My colleagues on both the Board of Directors and the Executive Committee recognise how important it is to keep shareholders informed of Shell’s latest developments and we regularly communicate with them on strategy and performance. To aid investors in their analysis of Royal Dutch Shell, we publish this Investors’ Handbook: a compilation of five years’ worth of financial and operational information.
But any analysis of the Company’s potential return must first be put into context. The current macroeconomic environment is uncertain and the global economy is likely to see continued high volatility in the coming years. Energy markets have been affected by unprecedented geopolitical events, such as the earthquake in Japan, the eurozone debt crisis and the Arab Spring. At the same time, rapid economic development in non-OECD countries is creating robust structural growth in energy demand. By 2030 global oil and gas demand could be 40% greater than it is today. This growth equates to seven times the current North Sea production. To meet that future demand will require a huge industry investment. The declining production of many traditional petroleum provinces makes the challenge all the more difficult. The industry has to grow production from new fields to more than offset the natural production declines of the old.
As a result, intense competition exists for access to upstream resources and new downstream markets. But we believe our technology, project-delivery capability and operational excellence will remain key differentiators for Shell. As energy projects become more complex and more technically demanding, we believe our engineering expertise will be a deciding factor in the growth of our businesses. Innovation and a competitive mindset will also be crucial to our success.
We have delivered the strategic drivers that made it possible for us to reach our latest performance targets: cost reduction, continual operational improvements and 16 successful project start-ups. Those achievements allowed us to offer some $10.5 billion of dividends in 2011, which is the largest dividend in our sector and more than 10% of the entire dividend payout of the FTSE 100. Our improving financial position also allows for a measured increase in both our investment levels and cash returns to shareholders in 2012. Over time, our performance is reflected in the returns we generate for our shareholders not only in terms of dividends we pay but also in the value of Royal Dutch Shell shares.
Shell has built up a substantial portfolio of options for the next wave of production growth up to the end this decade. This portfolio has been designed to capture energy price upside and manage Shell’s exposure to industry challenges, such as cost inflation and political risk. We see significant opportunities in both greenfield exploration and established resource positions in the Gulf of Mexico, North American tight gas, liquids-rich shales and Australian LNG. Shell is working to mature these opportunities into viable projects, with an emphasis on financial returns. Our net spending in 2012 is expected to be $30 billion to support our growth programme for the medium term, with over 60 new projects under construction or in design. This investment is based on new cash-flow targets of up to $200 billion excluding working capital for 2012–15 assuming $100 oil prices, improved US gas prices and downstream environment from 2011.
I hope you will find plenty of support for these encouraging plans in the Investors’ Handbook.
Peter Voser
Chief Executive Officer
