oil minister, Dan Etete.
As Etete had awarded the block to Malabu while he was oil minister, he had effectively given himself and his associates one of the most lucrative oil blocks in Nigeria. U.K. High Court proceedings and other evidence seen by Global Witness makes it clear that Shell was aware that the deal it made was for the benefit of Malabu. This leaves Shell open to accusations of having purchased stolen goods and monetizing an illegally acquired state asset on behalf of a convicted felon. If Shell’s repeated claim that they only purchased the oil block from the Nigerian government is true, then the $1.1 billion that Shell and Eni paid should have gone into the Nigerian government’s federation account. It didn’t go into that account.
The alternative, as explained by the broker of the deal, the Nigerian Attorney General, and the Nigerian government, was that the government acted as an obligor or a conduit, or as a U.S. judge put it, a straw man to pass the payment from Shell and Eni to Mr. Etete’s company, Malabu. The first question is very easy, multiple choice, we don’t get into any confusion, is who’s telling the truth? Is it the Nigerian Attorney General and the U.S. judge, or is it Shell? Okay. Secondly, Nigerian lawmakers called in 2014 for the deal to be canceled, dealing it contrary to the laws of Nigeria. Eni and its current CEOs and former CEOs, Mr. Claudio Descalzi and Mr. Paolo Scaroni, are under formal investigation by Italian authorities for corruption in this deal, and Eni has self-reported itself to U.S. authorities.
At the same time, British police have been investigating money laundering connected to the deal, and $190 million in proceeds of Shell and Eni's payment have been frozen in the U.K. and Switzerland. In short, Shell and its ability to add this massive block to its reserves is at risk and thus may negative its overall market performance, not to mention potential criminal investigations against Shell. Secondly, why has Shell not warned its shareholders about the risks posed by this deal? Thirdly, Shell has also repeatedly said that it's been transparent about all its payments in regard to this deal. Why did Shell not disclose these payments, the $1.1 billion and the $210 million, to the Nigerian Extractive Industries Transparency Initiative process on the basis that, as Shell has stated, it made these payments purely for the benefit of the Nigerian government?
Lastly, Shell is still part of a group of major oil companies attempting to sidestep parts of a new landmark U.K. law that will bring deals like this one into the open and is also leading a lobby effort in the U.S. to weaken the implementation of a similar law in the U.S., just when these laws would actually inform Shell's investors of deals just like this one. What is it that Shell has to hide? Four questions. Who's telling the truth? The Nigerian Attorney General or the U.S. judge or Shell? Why has Shell not warned its shareholders about the risks posed by this deal just as Eni has? Why didn't Shell disclose the payments to the Nigerian EITI? Why is Shell still lobbying to weaken transparency laws?
Thank you for your questions. Ben will address those questions.
Thank you very much for your comments and questions. I think there is a lot of complexity to this story of OPL 245. It took me some time to understand exactly the history of how this worked over a long period of time as well. You make a lot of insinuations there, basically what it boils down to, in the end, yes, there was a process where we ended up in a dispute with the Nigerian government. That dispute was settled. That part of the settlement was indeed the payment of the amount of money that you mentioned. That payment has been made. We've never been unclear or untransparent about it. We believe that payment was entirely made in accordance with the law of Nigeria and international practice, morally okay. I have really nothing else to add there.
Could you answer the specific questions? Are you telling the truth about this payment, that it was just the Nigerian government, or is all the evidence, the highest-ranking Nigerian law officer and a U.S. judge correct, that you knew this money was going to Malabu Oil and Gas?
I think I've said what I want to say on this, that the payment has been made as part of a settlement with the Nigerian government. It was a legitimate payment. I think we have made that payment completely in line with the laws of the land and international law. There's not much more I can add to it. You make all sorts of references and accusations also on the part of Eni. I hope you will address these questions to Eni.
I did last week, in fact. That's why I'm here.
Fine. That I think is appropriate. Why didn't we mention this to our shareholders? Well, we are here. We have never been anything but transparent about this. Last year, the same question came up. We have also been very clear about it. There is, in my mind, no risk or nothing extraordinary in relation to this transaction that should concern our shareholders here either. Now, I think we have a history of being transparent in payments. We have been the founding members of the Extractive Industries Transparency Initiative. We are very proud of that pedigree. The last reference that you make, which again is an insinuation that we would be against transparency of this, is again, completely unfounded. We have been very clear. We completely welcome and support the issue of transparency, also the legislation that is currently being executed, Brussels lets into the U.K.
There is, however, I'll be very clear on that, there was one concern to do with the implementation of that legislation, which is that the legislation could, in a way, put us at risk of having to break the law in other countries. I've always been very clear. I find it very difficult to accept that we have to make up our mind in which country we want to be a criminal. Do I want to be a criminal by not reporting in the U.K., or do I want to be a criminal by reporting things that are a state secret in other countries? That issue needed to be addressed, that has been addressed, now we are moving forward on this.
Sorry, Mr. van Beurden, I need to push you on this. Why didn't you disclose these payments to the Nigerian EITI process if you're a supporter of that? On the issue of the guidelines, Shell is backing and pushing business guidelines that we have a legal opinion from one of the most qualified EU law barristers in the U.K. saying that the guidelines that Shell has been lobbying in favor of is illegal in the U.K. Why are you backing guidelines that seem to recommend that companies don't disclose in line with the law? Why haven't you disclosed the payments in this very specific case? I'm asking a very specific question here.
I think I've said everything that I need to say on this. Thank you very much.
Okay. Thank you. Thank you very much. We'll take the next question from question point number 2.
Good morning, Chairman. My name is Robert Vreeken of We Connect You Public Affairs and Investor Relations. I advise Shell to become the leading solar and hydrogen company in the world, the leader in renewable energy. I feel that Ben van Beurden made a lot of progress this year. For example, his strategic investment in LNG is excellent. Furthermore, we have three top companies in the Netherlands, Shell, Unilever, and ING. At the moment, the CEOs of all three companies are very communicative. They have a very strong focus on sustainability. That's also a very important improvement in this world. ING and Unilever are leading. In my feeling, the KISS approach is always the most important thing in the world, keep it simple.
Shell already has on some of its gas stations solar panels. I advise you to put solar panels on all of the gas stations of Shell in the world. That's a very important signal. Furthermore, you can put solar panels around all your plants and on all of your real estate in the world. It's very easy to do. It's very cost efficient. Mr. Sam of ABN AMRO is, well, he can finance all those things together with Ralph Hamers. Furthermore, what's very important is to use the leading partners. A strategic investment in Tesla with Elon Musk will help. Not only Tesla, the best electric car in the world at the moment, but also his Powerwall may help to solve solutions in Groningen, for example. Another very simple new project can be the Oppero shower.
You may recall that the Oppero shower only uses one liter of water in each minute. That means a water reduction and a gas reduction of 90% within households. That may help Groningen. Furthermore, your communication has improved enormously. What's harming the image of Shell is the discussions about Alaska, about Nigeria, about Groningen. It's important to solve those things. There are many customers who don't use gas of Shell due to Alaska and Nigeria, et cetera. Thank you.
Thank you very much for your comments and your suggestions. There wasn't really a direct question. Ben, would you like to make a very brief comment? Is that
Well, Mr. Vreeken, thank you very much for your very encouraging words. I'm sure we will catch up later again. You're right, there are many areas where we can and should focus. As a matter of fact, we do. I'll be happy to update you maybe separately on what we are doing in solar and wind and what we also can do in our existing portfolio. You're also unfortunately right is that some of the issues that occur in our operations have a wider impact. We've just heard about Groningen, and of course, this is a very difficult issue to resolve. We will not resolve it in a matter of weeks. It's not for lack of willingness or trying. It will be an issue that we will have to see through with all the difficulties that it has.
I have no intention with some of these issues, be it Nigeria or some of the others, to sort of take a lighthearted view on this. It is unfortunately something that comes with the territory of being in the business that we are in.
Thank you very much. We'll then move back to question point number 1. Next question.
Mr. Chairman, my name is Kieneker. I speak on behalf of VEB, the Dutch Investors' Association, as well as a large number of retail investors in Holland. Mr. Chairman, this is the ninth year in a row that I'm attending the shareholder meeting of Shell. It always surprises how negative very often the atmosphere is after I leave the meeting. One might conclude that Shell is a terrible company, which is only making large mistakes and trying to cover up mistakes and so on. Of course, VEB and also our members, we recognize lots of the challenges which Shell has. Overall, I think we can conclude that most shareholders admire Shell as being a great company. I think that needs to be said as well.
Before you offer me a job to work with Shell, which you will not, I do have two questions. The first question is the same one I've been asking in different tones and colors in the previous eight years, and that concerns an element where I think Shell has been lagging for years, and I think it has to do with the capital efficiency, which Mr. Ben van Beurden has been indicating, where compared to your competition, the top five, Shell is sometimes very good, but in some cases Shell is the worst. Shell has been the worst for many years in using its balance sheet in an efficient way, which means getting a return based on lots of assets which are lying there, huge investments which have been made, and so on.
For eight years in a row, I've been asking this question, and every time the answer was, "Well, Mr. Kieneker, we recognize indeed that we've got some catch up to do, but be patient because as the years go by, these kind of investments will pay off, and then we will be the leader of the pack." I have to recognize, indeed, nine years ago, you were the worst in the sector or you were a laggard. In the meantime, Shell is at middle of the road. My question, very practical, is how many years do I need to ask this question before Shell will be the leader of the pack? Be as good as Exxon, for instance, or some of the other ones. That's my first question. The second question, less critical, less negative, or maybe pessimistic, much more relevant maybe for shareholders.
Could you describe the impact if oil and gas prices remain around the current levels for another decade? How much will that change or impact your strategy? How much may that impact your capacity to offer great dividends to your shareholders? I'm wondering, in all your scenario planning, what if the current gas and oil prices are to stay for longer period than assumed so far?
Thank you for your question, Mr. Kieneker. We have one thing in common. We both have been here for nine years. I've been on this side and you've been on the other side, I always enjoy the dialogue. Thank you for your constructive approach. I would simply make a comment on the asset returns. I vividly remember the first time eight years ago with comments on the return on assets and the assurance that things will get better. I think we have made great progress. We have some work to do. Certainly, the board is on top of it, and the leadership team has been responding particularly well during the last couple of years or so. I think our eyes will be at it going forward, that I can assure.
I don't think we can give a date when we will hit the top, but we are at least at par with the people in the middle of the pack today, and that is progress. In some other areas, as you know, cash flow, et cetera, we are at the top of the industry. With that, really moving to the discussion on the oil price. Ben or Simon, which one of you would like to make one or two comments?
I'm happy to make a few comments and then perhaps Simon can add to it as well. Thank you for your very kind comments. Indeed, we will not offer you a job. We'd much rather have you stand there and make nice comments to us. Indeed, we have been improving on returns over the last years. As a matter of fact, we are number 2 when it comes to returns and the pack that we compare ourselves with. Indeed middle of the road, but top of the middle of the road. It's kind of hard to catch up with some of our American colleagues. The reason is not so much that they are so much better than we are.
The reason is that they have a different way of doing their accounting and their reporting, which gives them a structural sort of two percentage points of advantage when it comes to return on capital employed. Kind of hard to deal with. We would have to be fundamentally so much better than, say, Exxon, in order to have the same reported number. Has to do with the way we account for pensions and these sort of things. At the same time, we will aspire to continue to lead, and we will hopefully see a continued improvement on returns. What happens when the oil price stays low? Well, of course, there was a time that the oil price was even lower than it has been today, and we could make decent returns and also a very progressive dividend at the time as well.
If we will see a decade-long low oil price, which by the way, I think is not likely, but if that were to be the case, the inevitable consequence will have to be that the cost of doing projects will have to come down as well. Partly, this is of course a cause and effect, where high oil prices are caused by high cost and vice versa. The industry will have to reset its entire spending pattern in order to be able to continue to grow and invest. You will see a reversion back to better returns, but it will be a painful process. I'm sure that's the case. As it was a very nice process to, of course, enjoy the rise in oil prices when we were still not building all the capital that was needed to sustain that cash flow. Is the dividend safe?
Which is really your question. Well, the dividend is a very, very important tool for us to reward our investors, to reward you. You will have, of course, our commitment that we will do everything to preserve the dividend policy that we've had for many years. Yeah.
Thank you.
Thank you. We will move over to question point number 2.
Mr. Chairman, my name is Evert van Voorthuysen. I'm the director of the Foundation, GEZEN Foundation for Massive Scale Solar Energy. What are we selling with Shell that are fuels, especially liquid fuels, liquid fuels we will need forever, practically. I don't see any scenario where shipping and aviation, probably also not agriculture, can do without liquid fuels. We are producing that, we are selling that, and that's good. We don't need to worry about that. We produce them, we use raw materials, what are our raw materials? That's petroleum and natural gas. These are not inexhaustible. We know they are finite. There are also other economic political problems. That's because of the climate policy, which hopefully we get in the world. We will come to the matter of the stranded assets.
