28th Apr 2010 07:00
ROYAL DUTCH SHELL PLC
1ST QUARTER 2010 UNAUDITED RESULTS
* Royal Dutch Shell's first quarter 2010 earnings, on a current cost of
supplies (CCS) basis, were $4.9 billion compared to $3.3 billion a year
ago. Basic CCS earnings per share increased by 48% versus the same quarter
a year ago.
* First quarter 2010 CCS earnings, excluding identified items (see page 5),
were $4.8 billion compared to $3.0 billion in the first quarter 2009, an
increase of 60%.
* Cash flow from operating activities for the first quarter 2010 was $4.8
billion. Excluding net working capital movements, cash flow from operating
activities in the first quarter 2010 was $10.4 billion.
* Net capital investment for the quarter was $6.2 billion. Total dividends
paid to shareholders during the first quarter 2010 were $2.6 billion. * Gearing at the end of the first quarter 2010 was 17.1%. * A first quarter 2010 dividend has been announced of $0.42 per ordinary share.SUMMARY OF UNAUDITED RESULTS $ million Quarters Q1 2010 Q4 2009 Q1 2009 %1 Upstream 4,415 2,536 2,184 Downstream 743 (1,762) 1,003
Corporate and Minority interest (261) 403 110
CCS earnings 4,897 1,177 3,297 +49
Estimated CCS adjustment for Downstream (see
Note 2) 584 784 191
Income attributable to shareholders 5,481 1,961 3,488 +57
Basic CCS earnings per share ($) 0.80 0.19 0.54
+48
Estimated CCS adjustment per share ($) 0.09 0.13 0.03
Basic earnings per share ($) 0.89 0.32 0.57 +56
Cash flow from operating activities 4,782 5,660 7,559 -37
Cash flow from operating activities per
share ($) 0.78 0.92 1.23 -37 Dividend per share ($) 0.42 0.42 0.42 - 1 Q1 on Q1 change
Royal Dutch Shell Chief Executive Officer Peter Voser commented:
"Our results have improved considerably compared with year-ago levels, and ourprofitability has increased from the low levels we saw in the fourth quarter2009. This has been driven by higher energy prices, operational and productionperformance and Shell's growth programmes.We are making good progress in improving our near-term performance, deliveringa new wave of production growth and maturing next generation project options.Our results reflected the successful ramp-up of our new upstream projects inRussia and Brazil, supporting a 6% increase in our production volumes and a 38%increase in sales volumes, in our industry-leading LNG business.
Downstream asset sales programmes are on track, with an exit from New Zealand completed, and further disposals in hand. We are making good progress with plans to reduce costs by $1 billion in 2010, and embedding the culture of continuous improvement, commerciality and cost control in our day-to-day activities.
We are in a delivery window for new growth. In the Gulf of Mexico, we recentlyhad a successful start-up of the 100,000 barrels of oil equivalent per day(boe/d) Perdido spar, and we commenced production at the Shell EasternPetrochemicals project in Singapore. These two start-ups are part of a sequenceof 13 new projects that are planned to come on stream in 2010-11 and underpinour growth targets to 2012.Looking to new longer-term opportunities, we have been busy in 2010, generatingsome interesting new positions. Shell's explorers have made 3 new explorationdiscoveries in the US Gulf of Mexico, and we have entered into new tight andshale gas acreage in China. In Australia, we have agreed to purchase ArrowEnergy Limited, with our partner PetroChina, where we see potential for a 7 to8 million tonnes per year LNG project, sourced from coal bed methane. InDownstream, we have signed a non-binding Memorandum of Understanding to mergeour Brazilian portfolio and selected next generation biofuels technologies withCosan S.A., which would create a leading Brazilian downstream and biofuelscompany.There are mixed signals for the near-term outlook. So far in 2010, oil priceshave remained firm, and demand for petrochemicals has increased, but refiningmargins, oil products demand and spot gas prices all remain under pressure.Although there are signs of an improving economic outlook, we are not relyingon it, we are continuing with our focus on cash flow growth, underpinned by newproject start-ups and lower costs."