An increasing fraction of the assets cannot be used anymore. That's a big problem for all of us here and for the value of our shareholders. I don't even speak about dividends. Now, Mr. Van Beurden, you use as arguments that the world cannot do without oil. True. We are going to solve this problem one way or other. I don't know how you're going to do that. It has to be so that all oil and gas we find will be used. There's no way out of it, you say. Here, I definitely could not agree with you, and hopefully, we don't need to agree with you because there's an alternative. The alternative is solar energy.
If you just make the calculation, the energy content of solar energy flowing into the regions like deserts, the energy content is comparable to the energy content of 25 centimeters of oil each year. Imagine a rain of oil pouring into the deserts, 25 centimeters of oil a year. Now, how much is that? Here in Holland, we have 75 centimeters of water each year, and we consider that as quite a lot. There's a tremendous amount of oil just going into huge areas in the deserts, which we hardly use. Why not put much more R&D than you're already doing and investments in some time in using that new raw material, this immense, never stoppable current of solar energy to produce electric fuels?
You probably know that Shell is participating in a small project together with DLR and ETH Zurich to produce kerosene out of solar energy. The idea is you take water, you extract CO2 from the atmosphere, use a reactor which is powered by concentrated solar radiation, heat at very high temperature, and you do a number of processes which Shell is very good, and you produce kerosene. This is an R&D program, and probably it will be followed up. I expect that it will go better and better. The time will come that Shell will invest more in solar oil factories in the deserts than to try to find more new oil fields or gas fields. Will it be 2020? Probably not. Will it be 2030? Hopefully.
I want to know from you, Mr. Van Beurden, what is your idea at what year Shell will invest more in solar oil factories in the deserts than in trying to get the last oil out of Russia?
Thank you for your question. Ben, over to you.
I've never been particularly good at forecasting the future, and if you will forgive me, Mr. van Voorthuysen, I will not give you a precise year. I think your point is very well made, and directionally, I'm also in agreement with you that, of course, over time, the role of solar will be more important and will become ultimately the dominant factor in our energy system globally. That is not going to be 2020. That is not going to be 2030. As a matter of fact, even under the most aggressive scenarios that we have not seen in the history of mankind before, we still think that the amount of alternative energies in the energy mix will be limited to something like 35%, 40%, maybe by the middle of the century.
The world will still need, of course, a very significant amount of fossil fuels until that time, not just as a percentage, but also in absolute terms. Even though I talk about percentages, that energy system will become bigger and bigger as more and more people aspire to the same lifestyle as we have.
Here in the Netherlands. Ultimately, and certainly in the second half of the century, we will see solar become the dominant factor in the energy system. A company like ours needs to be ready for that, and we are spending a lot of time and effort and research money, actually, very much on the subjects that you mentioned. How can we harvest solar energy in the desert? How do we do that? Do we turn solar energy and hydrogen and ship that? Or do we somehow turn it into kerosene or other distillates and ship that? Or in places like Oman, for instance, can we use solar energy to replace gas that is being used in electricity locally and then export the gas to other places? In a way, you swap the solar for natural gas.
Some of these things are doable right now, we are pursuing them, and we are investing in them. Take the Oman example, where we actually do invest quite a bit in solar in order to free up hydrocarbons that can go elsewhere. Other schemes, the ones like you mentioned, will require a lot of technical innovation and development still before they are technically mature. I'm afraid they will also need a much higher energy cost for them to be economically viable. We have to experiment with that all the time, also to drive costs down, and that's exactly what we are doing. I do think we will be a few decades away before we can say that this now has also become the major component in our business portfolio.
When the environment is there, when the economic environment allows us to do these things economically, robustly, we will be in the forefront.
Thank you very much. We will then move over to question point number 1.
Good morning, Jorma Ollila . Thanks for taking the time and for giving us the access to your company over the past years. My name's Jag Zwalia. I'm here on behalf of APG Asset Management with more than EUR 400 billion of assets that we manage, I'm also speaking on behalf of our clients, which include ABP. I'd start with a small compliment on agenda item 21, which we fully support. Thank you for that. I have two very short questions. The first one regarding the pending BG deal. I'm taking a look at that. I've covered BG as well. When I look inside their portfolio and the opportunities that are there, will the BG deal present you with better alternatives to pursuing the Arctic? That's my first question, specifically, I had in mind the Brazilian barrels, which are lower cost and less risk.
The second question I have is on Nigeria, where, as you've said, you've been reducing your onshore footprint. I'm just wondering, given the history of oil spills in that region, what are your expectations around future cleanup costs and compensation claims from the legacy oil spills? Thank you.
Thank you for your kind comment and your two concrete questions, BG and Nigeria. Ben?
Thank you very much for, indeed, the comment and the questions. BG will be a very important deal. Of course, it is a deal that plays to our strengths. That's what we like about it as well. It's a huge complementary portfolio where lots of very attractive but immature assets are being coupled with our portfolio and our capability. Bear in mind, of course, that we are, in the areas like LNG and deep water, a more experienced company than BG is. Therefore, that's the logic really driving it. It is a large deal, it will, to some extent, also be transformational in the sense that it will allow us to just revisit many of the options that we have.
I will not want to get ahead of that prematurely, we've been very clear in the communication that we've put out around the deal that we will use this as an opportunity to really go through the portfolio and reset the portfolio in areas where we now feel we have more choice, we can take a view on the future in a slightly different way. What that will mean for the Arctic, I think, is a little bit premature to answer at this stage. The deal has not completed. We're not sure whether the deal will complete, of course. When it does, you can have my assurance that we will take a very fundamental view on the entire company. On the issue of Nigeria, yes, we have been, as I said, divesting quite a few of our assets.
With that, of course, we also divest some of the problems that we have. The ongoing activities to clean up will, over time, become the responsibilities and the liabilities of the new owners. That is just how the deal works. There is a number of liabilities that will very clearly stay with us, like for instance, the liabilities around Ogoniland, the liabilities around Bodo, which have been well advertised, and a few other cases where we indeed have outstanding disputes or legal cases. These we did not settle. These are the ones that we will follow up on. I think they are well-publicized and very clear also in the way of follow-up and commitment in that respect.
Did you have a dollar amount of what those potential costs could run into?
No, I think it will be hard to say at this point in time. Take the Bodo claim. We've settled the claim. We're very happy that we found a way forward with the community and their lawyers to finally settle that. We are now at liberty to clean it up, which is long overdue. We are in the process of starting there with two contractors being appointed. We signed the contracts that will start with the cleanup process in July. I think going in there and doing the work will give us a clearer indication, a clearer sense of what it will take and what the overall cost will be.
I think it's a bit premature to, at this point in time, put an amount to that, how much it will cost, even though I know there have been some reported numbers out there, they are not ours.
Okay. We'll continue that dialogue in future.
Absolutely. Yeah.
Thanks for taking the questions.
Thank you.
Thank you very much indeed. Move over to question point number two.
Good morning. My name is Cindy Coltman. I am here as a proxy for Ms. Hillary Griffith. I appreciate the chance to ask my question after the gentleman from APG, as my question revolves around how Shell is engaging with institutional investors and managing risk to shareholder value. As the board is no doubt aware, a growing number of academic, public, and political institutions are divesting their investments from fossil fuel companies for both moral and financial reasons in response to the urgent climate change crisis. As Shell noted in its 2014 sustainability report, some external parties say that fossil fuel reserves could become stranded due to government policies to reduce CO2 emissions. The largest of the Dutch pension funds, ABP, has a EUR 1 billion investment in Shell.
A growing number of these ABP pension holders in the Netherlands are uncomfortable with the fact that their pension is heavily invested in fossil energy companies in a time of climate change and are asking their pension fund, ABP, to divest. As a biology teacher in Tilburg says, "I work with young people every day. I want a sustainable world for them." Thus, my question, Mr. Chairman, will the board comment and tell us more about your position on stranded assets, and what evidence and assumptions are you giving pension funds such as ABP that Shell assets are not at risk of becoming stranded? Thank you.
Should I take that?
I can take it. Okay. Ben agrees to take that.
Thank you, Mrs. Coltman. Yeah, the argument of stranded assets or the carbon bubble is of course, a very well debated subject at the moment. We are familiar with it, and it is an argument that actually sounds quite convincing and quite strong. There is a few issues with the argument, though, and I will address this now from an investor's perspective. The climate change aspect I'll be happily talking about later when we consider the other resolution because there's also a moral aspect there. If I just look at the investment case, let me say the following. While the argument is clear and talks about a bubble, these resources cannot be produced anymore. There is actually one key problem with it, and that is that it ignores reality. The reality is that, first of all, we will need a growing amount of energy in the world.
We talked about the growing population, 3 billion people coming out of poverty into middle class, new people being added to the planet quite often in areas that are less fortunate than we are here in Western Europe. These people will need energy as well. Energy demand will continue to grow, and that energy demand will have to be by and large met by fossil fuels at this stage. You may not like it. I probably like it even as less as many others do. The reality is that 80% of the total energy system is made up of fossil fuels, has been for many decades, and will remain to be so for many years to come.
Even under the most aggressive scenario that indeed we will be not only wildly successful in alternative energies, but we'll find very, very effective ways and means to reduce the use of energy and fossil fuels in general, the world will still need to invest significantly in fossil fuels for the very simple reason that fossil fuel production declines every day from existing sources. About 80% of our investments, the investments of the industry, 80, 8-0% of the investment is to just stand still. This is not to grow the energy system. This is to stand still. If we were not to invest in fossil fuels, in oil and gas, particularly in oil and gas, for let's say the next 35 years, we would have a shortfall of something like 80 million barrels a day of oil. That investment still has to come.
That is the investment that we do. That is the investment that we make money on. The notion that all of a sudden oil and gas will not be needed anymore if we can somehow do without in a short period of time is just not a reality. Even under the most aggressive scenario, that is actually not a scenario that is based on logic, but a scenario that says this is the International Energy Agency, that says we will reduce the CO2 emission into the air to a maximum of 450 PPM. We don't know how we will get there, but suppose we will get there. The amount of investment that is going to be needed to just stay within that limit is still going to be massive. We are still going to fall short of 30 million barrels a day of new production by 2040.
The investment case in fossil fuels is a strong one and will remain. That is for the industry. Over and above that, we as a company make sure that we are on the least carbon-intensive side of the energy investment opportunity set as well. We have very clear strategies where first of all, we factor in a high carbon price in all our investments to make them a little bit more future proof
Than other investments could be. We have very clear and deliberate strategies for each of our main businesses to make sure that they are lower carbon intensity than the rest of their comparable asset groups. We will continue that strategy to make sure that indeed we are as future proof as we can be as a fossil fuel company. On top of that, of course, I'm again happy to talk about it in a bit more detail when we talk about climate change in general, we continue to invest in opportunities to not be in fossil fuels, whether that is solar, which is a longer-term opportunity, or whether it is biofuels, in which we are already the most leading company in the world, or new business models around solar or wind.
All these things are being considered. We aim and intend to be at the forefront of these investments as soon as and whenever these investments are economically viable. We will make sure that they will become economically viable as well. As an investment case, I think the issue is relatively sound. I'll be coming back on the carbon bubble later on because I think it's also a red herring, and I'll talk about that a little bit later.
Thank you. Thank you for that. Just one follow-up. Did I understand you right, though, as you talk about the investment in renewables, you said EUR 150 million or dollars of the R&D portfolio is devoted to renewables. Was that the number that was quoted?
It is low carbon technology.
Low carbon.
That includes-
Including CCS
carbon capture and storage as well, for instance.
Okay.
Yeah.
The amount of the total advertising budget for Shell globally is?
It's less than that.
It's way less than that. Moving towards a sustainable company in the world would mean quite a different investment strategy. Would you agree? Yes. Okay. Thank you very much.
Thank you.
For allowing me the chance.
Thank you. We'll move over to question point number one.
Okay. WakaWaka. I'm Annemarie Schaake. I'm Dutch. I'm really Dutch from Amsterdam. I'm an independent enterprise looking for the future with fishing. I'm a proud green shareholder of Shell, since a month for the movement Follow This. We will have the board. I think he's standing there. That's my introduction. WakaWaka. I don't know if you know what this word means, but it is shine bright. It is a really sustainable way to provide sustainable sun energy in Africa. I want to bring this to your attention. I have some supporting and critical notes to make to you. For the first time I'm here. I was a little bit surprised the way you receive your shareholder, your real shareholder. Okay, I start. There exist different levels of consciousness as there are different levels of interest.
There exists a higher level of interest to planet Earth, humanity, and mankind than the interest of an international multinational fossil fuel oil and gas company like Shell is. The best choice and interest for Shell is, in my opinion, to make a transition to sustainable energy. I thank you for all the answers you already given, Mr. Van Beurden. I only hold here the long term. I want you to stop the lobby against the sustainable energy that's really in. That's really point of attention. I'm aware that this is for oil and gas company, Shell, as I say it in Dutch for the people: You are a company for oil and gas. That's it. You're a great company. That's really true. Nevertheless, it's a matter of common sense to realize that your days are gone in this century.
It's better to listen to the international communities who, if you read The Guardian, well, there are very critical articles about your company. International community wishes you to change your policy for planet Earth and mankind.
Can we have the question, please?
Yeah.
Move towards the question, please.
The cost to subsidize fossil fuel get too high to invest in materials to extract the oil and gas. The system will not work anymore, hurt by corruption, violence, and intimidation. I want to ask you to stop the lobby against sustainable energy to make it go stronger and quicker in the direction you want on the long term. Please don't stop that. That's my question. Just to fight it, and better take your challenge to show leadership as a Royal Dutch Shell company. Now I feel it as an international shame, and that's not what I want for Shell.
Thank you very much for your comment, your analysis, your comment, and your request. I can assure you from the board perspective that as a company, we welcome the increase of renewable, the investment in the renewable, the emergence of new technologies in the renewable. We are investing, as you just heard, serious amounts of money, looking at the future, both in oil and gas, where we are in, as well as in the new renewable technologies. I think our CEO has given us a number of comments, examples on that. Ben, is there something you want to add?
I would like to correct that-
I think we covered this quite a bit.
I would like to just correct a very important misperception that you have, which is that we would be advocating against renewable energy.
That's your opinion.
Maybe, of course, you are just a new shareholder in this. I would really then suggest that you pay a little bit more attention to what it is we're actually doing and saying. I've never, and the company has never advocated against renewable energy. As a matter of fact, we are one of the largest investors in renewable energy.
Okay. Thank you very much indeed.
Well, I hope you do.
Yeah.
Thank you.
Yeah, thank you very much. Move over to question point number 2.
Good morning, Mr. Chairman, Mr. van Beurden. Thank you for this opportunity to talk to you. My name is Mark van Baal. I'm the founder of Follow This. We are a movement of green shareholders in Shell. Our goal is a more sustainable world. Our goal is to make this world sustainable much quicker than we do right now, and we want Shell to take the lead in that. We think Shell can make a difference. As shareholders, we want you to move to sustainable energy. Mr. van Beurden, you've received hundreds of emails in the last month of new and existing shareholders who encourage you to invest more in renewables. For the benefit of the other shareholders, I will read this email. It's very short. It says, "Dear Ben," or "Dear Mr. van Beurden." I hope you recognize the mail.
Yeah. I've read them all. Yeah.
Thanks. "I believe you can change the world. As a shareholder in Shell, I want you to know that I expect the company to move in a new direction. I want Shell to change course and make the move to sustainable energy. I know you can make a difference, and this is why I became shareholder." You've received hundreds of these emails. Today, we're here. We hope other shareholders will join us. For example, ABP, who are in dire straits. They can make a decision to support our case. For the other shareholders, I want to make clear that we're not asking you to stop investing in producing oil and gas. Today, we're not asking you to stop producing oil and gas. We're not asking you to stop paying dividends. I would be lynched in this place, I suppose. I wouldn't make it out alive.
We're not asking you that. We're only asking you to recognize that you have to make as much profit as possible from your existing oil and gas fields right now. Enjoy them, enjoy the profits, enjoy it while you have it. Please invest these profits in renewables, the energy of this century, and not in just more fossil fuels. I will give you one example. You're sending now an armada to Alaska. For the other dear fellow shareholders, Shell spent to date $7 billion looking for oil in Alaska. $7 billion. They will spend another billion a year at least. Is that correct? Last year was a billion. We'll spend another billion a year to look for oil. This will only deliver money in 2030 earliest. Shell will spend billions and billions and billions not making any profit from it.
We suggest you would invest that in renewable energy. For example, send an armada of ships, not to Alaska, but to the North Sea and build a wind farm instead. In short, our statement is we want you to look at the future and say, Shell will be a renewable energy company by 2030. We, as shareholders, don't want you to be the next Kodak or Mr. Ollila, we don't want Shell to be the next Nokia. Let me come to our question. Given the fact that fossil fuels are getting more and more expensive to get out of the earth. It's more and more expensive. You have to go to the poles, you have to go to the deep sea, you have to go to subsalt, etcetera.
Given the fact that renewables are getting cheaper and cheaper by the day, Mr. van Beurden, Mr. Ollila, you're both engineers. You know technology gets cheaper and cheaper, and fossils are raw materials getting more expensive. Renewables are getting cheaper and cheaper because they are technology. Our question is, please put the billions you have, the brains you have, ladies and gentlemen, the smartest guys in this theater are sitting on stage there. Shell hires the brightest students from universities. We want you to put your billions and brains behind it and make sure Shell will be a renewable energy company. I will finalize with a quote from you, Mr. van Beurden.
You said in Shell Answer, "An organization that has so many qualities, so much expertise, so much capital, has to be able to reinvent itself." Our question, Mr. van Beurden, we believe that you can change the world by putting Shell's brains and billions behind renewables. We are long-term shareholders, and we want to prevent our shares to become worthless. Our question is, how can we help you? You have our support. You really have our support.
Well, thank you. Thank you very much. Your point was made very clear. I think the state of the will of the company has been also made clear in responses to a number of the earlier questions. Ben, very briefly, if you want something to add.
Yeah. Thank you very much, thanks for the many emails that I've received, of which I take note. They have all been personalized, which I thought was quite nice as well. Better than the sometimes 20,000 emails I get from Greenpeace supporters. In this case, yes, we will indeed make our efforts to contribute to the transition in the energy system. That will be a long-term transition. We want to be, as I said, at the forefront of it. I'm afraid it will not go as fast as you want if you also want to have your dividend safe for the next few years. Simply, you characterized the issues in our industry quite well. Sometimes we have to invest millions or billions in exploration activities that may or may not result in oil finds, and if they do, may or may not result in developments.
We are reasonably certain about the business model that follows from it. We are not so certain at this stage of the maturity of the business model in renewables. Quite often, renewable investments make money by the grace of subsidies. We do not think it is a sustainable position at this point in time to base the entire future of the company on state subsidies. The scale of our company, although it is a small company in the total energy system, is very large. I cannot invest $35 billion a year in renewable energies and hope to pay $12 billion of dividends a year. Right? Thank you.
Let's have Simon Henry comment first, then a very brief, two-sentence comment.
Yeah. I hope it's very brief.
If I may, just to introduce a few numbers, because the whole debate seems to assume we can switch overnight.
We're not asking you to switch overnight, only to put the dot on the i.
No. Let me help just put this in context. Today, $4 billion will be spent on the energy industry, new investment, and tomorrow, and the day after, and the day after. $1.5 trillion per year. At the moment, $250 billion-$300 billion of that is going into renewables. We invest $37 last year, $33 this year. That renewables investment in total, we talked about million barrels a day, so the total energy demand today is 250 million barrels oil equivalent a day. It's growing towards around 400 the middle of this century. 80% of the 250 is fossil fuel, 90% of it is oil, 55% is gas, the rest is coal.
The investment required in renewables, that $300 billion a year, and that's been around $250 billion-$300 billion for the past five years or more, is today producing basically less than 2 million barrels a day oil equivalent, less than 1% of the world's total energy. At that level of investment, that's what it takes. It will continue. It will get cheaper. It will happen. The scale of this industry, the infrastructure, the numbers, they are just way too big to make a difference in a short period of time. We need to make choices as society about where we need to go and where that investment, the R&D goes, but it isn't going to happen overnight just because this is so big. Thank you.
Yeah. Let me finalize that we have more confidence in you than you have in yourself, apparently. We think you have the billions and brains to make this change, not to follow it, but to really lead the change. How can we help you start tomorrow? Do you need more shareholders?
Yeah. Thank you. I think the comment is
Okay, thanks
the transition will take more time than most of us would wish.
Okay. See you next year.
Absolutely. Thank you. Thank you very much. Next question from number one.
Good morning. My name is Charlie Kronick. I am a shareholder. I also work for Greenpeace. I am sorry that the emails have not been personal enough, and I will do my best to make sure that they get better in the future. I have a feeling you will not be offering me a job either at the end of today. I have a really, really specific question I am sure the audience will be happy to hear. Your colleague, Curtis Smith, was recently quoted as saying that Shell had put in place an environmentally sensitive, thoroughly responsible plan for exploration offshore Alaska, and that Shell would not consider moving forward with anything less. Clearly, in 2012, Shell did move forward with something that proved to be very much less, notably, in its refusal to test your containment dome and capping stack in operational environmental conditions in the Arctic.
That was something that has been recommended by the U.S. National Research Council. Notwithstanding Mr. Van Beurden’s comments that the capping stack and dome have been successfully tested this year, they have, in fact, of course, been tested in the temperate waters off the coast of Washington State, not in anything like the operational conditions. My question is really a very specific one. Given that since 2012, you have had three years to test that key bit of equipment, the capping stack and containment dome in Arctic conditions, why the company has so far refused to do so?
Thank you for your question. Ben van Beurden will respond.
The very short and specific answer to it is that the testing that we have done of the Arctic containment system we think is fully representative for the conditions that we will encounter in the Arctic.
Well, if you allow me, just since it was such a brief question.
A quick second question.
Yes. Considering the fact that the claim for the capacity to contain the oil to a level of 95% in conditions that are literally unprecedented, according to U.S. government commissioned research, it's hard to see how testing it in non-ice-covered, in fact, waters that never see ice could give you the confidence that that's the case
Again, it's not much more to add other than that it's a test that we think is representative. Bear in mind, of course, that when we will be in a drilling campaign this summer, there will not be ice in the Arctic either, otherwise we will simply not be there.
There was the last time you were there. Anyway, thank you very much.
Thank you. Thank you very much. We continue on question point number one.
Good morning, or good afternoon by now, I guess. My name is Sebastian Buck. I'm a proxy for Lisa Nathan, and I have a question on the Arctic as well on contractors and contractor oversights, so something that was mentioned in the presentation earlier, and you promised us some further insights and some details on that. I'm looking forward very much to hearing that. In March 2013, a report into Shell's, well, let's say mishap-prone 2012 operations in the U.S. Arctic. The U.S. Department of the Interior recommended that Shell would be required to commission a third-party audit of its management systems, including the safety and environmental management systems. A little later in March 2014, it was confirmed that Endeavor Management would undertake this audit.
Since then, it appears that no detailed information has been disclosed publicly on the terms of reference for this audit, its progress, or even its findings. Shell's representatives have repeatedly stated that the company has learned its lessons from the systematic failures in its management systems in 2012. In order to reassure us shareholders here that your actions actually do match your words, will Shell commit to publishing, A, the terms of reference given to Endeavor? Also, the full audit that Endeavor has produced, and finally, detailed information on the changes that Shell has made to implement any recommendations made.
If not, could you explain why shareholders, stakeholders should rely only on your reassurances about the company's ability to operate without incident in the offshore Arctic, given that in 2012, the then CEO was equally confident, but ultimately mistaken, so to say, in Shell's ability to do so? Thank you very much.
Thank you very much. Ben van Beurden will respond.
Yeah, I think indeed we had a few issues in 2012 from which we had to learn. There's no denying that. Let me also be clear that none of the issues that went on had anything to do with the drilling or the reservoir as such. Nevertheless, it showed how unforgiving the logistics operation in the Arctic can be, and we had to indeed improve our systems. What we have done is quite a few things, not just an audit. We have, as a matter of fact, significantly improved our activity planning. It's a very complex operation to undertake. We undertake that operation as I'm sure people will have noticed out of Seattle. From Seattle to the Chukchi is the same as going from Rotterdam to New York. Try to imagine that sort of supply chain and the issues to do with it.
We had to indeed improve in quite a few areas, contractor management being one of them. We have strengthened the entire Arctic organization that we have. We have made a much stronger permanent organization. Marine insurance has been a key improvement feature as well because the issues that we had to do with towing and other marine operations. We have been very clear that we cannot go in a stop-and-go approach on funding, so we have continued to fund this entire operation, the entire fleet of ships and helicopters, and everything else that we need logistically in the entire period that we paused, just to make sure that we did not have to remobilize whenever we would decide to go ahead again. We've upgraded the fleet quite significantly. We have modified the Discoverer with addressing some of the shortcomings.
We have, of course, not been using the Kulluk anymore. That has been scrapped, and we have replaced it with the Polar Pioneer, which by the way, has been modified and upgraded as well. We've added new vessels, new tow vessels, another anchor handler, a bigger supply ship. A lot of things have happened. On top of it, yes, we have audited and verified all of this to see whether it works. We've tested, as was mentioned earlier on by the gentleman from Greenpeace, the Arctic containment system, and all of that in complete transparency with the regulator who is supposed to oversee us in that matter. We have been very clear. We have not withheld any information.