Voser concluded: "I am pleased with the results in the first quarter 2010, which were largely driven by our own actions. The priorities are for a more competitive performance, for growth, and for sharper delivery of strategy. There is more to come from Shell."
FIRST QUARTER 2010 PORTFOLIO DEVELOPMENTS
Upstream
In Australia, Shell has entered into an agreement (Shell share 50%) with ArrowEnergy Limited (Arrow) for the proposed acquisition, together with our partnerPetroChina, of all of the shares in Arrow, representing a total considerationof some $3.2 billion. The offer is subject to regulatory and Arrow'sshareholder approval.In China, Shell and PetroChina, announced plans to appraise, develop andproduce tight gas under a 30-year production sharing contract in an area ofapproximately 4,000 square kilometres in the Jinqiu block of central SichuanProvince. In addition, shale gas assessment work commenced in January 2010 inthe Fushun block that covers another area of also approximately 4,000 squarekilometres.
In Nigeria, subject to approvals, Shell agreed to sell its 30% interest in three production leases (oil mining leases 4, 38 and 41) and related equipment in the Niger Delta to a consortium led by two Nigerian companies.
In the USA, at the end of the first quarter 2010, Shell produced its first oiland natural gas from the Perdido Development (Shell share 35.4%), in the deepwater Gulf of Mexico. The project is expected to ramp up to expected annualpeak production of more than 100 thousand barrels of oil equivalent per day(boe/d).During the first quarter 2010, Shell participated in 3 exploration discoveries,and one appraisal, all in the US Gulf of Mexico. Shell also increased itsoverall acreage position, completing acquisitions of new exploration licencesin Egypt, French Guiana, Pakistan, Tunisia and the USA, and was the apparenthigh bidder for new licences in the US Gulf of Mexico.
Downstream
In Brazil, Shell has signed a non-binding Memorandum of Understanding (MoU),with the intention to form a joint venture (Shell share 50%) for the productionof ethanol, sugar and power, and the supply, distribution and retail oftransportation fuels. Under the terms of the MoU, Shell will contribute itsDownstream assets in Brazil (excluding lubricants) and a total payment of $1.6billion.In New Zealand, on April 1, 2010, Shell concluded the sale of its downstreambusiness, including its 17.1% shareholding in the 104 thousand barrels per dayrefinery at Marsden Point, for a total amount of some $0.5 billion plus aworking capital adjustment.In Singapore, Shell announced the successful start-up of the ethylene crackerat its Shell Eastern Petrochemicals Complex project. The 100% Shell-ownedethylene cracker complex has a capacity of 800,000 tonnes of ethylene perannum, as well as 450,000 tonnes of propylene and 230,000 tonnes of benzene perannum.
KEY FEATURES OF THE FIRST QUARTER 2010
* First quarter 2010 CCS earnings were $4,897 million, 49% higher than in the
same quarter a year ago.
* First quarter 2010 CCS earnings, excluding identified items (see page 5),
were $4,822 million compared to $3,010 million in the first quarter 2009.
* First quarter 2010 reported earnings were $5,481 million compared to $3,488
million in the same quarter a year ago. * Basic CCS earnings per share increased by 48% versus the same quarter a year ago. * Cash flow from operating activities for the first quarter 2010 was $4.8
billion, compared to $7.6 billion in the same quarter last year. Excluding
net working capital movements, cash flow from operating activities in the
first quarter 2010 was $10.4 billion. * Total dividends paid to shareholders during the first quarter 2010 were $2.6 billion.
* Capital investment for the first quarter 2010 was $6.6 billion. Net capital
investment (capital investment, less divestment proceeds) for the first
quarter 2010 was $6.2 billion.
* Return on average capital employed (ROACE), on a reported income basis (see
Note 3), was 9.2%.
* Gearing was 17.1% at the end of the first quarter 2010 versus 6.6% at the
end of the first quarter 2009.
Upstream
* Oil and gas production for the first quarter 2010 was 3,594 thousand boe/d,
6% higher than in the first quarter 2009. Production for the first quarter
2010 excluding the impact of divestments, production sharing contracts
(PSC) pricing effects and OPEC quota restrictions was 6% higher compared to
the same period last year.