We have shared that very openly, and in that sense, I think we have fulfilled all the obligations that we have, and of course, we have, with much of the input that we have received, learned an awful lot on how to be better prepared for this season. I think at this point in time, we are getting confident that we are prepared and that we are ready for this season. There's a few more things that need to happen, but on the basis of that, we will be moving forward. I do not see the need to disclose all the bits and pieces of all the things that we have been doing. I do not think it will help or add or make us better or do anything else. For that, of course, we also have regulators to oversee us in that regard.
Thank you very much. Can we now have all the questions put together relating to Arctic Alaska? We move over to question point number two for the next Arctic question.
My name is Louise Rice, and I'm a shareholder. I came last year and asked a question about contractor oversight, and it's a similar topic this year. I want to refer to the document entitled Shell Supplier Principles from 2011. They state that Shell will develop and strengthen relationships with contractors and suppliers who are committed to the principles set out in that document. Principle one is entitled Business Integrity, and it states, "Contractors and suppliers comply with all applicable laws and regulations." On the 8th of December 2014, Noble Drilling, a subsidiary of Noble Corporation and the operator of one of Shell's Arctic drilling rigs, the Noble Discoverer, pleaded guilty to eight criminal offenses relating to its operation of the Noble Discoverer in 2012 and agreed to a fine of $12.2 million.
Those felony offenses included the falsification of records, unauthorized alterations to essential equipment, and quote, "Wilfully failing to notify the US Coast Guard of hazardous conditions aboard the drill ship Noble Discoverer." End quote. Despite these very serious criminal acts, despite the wording of the supplier principles, Noble has retained its highly lucrative contracts with Shell, including for the offshore Arctic. This would appear to demonstrate a failure by Shell to match its actions to its words contained in Shell's supplier principles. Why has Shell retained Noble as a contractor for its most highly scrutinized project in one of the most fragile and globally significant regions in the world? What precise changes have been made to Shell's oversight of Noble Drilling to ensure it meets the rather minimum requirement of obeying the law?
Just on that point, in response to the answer you gave about regulators, the regulatory requirement is met once your third-party audit is delivered to them. There is no requirement on them to oversee the adequacy of that audit, or there's no indication in any of the correspondence with the regulator that they will check whether that audit is adequate. In the interest of the transparency that has been much trumpeted here, in light of the fact that the failings with contractors only came to light, not because it was disclosed by Shell. In its 2012 annual report, the word contractor was not mentioned. It only came to light when on the same day, on the 8th of March 2013, the Department of the Interior disclosed to the world what a shambles your management systems were.
It is incumbent upon you to publicly disclose both the terms of reference and that audit, so that those same stakeholders who had to rely on third-party disclosures can actually find out if you have learned the lessons you claim to have. Thank you.
Thank you for your question. Ben, over to you.
Thanks for the comment. Again, let me be very clear. We'll take that comment into consideration. I'll look into that request and see what would be appropriate and practical in that sense as well. Yes, we are very clear indeed that we not only ourselves adhere to the law, but we also expect our contractors to do so. If not, we will have indeed serious conversations with our contractors up to indeed termination of agreements. I will not go into the details of the discussions that we've had with Noble on this, but I can assure you that they have been very clear, very firm, and expectations very clearly set. There's of course, also a limited set of contractors with which you can work in these operations.
The commitment of our contractor community in this is strong and is personally tested by the person who heads up this effort, a lady by the name of Ann Pickard, who is a very professional, very strong leader, who has very strong personal relationships with all the CEOs of the contractors that we work with on this. Everybody is very clear in their minds, and very clear as a result of this communication, what we expect from them and what the consequences will be of not complying with requirements that are very clearly spelled out. In that sense, I have no hesitation to say that the expectations that we have placed on our contractors are very clear, are very well understood, and have every intention of complying with the letter and the spirit of them.
Thank you.
Thank you. Thank you very much indeed. Thank you. Then the next question on the Arctic, so as to complete the topic.
Yes.
Sugar.
I greet you. My name is Mae R. Hank. I'm here for my second time in two years. First time I came, I had questioned whether Shell would have the obligation of bringing in food annually in the event of a major spill. The catastrophe would impact us. I am from the Arctic. I live in the Chukchi Sea, so we still subsist on our traditional food annually year round. My community is surrounded by the ocean on the north, west, and south. We do rely on our food from the ocean, the majority of our food. I had questioned whether Shell would take the responsibility of providing food annually to the communities for the next 50 generations. Two years ago, that was my comment. I still have that question now. The impact that Shell has on our community will be catastrophic.
Really bad because the chance that the federal agencies in the U.S. commented that 75% chance of an oil spill is what will occur. That is the chance that they're taking, is they're expecting a 75% chance of an oil spill in the Chukchi Sea. Why would Shell shareholders want to risk drilling out there if that's the percentage? A very high percentage of an oil spill occurring if Shell is out there drilling and producing. My children eat the food we get out of the ocean, my grandchildren. I am a grandmother of 17 grandkids. Every one of them love to eat our traditional food. They're so afraid right now that with the 75% chance that they'll never be able to eat our traditional food again.
Are you willing to risk all your financial status, your gains, by going with that 75% chance of an oil spill out there in the Chukchi Sea, where I live, and I'll continue to live there whether you come back or not?
Thank you for your question. Ben will respond.
Thank you very much for that question. Of course, we completely share the concern of oil spills in the Arctic, or as a matter of fact, in any of our operations. I've heard that 75% number as well. Let me respond to that first. I think actually that is a percentage that is taken out of context. The likelihood of a spill occurring is actually much, much, much smaller, much less than a fraction of a %. Actually, the Bureau of Ocean Energy Management admits that themselves as well. I'm not sure how that 75% has been taken out of context, but it is taken out of context. Let me give you a few other statistics to perhaps provide you with comfort, although they are statistics, and they are therefore not necessarily a commitment.
At the moment, we have looked at 41,000 wells being drilled in the Arctic, in the continental shelf, and there has not been a single large spill emanating from that. Statistically, this doesn't quite bear out. At the same time, I'm happy to talk a little bit more about the opportunities in the Arctic as well, we are very mindful that even though we see the huge opportunity for us, our shareholders, including yourself there as well, we also understand that huge opportunities come with huge obligations. Therefore, we've gone through tremendous lengths to make sure that we understand the risks and that we manage these risks down to levels that we think are acceptable and are indeed negligible. The amount of effort that has been put into it, the multiple layers of defense that we have are unprecedented.
Nowhere ever in the industry have there been so much precautionary measures to make sure that first of all, a spill will not and cannot happen, and secondly, a lot of measures have been put in place and are on standby to deal with the very unlikely event that a spill were to occur. The amount of equipment that we have, the response capability that we have, we can respond in the event, a very unlikely event of a spill within an hour, is unprecedented. We hope and expect never ever to use any of that equipment that we will have in theater in this period in the summer when we drill. I think this is the way we have to approach it.
We have to approach it from what is responsible, how can we make sure that our operations have a negligible likelihood of affecting your livelihood in the negative way that you just described. I like to think of ourselves, I like to think of myself as a responsible company and a responsible person as we all have the leadership of this company, and we will do everything that is needed before we will tell ourselves that we are ready and able to proceed with the drilling campaign this summer.
Well-
Thank you
After the 2012 incident, it is very hard to trust.
The-
There's a trust issue with us now. Thank you.
Thank you. I would simply remind that there were no oil spills in 2012. It was all about some of those incidents, which were very unfortunate, were relating to the logistics, as earlier noted. Thank you very much. Next, is there a question on Arctic? Can you please be brief? Because we are running out of time, not only exceeding lunchtime, but approaching dinner very soon, unless all of you will be brief.
I'm Faith Gemmill. I'm from Arctic Village, Alaska, I'm here to let you all know I just came from Seattle, where there were hundreds of kayaks that went out on the water by the Polar Pioneer to show that the people of that state are not happy that this rig is moving north. It's because of the same concerns that were raised that there is a predicted 75% chance of an oil spill. It's not if an oil spill happens, it's when it happens that we have to be concerned about in the Arctic. As an Alaska Native, I'm concerned about that because what affects the Iñupiat communities affects all other Alaska Native communities. We live the same way. We share our foods, and our food security is at risk, not only from further fossil fuel development, but also climate change. My question is very simple.
I was down in the Gulf region. I was with indigenous communities when the BP Deepwater Horizon oil spill started hitting the marshes. The communities there live from the waters, just as the Iñupiat communities live from the waters. I saw the tears of those leaders of those indigenous communities as they realized their way of life was going to be lost for years. My question is, when that happens, how is this board going to be accountable to shareholders? Because the financial risk is so huge and enormous that there will be serious consequences in the form of $ billions in fines that you need to be accountable to your shareholders for if that happens in the Arctic. The other thing I wanted to say is just the same question.
Well, as far as the Deepwater Horizon spill, that was in warm, temperate waters where infrastructure was actually in place to respond. We've seen an ecosystem pretty much devastated. In the Arctic, there is no infrastructure in place. We have broken ice conditions. How can you clean up oil under broken ice and in those harsh conditions of the Arctic?
Thank you for your question. I think Ben will respond.
Yeah. Thank you for your question and your comments and concerns. Without wanting to widen the discussion on risk, but we are an industry that, of course, has to deal with the risk in our operations because we deal with products that are inherently hazardous because they indeed can pollute, they can explode, they can burn. That's the nature of our product, unfortunately. We are very mindful of that, and we have, over the years, of course, invested tremendously in management systems, practices, techniques, management techniques, technical installations, and everything else to deal with risks. As I said, the Arctic is maybe a special case because it is indeed, as you quite rightly point out, a more fragile environment.
It is an environment that is hostile in the sense that it's further away from ports and infrastructure to deal with unforeseen circumstances, therefore, we have to go to extra lengths to do that. We have to take everything with us. We have to be extra careful. We have to take extra margins in our design, we have to make sure that we have an even lower tolerance for risk than we would otherwise have. There is also a mitigating effect in the Arctic, which is that it's not deep water. It is 30 meters deep, so it's sort of like North Sea, the reservoir is not high pressure. Actually, from a geological reservoir management and drilling perspective, it is actually a relatively benign and relatively easy operation. I do not want to underplay the complexity of getting it right.
I have to repeat what I have said before. Your point is very well made, and it has not been lost on me that if anything were to go wrong in any of our operations, the board and me as the Chief Executive will be held accountable by others. Therefore, we have to be very clear and convinced of the readiness that we have and the risks that we embark on, and the rewards that are associated with it before we embark on it. I think we are doing that, and I think we have done that. This is also the reason, by the way, why we had to pause the program to reassess our readiness and our preparedness for it. I think we are now getting at a point where we believe we are ready for this season.
There's one other point that I would like to make, though. I would like to emphasize that a lot of people believe that what is going to happen this season is that we are going to produce oil there. That is not at all the case. What we are going to do this season is to ascertain whether there is oil in the first place. We probably need two years to find out whether there is oil and indeed whether there is enough oil. If there is no oil, there is no development. If there is oil in sufficient quantities, we will have to understand how we are going to develop this. That will be a multi-year process in which I am sure there will be plenty of oversight, scrutiny, a lot of discussion, a lot of discovery also from our side, how we can do that responsibly.
We will only proceed with the real development of anything offshore Alaska if again, we can find that we can do it responsibly, ecologically sensibly, and indeed commercially sensibly as well. That decision is probably many years, if not a decade away.
Thank you, Ben. Simply to reiterate from the point of view of the board, I can only reflect that we have considered all the risks. We have worked extremely hard to make sure that we have covered all the issues, it seems that we are double, triple covered in most of the cases. We feel we are ready to move to the drilling, to do the phase of exploration as Ben described. It will take a bit of time to establish what is the amount of oil and what is the extent of hydrocarbons there. We know from seismic that there is a significant amount of hydrocarbons. Now it's the exploration phase to establish exactly the reservoirs. The board is fully aware of the responsibilities that we have here.
Can I just make
I think we have
closing comment. Traditional ecological knowledge of the peoples of that region who have been there for thousands of years says that it cannot be done safely, and it's not worth the risk. I think you're making a very bad decision, and you will pay a very dear price, as will the people of that area. Thank you.
Yeah. Thank you. Before you go, I think I would just reiterate, having visited Alaska twice and talked to very many quarters of the society, not only in Anchorage, but a lot of people on the Northern Slope and by the Chukchi Sea, I have had very many different comments. That also plays a role, as I'm sure you are aware. Next question, please. Questions on Alaska or Arctic.
My name is Josje Fens. I'm a shareholder, and my question is about the events in Seattle. One of the lessons from Shell's failed 2012 Arctic season was that the company and its contractors often did not fully appreciate various risks in its operations. Shell assures us that the company has learned these lessons. This AGM comes after several days of local protests in Seattle against Shell's use of Seattle's port. The Mayor of Seattle has declared Shell's permits invalid. If the Mayor's decision is upheld, Shell will face delays and additional costs in moving its rigs again. The situation is in the focus of widespread media coverage, including Fox News and The New York Times, adding to the already intense scrutiny of Shell's Arctic operations.
Shell's decision to proceed to Seattle despite a request made by the board not to do so suggests a disregard of the wishes of the people of Seattle and risks increasing local opposition.
Can we have a question, please?
Yes, I'm coming to that. Despite Shell's assurances, it appears that yet again, three years on, either Shell or its contractor, Foss Maritime, failed to properly assess the risks posed by local civil and political opposition to its plans. In light of current events, do you accept that it was a mistake not to conduct more stakeholder outreach in Seattle during the several months in which the lease was being negotiated?
Thank you for the question. Ben.
Yeah. Let me make a few general comments on Alaska and then focus in on Seattle first. I think it's fair to say that, of course, there's a lot of opposition against drilling in Alaska or any operations in the Arctic in general. There's two main reasons that I discern for people why they are against it. First of all, people are legitimately concerned about the risks that are associated with any oil and gas operations or any significant industrial operations in the Arctic, and we've heard quite a few comments of that already today. It is a delicate environment, and there's no denying that, and in many areas, a pristine environment.
Of course, there's many people out there also who link this to climate change and who, of course, are concerned about climate change, rightly so, know that climate change has a link to fossil fuel consumption, and indeed know that climate change has a disproportionate impact on the Arctic. Somehow that link, even though Arctic oil may actually be a low carbon footprint oil, will actually not gel in their mind, come what may. Now, I've come to accept that people who have that logic, which I respect and understand, no amount of arguing, no amount of assurance, no amount of logic for that matter, will change the argument. We just have to respect that we have different views there, that it will be unpalatable for that segment of society that there is operations in the Arctic, and that's the end of it.
This is nothing to do with risk. This is just somehow unacceptable to have Arctic operations in the Arctic, where, of course, the effects of climate change are so significant. I get that view, and I think we just have to take it for what it is. Many of the oppositions, of course, that we are seeing in Seattle are along that line. Anything to do, of course, with the real concerns of risks of operations in the Arctic, we address, and we are happy to address that. We're happy to talk about it. We're happy to reassure. We are actually also doing what I believe is unprecedented and over and above requirements that a regulator would set, and we do that because we think it is the right thing to do.
If you believe that we have lessons to learn, we are the first ones to learn from it, as we have learned lessons from the 2012 season, even though it had nothing to do with drilling as such. Getting back to Seattle, where, of course, a lot of the protest, a lot of the objection against the campaign has to do with the unpalatable view that this is an Arctic campaign, and therefore is linked to climate change. No amount of outreach will, in my mind, solve that. Let me also say that the position that the mayor has taken actually is not a position that is shared by many stakeholders in the game.
The contract that we have with Foss, the maritime contractor that we have there, the lease that they have at Terminal 5, we think they are just valid, legally valid, and we have indeed tested that, and we are ready to move ahead with putting the Polar Pioneer there, loading it out so that it's ready for its journey to Alaska. We have not seen, apart from the protest, any real legal obstacle for us to do that. I think we are just acting within the legal rights that we have, and we are, again, prepared to talk about all the risks in the Arctic and how we address them. We're also very mindful that there will be a segment of society out there that will always protest to anything we do in the Arctic. We respect that.
We listen to it to see whether it has new news in it for us to consider, we also accept that we're not going to be able to sit down with everybody on the planet to convince them that logically this is a sensible thing to do. That's just the way it is.
Ben, can I ask?
Very quickly, please.
Yeah. Are you saying that Arctic oil and climate change are not connected at all?
I thought he just said the opposite, yeah.
Well, let me be very clear. I know this is a difficult argument to get right. Arctic oil being consumed in places around the world will have no different effect than any other oil from any other part of the world. In that sense, oil doesn't have a memory where it came from and will somehow address its CO2 emissions specifically to its origins. As a matter of fact, as I said, if you look at the carbon intensity of an Alaskan oil venture under certain assumptions of how much oil there is and how we will develop it, this will probably be oil with one of the lowest carbon footprints on the planet. I know it's objectionable in the minds of many that it comes from the Arctic, that is an argument that we cannot change or address. The logic is a different story.
Thank you.
Thank you very much, Ben. The next question on Arctic is at question point number one.
Yes.
Welcome back.
Good afternoon. My name is Faiza Oulahsen. I'm from Greenpeace. This question will not be about our differences, but rather about numbers in the oil spill response plan relating to Alaska. Shortly, in 2014, the U.S. government commissioned a report saying that traditional oil spill response tactics would be impossible to apply effectively in Arctic conditions. In this context, it's concerning that if you look at the oil spill response plan of your company, it's based on the assumption that it's possible to recover 95% in an occurrence of a major oil spill, rates we have not seen at Deepwater Horizon or Exxon Valdez. Despite the repeated use of the word recovery in the spill response plan, Shell spokesperson Curtis Smith in 2012 claimed that Shell will never make claims about the percent we could actually recover because conditions vary, of course.
There's a clear disconnect within the oil spill response plan and what Shell spokesperson Curtis Smith has been saying. Leading to my question, can you confirm Shell's estimate of the amount of oil it would recover offshore in the event of a worst-case discharge? If it is 95%, why does Shell think that it will capture a significantly higher percentage with mechanical recovery than was the case with Exxon Valdez or Deepwater Horizon?
Thank you very much, and welcome back. I remember you from last year as well. I'm not familiar with the percentages and report that you mentioned, maybe we'll have to follow that up separately. There are, of course, fundamental differences to what happened with the Exxon Valdez and with the Deepwater oil spill in the Gulf of Mexico. Of course, the Exxon Valdez was a cargo ship that had a major leak and discharged its oil in an area where indeed there was, at that point in time, no readiness or response to it. I think the Deepwater Horizon was a different type of incident here as well. What we are doing here is making sure that we have containment equipment ready on the spot to be deployed immediately when indeed a spill happens.
It is a matter of if indeed a spill were to happen, let me repeat again, this is going to be an incredibly low probability of it ever happening, indeed we have multiple lines of defense, including capturing it at the well that is being breached and thereby indeed significantly improving the percentages of recovery. What actually comes into the environment will have to be mechanically covered, for which we have readiness as well in terms of ships and booms and everything else, too. What that exactly leads to in percentages of recovery what we have said before, if you will forgive me, I will pause on that because I do not have all these facts to hand at this point in time. We'll be happy to follow that up, though, with you separately. Yeah.
Thank you.
Thank you very much indeed. There was one lady who's raised a hand, sitting Okay. If not, we move over to question point number 2.
My name is Barrie Stead, I have been shareholder of our company for several years. I want to raise a rather more modest topic than the strategic questions that have been directed to you, I hope in turn, they will be capable of a short And I hope even more an affirmative answer. One of my continuing concerns as a shareholder in any company is that the dividends I receive are not dependent upon the people working for that company being paid less than they need to live on without falling into debt or having to work excessive hours, because that seems to be very unfair, I'm sure that feeling is shared by all the shareholders in this room.
I'm referring to the necessity to pay all staff at least the living wage, which is independently assessed as what is necessary for a family to meet the basic necessities of life. I'm delighted that in 2011, our company confirmed that all workers, contracted or directly employed, are paid at least the living wage. Those figures of the living wage have gone up over the last four years, and they are now GBP 7.85 per hour in the U.K. for the country and GBP 9.15 in London. My question is to ask whether our company is still managing to meet those minimum for all the people working for us.
The second supplementary question, when our company's reputation has been under attack a little bit today, and generally, whether we might not get a quick win by becoming an accredited living wage employer, like other companies do, where they get the kudos and the reputational support for having achieved that status. Why don't we go for it? Thank you.
Thank you very much for your question. Thank you very much for your question and comment. To the best of my knowledge, we do indeed pay the minimum wage everywhere.
The living wage, not the minimum.
I must apologize that I may not be 100% familiar with your definition of the living wage. My British colleague here is. He can take care of it.
Thank you, Mr. Stead, for the question. Believe me, I can assure you that our employees earn considerably more than the living wage. They are in the U.K., in particular, mostly technical professionals, graduates. I would suggest this is a significant multiple. $16 billion salary costs over the year, 100,000 employees, roughly $160,000 a year total salary remuneration cost on average globally. Those are the figures that Ben gave earlier. I think that you need have no fears on that account.
There were two points. One is that I referred to contracted staff. They're not the technical staff. They're the people who do equally important work like cleaning our offices, the security staff, and the catering staff. They need the same amount of money as other people do, and I hope you can confirm they've received a living wage. The second part of my question is, why don't you go for accreditation as a living wage employer? You've done it. Why not get the kudos?
On the suppliers and contractors, we have maybe 400,000 or so a day, roughly, around the world. Again, our expectation in the supplier principles, which we referred to earlier, would be that we would meet the standards that you aspire to, and we do audit our suppliers around the world to ensure that that is the case. I can't give you specific details for the U.K. on that. I take your point on seeking accreditation. I honestly don't know if we've tried to do that in the U.K., but thank you for the suggestion.
Thank you.
Thank you very much. Back to question point number one.
Thank you. Hello. My name is Juliet Phillips, and I'm a shareholder. I have a question concerning Shell's approach to corporate lobbying, looking at the consistency of your public policy position. On the surface, it seems Shell recognizes the steps necessary for building a low-carbon economy. On your website, Chief Climate Change Adviser David Hone highlights the need for a strong carbon price and the essential roles of renewables. This has been echoed in keynote speeches by the CEO in your annual report and today. I commend these sentiments as they align with the scientifically proven need for urgent action. A recent story in a major international newspaper suggested that Shell had lobbied to have binding renewable energy and energy efficiency targets reduced in the EU.
I appreciate you've already suggested today that you've never advocated against renewables. Some clarity on that story might be helpful. Nonetheless, there's an additional example of your membership of EU Trade Associations, including BusinessEurope, Cefic, FuelsEurope, and IOGP, which seems inconsistent with your call for a strong carbon price. A recent report from the Policy Studies Institute shows that these groups have lobbied against reforms to the EU emissions trading system and the 2030 framework for climate and energy policies, which might have encouraged a strong carbon price, which you claim is important. In light of these, and with regards to EU Trade Associations I've just mentioned, could the board please clarify whether you support their positions on climate change? If you do not, would you consider making a public statement distancing Shell from these organizations, or indeed, would you consider withdrawing membership?
Thank you for your comment and your question. Ben? Thank you for that. There's a few very important points there. Let me take the opportunity to clarify a few other points as well. Indeed, we do advocate for a strong carbon price, much stronger than what we have today, and we are working very hard to make that very clear and also a very public statement, hopefully, over the next days or weeks to come. I have no hesitation there to be very public and on the record that we support and like a strong carbon price. We think it is a very effective way to deal with some of the challenges we have in climate change. We think, as a matter of fact, a very strong carbon price is a more sensible thing to have than mandates on renewables.
That's not because we are against renewables, but we are pro market mechanisms to achieve certain outcomes. What we have seen with mandates on renewables, like for instance in Europe, is that as a matter of fact, it has resulted in increasing CO2 emissions. In that sense, mandates which are somehow trying to pick winners or give subsidies, have a distorting effect that sometimes do not achieve the intended outcome. That is the reason why we have probably a different, or what I would like to think, a smarter efficacy, which still has the same thing in mind, decarbonizing the energy system. We indeed do participate in trade organizations that advocate on all sorts of things, sensible policies, et cetera.
Invariably, we find ourselves, including in places like Cefic, where I've been personally a member of the executive committee as well, in positions where we cannot agree to everything that that association believes in or that its members agree with. Quite often we find ourselves indeed being the only ones, in this particular case, Cefic and reform of the ETS, the only ones, or with a very few people advocating for change, where the other 98% of the entity is advocating for something else or cannot agree with it. You have to make up your mind then. Do you just say, "Well, hold on. We cannot agree, so we will step out of it." Or do you publicly distance yourself, or do you have a different efficacy, which in the case of Cefic and carbon pricing, we have done?
We have separately advocated directly in Brussels for set asides and for taking allowances out of the market. Does that mean that you then better step out of these associations and do not associate yourself with it? Well, it depends. If this association is all about very narrow efficacy that we cannot agree with, yes, we step out of it. We've done that in quite a few occasions. If it is a very broad efficacy effort where we agree with many aspects but disagree with some, well, we make our disagreement known, and quite often we are able to change and reform the thinking from inside. If we cannot, we will have a separate stream of efficacy, quite often very publicly as well, and that's the way I'd like to approach it.
Thank you very much. I think that's quite clear the way we are operating and certainly you can see that happening on a daily basis. Next question, please.
Good afternoon. My name is James Marriott, I'm from Platform, but I'm here on behalf of colleagues in Nigeria to ask questions that they would like to put, but they were unable to attend. As you all understand, it's very difficult. It's often very challenging for them to get here because of visas as well as travel questions. I first attended the Shell AGM 20 years ago in 1995, and at that point, Ken Saro-Wiwa was still alive. His voice was not silenced. The question that he put to the board is very similar to the question that I would put now, which is why is it that Shell does not apply the same standards in Nigeria that it would apply in the Netherlands?