Underlying production in the first quarter 2010 increased by some 200 thousand
boe/d from new field start-ups and the continuing ramp-up of fields, more than
offsetting the impact of natural field declines.
* LNG sales volumes of 4.23 million tonnes in the first quarter 2010 were 38%
higher than in the same quarter a year ago.
Downstream
* Oil Products sales volumes were 2% higher than in the first quarter 2009.
Chemical product sales volumes in the first quarter 2010 increased by 11%
compared to the first quarter 2009.
* Oil Products refinery availability was 89% compared to 92% in the first
quarter 2009. Chemicals manufacturing plant availability was 91%, slightly
lower than in the first quarter 2009.
* Supplementary financial and operational disclosure for the first quarter
2010 is available at www.shell.com/investor .
SUMMARY OF IDENTIFIED ITEMS
Earnings in the first quarter 2010 reflected the following items, which in aggregate amounted to a net gain of $75 million (compared to a net gain of $287 million in the first quarter 2009), as summarised in the table below:
* Upstream earnings included a net gain of $110 million, reflecting a gain
related to the estimated fair value accounting of commodity derivatives
(see Note 7), a divestment gain and a gain related to the mark-to-market
valuation of certain gas contracts, which were partly offset by tax
charges. Earnings for the first quarter 2009 included a net gain of $330
million. * Downstream earnings included a net charge of $35 million, reflecting an asset impairment charge and asset restructuring provisions, which were partly offset by a divestment gain. Earnings for the first quarter 2009 included a net charge of $205 million. * Corporate earnings and Minority interest for the first quarter 2009 included a gain of $162 million.SUMMARY OF IDENTIFIED ITEMS $ million Quarters Q1 2010 Q4 2009 Q1 2009
Segment earnings impact of identified items:
Upstream 110 (226) 330 Downstream (35) (1,335) (205)
Corporate and Minority interest - (36) 162
CCS earnings impact 75 (1,597) 287 These identified items generally relate to events with an impact of more than$50 million on Royal Dutch Shell's earnings and are shown to provide additionalinsight into its segment earnings, CCS earnings and income attributable toshareholders. Further additional comments on the business segments are providedin the section 'Earnings by Business Segment' on page 6 and onwards.EARNINGS BY BUSINESS SEGMENTUPSTREAM $ million Quarters Q1 2010 Q4 2009 Q1 2009 %1 Upstream earnings 4,415 2,536 2,184 +102
Upstream cash flow from operations 7,726 5,983 5,778
+34 Net capital investment 5,482 5,947 5,836 -6
Crude oil production (thousand b/d) 1,733 1,703 1,716
+1
Natural gas production available for sale
(million scf/d) 10,795 9,379 9,681 +12
Barrels of oil equivalent (thousand boe/d) 3,594 3,320 3,385 +6
LNG sales volumes (million tonnes) 4.23 3.96 3.06
+38 1 Q1 on Q1 change First quarter Upstream earnings were $4,415 million compared to $2,184 milliona year ago. Earnings included a net gain of $110 million related to identifieditems, compared to a net gain of $330 million in the first quarter 2009 (seepage 5).
Upstream earnings compared to the first quarter 2009 reflected the effect of higher realised oil prices on revenues, increased oil and natural gas production volumes and significantly improved LNG sales volumes, which were partly offset by the impact of lower realised natural gas prices and higher royalty expenses compared to the first quarter 2009.
First quarter 2010 oil prices increased compared to the first quarter 2009,although the benefit from higher realised oil prices on the first quarter 2010earnings was partly offset by the effect of lower realised natural gas prices,especially in Europe.Global liquids realisations were 74% higher than in the first quarter 2009.Global gas realisations were 15% lower than in the same quarter a year ago. Inthe Americas, gas realisations increased by 22% whereas outside the Americas,gas realisations decreased by 21%, with European gas realisations down 29%compared to the same quarter last year, mainly due to contractual laggingoil-price indexation effects.
First quarter 2010 production was 3,594 thousand boe/d compared to 3,385 thousand boe/d a year ago. Crude oil production was up 1% and natural gas production increased by 12% compared to the first quarter 2009.