I was extremely moved by the statement by Nicoletta Maree from Groningen earlier, and she said some very interesting things. I was moved also by what you said, Ben van Beurden, in response to her. Maybe just repeat that. You said that there was a fundamental right of people to live in safety in their own home, and you said that's indeed why we have homes, so that we can be in a safe place. You also said about Groningen that all damage will be repaired, and we will do this because it's not only legally, but it's also morally important. You said that there's a dedicated committee on the board to look at this question, and they're determined to address the question, and you will be very transparent in every undertaking that you do.
Because you said it's the level of not knowing what's going to happen that causes people the fear that they experience in Groningen. Last year I came to you and asked you about the question of were you going to back the U.N. Development Program, the UNDP, cleanup plan in Ogoniland. We were very glad that you said, yes, you're going to put $1 billion aside and begin that process. Indeed, it seemed to begin with that that process had begun. It seems to have stalled and we're very, and when I say we, I mean my colleagues in Nigeria, are very concerned that that's stalled. Of course, it's been a volatile situation around the elections, but we want to see that process going forward. My first question on that is why has that not going forward?
Why is it not going forward, and when will we see the evidence that it's going forward? The second point is this, which is the slide that you showed. You showed sales of onshore blocks, and there's a block which covers the majority of Ogoniland. One single block covers the majority of Ogoniland, and our colleagues in Nigeria claim that this is going to be sold to Belemaoil . The biggest concern we have is that that area, may I remind you, covers an area similar to the whole delta between the Rhine and the Maas, between the Hook of Holland and Vlissingen. It's a very big space, and this whole area is dominated by air pollution and oil pollution that has been produced through the production of oil there since the late 1950s, since you were born, since before I was born. What is happening to that block?
They want to know what's going to be happening in their block. The situation at the moment is extremely untransparent. Also what are the liabilities. You said in response to the question from the lady from Groningen about the degree to which you would carry on those responsibilities after a sale, even if you sold out of NAM, for example, you would have responsibilities after that. What is your responsibility in relation to cleanup in Nigeria, even if this sale goes through? The people in the communities that we work with, they need that clarity. If you don't give them that clarity, they are forced to live in exactly the situation you described, which is the insecurity of a level of not knowing what is coming.
Okay, two questions. Is that?
Those are the two questions.
Very good.
Secondly, what is happening in relation to that particular block?
Just mindful of time. Thank you very much. That is clear. Thank you. Ben?
Thank you very much for your questions and your evident concern around Nigeria, which I, by the way, completely share. I continue to go to Nigeria regularly also to understand personally what is happening there. Why are we not moving forward with the big cleanup in Ogoniland, as was recommended, suggested, and we also support as a result of the UNEP report that was written. That basically is down to the federal government of Nigeria not fulfilling their part of the commitment to put in place the infrastructure that will allow us to disperse $1 billion. I hope you will understand that we're not going to just distribute $1 billion in Ogoniland in the hope that somehow that will automatically clean up the situation that we have there.
There are very clear agreements about what it is that we have to do, or rather SPDC has to do, and what it is that the Nigerian government has to do in order to make sure that there's a framework in place for this cleanup to happen. We have fulfilled all our commitments on our part, have actually gone beyond that, and I still 100% stand firm with the commitment to work with the federal government of Nigeria to disperse the $1 billion and to clean up the situation that has been there for many, many decades. We have not operated in Ogoniland, as you know, since 1993. Now, there is a specific area, and I'm not sure whether you're also referring to that, which is in Bodo. Or is that I'm happy to cover that as well.
That, of course, has been stuck in a very, very long, very difficult litigation process where we were not able and not allowed to go in to clean up. That fortunately has been settled. That was long overdue. We're very happy that that is settled. We have now awarded contracts to two international contractors who will go in and clean, and that will start in July probably of this year. That was also in an earlier comment that I made to an earlier question. There is a very, very clear intent and commitment, a standing commitment, to move forward with the obligations that we have. At this point in time, there is no plan to sell the blocks that you are mentioning.
The blocks that we have sold are all blocks in the swamp, around the Nembe Creek trunk line, where indeed three blocks in the trunk line themselves have been sold by now.
Okay.
Can you just I'd like you to be able to do something which can give confidence, as you said you wanted to do in Groningen, to the people in Ogoniland precisely on your point that you're not going to sell it. There's no desire to sell it of this kind. Can you provide some detailed and structured material that can provide confidence? Currently, everybody there thinks that it's on the blocks to sell.
We do it not because it's Nigeria, we'll never make any comments on the long-term outlook of our portfolio. I'm not going to make an exception here. We're very, very clear about the commitment that we have and the way we intend to follow that up.
Okay.
Thank you.
Thank you.
over to the next question on point number 1.
Mr. Chairman, I'm Fred Heineman. I'm private shareholder living in The Hague. There has been a lot of discussion before about the negative impacts of the winning of natural gas in Groningen. there is another country which produces huge amounts of natural gas, and that's Algeria. That happens in the middle of the desert, the area is more or less uninhabited. the winning of natural gas in Algeria never has resulted into an earthquake stronger than scale grade 4 on the scale of Richter. Also, the closing of the Dutch coal mines in Limburg, which happened already in 1975, also never have resulted in a stronger earthquake than scale 4 on the grade of Richter, in spite of the fact that the holes driven in the Earth never have been filled up with debris and stones.
My question is, does Shell come to the same opinion and the same results as me? That's the first question. The second question relates to the winning of minerals in Sakhalin. The geopolitical troubles of the last year between Russia and the West about Ukraine have resulted in a souring of the relations. My question is, do you still have a good cooperation with Gazprom, and are you still making progress and making a profit on this also very huge progress project? My last question relates to the winning of oil from the sands oil fields in Alberta in Canada. I have read that an oil price lower than $75 will make them unprofitable. the oil price has been, for a couple of months, below $75 a barrel. Perhaps it will improve, nobody knows. have the activities over there been mitigated and put on a low scale?
That are my three questions.
Thank you. Thank you for your three questions.
Thank you very much, Mr. Heineman. Yes, I think the situation in Groningen is actually quite different compared with the situation, as you mentioned, in Algeria or even in Limburg. It is not so much the earthquakes and the magnitude on the Richter scale that causes it. It is also to do with the nature and the quality of the overburden and the fact that it will cause a higher acceleration in a clayey type of environment than in a rocky environment. It is very hard to compare one with the other, therefore it's not so much the Richter scale, but the horizontal acceleration, if I can be a little bit more technical, that will cause this difference.
We are, and it's one of the commitments, of course, that we already have, and in response to the OVV report, that we will continue to invest in understanding how these earthquake mechanisms work. Of course, this is not just done by us. We do this with very well-renowned international institutes that specialize in earthquakes. We have a lot of focus on understanding what is really happening there. You're quite right, indeed, that also there, we haven't seen earthquakes above that magnitude. Again, as I said, it's not just the Richter scale. In Sakhalin, you had the relationships between Russia and the rest of the world, very well advertised. They're not always easy. The relationships we have with Gazprom on a commercial and investor type level are strong. We continue our operations in Sakhalin. Our operations in Sakhalin have not been affected by the sanctions.
The sanctions were also not designed to affect these operations. Therefore, we have no negative effect, so to speak, in our current operations. We are still looking and hoping to extend that operation in the longer run. As you can imagine, of course, there is a lot of focus within Russia at this point in time also on how to deal with sanctions in general. In that sense, yes, things are affected. Oil sands, we do make a modest profit in oil sands, also in the lower prices. As operator, we are probably the lowest cost operator in the oil sands category, and therefore we still make a small, but nevertheless a profit at relatively low oil prices. Of course, it's not just the profit that you make, it's also the marginal economics, if you like.
In terms of the coverage on the variable day-to-day cost, we are still well above that. There is no reason for us to hold back on the operations in our mining operation Alberta.
Thank you very much. We will have the final request to speak.
Okay. Good afternoon. My name is Spanier from Amsterdam.
Welcome back.
I have a question about BG. I have heard from person nearby the deal of BG that at the time the Dutch administration was thinking about what they have to do with Groningen, Shell or you accepted the higher price to pay for buying BG. What is the trueness of that? Is there a link between the signed contract and you are the supplier, so you can make money out of it? Is there a link between? I'm interested. My second question is, last year, I asked you the question about making biofuel out of water and also with the University of Austria. I have nothing to read in the annual report. How is the situation over there?
Thank you. Two questions.
Thank you very much, Mr. Spanier, for your questions. I think the BG deal, I think we've said what we wanted to say about it. I think the deal, the price that we have paid for it, I think is a good price. It's a good price for you as shareholders in our company, because we believe that the value that the BG portfolio brings is going to be in excess of what it is that we paid for it. I think it's also a good price for the BG shareholders, and some of you may also be BG shareholders. I'm mindful of, in the sense that it will give a good premium and a good recovery on their investment in that sense. It's always a matter of finding a sweet spot where both set of shareholders feel that they win.
We think with the price that we have agreed between ourselves and BG, we have struck that balance, and that's the reason why both our board, as well as the board of BG, recommend to their shareholders that they consider this favorably. I'm mindful of the question you had on biofuels. This was the solar concept that you referred to last year. Indeed, we look at this. This is one of the many concepts that we look at to use solar energy to convert that energy into hydrocarbons. Some of these schemes have more or less merits. I think the scheme that you refer to, we think, at this point in time, has lower merits in terms of technical commercial success as some of the other things that we are looking at. We are looking at a wide range of opportunities there.
Okay.
Thank you very much.
On one question, I don't have any answer. Is there a link between the signed gas contract of Groningen and your buying of BG so you can supply of that contract? Is that true? That you therefore also had to buy BG because you had in mind to pay a lower price than you had already paid?
No, I don't think that is an accurate reflection. Thank you.
Okay.
No, that is not an accurate reflection of how it works. We have one more request. Please go ahead.
Good afternoon, Mr. Chairman. My name is Desmond Kane. I represent a three-person company called OSSL, who served you well on the Corrib gas project in Ireland for over 10 years. I addressed the Platform last year.
Correct
You expressed an interest that I shouldn't come back this year. Well, here I am. I have written to Ben on more occasions than Greenpeace, and I have tried to obtain information from Shell, which would assist me in putting my case forward to him in a better way than we have. Through Mr. Brantjes, we applied under the Freedom of Information for information that would have assisted us in satisfying Mr. Van Beurden. Instead of getting what we had applied for, we got information on Shell printed paper and signed by senior Shell people on the Corrib, indicating that in fact, the vehicle that was used to supply alcohol to Irish police officers in two locations in Ireland was in fact not carrying alcohol, but in fact dumping toxic waste by the directors of OSSL. That was an abhorrent lie.
That was the document that was supplied to us instead of information that would have helped me to assist Mr. Van Beurden. I have two questions, two small questions. First one is, how do you feel if I'm telling the truth about us not being toxic waste dumpers? How do you feel that that has appeared on Shell paperwork and been distributed to many authorities in Ireland? The second question is this: can we have a cast iron guarantee of a one-hour meeting with senior Shell management at which we can outline our grievances? There's an obscene situation, and a small company who served you well has been left in tatters because of misinformation and lies. Thank you.
Thank you. Ben will respond.
Well, Mr. Kane, welcome back. I hope and trust you will be here next year as well, by the way. We have been in a dialogue, Mr. Kane, on this now for many years. The allegations that you have made that we would have supplied large quantities of alcohol to the Irish police are very grave allegations. We have, of course, investigated that. We have investigated that quite thoroughly, and actually, we have found no evidence to suggest that's the case. At the same time, this has also been investigated by the Irish police. It has been investigated by the Garda Síochána Ombudsman Commission in Ireland. These have been very thorough investigations. Again, there is no evidence to suggest that this is the case. You came here last year and the year before saying that you had additional evidence to suggest that this was all not true.
I have invited you to produce that evidence. You have not been able to do so. At some point in time, Mr. Kane, I have to conclude that we are wasting each other's time. Now you come with a new set of claims about toxic waste. I think the case with the alcohol-
No, I-
Let me finish my part as well. In my mind, we have taken this very seriously. These are very grave allegations. They are bribery and corruption allegations that I take very serious, and that, by the way, also the Irish government takes very serious. There is no substance to this, and you are not able to come up with anything else. At this point in time, Mr. Kane, I'm going to draw the line under this, and I'm going to consider this case closed. As long as you are a shareholder in our company, you are welcome to come here to say what you want to say, but you're going to get exactly the same reply from me. Thank you.
Could you comment?
I think we have a case closed here.
No.
Thank you very much.
Could you comment on the toxic waste document I have in my hand?
Thank you very much indeed. There will be means of contacting our corporate secretary, as you know, if you want to produce material evidence on any other issue. Thank you. Next, please. I think I urge all of you who want to speak to appear now so that we know what the demand is, and be very, very brief. I'm just mindful of time for the whole audience. Please, very brief.
Your wish is my command, Mr. Chairman. Brief, short, cut, and clear. My name is Marisol Desmet.
Thank you.
I represent Cargoflex. We're also working in the offshore industry. I have a question to the two financial Molochs, one on your board and one on your committee. To Simon Henry, what would happen, could you paint, Mr. Henry, a dark picture to the world if we, Shell, do not explore, other gas and oil companies, we stop exploring for gas? What would happen to this world? All the [environmentalists], they're all claiming and accusing you, but what is the negative side if we stop breathing oil, so to speak? Could you please answer that question, our two financial Molochs? Then we have two systems, and I can assure you that we have a totally free emission when we do transport from the offshore platform to the platforms and back, and that is quite interesting. That's a different question.
That question, Mr. Henry, you're a financial whiz kid. I love to hear your comment.
Thank you for your kind address. Simon?
Thank you very much, Marisol, for the question. I might have to think about this one. I think if I go back to the 80% total energy is fossil fuel today, oil is what, 30 plus percentage points of the total energy demand. Most of that oil is used for transportation. The gas that we produce is used for power, heating, and obviously both provide support for chemicals. If you take away the oil and the gas, we become unable to move anything without an alternative. Now, the alternatives at the moment are fairly limited. Biofuels, very, very small number of electrically powered vehicles. We would not be able to produce food, we would not be able to move that food, process it, or place it in shops for people to buy. It would just not be possible. The basics of life would not be available.
I think it's also fair to say that most of the other basics of life these days are made from materials in processes that require energy of the sort that we produce. The clothes you wear almost certainly include our chemicals. The roof over our head almost certainly includes building materials based on our industry and certainly produced with energy that we produce. I think in simple terms, modern life would not be possible.
Yeah, that's what I expected you to say, and I'm glad you confirmed my thoughts. I think it's good for the Greenpeace guys to remember this when they are taking a ship, going on vessel, and protesting. They have the same problem as we have, but they do it from a different standpoint. I'm from the positive side, they're from the negative side, I like dialogue, and you are dialoguing. I know, I'm from Groningen myself. My mother was from Winschoten. I'm very much living with Mrs. Nicolette and Mrs. Marianne from that Groningen area, where we're all having some
Thank-
That's done. That's the old Groningen dialect. We all know that. We're going to get a solution. Then the keynote question always remains, should we have a clawback clause also for the politicians? We have a very dedicated politician here, adjourned in the advisory board. Very good one. That clawback clause, why should we only blame NAM and Shell? Why shouldn't we blame the politicians who allowed the license 50 years ago? We're forgetting that. I don't see that in the discussion, I wanted to raise that question too.
Thank you for raising. That gives us some food for thought as they say.
Higher.
As they say. Thank you very much. There are two more requests for the floor. Brief, please.
I'll be very brief then. The name is. I'm a private shareholder from Amsterdam. I want to make a remark and then put a question. For a change, Mr. Chairman, if you do allow me, I want to continue in Dutch. For a change.
As long as you are brief, you are my friend here.
There's a lot going on in the field of energy. I'm thinking about electrical cars and windmills. I think this is the wrong way to do things. What has this got to do with Shell? I'm thinking about power plants that use gas. This brings me to Shell. When Mr. Voser was still CEO, I asked the following question: Is this the long-term development that I'm seeing in all sorts of countries? Is this the business case for Shell in the long term? A short and clear question. Let me answer in Dutch as well. Are you referring to the business model regarding electricity and more electrical cars? Is that what you're referring to? No, I'm talking about selling gas. Gas being a supplier of gas energy and oil. Mr. van Beurden, what exactly is the threat? I'm sorry for not understanding you.
If energy would come from alternative sources, you wouldn't need any oil and gas or less oil and gas. I'm referring to this development.
Including the ones on the internet.
Wonderful.
Well, yes and no. If, for whatever reason, of course, we would not need fossil fuels anymore in a very short period of time, which is what indeed some people in society believe is the case, this would be very disruptive for our business model. It would also be very disruptive for everybody else on the planet. Therefore, we don't think it's going to happen. Over time, yes, I'm convinced that if we look at a longer time horizon, there will be a completely different energy system emerging. We are right in the middle of that transition. In some places, it goes very fast, take Germany, in some places, it will take longer. We as a company need to be ready for that transition, which means that at the moment, we are focusing more on low carbon solutions like gas.
We're focusing more on solutions that the world is going to need, like carbon capture and storage. We're going to look at all our projects and value chains to see whether they are robust against a high carbon price environment or a low carbon intensity future. We are looking and experimenting very effectively with also new business models that have nothing to do with oil and gas. What can we do with or in renewables? That doesn't necessarily mean that we want to buy, yet again, another big solar business, but there are many other business models that we can think of associated with renewables that we can make money with. At the moment, they are not material. There is, at the moment, not an opportunity for us to massively participate in that industry because it is so tiny.
We want to be, again, at the forefront so that when this transition takes place, we are a leading investor, a leading developer, and a leading, let's say, shareholder again, in a new type of energy system. Yes, in the long run, the model will change, but we will change with it.
Thank you very much.
May I say, sir, may I make a short comment? First, thank you, and please go on with your dividend policy.
Thank you.
I do appreciate it.
Thank you for your comment. Question point number two. Final question.
Okay. My English is not so good. Call my name, Piet Visser. I have to fill in this card, and it's still a problem to fill it in good. It is in Dutch so that I can put on the marks very well. This is English, but I'm not so good to understand it.
Can I help him?
Yeah.
Can I help him?
Dutch voting card.
Yeah. Sorry.
Sorry?
He wants to have a Dutch voting card.
You have Dutch voting? Yeah, you take it.
If I understand you correctly, you would like to have a ballot, a voting card, in the Dutch language. Is that correct? Is that what you want?
Yes.
Request.
Yes.
We will keep it in English. This is an English company.
That is my-
We can help you. We can help you with your card here and now. There's somebody there called the Chief Poll Steward. His English and his Dutch are excellent, and we'd be happy to help you fill in your voting card. I hope you'll be happy with that.
Very good.
I think we have had a good dialogue, I think we need to come to a close. There's one more request, Can we please have that final question, please? Question point number 1. Please go ahead.
Hello? Yeah. Yeah, I speak Netherlands. Yes, I'll be speaking Dutch. I'm not that good in English. My name is Marika Santer from Heemstede. The oil pollution by Shell. The oil pollution is detrimental to people, also animals and plants. I'm sorry. Oil pollution is detrimental to people, also animals and people on land and in the water. In short, for the entire ecosystem that we live in. Increasingly, companies are being evaluated by the public at large in terms of the way in which they deal with our ecosystem. Nowadays, developments happen very quickly. Public debates and campaigns, boycott campaigns, can damage a company in a very short period of time and can force a company to adjust its policy. Best thing is not to let it come to that, which is why I believe that Shell should cherish our vulnerable ecosystem.
We and our future generations in particular will become increasingly dependent upon them. Thank you.
Yeah.
Yeah. I thank you very much for your comment. I think we note your concern. It's a valid concern, which we have to keep in mind being a company which is heavily involved in a complex industry of producing energy. I see that there are no further requests. I thank you for your good questions and the dialogue that was created by that. I think we have spent a reasonable amount of time, and we can now move on. As I mentioned earlier, voting will take place at the end of the meeting using the paper poll cards. Please use the assistance provided by the chief host who are here on my left corner in this room, on your right. Behind me, you will see the proxy votes submitted by the shareholders who are not able to attend in person today.
We see that there's a very strong 99.57% support for the resolution of approving the annual report and the accounts. Your vote will be included in the total when the registrar has counted all your votes at the end of the meeting. We then move over to the resolution number two, approval of a directors' remuneration report. This is an ordinary resolution seeking shareholder approval for the directors' remuneration report. The report is set out on pages 79 to 90 of the annual report. The remuneration policy was approved by the shareholders at last year's AGM and is effective until 2017 AGM, unless a further policy is proposed and approved by the shareholders in the meantime. I formally propose that resolution two, as set out in the notice of the meeting, be approved. Please address any questions you might have to me.
However, I'm sure on most of the questions I might ask to pass them over to Gerard Kleisterlee who is the Chairman of the Remuneration Committee and who will be assisting me on those responses. Any requests for the floor here, question point number one.
Yes, my name is Kieneker. I speak on behalf of VEB and a number of retail shareholders. Mr. Chairman, I have got three questions related to remuneration within Shell. The number one, which will not surprise you, was at least a surprising fact for us, that there was a large pension payment by Shell for Mr. Ben van Beurden of close to EUR 11 million and another close to EUR 8 million tax compensation which was granted. This was surprising for, I think, a lot of people, a lot of the shareholders. It is not that we do not think Mr. Ben van Beurden is worth his weight in gold, but that does not mean he should be paid like if his weight is in gold. My question is, the answer of Shell was, well, this is more or less standard policy within Shell.
If somebody is being promoted, of course, his pensionable salary needs to be adjusted upwards for remaining years that he is expected to be employed. Also, if an employee, regardless of where he is in the hierarchy, is moving from one country to the other one, and there may be some tax implications, the company Shell will compensate for that. If that is the case, I am wondering whether maybe the compensation benefits across Shell are maybe much too generous. Maybe that is a fundamental issue which needs to be addressed, certainly in an area where we conclude for the time being with low oil and gas prices and the oil and gas that needs to be found across the world is more and more difficult and more expensive to be found, there will be pressure on margins.
Maybe it is time also to look at the compensation and benefits policy within Shell, throughout Shell, which was obviously you see the large amounts happening at the top, but since the average salary in Shell is rather high, $160,000 you said, it means maybe there is some slack, there is some fat to be cut as well, and maybe there is some room to maneuver there for Shell in order for Shell to become more cost efficient. That is maybe the first question I would like to address to you. The second has to do in rewarding the executives, and I think also the levels below the executives, for long-term performance. I think we disagree on the fact what long term is.
I think if we consider the job of executives to be important and serious and that has a lot of strategic components, I think it is pointless to consider after three years whether a strategy has worked or not. The point I have been making in the past and I will continue to make, that a company of the size and the complexity of Shell, which is making billions of dollars investments, which are expected to return any kind of profits in five, 10 or 15 years, even longer. It also means that judging whether an executive has done a good work in developing a strategy and implementing a strategy should happen also after five or 10 or 15 years, not after three years. That is a long-term component, which I strongly suggest that you reconsider in your own policy if you take your own job seriously.
The last is something very practical. Shell has been admitting that the total shareholder return over the last three years has been disappointing. I think the dividend was excellent, but overall, it was disappointing. With that in mind, it surprises me that the current remuneration policy allows that 42% of the maximum long-term pay was being vested, was being awarded still. It seems somehow a mismatch between performance for us shareholders and the rewards as a variable component for the executives. That's my third and last question.
Thank you very much. I think there were two requests to consider. First of all, the level of compensation overall
With a little bit of teaser coming from the CEO package. The LTIP to be considered whether the three years is too short, and then the TSR discrepancy to the levels. I might ask Gerard Kleisterlee to comment on that.
Thank you, Mr. Chairman. Just getting to your three questions. First of all, with respect to pension, you will be aware that this number of $10 million in Ben's single pay figure came into existence because of U.K. reporting requirements, where the difference in the value of the pension, beginning of the year, end of the year, has to be multiplied by 20. The fact is that pension value for Ben during the year 2014 has increased by about $500,000, which is a reflection of the fact that he has been promoted from a member of the executive team to the CEO of the company and consequently has had a significant raise in salary. Being a member of the Shell defined benefit pension plan, was entitled to that increase in value.
You also know that Shell has closed its defined benefit plan also in the Netherlands, given the changes in the tax regime in the Netherlands, where only 89,000 now can be brought into a pension fund tax-free, and the rest is taxable or has to be done in other ways. Shell has addressed, I think, also your remark with respect to the generosity of some of the benefits for Shell employees by adjusting to the reality, I think, of the market as we see it today in the Netherlands and in other countries, that defined benefit plans are a thing of the past. There is now a defined contribution plan, and also Ben, going forward, will be subject to those same rules.
An exceptionally high figure because of U.K. reporting requirements, an absolutely normal situation under the Dutch defined benefit pension plan rules and reporting rules, and a change in pension scheme for all Shell employees. The same holds, of course, for the tax part, which also is something which is applicable to all Shell expatriates. That's not a gesture of Shell's generosity. There are constituencies where Shell is the beneficiary of that treatment. Shell also has expatriates in territories where no tax is due, and people are still taxed as if or they were employed in their home country. For an expatriate in the Gulf, Shell is the beneficiary.