First quarter 2010 underlying production increased by some 200 thousand boe/d,driven by new field start-ups and ramp-ups of fields, which more than offsetthe impact of natural field declines, compared to the first quarter 2009.Production was boosted by the successful ramp-ups of the Sakhalin II project inRussia and Parque das Conchas (BC-10) in Brazil, which are both producing aboveplanned rates, and contributed some 120 thousand boe/d.
LNG sales volumes of 4.23 million tonnes were 38% higher than in the same quarter a year ago, reflecting the successful ramp-up in sales volumes from Sakhalin II LNG and improved volumes from Nigeria LNG.
DOWNSTREAM $ million Quarters Q1 2010 Q4 2009 Q1 2009 %1 Downstream CCS earnings 743 (1,762) 1,003 -26
Estimated CCS adjustment (see Note 2) 584 810 196
Downstream earnings 1,327 (952) 1,199 +11
Downstream cash flow from operations (2,841) 2,243 410
- Net capital investment 687 1,208 940 -27
Refinery plant intake (thousand b/d) 2,998 2,986 3,153
-5
Oil Products sales volumes (thousand b/d) 6,163 6,296 6,029 +2
Chemicals sales volumes (thousand tonnes) 4,769 4,835 4,294 +11 1 Q1 on Q1 change
First quarter Downstream CCS earnings were $743 million compared to $1,003 million in the first quarter 2009. Earnings included a net charge of $35 million related to identified items, compared to a net charge of $205 million in the first quarter 2009 (see page 5).
Downstream CCS results compared to the first quarter 2009 reflected lower realised refining margins, lower refinery plant intake volumes and lower marketing contributions, which were partly offset by improved Chemicals sales volumes and earnings.
Oil Products marketing CCS earnings decreased compared to the same period a year ago due to reduced trading contributions and lower B2B earnings. These were partly offset by higher sales volumes, which increased by 2% compared to the first quarter 2009, and improved retail and lubricants contributions, mainly due to higher margins.
Industry refining margins declined significantly worldwide compared to the sameperiod a year ago, impacting realised refining margins. Refinery plant intakevolumes decreased by 5% compared to the same quarter last year, reflectingreduced demand for refined products and lower plant utilisation due to plannedand unplanned maintenance work.
Refinery availability was 89% compared to 92% in the first quarter 2009.
Chemicals CCS earnings were $313 million compared to a loss of $74 million in the first quarter 2009 reflecting increased sales volumes, higher realised chemicals margins and improved income from equity-accounted investments.
Chemicals sales volumes increased by 11% compared to the same quarter last year. Chemicals manufacturing plant availability was 91% compared to 92% in the first quarter 2009.
Downstream cash flow from operating activities for the first quarter 2010 was adeficit of $2.8 billion. Excluding net working capital movements, Downstreamcash flow from operating activities in the first quarter 2010 was $2.2 billion.CORPORATE AND MINORITY INTEREST
$ million Quarters Q1 2010 Q4 2009 Q1 2009 Corporate1 (176) 427 133 Minority interest (85) (24) (23)
Corporate and Minority interest (261) 403 110
1 See Note 4
Corporate results and Minority interest reduced earnings by $261 million in thefirst quarter 2010, compared to a contribution of $110 million in the sameperiod last year. Earnings for the first quarter 2009 included a gain of $162million (see page 5).
Corporate earnings compared to the first quarter 2009 mainly reflected increased net interest expense and currency exchange charges.
FORTHCOMING EVENTS
Second quarter 2010 results and second quarter 2010 dividend are scheduled to be announced on July 29, 2010. Third quarter 2010 results and third quarter 2010 dividend are scheduled to be announced on October 28, 2010. The 2010Annual General Meeting will be held on May 18, 2010.