I can't say on balance where that exactly sits, it's not just being generous to employees, it's applying consistent, similar rules to everybody that sometimes are to the benefit of the company and sometimes the company has to compensate the employee. With respect to reward for long-term performance, yes, there is a three-year vesting and then a five-year holding period. You also have to keep in mind, in terms of keeping executives aligned with long-term shareholder interests, that we have significantly increased the shareholding requirements for the CEO and the CFO. I would say standing practice in Shell is that an executive has never sold his shares when in function and as long as in function for the company.
I think that even beyond the vesting periods and the vesting requirements, which we strictly adhere to, which are pretty much in line with the way the shareholder perceives the Shell performance over that period, there is a long-term shareholding with all Shell executives well in excess of their minimum holding requirements.
Mr. Chairman, if I may react very shortly. As far as to keep shares for longer period, of course, that helps, but you still have received the shares, and you can keep the shares. Even goes terrible with the company, share price drops in half, you still can keep half of this variable component even though your strategy has failed, which you can judge after five or after 10 years. I only partially agree with that. I'm happy with the explanation about the taxation. That's a fair point. I do not understand the $10 or $11 million for the pension because I understood this is real money being put into the pension scheme to cover the pension liabilities for Mr. Ben van Beurden, but it's not just accounting, I assumed.
No, we have here two situations. One is Under the Dutch pension scheme, you have what we call the back service, if somebody gets a raise in salary in a defined benefit final pay plan.
Yes.
That would have resulted in the reporting of around $500,000 in the Netherlands. Because you only report what you had as back service in the Netherlands. In the U.K., you have to multiply the annual increase by 20. That's the U.K. reporting requirement, which overstates. This is not money that has gone to the executive in any way. It's also not the money that in future he will get. If you do the calculation on an actuarial basis, the multiplier would have been 13 rather than the 20 under the U.K. reporting requirements. The tax on that, again, is a totally U.K. thing over the full period that Ben was employed as a Shell employee in the U.K.
Okay. Thank you very much. That's clear.
Any other comments, questions that you want to make on remuneration? If not, we move ahead. Thank you for that. Let me show the proxy vote submitted to the shareholders before the meeting. We have 96.2% for approval of the directors' remuneration report. Your votes will be added, and then the final numbers will be disclosed on our website. Thank you. We move over to the resolutions number three all the way to number 13 included. There's a total of 11 ordinary resolutions to deal with the reappointment by the shareholders of all current directors who wish to continue, who have said they are ready to continue to serve as a director for the company. The biographies you will see in the notice of the meeting. The board recommends that you vote in favor of each of these respective resolution.
I propose that resolutions three to 13, all ordinary resolutions as set out in the notice of the meeting, be approved. Are there any comments you want to make? I note that there are no requests for the floor. I now suggest we can see the proxy vote submitted before the meeting in each of the resolutions. You can see that the support ranges from 97.57% all the way to 98.9%. We note. Your votes will be added, and the final count will then be the official count. Thank you. Moving over to resolution number 14 and 15. It's the reappointment and remuneration of the auditors. However, before doing so, I would like to say a few words about the outcome of the external auditor tender process, which we informed you about in the 2013 annual report.
We stated back then that at the end of 2014, we would commence with the auditor tender process with planned completion by mid-2015, and with a chosen firm being appointed for the financial year of 2016. I can now confirm that the tender process has been completed, and on the recommendation of the audit committee, the board has agreed to propose to the 2016 annual general meeting that EY, which was called Ernst & Young, well, better known to many of you, EY, be appointed as the company's external auditor for the financial year 2016. We are very pleased with the tender process, and I would like to congratulate EY on the outcome. We would like to thank all those who participated in the process, especially the audit firms who submitted tenders to us.
Just wanted to make a note of that we have said we will run a tender process. We have completed that, and the board has taken a decision to recommend for 2016 financial year to have EY as the company external auditor. Returning to today's business, resolutions 14 and 15 concern the reappointment and remuneration of the auditors for this year, 2015. PricewaterhouseCoopers LLP have agreed to continue as the auditors, and accordingly, I propose that resolutions 14 and 15, both ordinary resolutions, as set out in the notice of the meeting, be approved. Are there any questions?
Mr. Chairman?
Well, Guy, welcome back.
It's always a pleasure. Mr. Chairman, ladies and gentlemen, my name is Guy Jubb. I am head of governance and stewardship at Standard Life Investments. We are long-term investors in Shell and currently manage 17 million A shares and 43 million B shares. The audit committee report states PwC appointed a new lead partner in 2014 as his predecessor had completed five years in the role. At Standard Life Investments, we are both surprised and concerned to note that Ross Hunter is now PwC's lead partner for Royal Dutch Shell. Until last year, he signed the audit reports of Bumi plc. Also, he was global relationship partner for Rio Tinto plc from 2006 to 2011 when Guy Elliott, who is chairman of Shell's audit committee, was Rio Tinto's chief financial officer.
During this period, we engaged with Rio Tinto regarding the exceptionally high level of non-audit fees paid to PwC. In the circumstances, we would have expected Shell's audit committee to provide a meaningful explanation in its report about its evaluation of Mr. Hunter's perceived independence and track record. Now, we have engaged both the chairman of the board and the chairman of the audit committee for over a year about these issues, but the substance of our concerns has not been addressed. Therefore, in accordance with the principles of the UK Stewardship Code, we felt it right and proper that I should come here today to escalate our engagement. Now, in addition, on reading the 2014 PwC audit report, we are struck by the disclosure that just two-thirds, 66%, of consolidated assets and 70% of consolidated revenue are within the scope of the audit.
It seems to us that this audit scope is far lower than at most FTSE 100 companies. We are curious as to the factors the Audit Committee took into account in agreeing it. In closing, we note the appointment of EY as auditors for next year. We are mindful that EY are also the auditors to BG Group. Did the Audit Committee engage its investors during the tender process? What has it done to ensure additional safeguards are in place to ensure any conflicts of interest, especially during the BG offer period, are properly addressed, whether or not the offer is successful? Mr. Chairman.
Thank you. Thank you, Guy, for your exposé and for your questions. This is a well-known issue and a dialogue which we have had, but for the benefit of the shareholders, we are happy to disclose our points of view. Since there were different questions which require different persons responding, I suggest Simon Henry, who is our CFO, will respond first with Guy Elliott then on those issues which are relevant for the Chairman of the Audit Committee.
Thank you.
Simon.
Thank you, Chairman. Thank you for the question, Guy. Difficult to comment on the first two points around Bumi and Rio, because surely they're questions for the Bumi and the Rio board, not for Shell. What I can assure you is that both ourselves on the executive and the audit committee, Guy will speak, carried out full due diligence on all issues associated with the appointment of lead partners and acceptability to Shell. We were comfortable that all due diligence was applied at that point in time. As regards the BG deal, it came to light as we were progressing both transactions, both the BG and the tender for the audit, that in fact EY was in both cases involved, but the two decision processes were run in essence independently.
We have spoken obviously with EY about protecting against any ongoing conflict of interest between now and the potential completion of the deal. I can't say exactly how that will play out, but when we realized there was a potential, it was clear that we could avoid the conflict of any of the individuals who may be involved. It happens probably to be a coincidental serendipitous bonus from the two processes, because with the ongoing support that we'll receive from PwC, we should be, if the deal is successful, in a good place to do a successful and quick integration.
Guy? Thank you, Simon. Then Guy next.
Well, perhaps I could reiterate the due diligence that we carried out before the appointment of Ross Hunter, which I've separately explained to you, which was a very thorough due diligence. Ross Hunter was one of three candidates that were considered by PwC, were put forward by PwC. They were interviewed by management. Ross Hunter was recommended by management. I carried out the due diligence. It is true that he had been the Rio Tinto auditor up until the year ending 2010 for those years. That is quite a big gap between then and now, and the ordinary cooling-off period for these purposes is at the maximum two years. We did not consider that to be a conflict. I might add that Mr. Hunter has been a very strongly independent auditor in all matters that we've dealt with.
He's very tough, that is exactly what we want. I won't comment on the non-audit fees paid to Rio Tinto, what I can say is that the non-audit paid by Rio Tinto to PwC, what I can say is that the levels of non-audit fees paid by Royal Dutch Shell to PwC are very low indeed. A very small fraction of the audit fee itself. I think that underlines the independence point. You also made a comment about the process and whether we'd engaged investors in the appointment of Ernst & Young.
I don't regard that as normal or necessary. We went through a normal process. We disclosed what we were going to do, we carried it out exactly as we said we would do. We, I think, are very pleased with the outcome. We had a good showing from everybody, I think Ernst & Young won it fairly. The safeguards point, I think, has been fully covered by Simon Henry. Finally, on the question of the scope and the number of assets within scope for PwC's audit. This is a very big company. We do have to make sensible choices. I'm quite satisfied on behalf of the committee that we have made a sensible choice about materiality when it comes to defining the scope of the audit that PwC carry out.
Thank you. Mr. Chairman, perhaps therefore, in the interest of brevity, could I just state that so far as engaging shareholders in audit tenders, emerging best practice is indeed to do that, it is disappointing, I understand that it hasn't happened. On the substantive issues, rather than continue the dialogue now, may I merely ask, because I think that there are some unanswered questions that need to be considered, that these be considered by the board over the coming months so that shareholders can be assured in next year's audit committee report, if not elsewhere, that they have been addressed.
Obviously, we will facilitate that, make sure that there will be a dialogue, we will cover those issues.
Of the board, please.
By the board. Absolutely. Thank you very much, Guy. Any other issues that anybody want to take up relating to the reappointment and remuneration of the auditors? Please.
Not specifically answering that question, but I only want to say that I'm very glad to be here again. I've been all the years, last years, and I make my compliments for the excellent way you are answering our questions. I have also another question. Why is no connection with London as in last years? I miss it.
There's a very clear response there. We took a decision three years ago not to have the link to London for two or three reasons. First of all, we get a lot of feedback from participants that it is very clumsy. You have to shift from one location to another in the video, and it made the meeting even longer than otherwise. Secondly, there is a serious security issue relating to the video link. Thirdly, four years ago, when we last time had the video link, actually, the attendance number had dwindled down to below 100 shareholders, and there seemed to be clearly less interest.
What we did was that we noted that we will do away with the video link. Two days after the AGM, the chairman and CEO, and potentially one or two other board members or management members, will have an informal meeting with London-based shareholders so that they will have a possibility to ask their questions. This has worked very well. I can tell you that the attendance went up from the last meeting for this informal meeting in London, and there was a lively discussion of a few hours, and it was commended by the participants. We feel we might have done something right in that decision.
Thank you, Jer.
Thank you so much. Once again, my compliments. Mr. Van Beurden, I wish you all the best in your leadership of this wonderful company.
Next comment, please. Next question.
My name is Fred Heineman. Dutch Shell is involved in a lot of operations worldwide and also in faraway countries, just like Nigeria, Angola, and so on. The auditors in faraway countries, are they all members of the Big Four? In order that the procedures and the techniques are very much the same which they are applying, or is Royal Dutch Shell also employing local auditors whose work perhaps in faraway countries is a little bit doubtful? That's my question.
Simon Henry is perhaps the best to answer this question.
I can assure you that both PwC and EY have global capabilities. They use their own staff wherever we operate. In practice, most of our audit work now is done through our finance operation centers, which are in Chennai, Manila, KL, a little bit in Cape Town and Glasgow as well. A lot of that work is done in those centers, and it is done by qualified professionals, and we don't use local companies. Thank you.
Thank you too.
Thank you. Thank you very much. In case there are no other questions that want to be raised, I now want to suggest we move to seeing the proxy vote numbers that have been submitted to the meeting. We have for the Resolution 14, 97.9%, and the Resolution 15, 99.9% support, with your votes being added, giving them the final numbers. We note that and move to the Resolution 16 concerning allotment of shares. Under the Companies Act 2006, the directors are subject to certain exceptions, unable to allot shares without the authority of the shareholders. This resolution therefore seeks authority to allow the directors to allot ordinary shares up to an aggregate nominal value of EUR 147 million, which represents approximately one-third of the company's issued share capital. This authority will comply with the guidelines issued by the institutional investors.
I propose that the Resolution 16, ordinary resolution, as set out in the notice of the meeting, be approved. If no comments, I suggest we move to proxy votes. 97.5%. Thank you. I expect your votes being added then will give us an equally strong support. Thank you. Moving on to Resolution Number 17. This application of pre-emption rights. This is a special resolution, means that we need 75% majority for approval. If passed, it will allow the company to allot a certain number of shares without first offering them to the existing shareholders. Under the Companies Act 2006, when the new shares are allotted, they must first be offered to the existing shareholders pro rata to their holdings. This resolution allows the directors to allot shares as if the pre-emption right of Section 561 did not apply.
In accordance with institutional investor guidelines, the amount of shares to be issued for cash, other than in connection with a rights issue or other pre-emptive offer, is restricted to 5%. A maximum of 5% with the director's mandate allow this resolution of the existing issued share capital. I propose that this Resolution Number 17, a special resolution, as set out in the notice of the meeting, be approved. Can we move ahead? No comments, questions? Thank you.