APPENDIX: ROYAL DUTCH SHELL FINANCIAL REPORT AND TABLES
STATEMENT OF INCOME4 $ million Quarters Q1 2010 Q4 2009 Q1 2009 %1 Revenue 86,062 81,075 58,222
Share of profit of equity-accounted investments 1,646 1,767 928
Interest and other income2 317 577 291
Total revenue and other income 88,025 83,419 59,441
Purchases3 65,001 60,879 40,288
Production and manufacturing expenses 5,187 7,382 5,942 Selling, distribution and administrative
expenses 4,093 5,532 3,649 Research and development 214 331 207 Exploration 377 669 348
Depreciation, depletion and amortisation 2,926 3,748 3,090
Interest expense 261 4 183 Income before taxation 9,966 4,874 5,734 +74 Taxation 4,400 2,863 2,218 Income for the period 5,566 2,011 3,516 +58
Income attributable to minority interest 85 50 28 Income attributable to Royal Dutch Shell plc
shareholders 5,481 1,961 3,488 +57
Estimated CCS adjustment for Downstream (584) (784) (191)
CCS earnings 4,897 1,177 3,297 +49 BASIC EARNINGS PER SHARE4 Quarters Q1 2010 Q4 2009 Q1 2009 Earnings per share ($) 0.89 0.32 0.57 CCS earnings per share ($) 0.80 0.19 0.54 DILUTED EARNINGS PER SHARE4 Quarters Q1 2010 Q4 2009 Q1 2009 Earnings per share ($) 0.89 0.32 0.57 CCS earnings per share ($) 0.80 0.19 0.54 SHARES4,5 Millions Q1 2010 Q4 2009 Q1 2009
Weighted average number of shares as the basis
for: Basic earnings per share 6,126.5 6,124.3 6,121.6 Diluted earnings per share 6,132.8 6,132.0 6,124.5
Basic shares outstanding at the end of the
period 6,126.9 6,122.3 6,124.9 1 Q1 on Q1 change.
2 Includes gains/(losses) on sale of assets. 3 Includes inventory movements. 4 See Notes 1, 2 and 6, where applicable. 5 Royal Dutch Shell plc ordinary shares of euro 0.07 each. SUMMARISED BALANCE SHEET (SEE NOTES 1 AND 5)
$ million March 31, March 31, 2010 Dec 31, 2009 2009 Assets Non-current assets: Intangible assets 5,296 5,356 4,961
Property, plant and equipment 133,669 131,619 113,255 Equity-accounted investments 31,751 31,175 28,516
Investments in securities 3,832 3,874 4,092 Deferred tax 4,563 4,533 3,464 Pre-paid pension costs 9,705 10,009 5,575 Other 8,350 9,158 6,976 197,166 195,724 166,839 Current assets: Inventories 28,714 27,410 21,404 Accounts receivable 62,874 59,328 77,116 Cash and cash equivalents 8,448 9,719 15,961 100,036 96,457 114,481 Total assets 297,202 292,181 281,320 Liabilities Non-current liabilities: Debt 34,889 30,862 18,341 Deferred tax 14,184 13,838 12,778
Retirement benefit obligations 5,925 5,923 5,463
Other provisions 13,535 14,048 12,444 Other 4,579 4,586 3,642 73,112 69,257 52,668 Current liabilities: Debt 2,422 4,171 6,693
Accounts payable and accrued liabilities 65,603 67,161 81,554
Taxes payable 12,504 9,189 9,849
Retirement benefit obligations 405 461 386
Other provisions 3,419 3,807 2,229 84,353 84,789 100,711 Total liabilities 157,465 154,046 153,379
Equity attributable to Royal Dutch Shell
plc shareholders 138,010 136,431 126,434 Minority interest 1,727 1,704 1,507 Total equity 139,737 138,135 127,941 Total liabilities and equity 297,202 292,181 281,320
SUMMARISED STATEMENT OF CASH FLOWS (SEE NOTE 1)
$ million Quarters Q1 2010 Q4 2009 Q1 2009
Cash flow from operating activities:
Income for the period 5,566 2,011 3,516 Adjustment for: - Current taxation 4,114 3,409 1,844 - Interest (income)/expense 231 390 330
- Depreciation, depletion and amortisation 2,926 3,748 3,090 - Net (gains)/losses on sale of assets (223) (415) (147) - Decrease/(increase) in net working capital (5,630) 1,253 (365) - Share of profit of equity-accounted
investments (1,646) (1,767) (928)
- Dividends received from equity-accounted
investments 1,544 1,691 977
- Deferred taxation and other provisions 293 (938) 365
- Other 347 (421) 141
Cash flow from operating activities
(pre-tax) 7,522 8,961 8,823 Taxation paid (2,740) (3,301) (1,264)
Cash flow from operating activities 4,782 5,660 7,559 Cash flow from investing activities:
Capital expenditure (5,247) (7,506) (5,985)
Investments in equity-accounted investments (625) (653) (436)
Proceeds from sale of assets 366 520 204
Proceeds from sale of equity-accounted
investments 31 1,146 17
(Additions to)/proceeds from sale of
securities (7) (37) 6 Interest received 38 96 101
Cash flow from investing activities (5,444) (6,434) (6,093)
Cash flow from financing activities: Net (decrease)/increase in debt with
maturity period within three months 150 (816) (3,588) Other debt: New borrowings 4,207 461 6,884 Repayments (1,947) (477) (1,386) Interest paid (518) (292) (262) Change in minority interest (12) 20 12 Dividends paid to: - Royal Dutch Shell plc shareholders (2,555) (2,613) (2,405) - Minority interest (39) (27) (30) Treasury shares:
- Net sales/(purchases) and dividends
received 118 (43) 136
Cash flow from financing activities (596) (3,787) (639) Currency translation differences relating to
cash and cash equivalents (13) 5 (54)
(Decrease)/increase in cash and cash
equivalents (1,271) (4,556) 773
Cash and cash equivalents at beginning of
period 9,719 14,275 15,188
Cash and cash equivalents at end of period 8,448 9,719 15,961 EQUITY (SEE NOTE 5) Ordinary share capital Treasury Other Retained Minority Total $ million shares reserves earnings Total interest equity At December 31, 2009 527 (1,711) 9,982 127,633 136,431 1,704 138,135 Income for the period - - - 5,481 5,481 85 5,566 Other comprehensive income - - (1,619) - (1,619) (5) (1,624) Capital contributions/ (repayments) from/ to minority shareholders and other changes in minority interest - - - - - (18) (18) Dividends paid - - - (2,555) (2,555) (39) (2,594) Treasury shares: net sales/ (purchases) and dividends received - 295 - - 295 - 295 Share-based compensation - - (145) 122 (23) - (23) At March 31, 2010 527 (1,416) 8,218 130,681 138,010 1,727 139,737 Ordinary share Treasury Other Retained Minority Total $ million capital shares reserves earnings Total interest equity At December 31, 2008 527 (1,867) 3,178 125,447 127,285 1,581 128,866 Income for the period - - - 3,488 3,488 28 3,516 Other comprehensive income - - (2,072) - (2,072) (84) (2,156) Capital contributions/ (repayments) from/ to minority shareholders and other changes in minority interest - - - - 12 12 Dividends paid - - - (2,405) (2,405) (30) (2,435) Treasury shares: net sales/ (purchases) and dividends received - 136 - - 136 - 136 Share-based compensation - - (57) 59 2 - 2 At March 31, 2009 527 (1,731) 1,049 126,589 126,434 1,507 127,941 Contacts:
* Investor Relations: Europe: + 31 (0)70 377 4540; USA: +1 713 241 1042
* Media: Europe: + 31 (0)70 377 3600
EXPLANATORY NOTES
1. Accounting policies and basis of presentation
The quarterly financial report and tables are prepared in accordance with theaccounting policies set out in Note 2 to the Consolidated Financial Statementsof Royal Dutch Shell plc in the Annual Report and Form 20-F for the year endedDecember 31, 2009 on pages 101 to 106. The accounting policies are inaccordance with IFRS as adopted by the European Union.With effect from January 1, 2010, acquisitions and divestments are accountedfor in accordance with revised IFRS 3 Business Combinations and IAS 27Consolidated and Separate Financial Statements. The revised standards applywith prospective effect to the acquisition of a business or for certain typesof transactions involving an additional investment of a partial disposal,requiring for example the recognition in income of certain transaction costs,the recognition at fair value of contingent consideration payable and there-measurement of existing interests held or retained. The exact impact dependson the individual transaction concerned, with potentially different amountsbeing recognised in the Consolidated Financial Statements than would previouslyhave been the case.
2. Earnings on an estimated current cost of supplies (CCS) basis
To facilitate a better understanding of underlying business performance, thefinancial results are also analysed on an estimated current cost of supplies(CCS) basis as applied for the Downstream segment earnings. Earnings on anestimated current cost of supplies basis provides useful information concerningthe effect of changes in the cost of supplies on Shell's results of operationsand is a measure to manage the performance of the Downstream segment but is nota measure of financial performance under IFRS.On this basis, the purchase price of the volumes sold during the period isbased on the estimated current cost of supplies during the same period aftermaking allowance for the estimated tax effect, instead of the first-in,first-out (FIFO) method of inventory accounting. Earnings calculated on thisbasis do not represent an application of the last-in, first-out (LIFO)inventory basis and do not reflect any inventory drawdown effects.
3. Return on average capital employed (ROACE)
ROACE is defined as the sum of the current and previous three quarters' income adjusted for interest expense, after tax, divided by the average capital employed for the period.
4. Segmental reporting
Upstream and Downstream results are presented before deduction of minority interest and also exclude interest and other income of a non-operational nature, interest expense, non-trading currency exchange effects and tax on these items, which are included in the Corporate results.
5. Equity
Total equity comprises equity attributable to Royal Dutch Shell plcshareholders and to minority interest. Other reserves comprise the capitalredemption reserve, share premium reserve, merger reserve, share plan reserveand other accumulated comprehensive income (currency translation differences,unrealised gains/(losses) on securities and unrealised gains/(losses) on cashflow hedges).6. Earnings per share
Basic earnings per share is calculated by dividing the income attributable toRoyal Dutch Shell plc shareholders for the period by the weighted averagenumber of Class A and B ordinary shares outstanding during the period. Tocalculate the diluted earnings per share the weighted average number of sharesoutstanding is adjusted for the number of shares related to share optionschemes.
7. Impacts of Accounting for Derivatives
IFRS requires derivative instruments to be recognised in the financial statements at fair value. Any change in the current period between the period-end market price and the contract settlement price is recognised in income where hedge accounting is either not permitted or not applied to these contracts.
The physical crude oil and related products held by the Downstream business asinventory are recorded at historical cost or net realisable value, whichever islower, as required under IFRS. Consequently, any increase in value of theinventory over cost is not recognised in income until the sale of the commodityoccurs in subsequent periods.
In the Downstream business, the buying and selling of commodities includes transactions conducted through the forward markets using commodity derivatives to reduce economic exposure. Some derivatives are associated with a future physical delivery of the commodities.
Differences in the accounting treatment for physical inventory (at cost or net realisable value, whichever is lower) and derivative instruments (at fair value) have resulted in timing differences in the recognition of gains or losses between reporting periods.
Similarly, earnings from long-term contracts held in the Upstream business are recognised in income upon realisation. Associated commodity derivatives are recognised at fair value as of the end of each quarter.
These differences in accounting treatment for long-term contracts (on accrual basis) and derivative instruments (at fair value) have resulted in timing differences in the recognition of gains or losses between the reporting periods.
The aforementioned timing differences for Downstream and Upstream are reportedas identified items in the quarterly results and are estimates derived from theoverall portfolio of derivatives.
Certain UK gas contracts held by Upstream contain embedded derivatives or written options, for which IFRS requires recognition at fair value, even though they are entered into for operational purposes. The impact of the mark-to-market calculation is also reported as an identified item in the quarterly results.
CAUTIONARY STATEMENT
All amounts shown throughout this Report are unaudited.
Second quarter 2010 results and second quarter 2010 dividend, are scheduled to be announced on July 29, 2010. Third quarter 2010 results and third quarter 2010 dividend, are scheduled to be announced on October 28, 2010. The 2010 Annual General Meeting will be held on May 18, 2010.
The companies in which Royal Dutch Shell plc directly and indirectly ownsinvestments are separate entities. In this document "Shell", "Shell group" and"Royal Dutch Shell" are sometimes used for convenience where references aremade to Royal Dutch Shell plc and its subsidiaries in general. Likewise, thewords "we", "us" and "our" are also used to refer to subsidiaries in general orto those who work for them. These expressions are also used where no usefulpurpose is served by identifying the particular company or companies.''Subsidiaries'', "Shell subsidiaries" and "Shell companies" as used in thisdocument refer to companies in which Royal Dutch Shell either directly orindirectly has control, by having either a majority of the voting rights or theright to exercise a controlling influence. The companies in which Shell hassignificant influence but not control are referred to as "associated companies"or "associates" and companies in which Shell has joint control are referred toas "jointly controlled entities". In this document, associates and jointlycontrolled entities are also referred to as "equity-accounted investments". Theterm "Shell interest" is used for convenience to indicate the direct and/orindirect (for example, through our 34% shareholding in Woodside Petroleum Ltd.)ownership interest held by Shell in a venture, partnership or company, afterexclusion of all third-party interest.This document contains forward-looking statements (within the meaning of theUnited States Private Securities Litigation Reform Act of 1995) concerning thefinancial condition, results of operations and businesses of Shell. Allstatements other than statements of historical fact are, or may be deemed tobe, forward-looking statements. Forward-looking statements are statements offuture expectations that are based on management's current expectations andassumptions and involve known and unknown risks and uncertainties that couldcause actual results, performance or events to differ materially from thoseexpressed or implied in these statements. Forward-looking statements include,among other things, statements concerning the potential exposure of Shell tomarket risks and statements expressing management's expectations, beliefs,estimates, forecasts, projections and assumptions. These forward lookingstatements are identified by their use of terms and phrases such as"anticipate", "believe", "could", "estimate", "expect", "goals", "intend","may", "objectives", "outlook", "plan", "probably", "project", "risks","scheduled", "seek", "should", "target", "will" and similar terms and phrases.There are a number of factors that could affect the future operations of Shelland could cause those results to differ materially from those expressed in theforward-looking statements included in this Report, including (withoutlimitation): (a) price fluctuations in crude oil and natural gas; (b) changesin demand for the Shell's products; (c) currency fluctuations; (d) drilling andproduction results; (e) reserve estimates; (f) loss of market share andindustry competition; (g) environmental and physical risks; (h) risksassociated with the identification of suitable potential acquisition propertiesand targets, and successful negotiation and completion of such transactions;(i) the risk of doing business in developing countries and countries subject tointernational sanctions; (j) legislative, fiscal and regulatory developmentsincluding regulatory measures as a result of climate changes; (k) economic andfinancial market conditions in various countries and regions; (l) politicalrisks, including the risks of expropriation and renegotiation of the terms ofcontracts with governmental entities, delays or advancements in the approval ofprojects and delays in the reimbursement for shared costs; and (m) changes intrading conditions. Additional factors that may affect future results arecontained in Shell's Annual Report and Form 20-F for the year ended December31, 2009 (available at www.shell.com/investors and www.sec.gov ). These factorsshould also be considered by the reader. All forward-looking statementscontained in this document are expressly qualified in their entirety by thecautionary statements contained or referred to in this section. Readers shouldnot place undue reliance on forward-looking statements. Each forward-lookingstatement speaks only as of the date of this document, April 28, 2010. NeitherRoyal Dutch Shell plc nor any of its subsidiaries undertake any obligation topublicly update or revise any forward-looking statement as a result of newinformation, future events or other information. In light of these risks,results could differ materially from those stated, implied or inferred from theforward-looking statements contained in this document.The United States Securities and Exchange Commission (SEC) permits oil and gascompanies, in their filings with the SEC, to disclose only proved reserves thata company has demonstrated by actual production or conclusive formation teststo be economically and legally producible under existing economic and operatingconditions. We use certain terms in this document that SEC's guidelinesstrictly prohibit us from including in filings with the SEC. U.S. Investors areurged to consider closely the disclosure in our Form 20-F, File No 1-32575,available on the SEC website www.sec.gov. You can also obtain these forms fromthe SEC by calling 1-800-SEC-0330.
April 28, 2010
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